Subchapter B—Computation of Taxable Income
Editorial Notes
Amendments
1982—
1977—
1976—
1962—
1 Part heading amended by
PART I—DEFINITION OF GROSS INCOME, ADJUSTED GROSS INCOME, TAXABLE INCOME, ETC.
Editorial Notes
Amendments
1990—
1986—
1984—
1980—
1976—
§61. Gross income defined
(a) General definition
Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items:
(1) Compensation for services, including fees, commissions, fringe benefits, and similar items;
(2) Gross income derived from business;
(3) Gains derived from dealings in property;
(4) Interest;
(5) Rents;
(6) Royalties;
(7) Dividends;
(8) Annuities;
(9) Income from life insurance and endowment contracts;
(10) Pensions;
(11) Income from discharge of indebtedness;
(12) Distributive share of partnership gross income;
(13) Income in respect of a decedent; and
(14) Income from an interest in an estate or trust.
(b) Cross references
For items specifically included in gross income, see part II (sec. 71 and following). For items specifically excluded from gross income, see part III (sec. 101 and following).
(Aug. 16, 1954, ch. 736,
Editorial Notes
Amendments
2017—Subsec. (a)(8) to (15).
1984—Subsec. (a)(1).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
"(1) any divorce or separation instrument (as defined in section 71(b)(2) of the Internal Revenue Code of 1986 as in effect before the date of the enactment of this Act [Dec. 22, 2017]) executed after December 31, 2018, and
"(2) any divorce or separation instrument (as so defined) executed on or before such date and modified after such date if the modification expressly provides that the amendments made by this section apply to such modification."
Effective Date of 1984 Amendment
Amendment by
Termination Date of 1978 Amendment
Regulations
"(a)
"(1) in final form on or after May 1, 1978, and on or before December 31, 1983, or
"(2) in proposed or final form on or after May 1, 1978, if such regulation has an effective date on or before December 31, 1983.
"(b)
No Gain Recognized From Net Gifts Made Before March 4, 1981
"(a)
"(b)
"(1) the tax imposed by
"(2) any tax imposed by a State (or the District of Columbia) on transfers by gifts.
"(c)
Payment-in-Kind Tax Treatment Act of 1983
"SECTION 1. SHORT TITLE.
"This Act may be cited as the 'Payment-in-Kind Tax Treatment Act of 1983'.
"SEC. 2. INCOME TAX TREATMENT OF AGRICULTURAL COMMODITIES RECEIVED UNDER A 1983 PAYMENT-IN-KIND PROGRAM.
"(a)
"(1) a qualified taxpayer shall not be treated as having realized income when he receives a commodity under a 1983 payment-in-kind program,
"(2) such commodity shall be treated as if it were produced by such taxpayer, and
"(3) the unadjusted basis of such commodity in the hands of such taxpayer shall be zero.
"(b)
"SEC. 3. LAND DIVERTED UNDER 1983 PAYMENT-IN-KIND PROGRAM TREATED AS USED IN FARMING BUSINESS, ETC.
"(a)
"(1) such land shall be treated as used during the 1983 crop year by the qualified taxpayer in the active conduct of the trade or business of farming, and
"(2) any qualified taxpayer who materially participates in the diversion and devotion to conservation uses required under a 1983 payment-in-kind program shall be treated as materially participating in the operation of such land during such crop year.
"(b)
"(1) section 2032A of the Internal Revenue Code of 1986 (relating to valuation of certain farm, etc., real property),
"(2) section 6166 of such Code (relating to extension of time for payment of estate tax where estate consists largely of interest in closely held business),
"(3)
"(4) title II of the Social Security Act [
"SEC. 4. ANTIABUSE RULES.
"(a)
"(b)
"(1) by reason of the death of a qualified transferor,
"(2) by reason of a gift from a qualified transferor, or
"(3) from a qualified transferor who is a member of the family of the person acquiring the land.
"(c)
"(1)
"(A) who held the land on February 23, 1983, or
"(B) who acquired the land after February 23, 1983, in a qualified acquisition.
"(2)
"(3)
"(4)
"SEC. 5. DEFINITIONS AND SPECIAL RULES.
"(a)
"(1) 1983
"(A) under which the Secretary of Agriculture (or his delegate) makes payments in kind of any agricultural commodity to any person in return for—
"(i) the diversion of farm acreage from the production of an agricultural commodity, and
"(ii) the devotion of such acreage to conservation uses, and
"(B) which the Secretary of Agriculture certifies to the Secretary of the Treasury as being described in subparagraph (A).
"(2)
"(3)
"(4)
"(5)
"(6)
"(b)
"(1) any reference in this Act to the 1983 crop year shall include a reference to the 1984 crop year, and
"(2) any reference to the 1983 payment-in-kind program shall include a reference to any program for the 1984 year for wheat which meets the requirements of subparagraphs (A) and (B) of subsection (a)(1).
"(c)
[
Cancellation of Certain Student Loans
Regulations Relating to Tax Treatment of Certain Prepublication Expenditures of Publishers
"(a)
"(1) without regard to Revenue Ruling 73–395, and
"(2) in the manner in which such sections were applied consistently by the taxpayer to such expenditures before the date of the issuance of such revenue ruling.
"(b)
"(c)
Reimbursement of Moving Expenses of Employees of Certain Corporations Excluded From Gross Income; Claim for Refund or Credit; Limitations; Interest
§62. Adjusted gross income defined
(a) General rule
For purposes of this subtitle, the term "adjusted gross income" means, in the case of an individual, gross income minus the following deductions:
(1) Trade and business deductions
The deductions allowed by this chapter (other than by part VII of this subchapter) which are attributable to a trade or business carried on by the taxpayer, if such trade or business does not consist of the performance of services by the taxpayer as an employee.
(2) Certain trade and business deductions of employees
(A) Reimbursed expenses of employees
The deductions allowed by part VI (section 161 and following) which consist of expenses paid or incurred by the taxpayer, in connection with the performance by him of services as an employee, under a reimbursement or other expense allowance arrangement with his employer. The fact that the reimbursement may be provided by a third party shall not be determinative of whether or not the preceding sentence applies.
(B) Certain expenses of performing artists
The deductions allowed by section 162 which consist of expenses paid or incurred by a qualified performing artist in connection with the performances by him of services in the performing arts as an employee.
(C) Certain expenses of officials
The deductions allowed by section 162 which consist of expenses paid or incurred with respect to services performed by an official as an employee of a State or a political subdivision thereof in a position compensated in whole or in part on a fee basis.
(D) Certain expenses of elementary and secondary school teachers
The deductions allowed by section 162 which consist of expenses, not in excess of $250, paid or incurred by an eligible educator—
(i) by reason of the participation of the educator in professional development courses related to the curriculum in which the educator provides instruction or to the students for which the educator provides instruction, and
(ii) in connection with books, supplies (other than nonathletic supplies for courses of instruction in health or physical education), computer equipment (including related software and services) and other equipment, and supplementary materials used by the eligible educator in the classroom.
(E) Certain expenses of members of reserve components of the Armed Forces of the United States
The deductions allowed by section 162 which consist of expenses, determined at a rate not in excess of the rates for travel expenses (including per diem in lieu of subsistence) authorized for employees of agencies under subchapter I of
(3) Losses from sale or exchange of property
The deductions allowed by part VI (sec. 161 and following) as losses from the sale or exchange of property.
(4) Deductions attributable to rents and royalties
The deductions allowed by part VI (sec. 161 and following), by section 212 (relating to expenses for production of income), and by section 611 (relating to depletion) which are attributable to property held for the production of rents or royalties.
(5) Certain deductions of life tenants and income beneficiaries of property
In the case of a life tenant of property, or an income beneficiary of property held in trust, or an heir, legatee, or devisee of an estate, the deduction for depreciation allowed by section 167 and the deduction allowed by section 611.
(6) Pension, profit-sharing, and annuity plans of self-employed individuals
In the case of an individual who is an employee within the meaning of section 401(c)(1), the deduction allowed by section 404.
(7) Retirement savings
The deduction allowed by section 219 (relating to deduction of certain retirement savings).
[(8) Repealed. Pub. L. 104–188, title I, §1401(b)(4), Aug. 20, 1996, 110 Stat. 1788 ]
(9) Penalties forfeited because of premature withdrawal of funds from time savings accounts or deposits
The deductions allowed by section 165 for losses incurred in any transaction entered into for profit, though not connected with a trade or business, to the extent that such losses include amounts forfeited to a bank, mutual savings bank, savings and loan association, building and loan association, cooperative bank or homestead association as a penalty for premature withdrawal of funds from a time savings account, certificate of deposit, or similar class of deposit.
[(10) Repealed. Pub. L. 115–97, title I, §11051(b)(2)(A), Dec. 22, 2017, 131 Stat. 2089 ]
(11) Reforestation expenses
The deduction allowed by section 194.
(12) Certain required repayments of supplemental unemployment compensation benefits
The deduction allowed by section 165 for the repayment to a trust described in paragraph (9) or (17) of section 501(c) of supplemental unemployment compensation benefits received from such trust if such repayment is required because of the receipt of trade readjustment allowances under section 231 or 232 of the Trade Act of 1974 (
(13) Jury duty pay remitted to employer
Any deduction allowable under this chapter by reason of an individual remitting any portion of any jury pay to such individual's employer in exchange for payment by the employer of compensation for the period such individual was performing jury duty. For purposes of the preceding sentence, the term "jury pay" means any payment received by the individual for the discharge of jury duty.
[(14) Repealed. Pub. L. 113–295, div. A, title II, §221(a)(34)(C), Dec. 19, 2014, 128 Stat. 4042 ]
(15) Moving expenses
The deduction allowed by section 217.
(16) Archer MSAs
The deduction allowed by section 220.
(17) Interest on education loans
The deduction allowed by section 221.
[(18) Repealed. Pub. L. 116–260, div. EE, title I, §104(b)(2)(A), Dec. 27, 2020, 134 Stat. 3041 ]
(19) Health savings accounts
The deduction allowed by section 223.
(20) Costs involving discrimination suits, etc.
Any deduction allowable under this chapter for attorney fees and court costs paid by, or on behalf of, the taxpayer in connection with any action involving a claim of unlawful discrimination (as defined in subsection (e)) or a claim of a violation of subchapter III of
(21) Attorneys' fees relating to awards to whistleblowers
(A) In general
Any deduction allowable under this chapter for attorney fees and court costs paid by, or on behalf of, the taxpayer in connection with any award under—
(i) section 7623(b), or
(ii) in the case of taxable years beginning after December 31, 2017, any action brought under—
(I) section 21F of the Securities Exchange Act of 1934 (
(II) a State false claims act, including a State false claims act with qui tam provisions, or
(III) section 23 of the Commodity Exchange Act (
(B) May not exceed award
Subparagraph (A) shall not apply to any deduction in excess of the amount includible in the taxpayer's gross income for the taxable year on account of such award.
Nothing in this section shall permit the same item to be deducted more than once. Any deduction allowed by section 199A shall not be treated as a deduction described in any of the preceding paragraphs of this subsection.
(b) Qualified performing artist
(1) In general
For purposes of subsection (a)(2)(B), the term "qualified performing artist" means, with respect to any taxable year, any individual if—
(A) such individual performed services in the performing arts as an employee during the taxable year for at least 2 employers,
(B) the aggregate amount allowable as a deduction under section 162 in connection with the performance of such services exceeds 10 percent of such individual's gross income attributable to the performance of such services, and
(C) the adjusted gross income of such individual for the taxable year (determined without regard to subsection (a)(2)(B)) does not exceed $16,000.
(2) Nominal employer not taken into account
An individual shall not be treated as performing services in the performing arts as an employee for any employer during any taxable year unless the amount received by such individual from such employer for the performance of such services during the taxable year equals or exceeds $200.
(3) Special rules for married couples
(A) In general
Except in the case of a husband and wife who lived apart at all times during the taxable year, if the taxpayer is married at the close of the taxable year, subsection (a)(2)(B) shall apply only if the taxpayer and his spouse file a joint return for the taxable year.
(B) Application of paragraph (1)
In the case of a joint return—
(i) paragraph (1) (other than subparagraph (C) thereof) shall be applied separately with respect to each spouse, but
(ii) paragraph (1)(C) shall be applied with respect to their combined adjusted gross income.
(C) Determination of marital status
For purposes of this subsection, marital status shall be determined under section 7703(a).
(D) Joint return
For purposes of this subsection, the term "joint return" means the joint return of a husband and wife made under section 6013.
(c) Certain arrangements not treated as reimbursement arrangements
For purposes of subsection (a)(2)(A), an arrangement shall in no event be treated as a reimbursement or other expense allowance arrangement if—
(1) such arrangement does not require the employee to substantiate the expenses covered by the arrangement to the person providing the reimbursement, or
(2) such arrangement provides the employee the right to retain any amount in excess of the substantiated expenses covered under the arrangement.
The substantiation requirements of the preceding sentence shall not apply to any expense to the extent that substantiation is not required under section 274(d) for such expense by reason of the regulations prescribed under the 2nd sentence thereof.
(d) Definition; special rules
(1) Eligible educator
(A) In general
For purposes of subsection (a)(2)(D), the term "eligible educator" means, with respect to any taxable year, an individual who is a kindergarten through grade 12 teacher, instructor, counselor, principal, or aide in a school for at least 900 hours during a school year.
(B) School
The term "school" means any school which provides elementary education or secondary education (kindergarten through grade 12), as determined under State law.
(2) Coordination with exclusions
A deduction shall be allowed under subsection (a)(2)(D) for expenses only to the extent the amount of such expenses exceeds the amount excludable under section 135, 529(c)(1), or 530(d)(2) for the taxable year.
(3) Inflation adjustment
In the case of any taxable year beginning after 2015, the $250 amount in subsection (a)(2)(D) shall be increased by an amount equal to—
(A) such dollar amount, multiplied by
(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting "calendar year 2014" for "calendar year 2016" in subparagraph (A)(ii) thereof.
Any increase determined under the preceding sentence shall be rounded to the nearest multiple of $50.
(e) Unlawful discrimination defined
For purposes of subsection (a)(20), the term "unlawful discrimination" means an act that is unlawful under any of the following:
(1) Section 302 of the Civil Rights Act of 1991 (
(2) Section 201, 202, 203, 204, 205, 206, 207, or 208 of the Congressional Accountability Act of 1995 (
(3) The National Labor Relations Act (
(4) The Fair Labor Standards Act of 1938 (
(5) Section 4 or 15 of the Age Discrimination in Employment Act of 1967 (
(6) Section 501 or 504 of the Rehabilitation Act of 1973 (
(7) Section 510 of the Employee Retirement Income Security Act of 1974 (
(8) Title IX of the Education Amendments of 1972 (
(9) The Employee Polygraph Protection Act of 1988 (
(10) The Worker Adjustment and Retraining Notification Act (
(11) Section 105 of the Family and Medical Leave Act of 1993 (
(12)
(13) Section 1977, 1979, or 1980 of the Revised Statutes (
(14) Section 703, 704, or 717 of the Civil Rights Act of 1964 (
(15) Section 804, 805, 806, 808, or 818 of the Fair Housing Act (
(16) Section 102, 202, 302, or 503 of the Americans with Disabilities Act of 1990 (
(17) Any provision of Federal law (popularly known as whistleblower protection provisions) prohibiting the discharge of an employee, the discrimination against an employee, or any other form of retaliation or reprisal against an employee for asserting rights or taking other actions permitted under Federal law.
(18) Any provision of Federal, State, or local law, or common law claims permitted under Federal, State, or local law—
(i) providing for the enforcement of civil rights, or
(ii) regulating any aspect of the employment relationship, including claims for wages, compensation, or benefits, or prohibiting the discharge of an employee, the discrimination against an employee, or any other form of retaliation or reprisal against an employee for asserting rights or taking other actions permitted by law.
(Aug. 16, 1954, ch. 736,
Inflation Adjusted Items for Certain Years
For inflation adjustment of certain items in this section, see Revenue Procedures listed in a table under
Editorial Notes
References in Text
Section 208 of the Congressional Accountability Act of 1995, referred to in subsec. (e)(2), was formerly section 207 of the Act prior to renumbering by
The National Labor Relations Act, referred to in subsec. (e)(3), is act July 5, 1935, ch. 372,
The Fair Labor Standards Act of 1938, referred to in subsec. (e)(4), is act June 25, 1938, ch. 676,
The Education Amendments of 1972, referred to in subsec. (e)(8), is
The Employee Polygraph Protection Act of 1988, referred to in subsec. (e)(9), is
The Worker Adjustment and Retraining Notification Act, referred to in subsec. (e)(10), is
Amendments
2020—Subsec. (a)(18).
Subsec. (a)(22).
Subsec. (f).
2019—Subsec. (e)(2).
2018—Subsec. (a).
Subsec. (a)(20).
Subsec. (a)(21).
Subsec. (e)(1).
2017—Subsec. (a).
Subsec. (a)(10).
Subsec. (d)(3)(B).
2015—Subsec. (a)(2)(D).
Subsec. (d)(3).
2014—Subsec. (a)(2)(D).
Subsec. (a)(14).
2013—Subsec. (a)(2)(D).
2010—Subsec. (a)(2)(D).
2008—Subsec. (a)(2)(D).
2006—Subsec. (a)(2)(D).
Subsec. (a)(21).
2005—Subsec. (a)(19), (20).
Subsec. (e).
2004—Subsec. (a)(2)(D).
Subsec. (a)(19).
Subsec. (e).
2003—Subsec. (a)(2)(E).
Subsec. (a)(19).
2002—Subsec. (a)(2)(D).
Subsec. (d).
2001—Subsec. (a)(18).
2000—Subsec. (a)(16).
1997—Subsec. (a)(2)(C).
Subsec. (a)(17).
1996—Subsec. (a)(8).
Subsec. (a)(16).
1993—Subsec. (a)(15).
1992—Subsec. (a)(8).
Subsec. (a)(14).
1990—Subsec. (a)(13).
1988—Subsec. (a)(2)(A).
Subsec. (a)(13).
Subsec. (c).
1986—Subsec. (a).
Subsec. (a)(2).
Subsec. (a)(3) to (5).
Subsec. (a)(6).
Subsec. (a)(7).
Subsec. (a)(8).
Subsec. (a)(9) to (15).
Subsec. (a)(16).
Subsec. (b).
1984—Par. (7).
1983—Par. (9).
1981—Par. (10).
Par. (14).
Par. (15).
Par. (16).
1980—Par. (15).
Par. (16).
1978—Par. (14).
1976—Par. (10).
Pars. (11), (12).
Par. (13).
1974—Par. (10).
Par. (11).
1969—Par. (9).
1964—Par. (8).
1962—Par. (7).
Statutory Notes and Related Subsidiaries
Effective Date of 2020 Amendment
Amendment by section 104(b)(2)(A) of
Effective Date of 2018 Amendment
"(1)
"(2)
Effective Date of 2017 Amendment
Amendment by section 11002(d)(1)(J) of
Amendment by section 11051(b)(2)(A) of
Effective Date of 2015 Amendment
"(1)
"(2)
Effective Date of 2014 Amendment
Amendment by section 221(a)(34)(C) of
Effective Date of 2013 Amendment
Effective Date of 2010 Amendment
Effective Date of 2008 Amendment
Effective Date of 2006 Amendment
Effective Date of 2004 Amendment
Effective Date of 2003 Amendment
Effective Date of 2002 Amendment
Effective Date of 2001 Amendment
Effective Date of 1997 Amendment
"(1) any loan interest payment due and paid after December 31, 1997, and
"(2) the portion of the 60-month period referred to in section 221(d) of the Internal Revenue Code of 1986 (as added by this section) after December 31, 1997."
Effective Date of 1996 Amendment
Amendment by
Effective Date of 1993 Amendment
Effective Date of 1992 Amendment
Amendment by
Amendment by
Effective Date of 1988 Amendment
Amendment by section 1001(b)(3)(A) of
Effective Date of 1986 Amendment
Amendment by sections 131(b)(1) and 132(b), (c) of
Effective Date of 1984 Amendment
Effective Date of 1983 Amendment
Par. (9) as in effect before date of repeal by
Effective Date of 1981 Amendment
Amendment by sections 112(b)(2) and 311(h)(1) of
Effective Date of 1980 Amendment
Amendment by
Effective Date of 1978 Amendment; Election of Prior Law
Amendment by
Effective Date of 1976 Amendment
Amendment by section 1901(a)(8), (9) of
Effective Date of 1974 Amendment
Amendment by section 2002(a)(2) of
Amendment by section 2005(c)(9) of
Effective Date of 1969 Amendment
Amendment by
Effective Date of 1964 Amendment
Effective Date of 1962 Amendment
Amendment by
Regulations or Guidance Clarifying Application of Educator Expense Tax Deduction
Savings Provision
For provisions that nothing in amendment by
Plan Amendments Not Required Until January 1, 1998
For provisions directing that if any amendments made by subtitle D [§§1401–1465] of title I of
Plan Amendments Not Required Until January 1, 1994
For provisions directing that if any amendments made by subtitle B [§§521–523] of title V of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Commuting Expenses
1 See References in Text note below.
§63. Taxable income defined
(a) In general
Except as provided in subsection (b), for purposes of this subtitle, the term "taxable income" means gross income minus the deductions allowed by this chapter (other than the standard deduction).
(b) Individuals who do not itemize their deductions
In the case of an individual who does not elect to itemize his deductions for the taxable year, for purposes of this subtitle, the term "taxable income" means adjusted gross income, minus—
(1) the standard deduction,
(2) the deduction for personal exemptions provided in section 151,
(3) any deduction provided in section 199A, and
(4) the deduction provided in section 170(p).
(c) Standard deduction
For purposes of this subtitle—
(1) In general
Except as otherwise provided in this subsection, the term "standard deduction" means the sum of—
(A) the basic standard deduction, and
(B) the additional standard deduction.
(2) Basic standard deduction
For purposes of paragraph (1), the basic standard deduction is—
(A) 200 percent of the dollar amount in effect under subparagraph (C) for the taxable year in the case of—
(i) a joint return, or
(ii) a surviving spouse (as defined in section 2(a)),
(B) $4,400 in the case of a head of household (as defined in section 2(b)), or
(C) $3,000 in any other case.
(3) Additional standard deduction for aged and blind
For purposes of paragraph (1), the additional standard deduction is the sum of each additional amount to which the taxpayer is entitled under subsection (f).
(4) Adjustments for inflation
In the case of any taxable year beginning in a calendar year after 1988, each dollar amount contained in paragraph (2)(B), (2)(C), or (5) or subsection (f) shall be increased by an amount equal to—
(A) such dollar amount, multiplied by
(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, by substituting for "calendar year 2016" in subparagraph (A)(ii) thereof—
(i) "calendar year 1987" in the case of the dollar amounts contained in paragraph (2)(B), (2)(C), or (5)(A) or subsection (f), and
(ii) "calendar year 1997" in the case of the dollar amount contained in paragraph (5)(B).
(5) Limitation on basic standard deduction in the case of certain dependents
In the case of an individual with respect to whom a deduction under section 151 is allowable to another taxpayer for a taxable year beginning in the calendar year in which the individual's taxable year begins, the basic standard deduction applicable to such individual for such individual's taxable year shall not exceed the greater of—
(A) $500, or
(B) the sum of $250 and such individual's earned income.
(6) Certain individuals, etc., not eligible for standard deduction
In the case of—
(A) a married individual filing a separate return where either spouse itemizes deductions,
(B) a nonresident alien individual,
(C) an individual making a return under section 443(a)(1) for a period of less than 12 months on account of a change in his annual accounting period, or
(D) an estate or trust, common trust fund, or partnership,
the standard deduction shall be zero.
(7) Special rules for taxable years 2018 through 2025
In the case of a taxable year beginning after December 31, 2017, and before January 1, 2026—
(A) Increase in standard deduction
Paragraph (2) shall be applied—
(i) by substituting "$18,000" for "$4,400" in subparagraph (B), and
(ii) by substituting "$12,000" for "$3,000" in subparagraph (C).
(B) Adjustment for inflation
(i) In general
Paragraph (4) shall not apply to the dollar amounts contained in paragraphs (2)(B) and (2)(C).
(ii) Adjustment of increased amounts
In the case of a taxable year beginning after 2018, the $18,000 and $12,000 amounts in subparagraph (A) shall each be increased by an amount equal to—
(I) such dollar amount, multiplied by
(II) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting "2017" for "2016" in subparagraph (A)(ii) thereof.
If any increase under this clause is not a multiple of $50, such increase shall be rounded to the next lowest multiple of $50.
(d) Itemized deductions
For purposes of this subtitle, the term "itemized deductions" means the deductions allowable under this chapter other than—
(1) the deductions allowable in arriving at adjusted gross income, and
(2) any deduction referred to in any paragraph of subsection (b).
(e) Election to itemize
(1) In general
Unless an individual makes an election under this subsection for the taxable year, no itemized deduction shall be allowed for the taxable year. For purposes of this subtitle, the determination of whether a deduction is allowable under this chapter shall be made without regard to the preceding sentence.
(2) Time and manner of election
Any election under this subsection shall be made on the taxpayer's return, and the Secretary shall prescribe the manner of signifying such election on the return.
(3) Change of election
Under regulations prescribed by the Secretary, a change of election with respect to itemized deductions for any taxable year may be made after the filing of the return for such year. If the spouse of the taxpayer filed a separate return for any taxable year corresponding to the taxable year of the taxpayer, the change shall not be allowed unless, in accordance with such regulations—
(A) the spouse makes a change of election with respect to itemized deductions, for the taxable year covered in such separate return, consistent with the change of treatment sought by the taxpayer, and
(B) the taxpayer and his spouse consent in writing to the assessment (within such period as may be agreed on with the Secretary) of any deficiency, to the extent attributable to such change of election, even though at the time of the filing of such consent the assessment of such deficiency would otherwise be prevented by the operation of any law or rule of law.
This paragraph shall not apply if the tax liability of the taxpayer's spouse for the taxable year corresponding to the taxable year of the taxpayer has been compromised under section 7122.
(f) Aged or blind additional amounts
(1) Additional amounts for the aged
The taxpayer shall be entitled to an additional amount of $600—
(A) for himself if he has attained age 65 before the close of his taxable year, and
(B) for the spouse of the taxpayer if the spouse has attained age 65 before the close of the taxable year and an additional exemption is allowable to the taxpayer for such spouse under section 151(b).
(2) Additional amount for blind
The taxpayer shall be entitled to an additional amount of $600—
(A) for himself if he is blind at the close of the taxable year, and
(B) for the spouse of the taxpayer if the spouse is blind as of the close of the taxable year and an additional exemption is allowable to the taxpayer for such spouse under section 151(b).
For purposes of subparagraph (B), if the spouse dies during the taxable year the determination of whether such spouse is blind shall be made as of the time of such death.
(3) Higher amount for certain unmarried individuals
In the case of an individual who is not married and is not a surviving spouse, paragraphs (1) and (2) shall be applied by substituting "$750" for "$600".
(4) Blindness defined
For purposes of this subsection, an individual is blind only if his central visual acuity does not exceed 20/200 in the better eye with correcting lenses, or if his visual acuity is greater than 20/200 but is accompanied by a limitation in the fields of vision such that the widest diameter of the visual field subtends an angle no greater than 20 degrees.
(g) Marital status
For purposes of this section, marital status shall be determined under section 7703.
(Aug. 16, 1954, ch. 736,
Inflation Adjusted Items for Certain Years
For inflation adjustment of certain items in this section, see Revenue Procedures listed in a table under
Editorial Notes
Codification
Another section 212(b) of div. EE of
Amendments
2020—Subsec. (b)(4).
Subsec. (d)(2), (3).
"(2) the deduction for personal exemptions provided by section 151, and
"(3) any deduction provided in section 199A."
2018—Subsecs. (b)(3), (d)(3).
2017—Subsec. (b)(3).
Subsec. (c)(4)(B).
Subsec. (c)(7).
Subsec. (d)(3).
2014—Subsec. (c)(1).
"(A) the basic standard deduction,
"(B) the additional standard deduction,
"(C) in the case of any taxable year beginning in 2008 or 2009, the real property tax deduction,
"(D) the disaster loss deduction, and
"(E) the motor vehicle sales tax deduction."
Subsec. (c)(7) to (9).
2009—Subsec. (c)(1)(E).
Subsec. (c)(9).
2008—Subsec. (c)(1)(C).
Subsec. (c)(1)(D).
Subsec. (c)(7).
Subsec. (c)(8).
2004—Subsec. (c)(2).
Subsec. (c)(4).
Subsec. (c)(7).
2003—Subsec. (c)(7).
2002—Subsec. (c)(2).
Subsec. (c)(2)(A).
Subsec. (c)(2)(B).
Subsec. (c)(2)(C), (D).
Subsec. (c)(4).
Subsec. (c)(4)(B)(i).
2001—Subsec. (c)(2)(A).
Subsec. (c)(2)(B).
Subsec. (c)(2)(C).
Subsec. (c)(2)(D).
Subsec. (c)(4).
Subsec. (c)(7).
1997—Subsec. (c)(4).
Subsec. (c)(5)(B).
1993—Subsec. (c)(4)(B).
1990—Subsec. (c)(4)(B).
Subsec. (h).
"(1) by substituting '$3,760' for '$5,000',
"(2) by substituting '$2,540' for '$4,400',
"(3) by substituting '$2,540' for '$3,000', and
"(4) by substituting '$1,880' for '$2,500'.
The preceding sentence shall not apply if the taxpayer is entitled to an additional amount determined under subsection (f) (relating to additional amount for aged and blind) for the taxable year."
1988—Subsec. (c)(5).
1986—Subsec. (a).
Subsec. (b).
"(1) reduced by the sum of—
"(A) the excess itemized deductions,
"(B) the deductions for personal exemptions provided by section 151, and
"(C) the direct charitable deduction, and
"(2) increased (in the case of an individual for whom an unused zero bracket amount computation is provided by subsection (e)) by the unused zero bracket amount (if any)."
Subsec. (c).
"(1) the itemized deductions, over
"(2) the zero bracket amount."
Subsec. (c)(6)(C) to (E).
Subsec. (d).
"(1) in the case of an individual to whom subsection (a), (b), (c), or (d) of section 1 applies, the maximum amount of taxable income on which no tax is imposed by the applicable subsection of section 1, or
"(2) zero in any other case."
Subsec. (e).
Subsec. (e)(1).
"(A) a married individual filing a separate return where either spouse itemized deductions,
"(B) a nonresident alien individual,
"(C) a citizen of the United States entitled to the benefits of section 931 (relating to income from sources within possessions of the United States), and
"(D) an individual with respect to whom a deduction under section 151(e) is allowable to another taxpayer for a taxable year beginning in the calendar year in which the individual's taxable year begins."
Subsec. (e)(2).
"(A) the zero bracket amount, over
"(B) the itemized deductions.
In the case of an individual referred to in paragraph (1)(D), if such individual's earned income (as defined in section 911(d)(2)) exceeds the itemized deductions, such earned income shall be substituted for the itemized deductions in subparagraph (B)."
Subsec. (e)(3).
Subsec. (f).
"(1) the deductions allowable in arriving at adjusted gross income,
"(2) the deductions for personal exemptions provided by section 151, and
"(3) the direct charitable deduction."
Subsec. (g).
Subsec. (h).
Subsec. (i).
1981—Subsec. (b)(1)(C).
Subsec. (d).
Subsec. (e)(2).
Subsec. (f)(3).
Subsec. (i).
1978—
1977—
Statutory Notes and Related Subsidiaries
Effective Date of 2020 Amendment
Amendment by
Effective Date of 2018 Amendment
Amendment by
Effective Date of 2017 Amendment
Amendment by section 11002(d)(1)(K) of
Amendment by section 11011(b)(2), (3) of
Effective Date of 2014 Amendment
Amendment by
Effective Date of 2009 Amendment
Amendment by
Effective Date of 2008 Amendment
Amendment by section 706(b)(1), (2) of
Effective and Termination Dates of 2004 Amendment
Amendment by
Amendment by
Effective and Termination Dates of 2003 Amendment
Amendments by title I of
Effective Date of 2002 Amendment
Amendment by
Effective Date of 2001 Amendment
Amendment by
Effective Date of 1997 Amendment
Amendment by
Effective Date of 1993 Amendment
Amendment by
Effective Date of 1990 Amendment
Amendment by section 11101(d)(1)(D) of
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 102(a) of
Amendment by section 1272(d)(6) of
Effective Date of 1981 Amendment
Amendment by section 104(b) of
Amendment by section 111(b)(4) of
Amendment by section 121(b), (c)(2) of
Effective Date of 1978 Amendment
Amendment by
Effective Date of 1977 Amendment
Amendment by
Savings Provision
For provisions that nothing in amendment by section 11801 of
§64. Ordinary income defined
For purposes of this subtitle, the term "ordinary income" includes any gain from the sale or exchange of property which is neither a capital asset nor property described in section 1231(b). Any gain from the sale or exchange of property which is treated or considered, under other provisions of this subtitle, as "ordinary income" shall be treated as gain from the sale or exchange of property which is neither a capital asset nor property described in section 1231(b).
(Added
§65. Ordinary loss defined
For purposes of this subtitle, the term "ordinary loss" includes any loss from the sale or exchange of property which is not a capital asset. Any loss from the sale or exchange of property which is treated or considered, under other provisions of this subtitle, as "ordinary loss" shall be treated as loss from the sale or exchange of property which is not a capital asset.
(Added
§66. Treatment of community income
(a) Treatment of community income where spouses live apart
If—
(1) 2 individuals are married to each other at any time during a calendar year;
(2) such individuals—
(A) live apart at all times during the calendar year, and
(B) do not file a joint return under section 6013 with each other for a taxable year beginning or ending in the calendar year;
(3) one or both of such individuals have earned income for the calendar year which is community income; and
(4) no portion of such earned income is transferred (directly or indirectly) between such individuals before the close of the calendar year,
then, for purposes of this title, any community income of such individuals for the calendar year shall be treated in accordance with the rules provided by section 879(a).
(b) Secretary may disregard community property laws where spouse not notified of community income
The Secretary may disallow the benefits of any community property law to any taxpayer with respect to any income if such taxpayer acted as if solely entitled to such income and failed to notify the taxpayer's spouse before the due date (including extensions) for filing the return for the taxable year in which the income was derived of the nature and amount of such income.
(c) Spouse relieved of liability in certain other cases
Under regulations prescribed by the Secretary, if—
(1) an individual does not file a joint return for any taxable year,
(2) such individual does not include in gross income for such taxable year an item of community income properly includible therein which, in accordance with the rules contained in section 879(a), would be treated as the income of the other spouse,
(3) the individual establishes that he or she did not know of, and had no reason to know of, such item of community income, and
(4) taking into account all facts and circumstances, it is inequitable to include such item of community income in such individual's gross income,
then, for purposes of this title, such item of community income shall be included in the gross income of the other spouse (and not in the gross income of the individual). Under procedures prescribed by the Secretary, if, taking into account all the facts and circumstances, it is inequitable to hold the individual liable for any unpaid tax or any deficiency (or any portion of either) attributable to any item for which relief is not available under the preceding sentence, the Secretary may relieve such individual of such liability.
(d) Definitions
For purposes of this section—
(1) Earned income
The term "earned income" has the meaning given to such term by section 911(d)(2).
(2) Community income
The term "community income" means income which, under applicable community property laws, is treated as community income.
(3) Community property laws
The term "community property laws" means the community property laws of a State, a foreign country, or a possession of the United States.
(Added
Editorial Notes
Amendments
1998—Subsec. (c).
1989—Subsec. (d)(1).
1984—
Subsec. (a).
Subsecs. (b) to (d).
Statutory Notes and Related Subsidiaries
Effective Date of 1998 Amendment
Amendment by
Effective Date of 1984 Amendment
Amendment by
Effective Date
§67. 2-percent floor on miscellaneous itemized deductions
(a) General rule
In the case of an individual, the miscellaneous itemized deductions for any taxable year shall be allowed only to the extent that the aggregate of such deductions exceeds 2 percent of adjusted gross income.
(b) Miscellaneous itemized deductions
For purposes of this section, the term "miscellaneous itemized deductions" means the itemized deductions other than—
(1) the deduction under section 163 (relating to interest),
(2) the deduction under section 164 (relating to taxes),
(3) the deduction under section 165(a) for casualty or theft losses described in paragraph (2) or (3) of section 165(c) or for losses described in section 165(d),
(4) the deductions under section 170 (relating to charitable, etc., contributions and gifts) and section 642(c) (relating to deduction for amounts paid or permanently set aside for a charitable purpose),
(5) the deduction under section 213 (relating to medical, dental, etc., expenses),
(6) any deduction allowable for impairment-related work expenses,
(7) the deduction under section 691(c) (relating to deduction for estate tax in case of income in respect of the decedent),
(8) any deduction allowable in connection with personal property used in a short sale,
(9) the deduction under section 1341 (relating to computation of tax where taxpayer restores substantial amount held under claim of right),
(10) the deduction under section 72(b)(3) (relating to deduction where annuity payments cease before investment recovered),
(11) the deduction under section 171 (relating to deduction for amortizable bond premium), and
(12) the deduction under section 216 (relating to deductions in connection with cooperative housing corporations).
(c) Disallowance of indirect deduction through pass-thru entity
(1) In general
The Secretary shall prescribe regulations which prohibit the indirect deduction through pass-thru entities of amounts which are not allowable as a deduction if paid or incurred directly by an individual and which contain such reporting requirements as may be necessary to carry out the purposes of this subsection.
(2) Treatment of publicly offered regulated investment companies
(A) In general
Paragraph (1) shall not apply with respect to any publicly offered regulated investment company.
(B) Publicly offered regulated investment companies
For purposes of this subsection—
(i) In general
The term "publicly offered regulated investment company" means a regulated investment company the shares of which are—
(I) continuously offered pursuant to a public offering (within the meaning of section 4 of the Securities Act of 1933, as amended (
(II) regularly traded on an established securities market, or
(III) held by or for no fewer than 500 persons at all times during the taxable year.
(ii) Secretary may reduce 500 person requirement
The Secretary may by regulation decrease the minimum shareholder requirement of clause (i)(III) in the case of regulated investment companies which experience a loss of shareholders through net redemptions of their shares.
(3) Treatment of certain other entities
Paragraph (1) shall not apply—
(A) with respect to cooperatives and real estate investment trusts, and
(B) except as provided in regulations, with respect to estates and trusts.
(d) Impairment-related work expenses
For purposes of this section, the term "impairment-related work expenses" means expenses—
(1) of a handicapped individual (as defined in section 190(b)(3)) for attendant care services at the individual's place of employment and other expenses in connection with such place of employment which are necessary for such individual to be able to work, and
(2) with respect to which a deduction is allowable under section 162 (determined without regard to this section).
(e) Determination of adjusted gross income in case of estates and trusts
For purposes of this section, the adjusted gross income of an estate or trust shall be computed in the same manner as in the case of an individual, except that—
(1) the deductions for costs which are paid or incurred in connection with the administration of the estate or trust and which would not have been incurred if the property were not held in such trust or estate, and
(2) the deductions allowable under sections 642(b), 651, and 661,
shall be treated as allowable in arriving at adjusted gross income. Under regulations, appropriate adjustments shall be made in the application of part I of subchapter J of this chapter to take into account the provisions of this section.
(f) Coordination with other limitation
This section shall be applied before the application of the dollar limitation of the second sentence of section 162(a) (relating to trade or business expenses).
(g) Suspension for taxable years 2018 through 2025
Notwithstanding subsection (a), no miscellaneous itemized deduction shall be allowed for any taxable year beginning after December 31, 2017, and before January 1, 2026.
(Added
Editorial Notes
References in Text
Section 4 of the Securities Act of 1933, referred to in subsec. (c)(2)(B)(i)(I), is classified to
Amendments
2017—Subsec. (g).
2000—Subsec. (f).
1998—Subsec. (b)(3).
1993—Subsec. (b)(6) to (13).
1989—Subsec. (c)(4).
1988—Subsec. (b)(4).
Subsec. (c).
"(1) with respect to cooperatives and real estate investment trusts, and
"(2) except as provided in regulations, with respect to estates and trusts."
Subsec. (e).
Subsec. (f).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Effective Date of 1998 Amendment
Effective Date of 1993 Amendment
Amendment by
Effective Date of 1989 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by section 1001(f) of
Effective Date
Section applicable to taxable years beginning after Dec. 31, 1986, see section 151(a) of
1-Year Delay in Treatment of Publicly Offered Regulated Investment Companies Under 2-Percent Floor
"(1)
"(2)
"(A)
"(i) continuously offered pursuant to a public offering (within the meaning of section 4 of the Securities Act of 1933, as amended (
"(ii) regularly traded on an established securities market, or
"(iii) held by or for no fewer than 500 persons at all times during the taxable year.
"(B)
§68. Overall limitation on itemized deductions
(a) General rule
In the case of an individual whose adjusted gross income exceeds the applicable amount, the amount of the itemized deductions otherwise allowable for the taxable year shall be reduced by the lesser of—
(1) 3 percent of the excess of adjusted gross income over the applicable amount, or
(2) 80 percent of the amount of the itemized deductions otherwise allowable for such taxable year.
(b) Applicable amount
(1) In general
For purposes of this section, the term "applicable amount" means—
(A) $300,000 in the case of a joint return or a surviving spouse (as defined in section 2(a)),
(B) $275,000 in the case of a head of household (as defined in section 2(b)),
(C) $250,000 in the case of an individual who is not married and who is not a surviving spouse or head of household, and
(D) ½ the amount applicable under subparagraph (A) (after adjustment, if any, under paragraph (2)) in the case of a married individual filing a separate return.
For purposes of this paragraph, marital status shall be determined under section 7703.
(2) Inflation adjustment
In the case of any taxable year beginning in calendar years after 2013, each of the dollar amounts under subparagraphs (A), (B), and (C) of paragraph (1) shall be increased by an amount equal to—
(A) such dollar amount, multiplied by
(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, except that section 1(f)(3)(A)(ii) shall be applied by substituting "2012" for "2016".
If any amount after adjustment under the preceding sentence is not a multiple of $50, such amount shall be rounded to the next lowest multiple of $50.
(c) Exception for certain itemized deductions
For purposes of this section, the term "itemized deductions" does not include—
(1) the deduction under section 213 (relating to medical, etc. expenses),
(2) any deduction for investment interest (as defined in section 163(d)), and
(3) the deduction under section 165(a) for casualty or theft losses described in paragraph (2) or (3) of section 165(c) or for losses described in section 165(d).
(d) Coordination with other limitations
This section shall be applied after the application of any other limitation on the allowance of any itemized deduction.
(e) Exception for estates and trusts
This section shall not apply to any estate or trust.
(f) Section not to apply
This section shall not apply to any taxable year beginning after December 31, 2017, and before January 1, 2026.
(Added
Inflation Adjusted Items for Certain Years
For inflation adjustment of certain items in this section, see Revenue Procedures listed in a table under
Editorial Notes
Amendments
2018—Subsec. (b)(2).
2017—Subsec. (b)(2)(B).
Subsec. (f).
2013—Subsec. (b).
"(1)
"(2)
"(A) such dollar amount, multiplied by
"(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, by substituting 'calendar year 1990' for 'calendar year 1992' in subparagraph (B) thereof."
Subsecs. (f), (g).
2001—Subsecs. (f), (g). Pub. L. 107—16 added subsecs. (f) and (g).
1998—Subsec. (c)(3).
1993—Subsec. (b)(2)(B).
Subsec. (f).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Amendment by section 11002(d)(2) of
Effective Date of 2013 Amendment
Amendment by
Effective Date of 2001 Amendment
Effective Date of 1998 Amendment
Effective Date of 1993 Amendment
Amendment by section 13201(b)(3)(E) of
Effective Date
Section applicable to taxable years beginning after Dec. 31, 1990, see section 11103(e) of
PART II—ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME
Editorial Notes
Amendments
2017—
2004—
1989—
1987—
1986—
1984—
1983—
1980—
1978—
1976—
1975—
1969—
1966—
1964—
1962—
1 Section catchline amended by
[§71. Repealed. Pub. L. 115–97, title I, §11051(b)(1)(B), Dec. 22, 2017, 131 Stat. 2089 ]
Section, Aug. 16, 1954, ch. 736,
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
Repeal applicable to any divorce or separation instrument (as defined in former subsec. (b)(2) of this section as in effect before Dec. 22, 2017) executed after Dec. 31, 2018, and to such instruments executed on or before Dec. 31, 2018, and modified after Dec. 31, 2018, if the modification expressly provides that the amendment made by section 11051 of
§72. Annuities; certain proceeds of endowment and life insurance contracts
(a) General rules for annuities
(1) Income inclusion
Except as otherwise provided in this chapter, gross income includes any amount received as an annuity (whether for a period certain or during one or more lives) under an annuity, endowment, or life insurance contract.
(2) Partial annuitization
If any amount is received as an annuity for a period of 10 years or more or during one or more lives under any portion of an annuity, endowment, or life insurance contract—
(A) such portion shall be treated as a separate contract for purposes of this section,
(B) for purposes of applying subsections (b), (c), and (e), the investment in the contract shall be allocated pro rata between each portion of the contract from which amounts are received as an annuity and the portion of the contract from which amounts are not received as an annuity, and
(C) a separate annuity starting date under subsection (c)(4) shall be determined with respect to each portion of the contract from which amounts are received as an annuity.
(b) Exclusion ratio
(1) In general
Gross income does not include that part of any amount received as an annuity under an annuity, endowment, or life insurance contract which bears the same ratio to such amount as the investment in the contract (as of the annuity starting date) bears to the expected return under the contract (as of such date).
(2) Exclusion limited to investment
The portion of any amount received as an annuity which is excluded from gross income under paragraph (1) shall not exceed the unrecovered investment in the contract immediately before the receipt of such amount.
(3) Deduction where annuity payments cease before entire investment recovered
(A) In general
If—
(i) after the annuity starting date, payments as an annuity under the contract cease by reason of the death of an annuitant, and
(ii) as of the date of such cessation, there is unrecovered investment in the contract,
the amount of such unrecovered investment (in excess of any amount specified in subsection (e)(5) which was not included in gross income) shall be allowed as a deduction to the annuitant for his last taxable year.
(B) Payments to other persons
In the case of any contract which provides for payments meeting the requirements of subparagraphs (B) and (C) of subsection (c)(2), the deduction under subparagraph (A) shall be allowed to the person entitled to such payments for the taxable year in which such payments are received.
(C) Net operating loss deductions provided
For purposes of section 172, a deduction allowed under this paragraph shall be treated as if it were attributable to a trade or business of the taxpayer.
(4) Unrecovered investment
For purposes of this subsection, the unrecovered investment in the contract as of any date is—
(A) the investment in the contract (determined without regard to subsection (c)(2)) as of the annuity starting date, reduced by
(B) the aggregate amount received under the contract on or after such annuity starting date and before the date as of which the determination is being made, to the extent such amount was excludable from gross income under this subtitle.
(c) Definitions
(1) Investment in the contract
For purposes of subsection (b), the investment in the contract as of the annuity starting date is—
(A) the aggregate amount of premiums or other consideration paid for the contract, minus
(B) the aggregate amount received under the contract before such date, to the extent that such amount was excludable from gross income under this subtitle or prior income tax laws.
(2) Adjustment in investment where there is refund feature
If—
(A) the expected return under the contract depends in whole or in part on the life expectancy of one or more individuals;
(B) the contract provides for payments to be made to a beneficiary (or to the estate of an annuitant) on or after the death of the annuitant or annuitants; and
(C) such payments are in the nature of a refund of the consideration paid,
then the value (computed without discount for interest) of such payments on the annuity starting date shall be subtracted from the amount determined under paragraph (1). Such value shall be computed in accordance with actuarial tables prescribed by the Secretary. For purposes of this paragraph and of subsection (e)(2)(A), the term "refund of the consideration paid" includes amounts payable after the death of an annuitant by reason of a provision in the contract for a life annuity with minimum period of payments certain, but (if part of the consideration was contributed by an employer) does not include that part of any payment to a beneficiary (or to the estate of the annuitant) which is not attributable to the consideration paid by the employee for the contract as determined under paragraph (1)(A).
(3) Expected return
For purposes of subsection (b), the expected return under the contract shall be determined as follows:
(A) Life expectancy
If the expected return under the contract, for the period on and after the annuity starting date, depends in whole or in part on the life expectancy of one or more individuals, the expected return shall be computed with reference to actuarial tables prescribed by the Secretary.
(B) Installment payments
If subparagraph (A) does not apply, the expected return is the aggregate of the amounts receivable under the contract as an annuity.
(4) Annuity starting date
For purposes of this section, the annuity starting date in the case of any contract is the first day of the first period for which an amount is received as an annuity under the contract.
(d) Special rules for qualified employer retirement plans
(1) Simplified method of taxing annuity payments
(A) In general
In the case of any amount received as an annuity under a qualified employer retirement plan—
(i) subsection (b) shall not apply, and
(ii) the investment in the contract shall be recovered as provided in this paragraph.
(B) Method of recovering investment in contract
(i) In general
Gross income shall not include so much of any monthly annuity payment under a qualified employer retirement plan as does not exceed the amount obtained by dividing—
(I) the investment in the contract (as of the annuity starting date), by
(II) the number of anticipated payments determined under the table contained in clause (iii) (or, in the case of a contract to which subsection (c)(3)(B) applies, the number of monthly annuity payments under such contract).
(ii) Certain rules made applicable
Rules similar to the rules of paragraphs (2) and (3) of subsection (b) shall apply for purposes of this paragraph.
(iii) Number of anticipated payments
If the annuity is payable over the life of a single individual, the number of anticipated payments shall be determined as follows:
| If the age of the annuitant on the annuity starting date is: | The number of anticipated payments is: |
|---|---|
| Not more than 55 | 360 |
| More than 55 but not more than 60 | 310 |
| More than 60 but not more than 65 | 260 |
| More than 65 but not more than 70 | 210 |
| More than 70 | 160. |
(iv) Number of anticipated payments where more than one life
If the annuity is payable over the lives of more than 1 individual, the number of anticipated payments shall be determined as follows:
| If the combined ages of annuitants are: | The number is: |
|---|---|
| Not more than 110 | 410 |
| More than 110 but not more than 120 | 360 |
| More than 120 but not more than 130 | 310 |
| More than 130 but not more than 140 | 260 |
| More than 140 | 210. |
(C) Adjustment for refund feature not applicable
For purposes of this paragraph, investment in the contract shall be determined under subsection (c)(1) without regard to subsection (c)(2).
(D) Special rule where lump sum paid in connection with commencement of annuity payments
If, in connection with the commencement of annuity payments under any qualified employer retirement plan, the taxpayer receives a lump-sum payment—
(i) such payment shall be taxable under subsection (e) as if received before the annuity starting date, and
(ii) the investment in the contract for purposes of this paragraph shall be determined as if such payment had been so received.
(E) Exception
This paragraph shall not apply in any case where the primary annuitant has attained age 75 on the annuity starting date unless there are fewer than 5 years of guaranteed payments under the annuity.
(F) Adjustment where annuity payments not on monthly basis
In any case where the annuity payments are not made on a monthly basis, appropriate adjustments in the application of this paragraph shall be made to take into account the period on the basis of which such payments are made.
(G) Qualified employer retirement plan
For purposes of this paragraph, the term "qualified employer retirement plan" means any plan or contract described in paragraph (1), (2), or (3) of section 4974(c).
(2) Treatment of employee contributions under defined contribution plans
For purposes of this section, employee contributions (and any income allocable thereto) under a defined contribution plan may be treated as a separate contract.
(3) Treatment of contributions to a pension-linked emergency savings account
For purposes of this section, contributions to a pension-linked emergency savings account to which section 402A(e) applies (and any income allocable thereto) may be treated as a separate contract.
(e) Amounts not received as annuities
(1) Application of subsection
(A) In general
This subsection shall apply to any amount which—
(i) is received under an annuity, endowment, or life insurance contract, and
(ii) is not received as an annuity,
if no provision of this subtitle (other than this subsection) applies with respect to such amount.
(B) Dividends
For purposes of this section, any amount received which is in the nature of a dividend or similar distribution shall be treated as an amount not received as an annuity.
(2) General rule
Any amount to which this subsection applies—
(A) if received on or after the annuity starting date, shall be included in gross income, or
(B) if received before the annuity starting date—
(i) shall be included in gross income to the extent allocable to income on the contract, and
(ii) shall not be included in gross income to the extent allocable to the investment in the contract.
(3) Allocation of amounts to income and investment
For purposes of paragraph (2)(B)—
(A) Allocation to income
Any amount to which this subsection applies shall be treated as allocable to income on the contract to the extent that such amount does not exceed the excess (if any) of—
(i) the cash value of the contract (determined without regard to any surrender charge) immediately before the amount is received, over
(ii) the investment in the contract at such time.
(B) Allocation to investment
Any amount to which this subsection applies shall be treated as allocable to investment in the contract to the extent that such amount is not allocated to income under subparagraph (A).
(4) Special rules for application of paragraph (2)(B)
For purposes of paragraph (2)(B)—
(A) Loans treated as distributions
If, during any taxable year, an individual—
(i) receives (directly or indirectly) any amount as a loan under any contract to which this subsection applies, or
(ii) assigns or pledges (or agrees to assign or pledge) any portion of the value of any such contract,
such amount or portion shall be treated as received under the contract as an amount not received as an annuity. The preceding sentence shall not apply for purposes of determining investment in the contract, except that the investment in the contract shall be increased by any amount included in gross income by reason of the amount treated as received under the preceding sentence.
(B) Treatment of policyholder dividends
Any amount described in paragraph (1)(B) shall not be included in gross income under paragraph (2)(B)(i) to the extent such amount is retained by the insurer as a premium or other consideration paid for the contract.
(C) Treatment of transfers without adequate consideration
(i) In general
If an individual who holds an annuity contract transfers it without full and adequate consideration, such individual shall be treated as receiving an amount equal to the excess of—
(I) the cash surrender value of such contract at the time of transfer, over
(II) the investment in such contract at such time,
under the contract as an amount not received as an annuity.
(ii) Exception for certain transfers between spouses or former spouses
Clause (i) shall not apply to any transfer to which section 1041(a) (relating to transfers of property between spouses or incident to divorce) applies.
(iii) Adjustment to investment in contract of transferee
If under clause (i) an amount is included in the gross income of the transferor of an annuity contract, the investment in the contract of the transferee in such contract shall be increased by the amount so included.
(5) Retention of existing rules in certain cases
(A) In general
In any case to which this paragraph applies—
(i) paragraphs (2)(B) and (4)(A) shall not apply, and
(ii) if paragraph (2)(A) does not apply,
the amount shall be included in gross income, but only to the extent it exceeds the investment in the contract.
(B) Existing contracts
This paragraph shall apply to contracts entered into before August 14, 1982. Any amount allocable to investment in the contract after August 13, 1982, shall be treated as from a contract entered into after such date.
(C) Certain life insurance and endowment contracts
Except as provided in paragraph (10) and except to the extent prescribed by the Secretary by regulations, this paragraph shall apply to any amount not received as an annuity which is received under a life insurance or endowment contract.
(D) Contracts under qualified plans
Except as provided in paragraph (8), this paragraph shall apply to any amount received—
(i) from a trust described in section 401(a) which is exempt from tax under section 501(a),
(ii) from a contract—
(I) purchased by a trust described in clause (i),
(II) purchased as part of a plan described in section 403(a),
(III) described in section 403(b), or
(IV) provided for employees of a life insurance company under a plan described in section 818(a)(3), or
(iii) from an individual retirement account or an individual retirement annuity.
Any dividend described in section 404(k) which is received by a participant or beneficiary shall, for purposes of this subparagraph, be treated as paid under a separate contract to which clause (ii)(I) applies.
(E) Full refunds, surrenders, redemptions, and maturities
This paragraph shall apply to—
(i) any amount received, whether in a single sum or otherwise, under a contract in full discharge of the obligation under the contract which is in the nature of a refund of the consideration paid for the contract, and
(ii) any amount received under a contract on its complete surrender, redemption, or maturity.
In the case of any amount to which the preceding sentence applies, the rule of paragraph (2)(A) shall not apply.
(6) Investment in the contract
For purposes of this subsection, the investment in the contract as of any date is—
(A) the aggregate amount of premiums or other consideration paid for the contract before such date, minus
(B) the aggregate amount received under the contract before such date, to the extent that such amount was excludable from gross income under this subtitle or prior income tax laws.
[(7) Repealed. Pub. L. 100–647, title I, §1011A(b)(9)(A), Nov. 10, 1988, 102 Stat. 3474 ]
(8) Extension of paragraph (2)(b) 1 to qualified plans
(A) In general
Notwithstanding any other provision of this subsection, in the case of any amount received before the annuity starting date from a trust or contract described in paragraph (5)(D), paragraph (2)(B) shall apply to such amounts.
(B) Allocation of amount received
For purposes of paragraph (2)(B), the amount allocated to the investment in the contract shall be the portion of the amount described in subparagraph (A) which bears the same ratio to such amount as the investment in the contract bears to the account balance. The determination under the preceding sentence shall be made as of the time of the distribution or at such other time as the Secretary may prescribe.
(C) Treatment of forfeitable rights
If an employee does not have a nonforfeitable right to any amount under any trust or contract to which subparagraph (A) applies, such amount shall not be treated as part of the account balance.
(D) Investment in the contract before 1987
In the case of a plan which on May 5, 1986, permitted withdrawal of any employee contributions before separation from service, subparagraph (A) shall apply only to the extent that amounts received before the annuity starting date (when increased by amounts previously received under the contract after December 31, 1986) exceed the investment in the contract as of December 31, 1986.
(9) Extension of paragraph (2)(B) to qualified tuition programs and Coverdell education savings accounts
Notwithstanding any other provision of this subsection, paragraph (2)(B) shall apply to amounts received under a qualified tuition program (as defined in section 529(b)) or under a Coverdell education savings account (as defined in section 530(b)). The rule of paragraph (8)(B) shall apply for purposes of this paragraph.
(10) Treatment of modified endowment contracts
(A) In general
Notwithstanding paragraph (5)(C), in the case of any modified endowment contract (as defined in section 7702A)—
(i) paragraphs (2)(B) and (4)(A) shall apply, and
(ii) in applying paragraph (4)(A), "any person" shall be substituted for "an individual".
(B) Treatment of certain burial contracts
Notwithstanding subparagraph (A), paragraph (4)(A) shall not apply to any assignment (or pledge) of a modified endowment contract if such assignment (or pledge) is solely to cover the payment of expenses referred to in section 7702(e)(2)(C)(iii) and if the maximum death benefit under such contract does not exceed $25,000.
(11) Special rules for certain combination contracts providing long-term care insurance
Notwithstanding paragraphs (2), (5)(C), and (10), in the case of any charge against the cash value of an annuity contract or the cash surrender value of a life insurance contract made as payment for coverage under a qualified long-term care insurance contract which is part of or a rider on such annuity or life insurance contract—
(A) the investment in the contract shall be reduced (but not below zero) by such charge, and
(B) such charge shall not be includible in gross income.
(12) Anti-abuse rules
(A) In general
For purposes of determining the amount includible in gross income under this subsection—
(i) all modified endowment contracts issued by the same company to the same policyholder during any calendar year shall be treated as 1 modified endowment contract, and
(ii) all annuity contracts issued by the same company to the same policyholder during any calendar year shall be treated as 1 annuity contract.
The preceding sentence shall not apply to any contract described in paragraph (5)(D).
(B) Regulatory authority
The Secretary may by regulations prescribe such additional rules as may be necessary or appropriate to prevent avoidance of the purposes of this subsection through serial purchases of contracts or otherwise.
(f) Special rules for computing employees' contributions
In computing, for purposes of subsection (c)(1)(A), the aggregate amount of premiums or other consideration paid for the contract, and for purposes of subsection (e)(6), the aggregate premiums or other consideration paid, amounts contributed by the employer shall be included, but only to the extent that—
(1) such amounts were includible in the gross income of the employee under this subtitle or prior income tax laws; or
(2) if such amounts had been paid directly to the employee at the time they were contributed, they would not have been includible in the gross income of the employee under the law applicable at the time of such contribution.
Paragraph (2) shall not apply to amounts which were contributed by the employer after December 31, 1962, and which would not have been includible in the gross income of the employee by reason of the application of section 911 if such amounts had been paid directly to the employee at the time of contribution. The preceding sentence shall not apply to amounts which were contributed by the employer, as determined under regulations prescribed by the Secretary, to provide pension or annuity credits, to the extent such credits are attributable to services performed before January 1, 1963, and are provided pursuant to pension or annuity plan provisions in existence on March 12, 1962, and on that date applicable to such services, or to the extent such credits are attributable to services performed as a foreign missionary (within the meaning of section 403(b)(2)(D)(iii), as in effect before the enactment of the Economic Growth and Tax Relief Reconciliation Act of 2001).
(g) Rules for transferee where transfer was for value
Where any contract (or any interest therein) is transferred (by assignment or otherwise) for a valuable consideration, to the extent that the contract (or interest therein) does not, in the hands of the transferee, have a basis which is determined by reference to the basis in the hands of the transferor, then—
(1) for purposes of this section, only the actual value of such consideration, plus the amount of the premiums and other consideration paid by the transferee after the transfer, shall be taken into account in computing the aggregate amount of the premiums or other consideration paid for the contract;
(2) for purposes of subsection (c)(1)(B), there shall be taken into account only the aggregate amount received under the contract by the transferee before the annuity starting date, to the extent that such amount was excludable from gross income under this subtitle or prior income tax laws; and
(3) the annuity starting date is the first day of the first period for which the transferee received an amount under the contract as an annuity.
For purposes of this subsection, the term "transferee" includes a beneficiary of, or the estate of, the transferee.
(h) Option to receive annuity in lieu of lump sum
If—
(1) a contract provides for payment of a lump sum in full discharge of an obligation under the contract, subject to an option to receive an annuity in lieu of such lump sum;
(2) the option is exercised within 60 days after the day on which such lump sum first became payable; and
(3) part or all of such lump sum would (but for this subsection) be includible in gross income by reason of subsection (e)(1),
then, for purposes of this subtitle, no part of such lump sum shall be considered as includible in gross income at the time such lump sum first became payable.
[(i) Repealed. Pub. L. 94–455, title XIX, §1951(b)(1)(A), Oct. 4, 1976, 90 Stat. 1836 ]
(j) Interest
Notwithstanding any other provision of this section, if any amount is held under an agreement to pay interest thereon, the interest payments shall be included in gross income.
[(k) Repealed. Pub. L. 98–369, div. A, title IV, §421(b)(1), July 18, 1984, 98 Stat. 794 ]
(l) Face-amount certificates
For purposes of this section, the term "endowment contract" includes a face-amount certificate, as defined in section 2(a)(15) of the Investment Company Act of 1940 (
(m) Special rules applicable to employee annuities and distributions under employee plans
[(1) Repealed. Pub. L. 93–406, title II, §2001(h)(2), Sept. 2, 1974, 88 Stat. 957 ]
(2) Computation of consideration paid by the employee
In computing—
(A) the aggregate amount of premiums or other consideration paid for the contract for purposes of subsection (c)(1)(A) (relating to the investment in the contract), and
(B) the aggregate premiums or other consideration paid for purposes of subsection (e)(6) (relating to certain amounts not received as an annuity),
any amount allowed as a deduction with respect to the contract under section 404 which was paid while the employee was an employee within the meaning of section 401(c)(1) shall be treated as consideration contributed by the employer, and there shall not be taken into account any portion of the premiums or other consideration for the contract paid while the employee was an owner-employee which is properly allocable (as determined under regulations prescribed by the Secretary) to the cost of life, accident, health, or other insurance.
(3) Life insurance contracts
(A) This paragraph shall apply to any life insurance contract—
(i) purchased as a part of a plan described in section 403(a), or
(ii) purchased by a trust described in section 401(a) which is exempt from tax under section 501(a) if the proceeds of such contract are payable directly or indirectly to a participant in such trust or to a beneficiary of such participant.
(B) Any contribution to a plan described in subparagraph (A)(i) or a trust described in subparagraph (A)(ii) which is allowed as a deduction under section 404, and any income of a trust described in subparagraph (A)(ii), which is determined in accordance with regulations prescribed by the Secretary to have been applied to purchase the life insurance protection under a contract described in subparagraph (A), is includible in the gross income of the participant for the taxable year when so applied.
(C) In the case of the death of an individual insured under a contract described in subparagraph (A), an amount equal to the cash surrender value of the contract immediately before the death of the insured shall be treated as a payment under such plan or a distribution by such trust, and the excess of the amount payable by reason of the death of the insured over such cash surrender value shall not be includible in gross income under this section and shall be treated as provided in section 101.
[(4) Repealed. Pub. L. 97–248, title II, §236(b)(1), Sept. 3, 1982, 96 Stat. 510 ]
(5) Penalties applicable to certain amounts received by 5-percent owners
(A) This paragraph applies to amounts which are received from a qualified trust described in section 401(a) or under a plan described in section 403(a) at any time by an individual who is, or has been, a 5-percent owner, or by a successor of such an individual, but only to the extent such amounts are determined, under regulations prescribed by the Secretary, to exceed the benefits provided for such individual under the plan formula.
(B) If a person receives an amount to which this paragraph applies, his tax under this chapter for the taxable year in which such amount is received shall be increased by an amount equal to 10 percent of the portion of the amount so received which is includible in his gross income for such taxable year.
(C) For purposes of this paragraph, the term "5-percent owner" means any individual who, at any time during the 5 plan years preceding the plan year ending in the taxable year in which the amount is received, is a 5-percent owner (as defined in section 416(i)(1)(B)).
(6) Owner-employee defined
For purposes of this subsection, the term "owner-employee" has the meaning assigned to it by section 401(c)(3) and includes an individual for whose benefit an individual retirement account or annuity described in section 408(a) or (b) is maintained. For purposes of the preceding sentence, the term "owner-employee" shall include an employee within the meaning of section 401(c)(1).
(7) Meaning of disabled
For purposes of this section, an individual shall be considered to be disabled if he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long-continued and indefinite duration. An individual shall not be considered to be disabled unless he furnishes proof of the existence thereof in such form and manner as the Secretary may require.
[(8) Repealed. Pub. L. 97–248, title II, §236(b)(1), Sept. 3, 1982, 96 Stat. 510 ]
[(9) Repealed. Pub. L. 98–369, div. A, title VII, §713(d)(1), July 18, 1984, 98 Stat. 957 ]
(10) Determination of investment in the contract in the case of qualified domestic relations orders
Under regulations prescribed by the Secretary, in the case of a distribution or payment made to an alternate payee who is the spouse or former spouse of the participant pursuant to a qualified domestic relations order (as defined in section 414(p)), the investment in the contract as of the date prescribed in such regulations shall be allocated on a pro rata basis between the present value of such distribution or payment and the present value of all other benefits payable with respect to the participant to which such order relates.
(n) Annuities under retired serviceman's family protection plan or survivor benefit plan
Subsection (b) shall not apply in the case of amounts received after December 31, 1965, as an annuity under
(o) Special rules for distributions from qualified plans to which employee made deductible contributions
(1) Treatment of contributions
For purposes of this section and sections 402 and 403, notwithstanding section 414(h), any deductible employee contribution made to a qualified employer plan or government plan shall be treated as an amount contributed by the employer which is not includible in the gross income of the employee.
[(2) Repealed. Pub. L. 100–647, title I, §1011A(c)(8), Nov. 10, 1988, 102 Stat. 3476 ]
(3) Amounts constructively received
(A) In general
For purposes of this subsection, rules similar to the rules provided by subsection (p) (other than the exception contained in paragraph (2) thereof) shall apply.
(B) Purchase of life insurance
To the extent any amount of accumulated deductible employee contributions of an employee are applied to the purchase of life insurance contracts, such amount shall be treated as distributed to the employee in the year so applied.
(4) Special rule for treatment of rollover amounts
For purposes of sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3), and 457(e)(16), the Secretary shall prescribe regulations providing for such allocations of amounts attributable to accumulated deductible employee contributions, and for such other rules, as may be necessary to insure that such accumulated deductible employee contributions do not become eligible for additional tax benefits (or freed from limitations) through the use of rollovers.
(5) Definitions and special rules
For purposes of this subsection—
(A) Deductible employee contributions
The term "deductible employee contributions" means any qualified voluntary employee contribution (as defined in section 219(e)(2)) made after December 31, 1981, in a taxable year beginning after such date and made for a taxable year beginning before January 1, 1987, and allowable as a deduction under section 219(a) for such taxable year.
(B) Accumulated deductible employee contributions
The term "accumulated deductible employee contributions" means the deductible employee contributions—
(i) increased by the amount of income and gain allocable to such contributions, and
(ii) reduced by the sum of the amount of loss and expense allocable to such contributions and the amounts distributed with respect to the employee which are attributable to such contributions (or income or gain allocable to such contributions).
(C) Qualified employer plan
The term "qualified employer plan" has the meaning given to such term by subsection (p)(3)(A)(i).
(D) Government plan
The term "government plan" has the meaning given such term by subsection (p)(3)(B).
(6) Ordering rules
Unless the plan specifies otherwise, any distribution from such plan shall not be treated as being made from the accumulated deductible employee contributions, until all other amounts to the credit of the employee have been distributed.
(p) Loans treated as distributions
For purposes of this section—
(1) Treatment as distributions
(A) Loans
If during any taxable year a participant or beneficiary receives (directly or indirectly) any amount as a loan from a qualified employer plan, such amount shall be treated as having been received by such individual as a distribution under such plan.
(B) Assignments or pledges
If during any taxable year a participant or beneficiary assigns (or agrees to assign) or pledges (or agrees to pledge) any portion of his interest in a qualified employer plan, such portion shall be treated as having been received by such individual as a loan from such plan.
(2) Exception for certain loans
(A) General rule
Paragraph (1) shall not apply to any loan to the extent that such loan (when added to the outstanding balance of all other loans from such plan whether made on, before, or after August 13, 1982), does not exceed the lesser of—
(i) $50,000, reduced by the excess (if any) of—
(I) the highest outstanding balance of loans from the plan during the 1-year period ending on the day before the date on which such loan was made, over
(II) the outstanding balance of loans from the plan on the date on which such loan was made, or
(ii) the greater of (I) one-half of the present value of the nonforfeitable accrued benefit of the employee under the plan, or (II) $10,000.
For purposes of clause (ii), the present value of the nonforfeitable accrued benefit shall be determined without regard to any accumulated deductible employee contributions (as defined in subsection (o)(5)(B)).
(B) Requirement that loan be repayable within 5 years
(i) In general
Subparagraph (A) shall not apply to any loan unless such loan, by its terms, is required to be repaid within 5 years.
(ii) Exception for home loans
Clause (i) shall not apply to any loan used to acquire any dwelling unit which within a reasonable time is to be used (determined at the time the loan is made) as the principal residence of the participant.
(C) Requirement of level amortization
Except as provided in regulations, this paragraph shall not apply to any loan unless substantially level amortization of such loan (with payments not less frequently than quarterly) is required over the term of the loan.
(D) Prohibition of loans through credit cards and other similar arrangements
Subparagraph (A) shall not apply to any loan which is made through the use of any credit card or any other similar arrangement.
(E) Related employers and related plans
For purposes of this paragraph—
(i) the rules of subsections (b), (c), and (m) of section 414 shall apply, and
(ii) all plans of an employer (determined after the application of such subsections) shall be treated as 1 plan.
(3) Denial of interest deductions in certain cases
(A) In general
No deduction otherwise allowable under this chapter shall be allowed under this chapter for any interest paid or accrued on any loan to which paragraph (1) does not apply by reason of paragraph (2) during the period described in subparagraph (B).
(B) Period to which subparagraph (A) applies
For purposes of subparagraph (A), the period described in this subparagraph is the period—
(i) on or after the 1st day on which the individual to whom the loan is made is a key employee (as defined in section 416(i)), or
(ii) such loan is secured by amounts attributable to elective deferrals described in subparagraph (A) or (C) of section 402(g)(3).
(4) Qualified employer plan, etc.
For purposes of this subsection—
(A) Qualified employer plan
(i) In general
The term "qualified employer plan" means—
(I) a plan described in section 401(a) which includes a trust exempt from tax under section 501(a),
(II) an annuity plan described in section 403(a), and
(III) a plan under which amounts are contributed by an individual's employer for an annuity contract described in section 403(b).
(ii) Special rule
The term "qualified employer plan" shall include any plan which was (or was determined to be) a qualified employer plan or a government plan.
(B) Government plan
The term "government plan" means any plan, whether or not qualified, established and maintained for its employees by the United States, by a State or political subdivision thereof, or by an agency or instrumentality of any of the foregoing.
(5) Special rules for loans, etc., from certain contracts
For purposes of this subsection, any amount received as a loan under a contract purchased under a qualified employer plan (and any assignment or pledge with respect to such a contract) shall be treated as a loan under such employer plan.
(6) Increase in limit on loans not treated as distributions
(A) In general
In the case of any loan from a qualified employer plan to a qualified individual made during the applicable period—
(i) clause (i) of paragraph (2)(A) shall be applied by substituting "$100,000" for "$50,000", and
(ii) clause (ii) of such paragraph shall be applied by substituting "the present value of the nonforfeitable accrued benefit of the employee under the plan" for "one-half of the present value of the nonforfeitable accrued benefit of the employee under the plan".
(B) Delay of repayment
In the case of a qualified individual with respect to any qualified disaster with an outstanding loan from a qualified employer plan on or after the applicable date with respect to the qualified disaster—
(i) if the due date pursuant to subparagraph (B) or (C) of paragraph (2) for any repayment with respect to such loan occurs during the period beginning on the first day of the incident period of such qualified disaster and ending on the date which is 180 days after the last day of such incident period, such due date may be delayed for 1 year,
(ii) any subsequent repayments with respect to any such loan may be appropriately adjusted to reflect the delay in the due date under clause (i) and any interest accruing during such delay, and
(iii) in determining the 5-year period and the term of a loan under subparagraph (B) or (C) of paragraph (2), the period described in clause (i) may be disregarded.
(C) Definitions
For purposes of this paragraph—
(i) Qualified individual
The term "qualified individual" means any individual—
(I) whose principal place of abode at any time during the incident period of any qualified disaster is located in the qualified disaster area with respect to such qualified disaster, and
(II) who has sustained an economic loss by reason of such qualified disaster.
(ii) Applicable period
The applicable period with respect to any disaster is the period—
(I) beginning on the applicable date with respect to such disaster, and
(II) ending on the date that is 180 days after such applicable date.
(iii) Other terms
For purposes of this paragraph—
(I) the terms "applicable date", "qualified disaster", "qualified disaster area", and "incident period" have the meaning given such terms under subsection (t)(11), and
(II) the term "applicable period" has the meaning given such term under subsection (t)(8).
(q) 10-percent penalty for premature distributions from annuity contracts
(1) Imposition of penalty
If any taxpayer receives any amount under an annuity contract, the taxpayer's tax under this chapter for the taxable year in which such amount is received shall be increased by an amount equal to 10 percent of the portion of such amount which is includible in gross income.
(2) Subsection not to apply to certain distributions
Paragraph (1) shall not apply to any distribution—
(A) made on or after the date on which the taxpayer attains age 59½,
(B) made on or after the death of the holder (or, where the holder is not an individual, the death of the primary annuitant (as defined in subsection (s)(6)(B))),
(C) attributable to the taxpayer's becoming disabled within the meaning of subsection (m)(7),
(D) which is a part of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the taxpayer or the joint lives (or joint life expectancies) of such taxpayer and his designated beneficiary,
(E) from a plan, contract, account, trust, or annuity described in subsection (e)(5)(D),
(F) allocable to investment in the contract before August 14, 1982, or 2
(G) under a qualified funding asset (within the meaning of section 130(d), but without regard to whether there is a qualified assignment),
(H) to which subsection (t) applies (without regard to paragraph (2) thereof),
(I) under an immediate annuity contract (within the meaning of section 72(u)(4)), or
(J) which is purchased by an employer upon the termination of a plan described in section 401(a) or 403(a) and which is held by the employer until such time as the employee separates from service.
For purposes of subparagraph (D), periodic payments shall not fail to be treated as substantially equal merely because they are amounts received as an annuity, and such periodic payments shall be deemed to be substantially equal if they are payable over a period described in subparagraph (D) and would satisfy the requirements applicable to annuity payments under section 401(a)(9) if such requirements applied.
(3) Change in substantially equal payments
(A) In general
If—
(i) paragraph (1) does not apply to a distribution by reason of paragraph (2)(D), and
(ii) the series of payments under such paragraph are subsequently modified (other than by reason of death or disability)—
(I) before the close of the 5-year period beginning on the date of the first payment and after the taxpayer attains age 59½, or
(II) before the taxpayer attains age 59½,
the taxpayer's tax for the 1st taxable year in which such modification occurs shall be increased by an amount, determined under regulations, equal to the tax which (but for paragraph (2)(D)) would have been imposed, plus interest for the deferral period (within the meaning of subsection (t)(4)(B)).
(B) Exchanges to subsequent contracts
If—
(i) payments described in paragraph (2)(D) are being made from an annuity contract,
(ii) an exchange of all or a portion of such contract for another contract is made under section 1035, and
(iii) the aggregate distributions from the contracts involved in the exchange continue to satisfy the requirements of paragraph (2)(D) as if the exchange had not taken place,
such exchange shall not be treated as a modification under subparagraph (A)(ii), and compliance with paragraph (2)(D) shall be determined on the basis of the combined distributions described in clause (iii).
(r) Certain railroad retirement benefits treated as received under employer plans
(1) In general
Notwithstanding any other provision of law, any benefit provided under the Railroad Retirement Act of 1974 (other than a tier 1 railroad retirement benefit) shall be treated for purposes of this title as a benefit provided under an employer plan which meets the requirements of section 401(a).
(2) Tier 2 taxes treated as contributions
(A) In general
For purposes of paragraph (1)—
(i) the tier 2 portion of the tax imposed by section 3201 (relating to tax on employees) shall be treated as an employee contribution,
(ii) the tier 2 portion of the tax imposed by section 3211 (relating to tax on employee representatives) shall be treated as an employee contribution, and
(iii) the tier 2 portion of the tax imposed by section 3221 (relating to tax on employers) shall be treated as an employer contribution.
(B) Tier 2 portion
For purposes of subparagraph (A)—
(i) After 1984
With respect to compensation paid after 1984, the tier 2 portion shall be the taxes imposed by sections 3201(b), 3211(b), and 3221(b).
(ii) After September 30, 1981, and before 1985
With respect to compensation paid before 1985 for services rendered after September 30, 1981, the tier 2 portion shall be—
(I) so much of the tax imposed by section 3201 as is determined at the 2 percent rate, and
(II) so much of the taxes imposed by sections 3211 and 3221 as is determined at the 11.75 percent rate.
With respect to compensation paid for services rendered after December 31, 1983, and before 1985, subclause (I) shall be applied by substituting "2.75 percent" for "2 percent", and subclause (II) shall be applied by substituting "12.75 percent" for "11.75 percent".
(iii) Before October 1, 1981
With respect to compensation paid for services rendered during any period before October 1, 1981, the tier 2 portion shall be the excess (if any) of—
(I) the tax imposed for such period by section 3201, 3211, or 3221, as the case may be (other than any tax imposed with respect to man-hours), over
(II) the tax which would have been imposed by such section for such period had the rates of the comparable taxes imposed by
(C) Contributions not allocable to supplemental annuity or windfall benefits
For purposes of paragraph (1), no amount treated as an employee contribution under this paragraph shall be allocated to—
(i) any supplemental annuity paid under section 2(b) of the Railroad Retirement Act of 1974, or
(ii) any benefit paid under section 3(h), 4(e), or 4(h) of such Act.
(3) Tier 1 railroad retirement benefit
For purposes of paragraph (1), the term "tier 1 railroad retirement benefit" has the meaning given such term by section 86(d)(4).
(s) Required distributions where holder dies before entire interest is distributed
(1) In general
A contract shall not be treated as an annuity contract for purposes of this title unless it provides that—
(A) if any holder of such contract dies on or after the annuity starting date and before the entire interest in such contract has been distributed, the remaining portion of such interest will be distributed at least as rapidly as under the method of distributions being used as of the date of his death, and
(B) if any holder of such contract dies before the annuity starting date, the entire interest in such contract will be distributed within 5 years after the death of such holder.
(2) Exception for certain amounts payable over life of beneficiary
If—
(A) any portion of the holder's interest is payable to (or for the benefit of) a designated beneficiary,
(B) such portion will be distributed (in accordance with regulations) over the life of such designated beneficiary (or over a period not extending beyond the life expectancy of such beneficiary), and
(C) such distributions begin not later than 1 year after the date of the holder's death or such later date as the Secretary may by regulations prescribe,
then for purposes of paragraph (1), the portion referred to in subparagraph (A) shall be treated as distributed on the day on which such distributions begin.
(3) Special rule where surviving spouse beneficiary
If the designated beneficiary referred to in paragraph (2)(A) is the surviving spouse of the holder of the contract, paragraphs (1) and (2) shall be applied by treating such spouse as the holder of such contract.
(4) Designated beneficiary
For purposes of this subsection, the term "designated beneficiary" means any individual designated a beneficiary by the holder of the contract.
(5) Exception for certain annuity contracts
This subsection shall not apply to any annuity contract—
(A) which is provided—
(i) under a plan described in section 401(a) which includes a trust exempt from tax under section 501, or
(ii) under a plan described in section 403(a),
(B) which is described in section 403(b),
(C) which is an individual retirement annuity or provided under an individual retirement account or annuity, or
(D) which is a qualified funding asset (as defined in section 130(d), but without regard to whether there is a qualified assignment).
(6) Special rule where holder is corporation or other non-individual
(A) In general
For purposes of this subsection, if the holder of the contract is not an individual, the primary annuitant shall be treated as the holder of the contract.
(B) Primary annuitant
For purposes of subparagraph (A), the term "primary annuitant" means the individual, the events in the life of whom are of primary importance in affecting the timing or amount of the payout under the contract.
(7) Treatment of changes in primary annuitant where holder of contract is not an individual
For purposes of this subsection, in the case of a holder of an annuity contract which is not an individual, if there is a change in a primary annuitant (as defined in paragraph (6)(B)), such change shall be treated as the death of the holder.
(t) 10-percent additional tax on early distributions from qualified retirement plans
(1) Imposition of additional tax
If any taxpayer receives any amount from a qualified retirement plan (as defined in section 4974(c)), the taxpayer's tax under this chapter for the taxable year in which such amount is received shall be increased by an amount equal to 10 percent of the portion of such amount which is includible in gross income.
(2) Subsection not to apply to certain distributions
Except as provided in paragraphs (3) and (4), paragraph (1) shall not apply to any of the following distributions:
(A) In general
Distributions which are—
(i) made on or after the date on which the employee attains age 59½,
(ii) made to a beneficiary (or to the estate of the employee) on or after the death of the employee,
(iii) attributable to the employee's being disabled within the meaning of subsection (m)(7),
(iv) part of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the employee or the joint lives (or joint life expectancies) of such employee and his designated beneficiary,
(v) made to an employee after separation from service after attainment of age 55,
(vi) dividends paid with respect to stock of a corporation which are described in section 404(k),
(vii) made on account of a levy under section 6331 on the qualified retirement plan,
(viii) payments under a phased retirement annuity under section 8366a(a)(5) 3 or 8412a(a)(5) of
(ix) attributable to withdrawal of net income attributable to a contribution which is distributed pursuant to section 408(d)(4).
For purposes of clause (iv), periodic payments shall not fail to be treated as substantially equal merely because they are amounts received as an annuity, and such periodic payments shall be deemed to be substantially equal if they are payable over a period described in clause (iv) and satisfy the requirements applicable to annuity payments under section 401(a)(9).
(B) Medical expenses
Distributions made to the employee (other than distributions described in subparagraph (A), (C), or (D)) to the extent such distributions do not exceed the amount allowable as a deduction under section 213 to the employee for amounts paid during the taxable year for medical care (determined without regard to whether the employee itemizes deductions for such taxable year).
(C) Payments to alternate payees pursuant to qualified domestic relations orders
Any distribution to an alternate payee pursuant to a qualified domestic relations order (within the meaning of section 414(p)(1)).
(D) Distributions to unemployed individuals for health insurance premiums
(i) In general
Distributions from an individual retirement plan to an individual after separation from employment—
(I) if such individual has received unemployment compensation for 12 consecutive weeks under any Federal or State unemployment compensation law by reason of such separation,
(II) if such distributions are made during any taxable year during which such unemployment compensation is paid or the succeeding taxable year, and
(III) to the extent such distributions do not exceed the amount paid during the taxable year for insurance described in section 213(d)(1)(D) with respect to the individual and the individual's spouse and dependents (as defined in section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof).
(ii) Distributions after reemployment
Clause (i) shall not apply to any distribution made after the individual has been employed for at least 60 days after the separation from employment to which clause (i) applies.
(iii) Self-employed individuals
To the extent provided in regulations, a self-employed individual shall be treated as meeting the requirements of clause (i)(I) if, under Federal or State law, the individual would have received unemployment compensation but for the fact the individual was self-employed.
(E) Distributions from individual retirement plans for higher education expenses
Distributions to an individual from an individual retirement plan to the extent such distributions do not exceed the qualified higher education expenses (as defined in paragraph (7)) of the taxpayer for the taxable year. Distributions shall not be taken into account under the preceding sentence if such distributions are described in subparagraph (A), (C), or (D) or to the extent paragraph (1) does not apply to such distributions by reason of subparagraph (B).
(F) Distributions from certain plans for first home purchases
Distributions to an individual from an individual retirement plan which are qualified first-time homebuyer distributions (as defined in paragraph (8)). Distributions shall not be taken into account under the preceding sentence if such distributions are described in subparagraph (A), (C), (D), or (E) or to the extent paragraph (1) does not apply to such distributions by reason of subparagraph (B).
(G) Distributions from retirement plans to individuals called to active duty
(i) In general
Any qualified reservist distribution.
(ii) Amount distributed may be repaid
Any individual who receives a qualified reservist distribution may, at any time during the 2-year period beginning on the day after the end of the active duty period, make one or more contributions to an individual retirement plan of such individual in an aggregate amount not to exceed the amount of such distribution. The dollar limitations otherwise applicable to contributions to individual retirement plans shall not apply to any contribution made pursuant to the preceding sentence. No deduction shall be allowed for any contribution pursuant to this clause.
(iii) Qualified reservist distribution
For purposes of this subparagraph, the term "qualified reservist distribution" means any distribution to an individual if—
(I) such distribution is from an individual retirement plan, or from amounts attributable to employer contributions made pursuant to elective deferrals described in subparagraph (A) or (C) of section 402(g)(3) or section 501(c)(18)(D)(iii),
(II) such individual was (by reason of being a member of a reserve component (as defined in
(III) such distribution is made during the period beginning on the date of such order or call and ending at the close of the active duty period.
(iv) Application of subparagraph
This subparagraph applies to individuals ordered or called to active duty after September 11, 2001. In no event shall the 2-year period referred to in clause (ii) end before the date which is 2 years after the date of the enactment of this subparagraph.
(H) Distributions from retirement plans in case of birth of child or adoption
(i) In general
Any qualified birth or adoption distribution.
(ii) Limitation
The aggregate amount which may be treated as qualified birth or adoption distributions by any individual with respect to any birth or adoption shall not exceed $5,000.
(iii) Qualified birth or adoption distribution
For purposes of this subparagraph—
(I) In general
The term "qualified birth or adoption distribution" means any distribution from an applicable eligible retirement plan to an individual if made during the 1-year period beginning on the date on which a child of the individual is born or on which the legal adoption by the individual of an eligible adoptee is finalized.
(II) Eligible adoptee
The term "eligible adoptee" means any individual (other than a child of the taxpayer's spouse) who has not attained age 18 or is physically or mentally incapable of self-support.
(iv) Treatment of plan distributions
(I) In general
If a distribution to an individual would (without regard to clause (ii)) be a qualified birth or adoption distribution, a plan shall not be treated as failing to meet any requirement of this title merely because the plan treats the distribution as a qualified birth or adoption distribution, unless the aggregate amount of such distributions from all plans maintained by the employer (and any member of any controlled group which includes the employer) to such individual exceeds $5,000.
(II) Controlled group
For purposes of subclause (I), the term "controlled group" means any group treated as a single employer under subsection (b), (c), (m), or (o) of section 414.
(v) Amount distributed may be repaid
(I) In general
Any individual who receives a qualified birth or adoption distribution may, at any time during the 3-year period beginning on the day after the date on which such distribution was received, make one or more contributions in an aggregate amount not to exceed the amount of such distribution to an applicable eligible retirement plan of which such individual is a beneficiary and to which a rollover contribution of such distribution could be made under section 402(c), 403(a)(4), 403(b)(8), 408(d)(3), or 457(e)(16), as the case may be.
(II) Limitation on contributions to applicable eligible retirement plans other than IRAs
The aggregate amount of contributions made by an individual under subclause (I) to any applicable eligible retirement plan which is not an individual retirement plan shall not exceed the aggregate amount of qualified birth or adoption distributions which are made from such plan to such individual. Subclause (I) shall not apply to contributions to any applicable eligible retirement plan which is not an individual retirement plan unless the individual is eligible to make contributions (other than those described in subclause (I)) to such applicable eligible retirement plan.
(III) Treatment of repayments of distributions from applicable eligible retirement plans other than IRAs
If a contribution is made under subclause (I) with respect to a qualified birth or adoption distribution from an applicable eligible retirement plan other than an individual retirement plan, then the taxpayer shall, to the extent of the amount of the contribution, be treated as having received such distribution in an eligible rollover distribution (as defined in section 402(c)(4)) and as having transferred the amount to the applicable eligible retirement plan in a direct trustee to trustee transfer within 60 days of the distribution.
(IV) Treatment of repayments for distributions from IRAs
If a contribution is made under subclause (I) with respect to a qualified birth or adoption distribution from an individual retirement plan, then, to the extent of the amount of the contribution, such distribution shall be treated as a distribution described in section 408(d)(3) and as having been transferred to the applicable eligible retirement plan in a direct trustee to trustee transfer within 60 days of the distribution.
(vi) Definition and special rules
For purposes of this subparagraph—
(I) Applicable eligible retirement plan
The term "applicable eligible retirement plan" means an eligible retirement plan (as defined in section 402(c)(8)(B)) other than a defined benefit plan.
(II) Exemption of distributions from trustee to trustee transfer and withholding rules
For purposes of sections 401(a)(31), 402(f), and 3405, a qualified birth or adoption distribution shall not be treated as an eligible rollover distribution.
(III) Taxpayer must include TIN
A distribution shall not be treated as a qualified birth or adoption distribution with respect to any child or eligible adoptee unless the taxpayer includes the name, age, and TIN of such child or eligible adoptee on the taxpayer's return of tax for the taxable year.
(IV) Distributions treated as meeting plan distribution requirements
Any qualified birth or adoption distribution shall be treated as meeting the requirements of sections 401(k)(2)(B)(i), 403(b)(7)(A)(i), 403(b)(11), and 457(d)(1)(A).
(I) Distributions for certain emergency expenses
(i) In general
Any emergency personal expense distribution.
(ii) Annual limitation
Not more than 1 distribution per calendar year may be treated as an emergency personal expense distribution by any individual.
(iii) Dollar limitation
The amount which may be treated as an emergency personal expense distribution by any individual in any calendar year shall not exceed the lesser of $1,000 or an amount equal to the excess of—
(I) the individual's total nonforfeitable accrued benefit under the plan (the individual's total interest in the plan in the case of an individual retirement plan), determined as of the date of each such distribution, over
(II) $1,000.
(iv) Emergency personal expense distribution
For purposes of this subparagraph, the term "emergency personal expense distribution" means any distribution from an applicable eligible retirement plan (as defined in subparagraph (H)(vi)(I)) to an individual for purposes of meeting unforeseeable or immediate financial needs relating to necessary personal or family emergency expenses. The administrator of an applicable eligible retirement plan may rely on an employee's written certification that the employee satisfies the conditions of the preceding sentence in determining whether any distribution is an emergency personal expense distribution. The Secretary may provide by regulations for exceptions to the rule of the preceding sentence in cases where the plan administrator has actual knowledge to the contrary of the employee's certification, and for procedures for addressing cases of employee misrepresentation.
(v) Treatment of plan distributions
If a distribution to an individual would (without regard to clause (ii) or (iii)) be an emergency personal expense distribution, a plan shall not be treated as failing to meet any requirement of this title merely because the plan treats the distribution as an emergency personal expense distribution, unless the number or the aggregate amount of such distributions from all plans maintained by the employer (and any member of any controlled group which includes the employer, determined as provided in subparagraph (H)(iv)(II)) to such individual exceeds the limitation determined under clause (ii) or (iii).
(vi) Amount distributed may be repaid
Rules similar to the rules of subparagraph (H)(v) shall apply with respect to an individual who receives a distribution to which clause (i) applies.
(vii) Limitation on subsequent distributions
"If a distribution is treated as an emergency personal expense distribution in any calendar year with respect to a plan of the employee, no amount may be treated as such a distribution during the immediately following 3 calendar years with respect to such plan unless—
(I) such previous distribution is fully repaid to such plan pursuant to clause (vi), or
(II) the aggregate of the elective deferrals and employee contributions to the plan (the total amounts contributed to the plan in the case of an individual retirement plan) subsequent to such previous distribution is at least equal to the amount of such previous distribution which has not been so repaid.
(viii) Special rules
Rules similar to the rules of subclauses (II) and (IV) of subparagraph (H)(vi) shall apply to any emergency personal expense distribution.
(J) Distributions from pension-linked emergency savings account
Distributions from a pension-linked emergency savings account pursuant to section 402A(e).
(K) Distribution from retirement plan in case of domestic abuse
(i) In general
Any eligible distribution to a domestic abuse victim.
(ii) Limitation
The aggregate amount which may be treated as an eligible distribution to a domestic abuse victim by any individual shall not exceed an amount equal to the lesser of—
(I) $10,000, or
(II) 50 percent of the present value of the nonforfeitable accrued benefit of the employee under the plan.
(iii) Eligible distribution to a domestic abuse victim
For purposes of this subparagraph—
(I) In general
A distribution shall be treated as an eligible distribution to a domestic abuse victim if such distribution is from an applicable eligible retirement plan and is made to an individual during the 1-year period beginning on any date on which the individual is a victim of domestic abuse by a spouse or domestic partner.
(II) Domestic abuse
The term "domestic abuse" means physical, psychological, sexual, emotional, or economic abuse, including efforts to control, isolate, humiliate, or intimidate the victim, or to undermine the victim's ability to reason independently, including by means of abuse of the victim's child or another family member living in the household.
(iv) Treatment of plan distributions
If a distribution to an individual would (without regard to clause (ii)) be an eligible distribution to a domestic abuse victim, a plan shall not be treated as failing to meet any requirement of this title merely because the plan treats the distribution as an eligible distribution to a domestic abuse victim, unless the aggregate amount of such distributions from all plans maintained by the employer (and any member of any controlled group which includes the employer, determined as provided in subparagraph (H)(iv)(II)) to such individual exceeds the limitation under clause (ii).
(v) Amount distributed may be repaid
Rules similar to the rules of subparagraph (H)(v) shall apply with respect to an individual who receives a distribution to which clause (i) applies.
(vi) Definition and special rules
For purposes of this subparagraph:
(I) Applicable eligible retirement plan
The term "applicable eligible retirement plan" means an eligible retirement plan (as defined in section 402(c)(8)(B)) other than a defined benefit plan or a plan to which sections 401(a)(11) and 417 apply.
(II) Exemption of distributions from trustee to trustee transfer and withholding rules
For purposes of sections 401(a)(31), 402(f), and 3405, an eligible distribution to a domestic abuse victim shall not be treated as an eligible rollover distribution.
(III) Distributions treated as meeting plan distribution requirements; self-certification
Any distribution which the employee or participant certifies as being an eligible distribution to a domestic abuse victim shall be treated as meeting the requirements of sections 401(k)(2)(B)(i), 403(b)(7)(A)(i), 403(b)(11), and 457(d)(1)(A).
(vii) Inflation adjustment
In the case of a taxable year beginning in a calendar year after 2024, the $10,000 amount in clause (ii)(I) shall be increased by an amount equal to—
(I) such dollar amount, multiplied by
(II) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting 'calendar year 2023' for 'calendar year 2016' in subparagraph (A)(ii) thereof.
If any amount after adjustment under the preceding sentence is not a multiple of $100, such amount shall be rounded to the nearest multiple of $100.
(L) Terminal illness
(i) In general
Distributions which are made to the employee who is a terminally ill individual on or after the date on which such employee has been certified by a physician as having a terminal illness.
(ii) Definition
For purposes of this subparagraph, the term "terminally ill individual" has the same meaning given such term under section 101(g)(4)(A), except that "84 months" shall be substituted for "24 months".
(iii) Documentation
For purposes of this subparagraph, an employee shall not be considered to be a terminally ill individual unless such employee furnishes sufficient evidence to the plan administrator in such form and manner as the Secretary may require.
(iv) Amount distributed may be repaid
Rules similar to the rules of subparagraph (H)(v) shall apply with respect to an individual who receives a distribution to which clause (i) applies.
(M) Distributions from retirement plans in connection with federally declared disasters
Any qualified disaster recovery distribution.
(3) Limitations
(A) Certain exceptions not to apply to individual retirement plans
Subparagraphs (A)(v) and (C) of paragraph (2) shall not apply to distributions from an individual retirement plan.
(B) Periodic payments under qualified plans must begin after separation
Paragraph (2)(A)(iv) shall not apply to any amount paid from a trust described in section 401(a) which is exempt from tax under section 501(a) or from a contract described in section 72(e)(5)(D)(ii) unless the series of payments begins after the employee separates from service.
(4) Change in substantially equal payments
(A) In general
If—
(i) paragraph (1) does not apply to a distribution by reason of paragraph (2)(A)(iv), and
(ii) the series of payments under such paragraph are subsequently modified (other than by reason of death or disability or a distribution to which paragraph (10) applies)—
(I) before the close of the 5-year period beginning with the date of the first payment and after the employee attains age 59½, or
(II) before the employee attains age 59½,
the taxpayer's tax for the 1st taxable year in which such modification occurs shall be increased by an amount, determined under regulations, equal to the tax which (but for paragraph (2)(A)(iv)) would have been imposed, plus interest for the deferral period.
(B) Deferral period
For purposes of this paragraph, the term "deferral period" means the period beginning with the taxable year in which (without regard to paragraph (2)(A)(iv)) the distribution would have been includible in gross income and ending with the taxable year in which the modification described in subparagraph (A) occurs.
(C) Rollovers to subsequent plan
If—
(i) payments described in paragraph (2)(A)(iv) are being made from a qualified retirement plan,
(ii) a transfer or a rollover from such qualified retirement plan of all or a portion of the taxpayer's benefit under the plan is made to another qualified retirement plan, and
(iii) distributions from the transferor and transferee plans would in combination continue to satisfy the requirements of paragraph (2)(A)(iv) if they had been made only from the transferor plan,
such transfer or rollover shall not be treated as a modification under subparagraph (A)(ii), and compliance with paragraph (2)(A)(iv) shall be determined on the basis of the combined distributions described in clause (iii).
(5) Employee
For purposes of this subsection, the term "employee" includes any participant, and in the case of an individual retirement plan, the individual for whose benefit such plan was established.
(6) Special rules for simple retirement accounts
(A) In general
In the case of any amount received from a simple retirement account (within the meaning of section 408(p)) during the 2-year period beginning on the date such individual first participated in any qualified salary reduction arrangement maintained by the individual's employer under section 408(p)(2), paragraph (1) shall be applied by substituting "25 percent" for "10 percent".
(B) Waiver in case of plan conversion to 401(k) or 403(b)
In the case of an employee of an employer which terminates the qualified salary reduction arrangement of the employer under section 408(p) and establishes a qualified cash or deferred arrangement described in section 401(k) or purchases annuity contracts described in section 403(b), subparagraph (A) shall not apply to any amount which is paid in a rollover contribution described in section 408(d)(3) into a qualified trust under section 401(k) (but only if such contribution is subsequently subject to the rules of section 401(k)(2)(B)) or an annuity contract described in section 403(b) (but only if such contribution is subsequently subject to the rules of section 403(b)(12)) for the benefit of the employee.
(7) Qualified higher education expenses
For purposes of paragraph (2)(E)—
(A) In general
The term "qualified higher education expenses" means qualified higher education expenses (as defined in section 529(e)(3)) for education furnished to—
(i) the taxpayer,
(ii) the taxpayer's spouse, or
(iii) any child (as defined in section 152(f)(1)) or grandchild of the taxpayer or the taxpayer's spouse,
at an eligible educational institution (as defined in section 529(e)(5)).
(B) Coordination with other benefits
The amount of qualified higher education expenses for any taxable year shall be reduced as provided in section 25A(g)(2).
(8) Qualified first-time homebuyer distributions
For purposes of paragraph (2)(F)—
(A) In general
The term "qualified first-time homebuyer distribution" means any payment or distribution received by an individual to the extent such payment or distribution is used by the individual before the close of the 120th day after the day on which such payment or distribution is received to pay qualified acquisition costs with respect to a principal residence of a first-time homebuyer who is such individual, the spouse of such individual, or any child, grandchild, or ancestor of such individual or the individual's spouse.
(B) Lifetime dollar limitation
The aggregate amount of payments or distributions received by an individual which may be treated as qualified first-time homebuyer distributions for any taxable year shall not exceed the excess (if any) of—
(i) $10,000, over
(ii) the aggregate amounts treated as qualified first-time homebuyer distributions with respect to such individual for all prior taxable years.
(C) Qualified acquisition costs
For purposes of this paragraph, the term "qualified acquisition costs" means the costs of acquiring, constructing, or reconstructing a residence. Such term includes any usual or reasonable settlement, financing, or other closing costs.
(D) First-time homebuyer; other definitions
For purposes of this paragraph—
(i) First-time homebuyer
The term "first-time homebuyer" means any individual if—
(I) such individual (and if married, such individual's spouse) had no present ownership interest in a principal residence during the 2-year period ending on the date of acquisition of the principal residence to which this paragraph applies, and
(II) subsection (h) or (k) of section 1034 5 (as in effect on the day before the date of the enactment of this paragraph) did not suspend the running of any period of time specified in section 1034 5 (as so in effect) with respect to such individual on the day before the date the distribution is applied pursuant to subparagraph (A).
(ii) Principal residence
The term "principal residence" has the same meaning as when used in section 121.
(iii) Date of acquisition
The term "date of acquisition" means the date—
(I) on which a binding contract to acquire the principal residence to which subparagraph (A) applies is entered into, or
(II) on which construction or reconstruction of such a principal residence is commenced.
(E) Special rule where delay in acquisition
If any distribution from any individual retirement plan fails to meet the requirements of subparagraph (A) solely by reason of a delay or cancellation of the purchase or construction of the residence, the amount of the distribution may be contributed to an individual retirement plan as provided in section 408(d)(3)(A)(i) (determined by substituting "120th day" for "60th day" in such section), except that—
(i) section 408(d)(3)(B) shall not be applied to such contribution, and
(ii) such amount shall not be taken into account in determining whether section 408(d)(3)(B) applies to any other amount.
(F) Recontributions
(i) General rule
(I) In general
Any individual who received a qualified distribution may, during the applicable period, make one or more contributions in an aggregate amount not to exceed the amount of such qualified distribution to an eligible retirement plan (as defined in section 402(c)(8)(B)) of which such individual is a beneficiary and to which a rollover contribution of such distribution could be made under section 402(c), 403(a)(4), 403(b)(8), or 408(d)(3), as the case may be.
(II) Treatment of repayments
Rules similar to the rules of clauses (ii) and (iii) of paragraph (11)(C) shall apply for purposes of this subsection.
(ii) Qualified distribution
For purposes of this subparagraph, the term "qualified distribution" means any distribution—
(I) which is a qualified first-time homebuyer distribution,
(II) which was to be used to purchase or construct a principal residence in a qualified disaster area, but which was not so used on account of the qualified disaster with respect to such area, and
(III) which was received during the period beginning on the date which is 180 days before the first day of the incident period of such qualified disaster and ending on the date which is 30 days after the last day of such incident period.
(iii) Applicable period
For purposes of this subparagraph, the term "applicable period" means, in the case of a principal residence in a qualified disaster area with respect to any qualified disaster, the period beginning on the first day of the incident period of such qualified disaster and ending on the date which is 180 days after the applicable date with respect to such disaster.
(9) Special rule for rollovers to section 457 plans
For purposes of this subsection, a distribution from an eligible deferred compensation plan (as defined in section 457(b)) of an eligible employer described in section 457(e)(1)(A) shall be treated as a distribution from a qualified retirement plan described in 4974(c)(1) to the extent that such distribution is attributable to an amount transferred to an eligible deferred compensation plan from a qualified retirement plan (as defined in section 4974(c)).
(10) Distributions to qualified public safety employees and private sector firefighters
(A) In general
In the case of a distribution to a qualified public safety employee from a governmental plan (within the meaning of section 414(d)) or a distribution from a plan described in clause (iii), (iv), or (vi) of section 402(c)(8)(B) to an employee who provides firefighting services, paragraph (2)(A)(v) shall be applied by substituting "age 50 or 25 years of service under the plan, whichever is earlier" for "age 55".
(B) Qualified public safety employee
For purposes of this paragraph, the term "qualified public safety employee" means—
(i) any employee of a State or political subdivision of a State who provides police protection, firefighting services, emergency medical services, or services as a corrections officer or as a forensic security employee providing for the care, custody, and control of forensic patients for any area within the jurisdiction of such State or political subdivision, or
(ii) any Federal law enforcement officer described in
(11) Qualified disaster recovery distribution
For purposes of paragraph (2)(M)—
(A) In general
Except as provided in subparagraph (B), the term "qualified disaster recovery distribution" means any distribution made—
(i) on or after the first day of the incident period of a qualified disaster and before the date that is 180 days after the applicable date with respect to such disaster, and
(ii) to an individual whose principal place of abode at any time during the incident period of such qualified disaster is located in the qualified disaster area with respect to such qualified disaster and who has sustained an economic loss by reason of such qualified disaster.
(B) Aggregate dollar limitation
(i) In general
For purposes of this subsection, the aggregate amount of distributions received by an individual which may be treated as qualified disaster recovery distributions with respect to any qualified disaster in all taxable years shall not exceed $22,000.
(ii) Treatment of plan distributions
If a distribution to an individual would (without regard to clause (i)) be a qualified disaster recovery distribution, a plan shall not be treated as violating any requirement of this title merely because the plan treats such distribution as a qualified disaster recovery distribution, unless the aggregate amount of such distributions from all plans maintained by the employer (and any member of any controlled group which includes the employer) to such individual exceeds $22,000 with respect to the same qualified disaster.
(iii) Controlled group
For purposes of clause (ii), the term "controlled group" means any group treated as a single employer under subsection (b), (c), (m), or (o) of section 414.
(C) Amount distributed may be repaid
(i) In general
Any individual who receives a qualified disaster recovery distribution may, at any time during the 3-year period beginning on the day after the date on which such distribution was received, make one or more contributions in an aggregate amount not to exceed the amount of such distribution to an eligible retirement plan of which such individual is a beneficiary and to which a rollover contribution of such distribution could be made under section 402(c), 403(a)(4), 403(b)(8), 408(d)(3), or 457(e)(16), as the case may be.
(ii) Treatment of repayments of distributions from eligible retirement plans other than IRAs
For purposes of this title, if a contribution is made pursuant to clause (i) with respect to a qualified disaster recovery distribution from a plan other than an individual retirement plan, then the taxpayer shall, to the extent of the amount of the contribution, be treated as having received the qualified disaster recovery distribution in an eligible rollover distribution (as defined in section 402(c)(4)) and as having transferred the amount to the eligible retirement plan in a direct trustee to trustee transfer within 60 days of the distribution.
(iii) Treatment of repayments for distributions from IRAs
For purposes of this title, if a contribution is made pursuant to clause (i) with respect to a qualified disaster recovery distribution from an individual retirement plan, then, to the extent of the amount of the contribution, the qualified disaster recovery distribution shall be treated as a distribution described in section 408(d)(3) and as having been transferred to the eligible retirement plan in a direct trustee to trustee transfer within 60 days of the distribution.
(D) Income inclusion spread over 3-year period
(i) In general
In the case of any qualified disaster recovery distribution, unless the taxpayer elects not to have this subparagraph apply for any taxable year, any amount required to be included in gross income for such taxable year shall be so included ratably over the 3-taxable year period beginning with such taxable year.
(ii) Special rule
For purposes of clause (i), rules similar to the rules of subparagraph (E) of section 408A(d)(3) shall apply.
(E) Qualified disaster
For purposes of this paragraph and paragraph (8), the term "qualified disaster" means any disaster with respect to which a major disaster has been declared by the President under section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act after December 27, 2020.
(F) Other definitions
For purposes of this paragraph and paragraph (8)—
(i) Qualified disaster area
(I) In general
The term "qualified disaster area" means, with respect to any qualified disaster, the area with respect to which the major disaster was declared under the Robert T. Stafford Disaster Relief and Emergency Assistance Act.
(II) Exceptions
Such term shall not include any area which is a qualified disaster area solely by reason of section 301 of the Taxpayer Certainty and Disaster Tax Relief Act of 2020.
(ii) Incident period
The term "incident period" means, with respect to any qualified disaster, the period specified by the Federal Emergency Management Agency as the period during which such disaster occurred.
(iii) Applicable date
The term "applicable date" means the latest of—
(I) the date of the enactment of this paragraph,
(II) the first day of the incident period with respect to the qualified disaster, or
(III) the date of the disaster declaration with respect to the qualified disaster.
(iv) Eligible retirement plan
The term "eligible retirement plan" shall have the meaning given such term by section 402(c)(8)(B).
(G) Special rules
(i) Exemption of distributions from trustee to trustee transfer and withholding rules
For purposes of sections 401(a)(31), 402(f), and 3405, qualified disaster recovery distributions shall not be treated as eligible rollover distributions.
(ii) Qualified disaster recovery distributions treated as meeting plan distribution requirements
For purposes of this title—
(I) a qualified disaster recovery distribution shall be treated as meeting the requirements of sections 401(k)(2)(B)(i), 403(b)(7)(A)(i), 403(b)(11), and 457(d)(1)(A), and
(II) in the case of a money purchase pension plan, a qualified disaster recovery distribution which is an in-service withdrawal shall be treated as meeting the requirements of section 401(a) applicable to distributions.
(u) Treatment of annuity contracts not held by natural persons
(1) In general
If any annuity contract is held by a person who is not a natural person—
(A) such contract shall not be treated as an annuity contract for purposes of this subtitle (other than subchapter L), and
(B) the income on the contract for any taxable year of the policyholder shall be treated as ordinary income received or accrued by the owner during such taxable year.
For purposes of this paragraph, holding by a trust or other entity as an agent for a natural person shall not be taken into account.
(2) Income on the contract
(A) In general
For purposes of paragraph (1), the term "income on the contract" means, with respect to any taxable year of the policyholder, the excess of—
(i) the sum of the net surrender value of the contract as of the close of the taxable year plus all distributions under the contract received during the taxable year or any prior taxable year, reduced by
(ii) the sum of the amount of net premiums under the contract for the taxable year and prior taxable years and amounts includible in gross income for prior taxable years with respect to such contract under this subsection.
Where necessary to prevent the avoidance of this subsection, the Secretary may substitute "fair market value of the contract" for "net surrender value of the contract" each place it appears in the preceding sentence.
(B) Net premiums
For purposes of this paragraph, the term "net premiums" means the amount of premiums paid under the contract reduced by any policyholder dividends.
(3) Exceptions
This subsection shall not apply to any annuity contract which—
(A) is acquired by the estate of a decedent by reason of the death of the decedent,
(B) is held under a plan described in section 401(a) or 403(a), under a program described in section 403(b), or under an individual retirement plan,
(C) is a qualified funding asset (as defined in section 130(d), but without regard to whether there is a qualified assignment),
(D) is purchased by an employer upon the termination of a plan described in section 401(a) or 403(a) and is held by the employer until all amounts under such contract are distributed to the employee for whom such contract was purchased or the employee's beneficiary, or
(E) is an immediate annuity.
(4) Immediate annuity
For purposes of this subsection, the term "immediate annuity" means an annuity—
(A) which is purchased with a single premium or annuity consideration,
(B) the annuity starting date (as defined in subsection (c)(4)) of which commences no later than 1 year from the date of the purchase of the annuity, and
(C) which provides for a series of substantially equal periodic payments (to be made not less frequently than annually) during the annuity period.
(v) 10-percent additional tax for taxable distributions from modified endowment contracts
(1) Imposition of additional tax
If any taxpayer receives any amount under a modified endowment contract (as defined in section 7702A), the taxpayer's tax under this chapter for the taxable year in which such amount is received shall be increased by an amount equal to 10 percent of the portion of such amount which is includible in gross income.
(2) Subsection not to apply to certain distributions
Paragraph (1) shall not apply to any distribution—
(A) made on or after the date on which the taxpayer attains age 59½,
(B) which is attributable to the taxpayer's becoming disabled (within the meaning of subsection (m)(7)), or
(C) which is part of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the taxpayer or the joint lives (or joint life expectancies) of such taxpayer and his beneficiary.
(w) Application of basis rules to nonresident aliens
(1) In general
Notwithstanding any other provision of this section, for purposes of determining the portion of any distribution which is includible in gross income of a distributee who is a citizen or resident of the United States, the investment in the contract shall not include any applicable nontaxable contributions or applicable nontaxable earnings.
(2) Applicable nontaxable contribution
For purposes of this subsection, the term "applicable nontaxable contribution" means any employer or employee contribution—
(A) which was made with respect to compensation—
(i) for labor or personal services performed by an employee who, at the time the labor or services were performed, was a nonresident alien for purposes of the laws of the United States in effect at such time, and
(ii) which is treated as from sources without the United States, and
(B) which was not subject to income tax (and would have been subject to income tax if paid as cash compensation when the services were rendered) under the laws of the United States or any foreign country.
(3) Applicable nontaxable earnings
For purposes of this subsection, the term "applicable nontaxable earnings" means earnings—
(A) which are paid or accrued with respect to any employer or employee contribution which was made with respect to compensation for labor or personal services performed by an employee,
(B) with respect to which the employee was at the time the earnings were paid or accrued a nonresident alien for purposes of the laws of the United States, and
(C) which were not subject to income tax under the laws of the United States or any foreign country.
(4) Regulations
The Secretary shall prescribe such regulations as may be necessary to carry out the provisions of this subsection, including regulations treating contributions and earnings as not subject to tax under the laws of any foreign country where appropriate to carry out the purposes of this subsection.
(x) Cross reference
For limitation on adjustments to basis of annuity contracts sold, see section 1021.
(Aug. 16, 1954, ch. 736,
Amendment of Subsection (t)(2)
"(N) Qualified long-term care distributions
"(i) In general
"Any qualified long-term care distribution to which section 401(a)(39) applies.
"(ii) Exception
"If, with respect to the plan, the individual covered by the long-term care coverage to which such distribution relates is the spouse of the employee, clause (i) shall apply only if the employee and the employee's spouse file a joint return.
"(iii) Exemption of distributions from trustee to trustee transfer and withholding rules
"For purposes of sections 401(a)(31), 402(f), and 3405, any qualified long-term care distribution described in clause (i) shall not be treated as an eligible rollover distribution.".
See 2022 Amendment note below.
Editorial Notes
References in Text
The enactment of the Economic Growth and Tax Relief Reconciliation Act of 2001, referred to in subsec. (f), means the enactment of
The date of the enactment of the Small Business Job Protection Act of 1996, referred to in subsec. (n), is the date of enactment of
The Railroad Retirement Act of 1974, referred to in subsec. (r)(1), (2)(C)(i), (ii), is act Aug. 29, 1935, ch. 812, as amended generally by
The date of the enactment of this subparagraph, referred to in subsec. (t)(2)(G)(iv), is the date of enactment of
Section 1034 (as in effect on the day before the date of the enactment of this paragraph), referred to in subsec. (t)(8)(D)(i)(II), means
The Robert T. Stafford Disaster Relief and Emergency Assistance Act, referred to in subsec. (t)(11)(E), (F)(i)(I), is
Section 301 of the Taxpayer Certainty and Disaster Tax Relief Act of 2020, referred to in subsec. (t)(11)(F)(i)(II), is section 301 of
The date of the enactment of this paragraph, referred to in subsec. (t)(11)(F)(iii)(I), is the date of enactment of
Amendments
2022—Subsec. (d)(3).
Subsec. (p)(6).
Subsec. (q)(2).
Subsec. (q)(3).
Subsec. (t)(2)(A).
Subsec. (t)(2)(A)(ix).
Subsec. (t)(2)(H)(v)(I).
Subsec. (t)(2)(H)(vi)(IV).
Subsec. (t)(2)(I).
Subsec. (t)(2)(J).
Subsec. (t)(2)(K).
Subsec. (t)(2)(L).
Subsec. (t)(2)(M).
Subsec. (t)(2)(N).
Subsec. (t)(4)(C).
Subsec. (t)(6).
Subsec. (t)(8)(F).
Subsec. (t)(10).
Subsec. (t)(10)(A).
Subsec. (t)(10)(B)(i).
Subsec. (t)(11).
2019—Subsec. (p)(2)(D), (E).
Subsec. (t)(2)(H).
2015—Subsec. (t)(4)(A)(ii).
Subsec. (t)(10)(A).
Subsec. (t)(10)(B).
Subsec. (t)(10)(B)(ii).
2014—Subsec. (c)(4).
Subsec. (g)(3).
2012—Subsec. (t)(2)(A)(viii).
2010—Subsec. (a).
2008—Subsec. (t)(2)(G)(iv).
2006—Subsec. (e)(11), (12).
Subsec. (t)(2)(G).
Subsec. (t)(10).
2004—Subsec. (e)(9).
Subsec. (f).
Subsec. (t)(2)(D)(i)(III).
Subsec. (t)(7)(A)(iii).
Subsecs. (w), (x).
2001—Subsec. (e)(9).
Subsec. (f).
Subsec. (o)(4).
Subsec. (r)(2)(B)(i).
Subsec. (t)(9).
1998—Subsec. (e)(9).
Subsec. (n).
Subsec. (t)(2)(A)(iv).
Subsec. (t)(2)(A)(vii).
Subsec. (t)(3)(A).
Subsec. (t)(8)(E).
1997—Subsec. (d)(1)(B)(iii).
Subsec. (d)(1)(B)(iv).
Subsec. (t)(2)(E).
Subsec. (t)(2)(F).
Subsec. (t)(7).
Subsec. (t)(8).
1996—Subsec. (b)(4)(A).
Subsec. (d).
Subsec. (f).
Subsec. (m)(2)(A) to (C).
Subsec. (p)(4)(A)(ii).
"(I) shall include any plan which was (or was determined to be) a qualified employer plan or a government plan, but
"(II) shall not include a plan described in subsection (e)(7)."
Subsec. (t)(2)(B).
Subsec. (t)(2)(D).
Subsec. (t)(3)(A).
Subsec. (t)(6).
1992—Subsec. (o)(4).
1990—Subsec. (t)(2)(C), (D).
"(i) such distribution is attributable to assets which have been invested in employer securities (within the meaning of section 409(l)) at all times during the 5-plan-year period preceding the plan year in which the distribution is made, and
"(ii) at all times during such period the requirements of sections 401(a)(28) and 409 (as in effect at such times) are met with respect to such employer securities."
Subsec. (t)(3)(A).
1989—Subsec. (e)(11)(A).
Subsec. (q)(2)(B).
1988—Subsec. (d).
Subsec. (e)(4)(A).
Subsec. (e)(5)(C).
Subsec. (e)(5)(D).
Subsec. (e)(7).
Subsec. (e)(8)(A).
Subsec. (e)(9).
Subsec. (e)(10).
Subsec. (e)(11).
Subsec. (f).
Subsec. (n).
Subsec. (o)(2).
Subsec. (p)(3)(A).
Subsec. (p)(3)(B).
"(i) if paragraph (1) does not apply to such loan by reason of paragraph (2), and
"(ii) if—
"(I) such loan is made to a key employee (as defined in section 416(i)), or
"(II) such loan is secured by amounts attributable to elective 401(k) or 403(b) deferrals (as defined in section 402(g)(3))."
Subsec. (q)(2)(B).
Subsec. (q)(2)(D).
Subsec. (q)(2)(E).
Subsec. (q)(2)(G).
Subsec. (q)(2)(H).
Subsec. (q)(3)(B).
Subsec. (s)(5).
Subsec. (s)(5)(D).
Subsec. (s)(7).
Subsec. (t)(2)(A)(iv).
Subsec. (t)(2)(A)(v).
Subsec. (t)(2)(C).
"(i)
"(ii)
Subsec. (t)(3)(A).
Subsec. (u)(1)(A).
Subsec. (u)(3)(D).
Subsec. (u)(3)(E).
Subsec. (u)(4)(C).
Subsecs. (v), (w).
1986—Subsec. (b).
Subsec. (d).
Subsec. (e)(4)(C).
Subsec. (e)(5)(D).
Subsec. (e)(7)(B).
Subsec. (e)(8), (9).
Subsec. (f).
Subsec. (m)(2)(B).
Subsec. (m)(2)(C).
Subsec. (m)(5).
Subsec. (m)(5)(A).
"(i) to amounts which—
"(I) are received from a qualified trust described in section 401(a) or under a plan described in section 403(a), and
"(II) are received by a 5-percent owner before such owner attains the age of 59½ years, for any reason other than such owner becoming disabled (within the meaning of paragraph (7) of this section), and
"(ii) to amounts which are received from a qualified trust described in section 401(a) or under a plan described in section 403(a) at any time by a 5-percent owner, or by the successor of such owner, but only to the extent that such amounts are determined (under regulations prescribed by the Secretary) to exceed the benefits provided for such individual under the plan formula.
Clause (i) shall not apply to any amount received by an individual in his capacity as a policyholder of an annuity, endowment, or life insurance contract which is in the nature of a dividend or similar distribution and clause (i) shall not apply to amounts attributable to benefits accrued before January 1, 1985."
"(i) to amounts (other than any amount received by an individual in his capacity as a policyholder of an annuity, endowment, or life insurance contract which is in the nature of a dividend or similar distribution) which are received from a qualified trust described in section 401(a) or under a plan described in section 403(a) and which are received by an individual, who is, or has been, a 5-percent owner, before such individual attains the age of 59½ years, for any reason other than the individual's becoming disabled (within the meaning of paragraph (7) of this subsection), but only to the extent that such amounts are attributable to contributions paid on behalf of such individual (other than contributions made by him as a 5-percent owner) while he was a 5-percent owner, and
"(ii) to amounts which are received from a qualified trust described in section 401(a) or under a plan described in section 403(a) at any time by an individual who is, or has been, a 5-percent owner or by the successor of such individual, but only to the extent that such amounts are determined, under regulations prescribed by the Secretary, to exceed the benefits provided for such individual under the plan formula."
Subsec. (m)(5)(C).
Subsec. (m)(10).
Subsec. (o)(5).
Subsec. (p)(2)(A)(i).
Subsec. (p)(2)(B)(ii).
Subsec. (p)(2)(C), (D).
Subsec. (p)(3).
Subsec. (p)(4), (5).
Subsec. (q).
Subsec. (q)(1).
Subsec. (q)(2).
Subsec. (q)(2)(B).
Subsec. (q)(2)(D).
Subsec. (q)(2)(E).
Subsec. (q)(2)(G).
Subsec. (q)(2)(I), (J).
Subsec. (q)(3).
Subsec. (s)(1).
Subsec. (s)(5).
Subsec. (s)(6), (7).
Subsec. (t).
Subsecs. (u), (v).
1984—Subsec. (e)(5)(D).
Subsec. (e)(5)(D)(ii)(IV).
Subsec. (e)(7).
Subsec. (k).
Subsec. (m)(5).
Subsec. (m)(5)(A).
Subsec. (m)(5)(C).
Subsec. (m)(9).
Subsec. (m)(10).
Subsec. (o)(1).
Subsec. (o)(3)(A).
Subsec. (o)(4).
Subsec. (p)(2)(A).
Subsec. (p)(2)(A)(ii).
Subsec. (p)(3).
Subsec. (q)(1).
Subsecs. (s), (t).
1983—Subsec. (o)(2)(A).
Subsec. (p)(3).
Subsecs. (r), (s).
1982—Subsec. (e).
Subsec. (m)(4).
Subsec. (m)(5).
Subsec. (m)(6).
Subsec. (m)(8).
Subsec. (o)(3)(A).
Subsec. (p).
Subsec. (q).
Subsec. (r).
1981—Subsec. (m)(6).
Subsec. (m)(8).
Subsec. (m)(9).
Subsecs. (o), (p).
1976—Subsec. (c)(2), (3)(A).
Subsec. (d)(1).
Subsec. (f).
Subsec. (i).
Subsec. (m)(2), (3).
Subsec. (m)(4)(A).
Subsec. (m)(5)(A)(ii), (7).
1974—Subsec. (m)(1).
Subsec. (m)(4)(A).
Subsec. (m)(5)(A).
Subsec. (m)(5)(B).
Subsec. (m)(5)(C) to (E).
Subsec. (m)(6).
Subsec. (n).
Subsec. (o).
Subsec. (p).
1969—Subsec. (n)(1).
Subsec. (n)(4).
1966—Subsecs. (o), (p).
1965—Subsec. (m)(5)(A)(i).
Subsec. (m)(7).
Subsec. (n)(1).
Subsec. (n)(3).
1964—Subsec. (e)(3).
1962—Subsec. (d)(2).
Subsec. (f).
Subsecs. (m) to (o).
Statutory Notes and Related Subsidiaries
Effective Date of 2022 Amendment
"(1)
"(2)
"(1)
"(2)
"(3)
Effective Date of 2019 Amendment
Effective Date of 2015 Amendment
Effective Date of 2014 Amendment
Amendment by
Effective Date of 2010 Amendment
Effective Date of 2008 Amendment
Effective Date of 2006 Amendment
"(1)
"(2)
"(1)
"(2)
"(3)
"(4)
"(5)
Effective Date of 2004 Amendment
Amendment by section 207(6), (7) of
Effective Date of 2001 Amendment
Amendment by
Amendment by
Amendment by section 641(a)(2)(C), (e)(1) of
Effective Date of 1998 Amendment
Amendment by section 6023(3), (4) of
Amendment by sections 6004(d)(3)(B) and 6005(c)(1) of
Effective Date of 1997 Amendment
Effective Date of 1996 Amendment
Effective Date of 1992 Amendment
Amendment by
Effective Date of 1989 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by sections 1011A(b)(1)(A), (B), (2), (9), (c)(1)–(8), (h), (i), and 1018(k), (t)(1)(A), (B), and (u)(8) of
Amendment by section 5012(a), (b)(1), (d) of
Effective Date of 1986 Amendment
Amendment by section 1122(c)(1) of
"(1)
"(2)
"(3)
"(A) as of March 1, 1986, the employee separated from service with the employer,
"(B) as of March 1, 1986, the accrued benefit of the employee was in pay status pursuant to a written election providing a specific schedule for the distribution of the entire accrued benefit of the employee, and
"(C) such distribution is made pursuant to such written election.
"(4)
"(5)
"(A) as of March 1, 1986, payments were being made under such contract pursuant to a written election providing a specific schedule for the distribution of the taxpayer's interest in such contract, and
"(B) such distribution is made pursuant to such written election."
Amendment by sections 1826(a), (d), 1852(a)(2), (c)(1)–(4), and 1854(b)(1) of
Effective Date of 1984 Amendment
Amendment by
Amendment by section 211(b)(1) of
"(1)
"(2)
Amendment by section 421(b)(1) of
Amendment by section 491(d)(3), (4) of
Amendment by section 521(d) of
Amendment by section 713(b)(1), (4), (c)(1)(A), (B) of
Effective Date of 1983 Amendment
"(1)
"(2)
"(3)
Amendment by title I of
Effective Date of 1982 Amendment
"(1)
"(2)
"(A)
"(B)
"(C)
"(D)
"(3)
"(A) the taxpayer after August 13, 1982, and before September 4, 1982, borrows money from a government plan (as defined in section 219(e)(4) of the Internal Revenue Code of 1986),
"(B) under the applicable State law, such loan requires the renegotiation of all outstanding prior loans made to the taxpayer under such plan, and
"(C) the renegotiation described in subparagraph (B) does not change the interest rate on, or extend the duration of, any such outstanding prior loan,
then the renegotiation described in subparagraph (B) shall not be treated as a renegotiation, extension, renewal, or revision for purposes of paragraph (1). If the renegotiation described in subparagraph (B) does not meet the requirements of subparagraph (C) solely because it extends the duration of any such outstanding prior loan, the requirements of subparagraph (C) shall be treated as met with respect to such renegotiation if, before April 1, 1983, such extension is eliminated."
"(1)
"(2)
Amendment by section 237(d) of
Effective Date of 1981 Amendment
"(1)
"(2)
Effective Date of 1976 Amendment
Amendment by section 1901(a)(12), (13) of
Effective Date of 1974 Amendment
Amendment by section 2001(e)(5) of
"(5) The amendments made by subsection (g) [amending this section and
"(6) The amendments made by subsection (h) [amending this section and
Amendment by section 2002(g)(10) of
Amendment by section 2005(c)(3) of
Amendment by section 2007(b)(2) of
Effective Date of 1969 Amendment
Amendment by
Effective Date of 1966 Amendment
Amendment by
Effective Date of 1965 Amendment
Amendment by
Amendment by
Effective Date of 1964 Amendment
Amendment by
Effective Date of 1962 Amendment
Amendment by
Savings Provision
For provisions that nothing in amendment by
Special Rules for Use of Retirement Funds
"(a)
"(1)
"(2)
"(A)
"(B)
"(C)
"(3)
"(A)
"(B)
"(C)
"(4)
"(A)
"(i) on or after January 1, 2020, and before December 31, 2020,
"(ii) to an individual—
"(I) who is diagnosed with the virus SARS–CoV–2 or with coronavirus disease 2019 (COVID–19) by a test approved by the Centers for Disease Control and Prevention,
"(II) whose spouse or dependent (as defined in section 152 of the Internal Revenue Code of 1986) is diagnosed with such virus or disease by such a test, or
"(III) who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of the Treasury (or the Secretary's delegate).
"(B)
"(C)
"(5)
"(A)
"(B)
"(6)
"(A)
"(B)
"(b)
"(1)
"(A) clause (i) of section 72(p)(2)(A) of such Code shall be applied by substituting '$100,000' for '$50,000', and
"(B) clause (ii) of such section shall be applied by substituting 'the present value of the nonforfeitable accrued benefit of the employee under the plan' for 'one-half of the present value of the nonforfeitable accrued benefit of the employee under the plan'.
"(2)
"(A) if the due date pursuant to subparagraph (B) or (C) of section 72(p)(2) of such Code for any repayment with respect to such loan occurs during the period beginning on the date of the enactment of this Act and ending on December 31, 2020, such due date shall be delayed for 1 year,
"(B) any subsequent repayments with respect to any such loan shall be appropriately adjusted to reflect the delay in the due date under subparagraph (A) and any interest accruing during such delay, and
"(C) in determining the 5-year period and the term of a loan under subparagraph (B) or (C) of section 72(p)(2) of such Code, the period described in subparagraph (A) of this paragraph shall be disregarded.
"(3)
"(c)
"(1)
"(A) such plan or contract shall be treated as being operated in accordance with the terms of the plan during the period described in paragraph (2)(B)(i), and
"(B) except as provided by the Secretary of the Treasury (or the Secretary's delegate), such plan or contract shall not fail to meet the requirements of section 411(d)(6) of the Internal Revenue Code of 1986 and section 204(g) of the Employee Retirement Income Security Act of 1974 [
"(2)
"(A)
"(i) pursuant to any provision of this section, or pursuant to any regulation issued by the Secretary of the Treasury or the Secretary of Labor (or the delegate of either such Secretary) under any provision of this section, and
"(ii) on or before the last day of the first plan year beginning on or after January 1, 2025, or such later date as the Secretary of the Treasury (or the Secretary's delegate) may prescribe.
In the case of a governmental plan (as defined in section 414(d) of the Internal Revenue Code of 1986), clause (ii) shall be applied by substituting the date which is 2 years after the date otherwise applied under clause (ii).
"(B)
"(i) during the period—
"(I) beginning on the date that this section or the regulation described in subparagraph (A)(i) takes effect (or in the case of a plan or contract amendment not required by this section or such regulation, the effective date specified by the plan), and
"(II) ending on the date described in subparagraph (A)(ii) (or, if earlier, the date the plan or contract amendment is adopted),
the plan or contract is operated as if such plan or contract amendment were in effect, and
"(ii) such plan or contract amendment applies retroactively for such period."
[
Applicability of Subsection (t)
Plan Amendments Not Required Until January 1, 1998
For provisions directing that if any amendments made by subtitle D [§§1401–1465] of title I of
Plan Amendments Not Required Until January 1, 1994
For provisions directing that if any amendments made by subtitle B [§§521–523] of title V of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Definition of Terms Used in Title I of Pub. L. 110–458
"(1)
"(2)
"(3) 2006
1 So in original. Probably should be paragraph "(2)(B)".
2 So in original. The word "or" probably should not appear.
3 So in original. Probably should refer to section 8336a.
5 See References in Text note below.
§73. Services of child
(a) Treatment of amounts received
Amounts received in respect of the services of a child shall be included in his gross income and not in the gross income of the parent, even though such amounts are not received by the child.
(b) Treatment of expenditures
All expenditures by the parent or the child attributable to amounts which are includible in the gross income of the child (and not of the parent) solely by reason of subsection (a) shall be treated as paid or incurred by the child.
(c) Parent defined
For purposes of this section, the term "parent" includes an individual who is entitled to the services of a child by reason of having parental rights and duties in respect of the child.
(d) Cross reference
For assessment of tax against parent in certain cases, see section 6201(c).
(Aug. 16, 1954, ch. 736,
§74. Prizes and awards
(a) General rule
Except as otherwise provided in this section or in section 117 (relating to qualified scholarships), gross income includes amounts received as prizes and awards.
(b) Exception for certain prizes and awards transferred to charities
Gross income does not include amounts received as prizes and awards made primarily in recognition of religious, charitable, scientific, educational, artistic, literary, or civic achievement, but only if—
(1) the recipient was selected without any action on his part to enter the contest or proceeding;
(2) the recipient is not required to render substantial future services as a condition to receiving the prize or award; and
(3) the prize or award is transferred by the payor to a governmental unit or organization described in paragraph (1) or (2) of section 170(c) pursuant to a designation made by the recipient.
(c) Exception for certain employee achievement awards
(1) In general
Gross income shall not include the value of an employee achievement award (as defined in section 274(j)) received by the taxpayer if the cost to the employer of the employee achievement award does not exceed the amount allowable as a deduction to the employer for the cost of the employee achievement award.
(2) Excess deduction award
If the cost to the employer of the employee achievement award received by the taxpayer exceeds the amount allowable as a deduction to the employer, then gross income includes the greater of—
(A) an amount equal to the portion of the cost to the employer of the award that is not allowable as a deduction to the employer (but not in excess of the value of the award), or
(B) the amount by which the value of the award exceeds the amount allowable as a deduction to the employer.
The remaining portion of the value of such award shall not be included in the gross income of the recipient.
(3) Treatment of tax-exempt employers
In the case of an employer exempt from taxation under this subtitle, any reference in this subsection to the amount allowable as a deduction to the employer shall be treated as a reference to the amount which would be allowable as a deduction to the employer if the employer were not exempt from taxation under this subtitle.
(4) Cross reference
For provisions excluding certain de minimis fringes from gross income, see section 132(e).
(d) Exception for Olympic and Paralympic medals and prizes
(1) In general
Gross income shall not include the value of any medal awarded in, or any prize money received from the United States Olympic Committee on account of, competition in the Olympic Games or Paralympic Games.
(2) Limitation based on adjusted gross income
(A) In general
Paragraph (1) shall not apply to any taxpayer for any taxable year if the adjusted gross income (determined without regard to this subsection) of such taxpayer for such taxable year exceeds $1,000,000 (half of such amount in the case of a married individual filing a separate return).
(B) Coordination with other limitations
For purposes of sections 85(c), 86, 135, 137, 219, 221, and 469, adjusted gross income shall be determined after the application of paragraph (1) and before the application of subparagraph (A).
(Aug. 16, 1954, ch. 736,
Editorial Notes
Amendments
2021—Subsec. (d)(2)(B).
2020—Subsec. (d)(2)(B).
2017—Subsec. (d)(2)(B).
2016—Subsec. (d).
1986—Subsec. (a).
Subsec. (b).
Subsec. (c).
Statutory Notes and Related Subsidiaries
Change of Name
References to the United States Olympic Committee deemed to refer to the United States Olympic and Paralympic Committee, see
Effective Date of 2021 Amendment
Effective Date of 2020 Amendment
Amendment by
Effective Date of 2017 Amendment
"(1)
"(2)
"(A)
"(B)
[Amendment by
Effective Date of 2016 Amendment
Effective Date of 1986 Amendment
Amendment by section 122(a)(1) of
Amendment by section 123(b)(1) of
Applicability of Certain Amendments by Public Law 99–514 in Relation to Treaty Obligations of United States
For nonapplication of amendment by section 123(b)(1) of
§75. Dealers in tax-exempt securities
(a) Adjustment for bond premium
In computing the gross income of a taxpayer who holds during the taxable year a municipal bond (as defined in subsection (b)(1)) primarily for sale to customers in the ordinary course of his trade or business—
(1) if the gross income of the taxpayer from such trade or business is computed by the use of inventories and his inventories are valued on any basis other than cost, the cost of securities sold (as defined in subsection (b)(2)) during such year shall be reduced by an amount equal to the amortizable bond premium which would be disallowed as a deduction for such year by section 171(a)(2) (relating to deduction for amortizable bond premium) if the definition in section 171(d) of the term "bond" did not exclude such municipal bond; or
(2) if the gross income of the taxpayer from such trade or business is computed without the use of inventories, or by use of inventories valued at cost, and the municipal bond is sold or otherwise disposed of during such year, the adjusted basis (computed without regard to this paragraph) of the municipal bond shall be reduced by the amount of the adjustment which would be required under section 1016(a)(5) (relating to adjustment to basis for amortizable bond premium) if the definition in section 171(d) of the term "bond" did not exclude such municipal bond.
Notwithstanding the provisions of paragraph (1), no reduction to the cost of securities sold during the taxable year shall be made in respect of any obligation described in subsection (b)(1)(A)(ii) which is held by the taxpayer at the close of the taxable year; but in the taxable year in which any such obligation is sold or otherwise disposed of, if such obligation is a municipal bond (as defined in subsection (b)(1)), the cost of securities sold during such year shall be reduced by an amount equal to the adjustment described in paragraph (2), without regard to the fact that the taxpayer values his inventories on any basis other than cost.
(b) Definitions
For purposes of subsection (a)—
(1) The term "municipal bond" means any obligation issued by a government or political subdivision thereof if the interest on such obligation is excludable from gross income; but such term does not include such an obligation if—
(A)(i) it is sold or otherwise disposed of by the taxpayer within 30 days after the date of its acquisition by him, or
(ii) its earliest maturity or call date is a date more than 5 years from the date on which it was acquired by the taxpayer; and
(B) when it is sold or otherwise disposed of by the taxpayer—
(i) in the case of a sale, the amount realized, or
(ii) in the case of any other disposition, its fair market value at the time of such disposition,
is higher than its adjusted basis (computed without regard to this section and section 1016(a)(6)).
Determinations under subparagraph (B) shall be exclusive of interest.
(2) The term "cost of securities sold" means the amount ascertained by subtracting the inventory value of the closing inventory of a taxable year from the sum of—
(A) the inventory value of the opening inventory for such year, and
(B) the cost of securities and other property purchased during such year which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year.
(Aug. 16, 1954, ch. 736,
Editorial Notes
Amendments
1958—Subsec. (a).
Subsec. (b)(1).
Statutory Notes and Related Subsidiaries
Effective Date of 1958 Amendment
[§76. Repealed. Pub. L. 94–455, title XIX, §1901(a)(14), Oct. 4, 1976, 90 Stat. 1765 ]
Section, act Aug. 16, 1954, ch. 736,
§77. Commodity credit loans
(a) Election to include loans in income
Amounts received as loans from the Commodity Credit Corporation shall, at the election of the taxpayer, be considered as income and shall be included in gross income for the taxable year in which received.
(b) Effect of election on adjustments for subsequent years
If a taxpayer exercises the election provided for in subsection (a) for any taxable year, then the method of computing income so adopted shall be adhered to with respect to all subsequent taxable years unless with the approval of the Secretary a change to a different method is authorized.
(Aug. 16, 1954, ch. 736,
Editorial Notes
Amendments
1976—Subsec. (b).
§78. Gross up for deemed paid foreign tax credit
If a domestic corporation chooses to have the benefits of subpart A of part III of subchapter N (relating to foreign tax credit) for any taxable year, an amount equal to the taxes deemed to be paid by such corporation under subsections (a), (b), and (d) of section 960 (determined without regard to the phrase "80 percent of" in subsection (d)(1) thereof) for such taxable year shall be treated for purposes of this title (other than sections 245 and 245A) as a dividend received by such domestic corporation from the foreign corporation.
(Added
Editorial Notes
Amendments
2017—
1976—
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Effective Date of 1976 Amendment
Amendment by
Effective Date
"(1) in respect of any distribution received by a domestic corporation after December 31, 1964, and
"(2) in respect of any distribution received by a domestic corporation before January 1, 1965, in a taxable year of such corporation beginning after December 31, 1962, but only to the extent that such distribution is made out of the accumulated profits of a foreign corporation for a taxable year (of such foreign corporation) beginning after December 31, 1962.
For purposes of paragraph (2), a distribution made by a foreign corporation out of its profits which are attributable to a distribution received from a foreign subsidiary to which [former] section 902(b) applies shall be treated as made out of the accumulated profits of a foreign corporation for a taxable year beginning before January 1, 1963, to the extent that such distribution was paid out of the accumulated profits of such foreign subsidiary for a taxable year beginning before January 1, 1963."
§79. Group-term life insurance purchased for employees
(a) General rule
There shall be included in the gross income of an employee for the taxable year an amount equal to the cost of group-term life insurance on his life provided for part or all of such year under a policy (or policies) carried directly or indirectly by his employer (or employers); but only to the extent that such cost exceeds the sum of—
(1) the cost of $50,000 of such insurance, and
(2) the amount (if any) paid by the employee toward the purchase of such insurance.
(b) Exceptions
Subsection (a) shall not apply to—
(1) the cost of group-term life insurance on the life of an individual which is provided under a policy carried directly or indirectly by an employer after such individual has terminated his employment with such employer and is disabled (within the meaning of section 72(m)(7)),
(2) the cost of any portion of the group-term life insurance on the life of an employee provided during part or all of the taxable year of the employee under which—
(A) the employer is directly or indirectly the beneficiary, or
(B) a person described in section 170(c) is the sole beneficiary,
for the entire period during such taxable year for which the employee receives such insurance, and
(3) the cost of any group-term life insurance which is provided under a contract to which section 72(m)(3) applies.
(c) Determination of cost of insurance
For purposes of this section and section 6052, the cost of group-term insurance on the life of an employee provided during any period shall be determined on the basis of uniform premiums (computed on the basis of 5-year age brackets) prescribed by regulations by the Secretary.
(d) Nondiscrimination requirements
(1) In general
In the case of a discriminatory group-term life insurance plan—
(A) subsection (a)(1) shall not apply with respect to any key employee, and
(B) the cost of group-term life insurance on the life of any key employee shall be the greater of—
(i) such cost determined without regard to subsection (c), or
(ii) such cost determined with regard to subsection (c).
(2) Discriminatory group-term life insurance plan
For purposes of this subsection, the term "discriminatory group-term life insurance plan" means any plan of an employer for providing group-term life insurance unless—
(A) the plan does not discriminate in favor of key employees as to eligibility to participate, and
(B) the type and amount of benefits available under the plan do not discriminate in favor of participants who are key employees.
(3) Nondiscriminatory eligibility classification
(A) In general
A plan does not meet requirements of subparagraph (A) of paragraph (2) unless—
(i) such plan benefits 70 percent or more of all employees of the employer,
(ii) at least 85 percent of all employees who are participants under the plan are not key employees,
(iii) such plan benefits such employees as qualify under a classification set up by the employer and found by the Secretary not to be discriminatory in favor of key employees, or
(iv) in the case of a plan which is part of a cafeteria plan, the requirements of section 125 are met.
(B) Exclusion of certain employees
For purposes of subparagraph (A), there may be excluded from consideration—
(i) employees who have not completed 3 years of service;
(ii) part-time or seasonal employees;
(iii) employees not included in the plan who are included in a unit of employees covered by an agreement between employee representatives and one or more employers which the Secretary finds to be a collective bargaining agreement, if the benefits provided under the plan were the subject of good faith bargaining between such employee representatives and such employer or employers; and
(iv) employees who are nonresident aliens and who receive no earned income (within the meaning of section 911(d)(2)) from the employer which constitutes income from sources within the United States (within the meaning of section 861(a)(3)).
(4) Nondiscriminatory benefits
A plan does not meet the requirements of paragraph (2)(B) unless all benefits available to participants who are key employees are available to all other participants.
(5) Special rule
A plan shall not fail to meet the requirements of paragraph (2)(B) merely because the amount of life insurance on behalf of the employees under the plan bears a uniform relationship to the total compensation or the basic or regular rate of compensation of such employees.
(6) Key employee defined
For purposes of this subsection, the term "key employee" has the meaning given to such term by paragraph (1) of section 416(i). Such term also includes any former employee if such employee when he retired or separated from service was a key employee.
(7) Exemption for church plans
(A) In general
This subsection shall not apply to a church plan maintained for church employees.
(B) Definitions
For purposes of subparagraph (A), the terms "church plan" and "church employee" have the meaning given such terms by paragraphs (1) and (3)(B) of section 414(e), respectively, except that—
(i) section 414(e) shall be applied by substituting "section 501(c)(3)" for "section 501" each place it appears, and
(ii) the term "church employee" shall not include an employee of—
(I) an organization described in section 170(b)(1)(A)(ii) above the secondary school level (other than a school for religious training),
(II) an organization described in section 170(b)(1)(A)(iii), and
(III) an organization described in section 501(c)(3), the basis of the exemption for which is substantially similar to the basis for exemption of an organization described in subclause (II).
(8) Treatment of former employees
To the extent provided in regulations, this subsection shall be applied separately with respect to former employees.
(e) Employee includes former employee
For purposes of this section, the term "employee" includes a former employee.
(f) Exception for life insurance purchased in connection with qualified transfer of excess pension assets
Subsection (b)(3) and section 72(m)(3) shall not apply in the case of any cost paid (whether directly or indirectly) with assets held in an applicable life insurance account (as defined in section 420(e)(4)) under a defined benefit plan.
(Added
Editorial Notes
Amendments
2012—Subsec. (f).
1990—Subsec. (d)(6).
1989—Subsec. (d).
Subsec. (d)(7).
1988—Subsec. (c).
1986—Subsec. (d).
Subsec. (d)(1)(B).
Subsec. (d)(6).
Subsec. (d)(8).
1984—Subsec. (b)(1).
Subsec. (d)(1).
Subsec. (e).
1982—Subsec. (d).
1976—Subsec. (c).
1965—Subsec. (b)(1).
Statutory Notes and Related Subsidiaries
Effective Date of 2012 Amendment
Amendment by
Effective Date of 1990 Amendment
Effective Date of 1989 Amendment
Effective Date of 1988 Amendment
Effective Date of 1986 Amendment
"(1)
"(A) December 31, 1987, or
"(B) the earlier of—
"(i) the date which is 3 months after the date on which the Secretary of the Treasury or his delegate issues such regulations as are necessary to carry out the provisions of section 89 of the Internal Revenue Code of 1986 (as added by this section), or
"(ii) December 31, 1988.
Notwithstanding the preceding sentence, the amendments made by subsections (e)(1) and (i)(3)(C) [amending
"(2)
"(A) the date on which the last of such collective bargaining agreements terminates (determined without regard to any extension thereof after February 28, 1986), or
"(B) January 1, 1991.
A plan shall not be required to take into account employees to which the preceding sentence applies for purposes of applying section 89 of the Internal Revenue Code of 1986 (as added by this section) to employees to which the preceding sentence does not apply for any year preceding the year described in the preceding sentence.
"(3)
"(4)
"(5)
"(6)
Amendment by section 1827(c), (d) of
Effective Date of 1984 Amendment
"(1)
"(2)
"(A)
"(i) to any group-term life insurance plan of the employer in existence on January 1, 1984, or
"(ii) to any group-term life insurance plan of the employer (or a successor employer) which is a comparable successor to a plan described in clause (i),
but only with respect to an individual who attained age 55 on or before January 1, 1984, and was employed by such employer (or a predecessor employer) at any time during 1983. Such amendments also shall not apply to any employee who retired from employment on or before January 1, 1984, and who, when he retired, was covered by the plan (or a predecessor plan).
"(B)
"(C)
"(D)
Effective Date of 1982 Amendment
Effective Date of 1965 Amendment
Amendment by
Effective Date
Nonenforcement of Amendment Made by Section 1151 of Pub. L. 99–514 for Fiscal Year 1990
No monies appropriated by
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
§80. Restoration of value of certain securities
(a) General rule
In the case of a domestic corporation subject to the tax imposed by section 11 or 801, if the value of any security (as defined in section 165(g)(2))—
(1) which became worthless by reason of the expropriation, intervention, seizure, or similar taking by the government of any foreign country, any political subdivision thereof, or any agency or instrumentality of the foregoing of property to which such security was related, and
(2) which was taken into account as a loss from the sale or exchange of a capital asset or with respect to which a deduction for a loss was allowed under section 165,
is restored in whole or in part during any taxable year by reason of any recovery of money or other property in respect of the property to which such security was related, the value so restored (to the extent that, when added to the value so restored during prior taxable years, it does not exceed the amount of the loss described in paragraph (2)) shall, except as provided in subsection (b), be included in gross income for the taxable year in which such restoration occurs.
(b) Reduction for failure to receive tax benefit
The amount otherwise includible in gross income under subsection (a) in respect of any security shall be reduced by an amount equal to the amount (if any) of the loss described in subsection (a)(2) which did not result in a reduction of the taxpayer's tax under this subtitle for any taxable year, determined under regulations prescribed by the Secretary.
(c) Character of income
For purposes of this subtitle—
(1) Except as provided in paragraph (2), the amount included in gross income under this section shall be treated as ordinary income.
(2) If the loss described in subsection (a)(2) was taken into account as a loss from the sale or exchange of a capital asset, the amount included in gross income under this section shall be treated as long-term capital gain.
(d) Treatment under foreign expropriation loss recovery provisions
This section shall not apply to any recovery of a foreign expropriation loss to which section 1351 applies.
(Added
Editorial Notes
Amendments
1984—Subsec. (a).
1976—Subsec. (b).
Subsec. (c)(1).
Statutory Notes and Related Subsidiaries
Effective Date of 1984 Amendment
Amendment by
Effective Date of 1976 Amendment
Amendment by section 1901(b)(3)(K) of
Effective Date
[§81. Repealed. Pub. L. 100–203, title X, §10201(b)(1), Dec. 22, 1987, 101 Stat. 1330–387 ]
Section, added
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
Repeal applicable to taxable years beginning after Dec. 31, 1987, see section 10201(c)(1) of
§82. Reimbursement of moving expenses
Except as provided in section 132(a)(6), there shall be included in gross income (as compensation for services) any amount received or accrued, directly or indirectly, by an individual as a payment for or reimbursement of expenses of moving from one residence to another residence which is attributable to employment or self-employment.
(Added
Editorial Notes
Amendments
2018—
1993—
Statutory Notes and Related Subsidiaries
Effective Date of 1993 Amendment
Amendment by
Effective Date
Section applicable to taxable years beginning after December 31, 1969, except that it does not apply to moving expenses paid or incurred before July 1, 1970, in connection with the commencement of work by the taxpayer as an employee at a new principal place of work of which the taxpayer had been notified by his employer on or before December 19, 1969, see section 231(d) of
Moving Expenses of Members of the Uniformed Services
Withholding, reporting, inclusion within adjusted gross income, and deduction for reimbursement for moving expenses of members of the uniformed services, see section 2 of
§83. Property transferred in connection with performance of services
(a) General rule
If, in connection with the performance of services, property is transferred to any person other than the person for whom such services are performed, the excess of—
(1) the fair market value of such property (determined without regard to any restriction other than a restriction which by its terms will never lapse) at the first time the rights of the person having the beneficial interest in such property are transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier, over
(2) the amount (if any) paid for such property,
shall be included in the gross income of the person who performed such services in the first taxable year in which the rights of the person having the beneficial interest in such property are transferable or are not subject to a substantial risk of forfeiture, whichever is applicable. The preceding sentence shall not apply if such person sells or otherwise disposes of such property in an arm's length transaction before his rights in such property become transferable or not subject to a substantial risk of forfeiture.
(b) Election to include in gross income in year of transfer
(1) In general
Any person who performs services in connection with which property is transferred to any person may elect to include in his gross income for the taxable year in which such property is transferred, the excess of—
(A) the fair market value of such property at the time of transfer (determined without regard to any restriction other than a restriction which by its terms will never lapse), over
(B) the amount (if any) paid for such property.
If such election is made, subsection (a) shall not apply with respect to the transfer of such property, and if such property is subsequently forfeited, no deduction shall be allowed in respect of such forfeiture.
(2) Election
An election under paragraph (1) with respect to any transfer of property shall be made in such manner as the Secretary prescribes and shall be made not later than 30 days after the date of such transfer. Such election may not be revoked except with the consent of the Secretary.
(c) Special rules
For purposes of this section—
(1) Substantial risk of forfeiture
The rights of a person in property are subject to a substantial risk of forfeiture if such person's rights to full enjoyment of such property are conditioned upon the future performance of substantial services by any individual.
(2) Transferability of property
The rights of a person in property are transferable only if the rights in such property of any transferee are not subject to a substantial risk of forfeiture.
(3) Sales which may give rise to suit under section 16(b) of the Securities Exchange Act of 1934
So long as the sale of property at a profit could subject a person to suit under section 16(b) of the Securities Exchange Act of 1934, such person's rights in such property are—
(A) subject to a substantial risk of forfeiture, and
(B) not transferable.
(4) For purposes of determining an individual's basis in property transferred in connection with the performance of services, rules similar to the rules of section 72(w) shall apply.
(d) Certain restrictions which will never lapse
(1) Valuation
In the case of property subject to a restriction which by its terms will never lapse, and which allows the transferee to sell such property only at a price determined under a formula, the price so determined shall be deemed to be the fair market value of the property unless established to the contrary by the Secretary, and the burden of proof shall be on the Secretary with respect to such value.
(2) Cancellation
If, in the case of property subject to a restriction which by its terms will never lapse, the restriction is canceled, then, unless the taxpayer establishes—
(A) that such cancellation was not compensatory, and
(B) that the person, if any, who would be allowed a deduction if the cancellation were treated as compensatory, will treat the transaction as not compensatory, as evidenced in such manner as the Secretary shall prescribe by regulations,
the excess of the fair market value of the property (computed without regard to the restrictions) at the time of cancellation over the sum of—
(C) the fair market value of such property (computed by taking the restriction into account) immediately before the cancellation, and
(D) the amount, if any, paid for the cancellation,
shall be treated as compensation for the taxable year in which such cancellation occurs.
(e) Applicability of section
This section shall not apply to—
(1) a transaction to which section 421 applies,
(2) a transfer to or from a trust described in section 401(a) or a transfer under an annuity plan which meets the requirements of section 404(a)(2),
(3) the transfer of an option without a readily ascertainable fair market value,
(4) the transfer of property pursuant to the exercise of an option with a readily ascertainable fair market value at the date of grant, or
(5) group-term life insurance to which section 79 applies.
(f) Holding period
In determining the period for which the taxpayer has held property to which subsection (a) applies, there shall be included only the period beginning at the first time his rights in such property are transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier.
(g) Certain exchanges
If property to which subsection (a) applies is exchanged for property subject to restrictions and conditions substantially similar to those to which the property given in such exchange was subject, and if section 354, 355, 356, or 1036 (or so much of section 1031 as relates to section 1036) applied to such exchange, or if such exchange was pursuant to the exercise of a conversion privilege—
(1) such exchange shall be disregarded for purposes of subsection (a), and
(2) the property received shall be treated as property to which subsection (a) applies.
(h) Deduction by employer
In the case of a transfer of property to which this section applies or a cancellation of a restriction described in subsection (d), there shall be allowed as a deduction under section 162, to the person for whom were performed the services in connection with which such property was transferred, an amount equal to the amount included under subsection (a), (b), or (d)(2) in the gross income of the person who performed such services. Such deduction shall be allowed for the taxable year of such person in which or with which ends the taxable year in which such amount is included in the gross income of the person who performed such services.
(i) Qualified equity grants
(1) In general
For purposes of this subtitle—
(A) Timing of inclusion
If qualified stock is transferred to a qualified employee who makes an election with respect to such stock under this subsection, subsection (a) shall be applied by including the amount determined under such subsection with respect to such stock in income of the employee in the taxable year determined under subparagraph (B) in lieu of the taxable year described in subsection (a).
(B) Taxable year determined
The taxable year determined under this subparagraph is the taxable year of the employee which includes the earliest of—
(i) the first date such qualified stock becomes transferable (including, solely for purposes of this clause, becoming transferable to the employer),
(ii) the date the employee first becomes an excluded employee,
(iii) the first date on which any stock of the corporation which issued the qualified stock becomes readily tradable on an established securities market (as determined by the Secretary, but not including any market unless such market is recognized as an established securities market by the Secretary for purposes of a provision of this title other than this subsection),
(iv) the date that is 5 years after the first date the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier, or
(v) the date on which the employee revokes (at such time and in such manner as the Secretary provides) the election under this subsection with respect to such stock.
(2) Qualified stock
(A) In general
For purposes of this subsection, the term "qualified stock" means, with respect to any qualified employee, any stock in a corporation which is the employer of such employee, if—
(i) such stock is received—
(I) in connection with the exercise of an option, or
(II) in settlement of a restricted stock unit, and
(ii) such option or restricted stock unit was granted by the corporation—
(I) in connection with the performance of services as an employee, and
(II) during a calendar year in which such corporation was an eligible corporation.
(B) Limitation
The term "qualified stock" shall not include any stock if the employee may sell such stock to, or otherwise receive cash in lieu of stock from, the corporation at the time that the rights of the employee in such stock first become transferable or not subject to a substantial risk of forfeiture.
(C) Eligible corporation
For purposes of subparagraph (A)(ii)(II)—
(i) In general
The term "eligible corporation" means, with respect to any calendar year, any corporation if—
(I) no stock of such corporation (or any predecessor of such corporation) is readily tradable on an established securities market (as determined under paragraph (1)(B)(iii)) during any preceding calendar year, and
(II) such corporation has a written plan under which, in such calendar year, not less than 80 percent of all employees who provide services to such corporation in the United States (or any possession of the United States) are granted stock options, or are granted restricted stock units, with the same rights and privileges to receive qualified stock.
(ii) Same rights and privileges
For purposes of clause (i)(II)—
(I) except as provided in subclauses (II) and (III), the determination of rights and privileges with respect to stock shall be made in a similar manner as under section 423(b)(5),
(II) employees shall not fail to be treated as having the same rights and privileges to receive qualified stock solely because the number of shares available to all employees is not equal in amount, so long as the number of shares available to each employee is more than a de minimis amount, and
(III) rights and privileges with respect to the exercise of an option shall not be treated as the same as rights and privileges with respect to the settlement of a restricted stock unit.
(iii) Employee
For purposes of clause (i)(II), the term "employee" shall not include any employee described in section 4980E(d)(4) or any excluded employee.
(iv) Special rule for calendar years before 2018
In the case of any calendar year beginning before January 1, 2018, clause (i)(II) shall be applied without regard to whether the rights and privileges with respect to the qualified stock are the same.
(3) Qualified employee; excluded employee
For purposes of this subsection—
(A) In general
The term "qualified employee" means any individual who—
(i) is not an excluded employee, and
(ii) agrees in the election made under this subsection to meet such requirements as are determined by the Secretary to be necessary to ensure that the withholding requirements of the corporation under
(B) Excluded employee
The term "excluded employee" means, with respect to any corporation, any individual—
(i) who is a 1-percent owner (within the meaning of section 416(i)(1)(B)(ii)) at any time during the calendar year or who was such a 1 percent owner at any time during the 10 preceding calendar years,
(ii) who is or has been at any prior time—
(I) the chief executive officer of such corporation or an individual acting in such a capacity, or
(II) the chief financial officer of such corporation or an individual acting in such a capacity,
(iii) who bears a relationship described in section 318(a)(1) to any individual described in subclause (I) or (II) of clause (ii), or
(iv) who is one of the 4 highest compensated officers of such corporation for the taxable year, or was one of the 4 highest compensated officers of such corporation for any of the 10 preceding taxable years, determined with respect to each such taxable year on the basis of the shareholder disclosure rules for compensation under the Securities Exchange Act of 1934 (as if such rules applied to such corporation).
(4) Election
(A) Time for making election
An election with respect to qualified stock shall be made under this subsection no later than 30 days after the first date the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier, and shall be made in a manner similar to the manner in which an election is made under subsection (b).
(B) Limitations
No election may be made under this section with respect to any qualified stock if—
(i) the qualified employee has made an election under subsection (b) with respect to such qualified stock,
(ii) any stock of the corporation which issued the qualified stock is readily tradable on an established securities market (as determined under paragraph (1)(B)(iii)) at any time before the election is made, or
(iii) such corporation purchased any of its outstanding stock in the calendar year preceding the calendar year which includes the first date the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture, unless—
(I) not less than 25 percent of the total dollar amount of the stock so purchased is deferral stock, and
(II) the determination of which individuals from whom deferral stock is purchased is made on a reasonable basis.
(C) Definitions and special rules related to limitation on stock redemptions
(i) Deferral stock
For purposes of this paragraph, the term "deferral stock" means stock with respect to which an election is in effect under this subsection.
(ii) Deferral stock with respect to any individual not taken into account if individual holds deferral stock with longer deferral period
Stock purchased by a corporation from any individual shall not be treated as deferral stock for purposes of subparagraph (B)(iii) if such individual (immediately after such purchase) holds any deferral stock with respect to which an election has been in effect under this subsection for a longer period than the election with respect to the stock so purchased.
(iii) Purchase of all outstanding deferral stock
The requirements of subclauses (I) and (II) of subparagraph (B)(iii) shall be treated as met if the stock so purchased includes all of the corporation's outstanding deferral stock.
(iv) Reporting
Any corporation which has outstanding deferral stock as of the beginning of any calendar year and which purchases any of its outstanding stock during such calendar year shall include on its return of tax for the taxable year in which, or with which, such calendar year ends the total dollar amount of its outstanding stock so purchased during such calendar year and such other information as the Secretary requires for purposes of administering this paragraph.
(5) Controlled groups
For purposes of this subsection, all persons treated as a single employer under section 414(b) shall be treated as 1 corporation.
(6) Notice requirement
Any corporation which transfers qualified stock to a qualified employee shall, at the time that (or a reasonable period before) an amount attributable to such stock would (but for this subsection) first be includible in the gross income of such employee—
(A) certify to such employee that such stock is qualified stock, and
(B) notify such employee—
(i) that the employee may be eligible to elect to defer income on such stock under this subsection, and
(ii) that, if the employee makes such an election—
(I) the amount of income recognized at the end of the deferral period will be based on the value of the stock at the time at which the rights of the employee in such stock first become transferable or not subject to substantial risk of forfeiture, notwithstanding whether the value of the stock has declined during the deferral period,
(II) the amount of such income recognized at the end of the deferral period will be subject to withholding under section 3401(i) at the rate determined under section 3402(t), and
(III) the responsibilities of the employee (as determined by the Secretary under paragraph (3)(A)(ii)) with respect to such withholding.
(7) Restricted stock units
This section (other than this subsection), including any election under subsection (b), shall not apply to restricted stock units.
(Added
Editorial Notes
References in Text
The Securities Exchange Act of 1934, referred to in subsecs. (c)(3) and (i)(3)(B)(iv), is act June 6, 1934, ch. 404,
Amendments
2017—Subsec. (i).
2004—Subsec. (c)(4).
1990—Subsec. (i).
"(1) pursuant to a binding written contract entered into before April 22, 1969,
"(2) upon the exercise of an option granted before April 22, 1969,
"(3) before May 1, 1970, pursuant to a written plan adopted and approved before July 1, 1969,
"(4) before January 1, 1973, upon the exercise of an option granted pursuant to a binding written contract entered into before April 22, 1969, between a corporation and the transferor requiring the transferor to grant options to employees of such corporation (or a subsidiary of such corporation) to purchase a determinable number of shares of stock of such corporation, but only if the transferee was an employee of such corporation (or a subsidiary of such corporation) on or before April 22, 1969, or
"(5) in exchange for (or pursuant to the exercise of a conversion privilege contained in) property transferred before July 1, 1969, or for property to which this section does not apply (by reason of paragraphs (1), (2), (3), or (4)), if section 354, 355, 356, or 1036 (or so much of section 1031 as relates to section 1036) applies, or if gain or loss is not otherwise required to be recognized upon the exercise of such conversion privilege, and if the property received in such exchange is subject to restrictions and conditions substantially similar to those to which the property given in such exchange was subject."
1986—Subsec. (e)(5).
1984—Subsec. (e)(5).
1983—Subsec. (c)(3).
1981—Subsec. (c)(3).
1976—Subsec. (b)(2).
Subsec. (d)(1), (2)(B).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
"(1)
"(2)
Effective Date of 2004 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by
Effective Date of 1984 Amendment
Amendment by
Effective Date of 1983 Amendment
Amendment by
Effective Date of 1981 Amendment
Effective Date of 1976 Amendment
Amendment by section 1901(a)(15) of
Effective Date
Savings Provision
For provisions that nothing in amendment by
Transition Rule
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Application of Amendments Made by Section 252 of Pub. L. 97–34
"(1) Notwithstanding subsection (c) of section 252 of the Economic Recovery Tax Act of 1981 [section 252(c) of
"(A) such transfer occurred in November or December of 1973 and was pursuant to the exercise of an option granted in November or December of 1971,
"(B) in December 1973 the corporation granting the option was acquired by another corporation in a transaction qualifying as a reorganization under section 368 of the Internal Revenue Code of 1954 [now 1986],
"(C) the fair market value (as of July 1, 1974) of the stock received by such person in the reorganization in exchange for the stock transferred to him pursuant to the exercise of such option was less than 50 percent of the fair market value of the stock so received (as of December 4, 1973),
"(D) in 1975 or 1976 such person sold substantially all of the stock received in such reorganization, and
"(E) such person makes an election under this section at such time and in such manner as the Secretary of the Treasury or his delegate shall prescribe.
"(2)
"(3)
"(A)
"(B)
Time for Making Certain Section 83(b) Elections
"(1) the amount paid for such property was not less than its fair market value at the time of transfer (determined without regard to any restriction other than a restriction which by its terms will never lapse), and
"(2) the election is consented to by the person transferring such property.
The election shall contain that information required by the Secretary of the Treasury or his delegate for elections permitted by such section 83(b). The period for assessing any tax attributable to a transfer of property which is the subject of an election made pursuant to this section shall not expire before the date which is 3 years after the date such election was made."
Property Subject to Transfer Restrictions To Comply With "Pooling-of-Interests Accounting" Rules
§84. Transfer of appreciated property to political organizations
(a) General rule
If—
(1) any person transfers property to a political organization, and
(2) the fair market value of such property exceeds its adjusted basis,
then for purposes of this chapter the transferor shall be treated as having sold such property to the political organization on the date of the transfer, and the transferor shall be treated as having realized an amount equal to the fair market value of such property on such date.
(b) Basis of property
In the case of a transfer of property to a political organization to which subsection (a) applies, the basis of such property in the hands of the political organization shall be the same as it would be in the hands of the transferor, increased by the amount of gain recognized to the transferor by reason of such transfer.
(c) Political organization defined
For purposes of this section, the term "political organization" has the meaning given to such term by section 527(e)(1).
(Added
Editorial Notes
Amendments
2018—
Statutory Notes and Related Subsidiaries
Effective Date
Nonrecognition of Gain or Loss Where Organization Sold Contributed Property Before August 2, 1973
§85. Unemployment compensation
(a) General rule
In the case of an individual, gross income includes unemployment compensation.
(b) Unemployment compensation defined
For purposes of this section, the term "unemployment compensation" means any amount received under a law of the United States or of a State which is in the nature of unemployment compensation.
(c) Special rule for 2020
(1) In general
In the case of any taxable year beginning in 2020, if the adjusted gross income of the taxpayer for such taxable year is less than $150,000, the gross income of such taxpayer shall not include so much of the unemployment compensation received by such taxpayer (or, in the case of a joint return, received by each spouse) as does not exceed $10,200.
(2) Application
For purposes of paragraph (1), the adjusted gross income of the taxpayer shall be determined—
(A) after application of sections 86, 135, 137, 219, 221, 222, and 469, and
(B) without regard to this section.
(Added
Editorial Notes
Amendments
2021—Subsec. (c).
2014—Subsec. (c).
2009—Subsec. (c).
1986—Subsec. (a).
"(1) one-half of the amount of the excess of such sum over the base amount, or
"(2) the amount of the unemployment compensation."
Subsecs. (b), (c).
"(1) except as provided in paragraphs (2) and (3), $12,000,
"(2) $18,000, in the case of a joint return under section 6013, or
"(3) zero, in the case of a taxpayer who—
"(A) is married at the close of the taxable year (within the meaning of section 143) but does not file a joint return for such year, and
"(B) does not live apart from his spouse at all times during the taxable year."
1983—Subsec. (a).
1982—Subsec. (b)(1).
Subsec. (b)(2).
1981—Subsec. (a).
Statutory Notes and Related Subsidiaries
Effective Date of 2021 Amendment
Amendment by
Effective Date of 2014 Amendment
Amendment by
Effective Date of 2009 Amendment
Effective Date of 1986 Amendment
Amendment by
Effective Date of 1983 Amendment
Amendment by section 121(f)(1) of
Amendment by section 122(c)(2) of
Effective Date of 1982 Amendment
"(1)
"(2)
"(3)
"(A) the amendments made by this section shall be applied by taking into account the entire amount of unemployment compensation received during such taxable year, but
"(B) the increase in gross income for such taxable year as a result of such amendments shall not exceed the amount of unemployment compensation paid after December 31, 1981.
"(4)
Effective Date of 1981 Amendment
Amendment by
Effective Date
Waiver of Statute of Limitations
§86. Social security and tier 1 railroad retirement benefits
(a) In general
(1) In general
Except as provided in paragraph (2), gross income for the taxable year of any taxpayer described in subsection (b) (notwithstanding section 207 of the Social Security Act) includes social security benefits in an amount equal to the lesser of—
(A) one-half of the social security benefits received during the taxable year, or
(B) one-half of the excess described in subsection (b)(1).
(2) Additional amount
In the case of a taxpayer with respect to whom the amount determined under subsection (b)(1)(A) exceeds the adjusted base amount, the amount included in gross income under this section shall be equal to the lesser of—
(A) the sum of—
(i) 85 percent of such excess, plus
(ii) the lesser of the amount determined under paragraph (1) or an amount equal to one-half of the difference between the adjusted base amount and the base amount of the taxpayer, or
(B) 85 percent of the social security benefits received during the taxable year.
(b) Taxpayers to whom subsection (a) applies
(1) In general
A taxpayer is described in this subsection if—
(A) the sum of—
(i) the modified adjusted gross income of the taxpayer for the taxable year, plus
(ii) one-half of the social security benefits received during the taxable year, exceeds
(B) the base amount.
(2) Modified adjusted gross income
For purposes of this subsection, the term "modified adjusted gross income" means adjusted gross income—
(A) determined without regard to this section and sections 85(c), 135, 137, 221, 911, 931, and 933, and
(B) increased by the amount of interest received or accrued by the taxpayer during the taxable year which is exempt from tax.
(c) Base amount and adjusted base amount
For purposes of this section—
(1) Base amount
The term "base amount" means—
(A) except as otherwise provided in this paragraph, $25,000,
(B) $32,000 in the case of a joint return, and
(C) zero in the case of a taxpayer who—
(i) is married as of the close of the taxable year (within the meaning of section 7703) but does not file a joint return for such year, and
(ii) does not live apart from his spouse at all times during the taxable year.
(2) Adjusted base amount
The term "adjusted base amount" means—
(A) except as otherwise provided in this paragraph, $34,000,
(B) $44,000 in the case of a joint return, and
(C) zero in the case of a taxpayer described in paragraph (1)(C).
(d) Social security benefit
(1) In general
For purposes of this section, the term "social security benefit" means any amount received by the taxpayer by reason of entitlement to—
(A) a monthly benefit under title II of the Social Security Act, or
(B) a tier 1 railroad retirement benefit.
(2) Adjustment for repayments during year
(A) In general
For purposes of this section, the amount of social security benefits received during any taxable year shall be reduced by any repayment made by the taxpayer during the taxable year of a social security benefit previously received by the taxpayer (whether or not such benefit was received during the taxable year).
(B) Denial of deduction
If (but for this subparagraph) any portion of the repayments referred to in subparagraph (A) would have been allowable as a deduction for the taxable year under section 165, such portion shall be allowable as a deduction only to the extent it exceeds the social security benefits received by the taxpayer during the taxable year (and not repaid during such taxable year).
(3) Workmen's compensation benefits substituted for social security benefits
For purposes of this section, if, by reason of section 224 of the Social Security Act (or by reason of section 3(a)(1) of the Railroad Retirement Act of 1974), any social security benefit is reduced by reason of the receipt of a benefit under a workmen's compensation act, the term "social security benefit" includes that portion of such benefit received under the workmen's compensation act which equals such reduction.
(4) Tier 1 railroad retirement benefit
For purposes of paragraph (1), the term "tier 1 railroad retirement benefit" means—
(A) the amount of the annuity under the Railroad Retirement Act of 1974 equal to the amount of the benefit to which the taxpayer would have been entitled under the Social Security Act if all of the service after December 31, 1936, of the employee (on whose employment record the annuity is being paid) had been included in the term "employment" as defined in the Social Security Act, and
(B) a monthly annuity amount under section 3(f)(3) of the Railroad Retirement Act of 1974.
(5) Effect of early delivery of benefit checks
For purposes of subsection (a), in any case where section 708 of the Social Security Act causes social security benefit checks to be delivered before the end of the calendar month for which they are issued, the benefits involved shall be deemed to have been received in the succeeding calendar month.
(e) Limitation on amount included where taxpayer receives lump-sum payment
(1) Limitation
If—
(A) any portion of a lump-sum payment of social security benefits received during the taxable year is attributable to prior taxable years, and
(B) the taxpayer makes an election under this subsection for the taxable year,
then the amount included in gross income under this section for the taxable year by reason of the receipt of such portion shall not exceed the sum of the increases in gross income under this chapter for prior taxable years which would result solely from taking into account such portion in the taxable years to which it is attributable.
(2) Special rules
(A) Year to which benefit attributable
For purposes of this subsection, a social security benefit is attributable to a taxable year if the generally applicable payment date for such benefit occurred during such taxable year.
(B) Election
An election under this subsection shall be made at such time and in such manner as the Secretary shall by regulations prescribe. Such election, once made, may be revoked only with the consent of the Secretary.
(f) Treatment as pension or annuity for certain purposes
For purposes of—
(1) section 22(c)(3)(A) (relating to reduction for amounts received as pension or annuity),
(2) section 32(c)(2) (defining earned income),
(3) section 219(f)(1) (defining compensation), and
(4) section 911(b)(1) (defining foreign earned income),
any social security benefit shall be treated as an amount received as a pension or annuity.
(Added and amended
Editorial Notes
References in Text
The Social Security Act, referred to in subsecs. (a)(1) and (d)(1)(A), (3), (4)(A), (5), is act Aug. 14, 1935, ch. 531,
The Railroad Retirement Act of 1974, referred to in subsec. (d)(3), (4), is act Aug. 29, 1935, ch. 812, as amended generally by
Prior Provisions
A prior section 86 was renumbered
Amendments
2021—Subsec. (b)(2)(A).
2020—Subsec. (b)(2)(A).
2017—Subsec. (b)(2)(A).
2004—Subsec. (b)(2)(A).
2001—Subsec. (b)(2)(A).
1998—Subsec. (b)(2)(A).
1996—Subsec. (b)(2).
Subsec. (b)(2)(A).
1994—Subsec. (d)(1).
1993—Subsec. (a).
Subsec. (c).
"(1) except as otherwise provided in this subsection, $25,000,
"(2) $32,000, in the case of a joint return, and
"(3) zero, in the case of a taxpayer who—
"(A) is married at the close of the taxable year (within the meaning of section 7703) but does not file a joint return for such year, and
"(B) does not live apart from his spouse at all times during the taxable year."
1988—Subsec. (b)(2)(A).
Subsec. (f)(4), (5).
1986—Subsec. (b)(2)(A).
Subsec. (c)(3)(A).
Subsec. (d)(4).
Subsec. (d)(5).
Subsec. (f)(1).
1984—Subsec. (f)(1).
Subsec. (f)(2)–(5).
1983—Subsec. (a).
Subsec. (d)(4).
Statutory Notes and Related Subsidiaries
Effective Date of 2021 Amendment
Amendment by
Effective Date of 2020 Amendment
Amendment by
Effective Date of 2017 Amendment
Amendment by
Effective Date of 2004 Amendment
Amendment by
Effective Date of 2001 Amendment
Amendment by
Effective Date of 1998 Amendment
Effective Date of 1996 Amendment
Amendment by section 1807(c)(2) of
Effective Date of 1994 Amendment
Effective Date of 1993 Amendment
Effective Date of 1988 Amendment
Amendment by section 1001(e) of
Effective Date of 1986 Amendment
Amendment by section 131(b)(2) of
Amendment by section 1301(j)(8) of
Amendment by section 1847(b)(2) of
Amendment by section 12111(b) of
Effective Date of 1984 Amendment
Amendment by section 474(r)(2) of
Amendment by section 2661 of
Effective Date of 1983 Amendment
Amendment by
Effective Date
"(1)
"(2)
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
§87. Alcohol and biodiesel fuels credits
Gross income includes—
(1) the amount of the alcohol fuel credit determined with respect to the taxpayer for the taxable year under section 40(a),
(2) the biodiesel fuels credit determined with respect to the taxpayer for the taxable year under section 40A(a), and
(3) the sustainable aviation fuel credit determined with respect to the taxpayer for the taxable year under section 40B(a).
(Added
Editorial Notes
Amendments
2022—Par. (3).
2004—
1984—
Statutory Notes and Related Subsidiaries
Effective Date of 2022 Amendment
Amendment by
Effective Date of 2004 Amendment
Amendment by
Effective Date of 1984 Amendment
Amendment by
Effective Date
Section applicable to sales or uses after Sept. 30, 1980, in taxable years ending after such date, see section 232(h)(1) of
§88. Certain amounts with respect to nuclear decommissioning costs
In the case of any taxpayer who is required to include the amount of any nuclear decommissioning costs in the taxpayer's cost of service for ratemaking purposes, there shall be includible in the gross income of such taxpayer the amount so included for any taxable year.
(Added
Editorial Notes
Amendments
1986—
Statutory Notes and Related Subsidiaries
Effective Date of 1986 Amendment
Amendment by
Effective Date
Section effective July 18, 1984, with respect to taxable years ending after such date, see section 91(g)(5) of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
[§89. Repealed. Pub. L. 101–140, title II, §202(a), Nov. 8, 1989, 103 Stat. 830 ]
Section, added
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
Nonenforcement of Section for Fiscal Year 1990
Transitional Provisions
Part-Time Employee Defined for Purposes of Subsection (f)
§90. Illegal Federal irrigation subsidies
(a) General rule
Gross income shall include an amount equal to any illegal Federal irrigation subsidy received by the taxpayer during the taxable year.
(b) Illegal Federal irrigation subsidy
For purposes of this section—
(1) In general
The term "illegal Federal irrigation subsidy" means the excess (if any) of—
(A) the amount required to be paid for any Federal irrigation water delivered to the taxpayer during the taxpayer year, over
(B) the amount paid for such water.
(2) Federal irrigation water
The term "Federal irrigation water" means any water made available for agricultural purposes from the operation of any reclamation or irrigation project referred to in paragraph (8) of section 202 of the Reclamation Reform Act of 1982.
(c) Denial of deduction
No deduction shall be allowed under this subtitle by reason of any inclusion in gross income under subsection (a).
(Added
Editorial Notes
References in Text
Section 202 of the Reclamation Reform Act of 1982, referred to in subsec. (b)(2), is classified to
Statutory Notes and Related Subsidiaries
Effective Date
§91. Certain foreign branch losses transferred to specified 10-percent owned foreign corporations
(a) In general
If a domestic corporation transfers substantially all of the assets of a foreign branch (within the meaning of section 367(a)(3)(C), as in effect before the date of the enactment of the Tax Cuts and Jobs Act) to a specified 10-percent owned foreign corporation (as defined in section 245A) with respect to which it is a United States shareholder after such transfer, such domestic corporation shall include in gross income for the taxable year which includes such transfer an amount equal to the transferred loss amount with respect to such transfer.
(b) Transferred loss amount
For purposes of this section, the term "transferred loss amount" means, with respect to any transfer of substantially all of the assets of a foreign branch, the excess (if any) of—
(1) the sum of losses—
(A) which were incurred by the foreign branch after December 31, 2017, and before the transfer, and
(B) with respect to which a deduction was allowed to the taxpayer, over
(2) the sum of—
(A) any taxable income of such branch for a taxable year after the taxable year in which the loss was incurred and through the close of the taxable year of the transfer, and
(B) any amount which is recognized under section 904(f)(3) on account of the transfer.
(c) Reduction for recognized gains
The transferred loss amount shall be reduced (but not below zero) by the amount of gain recognized by the taxpayer on account of the transfer (other than amounts taken into account under subsection (b)(2)(B)).
(d) Source of income
Amounts included in gross income under this section shall be treated as derived from sources within the United States.
(e) Basis adjustments
Consistent with such regulations or other guidance as the Secretary shall prescribe, proper adjustments shall be made in the adjusted basis of the taxpayer's stock in the specified 10-percent owned foreign corporation to which the transfer is made, and in the transferee's adjusted basis in the property transferred, to reflect amounts included in gross income under this section.
(Added
Editorial Notes
References in Text
The date of the enactment of the Tax Cuts and Jobs Act, referred to in subsec. (a), probably means the date of enactment of title I of
Statutory Notes and Related Subsidiaries
Effective Date
Transition Rule
PART III—ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
Editorial Notes
Amendments
2022—
2021—
2019—
2018—
2017—
2015—
2014—
2011—
2010—
2009—
2007—
2004—
2003—
2002—
2000—
1997—
1996—
1992—
1990—
1988—
1986—
1984—
1983—
1981—
1980—
1978—
1976—
1969—
1966—
1964—
1958—
Statutory Notes and Related Subsidiaries
Exclusion From Gross Income of Certain Clean Coal Power Grants to Non-Corporate Taxpayers
"(a)
"(b)
"(c)
"(d)
"(e)
No Federal Income Tax on Restitution Received by Victims of the Nazi Regime or Their Heirs or Estates
"(a)
"(1) shall not be included in gross income; and
"(2) shall not be taken into account for purposes of applying any provision of such Code which takes into account excludable income in computing adjusted gross income, including section 86 of such Code (relating to taxation of Social Security benefits).
For purposes of such Code, the basis of any property received by an eligible individual (or the individual's heirs or estate) as part of an excludable restitution payment shall be the fair market value of such property as of the time of the receipt.
"(b)
"(c)
"(1) is payable by reason of the individual's status as an eligible individual, including any amount payable by any foreign country, the United States of America, or any other foreign or domestic entity, or a fund established by any such country or entity, any amount payable as a result of a final resolution of a legal action, and any amount payable under a law providing for payments or restitution of property;
"(2) constitutes the direct or indirect return of, or compensation or reparation for, assets stolen or hidden from, or otherwise lost to, the individual before, during, or immediately after World War II by reason of the individual's status as an eligible individual, including any proceeds of insurance under policies issued on eligible individuals by European insurance companies immediately before and during World War II; or
"(3) consists of interest which is payable as part of any payment or distribution described in paragraph (1) or (2).
"(d)
"(1) escrow accounts or settlement funds established pursuant to the settlement of the action entitled 'In re: Holocaust Victim Assets Litigation,' (E.D.N.Y.) C.A. No. 96–4849,
"(2) funds to benefit eligible individuals or their heirs created by the International Commission on Holocaust Insurance Claims as a result of the Agreement between the Government of the United States of America and the Government of the Federal Republic of Germany concerning the Foundation 'Remembrance, Responsibility, and Future,' dated July 17, 2000, or
"(3) similar funds subject to the administration of the United States courts created to provide excludable restitution payments to eligible individuals (or eligible individuals' heirs or estates).
"(e)
"(1)
"(2)
1 So in original. Does not conform to section catchline.
§101. Certain death benefits
(a) Proceeds of life insurance contracts payable by reason of death
(1) General rule
Except as otherwise provided in paragraphs (2) and (3), subsection (d), subsection (f), and subsection (j), gross income does not include amounts received (whether in a single sum or otherwise) under a life insurance contract, if such amounts are paid by reason of the death of the insured.
(2) Transfer for valuable consideration
In the case of a transfer for a valuable consideration, by assignment or otherwise, of a life insurance contract or any interest therein, the amount excluded from gross income by paragraph (1) shall not exceed an amount equal to the sum of the actual value of such consideration and the premiums and other amounts subsequently paid by the transferee. The preceding sentence shall not apply in the case of such a transfer—
(A) if such contract or interest therein has a basis for determining gain or loss in the hands of a transferee determined in whole or in part by reference to such basis of such contract or interest therein in the hands of the transferor, or
(B) if such transfer is to the insured, to a partner of the insured, to a partnership in which the insured is a partner, or to a corporation in which the insured is a shareholder or officer.
The term "other amounts" in the first sentence of this paragraph includes interest paid or accrued by the transferee on indebtedness with respect to such contract or any interest therein if such interest paid or accrued is not allowable as a deduction by reason of section 264(a)(4).
(3) Exception to valuable consideration rules for commercial transfers
(A) In general
The second sentence of paragraph (2) shall not apply in the case of a transfer of a life insurance contract, or any interest therein, which is a reportable policy sale.
(B) Reportable policy sale
For purposes of this paragraph, the term "reportable policy sale" means the acquisition of an interest in a life insurance contract, directly or indirectly, if the acquirer has no substantial family, business, or financial relationship with the insured apart from the acquirer's interest in such life insurance contract. For purposes of the preceding sentence, the term "indirectly" applies to the acquisition of an interest in a partnership, trust, or other entity that holds an interest in the life insurance contract.
[(b) Repealed. Pub. L. 104–188, title I, §1402(a), Aug. 20, 1996, 110 Stat. 1789 ]
(c) Interest
If any amount excluded from gross income by subsection (a) is held under an agreement to pay interest thereon, the interest payments shall be included in gross income.
(d) Payment of life insurance proceeds at a date later than death
(1) General rule
The amounts held by an insurer with respect to any beneficiary shall be prorated (in accordance with such regulations as may be prescribed by the Secretary) over the period or periods with respect to which such payments are to be made. There shall be excluded from the gross income of such beneficiary in the taxable year received any amount determined by such proration. Gross income includes, to the extent not excluded by the preceding sentence, amounts received under agreements to which this subsection applies.
(2) Amount held by an insurer
An amount held by an insurer with respect to any beneficiary shall mean an amount to which subsection (a) applies which is—
(A) held by any insurer under an agreement provided for in the life insurance contract, whether as an option or otherwise, to pay such amount on a date or dates later than the death of the insured, and
(B) equal to the value of such agreement to such beneficiary
(i) as of the date of death of the insured (as if any option exercised under the life insurance contract were exercised at such time), and
(ii) as discounted on the basis of the interest rate used by the insurer in calculating payments under the agreement and mortality tables prescribed by the Secretary.
(3) Application of subsection
This subsection shall not apply to any amount to which subsection (c) is applicable.
[(e) Repealed. Pub. L. 98–369, div. A, title IV, §421(b)(2), July 18, 1984, 98 Stat. 794 ]
(f) Proceeds of flexible premium contracts issued before January 1, 1985 payable by reason of death
(1) In general
Any amount paid by reason of the death of the insured under a flexible premium life insurance contract issued before January 1, 1985 shall be excluded from gross income only if—
(A) under such contract—
(i) the sum of the premiums paid under such contract does not at any time exceed the guideline premium limitation as of such time, and
(ii) any amount payable by reason of the death of the insured (determined without regard to any qualified additional benefit) is not at any time less than the applicable percentage of the cash value of such contract at such time, or
(B) by the terms of such contract, the cash value of such contract may not at any time exceed the net single premium with respect to the amount payable by reason of the death of the insured (determined without regard to any qualified additional benefit) at such time.
(2) Guideline premium limitation
For purposes of this subsection—
(A) Guideline premium limitation
The term "guideline premium limitation" means, as of any date, the greater of—
(i) the guideline single premium, or
(ii) the sum of the guideline level premiums to such date.
(B) Guideline single premium
The term "guideline single premium" means the premium at issue with respect to future benefits under the contract (without regard to any qualified additional benefit), and with respect to any charges for qualified additional benefits, at the time of a determination under subparagraph (A) or (E) and which is based on—
(i) the mortality and other charges guaranteed under the contract, and
(ii) interest at the greater of an annual effective rate of 6 percent or the minimum rate or rates guaranteed upon issue of the contract.
(C) Guideline level premium
The term "guideline level premium" means the level annual amount, payable over the longest period permitted under the contract (but ending not less than 20 years from date of issue or not later than age 95, if earlier), computed on the same basis as the guideline single premium, except that subparagraph (B)(ii) shall be applied by substituting "4 percent" for "6 percent".
(D) Computational rules
In computing the guideline single premium or guideline level premium under subparagraph (B) or (C)—
(i) the excess of the amount payable by reason of the death of the insured (determined without regard to any qualified additional benefit) over the cash value of the contract shall be deemed to be not greater than such excess at the time the contract was issued,
(ii) the maturity date shall be the latest maturity date permitted under the contract, but not less than 20 years after the date of issue or (if earlier) age 95, and
(iii) the amount of any endowment benefit (or sum of endowment benefits) shall be deemed not to exceed the least amount payable by reason of the death of the insured (determined without regard to any qualified additional benefit) at any time under the contract.
(E) Adjustments
The guideline single premium and guideline level premium shall be adjusted in the event of a change in the future benefits or any qualified additional benefit under the contract which was not reflected in any guideline single premiums or guideline level premium previously determined.
(3) Other definitions and special rules
For purposes of this subsection—
(A) Flexible premium life insurance contract
The terms "flexible premium life insurance contract" and "contract" mean a life insurance contract (including any qualified additional benefits) which provides for the payment of one or more premiums which are not fixed by the insurer as to both timing and amount. Such terms do not include that portion of any contract which is treated under State law as providing any annuity benefits other than as a settlement option.
(B) Premiums paid
The term "premiums paid" means the premiums paid under the contract less any amounts (other than amounts includible in gross income) to which section 72(e) applies. If, in order to comply with the requirements of paragraph (1)(A), any portion of any premium paid during any contract year is returned by the insurance company (with interest) within 60 days after the end of a contract year—
(i) the amount so returned (excluding interest) shall be deemed to reduce the sum of the premiums paid under the contract during such year, and
(ii) notwithstanding the provisions of section 72(e), the amount of any interest so returned shall be includible in the gross income of the recipient.
(C) Applicable percentage
The term "applicable percentage" means—
(i) 140 percent in the case of an insured with an attained age at the beginning of the contract year of 40 or less, and
(ii) in the case of an insured with an attained age of more than 40 as of the beginning of the contract year, 140 percent reduced (but not below 105 percent) by one percent for each year in excess of 40.
(D) Cash value
The cash value of any contract shall be determined without regard to any deduction for any surrender charge or policy loan.
(E) Qualified additional benefits
The term "qualified additional benefits" means any—
(i) guaranteed insurability,
(ii) accidental death benefit,
(iii) family term coverage, or
(iv) waiver of premium.
(F) Premium payments not disqualifying contract
The payment of a premium which would result in the sum of the premiums paid exceeding the guideline premium limitation shall be disregarded for purposes of paragraph (1)(A)(i) if the amount of such premium does not exceed the amount necessary to prevent the termination of the contract without cash value on or before the end of the contract year.
(G) Net single premium
In computing the net single premium under paragraph (1)(B)—
(i) the mortality basis shall be that guaranteed under the contract (determined by reference to the most recent mortality table allowed under all State laws on the date of issuance),
(ii) interest shall be based on the greater of—
(I) an annual effective rate of 4 percent (3 percent for contracts issued before July 1, 1983), or
(II) the minimum rate or rates guaranteed upon issue of the contract, and
(iii) the computational rules of paragraph (2)(D) shall apply, except that the maturity date referred to in clause (ii) thereof shall not be earlier than age 95.
(H) Correction of errors
If the taxpayer establishes to the satisfaction of the Secretary that—
(i) the requirements described in paragraph (1) for any contract year was not satisfied due to reasonable error, and
(ii) reasonable steps are being taken to remedy the error,
the Secretary may waive the failure to satisfy such requirements.
(I) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection.
(g) Treatment of certain accelerated death benefits
(1) In general
For purposes of this section, the following amounts shall be treated as an amount paid by reason of the death of an insured:
(A) Any amount received under a life insurance contract on the life of an insured who is a terminally ill individual.
(B) Any amount received under a life insurance contract on the life of an insured who is a chronically ill individual.
(2) Treatment of viatical settlements
(A) In general
If any portion of the death benefit under a life insurance contract on the life of an insured described in paragraph (1) is sold or assigned to a viatical settlement provider, the amount paid for the sale or assignment of such portion shall be treated as an amount paid under the life insurance contract by reason of the death of such insured.
(B) Viatical settlement provider
(i) In general
The term "viatical settlement provider" means any person regularly engaged in the trade or business of purchasing, or taking assignments of, life insurance contracts on the lives of insureds described in paragraph (1) if—
(I) such person is licensed for such purposes (with respect to insureds described in the same subparagraph of paragraph (1) as the insured) in the State in which the insured resides, or
(II) in the case of an insured who resides in a State not requiring the licensing of such persons for such purposes with respect to such insured, such person meets the requirements of clause (ii) or (iii), whichever applies to such insured.
(ii) Terminally ill insureds
A person meets the requirements of this clause with respect to an insured who is a terminally ill individual if such person—
(I) meets the requirements of sections 8 and 9 of the Viatical Settlements Model Act of the National Association of Insurance Commissioners, and
(II) meets the requirements of the Model Regulations of the National Association of Insurance Commissioners (relating to standards for evaluation of reasonable payments) in determining amounts paid by such person in connection with such purchases or assignments.
(iii) Chronically ill insureds
A person meets the requirements of this clause with respect to an insured who is a chronically ill individual if such person—
(I) meets requirements similar to the requirements referred to in clause (ii)(I), and
(II) meets the standards (if any) of the National Association of Insurance Commissioners for evaluating the reasonableness of amounts paid by such person in connection with such purchases or assignments with respect to chronically ill individuals.
(3) Special rules for chronically ill insureds
In the case of an insured who is a chronically ill individual—
(A) In general
Paragraphs (1) and (2) shall not apply to any payment received for any period unless—
(i) such payment is for costs incurred by the payee (not compensated for by insurance or otherwise) for qualified long-term care services provided for the insured for such period, and
(ii) the terms of the contract giving rise to such payment satisfy—
(I) the requirements of section 7702B(b)(1)(B), and
(II) the requirements (if any) applicable under subparagraph (B).
For purposes of the preceding sentence, the rule of section 7702B(b)(2)(B) shall apply.
(B) Other requirements
The requirements applicable under this subparagraph are—
(i) those requirements of section 7702B(g) and section 4980C which the Secretary specifies as applying to such a purchase, assignment, or other arrangement,
(ii) standards adopted by the National Association of Insurance Commissioners which specifically apply to chronically ill individuals (and, if such standards are adopted, the analogous requirements specified under clause (i) shall cease to apply), and
(iii) standards adopted by the State in which the policyholder resides (and if such standards are adopted, the analogous requirements specified under clause (i) and (subject to section 4980C(f)) standards under clause (ii), shall cease to apply).
(C) Per diem payments
A payment shall not fail to be described in subparagraph (A) by reason of being made on a per diem or other periodic basis without regard to the expenses incurred during the period to which the payment relates.
(D) Limitation on exclusion for periodic payments
For limitation on amount of periodic payments which are treated as described in paragraph (1), see section 7702B(d).
(4) Definitions
For purposes of this subsection—
(A) Terminally ill individual
The term "terminally ill individual" means an individual who has been certified by a physician as having an illness or physical condition which can reasonably be expected to result in death in 24 months or less after the date of the certification.
(B) Chronically ill individual
The term "chronically ill individual" has the meaning given such term by section 7702B(c)(2); except that such term shall not include a terminally ill individual.
(C) Qualified long-term care services
The term "qualified long-term care services" has the meaning given such term by section 7702B(c).
(D) Physician
The term "physician" has the meaning given to such term by section 1861(r)(1) of the Social Security Act (
(5) Exception for business-related policies
This subsection shall not apply in the case of any amount paid to any taxpayer other than the insured if such taxpayer has an insurable interest with respect to the life of the insured by reason of the insured being a director, officer, or employee of the taxpayer or by reason of the insured being financially interested in any trade or business carried on by the taxpayer.
(h) Survivor benefits attributable to service by a public safety officer who is killed in the line of duty
(1) In general
Gross income shall not include any amount paid as a survivor annuity on account of the death of a public safety officer (as such term is defined in section 1204 of the Omnibus Crime Control and Safe Streets Act of 1968, as in effect immediately before the enactment of the National Defense Authorization Act for Fiscal Year 2013) killed in the line of duty—
(A) if such annuity is provided, under a governmental plan which meets the requirements of section 401(a), to the spouse (or a former spouse) of the public safety officer or to a child of such officer; and
(B) to the extent such annuity is attributable to such officer's service as a public safety officer.
(2) Exceptions
Paragraph (1) shall not apply with respect to the death of any public safety officer if, as determined in accordance with the provisions of the Omnibus Crime Control and Safe Streets Act of 1968—
(A) the death was caused by the intentional misconduct of the officer or by such officer's intention to bring about such officer's death;
(B) the officer was voluntarily intoxicated (as defined in section 1204 of such Act) at the time of death;
(C) the officer was performing such officer's duties in a grossly negligent manner at the time of death; or
(D) the payment is to an individual whose actions were a substantial contributing factor to the death of the officer.
(i) Certain employee death benefits payable by reason of death of certain terrorist victims or astronauts
(1) In general
Gross income does not include amounts (whether in a single sum or otherwise) paid by an employer by reason of the death of an employee who is a specified terrorist victim (as defined in section 692(d)(4)).
(2) Limitation
(A) In general
Subject to such rules as the Secretary may prescribe, paragraph (1) shall not apply to amounts which would have been payable after death if the individual had died other than as a specified terrorist victim (as so defined).
(B) Exception
Subparagraph (A) shall not apply to incidental death benefits paid from a plan described in section 401(a) and exempt from tax under section 501(a).
(3) Treatment of self-employed individuals
For purposes of paragraph (1), the term "employee" includes a self-employed individual (as defined in section 401(c)(1)).
(4) Relief with respect to astronauts
The provisions of this subsection shall apply to any astronaut whose death occurs in the line of duty.
(j) Treatment of certain employer-owned life insurance contracts
(1) General rule
In the case of an employer-owned life insurance contract, the amount excluded from gross income of an applicable policyholder by reason of paragraph (1) of subsection (a) shall not exceed an amount equal to the sum of the premiums and other amounts paid by the policyholder for the contract.
(2) Exceptions
In the case of an employer-owned life insurance contract with respect to which the notice and consent requirements of paragraph (4) are met, paragraph (1) shall not apply to any of the following:
(A) Exceptions based on insured's status
Any amount received by reason of the death of an insured who, with respect to an applicable policyholder—
(i) was an employee at any time during the 12-month period before the insured's death, or
(ii) is, at the time the contract is issued—
(I) a director,
(II) a highly compensated employee within the meaning of section 414(q) (without regard to paragraph (1)(B)(ii) thereof), or
(III) a highly compensated individual within the meaning of section 105(h)(5), except that "35 percent" shall be substituted for "25 percent" in subparagraph (C) thereof.
(B) Exception for amounts paid to insured's heirs
Any amount received by reason of the death of an insured to the extent—
(i) the amount is paid to a member of the family (within the meaning of section 267(c)(4)) of the insured, any individual who is the designated beneficiary of the insured under the contract (other than the applicable policyholder), a trust established for the benefit of any such member of the family or designated beneficiary, or the estate of the insured, or
(ii) the amount is used to purchase an equity (or capital or profits) interest in the applicable policyholder from any person described in clause (i).
(3) Employer-owned life insurance contract
(A) In general
For purposes of this subsection, the term "employer-owned life insurance contract" means a life insurance contract which—
(i) is owned by a person engaged in a trade or business and under which such person (or a related person described in subparagraph (B)(ii)) is directly or indirectly a beneficiary under the contract, and
(ii) covers the life of an insured who is an employee with respect to the trade or business of the applicable policyholder on the date the contract is issued.
For purposes of the preceding sentence, if coverage for each insured under a master contract is treated as a separate contract for purposes of sections 817(h), 7702, and 7702A, coverage for each such insured shall be treated as a separate contract.
(B) Applicable policyholder
For purposes of this subsection—
(i) In general
The term "applicable policyholder" means, with respect to any employer-owned life insurance contract, the person described in subparagraph (A)(i) which owns the contract.
(ii) Related persons
The term "applicable policyholder" includes any person which—
(I) bears a relationship to the person described in clause (i) which is specified in section 267(b) or 707(b)(1), or
(II) is engaged in trades or businesses with such person which are under common control (within the meaning of subsection (a) or (b) of section 52).
(4) Notice and consent requirements
The notice and consent requirements of this paragraph are met if, before the issuance of the contract, the employee—
(A) is notified in writing that the applicable policyholder intends to insure the employee's life and the maximum face amount for which the employee could be insured at the time the contract was issued,
(B) provides written consent to being insured under the contract and that such coverage may continue after the insured terminates employment, and
(C) is informed in writing that an applicable policyholder will be a beneficiary of any proceeds payable upon the death of the employee.
(5) Definitions
For purposes of this subsection—
(A) Employee
The term "employee" includes an officer, director, and highly compensated employee (within the meaning of section 414(q)).
(B) Insured
The term "insured" means, with respect to an employer-owned life insurance contract, an individual covered by the contract who is a United States citizen or resident. In the case of a contract covering the joint lives of 2 individuals, references to an insured include both of the individuals.
(Aug. 16, 1954, ch. 736,
Editorial Notes
References in Text
The Omnibus Crime Control and Safe Streets Act of 1968, referred to in subsec. (h), is
Codification
Another section 1084(b) of
Amendments
2017—Subsec. (a)(1).
Subsec. (a)(3).
2013—Subsec. (h)(1).
2006—Subsec. (a)(1).
Subsec. (j).
2003—Subsec. (i).
Subsec. (i)(4).
2002—Subsec. (i).
1997—Subsec. (a)(2).
Subsec. (h).
1996—Subsec. (b).
Subsec. (c).
Subsec. (g).
1986—Subsec. (d)(1).
"(A) any amount determined by such proration, and
"(B) in the case of the surviving spouse of the insured, that portion of the excess of the amounts received under one or more agreements specified in paragraph (2)(A) (whether or not payment of any part of such amounts is guaranteed by the insurer) over the amount determined in subparagraph (A) of this paragraph which is not greater than $1,000 with respect to any insured."
Subsec. (d)(2)(B).
Subsec. (d)(2)(B)(ii).
Subsec. (d)(3), (4).
1984—Subsec. (b)(3)(B).
Subsec. (e).
Subsec. (f).
Subsec. (f)(1).
1982—Subsec. (a)(1).
Subsec. (b)(3).
Subsec. (f).
1976—Subsec. (d)(1).
Subsec. (f).
1974—Subsec. (b)(2)(B).
Subsec. (b)(2)(D).
1969—Subsec. (b)(2)(B)(iii).
1966—Subsec. (b)(2)(D).
1962—Subsec. (b)(2)(B)(ii).
Subsec. (b)(3).
1958—Subsec. (b)(2)(B).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Effective Date of 2013 Amendment
Amendment by
Effective Date of 2006 Amendment
Effective Date of 2003 Amendment
Effective Date of 2002 Amendment
"(1)
"(2)
Effective Date of 1997 Amendment
Effective Date of 1996 Amendment
Effective Date of 1986 Amendment
Effective Date of 1984 Amendment
Amendment by section 221(b)(2) of
Amendment by section 421(b)(2) of
Amendment by section 713 of
Effective Date of 1982 Amendment
Amendment by section 239 of
Effective Date of 1976 Amendment
Amendment by section 1901(a)(16) of
Amendment by section 1906(b)(13)(A) of
Effective Date of 1974 Amendment
Amendment by section 2005(c)(15) of
Amendment by section 2007(b)(3) of
Effective Date of 1969 Amendment
Amendment by
Effective Date of 1966 Amendment
Amendment by
Effective Date of 1962 Amendment
Amendment by
Effective Date of 1958 Amendment
Amendment by
Plan Amendments Not Required Until January 1, 1998
For provisions directing that if any amendments made by subtitle D [§§1401–1465] of title I of
Flexible Premium Contracts Issued During 1984 Which Meet Requirements of Section 7702 Treated as Meeting Requirements of Section 101(f)
Flexible premium contracts issued during 1984 which meet requirements of
Special Rules for Contracts Entered Into Before January 1, 1983
"(2)
"(3)
§102. Gifts and inheritances
(a) General rule
Gross income does not include the value of property acquired by gift, bequest, devise, or inheritance.
(b) Income
Subsection (a) shall not exclude from gross income—
(1) the income from any property referred to in subsection (a); or
(2) where the gift, bequest, devise, or inheritance is of income from property, the amount of such income.
Where, under the terms of the gift, bequest, devise, or inheritance, the payment, crediting, or distribution thereof is to be made at intervals, then, to the extent that it is paid or credited or to be distributed out of income from property, it shall be treated for purposes of paragraph (2) as a gift, bequest, devise, or inheritance of income from property. Any amount included in the gross income of a beneficiary under subchapter J shall be treated for purposes of paragraph (2) as a gift, bequest, devise, or inheritance of income from property.
(c) Employee gifts
(1) In general
Subsection (a) shall not exclude from gross income any amount transferred by or for an employer to, or for the benefit of, an employee.
(2) Cross references
For provisions excluding certain employee achievement awards from gross income, see section 74(c).
For provisions excluding certain de minimis fringes from gross income, see section 132(e).
(Aug. 16, 1954, ch. 736,
Editorial Notes
Amendments
1986—Subsec. (c).
Statutory Notes and Related Subsidiaries
Effective Date of 1986 Amendment
Amendment by
§103. Interest on State and local bonds
(a) Exclusion
Except as provided in subsection (b), gross income does not include interest on any State or local bond.
(b) Exceptions
Subsection (a) shall not apply to—
(1) Private activity bond which is not a qualified bond
Any private activity bond which is not a qualified bond (within the meaning of section 141).
(2) Arbitrage bond
Any arbitrage bond (within the meaning of section 148).
(3) Bond not in registered form, etc.
Any bond unless such bond meets the applicable requirements of section 149.
(c) Definitions
For purposes of this section and part IV—
(1) State or local bond
The term "State or local bond" means an obligation of a State or political subdivision thereof.
(2) State
The term "State" includes the District of Columbia and any possession of the United States.
(Aug. 16, 1954, ch. 736,
Editorial Notes
Amendments
1988—Subsec. (b)(6)(N).
"(i)
"(ii)
"(I) the average maturity date of the issue of which the refunding obligation is a part is not later than the average maturity date of the obligations to be refunded by such issue,
"(II) the amount of the refunding obligation does not exceed the outstanding amount of the refunded obligation, and
"(III) the proceeds of the refunding obligation are used to redeem the refunded obligation not later than 90 days after the date of the issuance of the refunding obligation.
For purposes of subclause (I), average maturity shall be determined in accordance with subsection (b)(14)(B)(i)."
Subsec. (c)(7).
1986—
Subsec. (a).
"(1) the obligations of a State, a Territory, or a possession of the United States, or any political subdivision of any of the foregoing, or of the District of Columbia; and
"(2) qualified scholarship funding bonds."
Subsec. (b).
Subsec. (b)(11).
Subsec. (b)(13), (14)(A).
Subsec. (b)(16)(A).
Subsec. (b)(17)(A).
Subsec. (c).
Subsecs. (d) to (g).
Subsec. (h).
Subsec. (h)(2)(A).
Subsec. (h)(5)(A).
Subsecs. (i) to (k).
Subsec. (l).
Subsec. (l)(2)(F).
Subsec. (m).
Subsec. (m)(1).
Subsec. (m)(3)(B).
Subsec. (n).
Subsec. (n)(6)(A), (B)(i).
Subsec. (n)(7)(C)(i).
Subsec. (n)(10)(B).
Subsec. (n)(10)(D).
Subsec. (n)(13).
Subsec. (o).
Subsec. (p).
Subsec. (p)(4).
1984—Subsec. (b)(4).
Subsec. (b)(6)(F)(iv).
Subsec. (b)(6)(N).
Subsec. (b)(6)(P).
Subsec. (b)(7).
Subsec. (b)(13).
Subsec. (b)(15).
Subsec. (b)(16) to (18).
Subsec. (c).
Subsec. (c)(1).
Subsec. (c)(6), (7).
Subsec. (h).
Subsec. (m)(1).
Subsec. (m)(2)(B).
Subsec. (m)(3).
Subsec. (n).
Subsec. (o).
1983—Subsec. (m).
Subsec. (n).
1982—Subsec. (b)(2).
Subsec. (b)(4).
Subsec. (b)(6)(C).
Subsec. (b)(6)(F)(iv).
Subsec. (b)(6)(K) to (O).
Subsec. (b)(9)(A).
Subsec. (b)(10).
Subsec. (b)(11).
Subsec. (b)(12).
Subsec. (b)(13).
Subsec. (b)(14).
Subsec. (h).
Subsec. (j).
Subsec. (k).
Subsec. (l).
Subsec. (m).
1981—Subsec. (b)(4)(I).
Subsec. (b)(9), (10).
Subsecs. (i), (j).
1980—Subsec. (b)(4).
Subsec. (b)(4)(A).
Subsec. (b)(4)(H).
Subsec. (b)(6)(J).
Subsec. (b)(8), (9).
Subsec. (c)(5).
Subsec. (g).
Subsec. (h).
Subsec. (i).
1978—Subsec. (b)(1).
Subsec. (b)(4).
Subsec. (b)(6)(D).
Subsec. (b)(6)(I).
Subsec. (b)(7), (8).
Subsec. (c)(1).
Subsec. (c)(2)(A).
Subsec. (c)(5).
Subsec. (d).
Subsec. (e).
Subsec. (f).
Subsec. (g).
1976—Subsec. (a).
Subsec. (b).
Subsec. (c).
Subsec. (d).
Subsec. (e).
Subsec. (f).
1975—Subsecs. (e), (f).
1971—Subsec. (c)(4)(E).
Subsec. (c)(4)(F).
Subsec. (c)(4)(G).
Subsec. (c)(6)(F)(iii).
1969—Subsecs. (d), (e).
1968—Subsec. (c).
Subsec. (c)(6)(D) to (H).
Subsec. (d).
Statutory Notes and Related Subsidiaries
Effective Date of 1988 Amendment
Effective Date of 1986 Amendment
Amendment by section 1301(a) of
Amendment by sections 1864(b)–(e), 1865(a), 1869(a), (b), 1870, and 1871(b) of
"(A) Except as provided in subparagraph (B), the amendment made by paragraph (1) [amending this section] shall apply to obligations issued after the date of the enactment of this Act [Oct. 22, 1986] in taxable years ending after such date.
"(B) At the election of the issuer (made at such time and in such manner as the Secretary of the Treasury or his delegate shall prescribe), the amendment made by paragraph (1) shall apply to any obligation issued on or before the date of the enactment of this Act."
Effective Date of 1984 Amendment
Amendment by section 474(r)(4) of
"(1)
"(2)
"(1)
"(2)
"(A)
| Program | Amount of Allowable Obligations |
|---|---|
| Colorado Student Obligation Bond Authority | $60 million |
| Connecticut Higher Education Supplementary Loan Authority | $15.5 million |
| District of Columbia | $50 million |
| Illinois Higher Education Authority | $70 million |
| State of Iowa | $16 million |
| Louisiana Public Facilities Authority | $75 million |
| Maine Health and Higher Education Facilities Authority | $5 million |
| Maryland Higher Education Supplemental Loan Program | $24 million |
| Massachusetts College Student Loan Authority | $90 million |
| Minnesota Higher Education Coordinating Board | $60 million |
| New Hampshire Higher Education and Health Facilities Authority | $39 million |
| New York Dormitory Authority | $120 million |
| Pennsylvania Higher Education Assistance Agency | $300 million |
| Georgia Private Colleges and University Authority | $31 million |
| Wisconsin State Building Commission | $60 million |
| South Dakota Health and Educational Facilities Authority | $6 million |
"(B)
"(3)
"(4)
"(A) the amount of the refunding obligations may not exceed 101 percent of the aggregate face amount of the refunded obligations, and
"(B) the maturity date of any refunding obligation may not be later than the date which is 17 years after the date on which the refunded obligation was issued (or, in the case of a series of refundings, the date on which the original obligation was issued).
"(5)
"(A) in the same manner in which,
"(B) in the same (or lesser) amount per participant, and
"(C) for the same purposes for which,
such program was operated on March 15, 1984. This subparagraph shall not apply to obligations issued on or after March 15, 1987.
"(6)
"(7)
"(A) on August 15, 1985, a downtown redevelopment authority adopted a resolution to issue obligations for such project,
"(B) before September 26, 1985, the city expended, or entered into binding contracts to expend, more than $10,000,000 in connection with such project, and
"(C) the State supreme court issued a ruling regarding the proposed financing structure for such project on December 11, 1985.
The aggregate face amount of obligations to which this paragraph applies shall not exceed $85,000,000 and such obligations must be issued before January 1, 1992."
"(a)
"(1)
"(2)
"(A) there was an inducement resolution (or other comparable preliminary approval) for the issue before June 19, 1984, and
"(B) the issue is issued before January 1, 1985.
"(3)
"(A) there was an inducement resolution (or other comparable preliminary approval) for a project before October 19, 1983, by any issuing authority,
"(B) a substantial user of such project notifies the issuing authority within 30 days after the date of the enactment of this Act [July 18, 1984] that it intends to claim its rights under this paragraph, and
"(C) construction of such project began before October 19, 1983, or the substantial user was under a binding contract on such date to incur significant expenditures with respect to such project,
such issuing authority shall allocate its share of the limitation under section 103(n) of such Code for the calendar year during which the obligations were to be issued pursuant to such resolution (or other approval) first to such project. If the amount of obligations required by all projects which meet the requirements of the preceding sentence exceeds the issuing authority's share of the limitation under section 103(n) of such Code, priority under the preceding sentence shall be provided first to those projects for which substantial expenditures were incurred before October 19, 1983. If any issuing authority fails to meet the requirements of this paragraph, the limitation under section 103(n) of such Code for the issuing authority for the calendar year following such failure shall be reduced by the amount of obligations with respect to which such failure occurred.
"(3) [(4)]
"(A) the city council of such city authorized a feasibility study for a convention center on June 10, 1982, and
"(B) on November 4, 1983, a municipal authority acting for such city accepted a proposal for the construction of a facility that is capable of generating steam and electricity through the combustion of municipal waste,
the amendment made by section 621 shall not apply to any issue, issued during 1984, 1985, 1986, or 1987 and substantially all of the proceeds of which are to be used to finance the convention center (or access ramps and parking facilities therefor) described in subparagraph (A) or the facility described in subparagraph (B).
"(b)
"(1)
"(2)
"(A)
"(i) the original use of which commences with the taxpayer and the construction, reconstruction, or rehabilitation of which began before October 19, 1983, or
"(ii) with respect to which a binding contract to incur significant expenditures was entered into before October 19, 1983.
"(B)
"(i)
"(ii)
"(C)
"(c)
"(1)
"(2)
"(3)
"(A)
"(i) the original use of which commences with the taxpayer and the construction, reconstruction, or rehabilitation of which began before October 19, 1983, and was completed on or after such date,
"(ii) the original use of which commences with the taxpayer and with respect to which a binding contract to incur significant expenditures for construction, reconstruction, or rehabilitation was entered into before October 19, 1983, and some of such expenditures are incurred on or after such date, or
"(iii) acquired after October 19, 1983, pursuant to a binding contract entered into on or before such date.
"(B)
"(C)
"(4)
"(5)
"(A) paragraph (1) shall be applied by substituting 'April 12, 1984' for 'December 31, 1983', and
"(B) paragraph (3) shall be applied by substituting 'April 13, 1984' for 'October 19, 1983' each place it appears.
"(d)
"(1) Any property described in paragraph (5), (6), or (7) of section 31(g) of this Act [set out as an Effective Date of 1984 Amendment note under
"(2) Any property described in paragraph (4), (8), or (17) of section 31(g) of this Act [set out as an Effective Date of 1984 Amendment note under
"(3) Any property described in paragraph (3) of section 216(b) of the Tax Equity and Fiscal Responsibility Act of 1982 [set out as an Effective Date of 1982 Amendment note under
"(4) Any solid waste disposal facility described in section 103(b)(4)(E) of the Internal Revenue Code of 1986 if—
"(A) a State public authority created pursuant to State legislation which took effect on June 18, 1973, took formal action before October 19, 1983, to commit development funds for such facility.
"(B) such authority issues obligations for any such facility before January 1, 1987, and
"(C) expenditures have been made for the development of any such facility before October 19, 1983.
"(5) Any solid waste disposal facility described in section 103(b)(4)(E) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] if—
"(A) a city government, by resolutions adopted on April 10, 1980, and December 27, 1982, took formal action to authorize the submission of a proposal for a feasibility study for such facility and to authorize the presentation to the Department of the Army (U.S. Army Missile Command) of a proposed agreement to jointly pursue construction and operation of such facility,
"(B) such city government (or a public authority on its behalf) issues obligations for such facility before January 1, 1988, and
"(C) expenditures have been made for the development of such facility before October 19, 1983. Notwithstanding the foregoing provisions of this subsection, the amendments made by section 624 [amending
"(e)
"(1)
"(A) $15,000,000, or
"(B) 20 percent of the estimated cost of the facilities.
"(2)
"(f)
"(1) there was an inducement resolution (or other comparable preliminary approval) for an issue before June 19, 1984, by any issuing authority, and
"(2) such issue is issued before January 1, 1985, the following amendments shall not apply:
"(A) the amendments made by section 623 [amending this section],
"(B) the amendments made by subsections (a) and (b) of section 627 [amending this section] (except to the extent such amendments relate to farm land),
"(C) in the case of a race track, the amendment made by section 627(c) [amending this section], and
"(D) the amendments made by section 628(c) [amending this section]."
[Section 1872(a)(2)(B) of
Effective Date of 1983 Amendment
For effective date of amendment by
Effective Date of 1982 Amendment
"(1)
"(2)
"(3)
"(4)
"(1)
"(A) was issued before July 1, 1982, and
"(B) has a maturity which does not exceed 3 years.
"(2)
"(1)
"(2)
"(1)
"(2) [Repealed.
"(3)
"(4) [Repealed.
Effective Date of 1981 Amendment
Effective Date of 1980 Amendment
For effective date of amendment by
Effective Date of 1978 Amendment
"(1) The amendments made by subsection (a) [amending this section] shall apply to—
"(A) obligations issued after December 31, 1978, in taxable years ending after such date, and
"(B) capital expenditures made after December 31, 1978, with respect to obligations issued before January 1, 1979.
"(2) The amendment made by subsection (b) [amending this section] shall apply to—
"(A) obligations issued after September 30, 1979, in taxable years ending after such date, and
"(B) capital expenditures made after September 30, 1979, with respect to obligations issued after such date."
Amendment by section 703(j)(1) of
Effective Date of 1976 Amendment
Amendment by section 1901(a)(17), (b)(8)(B) of
Amendment by section 1906(b)(13)(A) of
Amendment by section 2137(d) of
Effective Date of 1975 Amendment
Effective Date of 1971 Amendment
Effective Date of 1969 Amendment
Effective Date of 1968 Amendment
Transfer of Functions
Functions of Commissioner of Education transferred to Secretary of Education by
Coordination of Certain Amendments Made by Pub. L. 97–424 and Pub. L. 97–473
Validation of Sinking Fund Regulations
"(A) Treasury Regulation section 1.103–13(g) (1979) is hereby enacted into positive law.
"(B)(i) Except as provided in clause (ii), subparagraph (A) shall apply to obligations sold after May 2, 1978, and to which such regulation was provided to apply.
"(ii) Treasury Regulation section 1.103–13(g) (1979) as enacted into positive law by subparagraph (A) shall cease to apply to the extent hereafter modified by the Secretary of the Treasury or his delegate by regulations."
Bonds Issued To Refund Subsection (o)(3) Obligations
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Treatment of Certain Guarantees by Farmers Home Administration
"(1) such guarantee is pursuant to a commitment made by the Farmers Home Administration before July 1, 1984, and
"(2) such obligation is issued to finance a convention center project in Carbondale, Illinois."
Treatment of Certain Obligations Used To Finance Solid Waste Disposal Facility
"(1)
"(2)
"(A) if—
"(i) a public State authority created pursuant to State legislation which took effect on July 1, 1980, took formal action before October 19, 1983, to commit development funds for such facility,
"(ii) such authority issues obligations for such facility before January 1, 1988, and
"(iii) expenditures have been made for the development of such facility before October 19, 1983,
"(B) if—
"(i) such facility is operated by the South Eastern Public Service Authority of Virginia, and
"(ii) on December 20, 1984, the Internal Revenue Service issued a ruling concluding that a portion of the obligations with respect to such facility would not be treated as federally guaranteed under section 103(h) of such Code by reason of the transitional rule contained in section 631(c)(3)(A)(i) of the Tax Reform Act of 1984 [section 631(c)(3)(A)(i) of
"(C) if—
"(i) a political subdivision of a State took formal action on April 1, 1980, to commit development funds for such facility,
"(ii) such facility has a contract to sell steam to a naval base,
"(iii) such political subdivision issues obligations for such facility before January 1, 1988, and
"(iv) expenditures have been made for the development of such facility before October 19, 1983, or
"(D) if—
"(i) such facility is a thermal transfer facility,
"(ii) is to be built and operated by the Elk Regional Resource Authority, and
"(iii) is to be on land leased from the United States Air Force at Arnold Engineering Development Center near Tullahoma, Tennessee.
"(3)
"(A) In the case of a solid waste disposal facility described in paragraph (2)(A), the aggregate face amount of obligations to which paragraph (1) applies shall not exceed $65,000,000.
"(B) In the case of a solid waste disposal facility described in paragraph (2)(B), the aggregate face amount of obligations to which paragraph (1) applies shall not exceed $20,000,000. Such amount shall be in addition to the amount permitted under the Internal Revenue Service ruling referred to in paragraph (2)(B)(ii).
"(C) In the case of a solid waste disposal facility described in paragraph (2)(C), the aggregate face amount of obligations to which paragraph (1) applies shall not exceed $75,000,000.
"(D) In the case of a solid waste disposal facility described in paragraph (2)(D), the aggregate face amount of obligations to which paragraph (1) applies shall not exceed $25,000,000."
Transitional Rule for Limit on Small Issue Exception
"(1) the average maturity of the issue of which the refunding obligation is a part does not exceed the average maturity of the obligations to be refunded by such issue,
"(2) the amount of the refunding obligation does not exceed the amount of the refunded obligation, and
"(3) the proceeds of the refunding obligation are used to redeem the refunded obligation not later than 90 days after the date of the issuance of the refunding obligation.
For purposes of the preceding sentence, the term 'tax-exempt IDB' means any industrial development bond (as defined in section 103(b) of the Internal Revenue Code of 1954 [now 1986]) the interest on which is exempt from tax under section 103(a) of such Code. For purposes of paragraph (1), average maturity shall be determined in accordance with subsection (b)(14)(B)(i) of such Code."
[
Exception From 1984 Amendment for Downtown Muskogee Revitalization Project
"(1) such obligation is issued before January 1, 1986, or
"(2) such obligation is issued after such date to provide additional financing for such project except that the aggregate amount of obligations to which this subsection applies shall not exceed $10,000,000."
Transitional Rules
"(1)
"(A) such obligations are not industrial development bonds (within the meaning of section 103(b)(2) of the Internal Revenue Code of 1954 [now 1986]),
"(B) the portion of the proceeds of such obligations so used is attributable to debt approved by voter referendum on or before November 2, 1982,
"(C) the loans to such nonexempt persons were approved by the Board of Estimates of the city of Baltimore on or before October 19, 1983, and
"(D) the aggregate amount of such temporary advances financed or refinanced by such obligations does not exceed $27,000,000.
"(2)
"(3)
"(A) substantially all of the proceeds of the issue are to be used to finance—
"(i) sewer, street, lighting, or other governmental improvements to real property,
"(ii) the acquisition of any interest in real property (by a governmental unit having the power to exercise eminent domain), the preparation of such property for new use, or the transfer of such interest to a private developer, or
"(iii) payments of reasonable relocation costs of prior users of such real property,
"(B) all of the activities described in subparagraph (A) are pursuant to a redevelopment plan adopted by the issuing authority before the issuance of such issue,
"(C) repayment of such issue is secured exclusively by pledges of that portion of any increase in real property tax revenues (or their equivalent) attributable to the redevelopment resulting from the issue (or similar issues), and
"(D) none of the property described in subparagraph (A) is subject to a real property or other tax based on a rate or valuation method which differs from the rate and valuation method applicable to any other similar property located within the jurisdiction of the issuing authority.
"(4)
"(A) such obligation is issued before January 1, 1986,
"(B) such obligation is issued after such date to refund a prior obligation for such project, except that the aggregate amount of obligations to which this subparagraph applies shall not exceed $100,000,000, or
"(C) such obligation is issued after such date to provide additional financing for such project except that the aggregate amount of obligations to which this subparagraph applies shall not exceed $45,000,000.
Subparagraph (B) shall not apply to any obligation issued for the advance refunding of any obligation."
Treatment of Obligations To Finance St. Johns River Power Park
"(A)
"(i) such obligation is issued before September 27, 1985,
"(ii) such obligation is issued after such date to refund a prior tax exemption obligation for such project, the amount of such obligation does not exceed the outstanding amount of the refunded obligation, and such prior tax exempt obligation is retired not later than the date 30 days after the issuance of the refunding obligation, or
"(iii) such obligation is issued after such date to provide additional financing for such project except that the aggregate amount of obligations to which this clause applies shall not exceed $150,000,000.
Clause (ii) shall not apply to any obligation issued for the advance refunding of any obligation.
"(B)
Certain Public Utilities Treated as Exempted Persons Under Section 103(b); Special Rules for Certain Railroads
"(a)
"(1) any obligations issued after the date of enactment of this Act [July 18, 1984], and
"(2) any obligations issued after December 31, 1969, which were treated as obligations described in section 103(a) of such Code on the day on which such obligations were issued,
the term 'exempt person' shall include a regulated public utility having any customer service area within a State served by a public power authority which was required as a condition of a Federal Power Commission license specified by an Act of Congress enacted prior to the enactment of section 107 of the Revenue and Expenditure Control Act of 1968 (
"(b)
"(1) substantially all of the proceeds of such obligation are used to acquire railroad track and right-of-way from a railroad involved in a title 11 or similar proceeding (within the meaning of section 368(a)(3)(A) of such Code), and
"(2) the Federal Railroad Administration provides joint financing for such acquisitions.
"(c)
"(1)
"(2)
"(3)
"(A) Cable facilities.
"(B) Small hydroelectric facilities.
"(C) The acquisition of an interest in an electrical generating facility.
"(D) Improvements to existing generating facilities.
"(E) Transmission lines.
"(F) Electric generating facilities."
Treatment of Certain Residential Real Property as Residential Rental Property
Treatment of
Public Approval Requirement in the Case of Public Airport
"(1) the proceeds of any issue are to be used to finance a facility or facilities located on a public airport, and
"(2) the governmental unit issuing such obligations is the owner or operator of such airport,
such governmental unit shall be deemed to be the only governmental unit having jurisdiction over such airport for purposes of subsection (k) of section 103 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (relating to public approval for industrial development bonds)."
Small Issue Limit in Case of Certain Urban Development Action Grants
"(1) such obligation is part of an issue,
"(2) substantially all of the proceeds of such issue are used to provide facilities with respect to which an urban development action grant under section 119 of the Housing and Community Development Act of 1974 [
"(3) the Secretary of Housing and Urban Development determines, at the time such grant is approved, that the amount of such grant will equal or exceed 5 percent of the total capital expenditures incurred with respect to such facilities."
Student Loan Bonds
"(a)
"(1)
"(A) paragraphs (4) and (5) of section 103(c) of such Code shall not apply, and
"(B) rules similar to section 103(c)(6) shall apply,
to qualified student loan bonds.
"(2)
"(A)
"(B)
"(3)
"(A)
"(B)
"(i)
"(I) the date on which the Higher Education Act of 1965 [
"(II) the date, after the date of enactment of this Act [July 18, 1984], on which the Higher Education Act of 1965 is reauthorized.
"(ii)
"(C)
"(D)
"(i) such commitments are binding on the qualified date, and
"(ii) the amount of such commitments is consistent with practices of the issuer which were in effect on March 15, 1984, with respect to establishing secondary markets for student loans.
"(b)
"(c)
"(1) the status of any other obligations issued, or to be issued, by such issuer as obligations described in section 103(a) of such Code, or
"(2) the status of the issuer as an organization exempt from taxation under such Code.
"(d)
"(e)
"(1)
"(A) the appropriate role of tax-exempt bonds which are issued in connection with the guaranteed student loan program and the PLUS program established under the Higher Education Act of 1965 [
"(B) the appropriate arbitrage rules for such bonds.
"(2)
Obligations Issued To Provide Solid Waste-Energy Producing Facilities
"(1)
"(2)
"(A) substantially all of the fuel for the facility producing steam and electrical energy is derived from solid waste from such solid waste disposal facility,
"(B) both such solid waste disposal facility and the facility producing steam and electrical energy are owned and operated by the authority referred to in paragraph (1), and
"(C) all of the electrical energy and steam produced by the facility for producing steam and electricity which is not used by such facility is sold, for purposes other than resale, to an agency or instrumentality of the United States.
"(3)
"(4)
Alcohol-Producing Facilities
"(1)
"(A) substantially all of the solid waste derived feedstock for such facility is produced at a facility which—
"(i) went into full production in 1977,
"(ii) is located within the limits of a city, and
"(iii) is located in the same metropolitan area as the alcohol-producing facility, and
"(B) before March 1, 1980, there were negotiations between a governmental body and an organization described in section 501(c)(3) of the Internal Revenue Code of 1986 with respect to the utilization of a special process for the production of alcohol at such alcohol-producing facility.
"(2)
"(3)
Hydroelectric Generating Facilities
"(1)
"(A) the facility shall be treated as a qualified hydroelectric generating facility (as defined in section 103(b)(8)(A) of such Code) without regard to clause (ii) of section 48(l)(13)(B) of such Code (relating to maximum generating capacity), and
"(B) the fraction referred to in subparagraph (C) of section 103(b)(8) of such Code shall be deemed to be 1.
"(2)
"(A) it would be a qualified hydroelectric generating facility (as defined in section 103(b)(8)(A) of such Code) if clause (ii) of section 48(l)(13)(B) did not apply,
"(B) it constitutes an expansion of generating capacity at an existing hydroelectric generating facility,
"(C) such facility is located at 1 of 2 dams located in the same county where—
"(i) the rated capacity of the hydroelectric generating facilities at each such dam on October 18, 1979, was more than 750 megawatts,
"(ii) the construction of the first such dam began in 1956, power at such first dam was first generated in 1959, and full power production at such first dam began in 1961, and
"(iii) the construction of the second such dam began in 1959, power at such second dam was first generated in 1963, and full power production at such second dam began in 1964,
"(D) acquisition or construction of the existing facility referred to in subparagraph (B) was financed with the proceeds of an obligation described in section 103(a)(1) of such Code,
"(E) the existing facility is owned and operated by a State, political subdivision of a State, or agency or instrumentality of any of the foregoing,
"(F) no more than 60 percent of the electric power and energy produced by such existing facility and of the qualified hydroelectric generating facility is to be sold to anyone other than an exempt person (within the meaning of section 103(b)(3) of such Code), and
"(G) the agency of the State in which the facility is located which has jurisdiction over water rights had granted, before October 18, 1979, a water right under which expanded power and energy generating capacity for the facility was contemplated."
State Obligations for Renewable Energy Property
"(a)
"(1)
"(A) the obligations are general obligations of a State,
"(B) the authority for the issuance of the obligations requires that taxes be levied in sufficient amount to provide for the payment of principal and interest on such obligations,
"(C) the amount of such obligations, when added to the sum of the amounts of all such obligations previously issued by the State which are outstanding, does not exceed the smaller of—
"(i) $500,000,000 or
"(ii) one-half of 1 percent of the value of all property in the State,
"(D) such obligations are issued pursuant to a program to provide financing for small scale energy projects which was established by a State the legislature of which, before October 18, 1979, approved a constitutional amendment to provide for such a program, and
"(E) such obligations meet the requirements of paragraph (1) of section 103(h) of the Internal Revenue Code of 1986.
"(2)
"(b)
Disposition of Amounts Generated by Advance Refunding of Certain Governmental Obligations
"(a)
"(1) shall not cause the refunding obligations out of which the refund profit arose to be treated as arbitrage bonds (within the meaning of section 103(c) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]) and
"(2) may be paid without penalty imposed on the issuer of such obligations.
"(b)
"(1) requested in writing a rule by the Internal Revenue Service with respect to the tax consequences of paying refund profit to charitable organizations,
"(2) failed to receive a favorable ruling and did not pay the refund profit to a charitable organization, and
which accounted to the United States for refund profit by direct payment to the United States, or by the purchase of low-interest United States obligations, the Secretary of the Treasury shall pay, out of any amounts in the Treasury not otherwise appropriated, an amount equal to the refund profit for which the State or local government has accounted to the United States. Amounts paid to a State or local government under this subsection shall be distributed to such charitable organizations within 90 days after the date on which the payment is received by the State or local government in the same manner as if the refund profit had not been paid to the United States and met the requirements of subsection (a).
"(c)
"(1)
"(2)
"(3)
"(4)
Transitional Provisions for Industrial Development Bonds Issued Before January 1, 1969
"(A) the issuance of the obligation (or the project in connection with which the proceeds of the obligations are to be used) was authorized or approved by the governing body of the governmental unit issuing the obligation or by the voters of such governmental unit;
"(B) in connection with the issuance of such obligation or with the use of the proceeds to be derived from the sale of such obligation or the property to be acquired or improved with such proceeds, a governmental unit has made a significant financial commitment;
"(C) any person (other than a governmental unit) who will use the proceeds to be derived from the sale of such obligation or the property to be acquired or improved with such proceeds has expended (or has entered into a binding contract to expend) for purposes which are related to the use of such proceeds or property, an amount equal to or in excess of 20 percent of such proceeds; or
"(D) in the case of an obligation issued in conjunction with a project where financial assistance will be provided by a governmental agency concerned with economic development, such agency has approved the project or an application for financial assistance is pending."
[§103A. Repealed. Pub. L. 99–514, title XIII, §1301(j)(1), Oct. 22, 1986, 100 Stat. 2657 ]
Section, added
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
Repeal applicable to bonds issued after Aug. 15, 1986, except as otherwise provided, see sections 1311 to 1318 of
§104. Compensation for injuries or sickness
(a) In general
Except in the case of amounts attributable to (and not in excess of) deductions allowed under section 213 (relating to medical, etc., expenses) for any prior taxable year, gross income does not include—
(1) amounts received under workmen's compensation acts as compensation for personal injuries or sickness;
(2) the amount of any damages (other than punitive damages) received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal physical injuries or physical sickness;
(3) amounts received through accident or health insurance (or through an arrangement having the effect of accident or health insurance) for personal injuries or sickness (other than amounts received by an employee, to the extent such amounts (A) are attributable to contributions by the employer which were not includible in the gross income of the employee, or (B) are paid by the employer);
(4) amounts received as a pension, annuity, or similar allowance for personal injuries or sickness resulting from active service in the armed forces of any country or in the Coast and Geodetic Survey or the Public Health Service, or as a disability annuity payable under the provisions of section 808 of the Foreign Service Act of 1980;
(5) amounts received by an individual as disability income attributable to injuries incurred as a direct result of a terroristic or military action (as defined in section 692(c)(2)); and
(6) amounts received pursuant to—
(A) section 1201 of the Omnibus Crime Control and Safe Streets Act of 1968 (
(B) a program established under the laws of any State which provides monetary compensation for surviving dependents of a public safety officer who has died as the direct and proximate result of a personal injury sustained in the line of duty,
except that subparagraph (B) shall not apply to any amounts that would have been payable if death of the public safety officer had occurred other than as the direct and proximate result of a personal injury sustained in the line of duty.
For purposes of paragraph (3), in the case of an individual who is, or has been, an employee within the meaning of section 401(c)(1) (relating to self-employed individuals), contributions made on behalf of such individual while he was such an employee to a trust described in section 401(a) which is exempt from tax under section 501(a), or under a plan described in section 403(a), shall, to the extent allowed as deductions under section 404, be treated as contributions by the employer which were not includible in the gross income of the employee. For purposes of paragraph (2), emotional distress shall not be treated as a physical injury or physical sickness. The preceding sentence shall not apply to an amount of damages not in excess of the amount paid for medical care (described in subparagraph (A) or (B) of section 213(d)(1)) attributable to emotional distress.
(b) Termination of application of subsection (a)(4) in certain cases
(1) In general
Subsection (a)(4) shall not apply in the case of any individual who is not described in paragraph (2).
(2) Individuals to whom subsection (a)(4) continues to apply
An individual is described in this paragraph if—
(A) on or before September 24, 1975, he was entitled to receive any amount described in subsection (a)(4),
(B) on September 24, 1975, he was a member of any organization (or reserve component thereof) referred to in subsection (a)(4) or under a binding written commitment to become such a member,
(C) he receives an amount described in subsection (a)(4) by reason of a combat-related injury, or
(D) on application therefor, he would be entitled to receive disability compensation from the Department of Veterans Affairs.
(3) Special rules for combat-related injuries
For purposes of this subsection, the term "combat-related injury" means personal injury or sickness—
(A) which is incurred—
(i) as a direct result of armed conflict,
(ii) while engaged in extrahazardous service, or
(iii) under conditions simulating war; or
(B) which is caused by an instrumentality of war.
In the case of an individual who is not described in subparagraph (A) or (B) of paragraph (2), except as provided in paragraph (4), the only amounts taken into account under subsection (a)(4) shall be the amounts which he receives by reason of a combat-related injury.
(4) Amount excluded to be not less than veterans' disability compensation
In the case of any individual described in paragraph (2), the amounts excludable under subsection (a)(4) for any period with respect to any individual shall not be less than the maximum amount which such individual, on application therefor, would be entitled to receive as disability compensation from the Veterans' Administration.
(c) Application of prior law in certain cases
The phrase "(other than punitive damages)" shall not apply to punitive damages awarded in a civil action—
(1) which is a wrongful death action, and
(2) with respect to which applicable State law (as in effect on September 13, 1995 and without regard to any modification after such date) provides, or has been construed to provide by a court of competent jurisdiction pursuant to a decision issued on or before September 13, 1995, that only punitive damages may be awarded in such an action.
This subsection shall cease to apply to any civil action filed on or after the first date on which the applicable State law ceases to provide (or is no longer construed to provide) the treatment described in paragraph (2).
(d) Cross references
(1) For exclusion from employee's gross income of employer contributions to accident and health plans, see section 106.
(2) For exclusion of part of disability retirement pay from the application of subsection (a)(4) of this section, see
(Aug. 16, 1954, ch. 736,
Editorial Notes
References in Text
Section 808 of the Foreign Service Act of 1980, referred to in subsec. (a)(4), is
Section 1201 of the Omnibus Crime Control and Safe Streets Act of 1968, referred to in subsec. (a)(6)(A), was classified to
Amendments
2018—Subsec. (b)(2)(D).
2015—Subsec. (a)(6).
2002—Subsec. (a)(5).
1996—Subsec. (a).
Subsec. (a)(2).
Subsec. (a)(3).
Subsecs. (c), (d).
1989—Subsec. (a).
1983—Subsec. (a)(2).
1980—Subsec. (a)(4).
1976—Subsec. (a)(4).
Subsec. (a)(5).
Subsecs. (b), (c).
1962—Subsec. (a).
1960—Subsec. (a)(4).
Statutory Notes and Related Subsidiaries
Change of Name
Reference to Veterans' Administration deemed to refer to Department of Veterans Affairs pursuant to section 10 of
Secretary of Health, Education, and Welfare redesignated Secretary of Health and Human Services by
Effective Date of 2002 Amendment
Effective Date of 1996 Amendment
"(1)
"(2)
Effective Date of 1989 Amendment
"(1)
"(2)
"(A) under any written binding agreement, court decree, or mediation award in effect on (or issued on or before) July 10, 1989, or
"(B) pursuant to any suit filed on or before July 10, 1989."
Effective Date of 1980 Amendment
Amendment by
Effective Date of 1976 Amendment
Amendment by section 505(b) of
Amendment by section 1901(a)(18)(A) of
Effective Date of 1962 Amendment
Amendment by
Effective Date of 1960 Amendment
Executive Documents
Change of Name
Coast and Geodetic Survey consolidated with National Weather Bureau in 1965 to form Environmental Science Services Administration by Reorg. Plan No. 2 of 1965, eff. July 13, 1965, 30 FR 8819,
Transfer of Functions
Functions of Public Health Service, Surgeon General of Public Health Service, and all other officers and employees of Public Health Service, and functions of all agencies of or in Public Health Service transferred to Secretary of Health, Education, and Welfare by 1966 Reorg. Plan No. 3, 31 F.R. 8855,
1 See References in Text note below.
§105. Amounts received under accident and health plans
(a) Amounts attributable to employer contributions
Except as otherwise provided in this section, amounts received by an employee through accident or health insurance for personal injuries or sickness shall be included in gross income to the extent such amounts (1) are attributable to contributions by the employer which were not includible in the gross income of the employee, or (2) are paid by the employer.
(b) Amounts expended for medical care
Except in the case of amounts attributable to (and not in excess of) deductions allowed under section 213 (relating to medical, etc., expenses) for any prior taxable year, gross income does not include amounts referred to in subsection (a) if such amounts are paid, directly or indirectly, to the taxpayer to reimburse the taxpayer for expenses incurred by him for the medical care (as defined in section 213(d)) of the taxpayer, his spouse, his dependents (as defined in section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof), and any child (as defined in section 152(f)(1)) of the taxpayer who as of the end of the taxable year has not attained age 27. Any child to whom section 152(e) applies shall be treated as a dependent of both parents for purposes of this subsection.
(c) Payments unrelated to absence from work
Gross income does not include amounts referred to in subsection (a) to the extent such amounts—
(1) constitute payment for the permanent loss or loss of use of a member or function of the body, or the permanent disfigurement, of the taxpayer, his spouse, or a dependent (as defined in section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof), and
(2) are computed with reference to the nature of the injury without regard to the period the employee is absent from work.
[(d) Repealed. Pub. L. 98–21, title I, §122(b), Apr. 20, 1983, 97 Stat. 87 ]
(e) Accident and health plans
For purposes of this section and section 104—
(1) amounts received under an accident or health plan for employees, and
(2) amounts received from a sickness and disability fund for employees maintained under the law of a State or the District of Columbia,
shall be treated as amounts received through accident or health insurance.
(f) Rules for application of section 213
For purposes of section 213(a) (relating to medical, dental, etc., expenses) amounts excluded from gross income under subsection (c) shall not be considered as compensation (by insurance or otherwise) for expenses paid for medical care.
(g) Self-employed individual not considered an employee
For purposes of this section, the term "employee" does not include an individual who is an employee within the meaning of section 401(c)(1) (relating to self-employed individuals).
(h) Amount paid to highly compensated individuals under a discriminatory self-insured medical expense reimbursement plan
(1) In general
In the case of amounts paid to a highly compensated individual under a self-insured medical reimbursement plan which does not satisfy the requirements of paragraph (2) for a plan year, subsection (b) shall not apply to such amounts to the extent they constitute an excess reimbursement of such highly compensated individual.
(2) Prohibition of discrimination
A self-insured medical reimbursement plan satisfies the requirements of this paragraph only if—
(A) the plan does not discriminate in favor of highly compensated individuals as to eligibility to participate; and
(B) the benefits provided under the plan do not discriminate in favor of participants who are highly compensated individuals.
(3) Nondiscriminatory eligibility classifications
(A) In general
A self-insured medical reimbursement plan does not satisfy the requirements of subparagraph (A) of paragraph (2) unless such plan benefits—
(i) 70 percent or more of all employees, or 80 percent or more of all the employees who are eligible to benefit under the plan if 70 percent or more of all employees are eligible to benefit under the plan; or
(ii) such employees as qualify under a classification set up by the employer and found by the Secretary not to be discriminatory in favor of highly compensated individuals.
(B) Exclusion of certain employees
For purposes of subparagraph (A), there may be excluded from consideration—
(i) employees who have not completed 3 years of service;
(ii) employees who have not attained age 25;
(iii) part-time or seasonal employees;
(iv) employees not included in the plan who are included in a unit of employees covered by an agreement between employee representatives and one or more employers which the Secretary finds to be a collective bargaining agreement, if accident and health benefits were the subject of good faith bargaining between such employee representatives and such employer or employers; and
(v) employees who are nonresident aliens and who receive no earned income (within the meaning of section 911(d)(2)) from the employer which constitutes income from sources within the United States (within the meaning of section 861(a)(3)).
(4) Nondiscriminatory benefits
A self-insured medical reimbursement plan does not meet the requirements of subparagraph (B) of paragraph (2) unless all benefits provided for participants who are highly compensated individuals are provided for all other participants.
(5) Highly compensated individual defined
For purposes of this subsection, the term "highly compensated individual" means an individual who is—
(A) one of the 5 highest paid officers,
(B) a shareholder who owns (with the application of section 318) more than 10 percent in value of the stock of the employer, or
(C) among the highest paid 25 percent of all employees (other than employees described in paragraph (3)(B) who are not participants).
(6) Self-insured medical reimbursement plan
The term "self-insured medical reimbursement plan" means a plan of an employer to reimburse employees for expenses referred to in subsection (b) for which reimbursement is not provided under a policy of accident and health insurance.
(7) Excess reimbursement of highly compensated individual
For purposes of this section, the excess reimbursement of a highly compensated individual which is attributable to a self-insured medical reimbursement plan is—
(A) in the case of a benefit available to highly compensated individuals but not to all other participants (or which otherwise fails to satisfy the requirements of paragraph (2)(B)), the amount reimbursed under the plan to the employee with respect to such benefit, and
(B) in the case of benefits (other than benefits described in subparagraph (A)) paid to a highly compensated individual by a plan which fails to satisfy the requirements of paragraph (2), the total amount reimbursed to the highly compensated individual for the plan year multiplied by a fraction—
(i) the numerator of which is the total amount reimbursed to all participants who are highly compensated individuals under the plan for the plan year, and
(ii) the denominator of which is the total amount reimbursed to all employees under the plan for such plan year.
In determining the fraction under subparagraph (B), there shall not be taken into account any reimbursement which is attributable to a benefit described in subparagraph (A).
(8) Certain controlled groups, etc.
All employees who are treated as employed by a single employer under subsection (b), (c), or (m) of section 414 shall be treated as employed by a single employer for purposes of this section.
(9) Regulations
The Secretary shall prescribe such regulations as may be necessary to carry out the provisions of this section.
(10) Time of inclusion
Any amount paid for a plan year that is included in income by reason of this subsection shall be treated as received or accrued in the taxable year of the participant in which the plan year ends.
(i) Sick pay under Railroad Unemployment Insurance Act
Notwithstanding any other provision of law, gross income includes benefits paid under section 2(a) of the Railroad Unemployment Insurance Act for days of sickness; except to the extent such sickness (as determined in accordance with standards prescribed by the Railroad Retirement Board) is the result of on-the-job injury.
(j) Special rule for certain governmental plans
(1) In general
For purposes of subsection (b), amounts paid (directly or indirectly) to a qualified taxpayer from an accident or health plan described in paragraph (2) shall not fail to be excluded from gross income solely because such plan, on or before January 1, 2008, provides for reimbursements of health care expenses of a deceased employee's beneficiary (other than an individual described in paragraph (3)(B)).
(2) Plan described
An accident or health plan is described in this paragraph if such plan is funded by a medical trust that is established in connection with a public retirement system or established by or on behalf of a State or political subdivision thereof and that—
(A) has been authorized by a State legislature, or
(B) has received a favorable ruling from the Internal Revenue Service that the trust's income is not includible in gross income under section 115 or 501(c)(9).
(3) Qualified taxpayer
For purposes of paragraph (1), with respect to an accident or health plan described in paragraph (2), the term "qualified taxpayer" means a taxpayer who is—
(A) an employee, or
(B) the spouse, dependent (as defined for purposes of subsection (b)), or child (as defined for purposes of such subsection) of an employee.
(Aug. 16, 1954, ch. 736,
Editorial Notes
References in Text
Section 2(a) of the Railroad Unemployment Insurance Act, referred to in subsec. (i), is classified to
Amendments
2018—Subsec. (h)(7)(B).
2015—Subsec. (j)(1).
Subsec. (j)(2).
Subsec. (j)(2)(B).
Subsec. (j)(3).
2014—Subsec. (f).
2010—Subsec. (b).
2008—Subsec. (j).
2004—Subsecs. (b), (c)(1).
1989—Subsecs. (h), (i).
1986—Subsec. (d)(5)(C).
Subsecs. (h), (i).
1984—Subsec. (b).
1983—Subsec. (d).
Subsec. (i).
1982—Subsec. (b).
1981—Subsec. (d)(3).
Subsec. (h)(3)(B)(v).
1980—Subsec. (h)(3)(A).
Subsec. (h)(7)(A).
Subsec. (h)(8).
1978—Subsec. (d)(4).
Subsec. (d)(5).
Subsec. (d)(6), (7).
Subsec. (h).
1976—Subsec. (d).
Subsec. (e)(2).
1964—Subsec. (d).
1962—Subsec. (g).
Statutory Notes and Related Subsidiaries
Effective Date of 2015 Amendment
Effective Date of 2014 Amendment
Amendment by
Effective Date of 2008 Amendment
Effective Date of 2004 Amendment
Amendment by
Effective Date of 1989 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 1151(c)(2) of
Amendment by section 1301(j)(9) of
Effective Date of 1984 Amendment
Amendment by
Effective Date of 1983 Amendment
Amendment by
Effective Date of 1982 Amendment
Amendment by
Effective Date of 1981 Amendment
Amendment by
Effective Date of 1980 Amendment
Amendments by Pub. L.
Amendment by
Effective Date of 1978 Amendment
"(A) The amendments made by paragraphs (1) and (2)(A) [amending this section and provisions set out as a note under this section] shall take effect as if included in section 105(d) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] as such section was amended by section 505(a) of the Tax Reform Act of 1976.
"(B) The amendments made by paragraph (2)(B) [amending provisions set out as notes under this section] shall take effect as if included in section 301 of the Tax Reduction and Simplification Act of 1977 [
Effective Date of 1976 Amendment
Amendment by section 1901(c)(2) of
Effective Date of 1964 Amendment
Effective Date of 1962 Amendment
Amendment by
Nonenforcement of Amendment Made by Section 1151 of Pub. L. 99–514 for Fiscal Year 1990
No monies appropriated by
Revocation of Election
Period for Assessing Deficiency
Effective Date of Changes in Exclusion for Sick Pay
"(1) with respect to any taxpayer who makes or has made an election under section 105(d)(6) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] or under section 505(d) of the Tax Reform Act of 1976 [set out below] (as such sections were in effect before the enactment of this Act [May 23, 1977]) for a taxable year beginning in 1976, if such election is not revoked under subsection (c) of this section [set out above], and
"(2) with respect to any taxpayer (other than a taxpayer described in paragraph (1)) who has an annuity starting date at the beginning of a taxable year beginning in 1976 by reason of the amendments made by section 505 of the Tax Reform Act of 1976 [amending this section and
Special Rule for Existing Permanent and Total Disability Cases
"(1) retired before January 1, 1977,
"(2) either retired on disability or was entitled to retire on disability, and
"(3) on January 1, 1976, or January 1, 1977, was permanently and totally disabled (within the meaning of section 105(d)(4) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]),
such individual shall be deemed to have met the requirements of section 105(d)(1)(B) of such Code (as amended by subsection (a) of this section)."
Special Rule for Coordination With Section 72 of This Title
"(1) retired on disability before January 1, 1977, and
"(2) on December 31, 1975, or December 31, 1976, was entitled to exclude any amount with respect to such retirement disability from gross income under section 105(d) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954],
for purposes of section 72 the annuity starting date shall not be deemed to occur before the beginning of the taxable year in which the taxpayer attains age 65, or before the beginning of an earlier taxable year for which the taxpayer makes an irrevocable election not to seek the benefits of such section 105(d) for such year and all subsequent years."
§106. Contributions by employer to accident and health plans
(a) General rule
Except as otherwise provided in this section, gross income of an employee does not include employer-provided coverage under an accident or health plan.
(b) Contributions to Archer MSAs
(1) In general
In the case of an employee who is an eligible individual, amounts contributed by such employee's employer to any Archer MSA of such employee shall be treated as employer-provided coverage for medical expenses under an accident or health plan to the extent such amounts do not exceed the limitation under section 220(b)(1) (determined without regard to this subsection) which is applicable to such employee for such taxable year.
(2) No constructive receipt
No amount shall be included in the gross income of any employee solely because the employee may choose between the contributions referred to in paragraph (1) and employer contributions to another health plan of the employer.
(3) Special rule for deduction of employer contributions
Any employer contribution to an Archer MSA, if otherwise allowable as a deduction under this chapter, shall be allowed only for the taxable year in which paid.
(4) Employer MSA contributions required to be shown on return
Every individual required to file a return under section 6012 for the taxable year shall include on such return the aggregate amount contributed by employers to the Archer MSAs of such individual or such individual's spouse for such taxable year.
(5) MSA contributions not part of COBRA coverage
Paragraph (1) shall not apply for purposes of section 4980B.
(6) Definitions
For purposes of this subsection, the terms "eligible individual" and "Archer MSA" have the respective meanings given to such terms by section 220.
(7) Cross reference
For penalty on failure by employer to make comparable contributions to the Archer MSAs of comparable employees, see section 4980E.
(c) Inclusion of long-term care benefits provided through flexible spending arrangements
(1) In general
Gross income of an employee shall include employer-provided coverage for qualified long-term care services (as defined in section 7702B(c)) to the extent that such coverage is provided through a flexible spending or similar arrangement.
(2) Flexible spending arrangement
For purposes of this subsection, a flexible spending arrangement is a benefit program which provides employees with coverage under which—
(A) specified incurred expenses may be reimbursed (subject to reimbursement maximums and other reasonable conditions), and
(B) the maximum amount of reimbursement which is reasonably available to a participant for such coverage is less than 500 percent of the value of such coverage.
In the case of an insured plan, the maximum amount reasonably available shall be determined on the basis of the underlying coverage.
(d) Contributions to health savings accounts
(1) In general
In the case of an employee who is an eligible individual (as defined in section 223(c)(1)), amounts contributed by such employee's employer to any health savings account (as defined in section 223(d)) of such employee shall be treated as employer-provided coverage for medical expenses under an accident or health plan to the extent such amounts do not exceed the limitation under section 223(b) (determined without regard to this subsection) which is applicable to such employee for such taxable year.
(2) Special rules
Rules similar to the rules of paragraphs (2), (3), (4), and (5) of subsection (b) shall apply for purposes of this subsection.
(3) Cross reference
For penalty on failure by employer to make comparable contributions to the health savings accounts of comparable employees, see section 4980G.
(e) FSA and HRA terminations to fund HSAs
(1) In general
A plan shall not fail to be treated as a health flexible spending arrangement or health reimbursement arrangement under this section or section 105 merely because such plan provides for a qualified HSA distribution.
(2) Qualified HSA distribution
The term "qualified HSA distribution" means a distribution from a health flexible spending arrangement or health reimbursement arrangement to the extent that such distribution—
(A) does not exceed the lesser of the balance in such arrangement on September 21, 2006, or as of the date of such distribution, and
(B) is contributed by the employer directly to the health savings account of the employee before January 1, 2012.
Such term shall not include more than 1 distribution with respect to any arrangement.
(3) Additional tax for failure to maintain high deductible health plan coverage
(A) In general
If, at any time during the testing period, the employee is not an eligible individual, then the amount of the qualified HSA distribution—
(i) shall be includible in the gross income of the employee for the taxable year in which occurs the first month in the testing period for which such employee is not an eligible individual, and
(ii) the tax imposed by this chapter for such taxable year on the employee shall be increased by 10 percent of the amount which is so includible.
(B) Exception for disability or death
Clauses (i) and (ii) of subparagraph (A) shall not apply if the employee ceases to be an eligible individual by reason of the death of the employee or the employee becoming disabled (within the meaning of section 72(m)(7)).
(4) Definitions and special rules
For purposes of this subsection—
(A) Testing period
The term "testing period" means the period beginning with the month in which the qualified HSA distribution is contributed to the health savings account and ending on the last day of the 12th month following such month.
(B) Eligible individual
The term "eligible individual" has the meaning given such term by section 223(c)(1).
(C) Treatment as rollover contribution
A qualified HSA distribution shall be treated as a rollover contribution described in section 223(f)(5).
(5) Tax treatment relating to distributions
For purposes of this title—
(A) In general
A qualified HSA distribution shall be treated as a payment described in subsection (d).
(B) Comparability excise tax
(i) In general
Except as provided in clause (ii), section 4980G shall not apply to qualified HSA distributions.
(ii) Failure to offer to all employees
In the case of a qualified HSA distribution to any employee, the failure to offer such distribution to any eligible individual covered under a high deductible health plan of the employer shall (notwithstanding section 4980G(d)) be treated for purposes of section 4980G as a failure to meet the requirements of section 4980G(b).
(f) Reimbursements for menstrual care products
For purposes of this section and section 105, expenses incurred for menstrual care products (as defined in section 223(d)(2)(D)) shall be treated as incurred for medical care.
(g) Qualified small employer health reimbursement arrangement
For purposes of this section and section 105, payments or reimbursements from a qualified small employer health reimbursement arrangement (as defined in section 9831(d)) of an individual for medical care (as defined in section 213(d)) shall not be treated as paid or reimbursed under employer-provided coverage for medical expenses under an accident or health plan if for the month in which such medical care is provided the individual does not have minimum essential coverage (within the meaning of section 5000A(f)).
(Aug. 16, 1954, ch. 736,
Editorial Notes
References in Text
COBRA, referred to in the heading for subsec. (b)(5), probably means the Consolidated Omnibus Budget Reconciliation Act of 1985,
Amendments
2020—Subsec. (f).
2016—Subsec. (g).
2014—Subsec. (c)(1).
2010—Subsec. (f).
2006—Subsec. (e).
2003—Subsec. (d).
2000—Subsec. (b).
Subsec. (b)(1).
Subsec. (b)(3).
Subsec. (b)(4).
Subsec. (b)(6).
Subsec. (b)(7).
1996—
Subsec. (c).
1989—Subsec. (b)(2).
1988—
Subsec. (b)(1).
1986—
Subsec. (a).
Subsec. (b)(1).
Statutory Notes and Related Subsidiaries
Effective Date of 2020 Amendment
Effective Date of 2016 Amendment
Amendment by
Effective Date of 2014 Amendment
Amendment by
Effective Date of 2010 Amendment
Effective Date of 2006 Amendment
Effective Date of 2003 Amendment
Amendment by
Effective Date of 1996 Amendment
Amendment by section 301(c)(1) of
Amendment by section 321(c)(2) of
Effective Date of 1989 Amendment
Effective Date of 1988 Amendment
Amendment by section 1018(t)(7)(A) of
Amendment by section 3011(b)(1) of
Effective Date of 1986 Amendment
Amendment by section 1114(b)(1) of
Amendment by section 1151(j)(2) of
"(1)
"(2)
"(A) the date on which the last of the collective bargaining agreements relating to the plan terminates (determined without regard to any extension thereof agreed to after the date of the enactment of this Act), or
"(B) January 1, 1987.
For purposes of subparagraph (A), any plan amendment made pursuant to a collective bargaining agreement relating to the plan which amends the plan solely to conform to any requirement added by this section shall not be treated as a termination of such collective bargaining agreement."
Regulations
Secretary of the Treasury or his delegate to issue before Feb. 1, 1988, final regulations to carry out amendments made by section 1114 of
Nonenforcement of Amendment Made by Section 1151 of Pub. L. 99–514 for Fiscal Year 1990
No monies appropriated by
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
§107. Rental value of parsonages
In the case of a minister of the gospel, gross income does not include—
(1) the rental value of a home furnished to him as part of his compensation; or
(2) the rental allowance paid to him as part of his compensation, to the extent used by him to rent or provide a home and to the extent such allowance does not exceed the fair rental value of the home, including furnishings and appurtenances such as a garage, plus the cost of utilities.
(Aug. 16, 1954, ch. 736,
Editorial Notes
Amendments
2002—Par. (2).
Statutory Notes and Related Subsidiaries
Effective Date of 2002 Amendment
"(1)
"(2)
"(A) on a return filed before April 17, 2002, limited the exclusion under section 107 of the Internal Revenue Code of 1986 as provided in such amendment, or
"(B) filed a return after April 16, 2002.
"(3)
§108. Income from discharge of indebtedness
(a) Exclusion from gross income
(1) In general
Gross income does not include any amount which (but for this subsection) would be includible in gross income by reason of the discharge (in whole or in part) of indebtedness of the taxpayer if—
(A) the discharge occurs in a title 11 case,
(B) the discharge occurs when the taxpayer is insolvent,
(C) the indebtedness discharged is qualified farm indebtedness,
(D) in the case of a taxpayer other than a C corporation, the indebtedness discharged is qualified real property business indebtedness, or
(E) the indebtedness discharged is qualified principal residence indebtedness which is discharged—
(i) before January 1, 2026, or
(ii) subject to an arrangement that is entered into and evidenced in writing before January 1, 2026.
(2) Coordination of exclusions
(A) Title 11 exclusion takes precedence
Subparagraphs (B), (C), (D), and (E) of paragraph (1) shall not apply to a discharge which occurs in a title 11 case.
(B) Insolvency exclusion takes precedence over qualified farm exclusion and qualified real property business exclusion
Subparagraphs (C) and (D) of paragraph (1) shall not apply to a discharge to the extent the taxpayer is insolvent.
(C) Principal residence exclusion takes precedence over insolvency exclusion unless elected otherwise
Paragraph (1)(B) shall not apply to a discharge to which paragraph (1)(E) applies unless the taxpayer elects to apply paragraph (1)(B) in lieu of paragraph (1)(E).
(3) Insolvency exclusion limited to amount of insolvency
In the case of a discharge to which paragraph (1)(B) applies, the amount excluded under paragraph (1)(B) shall not exceed the amount by which the taxpayer is insolvent.
(b) Reduction of tax attributes
(1) In general
The amount excluded from gross income under subparagraph (A), (B), or (C) of subsection (a)(1) shall be applied to reduce the tax attributes of the taxpayer as provided in paragraph (2).
(2) Tax attributes affected; order of reduction
Except as provided in paragraph (5), the reduction referred to in paragraph (1) shall be made in the following tax attributes in the following order:
(A) NOL
Any net operating loss for the taxable year of the discharge, and any net operating loss carryover to such taxable year.
(B) General business credit
Any carryover to or from the taxable year of a discharge of an amount for purposes for determining the amount allowable as a credit under section 38 (relating to general business credit).
(C) Minimum tax credit
The amount of the minimum tax credit available under section 53(b) as of the beginning of the taxable year immediately following the taxable year of the discharge.
(D) Capital loss carryovers
Any net capital loss for the taxable year of the discharge, and any capital loss carryover to such taxable year under section 1212.
(E) Basis reduction
(i) In general
The basis of the property of the taxpayer.
(ii) Cross reference
For provisions for making the reduction described in clause (i), see section 1017.
(F) Passive activity loss and credit carryovers
Any passive activity loss or credit carryover of the taxpayer under section 469(b) from the taxable year of the discharge.
(G) Foreign tax credit carryovers
Any carryover to or from the taxable year of the discharge for purposes of determining the amount of the credit allowable under section 27.
(3) Amount of reduction
(A) In general
Except as provided in subparagraph (B), the reductions described in paragraph (2) shall be one dollar for each dollar excluded by subsection (a).
(B) Credit carryover reduction
The reductions described in subparagraphs (B), (C), and (G) shall be 331/3 cents for each dollar excluded by subsection (a). The reduction described in subparagraph (F) in any passive activity credit carryover shall be 331/3 cents for each dollar excluded by subsection (a).
(4) Ordering rules
(A) Reductions made after determination of tax for year
The reductions described in paragraph (2) shall be made after the determination of the tax imposed by this chapter for the taxable year of the discharge.
(B) Reductions under subparagraph (A) or (D) of paragraph (2)
The reductions described in subparagraph (A) or (D) of paragraph (2) (as the case may be) shall be made first in the loss for the taxable year of the discharge and then in the carryovers to such taxable year in the order of the taxable years from which each such carryover arose.
(C) Reductions under subparagraphs (B) and (G) of paragraph (2)
The reductions described in subparagraphs (B) and (G) of paragraph (2) shall be made in the order in which carryovers are taken into account under this chapter for the taxable year of the discharge.
(5) Election to apply reduction first against depreciable property
(A) In general
The taxpayer may elect to apply any portion of the reduction referred to in paragraph (1) to the reduction under section 1017 of the basis of the depreciable property of the taxpayer.
(B) Limitation
The amount to which an election under subparagraph (A) applies shall not exceed the aggregate adjusted bases of the depreciable property held by the taxpayer as of the beginning of the taxable year following the taxable year in which the discharge occurs.
(C) Other tax attributes not reduced
Paragraph (2) shall not apply to any amount to which an election under this paragraph applies.
(c) Treatment of discharge of qualified real property business indebtedness
(1) Basis reduction
(A) In general
The amount excluded from gross income under subparagraph (D) of subsection (a)(1) shall be applied to reduce the basis of the depreciable real property of the taxpayer.
(B) Cross reference
For provisions making the reduction described in subparagraph (A), see section 1017.
(2) Limitations
(A) Indebtedness in excess of value
The amount excluded under subparagraph (D) of subsection (a)(1) with respect to any qualified real property business indebtedness shall not exceed the excess (if any) of—
(i) the outstanding principal amount of such indebtedness (immediately before the discharge), over
(ii) the fair market value of the real property described in paragraph (3)(A) (as of such time), reduced by the outstanding principal amount of any other qualified real property business indebtedness secured by such property (as of such time).
(B) Overall limitation
The amount excluded under subparagraph (D) of subsection (a)(1) shall not exceed the aggregate adjusted bases of depreciable real property (determined after any reductions under subsections (b) and (g)) held by the taxpayer immediately before the discharge (other than depreciable real property acquired in contemplation of such discharge).
(3) Qualified real property business indebtedness
The term "qualified real property business indebtedness" means indebtedness which—
(A) was incurred or assumed by the taxpayer in connection with real property used in a trade or business and is secured by such real property,
(B) was incurred or assumed before January 1, 1993, or if incurred or assumed on or after such date, is qualified acquisition indebtedness, and
(C) with respect to which such taxpayer makes an election to have this paragraph apply.
Such term shall not include qualified farm indebtedness. Indebtedness under subparagraph (B) shall include indebtedness resulting from the refinancing of indebtedness under subparagraph (B) (or this sentence), but only to the extent it does not exceed the amount of the indebtedness being refinanced.
(4) Qualified acquisition indebtedness
For purposes of paragraph (3)(B), the term "qualified acquisition indebtedness" means, with respect to any real property described in paragraph (3)(A), indebtedness incurred or assumed to acquire, construct, reconstruct, or substantially improve such property.
(5) Regulations
The Secretary shall issue such regulations as are necessary to carry out this subsection, including regulations preventing the abuse of this subsection through cross-collateralization or other means.
(d) Meaning of terms; special rules relating to certain provisions
(1) Indebtedness of taxpayer
For purposes of this section, the term "indebtedness of the taxpayer" means any indebtedness—
(A) for which the taxpayer is liable, or
(B) subject to which the taxpayer holds property.
(2) Title 11 case
For purposes of this section, the term "title 11 case" means a case under
(3) Insolvent
For purposes of this section, the term "insolvent" means the excess of liabilities over the fair market value of assets. With respect to any discharge, whether or not the taxpayer is insolvent, and the amount by which the taxpayer is insolvent, shall be determined on the basis of the taxpayer's assets and liabilities immediately before the discharge.
[(4) Repealed. Pub. L. 99–514, title VIII, §822(b)(3)(A), Oct. 22, 1986, 100 Stat. 2373 ]
(5) Depreciable property
The term "depreciable property" has the same meaning as when used in section 1017.
(6) Certain provisions to be applied at partner level
In the case of a partnership, subsections (a), (b), (c), and (g) shall be applied at the partner level.
(7) Special rules for S corporation
(A) Certain provisions to be applied at corporate level
In the case of an S corporation, subsections (a), (b), (c), and (g) shall be applied at the corporate level, including by not taking into account under section 1366(a) any amount excluded under subsection (a) of this section.
(B) Reduction in carryover of disallowed losses and deductions
In the case of an S corporation, for purposes of subparagraph (A) of subsection (b)(2), any loss or deduction which is disallowed for the taxable year of the discharge under section 1366(d)(1) shall be treated as a net operating loss for such taxable year. The preceding sentence shall not apply to any discharge to the extent that subsection (a)(1)(D) applies to such discharge.
(C) Coordination with basis adjustments under section 1367(b)(2)
For purposes of subsection (e)(6), a shareholder's adjusted basis in indebtedness of an S corporation shall be determined without regard to any adjustments made under section 1367(b)(2).
(8) Reductions of tax attributes in title 11 cases of individuals to be made by estate
In any case under
(9) Time for making election, etc.
(A) Time
An election under paragraph (5) of subsection (b) or under paragraph (3)(C) of subsection (c) shall be made on the taxpayer's return for the taxable year in which the discharge occurs or at such other time as may be permitted in regulations prescribed by the Secretary.
(B) Revocation only with consent
An election referred to in subparagraph (A), once made, may be revoked only with the consent of the Secretary.
(C) Manner
An election referred to in subparagraph (A) shall be made in such manner as the Secretary may by regulations prescribe.
(10) Cross reference
For provision that no reduction is to be made in the basis of exempt property of an individual debtor, see section 1017(c)(1).
(e) General rules for discharge of indebtedness (including discharges not in title 11 cases or insolvency)
For purposes of this title—
(1) No other insolvency exception
Except as otherwise provided in this section, there shall be no insolvency exception from the general rule that gross income includes income from the discharge of indebtedness.
(2) Income not realized to extent of lost deductions
No income shall be realized from the discharge of indebtedness to the extent that payment of the liability would have given rise to a deduction.
(3) Adjustments for unamortized premium and discount
The amount taken into account with respect to any discharge shall be properly adjusted for unamortized premium and unamortized discount with respect to the indebtedness discharged.
(4) Acquisition of indebtedness by person related to debtor
(A) Treated as acquisition by debtor
For purposes of determining income of the debtor from discharge of indebtedness, to the extent provided in regulations prescribed by the Secretary, the acquisition of outstanding indebtedness by a person bearing a relationship to the debtor specified in section 267(b) or 707(b)(1) from a person who does not bear such a relationship to the debtor shall be treated as the acquisition of such indebtedness by the debtor. Such regulations shall provide for such adjustments in the treatment of any subsequent transactions involving the indebtedness as may be appropriate by reason of the application of the preceding sentence.
(B) Members of family
For purposes of this paragraph, sections 267(b) and 707(b)(1) shall be applied as if section 267(c)(4) provided that the family of an individual consists of the individual's spouse, the individual's children, grandchildren, and parents, and any spouse of the individual's children or grandchildren.
(C) Entities under common control treated as related
For purposes of this paragraph, two entities which are treated as a single employer under subsection (b) or (c) of section 414 shall be treated as bearing a relationship to each other which is described in section 267(b).
(5) Purchase-money debt reduction for solvent debtor treated as price reduction
If—
(A) the debt of a purchaser of property to the seller of such property which arose out of the purchase of such property is reduced,
(B) such reduction does not occur—
(i) in a title 11 case, or
(ii) when the purchaser is insolvent, and
(C) but for this paragraph, such reduction would be treated as income to the purchaser from the discharge of indebtedness,
then such reduction shall be treated as a purchase price adjustment.
(6) Indebtedness contributed to capital
Except as provided in regulations, for purposes of determining income of the debtor from discharge of indebtedness, if a debtor corporation acquires its indebtedness from a shareholder as a contribution to capital—
(A) section 118 shall not apply, but
(B) such corporation shall be treated as having satisfied the indebtedness with an amount of money equal to the shareholder's adjusted basis in the indebtedness.
(7) Recapture of gain on subsequent sale of stock
(A) In general
If a creditor acquires stock of a debtor corporation in satisfaction of such corporation's indebtedness, for purposes of section 1245—
(i) such stock (and any other property the basis of which is determined in whole or in part by reference to the adjusted basis of such stock) shall be treated as section 1245 property,
(ii) the aggregate amount allowed to the creditor—
(I) as deductions under subsection (a) or (b) of section 166 (by reason of the worthlessness or partial worthlessness of the indebtedness), or
(II) as an ordinary loss on the exchange,
shall be treated as an amount allowed as a deduction for depreciation, and
(iii) an exchange of such stock qualifying under section 354(a), 355(a), or 356(a) shall be treated as an exchange to which section 1245(b)(3) applies.
The amount determined under clause (ii) shall be reduced by the amount (if any) included in the creditor's gross income on the exchange.
(B) Special rule for cash basis taxpayers
In the case of any creditor who computes his taxable income under the cash receipts and disbursements method, proper adjustment shall be made in the amount taken into account under clause (ii) of subparagraph (A) for any amount which was not included in the creditor's gross income but which would have been included in such gross income if such indebtedness had been satisfied in full.
(C) Stock of parent corporation
For purposes of this paragraph, stock of a corporation in control (within the meaning of section 368(c)) of the debtor corporation shall be treated as stock of the debtor corporation.
(D) Treatment of successor corporation
For purposes of this paragraph, the term "debtor corporation" includes a successor corporation.
(E) Partnership rule
Under regulations prescribed by the Secretary, rules similar to the rules of the foregoing subparagraphs of this paragraph shall apply with respect to the indebtedness of a partnership.
(8) Indebtedness satisfied by corporate stock or partnership interest
For purposes of determining income of a debtor from discharge of indebtedness, if—
(A) a debtor corporation transfers stock, or
(B) a debtor partnership transfers a capital or profits interest in such partnership,
to a creditor in satisfaction of its recourse or nonrecourse indebtedness, such corporation or partnership shall be treated as having satisfied the indebtedness with an amount of money equal to the fair market value of the stock or interest. In the case of any partnership, any discharge of indebtedness income recognized under this paragraph shall be included in the distributive shares of taxpayers which were the partners in the partnership immediately before such discharge.
(9) Discharge of indebtedness income not taken into account in determining whether entity meets REIT qualifications
Any amount included in gross income by reason of the discharge of indebtedness shall not be taken into account for purposes of paragraphs (2) and (3) of section 856(c).
(10) Indebtedness satisfied by issuance of debt instrument
(A) In general
For purposes of determining income of a debtor from discharge of indebtedness, if a debtor issues a debt instrument in satisfaction of indebtedness, such debtor shall be treated as having satisfied the indebtedness with an amount of money equal to the issue price of such debt instrument.
(B) Issue price
For purposes of subparagraph (A), the issue price of any debt instrument shall be determined under sections 1273 and 1274. For purposes of the preceding sentence, section 1273(b)(4) shall be applied by reducing the stated redemption price of any instrument by the portion of such stated redemption price which is treated as interest for purposes of this chapter.
(f) Student loans
(1) In general
In the case of an individual, gross income does not include any amount which (but for this subsection) would be includible in gross income by reason of the discharge (in whole or in part) of any student loan if such discharge was pursuant to a provision of such loan under which all or part of the indebtedness of the individual would be discharged if the individual worked for a certain period of time in certain professions for any of a broad class of employers.
(2) Student loan
For purposes of this subsection, the term "student loan" means any loan to an individual to assist the individual in attending an educational organization described in section 170(b)(1)(A)(ii) made by—
(A) the United States, or an instrumentality or agency thereof,
(B) a State, territory, or possession of the United States, or the District of Columbia, or any political subdivision thereof,
(C) a public benefit corporation—
(i) which is exempt from taxation under section 501(c)(3),
(ii) which has assumed control over a State, county, or municipal hospital, and
(iii) whose employees have been deemed to be public employees under State law, or
(D) any educational organization described in section 170(b)(1)(A)(ii) if such loan is made—
(i) pursuant to an agreement with any entity described in subparagraph (A), (B), or (C) under which the funds from which the loan was made were provided to such educational organization, or
(ii) pursuant to a program of such educational organization which is designed to encourage its students to serve in occupations with unmet needs or in areas with unmet needs and under which the services provided by the students (or former students) are for or under the direction of a governmental unit or an organization described in section 501(c)(3) and exempt from tax under section 501(a).
The term "student loan" includes any loan made by an educational organization described in section 170(b)(1)(A)(ii) or by an organization exempt from tax under section 501(a) to refinance a loan to an individual to assist the individual in attending any such educational organization but only if the refinancing loan is pursuant to a program of the refinancing organization which is designed as described in subparagraph (D)(ii).
(3) Exception for discharges on account of services performed for certain lenders
Paragraph (1) shall not apply to the discharge of a loan made by an organization described in paragraph (2)(D) if the discharge is on account of services performed for either such organization.
(4) Payments under national health service corps loan repayment program and certain state loan repayment programs
In the case of an individual, gross income shall not include any amount received under section 338B(g) of the Public Health Service Act, under a State program described in section 338I of such Act, or under any other State loan repayment or loan forgiveness program that is intended to provide for the increased availability of health care services in underserved or health professional shortage areas (as determined by such State).
(5) Special rule for discharges in 2021 through 2025
Gross income does not include any amount which (but for this subsection) would be includible in gross income by reason of the discharge (in whole or in part) after December 31, 2020, and before January 1, 2026, of—
(A) any loan provided expressly for postsecondary educational expenses, regardless of whether provided through the educational institution or directly to the borrower, if such loan was made, insured, or guaranteed by—
(i) the United States, or an instrumentality or agency thereof,
(ii) a State, territory, or possession of the United States, or the District of Columbia, or any political subdivision thereof, or
(iii) an eligible educational institution (as defined in section 25A),
(B) any private education loan (as defined in section 140(a)(7) 1 of the Truth in Lending Act),
(C) any loan made by any educational organization described in section 170(b)(1)(A)(ii) if such loan is made—
(i) pursuant to an agreement with any entity described in subparagraph (A) or any private education 2 lender (as defined in section 140(a) of the Truth in Lending Act) under which the funds from which the loan was made were provided to such educational organization, or
(ii) pursuant to a program of such educational organization which is designed to encourage its students to serve in occupations with unmet needs or in areas with unmet needs and under which the services provided by the students (or former students) are for or under the direction of a governmental unit or an organization described in section 501(c)(3) and exempt from tax under section 501(a), or
(D) any loan made by an educational organization described in section 170(b)(1)(A)(ii) or by an organization exempt from tax under section 501(a) to refinance a loan to an individual to assist the individual in attending any such educational organization but only if the refinancing loan is pursuant to a program of the refinancing organization which is designed as described in subparagraph (C)(ii).
The preceding sentence shall not apply to the discharge of a loan made by an organization described in subparagraph (C) or made by a private education 2 lender (as defined in section 140(a)(7) of the Truth in Lending Act) if the discharge is on account of services performed for either such organization or for such private education lender.
(g) Special rules for discharge of qualified farm indebtedness
(1) Discharge must be by qualified person
(A) In general
Subparagraph (C) of subsection (a)(1) shall apply only if the discharge is by a qualified person.
(B) Qualified person
For purposes of subparagraph (A), the term "qualified person" has the meaning given to such term by section 49(a)(1)(D)(iv); except that such term shall include any Federal, State, or local government or agency or instrumentality thereof.
(2) Qualified farm indebtedness
For purposes of this section, indebtedness of a taxpayer shall be treated as qualified farm indebtedness if—
(A) such indebtedness was incurred directly in connection with the operation by the taxpayer of the trade or business of farming, and
(B) 50 percent or more of the aggregate gross receipts of the taxpayer for the 3 taxable years preceding the taxable year in which the discharge of such indebtedness occurs is attributable to the trade or business of farming.
(3) Amount excluded cannot exceed sum of tax attributes and business and investment assets
(A) In general
The amount excluded under subparagraph (C) of subsection (a)(1) shall not exceed the sum of—
(i) the adjusted tax attributes of the taxpayer, and
(ii) the aggregate adjusted bases of qualified property held by the taxpayer as of the beginning of the taxable year following the taxable year in which the discharge occurs.
(B) Adjusted tax attributes
For purposes of subparagraph (A), the term "adjusted tax attributes" means the sum of the tax attributes described in subparagraphs (A), (B), (C), (D), (F), and (G) of subsection (b)(2) determined by taking into account $3 for each $1 of the attributes described in subparagraphs (B), (C), and (G) of subsection (b)(2) and the attribute described in subparagraph (F) of subsection (b)(2) to the extent attributable to any passive activity credit carryover.
(C) Qualified property
For purposes of this paragraph, the term "qualified property" means any property which is used or is held for use in a trade or business or for the production of income.
(D) Coordination with insolvency exclusion
For purposes of this paragraph, the adjusted basis of any qualified property and the amount of the adjusted tax attributes shall be determined after any reduction under subsection (b) by reason of amounts excluded from gross income under subsection (a)(1)(B).
(h) Special rules relating to qualified principal residence indebtedness
(1) Basis reduction
The amount excluded from gross income by reason of subsection (a)(1)(E) shall be applied to reduce (but not below zero) the basis of the principal residence of the taxpayer.
(2) Qualified principal residence indebtedness
For purposes of this section, the term "qualified principal residence indebtedness" means acquisition indebtedness (within the meaning of section 163(h)(3)(B), applied by substituting "$750,000 ($375,000" for "$1,000,000 ($500,000" in clause (ii) thereof and determined without regard to the substitution described in section 163(h)(3)(F)(i)(II)) with respect to the principal residence of the taxpayer.
(3) Exception for certain discharges not related to taxpayer's financial condition
Subsection (a)(1)(E) shall not apply to the discharge of a loan if the discharge is on account of services performed for the lender or any other factor not directly related to a decline in the value of the residence or to the financial condition of the taxpayer.
(4) Ordering rule
If any loan is discharged, in whole or in part, and only a portion of such loan is qualified principal residence indebtedness, subsection (a)(1)(E) shall apply only to so much of the amount discharged as exceeds the amount of the loan (as determined immediately before such discharge) which is not qualified principal residence indebtedness.
(5) Principal residence
For purposes of this subsection, the term "principal residence" has the same meaning as when used in section 121.
(i) Deferral and ratable inclusion of income arising from business indebtedness discharged by the reacquisition of a debt instrument
(1) In general
At the election of the taxpayer, income from the discharge of indebtedness in connection with the reacquisition after December 31, 2008, and before January 1, 2011, of an applicable debt instrument shall be includible in gross income ratably over the 5-taxable-year period beginning with—
(A) in the case of a reacquisition occurring in 2009, the fifth taxable year following the taxable year in which the reacquisition occurs, and
(B) in the case of a reacquisition occurring in 2010, the fourth taxable year following the taxable year in which the reacquisition occurs.
(2) Deferral of deduction for original issue discount in debt for debt exchanges
(A) In general
If, as part of a reacquisition to which paragraph (1) applies, any debt instrument is issued for the applicable debt instrument being reacquired (or is treated as so issued under subsection (e)(4) and the regulations thereunder) and there is any original issue discount determined under subpart A of part V of subchapter P of this chapter with respect to the debt instrument so issued—
(i) except as provided in clause (ii), no deduction otherwise allowable under this chapter shall be allowed to the issuer of such debt instrument with respect to the portion of such original issue discount which—
(I) accrues before the 1st taxable year in the 5-taxable-year period in which income from the discharge of indebtedness attributable to the reacquisition of the debt instrument is includible under paragraph (1), and
(II) does not exceed the income from the discharge of indebtedness with respect to the debt instrument being reacquired, and
(ii) the aggregate amount of deductions disallowed under clause (i) shall be allowed as a deduction ratably over the 5-taxable-year period described in clause (i)(I).
If the amount of the original issue discount accruing before such 1st taxable year exceeds the income from the discharge of indebtedness with respect to the applicable debt instrument being reacquired, the deductions shall be disallowed in the order in which the original issue discount is accrued.
(B) Deemed debt for debt exchanges
For purposes of subparagraph (A), if any debt instrument is issued by an issuer and the proceeds of such debt instrument are used directly or indirectly by the issuer to reacquire an applicable debt instrument of the issuer, the debt instrument so issued shall be treated as issued for the debt instrument being reacquired. If only a portion of the proceeds from a debt instrument are so used, the rules of subparagraph (A) shall apply to the portion of any original issue discount on the newly issued debt instrument which is equal to the portion of the proceeds from such instrument used to reacquire the outstanding instrument.
(3) Applicable debt instrument
For purposes of this subsection—
(A) Applicable debt instrument
The term "applicable debt instrument" means any debt instrument which was issued by—
(i) a C corporation, or
(ii) any other person in connection with the conduct of a trade or business by such person.
(B) Debt instrument
The term "debt instrument" means a bond, debenture, note, certificate, or any other instrument or contractual arrangement constituting indebtedness (within the meaning of section 1275(a)(1)).
(4) Reacquisition
For purposes of this subsection—
(A) In general
The term "reacquisition" means, with respect to any applicable debt instrument, any acquisition of the debt instrument by—
(i) the debtor which issued (or is otherwise the obligor under) the debt instrument, or
(ii) a related person to such debtor.
(B) Acquisition
The term "acquisition" shall, with respect to any applicable debt instrument, include an acquisition of the debt instrument for cash, the exchange of the debt instrument for another debt instrument (including an exchange resulting from a modification of the debt instrument), the exchange of the debt instrument for corporate stock or a partnership interest, and the contribution of the debt instrument to capital. Such term shall also include the complete forgiveness of the indebtedness by the holder of the debt instrument.
(5) Other definitions and rules
For purposes of this subsection—
(A) Related person
The determination of whether a person is related to another person shall be made in the same manner as under subsection (e)(4).
(B) Election
(i) In general
An election under this subsection with respect to any applicable debt instrument shall be made by including with the return of tax imposed by
(I) clearly identifies such instrument, and
(II) includes the amount of income to which paragraph (1) applies and such other information as the Secretary may prescribe.
(ii) Election irrevocable
Such election, once made, is irrevocable.
(iii) Pass-thru entities
In the case of a partnership, S corporation, or other pass-thru entity, the election under this subsection shall be made by the partnership, the S corporation, or other entity involved.
(C) Coordination with other exclusions
If a taxpayer elects to have this subsection apply to an applicable debt instrument, subparagraphs (A), (B), (C), and (D) of subsection (a)(1) shall not apply to the income from the discharge of such indebtedness for the taxable year of the election or any subsequent taxable year.
(D) Acceleration of deferred items
(i) In general
In the case of the death of the taxpayer, the liquidation or sale of substantially all the assets of the taxpayer (including in a title 11 or similar case), the cessation of business by the taxpayer, or similar circumstances, any item of income or deduction which is deferred under this subsection (and has not previously been taken into account) shall be taken into account in the taxable year in which such event occurs (or in the case of a title 11 or similar case, the day before the petition is filed).
(ii) Special rule for pass-thru entities
The rule of clause (i) shall also apply in the case of the sale or exchange or redemption of an interest in a partnership, S corporation, or other pass-thru entity by a partner, shareholder, or other person holding an ownership interest in such entity.
(6) Special rule for partnerships
In the case of a partnership, any income deferred under this subsection shall be allocated to the partners in the partnership immediately before the discharge in the manner such amounts would have been included in the distributive shares of such partners under section 704 if such income were recognized at such time. Any decrease in a partner's share of partnership liabilities as a result of such discharge shall not be taken into account for purposes of section 752 at the time of the discharge to the extent it would cause the partner to recognize gain under section 731. Any decrease in partnership liabilities deferred under the preceding sentence shall be taken into account by such partner at the same time, and to the extent remaining in the same amount, as income deferred under this subsection is recognized.
(7) Secretarial authority
The Secretary may prescribe such regulations, rules, or other guidance as may be necessary or appropriate for purposes of applying this subsection, including—
(A) extending the application of the rules of paragraph (5)(D) to other circumstances where appropriate,
(B) requiring reporting of the election (and such other information as the Secretary may require) on returns of tax for subsequent taxable years, and
(C) rules for the application of this subsection to partnerships, S corporations, and other pass-thru entities, including for the allocation of deferred deductions.
(Aug. 16, 1954, ch. 736,
Editorial Notes
References in Text
Sections 338B(g) and 338I of the Public Health Service Act, referred to in subsec. (f)(4), are classified to sections 254l–1(g) and 254q–1, respectively, of Title 42, The Public Health and Welfare.
Section 140(a) of the Truth in Lending Act, referred to in subsec. (f)(5), is classified to
Amendments
2021—Subsec. (f)(5).
2020—Subsec. (a)(1)(E).
Subsec. (h)(2).
2019—Subsec. (a)(1)(E).
Subsec. (h)(2).
2018—Subsec. (a)(1)(E).
2017—Subsec. (f)(5).
2015—Subsec. (a)(1)(E).
2014—Subsec. (a)(1)(E).
2013—Subsec. (a)(1)(E).
2010—Subsec. (f)(4).
2009—Subsec. (i).
2008—Subsec. (a)(1)(E).
2007—Subsec. (a)(1)(E).
Subsec. (a)(2)(A).
Subsec. (a)(2)(C).
Subsec. (h).
2004—Subsec. (e)(8).
Subsec. (f)(4).
2002—Subsec. (d)(7)(A).
1998—Subsec. (f)(2).
Subsec. (f)(3).
1997—Subsec. (f)(2).
Subsec. (f)(2)(B).
Subsec. (f)(3).
1996—Subsec. (d)(9)(A).
1993—Subsec. (a)(1)(D).
Subsec. (a)(2)(A).
Subsec. (a)(2)(B).
Subsec. (b)(2)(C) to (E).
Subsec. (b)(2)(F).
Subsec. (b)(2)(G).
Subsec. (b)(3)(B).
Subsec. (b)(4)(B).
Subsec. (b)(4)(C).
Subsec. (c).
Subsec. (d).
Subsec. (d)(6), (7)(A).
Subsec. (d)(7)(B).
Subsec. (d)(9)(A).
Subsec. (e)(6).
Subsec. (e)(8).
"(A) to the issuance of nominal or token shares, or
"(B) with respect to an unsecured creditor, where the ratio of the value of the stock received by such unsecured creditor to the amount of his indebtedness cancelled or exchanged for stock in the workout is less than 50 percent of a similar ratio computed for all unsecured creditors participating in the workout.
Any stock which is disqualified stock (as defined in paragraph (10)(B)(ii)) shall not be treated as stock for purposes of this paragraph."
Subsec. (e)(10), (11).
Subsec. (g)(3)(B).
1990—Subsec. (e)(8).
Subsec. (e)(10)(B).
Subsec. (e)(11).
Subsec. (g)(1)(B).
1988—Subsec. (a)(1)(C).
Subsec. (a)(2).
Subsec. (b).
Subsec. (d).
Subsec. (d)(6).
Subsec. (d)(7)(A).
Subsec. (g).
"(1)
"(2)
"(A) such indebtedness was incurred directly in connection with the operation by the taxpayer of the trade or business of farming, and
"(B) 50 percent or more of the average annual gross receipts of the taxpayer for the 3 taxable years preceding the taxable year in which the discharge of such indebtedness occurs is attributable to the trade or business of farming.
"(3)
1986—Subsec. (a)(1)(C).
Subsec. (a)(2).
Subsec. (b)(2)(B).
"(i) section 30 (relating to credit for increasing research activities), or
"(ii) section 38 (relating to general business credit).
For purposes of this subparagraph, there shall not be taken into account any portion of a carryover which is attributable to the employee stock ownership credit determined under section 41."
Subsec. (b)(2)(E).
Subsec. (b)(3).
Subsec. (c).
Subsec. (d).
Subsec. (d)(4).
Subsec. (d)(6), (7)(A).
Subsec. (d)(7)(B).
Subsec. (d)(9)(A).
Subsec. (e)(7)(A)(ii)(I).
Subsec. (e)(7)(B) to (D).
Subsec. (e)(7)(E), (F).
Subsec. (e)(10)(C).
Subsec. (g).
1984—Subsec. (b)(2)(B).
Subsec. (d)(6).
Subsec. (d)(7) to (10).
Subsec. (e)(10).
Subsec. (e)(10)(C).
Subsec. (f).
1983—Subsec. (b)(2)(B)(v).
Subsec. (e)(7)(A)(iii).
1982—Subsec. (d)(6).
1980—
1976—
1960—Subsec. (b).
1956—Subsec. (b). Act June 29, 1956, substituted "December 31, 1957" for "December 31, 1955".
Statutory Notes and Related Subsidiaries
Effective Date of 2021 Amendment
Effective Date of 2020 Amendment
Effective Date of 2019 Amendment
Effective Date of 2018 Amendment
Effective Date of 2017 Amendment
Effective Date of 2015 Amendment
"(1)
"(2)
Effective Date of 2014 Amendment
Effective Date of 2013 Amendment
Effective Date of 2010 Amendment
Effective Date of 2009 Amendment
Effective Date of 2008 Amendment
Effective Date of 2007 Amendment
Effective Date of 2004 Amendment
Effective Date of 2002 Amendment
"(1)
"(2)
Effective Date of 1998 Amendment
Amendment by
Effective Date of 1997 Amendment
Effective Date of 1996 Amendment
Amendment by
Effective Date of 1993 Amendment
"(A)
"(B)
Effective Date of 1990 Amendment
"(1)
"(2)
"(A) is in a title 11 or similar case (as defined in section 368(a)(3)(A) of the Internal Revenue Code of 1986) which was filed on or before October 9, 1990,
"(B) is pursuant to a written binding contract in effect on October 9, 1990, and at all times thereafter before such issuance or transfer,
"(C) is pursuant to a transaction which was described in documents filed with the Securities and Exchange Commission on or before October 9, 1990, or
"(D) is pursuant to a transaction—
"(i) the material terms of which were described in a written public announcement on or before October 9, 1990,
"(ii) which was the subject of a prior filing with the Securities and Exchange Commission, and
"(iii) which is the subject of a subsequent filing with the Securities and Exchange Commission before January 1, 1991."
Amendment by section 11813(b)(6) of
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 104(b)(2) of
Amendment by section 231(d)(3)(D) of
Repeal by section 621(e)(1) of
Amendment by section 805(c)(2), (4) of
Amendment by section 1171(b)(4) of
Amendment by section 1847(b)(7) of
Effective Date of 1984 Amendment
"(1)
"(2)
"(A) pursuant to a written contract requiring such transfer which was binding on the corporation at all times on June 7, 1984, and at all times after such date but only if the transfer takes place before January 1, 1985, and only if the transferee held the debt at all times on June 7, 1984, or
"(B) pursuant to the exercise of an option to exchange debt for stock but only if such option was in effect at all times on June 7, 1984, and at all times after such date and only if at all times on June 7, 1984, the option and the debt were held by the same person.
"(3)
"(A) such transfer is to another corporation which at all times on June 7, 1984, owned 75 percent or more of the total value of the stock of the corporation making such transfer, and
"(B) immediately after such transfer, the transferee corporation owns 80 percent or more of the total value of the stock of the transferor corporation.
"(4)
"(A) such transfer is covered by a debt restructure agreement entered into by the corporation during November 1983, and
"(B) such agreement was specified in a registration statement filed with the Securities and Exchange Commission by the corporation on March 7, 1984."
Amendment by section 474(r)(5) of
Amendment by section 721(b) of
Effective Date of 1983 Amendment
Amendment by title I of
Effective Date of 1982 Amendment
Amendment by
Effective Date of 1980 Amendment
"(a)
"(1)
"(2)
"(A) section 108(b)(2) of the such Code (relating to reduction of tax attributes), as so amended, shall be applied without regard to subparagraphs (A), (B), (C), and (E) thereof, and
"(B) the basis of any property shall not be reduced under section 1017 of such Code (relating to reduction in basis in connection with discharges of indebtedness), as so amended, below the fair market value of such property on the date the debt is discharged.
"(b)
"(c)
"(1)
"(2)
"(A) which occurs after December 31, 1980, and
"(B) which does not occur in a bankruptcy case or similar judicial proceeding (or in a proceeding under the Bankruptcy Act) commenced on or before December 31, 1980.
"(d)
"(1)
"(2)
"(3)
"(4)
"(5)
"(6)
"(e)
"(f)
"(1)
"(2)
"(3)
"(4)
"(g)
"(1)
"(2)
Effective Date of 1976 Amendment
Amendment by section 1951(b)(2)(A) of
Effective Date of 1960 Amendment
Savings Provision
For provisions that nothing in amendment by section 11813 of
Exclusion of Certain Cancellations of Indebtedness
"(a)
"(1) gross income shall not include any amount which (but for this section) would be includible in gross income by reason of the discharge (in whole or in part) of indebtedness of any taxpayer if the discharge is by reason of the death of an individual incurred as the result of the terrorist attacks against the United States on September 11, 2001, or as the result of illness incurred as a result of an attack involving anthrax occurring on or after September 11, 2001, and before January 1, 2002; and
"(2) return requirements under section 6050P of such Code shall not apply to any discharge described in paragraph (1).
"(b)
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
1 So in original. Probably should be "140(a)(8)". See References in Text note below.
2 So in original. Such section defines the term "private educational lender".
§109. Improvements by lessee on lessor's property
Gross income does not include income (other than rent) derived by a lessor of real property on the termination of a lease, representing the value of such property attributable to buildings erected or other improvements made by the lessee.
(Aug. 16, 1954, ch. 736,
§110. Qualified lessee construction allowances for short-term leases
(a) In general
Gross income of a lessee does not include any amount received in cash (or treated as a rent reduction) by a lessee from a lessor—
(1) under a short-term lease of retail space, and
(2) for the purpose of such lessee's constructing or improving qualified long-term real property for use in such lessee's trade or business at such retail space,
but only to the extent that such amount does not exceed the amount expended by the lessee for such construction or improvement.
(b) Consistent treatment by lessor
Qualified long-term real property constructed or improved in connection with any amount excluded from a lessee's income by reason of subsection (a) shall be treated as nonresidential real property of the lessor (including for purposes of section 168(i)(8)(B)).
(c) Definitions
For purposes of this section—
(1) Qualified long-term real property
The term "qualified long-term real property" means nonresidential real property which is part of, or otherwise present at, the retail space referred to in subsection (a) and which reverts to the lessor at the termination of the lease.
(2) Short-term lease
The term "short-term lease" means a lease (or other agreement for occupancy or use) of retail space for 15 years or less (as determined under the rules of section 168(i)(3)).
(3) Retail space
The term "retail space" means real property leased, occupied, or otherwise used by a lessee in its trade or business of selling tangible personal property or services to the general public.
(d) Information required to be furnished to Secretary
Under regulations, the lessee and lessor described in subsection (a) shall, at such times and in such manner as may be provided in such regulations, furnish to the Secretary—
(1) information concerning the amounts received (or treated as a rent reduction) and expended as described in subsection (a), and
(2) any other information which the Secretary deems necessary to carry out the provisions of this section.
(Added
Editorial Notes
Prior Provisions
A prior section 110, act Aug. 16, 1954, ch. 736,
Statutory Notes and Related Subsidiaries
Effective Date
§111. Recovery of tax benefit items
(a) Deductions
Gross income does not include income attributable to the recovery during the taxable year of any amount deducted in any prior taxable year to the extent such amount did not reduce the amount of tax imposed by this chapter.
(b) Credits
(1) In general
If—
(A) a credit was allowable with respect to any amount for any prior taxable year, and
(B) during the taxable year there is a downward price adjustment or similar adjustment,
the tax imposed by this chapter for the taxable year shall be increased by the amount of the credit attributable to the adjustment.
(2) Exception where credit did not reduce tax
Paragraph (1) shall not apply to the extent that the credit allowable for the recovered amount did not reduce the amount of tax imposed by this chapter.
(3) Exception for investment tax credit and foreign tax credit
This subsection shall not apply with respect to the credit determined under section 46 and the foreign tax credit.
(c) Treatment of carryovers
For purposes of this section, an increase in a carryover which has not expired before the beginning of the taxable year in which the recovery or adjustment takes place shall be treated as reducing tax imposed by this chapter.
(d) Special rules for accumulated earnings tax and for personal holding company tax
In applying subsection (a) for the purpose of determining the accumulated earnings tax under section 531 or the tax under section 541 (relating to personal holding companies)—
(1) any excluded amount under subsection (a) allowed for the purposes of this subtitle (other than section 531 or section 541) shall be allowed whether or not such amount resulted in a reduction of the tax under section 531 or the tax under section 541 for the prior taxable year; and
(2) where any excluded amount under subsection (a) was not allowable as a deduction for the prior taxable year for purposes of this subtitle other than of section 531 or section 541 but was allowable for the same taxable year under section 531 or section 541, then such excluded amount shall be allowable if it did not result in a reduction of the tax under section 531 or the tax under section 541.
(Aug. 16, 1954, ch. 736,
Editorial Notes
Amendments
1986—Subsec. (a).
Subsec. (c).
1984—
1980—Subsec. (d).
1976—Subsec. (b)(4).
Statutory Notes and Related Subsidiaries
Effective Date of 1986 Amendment
Amendment by
Effective Date of 1984 Amendment
Effective Date of 1980 Amendment
Amendment by
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
§112. Certain combat zone compensation of members of the Armed Forces
(a) Enlisted personnel
Gross income does not include compensation received for active service as a member below the grade of commissioned officer in the Armed Forces of the United States for any month during any part of which such member—
(1) served in a combat zone, or
(2) was hospitalized as a result of wounds, disease, or injury incurred while serving in a combat zone; but this paragraph shall not apply for any month beginning more than 2 years after the date of the termination of combatant activities in such zone.
With respect to service in the combat zone designated for purposes of the Vietnam conflict, paragraph (2) shall not apply to any month after January 1978.
(b) Commissioned officers
Gross income does not include so much of the compensation as does not exceed the maximum enlisted amount received for active service as a commissioned officer in the Armed Forces of the United States for any month during any part of which such officer—
(1) served in a combat zone, or
(2) was hospitalized as a result of wounds, disease, or injury incurred while serving in a combat zone; but this paragraph shall not apply for any month beginning more than 2 years after the date of the termination of combatant activities in such zone.
With respect to service in the combat zone designated for purposes of the Vietnam conflict, paragraph (2) shall not apply to any month after January 1978.
(c) Definitions
For purposes of this section—
(1) The term "commissioned officer" does not include a commissioned warrant officer.
(2) The term "combat zone" means any area which the President of the United States by Executive Order designates, for purposes of this section or corresponding provisions of prior income tax laws, as an area in which Armed Forces of the United States are or have engaged in combat.
(3) Service is performed in a combat zone only if performed on or after the date designated by the President by Executive Order as the date of the commencing of combatant activities in such zone, and on or before the date designated by the President by Executive Order as the date of the termination of combatant activities in such zone.
(4) The term "compensation" does not include pensions and retirement pay.
(5) The term "maximum enlisted amount" means, for any month, the sum of—
(A) the highest rate of basic pay payable for such month to any enlisted member of the Armed Forces of the United States at the highest pay grade applicable to enlisted members, and
(B) in the case of an officer entitled to special pay under section 310, or paragraph (1) or (3) of
(d) Prisoners of war, etc.
(1) Members of the Armed Forces
Gross income does not include compensation received for active service as a member of the Armed Forces of the United States for any month during any part of which such member is in a missing status (as defined in
(2) Civilian employees
Gross income does not include compensation received for active service as an employee for any month during any part of which such employee is in a missing status during the Vietnam conflict as a result of such conflict. For purposes of this paragraph, the terms "active service", "employee", and "missing status" have the respective meanings given to such terms by
(3) Period of conflict
For purposes of this subsection, the Vietnam conflict began February 28, 1961, and ends on the date designated by the President by Executive order as the date of the termination of combatant activities in Vietnam. For purposes of this subsection, an individual is in a missing status as a result of the Vietnam conflict if immediately before such status began he was performing service in Vietnam or was performing service in Southeast Asia in direct support of military operations in Vietnam.
(Aug. 16, 1954, ch. 736,
Editorial Notes
Amendments
2016—Subsec. (c)(5)(B).
2014—Subsec. (c)(2).
Subsec. (c)(3).
1996—
Subsec. (b).
Subsec. (c)(5).
1976—Subsec. (a).
Subsec. (b).
1975—Subsec. (a).
Subsec. (a)(1).
Subsec. (a)(2).
Subsec. (b).
Subsec. (b)(1).
Subsec. (b)(2).
Subsec. (c)(5).
1972—Subsec. (d).
1966—Subsec. (b).
Statutory Notes and Related Subsidiaries
Effective Date of 2014 Amendment
Amendment by
Effective Date of 1975 Amendment
Effective Date of 1972 Amendment
Effective Date of 1966 Amendment
Treatment of Certain Individuals Performing Services in the Sinai Peninsula of Egypt
"(a)
"(1) Section 2(a)(3) (relating to special rule where deceased spouse was in missing status).
"(2) Section 112 (relating to the exclusion of certain combat pay of members of the Armed Forces).
"(3) Section 692 (relating to income taxes of members of Armed Forces on death).
"(4) Section 2201 (relating to members of the Armed Forces dying in combat zone or by reason of combat-zone-incurred wounds, etc.).
"(5) Section 3401(a)(1) (defining wages relating to combat pay for members of the Armed Forces).
"(6) Section 4253(d) (relating to the taxation of phone service originating from a combat zone from members of the Armed Forces).
"(7) Section 6013(f)(1) (relating to joint return where individual is in missing status).
"(8) Section 7508 (relating to time for performing certain acts postponed by reason of service in combat zone).
"(b)
"(c)
"(1)
"(A) the portion of the first taxable year ending after June 9, 2015, which begins on such date, and
"(B) any subsequent taxable year beginning before January 1, 2026.
"(2)
"(A) the portion of the first taxable year ending after the date of the enactment of this Act [Dec. 22, 2017] which begins on such date, and
"(B) any subsequent taxable year beginning before January 1, 2026.
"(d)
"(1)
"(2)
Sense of Congress Regarding Tax Treatment of Members Receiving Special Pay for Duty Subject to Hostile Fire or Imminent Danger
Sense of Congress Regarding Treatment Under Internal Revenue Code of Members Receiving Hostile Fire or Imminent Danger Special Pay During Contingency Operations
Availability of Certain Tax Benefits for Services as Part of Operation Allied Force
"(a)
"(1) Section 2(a)(3) (relating to special rule where deceased spouse was in missing status).
"(2) Section 112 (relating to the exclusion of certain combat pay of members of the Armed Forces).
"(3) Section 692 (relating to income taxes of members of Armed Forces on death).
"(4) Section 2201 (relating to members of the Armed Forces dying in combat zone or by reason of combat-zone-incurred wounds, etc.).
"(5) Section 3401(a)(1) (defining wages relating to combat pay for members of the Armed Forces).
"(6) Section 4253(d) (relating to the taxation of phone service originating from a combat zone from members of the Armed Forces).
"(7) Section 6013(f)(1) (relating to joint return where individual is in missing status).
"(8) Section 7508 (relating to time for performing certain acts postponed by reason of service in combat zone).
"(b)
"(c)
"(d)
"(1)
"(2)
Treatment of Certain Individuals Performing Services in Certain Hazardous Duty Areas; Effective Date
"(a)
"(1) Section 2(a)(3) (relating to special rule where deceased spouse was in missing status).
"(2) Section 112 (relating to the exclusion of certain combat pay of members of the Armed Forces).
"(3) Section 692 (relating to income taxes of members of Armed Forces on death).
"(4) Section 2201 (relating to members of the Armed Forces dying in combat zone or by reason of combat-zone-incurred wounds, etc.).
"(5) Section 3401(a)(1) (defining wages relating to combat pay for members of the Armed Forces).
"(6) Section 4253(d) (relating to the taxation of phone service originating from a combat zone from members of the Armed Forces).
"(7) Section 6013(f)(1) (relating to joint return where individual is in missing status).
"(8) Section 7508 (relating to time for performing certain acts postponed by reason of service in combat zone).
"(b)
"(c)
"(d)
"(1)
"(2)
"(e)
"(1)
"(2)
Refund or Credit of Overpayment; Applicable Period
"(2) If refund or credit of any overpayment for any taxable year resulting from the application of the amendment made by the first section of this Act [amending this section] (including interest, additions to the tax, and additional amounts) is prevented at any time before the expiration of the applicable period specified in paragraph (3) by the operation of any law or rule of law, such refund or credit of such overpayment may, nevertheless, be made or allowed if claim therefor is filed before the expiration of such applicable period.
"(3) For purposes of paragraph (2), the applicable period for any individual with respect to any compensation is the period ending on whichever of the following days is the later:
"(A) the day which is one year after the date of the enactment of this Act [Apr. 26, 1972], or
"(B) the day which is 2 years after the date on which it is determined that the individual's missing status (within the meaning of section 112(d) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]) has terminated for purposes of such section 112."
Executive Documents
Ex. Ord. No. 10585. Termination of Combatant Activities in Korea
Ex. Ord. No. 10585, Jan. 1, 1955, 20 F.R. 17, provided:
By virtue of the authority vested in me by section 112(c)(3) of the Internal Revenue Code of 1954 [now I.R.C. 1986], January 31, 1955, as of midnight thereof, is hereby designated as the date of termination of combatant activities in the zone comprised of the area described in Executive Order No. 10195 of December 20, 1950 (15 F.R. 9177).
Dwight D. Eisenhower.
Ex. Ord. No. 11216. Designation of Vietnam and Adjacent Waters as Combat Zone
Ex. Ord. No. 11216, Apr. 24, 1965, 30 F.R. 5817, provided:
Pursuant to the authority vested in me by section 112 of the Internal Revenue Code of 1954 [now I.R.C. 1986], I hereby designate, for the purposes of that section, as an area in which Armed Forces of the United States are and have been engaged in combat:
Vietnam, including the waters adjacent thereto within the following-described limits: From a point on the East Coast of Vietnam at the juncture of Vietnam with China southeastward to 21° N Lat., 108°15′ E Long.; thence southward to 18° N Lat., 108°15′ E Long.; thence southeastward to 17°30 N Lat., 111° E Long.; thence southward to 11° N Lat., 111° E Long.; thence southwestward to 7° N Lat., 105° E Long.; thence westward to 7° N Lat., 103° E Long.; thence northward to 9°30′ N Lat., 103° E Long.; thence northeastward to 10°15′ N Lat., 104°27′ E Long.; thence northward to a point on the West Coast of Vietnam at the juncture of Vietnam with Cambodia.
The date of the commencing of combatant activities in such area is hereby designated as January 1, 1964.
Lyndon B. Johnson.
Ex. Ord. No. 12744. Designation of Arabian Peninsula Areas, Airspace, and Adjacent Waters as Combat Zone
Ex. Ord. No. 12744, Jan. 21, 1991, 56 F.R. 2663, provided:
By the authority vested in me as President by the Constitution and the laws of the United States of America, including section 112 of the Internal Revenue Code of 1986 (
—the Persian Gulf
—the Red Sea
—the Gulf of Oman
—that portion of the Arabian Sea that lies north of 10 degrees north latitude and west of 68 degrees east longitude
—the Gulf of Aden
—the total land areas of Iraq, Kuwait, Saudi Arabia, Oman, Bahrain, Qatar, and the United Arab Emirates.
For the purposes of this order, the date of the commencing of combatant activities in such zone is hereby designated as January 17, 1991.
George Bush.
Ex. Ord. No. 13002. Termination of Combat Zone Designation in Vietnam and Waters Adjacent Thereto
Ex. Ord. No. 13002, May 13, 1996, 61 F.R. 24665, provided:
By the authority vested in me as President by the Constitution and the laws of the United States of America, including section 112(c)(3) of the Internal Revenue Code of 1986 (
William J. Clinton.
Ex. Ord. No. 13119. Designation of Federal Republic of Yugoslavia (Serbia/Montenegro), Albania, the Airspace Above, and Adjacent Waters as a Combat Zone
Ex. Ord. No. 13119, April 13, 1999, 64 F.R. 18797, provided:
Pursuant to the authority vested in me as President by the Constitution and laws of the United States of America, including section 112 of the Internal Revenue Code of 1986 (
—The Federal Republic of Yugoslavia (Serbia/Montenegro);
—Albania;
—the Adriatic Sea;
—the Ionian Sea north of the 39th parallel.
For the purposes of this order, I designate March 24, 1999, as the date of the commencement of combatant activities in such zone.
William J. Clinton.
Ex. Ord. No. 13239. Designation of Afghanistan and the Airspace Above as a Combat Zone
Ex. Ord. No. 13239, Dec. 12, 2001, 66 F.R. 64907, provided:
Pursuant to the authority vested in me as President by the Constitution and the laws of the United States of America, including section 112 of the Internal Revenue Code of 1986 (
For purposes of this order, I designate September 19, 2001, as the date of the commencement of combatant activities in such zone.
George W. Bush.
[§113. Repealed. Pub. L. 101–508, title XI, §11801(a)(7), Nov. 5, 1990, 104 Stat. 1388–520 ]
Section, act Aug. 16, 1954, ch. 736,
Statutory Notes and Related Subsidiaries
Savings Provision
For provisions that nothing in repeal by
[§114. Repealed. Pub. L. 108–357, title I, §101(a), Oct. 22, 2004, 118 Stat. 1423 ]
Section, added
A prior section 114, act Aug. 16, 1954, ch. 736,
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
Repeal applicable to transactions after Dec. 31, 2004, see section 101(c) of
Transition Provisions
"(d)
"(1)
"(2)
"(A) For 2005, the applicable percentage shall be 20 percent.
"(B) For 2006, the applicable percentage shall be 40 percent.
"(3)
"(e)
"(1) was treated as transferred under clause (i) thereof, or
"(2) was acquired during a taxable year to which such election applies and before May 1, 2003, in the ordinary course of its trade or business.
The Secretary of the Treasury (or such Secretary's delegate) may prescribe such regulations as may be necessary to prevent the abuse of the purposes of this subsection.
"[(f) Repealed.
§115. Income of States, municipalities, etc.
Gross income does not include—
(1) income derived from any public utility or the exercise of any essential governmental function and accruing to a State or any political subdivision thereof, or the District of Columbia; or
(2) income accruing to the government of any possession of the United States, or any political subdivision thereof.
(Aug. 16, 1954, ch. 736,
Editorial Notes
Amendments
1976—
Statutory Notes and Related Subsidiaries
Effective Date of 1976 Amendment
Amendment by
Tax Treatment of State Ownership of Railroad Real Estate Investment Trust
"(a)
"(1) which is a real estate investment trust on the date of the enactment of this Act [Aug. 10, 2005],
"(2) which is a non-operating class III railroad, and
"(3) substantially all of the activities of which consist of the ownership, leasing, and operation by such corporation of facilities, equipment, and other property used by the corporation or other persons for railroad transportation and for economic development purposes for the benefit of the State and its citizens, then, to the extent such activities are of a type which are an essential governmental function within the meaning of section 115 of the Internal Revenue Code of 1986, income derived from such activities by the corporation shall be treated as accruing to the State for purposes of section 115 of such Code.
"(b)
"(1) no gain or loss shall be recognized under section 336 or 337 of such Code, and
"(2) no change in basis of the property of such corporation shall occur, because of any change of status of a corporation to a tax-exempt entity by reason of the application of subsection (a).
"(c)
"(1)
"(A) shall be treated as a State or local bond (within the meaning of section 103(c) of such Code), and
"(B) shall not be treated as a private activity bond (within the meaning of section 103(b)(1) of such Code) solely by reason of the ownership or use of such railroad transportation infrastructure by the corporation.
"(2)
"(d)
"(1)
"(2)
"(3)
"(A) the District of Columbia and any possession of the United States, and
"(B) any authority, agency, or public corporation of a State.
"(e)
"(1)
"(2)
"(A) becomes the owner of all of the voting stock of a corporation described in subsection (a) after December 31, 2003, or
"(B) becomes the owner of all of the outstanding stock of a corporation described in subsection (a) after December 31, 2006."
[§116. Repealed. Pub. L. 99–514, title VI, §612(a), Oct. 22, 1986, 100 Stat. 2250 ]
Section, acts Aug. 16, 1954, ch. 736,
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
Repeal applicable to taxable years beginning after Dec. 31, 1986, see section 612(c) of
§117. Qualified scholarships
(a) General rule
Gross income does not include any amount received as a qualified scholarship by an individual who is a candidate for a degree at an educational organization described in section 170(b)(1)(A)(ii).
(b) Qualified scholarship
For purposes of this section—
(1) In general
The term "qualified scholarship" means any amount received by an individual as a scholarship or fellowship grant to the extent the individual establishes that, in accordance with the conditions of the grant, such amount was used for qualified tuition and related expenses.
(2) Qualified tuition and related expenses
For purposes of paragraph (1), the term "qualified tuition and related expenses" means—
(A) tuition and fees required for the enrollment or attendance of a student at an educational organization described in section 170(b)(1)(A)(ii), and
(B) fees, books, supplies, and equipment required for courses of instruction at such an educational organization.
(c) Limitation
(1) In general
Except as provided in paragraph (2), subsections (a) and (d) shall not apply to that portion of any amount received which represents payment for teaching, research, or other services by the student required as a condition for receiving the qualified scholarship or qualified tuition reduction.
(2) Exceptions
Paragraph (1) shall not apply to any amount received by an individual under—
(A) the National Health Service Corps Scholarship Program under section 338A(g)(1)(A) of the Public Health Service Act,
(B) the Armed Forces Health Professions Scholarship and Financial Assistance program under subchapter I of
(C) a comprehensive student work-learning-service program (as defined in section 448(e) of the Higher Education Act of 1965) operated by a work college (as defined in such section).
(d) Qualified tuition reduction
(1) In general
Gross income shall not include any qualified tuition reduction.
(2) Qualified tuition reduction
For purposes of this subsection, the term "qualified tuition reduction" means the amount of any reduction in tuition provided to an employee of an organization described in section 170(b)(1)(A)(ii) for the education (below the graduate level) at such organization (or another organization described in section 170(b)(1)(A)(ii)) of—
(A) such employee, or
(B) any person treated as an employee (or whose use is treated as an employee use) under the rules of section 132(h).
(3) Reduction must not discriminate in favor of highly compensated, etc.
Paragraph (1) shall apply with respect to any qualified tuition reduction provided with respect to any highly compensated employee only if such reduction is available on substantially the same terms to each member of a group of employees which is defined under a reasonable classification set up by the employer which does not discriminate in favor of highly compensated employees (within the meaning of section 414(q)). For purposes of this paragraph, the term "highly compensated employee" has the meaning given such term by section 414(q).
[(4) Repealed. Pub. L. 101–140, title II, §203(a)(1), (2), Nov. 8, 1989, 103 Stat. 830 ]
(5) Special rules for teaching and research assistants
In the case of the education of an individual who is a graduate student at an educational organization described in section 170(b)(1)(A)(ii) and who is engaged in teaching or research activities for such organization, paragraph (2) shall be applied as if it did not contain the phrase "(below the graduate level)".
(Aug. 16, 1954, ch. 736,
Editorial Notes
References in Text
Section 338A(g)(1)(A) of the Public Health Service Act, referred to in subsec. (c)(2)(A), is classified to
Section 448(e) of the Higher Education Act of 1965, referred to in subsec. (c)(2)(C), is classified to
Amendments
2015—Subsec. (c)(2)(C).
2001—Subsec. (c).
1996—Subsec. (d)(2)(B).
1989—Subsec. (d)(4).
1988—Subsec. (d)(4).
Subsec. (d)(5).
1986—
Subsec. (a).
"(1) any amount received—
"(A) as a scholarship at an educational organization described in section 170(b)(1)(A)(ii), or
"(B) as a fellowship grant, including the value of contributed services and accommodations; and
"(2) any amount received to cover expenses for—
"(A) travel,
"(B) research,
"(C) clerical help, or
"(D) equipment,
which are incident to such a scholarship or to a fellowship grant, but only to the extent that the amount is so expended by the recipient."
Subsec. (b).
Subsec. (c).
Subsec. (d).
Subsec. (d)(3).
Subsec. (d)(4).
1984—Subsec. (d).
1980—Subsec. (c).
1976—Subsecs. (a)(1)(A), (b)(1), (2).
Subsec. (b)(2)(A)(iv).
Subsec. (b)(2)(B).
1961—Subsec. (b)(2)(A).
Statutory Notes and Related Subsidiaries
Effective Date of 2015 Amendment
Effective Date of 2001 Amendment
Effective Date of 1996 Amendment
Amendment by
Effective Date of 1989 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by section 1011B(a)(31)(B) of
Effective Date of 1986 Amendment
Amendment by section 123(a) of
Amendment by section 1114(b)(2) of
Amendment by section 1151(g)(2) of
Effective Date of 1984 Amendment
Provisions of subsec. (d) treated as in effect on and after Jan. 1, 1984, in case of education described in
Effective Date of 1980 Amendment
Effective Date of 1976 Amendment
Amendment by
Effective Date of 1961 Amendment
Regulations
Secretary of the Treasury or his delegate to issue before Feb. 1, 1988, final regulations to carry out amendments made by section 1114 of
Nonenforcement of Amendment Made by Section 1151 of Pub. L. 99–514 for Fiscal Year 1990
No monies appropriated by
Applicability of Certain Amendments by Public Law 99–514 in Relation to Treaty Obligations of United States
For nonapplication of amendment by section 123(a) of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Transitional Rules for Treatment of Certain Reductions in Tuition
"(1) A tuition reduction plan shall be treated as meeting the requirements of section 117(d)(3) of the Internal Revenue Code of 1954 [now 1986] if—
"(A) such plan would have met the requirements of such section (as amended by this section but without regard to the lack of evidence that benefits under such plan were the subject of good faith bargaining) on the day on which eligibility to participate in the plan was closed,
"(B) at all times thereafter, the tuition reductions available under such plan are available on substantially the same terms to all employees eligible to participate in such plan, and
"(C) the eligibility to participate in such plan closed on June 30, 1972, June 30, 1974, or December 31, 1975.
"(2) For purposes of applying section 117(d)(3) of the Internal Revenue Code of 1954 [now 1986] to all tuition reduction plans of an employer with at least 1 such plan described in paragraph (1) of this subsection, there shall be excluded from consideration employees not included in the plan who are included in a unit of employees covered by an agreement that the Secretary of the Treasury or his delegate finds to be a collective bargaining agreement between employee representatives and 1 or more employers, if, with respect to plans other than plans described in paragraph (1), there is evidence that such benefits were the subject of good faith bargaining.
"(3) Any reduction in tuition provided with respect to a full-time course of education furnished at the graduate level before July 1, 1988, shall not be included in gross income if—
"(A) such reduction would not be included in gross income under the Internal Revenue Service regulations in effect on the date of the enactment of the Tax Reform Act of 1984 [July 18, 1984], and
"(B) such reduction is provided with respect to a student who was accepted for admission to such course of education before July 1, 1984, and began such course of education before June 30, 1985."
National Research Service Awards
Scholarship Programs for Members of the Uniformed Services
"(a)
"(b)
"(c)
[Section 6 of
§118. Contributions to the capital of a corporation
(a) General rule
In the case of a corporation, gross income does not include any contribution to the capital of the taxpayer.
(b) Exceptions
For purposes of subsection (a), except as provided in subsection (c), the term "contribution to the capital of the taxpayer" does not include—
(1) any contribution in aid of construction or any other contribution as a customer or potential customer, and
(2) any contribution by any governmental entity or civic group (other than a contribution made by a shareholder as such).
(c) Special rules for water and sewerage disposal utilities
(1) General rule
For purposes of this section, the term "contribution to the capital of the taxpayer" includes any amount of money or other property received from any person (whether or not a shareholder) by a regulated public utility which provides water or sewerage disposal services if—
(A) such amount is—
(i) a contribution in aid of construction, or
(ii) a contribution to the capital of such utility by a governmental entity providing for the protection, preservation, or enhancement of drinking water or sewerage disposal services,
(B) in the case of a contribution in aid of construction which is property other than water or sewerage disposal facilities, such amount meets the requirements of the expenditure rule of paragraph (2), and
(C) such amount (or any property acquired or constructed with such amount) is not included in the taxpayer's rate base for ratemaking purposes.
(2) Expenditure rule
An amount meets the requirements of this paragraph if—
(A) an amount equal to such amount is expended for the acquisition or construction of tangible property described in section 1231(b)—
(i) which is the property for which the contribution was made or is of the same type as such property, and
(ii) which is used predominantly in the trade or business of furnishing water or sewerage disposal services,
(B) the expenditure referred to in subparagraph (A) occurs before the end of the second taxable year after the year in which such amount was received, and
(C) accurate records are kept of the amounts contributed and expenditures made, the expenditures to which contributions are allocated, and the year in which the contributions and expenditures are received and made.
(3) Definitions
For purposes of this subsection—
(A) Contribution in aid of construction
The term "contribution in aid of construction" shall be defined by regulations prescribed by the Secretary, except that such term shall not include amounts paid as service charges for starting or stopping services.
(B) Predominantly
The term "predominantly" means 80 percent or more.
(C) Regulated public utility
The term "regulated public utility" has the meaning given such term by section 7701(a)(33), except that such term shall not include any utility which is not required to provide water or sewerage disposal services to members of the general public in its service area.
(4) Disallowance of deductions and credits; adjusted basis
Notwithstanding any other provision of this subtitle, no deduction or credit shall be allowed for, or by reason of, any expenditure which constitutes a contribution in aid of construction to which this subsection applies. The adjusted basis of any property acquired with contributions in aid of construction to which this subsection applies shall be zero.
(d) Statute of limitations
If the taxpayer for any taxable year treats an amount as a contribution to the capital of the taxpayer described in subsection (c)(1)(A)(i), then—
(1) the statutory period for the assessment of any deficiency attributable to any part of such amount shall not expire before the expiration of 3 years from the date the Secretary is notified by the taxpayer (in such manner as the Secretary may prescribe) of—
(A) the amount of the expenditure referred to in subparagraph (A) of subsection (c)(2),
(B) the taxpayer's intention not to make the expenditures referred to in such subparagraph, or
(C) a failure to make such expenditure within the period described in subparagraph (B) of subsection (c)(2), and
(2) such deficiency may be assessed before the expiration of such 3-year period notwithstanding the provisions of any other law or rule of law which would otherwise prevent such assessment.
(e) Cross references
(1) For basis of property acquired by a corporation through a contribution to its capital, see section 362.
(2) For special rules in the case of contributions of indebtedness, see section 108(e)(6).
(Aug. 16, 1954, ch. 736,
Editorial Notes
Amendments
2021—Subsec. (b).
Subsecs. (c) to (e).
2017—Subsecs. (b) to (e).
1996—Subsec. (b).
Subsecs. (c) to (e).
1986—Subsec. (b).
Subsecs. (c), (d).
"(1) the statutory period for the assessment of any deficiency attributable to any part of such amount shall not expire before the expiration of 3 years from the date the Secretary is notified by the taxpayer (in such manner as the Secretary may prescribe) of—
"(A) the amount of the expenditure referred to in subparagraph (A) of subsection (b)(2),
"(B) the taxpayer's intention not to make the expenditures referred to in such subparagraph, or
"(C) a failure to make such expenditure within the period described in subparagraph (B) of subsection (b)(2); and
"(2) such deficiency may be assessed before the expiration of such 3-year period notwithstanding the provisions of any other law or rule of law which would otherwise prevent such assessment."
1984—Subsecs. (c), (d).
1980—Subsec. (c).
1978—Subsec. (b)(1).
Subsec. (b)(2)(A)(ii).
Subsec. (b)(3)(A).
Subsec. (b)(3)(C).
1976—Subsecs. (b), (c).
Statutory Notes and Related Subsidiaries
Effective Date of 2021 Amendment
Effective Date of 2017 Amendment
"(1)
"(2)
Effective Date of 1996 Amendment
Effective Date of 1986 Amendment
"(1)
"(2)
"(3)
"(4)
Effective Date of 1984 Amendment
Effective Date of 1980 Amendment
Amendment by
Effective Date of 1978 Amendment
Effective Date of 1976 Amendment
§119. Meals or lodging furnished for the convenience of the employer
(a) Meals and lodging furnished to employee, his spouse, and his dependents, pursuant to employment
There shall be excluded from gross income of an employee the value of any meals or lodging furnished to him, his spouse, or any of his dependents by or on behalf of his employer for the convenience of the employer, but only if—
(1) in the case of meals, the meals are furnished on the business premises of the employer, or
(2) in the case of lodging, the employee is required to accept such lodging on the business premises of his employer as a condition of his employment.
(b) Special rules
For purposes of subsection (a)—
(1) Provisions of employment contract or State statute not to be determinative
In determining whether meals or lodging are furnished for the convenience of the employer, the provisions of an employment contract or of a State statute fixing terms of employment shall not be determinative of whether the meals or lodging are intended as compensation.
(2) Certain factors not taken into account with respect to meals
In determining whether meals are furnished for the convenience of the employer, the fact that a charge is made for such meals, and the fact that the employee may accept or decline such meals, shall not be taken into account.
(3) Certain fixed charges for meals
(A) In general
If—
(i) an employee is required to pay on a periodic basis a fixed charge for his meals, and
(ii) such meals are furnished by the employer for the convenience of the employer,
there shall be excluded from the employee's gross income an amount equal to such fixed charge.
(B) Application of subparagraph (A)
Subparagraph (A) shall apply—
(i) whether the employee pays the fixed charge out of his stated compensation or out of his own funds, and
(ii) only if the employee is required to make the payment whether he accepts or declines the meals.
(4) Meals furnished to employees on business premises where meals of most employees are otherwise excludable
All meals furnished on the business premises of an employer to such employer's employees shall be treated as furnished for the convenience of the employer if, without regard to this paragraph, more than half of the employees to whom such meals are furnished on such premises are furnished such meals for the convenience of the employer.
(c) Employees living in certain camps
(1) In general
In the case of an individual who is furnished lodging in a camp located in a foreign country by or on behalf of his employer, such camp shall be considered to be part of the business premises of the employer.
(2) Camp
For purposes of this section, a camp constitutes lodging which is—
(A) provided by or on behalf of the employer for the convenience of the employer because the place at which such individual renders services is in a remote area where satisfactory housing is not available on the open market,
(B) located, as near as practicable, in the vicinity of the place at which such individual renders services, and
(C) furnished in a common area (or enclave) which is not available to the public and which normally accommodates 10 or more employees.
(d) Lodging furnished by certain educational institutions to employees
(1) In general
In the case of an employee of an educational institution, gross income shall not include the value of qualified campus lodging furnished to such employee during the taxable year.
(2) Exception in cases of inadequate rent
Paragraph (1) shall not apply to the extent of the excess of—
(A) the lesser of—
(i) 5 percent of the appraised value of the qualified campus lodging, or
(ii) the average of the rentals paid by individuals (other than employees or students of the educational institution) during such calendar year for lodging provided by the educational institution which is comparable to the qualified campus lodging provided to the employee, over
(B) the rent paid by the employee for the qualified campus lodging during such calendar year.
The appraised value under subparagraph (A)(i) shall be determined as of the close of the calendar year in which the taxable year begins, or, in the case of a rental period not greater than 1 year, at any time during the calendar year in which such period begins.
(3) Qualified campus lodging
For purposes of this subsection, the term "qualified campus lodging" means lodging to which subsection (a) does not apply and which is—
(A) located on, or in the proximity of, a campus of the educational institution, and
(B) furnished to the employee, his spouse, and any of his dependents by or on behalf of such institution for use as a residence.
(4) Educational institution, etc.
For purposes of this subsection—
(A) In general
The term "educational institution" means—
(i) an institution described in section 170(b)(1)(A)(ii) (or an entity organized under State law and composed of public institutions so described), or
(ii) an academic health center.
(B) Academic health center
For purposes of subparagraph (A), the term "academic health center" means an entity—
(i) which is described in section 170(b)(1)(A)(iii),
(ii) which receives (during the calendar year in which the taxable year of the taxpayer begins) payments under subsection (d)(5)(B) or (h) of section 1886 of the Social Security Act (relating to graduate medical education), and
(iii) which has as one of its principal purposes or functions the providing and teaching of basic and clinical medical science and research with the entity's own faculty.
(Aug. 16, 1954, ch. 736,
Editorial Notes
References in Text
Section 1886(d)(5)(B) or (h) of the Social Security Act, referred to in subsec. (d)(4)(B)(ii), is classified to section 1395ww(d)(5)(B) or (h) of Title 42, The Public Health and Welfare.
Amendments
1998—Subsec. (b)(4).
1996—Subsec. (d)(4).
1988—Subsec. (d).
1986—Subsec. (d).
1981—Subsec. (c).
1980—Subsec. (a).
1978—Subsec. (a).
Statutory Notes and Related Subsidiaries
Effective Date of 1998 Amendment
Effective Date of 1996 Amendment
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Effective Date of 1981 Amendment
Amendment by
Effective Date of 1980 Amendment
Amendment by
Effective Date of 1978 Amendment
Effective Date of 1978 Amendment; Election of Prior Law
Amendment by
Statute of Limitations
Treatment of Certain Statutory Subsistence Allowances or Subsistence Allowances Negotiated in Accordance With State Law Received by State Police Officers Before January 1, 1978
"(a)
"(1) an individual who was employed as a State police officer received a statutory subsistence allowance or a subsistence allowance negotiated in accordance with State law while so employed,
"(2) such individual elects, on or before April 15, 1979, and in such manner and form as the Secretary of the Treasury may prescribe, to have this section apply to such allowance, and
"(3) this section applies to such allowance,
then, for purposes of the Internal Revenue Code of 1986 [formerly I.R.C. 1954], such allowance shall not be included in such individual's gross income.
"(b)
"(1) after December 31, 1969, and before January 1, 1974, to the extent such individual did not include such allowance in gross income on his income tax return for the taxable year in which such allowance was received, or
"(2) during the calendar year 1974, 1975, 1976, or 1977.
"(c)
"(1)
"(2)
"(d)
"(e)
[§120. Repealed. Pub. L. 113–295, div. A, title II, §221(a)(19)(A), Dec. 19, 2014, 128 Stat. 4039 ]
Section, added
A prior section 120, act Aug. 16, 1954, ch. 736,
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
Repeal effective Dec. 19, 2014, subject to a savings provision, see section 221(b) of
§121. Exclusion of gain from sale of principal residence
(a) Exclusion
Gross income shall not include gain from the sale or exchange of property if, during the 5-year period ending on the date of the sale or exchange, such property has been owned and used by the taxpayer as the taxpayer's principal residence for periods aggregating 2 years or more.
(b) Limitations
(1) In general
The amount of gain excluded from gross income under subsection (a) with respect to any sale or exchange shall not exceed $250,000.
(2) Special rules for joint returns
In the case of a husband and wife who make a joint return for the taxable year of the sale or exchange of the property—
(A) $500,000 Limitation for certain joint returns
Paragraph (1) shall be applied by substituting "$500,000" for "$250,000" if—
(i) either spouse meets the ownership requirements of subsection (a) with respect to such property;
(ii) both spouses meet the use requirements of subsection (a) with respect to such property; and
(iii) neither spouse is ineligible for the benefits of subsection (a) with respect to such property by reason of paragraph (3).
(B) Other joint returns
If such spouses do not meet the requirements of subparagraph (A), the limitation under paragraph (1) shall be the sum of the limitations under paragraph (1) to which each spouse would be entitled if such spouses had not been married. For purposes of the preceding sentence, each spouse shall be treated as owning the property during the period that either spouse owned the property.
(3) Application to only 1 sale or exchange every 2 years
Subsection (a) shall not apply to any sale or exchange by the taxpayer if, during the 2-year period ending on the date of such sale or exchange, there was any other sale or exchange by the taxpayer to which subsection (a) applied.
(4) Special rule for certain sales by surviving spouses
In the case of a sale or exchange of property by an unmarried individual whose spouse is deceased on the date of such sale, paragraph (1) shall be applied by substituting "$500,000" for "$250,000" if such sale occurs not later than 2 years after the date of death of such spouse and the requirements of paragraph (2)(A) were met immediately before such date of death.
(5) Exclusion of gain allocated to nonqualified use
(A) In general
Subsection (a) shall not apply to so much of the gain from the sale or exchange of property as is allocated to periods of nonqualified use.
(B) Gain allocated to periods of nonqualified use
For purposes of subparagraph (A), gain shall be allocated to periods of nonqualified use based on the ratio which—
(i) the aggregate periods of nonqualified use during the period such property was owned by the taxpayer, bears to
(ii) the period such property was owned by the taxpayer.
(C) Period of nonqualified use
For purposes of this paragraph—
(i) In general
The term "period of nonqualified use" means any period (other than the portion of any period preceding January 1, 2009) during which the property is not used as the principal residence of the taxpayer or the taxpayer's spouse or former spouse.
(ii) Exceptions
The term "period of nonqualified use" does not include—
(I) any portion of the 5-year period described in subsection (a) which is after the last date that such property is used as the principal residence of the taxpayer or the taxpayer's spouse,
(II) any period (not to exceed an aggregate period of 10 years) during which the taxpayer or the taxpayer's spouse is serving on qualified official extended duty (as defined in subsection (d)(9)(C)) described in clause (i), (ii), or (iii) of subsection (d)(9)(A), and
(III) any other period of temporary absence (not to exceed an aggregate period of 2 years) due to change of employment, health conditions, or such other unforeseen circumstances as may be specified by the Secretary.
(D) Coordination with recognition of gain attributable to depreciation
For purposes of this paragraph—
(i) subparagraph (A) shall be applied after the application of subsection (d)(6), and
(ii) subparagraph (B) shall be applied without regard to any gain to which subsection (d)(6) applies.
(c) Exclusion for taxpayers failing to meet certain requirements
(1) In general
In the case of a sale or exchange to which this subsection applies, the ownership and use requirements of subsection (a), and subsection (b)(3), shall not apply; but the dollar limitation under paragraph (1) or (2) of subsection (b), whichever is applicable, shall be equal to—
(A) the amount which bears the same ratio to such limitation (determined without regard to this paragraph) as
(B)(i) the shorter of—
(I) the aggregate periods, during the 5-year period ending on the date of such sale or exchange, such property has been owned and used by the taxpayer as the taxpayer's principal residence; or
(II) the period after the date of the most recent prior sale or exchange by the taxpayer to which subsection (a) applied and before the date of such sale or exchange, bears to
(ii) 2 years.
(2) Sales and exchanges to which subsection applies
This subsection shall apply to any sale or exchange if—
(A) subsection (a) would not (but for this subsection) apply to such sale or exchange by reason of—
(i) a failure to meet the ownership and use requirements of subsection (a), or
(ii) subsection (b)(3), and
(B) such sale or exchange is by reason of a change in place of employment, health, or, to the extent provided in regulations, unforeseen circumstances.
(d) Special rules
(1) Joint returns
If a husband and wife make a joint return for the taxable year of the sale or exchange of the property, subsections (a) and (c) shall apply if either spouse meets the ownership and use requirements of subsection (a) with respect to such property.
(2) Property of deceased spouse
For purposes of this section, in the case of an unmarried individual whose spouse is deceased on the date of the sale or exchange of property, the period such unmarried individual owned and used such property shall include the period such deceased spouse owned and used such property before death.
(3) Property owned by spouse or former spouse
For purposes of this section—
(A) Property transferred to individual from spouse or former spouse
In the case of an individual holding property transferred to such individual in a transaction described in section 1041(a), the period such individual owns such property shall include the period the transferor owned the property.
(B) Property used by former spouse pursuant to divorce decree, etc.
Solely for purposes of this section, an individual shall be treated as using property as such individual's principal residence during any period of ownership while such individual's spouse or former spouse is granted use of the property under a divorce or separation instrument.
(C) Divorce or separation instrument
For purposes of this paragraph, the term "divorce or separation instrument" means—
(i) a decree of divorce or separate maintenance or a written instrument incident to such a decree,
(ii) a written separation agreement, or
(iii) a decree (not described in clause (i)) requiring a spouse to make payments for the support or maintenance of the other spouse.
(4) Tenant-stockholder in cooperative housing corporation
For purposes of this section, if the taxpayer holds stock as a tenant-stockholder (as defined in section 216) in a cooperative housing corporation (as defined in such section), then—
(A) the holding requirements of subsection (a) shall be applied to the holding of such stock, and
(B) the use requirements of subsection (a) shall be applied to the house or apartment which the taxpayer was entitled to occupy as such stockholder.
(5) Involuntary conversions
(A) In general
For purposes of this section, the destruction, theft, seizure, requisition, or condemnation of property shall be treated as the sale of such property.
(B) Application of section 1033
In applying section 1033 (relating to involuntary conversions), the amount realized from the sale or exchange of property shall be treated as being the amount determined without regard to this section, reduced by the amount of gain not included in gross income pursuant to this section.
(C) Property acquired after involuntary conversion
If the basis of the property sold or exchanged is determined (in whole or in part) under section 1033(b) (relating to basis of property acquired through involuntary conversion), then the holding and use by the taxpayer of the converted property shall be treated as holding and use by the taxpayer of the property sold or exchanged.
(6) Recognition of gain attributable to depreciation
Subsection (a) shall not apply to so much of the gain from the sale of any property as does not exceed the portion of the depreciation adjustments (as defined in section 1250(b)(3)) attributable to periods after May 6, 1997, in respect of such property.
(7) Determination of use during periods of out-of-residence care
In the case of a taxpayer who—
(A) becomes physically or mentally incapable of self-care, and
(B) owns property and uses such property as the taxpayer's principal residence during the 5-year period described in subsection (a) for periods aggregating at least 1 year,
then the taxpayer shall be treated as using such property as the taxpayer's principal residence during any time during such 5-year period in which the taxpayer owns the property and resides in any facility (including a nursing home) licensed by a State or political subdivision to care for an individual in the taxpayer's condition.
(8) Sales of remainder interests
For purposes of this section—
(A) In general
At the election of the taxpayer, this section shall not fail to apply to the sale or exchange of an interest in a principal residence by reason of such interest being a remainder interest in such residence, but this section shall not apply to any other interest in such residence which is sold or exchanged separately.
(B) Exception for sales to related parties
Subparagraph (A) shall not apply to any sale to, or exchange with, any person who bears a relationship to the taxpayer which is described in section 267(b) or 707(b).
(9) Uniformed services, Foreign Service, and intelligence community
(A) In general
At the election of an individual with respect to a property, the running of the 5-year period described in subsections (a) and (c)(1)(B) and paragraph (7) of this subsection with respect to such property shall be suspended during any period that such individual or such individual's spouse is serving on qualified official extended duty—
(i) as a member of the uniformed services,
(ii) as a member of the Foreign Service of the United States, or
(iii) as an employee of the intelligence community.
(B) Maximum period of suspension
The 5-year period described in subsection (a) shall not be extended more than 10 years by reason of subparagraph (A).
(C) Qualified official extended duty
For purposes of this paragraph—
(i) In general
The term "qualified official extended duty" means any extended duty while serving at a duty station which is at least 50 miles from such property or while residing under Government orders in Government quarters.
(ii) Uniformed services
The term "uniformed services" has the meaning given such term by
(iii) Foreign Service of the United States
The term "member of the Foreign Service of the United States" has the meaning given the term "member of the Service" by paragraph (1), (2), (3), (4), or (5) of section 103 of the Foreign Service Act of 1980, as in effect on the date of the enactment of this paragraph.
(iv) Employee of intelligence community
The term "employee of the intelligence community" means an employee (as defined by
(I) the Office of the Director of National Intelligence,
(II) the Central Intelligence Agency,
(III) the National Security Agency,
(IV) the Defense Intelligence Agency,
(V) the National Geospatial-Intelligence Agency,
(VI) the National Reconnaissance Office,
(VII) any other office within the Department of Defense for the collection of specialized national intelligence through reconnaissance programs,
(VIII) any of the intelligence elements of the Army, the Navy, the Air Force, the Marine Corps, the Federal Bureau of Investigation, the Department of Treasury, the Department of Energy, and the Coast Guard,
(IX) the Bureau of Intelligence and Research of the Department of State, or
(X) any of the elements of the Department of Homeland Security concerned with the analyses of foreign intelligence information.
(v) Extended duty
The term "extended duty" means any period of active duty pursuant to a call or order to such duty for a period in excess of 90 days or for an indefinite period.
(D) Special rules relating to election
(i) Election limited to 1 property at a time
An election under subparagraph (A) with respect to any property may not be made if such an election is in effect with respect to any other property.
(ii) Revocation of election
An election under subparagraph (A) may be revoked at any time.
(10) Property acquired in like-kind exchange
If a taxpayer acquires property in an exchange with respect to which gain is not recognized (in whole or in part) to the taxpayer under subsection (a) or (b) of section 1031, subsection (a) shall not apply to the sale or exchange of such property by such taxpayer (or by any person whose basis in such property is determined, in whole or in part, by reference to the basis in the hands of such taxpayer) during the 5-year period beginning with the date of such acquisition.
[(11) Repealed. Pub. L. 111–312, title III, §301(a), Dec. 17, 2010, 124 Stat. 3300 ]
(12) Peace Corps
(A) In general
At the election of an individual with respect to a property, the running of the 5-year period described in subsections (a) and (c)(1)(B) and paragraph (7) of this subsection with respect to such property shall be suspended during any period that such individual or such individual's spouse is serving outside the United States—
(i) on qualified official extended duty (as defined in paragraph (9)(C)) as an employee of the Peace Corps, or
(ii) as an enrolled volunteer or volunteer leader under section 5 or 6 (as the case may be) of the Peace Corps Act (
(B) Applicable rules
For purposes of subparagraph (A), rules similar to the rules of subparagraphs (B) and (D) of paragraph (9) shall apply.
(e) Denial of exclusion for expatriates
This section shall not apply to any sale or exchange by an individual if the treatment provided by section 877(a)(1) applies to such individual.
(f) Election to have section not apply
This section shall not apply to any sale or exchange with respect to which the taxpayer elects not to have this section apply.
(g) Residences acquired in rollovers under section 1034
For purposes of this section, in the case of property the acquisition of which by the taxpayer resulted under section 1034 1 (as in effect on the day before the date of the enactment of this section) in the nonrecognition of any part of the gain realized on the sale or exchange of another residence, in determining the period for which the taxpayer has owned and used such property as the taxpayer's principal residence, there shall be included the aggregate periods for which such other residence (and each prior residence taken into account under section 1223(6) 1 in determining the holding period of such property) had been so owned and used.
(Added
Editorial Notes
References in Text
The date of the enactment of this paragraph, referred to in subsec. (d)(9)(C)(ii), (iii), is the date of enactment of
Section 103 of the Foreign Service Act of 1980, referred to in subsec. (d)(9)(C)(iii), is classified to
Section 1034 (as in effect on the day before the date of the enactment of this section), referred to in subsec. (g), probably means
Section 1223(6), referred to in subsec. (g), was repealed by
Codification
Prior Provisions
A prior section 121 was renumbered
Amendments
2017—Subsec. (d)(3)(B).
Subsec. (d)(3)(C).
2014—Subsec. (b)(3).
Subsec. (b)(4), (5).
Subsec. (d)(12)(B).
2010—Subsec. (d)(11).
"(A) the estate of a decedent,
"(B) any individual who acquired such property from the decedent (within the meaning of section 1022), and
"(C) a trust which, immediately before the death of the decedent, was a qualified revocable trust (as defined in section 645(b)(1)) established by the decedent,
determined by taking into account the ownership and use by the decedent."
2008—Subsec. (b)(4).
Subsec. (d)(9)(C)(vi).
Subsec. (d)(9)(E).
Subsec. (d)(12).
2007—Subsec. (b)(4).
Subsec. (d)(9)(E).
2006—Subsec. (d)(9).
Subsec. (d)(9)(A).
"(i) as a member of the uniformed services,
"(ii) as a member of the Foreign Service of the United States, or
"(iii) as an employee of the intelligence community."
for "duty as a member of the uniformed services or of the Foreign Service of the United States."
Subsec. (d)(9)(C)(iv), (v).
Subsec. (d)(9)(C)(vi).
2005—Subsec. (d)(10).
Subsec. (d)(11).
Subsec. (g).
2004—Subsec. (d)(10).
2003—Subsec. (d)(9), (10).
2001—Subsec. (d)(9).
1998—Subsec. (b)(2).
"(A) a husband and wife make a joint return for the taxable year of the sale or exchange of the property,
"(B) either spouse meets the ownership requirements of subsection (a) with respect to such property,
"(C) both spouses meet the use requirements of subsection (a) with respect to such property, and
"(D) neither spouse is ineligible for the benefits of subsection (a) with respect to such property by reason of paragraph (3)."
Subsec. (c)(1).
"(A) the amount which bears the same ratio to the amount which would be so excluded under this section if such requirements had been met, as
"(B) the shorter of—
"(i) the aggregate periods, during the 5-year period ending on the date of such sale or exchange, such property has been owned and used by the taxpayer as the taxpayer's principal residence, or
"(ii) the period after the date of the most recent prior sale or exchange by the taxpayer to which subsection (a) applied and before the date of such sale or exchange,
bears to 2 years."
1997—
1988—Subsec. (d)(9).
1981—Subsec. (b)(1).
1978—
Subsec. (a).
Subsec. (b).
Subsec. (d)(2).
Subsec. (d)(5).
Subsec. (d)(8).
1976—Subsec. (b)(1).
Subsecs. (c), (d)(5).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Amendment by
Effective Date of 2014 Amendment
Amendment by section 212(c) of
Amendment by section 221(a)(20) of
Effective and Termination Dates of 2010 Amendment
[Amendment by
Effective Date of 2008 Amendment
Effective Date of 2007 Amendment
Effective Date of 2006 Amendment
Effective Date of 2005 Amendment
Amendment by section 402(a)(3) of
Amendment by section 403(ee) of
Effective Date of 2004 Amendment
Effective Date of 2003 Amendment
"(1)
"(2)
Effective Date of 2001 Amendment
"(1)
"(2)
"(3)
Effective Date of 1998 Amendment
Amendment by
Effective Date of 1997 Amendment
"(1)
"(2)
"(3)
"(4)
"(A) such sale or exchange is pursuant to a contract which was binding on such date, or
"(B) without regard to such amendments, gain would not be recognized under section 1034 of the Internal Revenue Code of 1986 (as in effect on the day before the date of the enactment of this Act) on such sale or exchange by reason of a new residence acquired on or before such date or with respect to the acquisition of which by the taxpayer a binding contract was in effect on such date.
This paragraph shall not apply to any sale or exchange by an individual if the treatment provided by section 877(a)(1) of the Internal Revenue Code of 1986 applies to such individual."
Effective Date of 1988 Amendment
Effective Date of 1981 Amendment
Effective Date of 1978 Amendment
Effective Date of 1976 Amendment
Effective Date
Sense of Congress Concerning Tax Treatment of Principal Residence of Members of Armed Forces While Away From Home on Active Duty
Transitional Rule in Case of Sale or Exchange of Residence Before July 26, 1981
1 See References in Text note below.
§122. Certain reduced uniformed services retirement pay
(a) General rule
In the case of a member or former member of the uniformed services of the United States, gross income does not include the amount of any reduction in his retired or retainer pay pursuant to the provisions of
(b) Special rule
(1) Amount excluded from gross income
In the case of any individual referred to in subsection (a), all amounts received as retired or retainer pay shall be excluded from gross income until there has been so excluded an amount equal to the consideration for the contract. The preceding sentence shall apply only to the extent that the amounts received would, but for such sentence, be includible in gross income.
(2) Consideration for the contract
For purposes of paragraph (1) and section 72(n), the term "consideration for the contract" means, in respect of any individual, the sum of—
(A) the total amount of the reductions before January 1, 1966, in his retired or retainer pay by reason of an election under
(B) any amounts deposited at any time by him pursuant to section 1438 or 1452(d) of such title 10.
(Added
Editorial Notes
Prior Provisions
A prior section 122 was renumbered
Amendments
2014—Subsec. (b)(1).
1974—Subsec. (a).
Subsec. (b)(2).
Subsec. (b)(2)(B).
Statutory Notes and Related Subsidiaries
Effective Date of 2014 Amendment
Amendment by
Effective Date of 1974 Amendment
Amendment by section 2005(c)(10) of
Effective Date
§123. Amounts received under insurance contracts for certain living expenses
(a) General rule
In the case of an individual whose principal residence is damaged or destroyed by fire, storm, or other casualty, or who is denied access to his principal residence by governmental authorities because of the occurrence or threat of occurrence of such a casualty, gross income does not include amounts received by such individual under an insurance contract which are paid to compensate or reimburse such individual for living expenses incurred for himself and members of his household resulting from the loss of use or occupancy of such residence.
(b) Limitation
Subsection (a) shall apply to amounts received by the taxpayer for living expenses incurred during any period only to the extent the amounts received do not exceed the amount by which—
(1) the actual living expenses incurred during such period for himself and members of his household resulting from the loss of use or occupancy of their residence, exceed
(2) the normal living expenses which would have been incurred for himself and members of his household during such period.
(Added
Editorial Notes
Prior Provisions
A prior section 123 was renumbered
Statutory Notes and Related Subsidiaries
Effective Date
[§124. Repealed. Pub. L. 101–508, title XI, §11801(a)(9), Nov. 5, 1990, 104 Stat. 1388–520 ]
Section, added
A prior section 124 was renumbered
Statutory Notes and Related Subsidiaries
Savings Provision
For provisions that nothing in repeal by
§125. Cafeteria plans
(a) General rule
Except as provided in subsection (b), no amount shall be included in the gross income of a participant in a cafeteria plan solely because, under the plan, the participant may choose among the benefits of the plan.
(b) Exception for highly compensated participants and key employees
(1) Highly compensated participants
In the case of a highly compensated participant, subsection (a) shall not apply to any benefit attributable to a plan year for which the plan discriminates in favor of—
(A) highly compensated individuals as to eligibility to participate, or
(B) highly compensated participants as to contributions and benefits.
(2) Key employees
In the case of a key employee (within the meaning of section 416(i)(1)), subsection (a) shall not apply to any benefit attributable to a plan for which the qualified benefits provided to key employees exceed 25 percent of the aggregate of such benefits provided for all employees under the plan. For purposes of the preceding sentence, qualified benefits shall be determined without regard to the second sentence of subsection (f).
(3) Year of inclusion
For purposes of determining the taxable year of inclusion, any benefit described in paragraph (1) or (2) shall be treated as received or accrued in the taxable year of the participant or key employee in which the plan year ends.
(c) Discrimination as to benefits or contributions
For purposes of subparagraph (B) of subsection (b)(1), a cafeteria plan does not discriminate where qualified benefits and total benefits (or employer contributions allocable to qualified benefits and employer contributions for total benefits) do not discriminate in favor of highly compensated participants.
(d) Cafeteria plan defined
For purposes of this section—
(1) In general
The term "cafeteria plan" means a written plan under which—
(A) all participants are employees, and
(B) the participants may choose among 2 or more benefits consisting of cash and qualified benefits.
(2) Deferred compensation plans excluded
(A) In general
The term "cafeteria plan" does not include any plan which provides for deferred compensation.
(B) Exception for cash and deferred arrangements
Subparagraph (A) shall not apply to a profit-sharing or stock bonus plan or rural cooperative plan (within the meaning of section 401(k)(7)) which includes a qualified cash or deferred arrangement (as defined in section 401(k)(2)) to the extent of amounts which a covered employee may elect to have the employer pay as contributions to a trust under such plan on behalf of the employee.
(C) Exception for certain plans maintained by educational institutions
Subparagraph (A) shall not apply to a plan maintained by an educational organization described in section 170(b)(1)(A)(ii) to the extent of amounts which a covered employee may elect to have the employer pay as contributions for post-retirement group life insurance if—
(i) all contributions for such insurance must be made before retirement, and
(ii) such life insurance does not have a cash surrender value at any time.
For purposes of section 79, any life insurance described in the preceding sentence shall be treated as group-term life insurance.
(D) Exception for health savings accounts
Subparagraph (A) shall not apply to a plan to the extent of amounts which a covered employee may elect to have the employer pay as contributions to a health savings account established on behalf of the employee.
(e) Highly compensated participant and individual defined
For purposes of this section—
(1) Highly compensated participant
The term "highly compensated participant" means a participant who is—
(A) an officer,
(B) a shareholder owning more than 5 percent of the voting power or value of all classes of stock of the employer,
(C) highly compensated, or
(D) a spouse or dependent (within the meaning of section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof) of an individual described in subparagraph (A), (B), or (C).
(2) Highly compensated individual
The term "highly compensated individual" means an individual who is described in subparagraph (A), (B), (C), or (D) of paragraph (1).
(f) Qualified benefits defined
For purposes of this section—
(1) In general
The term "qualified benefit" means any benefit which, with the application of subsection (a), is not includible in the gross income of the employee by reason of an express provision of this chapter (other than section 106(b), 117, 127, or 132). Such term includes any group term life insurance which is includible in gross income only because it exceeds the dollar limitation of section 79 and such term includes any other benefit permitted under regulations.
(2) Long-term care insurance not qualified
The term "qualified benefit" shall not include any product which is advertised, marketed, or offered as long-term care insurance.
(3) Certain exchange-participating qualified health plans not qualified
(A) In general
The term "qualified benefit" shall not include any qualified health plan (as defined in section 1301(a) of the Patient Protection and Affordable Care Act) offered through an Exchange established under section 1311 of such Act.
(B) Exception for exchange-eligible employers
Subparagraph (A) shall not apply with respect to any employee if such employee's employer is a qualified employer (as defined in section 1312(f)(2) of the Patient Protection and Affordable Care Act) offering the employee the opportunity to enroll through such an Exchange in a qualified health plan in a group market.
(g) Special rules
(1) Collectively bargained plan not considered discriminatory
For purposes of this section, a plan shall not be treated as discriminatory if the plan is maintained under an agreement which the Secretary finds to be a collective bargaining agreement between employee representatives and one or more employers.
(2) Health benefits
For purposes of subparagraph (B) of subsection (b)(1), a cafeteria plan which provides health benefits shall not be treated as discriminatory if—
(A) contributions under the plan on behalf of each participant include an amount which—
(i) equals 100 percent of the cost of the health benefit coverage under the plan of the majority of the highly compensated participants similarly situated, or
(ii) equals or exceeds 75 percent of the cost of the health benefit coverage of the participant (similarly situated) having the highest cost health benefit coverage under the plan, and
(B) contributions or benefits under the plan in excess of those described in subparagraph (A) bear a uniform relationship to compensation.
(3) Certain participation eligibility rules not treated as discriminatory
For purposes of subparagraph (A) of subsection (b)(1), a classification shall not be treated as discriminatory if the plan—
(A) benefits a group of employees described in section 410(b)(2)(A)(i), and
(B) meets the requirements of clauses (i) and (ii):
(i) No employee is required to complete more than 3 years of employment with the employer or employers maintaining the plan as a condition of participation in the plan, and the employment requirement for each employee is the same.
(ii) Any employee who has satisfied the employment requirement of clause (i) and who is otherwise entitled to participate in the plan commences participation no later than the first day of the first plan year beginning after the date the employment requirement was satisfied unless the employee was separated from service before the first day of that plan year.
(4) Certain controlled groups, etc.
All employees who are treated as employed by a single employer under subsection (b), (c), or (m) of section 414 shall be treated as employed by a single employer for purposes of this section.
(h) Special rule for unused benefits in health flexible spending arrangements of individuals called to active duty
(1) In general
For purposes of this title, a plan or other arrangement shall not fail to be treated as a cafeteria plan or health flexible spending arrangement (and shall not fail to be treated as an accident or health plan) merely because such arrangement provides for qualified reservist distributions.
(2) Qualified reservist distribution
For purposes of this subsection, the term "qualified reservist distribution" means any distribution to an individual of all or a portion of the balance in the employee's account under such arrangement if—
(A) such individual was (by reason of being a member of a reserve component (as defined in
(B) such distribution is made during the period beginning on the date of such order or call and ending on the last date that reimbursements could otherwise be made under such arrangement for the plan year which includes the date of such order or call.
(i) Limitation on health flexible spending arrangements
(1) In general
For purposes of this section, if a benefit is provided under a cafeteria plan through employer contributions to a health flexible spending arrangement, such benefit shall not be treated as a qualified benefit unless the cafeteria plan provides that an employee may not elect for any taxable year to have salary reduction contributions in excess of $2,500 made to such arrangement.
(2) Adjustment for inflation
In the case of any taxable year beginning after December 31, 2013, the dollar amount in paragraph (1) shall be increased by an amount equal to—
(A) such amount, multiplied by
(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which such taxable year begins by substituting "calendar year 2012" for "calendar year 2016" in subparagraph (A)(ii) thereof.
If any increase determined under this paragraph is not a multiple of $50, such increase shall be rounded to the next lowest multiple of $50.
(j) Simple cafeteria plans for small businesses
(1) In general
An eligible employer maintaining a simple cafeteria plan with respect to which the requirements of this subsection are met for any year shall be treated as meeting any applicable nondiscrimination requirement during such year.
(2) Simple cafeteria plan
For purposes of this subsection, the term "simple cafeteria plan" means a cafeteria plan—
(A) which is established and maintained by an eligible employer, and
(B) with respect to which the contribution requirements of paragraph (3), and the eligibility and participation requirements of paragraph (4), are met.
(3) Contribution requirements
(A) In general
The requirements of this paragraph are met if, under the plan the employer is required, without regard to whether a qualified employee makes any salary reduction contribution, to make a contribution to provide qualified benefits under the plan on behalf of each qualified employee in an amount equal to—
(i) a uniform percentage (not less than 2 percent) of the employee's compensation for the plan year, or
(ii) an amount which is not less than the lesser of—
(I) 6 percent of the employee's compensation for the plan year, or
(II) twice the amount of the salary reduction contributions of each qualified employee.
(B) Matching contributions on behalf of highly compensated and key employees
The requirements of subparagraph (A)(ii) shall not be treated as met if, under the plan, the rate of contributions with respect to any salary reduction contribution of a highly compensated or key employee at any rate of contribution is greater than that with respect to an employee who is not a highly compensated or key employee.
(C) Additional contributions
Subject to subparagraph (B), nothing in this paragraph shall be treated as prohibiting an employer from making contributions to provide qualified benefits under the plan in addition to contributions required under subparagraph (A).
(D) Definitions
For purposes of this paragraph—
(i) Salary reduction contribution
The term "salary reduction contribution" means, with respect to a cafeteria plan, any amount which is contributed to the plan at the election of the employee and which is not includible in gross income by reason of this section.
(ii) Qualified employee
The term "qualified employee" means, with respect to a cafeteria plan, any employee who is not a highly compensated or key employee and who is eligible to participate in the plan.
(iii) Highly compensated employee
The term "highly compensated employee" has the meaning given such term by section 414(q).
(iv) Key employee
The term "key employee" has the meaning given such term by section 416(i).
(4) Minimum eligibility and participation requirements
(A) In general
The requirements of this paragraph shall be treated as met with respect to any year if, under the plan—
(i) all employees who had at least 1,000 hours of service for the preceding plan year are eligible to participate, and
(ii) each employee eligible to participate in the plan may, subject to terms and conditions applicable to all participants, elect any benefit available under the plan.
(B) Certain employees may be excluded
For purposes of subparagraph (A)(i), an employer may elect to exclude under the plan employees—
(i) who have not attained the age of 21 before the close of a plan year,
(ii) who have less than 1 year of service with the employer as of any day during the plan year,
(iii) who are covered under an agreement which the Secretary of Labor finds to be a collective bargaining agreement if there is evidence that the benefits covered under the cafeteria plan were the subject of good faith bargaining between employee representatives and the employer, or
(iv) who are described in section 410(b)(3)(C) (relating to nonresident aliens working outside the United States).
A plan may provide a shorter period of service or younger age for purposes of clause (i) or (ii).
(5) Eligible employer
For purposes of this subsection—
(A) In general
The term "eligible employer" means, with respect to any year, any employer if such employer employed an average of 100 or fewer employees on business days during either of the 2 preceding years. For purposes of this subparagraph, a year may only be taken into account if the employer was in existence throughout the year.
(B) Employers not in existence during preceding year
If an employer was not in existence throughout the preceding year, the determination under subparagraph (A) shall be based on the average number of employees that it is reasonably expected such employer will employ on business days in the current year.
(C) Growing employers retain treatment as small employer
(i) In general
If—
(I) an employer was an eligible employer for any year (a "qualified year"), and
(II) such employer establishes a simple cafeteria plan for its employees for such year,
then, notwithstanding the fact the employer fails to meet the requirements of subparagraph (A) for any subsequent year, such employer shall be treated as an eligible employer for such subsequent year with respect to employees (whether or not employees during a qualified year) of any trade or business which was covered by the plan during any qualified year.
(ii) Exception
This subparagraph shall cease to apply if the employer employs an average of 200 or more employees on business days during any year preceding any such subsequent year.
(D) Special rules
(i) Predecessors
Any reference in this paragraph to an employer shall include a reference to any predecessor of such employer.
(ii) Aggregation rules
All persons treated as a single employer under subsection (a) or (b) of section 52, or subsection (n) or (o) of section 414, shall be treated as one person.
(6) Applicable nondiscrimination requirement
For purposes of this subsection, the term "applicable nondiscrimination requirement" means any requirement under subsection (b) of this section, section 79(d), section 105(h), or paragraph (2), (3), (4), or (8) of section 129(d).
(7) Compensation
The term "compensation" has the meaning given such term by section 414(s).
(k) Cross reference
For reporting and recordkeeping requirements, see section 6039D.
(l) Regulations
The Secretary shall prescribe such regulations as may be necessary to carry out the provisions of this section.
(Added
Inflation Adjusted Items for Certain Years
For inflation adjustment of certain items in this section, see Revenue Procedures listed in a table under
Editorial Notes
References in Text
Sections 1301, 1311, and 1312 of the Patient Protection and Affordable Care Act, referred to in subsec. (f)(3), are classified to sections 18021, 18031, and 18032, respectively, of Title 42, The Public Health and Welfare.
Codification
Prior Provisions
A prior section 125 was renumbered
Amendments
2018—Subsec. (e)(2).
2017—Subsec. (i)(2)(B).
2014—Subsec. (b)(2).
Subsec. (h)(1).
Subsec. (h)(2).
2010—Subsec. (f).
Subsec. (i).
Subsec. (i)(2).
Subsec. (i)(2)(B).
Subsec. (j).
Subsec. (k).
Subsec. (l).
2008—Subsecs. (h) to (j).
2007—Subsec. (b)(2).
2004—Subsec. (e)(1)(D).
2003—Subsec. (d)(2)(D).
1996—Subsec. (f).
1990—Subsec. (f).
1989—
Subsec. (d)(2).
Subsec. (e)(2)(A).
Subsec. (g)(3)(A).
1988—Subsec. (a).
"(1) amounts shall not be included in gross income of a participant in such plan solely because, under the plan, the participant may choose among the benefits of the plan, and
"(2) if the plan fails to meet the requirements of subsection (b) for any plan year—
"(A) paragraph (1) shall not apply, and
"(B) notwithstanding any other provision of part III of this subchapter, any qualified benefits received under such cafeteria plan by a highly compensated employee for such plan year shall be included in the gross income of such employee for the taxable year with or within which such plan year ends."
Subsec. (b)(1).
Subsec. (b)(2).
Subsec. (c)(1)(B).
"(i) among 2 or more benefits consisting of cash and qualified benefits, or
"(ii) among 2 or more qualified benefits."
Subsec. (c)(2)(B).
Subsec. (c)(2)(C).
Subsec. (e)(1).
Subsec. (e)(2)(A).
1986—
Subsecs. (c), (d)(1)(B).
Subsec. (f).
1984—Subsec. (b).
Subsec. (c).
Subsec. (d)(1).
Subsec. (f).
Subsec. (h).
Subsec. (i).
1980—Subsec. (d)(2).
Subsec. (g)(3)(B).
Subsec. (g)(4).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Amendment by
Effective Date of 2014 Amendment
Amendment by section 213(b) of
Effective Date of 2010 Amendment
Effective Date of 2008 Amendment
Effective Date of 2004 Amendment
Amendment by
Effective Date of 2003 Amendment
Amendment by
Effective Date of 1996 Amendment
Amendment by section 301(d) of
Amendment by section 321(c)(1) of
Effective Date of 1989 Amendments
Amendment by
Amendment by
Effective Date of 1988 Amendment
Amendment by sections 1011B(a)(11)–(13) and 1018(t)(6) of
Effective Date of 1986 Amendment
Amendment by section 1151(d)(1) of
Amendment by section 1853(b)(1) of
Effective Date of 1984 Amendment
Amendment by
Amendment by
Amendment by
Effective Date of 1980 Amendment
Amendments by section 201(b)(2) of
Amendment by
Effective Date of 1978 Amendment
Savings Provision
For provisions that nothing in amendment by
Temporary Special Rules for Health and Dependent Care Flexible Spending Arrangements
"(a)
"(b)
"(c)
"(1)
"(2)
"(d)
"(1)
"(A) the plan year described in paragraph (3)(A), and
"(B) in the case of an employee described in paragraph (3)(B)(ii), the subsequent plan year.
"(2)
"(3)
"(A) is enrolled in a dependent care flexible spending arrangement for the last plan year with respect to which the end of the regular enrollment period for such plan year was on or before January 31, 2020, and
"(B) has one or more dependents (as defined in section 152(a)(1) of the Internal Revenue Code of 1986) who attain the age of 13—
"(i) during such plan year, or
"(ii) in the case of an employee who (after the application of this section) has an unused balance in the employee's account under such arrangement for such plan year (determined as of the close of the last day on which, under the terms of the plan, claims for reimbursement may be made with respect to such plan year), the subsequent plan year.
"(e)
"(f)
"(g)
"(1) such amendment is adopted not later than the last day of the first calendar year beginning after the end of the plan year in which the amendment is effective, and
"(2) the plan or arrangement is operated consistent with the terms of such amendment during the period beginning on the effective date of the amendment and ending on the date the amendment is adopted."
Nonenforcement of Amendment Made by Section 1151 of Pub. L. 99–514 for Fiscal Year 1990
No monies appropriated by
Treatment of Pre-1989 Elections for Dependent Care Assistance Under Cafeteria Plans
For provision that for purposes of section 125 of the Internal Revenue Code of 1986, a plan shall not be treated as failing to be a cafeteria plan solely because under the plan a participant elected before January 1, 1988, to receive reimbursement under the plan for dependent care assistance for periods after December 31, 1987, and such assistance included reimbursement for expenses at a camp where the dependent stays overnight, see section 10101(b)(2) of
Exception for Certain Cafeteria Plans and Benefits
"(A)
"(i) January 1, 1985, or
"(ii) the effective date of any modification to provide additional benefits after February 10, 1984.
"(B)
"(i) July 1, 1985, or
"(ii) the effective date of any modification to provide additional benefits after February 10, 1984.
Except as provided in Treasury regulations, the special transition rule is available only for benefits with respect to which, after December 31, 1984, contributions are fixed before the period of coverage and taxable cash is not available until the end of such period of coverage.
"(C)
"(D)
"(E)
§126. Certain cost-sharing payments
(a) General rule
Gross income does not include the excludable portion of payments received under—
(1) The rural clean water program authorized by section 208(j) of the Federal Water Pollution Control Act (
(2) The rural abandoned mine program authorized by section 406 of the Surface Mining Control and Reclamation Act of 1977 (
(3) The water bank program authorized by the Water Bank Act (
(4) The emergency conservation measures program authorized by title IV of the Agricultural Credit Act of 1978.
(5) The agricultural conservation program authorized by the Soil Conservation and Domestic Allotment Act (
(6) The resource conservation and development program authorized by the Bankhead-Jones Farm Tenant Act and by the Soil Conservation and Domestic Allotment Act (
(7) Any small watershed program administered by the Secretary of Agriculture which is determined by the Secretary of the Treasury or his delegate to be substantially similar to the type of programs described in paragraphs (1) through (8).
(8) Any program of a State, possession of the United States, a political subdivision of any of the foregoing, or the District of Columbia under which payments are made to individuals primarily for the purpose of conserving soil, protecting or restoring the environment, improving forests, or providing a habitat for wildlife.
(b) Excludable portion
For purposes of this section—
(1) In general
The term "excludable portion" means that portion (or all) of a payment made to any person under any program described in subsection (a) which—
(A) is determined by the Secretary of Agriculture to be made primarily for the purpose of conserving soil and water resources, protecting or restoring the environment, improving forests, or providing a habitat for wildlife, and
(B) is determined by the Secretary of the Treasury or his delegate as not increasing substantially the annual income derived from the property.
(2) Payments not chargeable to capital account
The term "excludable portion" does not include that portion of any payment which is properly associated with an amount which is allowable as a deduction for the taxable year in which such amount is paid or incurred.
(c) Election for section not to apply
(1) In general
The taxpayer may elect not to have this section (and section 1255) apply to any excludable portion (or portion thereof).
(2) Manner and time for making election
Any election under paragraph (1) shall be made in the manner prescribed by the Secretary by regulations and shall be made not later than the due date prescribed by law (including extensions) for filing the return of tax under this chapter for the taxable year in which the payment was received or accrued.
(d) Denial of double benefits
No deduction or credit shall be allowed with respect to any expenditure which is properly associated with any amount excluded from gross income under subsection (a).
(e) Basis of property not increased by reason of excludable payments
Notwithstanding any provision of section 1016 to the contrary, no adjustment to basis shall be made with respect to property acquired or improved through the use of any payment, to the extent that such adjustment would reflect any amount which is excluded from gross income under subsection (a).
(Added
Editorial Notes
References in Text
The Water Bank Act, referred to in subsec. (a)(3), is
The Agricultural Credit Act of 1978, referred to in subsec. (a)(4), is
The Soil Conservation and Domestic Allotment Act, referred to in subsec. (a)(5), (6), is act Apr. 27, 1935, ch. 85,
The Bankhead-Jones Farm Tenant Act, referred to in subsec. (a)(6), is act July 22, 1937, ch. 517,
Prior Provisions
A prior section 126 was renumbered
Amendments
2018—Subsec. (a)(7) to (9).
2014—Subsec. (a)(6) to (10).
1980—Subsec. (a).
Subsec. (b).
Subsec. (c).
Subsecs. (d), (e).
Statutory Notes and Related Subsidiaries
Effective Date of 2014 Amendment
Amendment by
Effective Date of 1980 Amendment
Amendment by
Effective Date
Savings Provision
For provisions that nothing in amendment by
§127. Educational assistance programs
(a) Exclusion from gross income
(1) In general
Gross income of an employee does not include amounts paid or expenses incurred by the employer for educational assistance to the employee if the assistance is furnished pursuant to a program which is described in subsection (b).
(2) $5,250 maximum exclusion
If, but for this paragraph, this section would exclude from gross income more than $5,250 of educational assistance furnished to an individual during a calendar year, this section shall apply only to the first $5,250 of such assistance so furnished.
(b) Educational assistance program
(1) In general
For purposes of this section an educational assistance program is a separate written plan of an employer for the exclusive benefit of his employees to provide such employees with educational assistance. The program must meet the requirements of paragraphs (2) through (6) of this subsection.
(2) Eligibility
The program shall benefit employees who qualify under a classification set up by the employer and found by the Secretary not to be discriminatory in favor of employees who are highly compensated employees (within the meaning of section 414(q)) or their dependents. For purposes of this paragraph, there shall be excluded from consideration employees not included in the program who are included in a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and one or more employers, if there is evidence that educational assistance benefits were the subject of good faith bargaining between such employee representatives and such employer or employers.
(3) Principal shareholders or owners
Not more than 5 percent of the amounts paid or incurred by the employer for educational assistance during the year may be provided for the class of individuals who are shareholders or owners (or their spouses or dependents), each of whom (on any day of the year) owns more than 5 percent of the stock or of the capital or profits interest in the employer.
(4) Other benefits as an alternative
A program must not provide eligible employees with a choice between educational assistance and other remuneration includible in gross income. For purposes of this section, the business practices of the employer (as well as the written program) will be taken into account.
(5) No funding required
A program referred to in paragraph (1) is not required to be funded.
(6) Notification of employees
Reasonable notification of the availability and terms of the program must be provided to eligible employees.
(c) Definitions; special rules
For purposes of this section—
(1) Educational assistance
The term "educational assistance" means—
(A) the payment, by an employer, of expenses incurred by or on behalf of an employee for education of the employee (including, but not limited to, tuition, fees, and similar payments, books, supplies, and equipment),
(B) in the case of payments made before January 1, 2026, the payment by an employer, whether paid to the employee or to a lender, of principal or interest on any qualified education loan (as defined in section 221(d)(1)) incurred by the employee for education of the employee, and
(C) the provision, by an employer, of courses of instruction for such employee (including books, supplies, and equipment),
but does not include payment for, or the provision of, tools or supplies which may be retained by the employee after completion of a course of instruction, or meals, lodging, or transportation. The term "educational assistance" also does not include any payment for, or the provision of any benefits with respect to, any course or other education involving sports, games, or hobbies.
(2) Employee
The term "employee" includes, for any year, an individual who is an employee within the meaning of section 401(c)(1) (relating to self-employed individuals).
(3) Employer
An individual who owns the entire interest in an unincorporated trade or business shall be treated as his own employer. A partnership shall be treated as the employer of each partner who is an employee within the meaning of paragraph (2).
(4) Attribution rules
(A) Ownership of stock
Ownership of stock in a corporation shall be determined in accordance with the rules provided under subsections (d) and (e) of section 1563 (without regard to section 1563(e)(3)(C)).
(B) Interest in unincorporated trade or business
The interest of an employee in a trade or business which is not incorporated shall be determined in accordance with regulations prescribed by the Secretary, which shall be based on principles similar to the principles which apply in the case of subparagraph (A).
(5) Certain tests not applicable
An educational assistance program shall not be held or considered to fail to meet any requirements of subsection (b) merely because—
(A) of utilization rates for the different types of educational assistance made available under the program; or
(B) successful completion, or attaining a particular course grade, is required for or considered in determining reimbursement under the program.
(6) Relationship to current law
This section shall not be construed to affect the deduction or inclusion in income of amounts (not within the exclusion under this section) which are paid or incurred, or received as reimbursement, for educational expenses under section 117, 162 or 212.
(7) Disallowance of excluded amounts as credit or deduction
No deduction or credit shall be allowed to the employee under any other section of this chapter for any amount excluded from income by reason of this section.
(d) Cross reference
For reporting and recordkeeping requirements, see section 6039D.
(Added
Editorial Notes
Prior Provisions
A prior section 127 was renumbered
Amendments
2020—Subsec. (c)(1)(B).
Subsec. (c)(1)(C).
2001—Subsec. (c)(1).
Subsecs. (d), (e).
1999—Subsec. (d).
1997—Subsec. (d).
1996—Subsec. (c)(1).
Subsec. (d).
1993—Subsec. (d).
1991—Subsec. (d).
1990—Subsec. (c)(1).
Subsec. (d).
1989—Subsec. (b)(1).
Subsec. (b)(2).
Subsec. (b)(6).
Subsec. (c)(8).
Subsec. (d).
1988—Subsec. (b)(2).
Subsec. (c)(1).
Subsec. (d).
1986—Subsec. (a)(2).
Subsec. (b)(1).
Subsec. (b)(2).
Subsec. (b)(6).
Subsec. (d).
1984—Subsec. (a).
Subsec. (c)(7).
Subsec. (c)(8).
Subsec. (d).
Subsec. (e).
Statutory Notes and Related Subsidiaries
Effective Date of 2020 Amendment
Effective Date of 2001 Amendment
Effective Date of 1999 Amendment
Effective Date of 1997 Amendment
Effective Date of 1996 Amendment
"(1)
"(2)
Effective Date of 1993 Amendment
Effective Date of 1991 Amendment
Effective Date of 1990 Amendment
"(1)
"(2)
Effective Date of 1989 Amendment
Amendment by section 7814(a) of
Amendment by
Effective Date of 1988 Amendment
Amendment by section 1011B(a)(31)(B) of
Amendment by section 4001(a), (b)(1) of
Effective Date of 1986 Amendment
Amendment by section 1114(b)(4) of
Amendment by section 1151(c)(4), (g)(3) of
"(1)
"(2)
"(3)
Effective Date of 1984 Amendment
"(1)
"(2)
"(3)
"(4)
"(5)
Effective Date
Regulations
Secretary of the Treasury or his delegate to issue before Feb. 1, 1988, final regulations to carry out amendments made by section 1114 of
Expedited Procedures for Refunds of Overpayments
Special Rule for Certain Taxable Years
Nonenforcement of Amendment Made by Section 1151 of Pub. L. 99–514 for Fiscal Year 1990
No monies appropriated by
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
[§128. Repealed. Pub. L. 101–508, title XI, §11801(a)(10), Nov. 5, 1990, 104 Stat. 1388–520 ]
Section, added and amended
A prior section 128 was renumbered
Statutory Notes and Related Subsidiaries
Savings Provision
For provisions that nothing in repeal by
§129. Dependent care assistance programs
(a) Exclusion
(1) In general
Gross income of an employee does not include amounts paid or incurred by the employer for dependent care assistance provided to such employee if the assistance is furnished pursuant to a program which is described in subsection (d).
(2) Limitation of exclusion
(A) In general
The amount which may be excluded under paragraph (1) for dependent care assistance with respect to dependent care services provided during a taxable year shall not exceed $5,000 ($2,500 in the case of a separate return by a married individual).
(B) Year of inclusion
The amount of any excess under subparagraph (A) shall be included in gross income in the taxable year in which the dependent care services were provided (even if payment of dependent care assistance for such services occurs in a subsequent taxable year).
(C) Marital status
For purposes of this paragraph, marital status shall be determined under the rules of paragraphs (3) and (4) of section 21(e).
(D) Special rule for 2021
In the case of any taxable year beginning after December 31, 2020, and before January 1, 2022, subparagraph (A) shall be applied by substituting "$10,500 (half such dollar amount" for "$5,000 ($2,500".
(b) Earned income limitation
(1) In general
The amount excluded from the income of an employee under subsection (a) for any taxable year shall not exceed—
(A) in the case of an employee who is not married at the close of such taxable year, the earned income of such employee for such taxable year, or
(B) in the case of an employee who is married at the close of such taxable year, the lesser of—
(i) the earned income of such employee for such taxable year, or
(ii) the earned income of the spouse of such employee for such taxable year.
(2) Special rule for certain spouses
For purposes of paragraph (1), the provisions of section 21(d)(2) shall apply in determining the earned income of a spouse who is a student or incapable of caring for himself.
(c) Payments to related individuals
No amount paid or incurred during the taxable year of an employee by an employer in providing dependent care assistance to such employee shall be excluded under subsection (a) if such amount was paid or incurred to an individual—
(1) with respect to whom, for such taxable year, a deduction is allowable under section 151(c) (relating to personal exemptions for dependents) to such employee or the spouse of such employee, or
(2) who is a child of such employee (within the meaning of section 152(f)(1)) under the age of 19 at the close of such taxable year.
(d) Dependent care assistance program
(1) In general
For purposes of this section a dependent care assistance program is a separate written plan of an employer for the exclusive benefit of his employees to provide such employees with dependent care assistance which meets the requirements of paragraphs (2) through (8) of this subsection. If any plan would qualify as a dependent care assistance program but for a failure to meet the requirements of this subsection, then, notwithstanding such failure, such plan shall be treated as a dependent care assistance program in the case of employees who are not highly compensated employees.
(2) Discrimination
The contributions or benefits provided under the plan shall not discriminate in favor of employees who are highly compensated employees (within the meaning of section 414(q)) or their dependents.
(3) Eligibility
The program shall benefit employees who qualify under a classification set up by the employer and found by the Secretary not to be discriminatory in favor of employees described in paragraph (2), or their dependents.
(4) Principal shareholders or owners
Not more than 25 percent of the amounts paid or incurred by the employer for dependent care assistance during the year may be provided for the class of individuals who are shareholders or owners (or their spouses or dependents), each of whom (on any day of the year) owns more than 5 percent of the stock or of the capital or profits interest in the employer.
(5) No funding required
A program referred to in paragraph (1) is not required to be funded.
(6) Notification of eligible employees
Reasonable notification of the availability and terms of the program shall be provided to eligible employees.
(7) Statement of expenses
The plan shall furnish to an employee, on or before January 31, a written statement showing the amounts paid or expenses incurred by the employer in providing dependent care assistance to such employee during the previous calendar year.
(8) Benefits
(A) In general
A plan meets the requirements of this paragraph if the average benefits provided to employees who are not highly compensated employees under all plans of the employer is at least 55 percent of the average benefits provided to highly compensated employees under all plans of the employer.
(B) Salary reduction agreements
For purposes of subparagraph (A), in the case of any benefits provided through a salary reduction agreement, a plan may disregard any employees whose compensation is less than $25,000. For purposes of this subparagraph, the term "compensation" has the meaning given such term by section 414(q)(4), except that, under rules prescribed by the Secretary, an employer may elect to determine compensation on any other basis which does not discriminate in favor of highly compensated employees.
(9) Excluded employees
For purposes of paragraphs (3) and (8), there shall be excluded from consideration—
(A) subject to rules similar to the rules of section 410(b)(4), employees who have not attained the age of 21 and completed 1 year of service (as defined in section 410(a)(3)), and
(B) employees not included in a dependent care assistance program who are included in a unit of employees covered by an agreement which the Secretary finds to be a collective bargaining agreement between employee representatives and 1 or more employees, if there is evidence that dependent care benefits were the subject of good faith bargaining between such employee representatives and such employer or employers.
(e) Definitions and special rules
For purposes of this section—
(1) Dependent care assistance
The term "dependent care assistance" means the payment of, or provision of, those services which if paid for by the employee would be considered employment-related expenses under section 21(b)(2) (relating to expenses for household and dependent care services necessary for gainful employment).
(2) Earned income
The term "earned income" shall have the meaning given such term in section 32(c)(2), but such term shall not include any amounts paid or incurred by an employer for dependent care assistance to an employee.
(3) Employee
The term "employee" includes, for any year, an individual who is an employee within the meaning of section 401(c)(1) (relating to self-employed individuals).
(4) Employer
An individual who owns the entire interest in an unincorporated trade or business shall be treated as his own employer. A partnership shall be treated as the employer of each partner who is an employee within the meaning of paragraph (3).
(5) Attribution rules
(A) Ownership of stock
Ownership of stock in a corporation shall be determined in accordance with the rules provided under subsections (d) and (e) of section 1563 (without regard to section 1563(e)(3)(C)).
(B) Interest in unincorporated trade or business
The interest of an employee in a trade or business which is not incorporated shall be determined in accordance with regulations prescribed by the Secretary, which shall be based on principles similar to the principles which apply in the case of subparagraph (A).
(6) Utilization test not applicable
A dependent care assistance program shall not be held or considered to fail to meet any requirements of subsection (d) (other than paragraphs (4) and (8) thereof) merely because of utilization rates for the different types of assistance made available under the program.
(7) Disallowance of excluded amounts as credit or deduction
No deduction or credit shall be allowed to the employee under any other section of this chapter for any amount excluded from the gross income of the employee by reason of this section.
(8) Treatment of onsite facilities
In the case of an onsite facility maintained by an employer, except to the extent provided in regulations, the amount of dependent care assistance provided to an employee excluded with respect to any dependent shall be based on—
(A) utilization of the facility by a dependent of the employee, and
(B) the value of the services provided with respect to such dependent.
(9) Identifying information required with respect to service provider
No amount paid or incurred by an employer for dependent care assistance provided to an employee shall be excluded from the gross income of such employee unless—
(A) the name, address, and taxpayer identification number of the person performing the services are included on the return to which the exclusion relates, or
(B) if such person is an organization described in section 501(c)(3) and exempt from tax under section 501(a), the name and address of such person are included on the return to which the exclusion relates.
In the case of a failure to provide the information required under the preceding sentence, the preceding sentence shall not apply if it is shown that the taxpayer exercised due diligence in attempting to provide the information so required.
(Added
Editorial Notes
Codification
Prior Provisions
A prior section 129 was renumbered
Amendments
2021—Subsec. (a)(2)(D).
2004—Subsec. (c)(2).
1996—Subsec. (d)(8)(B).
1989—Subsec. (a).
Subsec. (d)(1).
Subsec. (d)(3).
Subsec. (d)(6).
Subsec. (d)(7).
Subsec. (d)(8).
Subsec. (d)(9).
Subsec. (e)(6).
1988—Subsec. (a)(2).
Subsec. (d)(1)(B).
Subsec. (d)(3).
Subsec. (d)(7).
Subsec. (d)(7)(A).
Subsec. (d)(7)(B).
Subsec. (d)(8).
Subsec. (e)(6).
Subsec. (e)(8).
Subsec. (e)(9).
1986—Subsec. (a).
Subsec. (c)(1).
Subsec. (c)(2).
Subsec. (d)(1).
Subsec. (d)(2).
Subsec. (d)(3).
Subsec. (d)(6), (7).
Subsec. (d)(8).
Subsec. (e)(8).
1984—Subsec. (b)(2).
Subsec. (e)(1).
Subsec. (e)(2).
1983—Subsec. (d)(1).
Subsec. (d)(2).
Subsec. (d)(3).
Subsec. (d)(4) to (7).
Subsec. (e)(7).
Statutory Notes and Related Subsidiaries
Effective Date of 2021 Amendment
Effective Date of 2004 Amendment
Amendment by
Effective Date of 1996 Amendment
Amendment by
Effective Date of 1989 Amendment
Amendment by
Amendment by section 203(a)(1), (2) of
"(1) The amendments made by subsections (a)(1), (a)(2), and (b)(2) [amending this section and
"(2) The amendments made by subsection (a)(3) [amending this section] shall apply to plan years beginning after December 31, 1989."
Effective Date of 1988 Amendment
Amendment by section 1011B(a)(14), (15), (18), (30), (31)(A), (c)(1) of
"(i) Except as provided in this subparagraph, the amendments made by this paragraph [amending this section and
"(ii) A taxpayer may elect to have the amendment made by subparagraph (A) [amending this section] apply to taxable years beginning in 1987.
"(iii) In the case of a taxpayer not making an election under clause (ii), any dependent care assistance provided in a taxable year beginning in 1987 with respect to which reimbursement was not received in such taxable year shall be treated as provided in the taxpayer's first taxable year beginning after December 31, 1987."
"(1)
"(2)
Amendment by
Effective Date of 1986 Amendment
Amendment by section 104(b)(1) of
Amendment by section 1114(b)(4) of
Amendment by section 1151(c)(5), (f), (g)(4) of
Effective Date of 1984 Amendment
Amendment by
Effective Date of 1983 Amendment
Amendment by
Effective Date
Section applicable to taxable years beginning after Dec. 31, 1981, see section 124(f) of
Regulations
Secretary of the Treasury or his delegate to issue before Feb. 1, 1988, final regulations to carry out amendments made by section 1114 of
Retroactive Plan Amendments
"(1) such amendment is adopted no later than the last day of the plan year in which the amendment is effective, and
"(2) the plan is operated consistent with the terms of such amendment during the period beginning on the effective date of the amendment and ending on the date the amendment is adopted."
Nonenforcement of Amendment Made by Section 1151 of Pub. L. 99–514 for Fiscal Year 1990
No monies appropriated by
Plan Amendments Not Required Until January 1, 1998
For provisions directing that if any amendments made by subtitle D [§§1401–1465] of title I of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
§130. Certain personal injury liability assignments
(a) In general
Any amount received for agreeing to a qualified assignment shall not be included in gross income to the extent that such amount does not exceed the aggregate cost of any qualified funding assets.
(b) Treatment of qualified funding asset
In the case of any qualified funding asset—
(1) the basis of such asset shall be reduced by the amount excluded from gross income under subsection (a) by reason of the purchase of such asset, and
(2) any gain recognized on a disposition of such asset shall be treated as ordinary income.
(c) Qualified assignment
For purposes of this section, the term "qualified assignment" means any assignment of a liability to make periodic payments as damages (whether by suit or agreement), or as compensation under any workmen's compensation act, on account of personal injury or sickness (in a case involving physical injury or physical sickness)—
(1) if the assignee assumes such liability from a person who is a party to the suit or agreement, or the workmen's compensation claim, and
(2) if—
(A) such periodic payments are fixed and determinable as to amount and time of payment,
(B) such periodic payments cannot be accelerated, deferred, increased, or decreased by the recipient of such payments,
(C) the assignee's obligation on account of the personal injuries or sickness is no greater than the obligation of the person who assigned the liability, and
(D) such periodic payments are excludable from the gross income of the recipient under paragraph (1) or (2) of section 104(a).
The determination for purposes of this chapter of when the recipient is treated as having received any payment with respect to which there has been a qualified assignment shall be made without regard to any provision of such assignment which grants the recipient rights as a creditor greater than those of a general creditor.
(d) Qualified funding asset
For purposes of this section, the term "qualified funding asset" means any annuity contract issued by a company licensed to do business as an insurance company under the laws of any State, or any obligation of the United States, if—
(1) such annuity contract or obligation is used by the assignee to fund periodic payments under any qualified assignment,
(2) the periods of the payments under the annuity contract or obligation are reasonably related to the periodic payments under the qualified assignment, and the amount of any such payment under the contract or obligation does not exceed the periodic payment to which it relates,
(3) such annuity contract or obligation is designated by the taxpayer (in such manner as the Secretary shall by regulations prescribe) as being taken into account under this section with respect to such qualified assignment, and
(4) such annuity contract or obligation is purchased by the taxpayer not more than 60 days before the date of the qualified assignment and not later than 60 days after the date of such assignment.
(Added
Editorial Notes
Prior Provisions
A prior section 130 was renumbered
Amendments
1997—Subsec. (c).
Subsec. (c)(1).
Subsec. (c)(2)(D).
1988—Subsec. (c).
1986—Subsec. (c).
Statutory Notes and Related Subsidiaries
Effective Date of 1997 Amendment
Effective Date of 1988 Amendment
Effective Date of 1986 Amendment
Effective Date
§131. Certain foster care payments
(a) General rule
Gross income shall not include amounts received by a foster care provider during the taxable year as qualified foster care payments.
(b) Qualified foster care payment defined
For purposes of this section—
(1) In general
The term "qualified foster care payment" means any payment made pursuant to a foster care program of a State or political subdivision thereof—
(A) which is paid by—
(i) a State or political subdivision thereof, or
(ii) a qualified foster care placement agency, and
(B) which is—
(i) paid to the foster care provider for caring for a qualified foster individual in the foster care provider's home, or
(ii) a difficulty of care payment.
(2) Qualified foster individual
The term "qualified foster individual" means any individual who is living in a foster family home in which such individual was placed by—
(A) an agency of a State or political subdivision thereof, or
(B) a qualified foster care placement agency.
(3) Qualified foster care placement agency
The term "qualified foster care placement agency" means any placement agency which is licensed or certified by—
(A) a State or political subdivision thereof, or
(B) an entity designated by a State or political subdivision thereof,
for the foster care program of such State or political subdivision to make foster care payments to providers of foster care.
(4) Limitation based on number of individuals over the age of 18
In the case of any foster home in which there is a qualified foster care individual who has attained age 19, foster care payments (other than difficulty of care payments) for any period to which such payments relate shall not be excludable from gross income under subsection (a) to the extent such payments are made for more than 5 such qualified foster individuals.
(c) Difficulty of care payments
For purposes of this section—
(1) Difficulty of care payments
The term "difficulty of care payments" means payments to individuals which are not described in subsection (b)(1)(B)(i), and which—
(A) are compensation for providing the additional care of a qualified foster individual which is—
(i) required by reason of a physical, mental, or emotional handicap of such individual with respect to which the State has determined that there is a need for additional compensation, and
(ii) provided in the home of the foster care provider, and
(B) are designated by the payor as compensation described in subparagraph (A).
(2) Limitation based on number of individuals
In the case of any foster home, difficulty of care payments for any period to which such payments relate shall not be excludable from gross income under subsection (a) to the extent such payments are made for more than—
(A) 10 qualified foster individuals who have not attained age 19, and
(B) 5 qualified foster individuals not described in subparagraph (A).
(Added
Editorial Notes
Prior Provisions
A prior section 131 was renumbered
Amendments
2002—Subsec. (b)(1).
"(A) which is paid by a State or political subdivision thereof or by a placement agency which is described in section 501(c)(3) and exempt from tax under section 501(a), and".
Subsec. (b)(2)(B).
Subsec. (b)(3), (4).
1986—Subsec. (a).
Subsec. (b).
"(A) which is paid by a State or political subdivision thereof or by a child-placing agency which is described in section 501(c)(3) and exempt from tax under section 501(a), and
"(B) which is—
"(i) paid to reimburse the foster parent for the expenses of caring for a qualified foster child in the foster parent's home, or
"(ii) a difficulty of care payment."
and par. (2) "Qualified foster child" read as follows: "The term 'qualified foster child' means any individual who—
"(A) has not attained age 19, and
"(B) is living in a foster family home in which such individual was placed by—
"(i) an agency of a State or political subdivision thereof, or
"(ii) an organization which is licensed by a State (or political subdivision thereof) as a child-placing agency and which is described in section 501(c)(3) and exempt from tax under section 501(a)."
Subsec. (c).
Statutory Notes and Related Subsidiaries
Effective Date of 2002 Amendment
Effective Date of 1986 Amendment
Effective Date
§132. Certain fringe benefits
(a) Exclusion from gross income
Gross income shall not include any fringe benefit which qualifies as a—
(1) no-additional-cost service,
(2) qualified employee discount,
(3) working condition fringe,
(4) de minimis fringe,
(5) qualified transportation fringe,
(6) qualified moving expense reimbursement,
(7) qualified retirement planning services, or
(8) qualified military base realignment and closure fringe.
(b) No-additional-cost service defined
For purposes of this section, the term "no-additional-cost service" means any service provided by an employer to an employee for use by such employee if—
(1) such service is offered for sale to customers in the ordinary course of the line of business of the employer in which the employee is performing services, and
(2) the employer incurs no substantial additional cost (including forgone revenue) in providing such service to the employee (determined without regard to any amount paid by the employee for such service).
(c) Qualified employee discount defined
For purposes of this section—
(1) Qualified employee discount
The term "qualified employee discount" means any employee discount with respect to qualified property or services to the extent such discount does not exceed—
(A) in the case of property, the gross profit percentage of the price at which the property is being offered by the employer to customers, or
(B) in the case of services, 20 percent of the price at which the services are being offered by the employer to customers.
(2) Gross profit percentage
(A) In general
The term "gross profit percentage" means the percent which—
(i) the excess of the aggregate sales price of property sold by the employer to customers over the aggregate cost of such property to the employer, is of
(ii) the aggregate sale price of such property.
(B) Determination of gross profit percentage
Gross profit percentage shall be determined on the basis of—
(i) all property offered to customers in the ordinary course of the line of business of the employer in which the employee is performing services (or a reasonable classification of property selected by the employer), and
(ii) the employer's experience during a representative period.
(3) Employee discount defined
The term "employee discount" means the amount by which—
(A) the price at which the property or services are provided by the employer to an employee for use by such employee, is less than
(B) the price at which such property or services are being offered by the employer to customers.
(4) Qualified property or services
The term "qualified property or services" means any property (other than real property and other than personal property of a kind held for investment) or services which are offered for sale to customers in the ordinary course of the line of business of the employer in which the employee is performing services.
(d) Working condition fringe defined
For purposes of this section, the term "working condition fringe" means any property or services provided to an employee of the employer to the extent that, if the employee paid for such property or services, such payment would be allowable as a deduction under section 162 or 167.
(e) De minimis fringe defined
For purposes of this section—
(1) In general
The term "de minimis fringe" means any property or service the value of which is (after taking into account the frequency with which similar fringes are provided by the employer to the employer's employees) so small as to make accounting for it unreasonable or administratively impracticable.
(2) Treatment of certain eating facilities
The operation by an employer of any eating facility for employees shall be treated as a de minimis fringe if—
(A) such facility is located on or near the business premises of the employer, and
(B) revenue derived from such facility normally equals or exceeds the direct operating costs of such facility.
The preceding sentence shall apply with respect to any highly compensated employee only if access to the facility is available on substantially the same terms to each member of a group of employees which is defined under a reasonable classification set up by the employer which does not discriminate in favor of highly compensated employees. For purposes of subparagraph (B), an employee entitled under section 119 to exclude the value of a meal provided at such facility shall be treated as having paid an amount for such meal equal to the direct operating costs of the facility attributable to such meal.
(f) Qualified transportation fringe
(1) In general
For purposes of this section, the term "qualified transportation fringe" means any of the following provided by an employer to an employee:
(A) Transportation in a commuter highway vehicle if such transportation is in connection with travel between the employee's residence and place of employment.
(B) Any transit pass.
(C) Qualified parking.
(D) Any qualified bicycle commuting reimbursement.
(2) Limitation on exclusion
The amount of the fringe benefits which are provided by an employer to any employee and which may be excluded from gross income under subsection (a)(5) shall not exceed—
(A) $175 per month in the case of the aggregate of the benefits described in subparagraphs (A) and (B) of paragraph (1),
(B) $175 per month in the case of qualified parking, and
(C) the applicable annual limitation in the case of any qualified bicycle commuting reimbursement.
(3) Cash reimbursements
For purposes of this subsection, the term "qualified transportation fringe" includes a cash reimbursement by an employer to an employee for a benefit described in paragraph (1). The preceding sentence shall apply to a cash reimbursement for any transit pass only if a voucher or similar item which may be exchanged only for a transit pass is not readily available for direct distribution by the employer to the employee.
(4) No constructive receipt
No amount shall be included in the gross income of an employee solely because the employee may choose between any qualified transportation fringe (other than a qualified bicycle commuting reimbursement) and compensation which would otherwise be includible in gross income of such employee.
(5) Definitions
For purposes of this subsection—
(A) Transit pass
The term "transit pass" means any pass, token, farecard, voucher, or similar item entitling a person to transportation (or transportation at a reduced price) if such transportation is—
(i) on mass transit facilities (whether or not publicly owned), or
(ii) provided by any person in the business of transporting persons for compensation or hire if such transportation is provided in a vehicle meeting the requirements of subparagraph (B)(i).
(B) Commuter highway vehicle
The term "commuter highway vehicle" means any highway vehicle—
(i) the seating capacity of which is at least 6 adults (not including the driver), and
(ii) at least 80 percent of the mileage use of which can reasonably be expected to be—
(I) for purposes of transporting employees in connection with travel between their residences and their place of employment, and
(II) on trips during which the number of employees transported for such purposes is at least ½ of the adult seating capacity of such vehicle (not including the driver).
(C) Qualified parking
The term "qualified parking" means parking provided to an employee on or near the business premises of the employer or on or near a location from which the employee commutes to work by transportation described in subparagraph (A), in a commuter highway vehicle, or by carpool. Such term shall not include any parking on or near property used by the employee for residential purposes.
(D) Transportation provided by employer
Transportation referred to in paragraph (1)(A) shall be considered to be provided by an employer if such transportation is furnished in a commuter highway vehicle operated by or for the employer.
(E) Employee
For purposes of this subsection, the term "employee" does not include an individual who is an employee within the meaning of section 401(c)(1).
(F) Definitions related to bicycle commuting reimbursement
(i) Qualified bicycle commuting reimbursement
The term "qualified bicycle commuting reimbursement" means, with respect to any calendar year, any employer reimbursement during the 15-month period beginning with the first day of such calendar year for reasonable expenses incurred by the employee during such calendar year for the purchase of a bicycle and bicycle improvements, repair, and storage, if such bicycle is regularly used for travel between the employee's residence and place of employment.
(ii) Applicable annual limitation
The term "applicable annual limitation" means, with respect to any employee for any calendar year, the product of $20 multiplied by the number of qualified bicycle commuting months during such year.
(iii) Qualified bicycle commuting month
The term "qualified bicycle commuting month" means, with respect to any employee, any month during which such employee—
(I) regularly uses the bicycle for a substantial portion of the travel between the employee's residence and place of employment, and
(II) does not receive any benefit described in subparagraph (A), (B), or (C) of paragraph (1).
(6) Inflation adjustment
(A) In general
In the case of any taxable year beginning in a calendar year after 1999, the dollar amounts contained in subparagraphs (A) and (B) of paragraph (2) shall be increased by an amount equal to—
(i) such dollar amount, multiplied by
(ii) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, by substituting "calendar year 1998" for "calendar year 2016" in subparagraph (A)(ii) thereof.
(B) Rounding
If any increase determined under subparagraph (A) is not a multiple of $5, such increase shall be rounded to the next lowest multiple of $5.
(7) Coordination with other provisions
For purposes of this section, the terms "working condition fringe" and "de minimis fringe" shall not include any qualified transportation fringe (determined without regard to paragraph (2)).
(8) Suspension of qualified bicycle commuting reimbursement exclusion
Paragraph (1)(D) shall not apply to any taxable year beginning after December 31, 2017, and before January 1, 2026.
(g) Qualified moving expense reimbursement
For purposes of this section—
(1) In general
The term "qualified moving expense reimbursement" means any amount received (directly or indirectly) by an individual from an employer as a payment for (or a reimbursement of) expenses which would be deductible as moving expenses under section 217 if directly paid or incurred by the individual. Such term shall not include any payment for (or reimbursement of) an expense actually deducted by the individual in a prior taxable year.
(2) Suspension for taxable years 2018 through 2025
Except in the case of a member of the Armed Forces of the United States on active duty who moves pursuant to a military order and incident to a permanent change of station, subsection (a)(6) shall not apply to any taxable year beginning after December 31, 2017, and before January 1, 2026.
(h) Certain individuals treated as employees for purposes of subsections (a)(1) and (2)
For purposes of paragraphs (1) and (2) of subsection (a)—
(1) Retired and disabled employees and surviving spouse of employee treated as employee
With respect to a line of business of an employer, the term "employee" includes—
(A) any individual who was formerly employed by such employer in such line of business and who separated from service with such employer in such line of business by reason of retirement or disability, and
(B) any widow or widower of any individual who died while employed by such employer in such line of business or while an employee within the meaning of subparagraph (A).
(2) Spouse and dependent children
(A) In general
Any use by the spouse or a dependent child of the employee shall be treated as use by the employee.
(B) Dependent child
For purposes of subparagraph (A), the term "dependent child" means any child (as defined in section 152(f)(1)) of the employee—
(i) who is a dependent of the employee, or
(ii) both of whose parents are deceased and who has not attained age 25.
For purposes of the preceding sentence, any child to whom section 152(e) applies shall be treated as the dependent of both parents.
(3) Special rule for parents in the case of air transportation
Any use of air transportation by a parent of an employee (determined without regard to paragraph (1)(B)) shall be treated as use by the employee.
(i) Reciprocal agreements
For purposes of paragraph (1) of subsection (a), any service provided by an employer to an employee of another employer shall be treated as provided by the employer of such employee if—
(1) such service is provided pursuant to a written agreement between such employers, and
(2) neither of such employers incurs any substantial additional costs (including foregone revenue) in providing such service or pursuant to such agreement.
(j) Special rules
(1) Exclusions under subsection (a)(1) and (2) apply to highly compensated employees only if no discrimination
Paragraphs (1) and (2) of subsection (a) shall apply with respect to any fringe benefit described therein provided with respect to any highly compensated employee only if such fringe benefit is available on substantially the same terms to each member of a group of employees which is defined under a reasonable classification set up by the employer which does not discriminate in favor of highly compensated employees.
(2) Special rule for leased sections of department stores
(A) In general
For purposes of paragraph (2) of subsection (a), in the case of a leased section of a department store—
(i) such section shall be treated as part of the line of business of the person operating the department store, and
(ii) employees in the leased section shall be treated as employees of the person operating the department store.
(B) Leased section of department store
For purposes of subparagraph (A), a leased section of a department store is any part of a department store where over-the-counter sales of property are made under a lease or similar arrangement where it appears to the general public that individuals making such sales are employed by the person operating the department store.
(3) Auto salesmen
(A) In general
For purposes of subsection (a)(3), qualified automobile demonstration use shall be treated as a working condition fringe.
(B) Qualified automobile demonstration use
For purposes of subparagraph (A), the term "qualified automobile demonstration use" means any use of an automobile by a full-time automobile salesman in the sales area in which the automobile dealer's sales office is located if—
(i) such use is provided primarily to facilitate the salesman's performance of services for the employer, and
(ii) there are substantial restrictions on the personal use of such automobile by such salesman.
(4) On-premises gyms and other athletic facilities
(A) In general
Gross income shall not include the value of any on-premises athletic facility provided by an employer to his employees.
(B) On-premises athletic facility
For purposes of this paragraph, the term "on-premises athletic facility" means any gym or other athletic facility—
(i) which is located on the premises of the employer,
(ii) which is operated by the employer, and
(iii) substantially all the use of which is by employees of the employer, their spouses, and their dependent children (within the meaning of subsection (h)).
(5) Special rule for affiliates of airlines
(A) In general
If—
(i) a qualified affiliate is a member of an affiliated group another member of which operates an airline, and
(ii) employees of the qualified affiliate who are directly engaged in providing airline-related services are entitled to no-additional-cost service with respect to air transportation provided by such other member,
then, for purposes of applying paragraph (1) of subsection (a) to such no-additional-cost service provided to such employees, such qualified affiliate shall be treated as engaged in the same line of business as such other member.
(B) Qualified affiliate
For purposes of this paragraph, the term "qualified affiliate" means any corporation which is predominantly engaged in airline-related services.
(C) Airline-related services
For purposes of this paragraph, the term "airline-related services" means any of the following services provided in connection with air transportation:
(i) Catering.
(ii) Baggage handling.
(iii) Ticketing and reservations.
(iv) Flight planning and weather analysis.
(v) Restaurants and gift shops located at an airport.
(vi) Such other similar services provided to the airline as the Secretary may prescribe.
(D) Affiliated group
For purposes of this paragraph, the term "affiliated group" has the meaning given such term by section 1504(a).
(6) Highly compensated employee
For purposes of this section, the term "highly compensated employee" has the meaning given such term by section 414(q).
(7) Air cargo
For purposes of subsection (b), the transportation of cargo by air and the transportation of passengers by air shall be treated as the same service.
(8) Application of section to otherwise taxable educational or training benefits
Amounts paid or expenses incurred by the employer for education or training provided to the employee which are not excludable from gross income under section 127 shall be excluded from gross income under this section if (and only if) such amounts or expenses are a working condition fringe.
(k) Customers not to include employees
For purposes of this section (other than subsection (c)(2)), the term "customers" shall only include customers who are not employees.
(l) Section not to apply to fringe benefits expressly provided for elsewhere
This section (other than subsections (e) and (g)) shall not apply to any fringe benefits of a type the tax treatment of which is expressly provided for in any other section of this chapter.
(m) Qualified retirement planning services
(1) In general
For purposes of this section, the term "qualified retirement planning services" means any retirement planning advice or information provided to an employee and his spouse by an employer maintaining a qualified employer plan.
(2) Nondiscrimination rule
Subsection (a)(7) shall apply in the case of highly compensated employees only if such services are available on substantially the same terms to each member of the group of employees normally provided education and information regarding the employer's qualified employer plan.
(3) Qualified employer plan
For purposes of this subsection, the term "qualified employer plan" means a plan, contract, pension, or account described in section 219(g)(5).
(n) Qualified military base realignment and closure fringe
For purposes of this section—
(1) In general
The term "qualified military base realignment and closure fringe" means 1 or more payments under the authority of section 1013 of the Demonstration Cities and Metropolitan Development Act of 1966 (
(2) Limitation
With respect to any property, such term shall not include any payment referred to in paragraph (1) to the extent that the sum of all of such payments related to such property exceeds the maximum amount described in subsection (c) of such section (as in effect on such date).
(o) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.
(Added
Inflation Adjusted Items for Certain Years
For inflation adjustment of certain items in this section, see Revenue Procedures listed in a table under
Editorial Notes
References in Text
The date of the enactment of the American Recovery and Reinvestment Tax Act of 2009, referred to in subsec. (n)(1), is the date of enactment of
Prior Provisions
A prior section 132 was renumbered
Amendments
2018—Subsec. (c)(4).
Subsec. (f)(6)(A).
2017—Subsec. (f)(6)(A)(ii).
Subsec. (f)(8).
Subsec. (g).
2015—Subsec. (f)(2).
Subsec. (f)(2)(A).
2014—Subsec. (f)(2).
2013—Subsec. (f)(2).
2010—Subsec. (f)(2).
2009—Subsec. (f)(2).
Subsec. (n)(1).
Subsec. (n)(2).
2008—Subsec. (f)(1)(D).
Subsec. (f)(2)(C).
Subsec. (f)(4).
Subsec. (f)(5)(F).
2004—Subsec. (h)(2)(B).
2003—Subsec. (a)(8).
Subsecs. (n), (o).
2001—Subsec. (a)(7).
Subsecs. (m), (n).
1998—Subsec. (f)(2)(A).
Subsec. (f)(2)(B).
Subsec. (f)(4).
Subsec. (f)(6).
"(A) such dollar amount, multiplied by
"(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins.
If any increase determined under the preceding sentence is not a multiple of $5, such increase shall be rounded to the next lowest multiple of $5."
Subsec. (f)(6)(A).
1997—Subsec. (e)(2).
Subsec. (f)(4).
1993—Subsec. (a)(6).
Subsec. (f)(6)(B).
Subsecs. (g), (h).
Subsec. (i).
Subsec. (i)(8).
Subsec. (j).
Subsec. (j)(4)(B)(iii).
Subsec. (k).
Subsec. (l).
Subsec. (m).
1992—Subsec. (a)(5).
Subsecs. (f) to (h).
Subsec. (i).
Subsecs. (j) to (l).
1989—Subsec. (f)(2)(B).
Subsec. (h)(1).
Subsec. (h)(9).
1988—Subsec. (h)(1).
Subsec. (h)(8).
1986—Subsec. (c)(3)(A).
Subsec. (e)(2).
Subsec. (f)(2)(B)(ii).
Subsec. (f)(3).
Subsec. (g).
Subsec. (h)(1).
Subsec. (h)(3)(B)(i).
Subsec. (h)(6).
Subsec. (h)(7).
Subsec. (i).
Statutory Notes and Related Subsidiaries
Effective Date of 2018 Amendment
Amendment by section 101(b) of
Effective Date of 2017 Amendment
Amendment by section 11002(d)(5) of
Effective Date of 2015 Amendment
Effective Date of 2014 Amendment
Effective Date of 2013 Amendment
Effective Date of 2010 Amendment
Effective Date of 2009 Amendment
Effective Date of 2008 Amendment
Effective Date of 2004 Amendment
Amendment by
Effective Date of 2003 Amendment
Effective Date of 2001 Amendment
Effective Date of 1998 Amendment
Effective Date of 1997 Amendment
Effective Date of 1993 Amendment
Amendment by section 13201(b)(3)(F) of
Amendment by section 13213(d)(1), (2), (3)(B) and (C) of
Effective Date of 1992 Amendment
Effective Date of 1989 Amendment
Amendment by section 7101(b) of
Amendment by
Effective Date of 1988 Amendment
Amendment by section 1011B(a)(31)(B) of
Effective Date of 1986 Amendment
Amendment by section 1114(b)(5) of
Amendment by section 1151(e)(2)(A), (g)(5) of
Amendment by section 1853(a) of
Effective Date
Regulations
Secretary of the Treasury or his delegate to issue before Feb. 1, 1988, final regulations to carry out amendments made by section 1114 of
Nonenforcement of Amendment Made by Section 1151 of Pub. L. 99–514 for Fiscal Year 1990
No monies appropriated by
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Certain Recordkeeping Requirements
"(a)
"(b)
Treatment of Certain Leased Operations of Department Stores
Transitional Rule for Determination of Line of Business in Case of Affiliated Group Operating Airline
"(1) an individual—
"(A) was an employee (within the meaning of section 132 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954], including subsection (f) [now (h)] thereof) of one member of an affiliated group (as defined in section 1504 of such Code), hereinafter referred to as the 'first corporation', and
"(B) was eligible for no-additional-cost service in the form of air transportation provided by another member of such affiliated group, hereinafter referred to as the 'second corporation',
"(2) at least 50 percent of the individuals performing service for the first corporation were or had been employees of, or had previously performed services for, the second corporation, and
"(3) the primary business of the affiliated group was air transportation of passengers,
then, for purposes of applying paragraphs (1) and (2) of section 132(a) of the Internal Revenue Code of 1986, with respect to no-additional-cost services and qualified employee discounts provided after December 31, 1984, for such individual by the second corporation, the first corporation shall be treated as engaged in the same air transportation line of business as the second corporation. For purposes of the preceding sentence, an employee of the second corporation who is performing services for the first corporation shall also be treated as an employee of the first corporation."
Special Rule for Services Related To Providing Air Transportation
"(1)
"(A) an individual performs services for a qualified air transportation organization, and
"(B) such services are performed primarily for persons engaged in providing air transportation and are of the kind which (if performed on September 12, 1984) would qualify such individual for no-additional-cost services in the form of air transportation,
then, with respect to such individual, such qualified air transportation organization shall be treated as engaged in the line of business of providing air transportation.
"(2)
"(A) if such organization (or a predecessor) was in existence on September 12, 1984,
"(B) if—
"(i) such organization is described in section 501(c)(6) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] and the membership of such organization is limited to entities engaged in the transportation by air of individuals or property for compensation or hire, or
"(ii) such organization is a corporation all the stock of which is owned entirely by entities referred to in clause (i), and
"(C) if such organization is operated in furtherance of the activities of its members or owners."
Determination of Line of Business in Case of Affiliated Group Operating Retail Department Stores
"(1) as of October 5, 1983, the employees of one member of an affiliated group (as defined in section 1504 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] without regard to subsections (b)(2) and (b)(4) thereof) were entitled to employee discounts at the retail department stores operated by another member of such affiliated group, and
"(2) the primary business of the affiliated group is the operation of retail department stores,
then, for purpose of applying section 132(a)(2) of the Internal Revenue Code of 1986, with respect to discounts provided for such employees at the retail department stores operated by such other member, the employer shall be treated as engaged in the same line of business as such other member."
[§133. Repealed. Pub. L. 104–188, title I, §1602(a), Aug. 20, 1996, 110 Stat. 1833 ]
Section, added
§133. Interest on certain loans used to acquire employer securities
(a)
Gross income does not include 50 percent of the interest received by—
(1) a bank (within the meaning of section 581),
(2) an insurance company to which subchapter L applies,
(3) a corporation actively engaged in the business of lending money, or
(4) a regulated investment company (as defined in section 851),
with respect to a securities acquisition loan.
(b)
(1)
For purposes of this section, the term "securities acquisition loan" means—
(A) any loan to a corporation or to an employee stock ownership plan to the extent that the proceeds are used to acquire employer securities for the plan, or
(B) any loan to a corporation to the extent that, within 30 days, employer securities are transferred to the plan in an amount equal to the proceeds of such loan and such securities are allocable to accounts of plan participants within 1 year of the date of such loan.
For purposes of this paragraph, the term "employer securities" has the meaning given such term by section 409(l). The term "securities acquisition loan" shall not include a loan with a term greater than 15 years.
(2)
The term "securities acquisition loan" shall not include—
(A) any loan made between corporations which are members of the same controlled group of corporations, or
(B) any loan made between an employee stock ownership plan and any person that is—
(i) the employer of any employees who are covered by the plan; or
(ii) a member of a controlled group of corporations which includes such employer.
For purposes of this paragraph, subparagraphs (A) and (B) shall not apply to any loan which, but for such subparagraphs, would be a securities acquisition loan if such loan was not originated by the employer of any employees who are covered by the plan or by any member of the controlled group of corporations which includes such employer, except that this section shall not apply to any interest received on such loan during such time as such loan is held by such employer (or any member of such controlled group).
(3)
A loan to a corporation shall not fail to be treated as a securities acquisition loan merely because the proceeds of such loan are lent to an employee stock ownership plan sponsored by such corporation (or by any member of the controlled group of corporations which includes such corporation) if such loan includes—
(A) repayment terms which are substantially similar to the terms of the loan of such corporation from a lender described in subsection (a), or
(B) repayment terms providing for more rapid repayment of principal or interest on such loan, but only if allocations under the plan attributable to such repayment do not discriminate in favor of highly compensated employees (within the meaning of section 414(q)).
(4)
For purposes of this paragraph, the term "controlled group of corporations" has the meaning given such term by section 409(l)(4).
(5)
The term "securities acquisition loan" shall include any loan which—
(A) is (or is part of a series of loans) used to refinance a loan described in subparagraph (A) or (B) of paragraph (1), and
(B) meets the requirements of paragraphs (2) and (3).
(6)
(A)
A loan shall not be treated as a securities acquisition loan for purposes of this section unless, immediately after the acquisition or transfer referred to in subparagraph (A) or (B) of paragraph (1), respectively, the employee stock ownership plan owns more than 50 percent of—
(i) each class of outstanding stock of the corporation issuing the employer securities, or
(ii) the total value of all outstanding stock of the corporation.
(B)
(i)
Subsection (a) shall not apply to any interest received with respect to a securities acquisition loan which is allocable to any period during which the employee stock ownership plan does not own stock meeting the requirements of subparagraph (A).
(ii)
To the extent provided by the Secretary, clause (i) shall not apply to any period if, within 90 days of the first date on which the failure occurred (or such longer period not in excess of 180 days as the Secretary may prescribe), the plan acquires stock which results in its meeting the requirements of subparagraph (A).
(C)
For purposes of subparagraph (A)—
(i)
The term "stock" means stock other than stock described in section 1504(a)(4).
(ii)
The Secretary may provide that warrants, options, contracts to acquire stock, convertible debt interests and other similar interests be treated as stock for 1 or more purposes under subparagraph (A).
(D)
For purposes of determining whether the requirements of subparagraph (A) are met, an employee stock ownership plan shall be treated as owning stock in the corporation issuing the employer securities which is held by any other employee stock ownership plan which is maintained by—
(i) the employer maintaining the plan, or
(ii) any member of a controlled group of corporations (within the meaning of section 409(l)(4)) of which the employer described in clause (i) is a member.
(7)
A loan shall not be treated as a securities acquisition loan for purposes of this section unless—
(A) the employee stock ownership plan meets the requirements of section 409(e)(2) with respect to all employer securities acquired by, or transferred to, the plan in connection with such loan (without regard to whether or not the employer has a registration-type class of securities), and
(B) no stock described in section 409(l)(3) is acquired by, or transferred to, the plan in connection with such loan unless—
(i) such stock has voting rights equivalent to the stock to which it may be converted, and
(ii) the requirements of subparagraph (A) are met with respect to such voting rights.
(c)
For purposes of this section, the term "employee stock ownership plan" has the meaning given to such term by section 4975(e)(7).
(d)
In applying section 483 and subpart A of part V of subchapter P to any obligation to which this section applies, appropriate adjustments shall be made to the applicable Federal rate to take into account the exclusion under subsection (a).
(e)
(1)
In the case of—
(A) an original securities acquisition loan, and
(B) any securities acquisition loan (or series of such loans) used to refinance the original securities acquisition loan,
subsection (a) shall apply only to interest accruing during the excludable period with respect to the original securities acquisition loan.
(2)
For purposes of this subsection, the term "excludable period" means, with respect to any original securities acquisition loan—
(A)
The 7-year period beginning on the date of such loan.
(B)
If the term of an original securities acquisition loan described in subsection (b)(1)(A) is greater than 7 years, the term of such loan. This subparagraph shall not apply to a loan described in subsection (b)(3)(B).
(3)
For the purposes of this subsection, the term "original securities acquisition loan" means a securities acquisition loan described in subparagraph (A) or (B) of subsection (b)(1).
Editorial Notes
Prior Provisions
A prior section 133 was renumbered
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
"(1)
"(2)
"(A) the refinancing loans meet the requirements of section 133 of such Code (as so in effect),
"(B) immediately after the refinancing the principal amount of the loan resulting from the refinancing does not exceed the principal amount of the refinanced loan (immediately before the refinancing), and
"(C) the term of such refinancing loan does not extend beyond the last day of the term of the original securities acquisition loan.
For purposes of this paragraph, the term 'securities acquisition loan' includes a loan from a corporation to an employee stock ownership plan described in section 133(b)(3) of such Code (as so in effect).
"(3)
§134. Certain military benefits
(a) General rule
Gross income shall not include any qualified military benefit.
(b) Qualified military benefit
For purposes of this section—
(1) In general
The term "qualified military benefit" means any allowance or in-kind benefit (other than personal use of a vehicle) which—
(A) is received by any member or former member of the uniformed services of the United States or any dependent of such member by reason of such member's status or service as a member of such uniformed services, and
(B) was excludable from gross income on September 9, 1986, under any provision of law, regulation, or administrative practice which was in effect on such date (other than a provision of this title).
(2) No other benefit to be excludable except as provided by this title
Notwithstanding any other provision of law, no benefit shall be treated as a qualified military benefit unless such benefit—
(A) is a benefit described in paragraph (1), or
(B) is excludable from gross income under this title without regard to any provision of law which is not contained in this title and which is not contained in a revenue Act.
(3) Limitations on modifications
(A) In general
Except as provided in subparagraphs (B) and (C) and paragraphs (4) and (5), no modification or adjustment of any qualified military benefit after September 9, 1986, shall be taken into account.
(B) Exception for certain adjustments to cash benefits
Subparagraph (A) shall not apply to any adjustment to any qualified military benefit payable in cash which—
(i) is pursuant to a provision of law or regulation (as in effect on September 9, 1986), and
(ii) is determined by reference to any fluctuation in cost, price, currency, or other similar index.
(C) Exception for death gratuity adjustments made by law
Subparagraph (A) shall not apply to any adjustment to the amount of death gratuity payable under
(4) Clarification of certain benefits
For purposes of paragraph (1), such term includes any dependent care assistance program (as in effect on the date of the enactment of this paragraph) for any individual described in paragraph (1)(A).
(5) Travel benefits under operation hero miles
The term "qualified military benefit" includes a travel benefit provided under
(6) Certain State payments
The term "qualified military benefit" includes any bonus payment by a State or political subdivision thereof to any member or former member of the uniformed services of the United States or any dependent of such member only by reason of such member's service in a combat zone (as defined in section 112(c)(2), determined without regard to the parenthetical).
(Added
Editorial Notes
References in Text
The date of the enactment of this paragraph, referred to in subsec. (b)(4), is the date of enactment of
The date of the enactment of this paragraph, referred to in subsec. (b)(5), is the date of enactment of
Prior Provisions
A prior section 134 was renumbered
Amendments
2018—Subsec. (b)(6).
2008—Subsec. (b)(6).
2004—Subsec. (b)(3)(A).
Subsec. (b)(5).
2003—Subsec. (b)(3)(A).
Subsec. (b)(3)(C).
Subsec. (b)(4).
1988—Subsec. (b)(1).
Subsec. (b)(1)(B).
Subsec. (b)(3)(A).
Statutory Notes and Related Subsidiaries
Effective Date of 2008 Amendment
Effective Date of 2004 Amendment
Effective Date of 2003 Amendment
Effective Date of 1988 Amendment
Amendment by section 1011B(f)(1), (3) of
Effective Date
No Inference To Be Drawn From Amendment by Pub. L. 108–121
§135. Income from United States savings bonds used to pay higher education tuition and fees
(a) General rule
In the case of an individual who pays qualified higher education expenses during the taxable year, no amount shall be includible in gross income by reason of the redemption during such year of any qualified United States savings bond.
(b) Limitations
(1) Limitation where redemption proceeds exceed higher education expenses
(A) In general
If—
(i) the aggregate proceeds of qualified United States savings bonds redeemed by the taxpayer during the taxable year exceed
(ii) the qualified higher education expenses paid by the taxpayer during such taxable year,
the amount excludable from gross income under subsection (a) shall not exceed the applicable fraction of the amount excludable from gross income under subsection (a) without regard to this subsection.
(B) Applicable fraction
For purposes of subparagraph (A), the term "applicable fraction" means the fraction the numerator of which is the amount described in subparagraph (A)(ii) and the denominator of which is the amount described in subparagraph (A)(i).
(2) Limitation based on modified adjusted gross income
(A) In general
If the modified adjusted gross income of the taxpayer for the taxable year exceeds $40,000 ($60,000 in the case of a joint return), the amount which would (but for this paragraph) be excludable from gross income under subsection (a) shall be reduced (but not below zero) by the amount which bears the same ratio to the amount which would be so excludable as such excess bears to $15,000 ($30,000 in the case of a joint return).
(B) Inflation adjustment
In the case of any taxable year beginning in a calendar year after 1990, the $40,000 and $60,000 amounts contained in subparagraph (A) shall be increased by an amount equal to—
(i) such dollar amount, multiplied by
(ii) the cost-of-living adjustment under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting "calendar year 1989" for "calendar year 2016" in subparagraph (A)(ii) thereof.
(C) Rounding
If any amount as adjusted under subparagraph (B) is not a multiple of $50, such amount shall be rounded to the nearest multiple of $50 (or if such amount is a multiple of $25, such amount shall be rounded to the next highest multiple of $50).
(c) Definitions
For purposes of this section—
(1) Qualified United States savings bond
The term "qualified United States savings bond" means any United States savings bond issued—
(A) after December 31, 1989,
(B) to an individual who has attained age 24 before the date of issuance, and
(C) at discount under
(2) Qualified higher education expenses
(A) In general
The term "qualified higher education expenses" means tuition and fees required for the enrollment or attendance of—
(i) the taxpayer,
(ii) the taxpayer's spouse, or
(iii) any dependent of the taxpayer with respect to whom the taxpayer is allowed a deduction under section 151,
at an eligible educational institution.
(B) Exception for education involving sports, etc.
Such term shall not include expenses with respect to any course or other education involving sports, games, or hobbies other than as part of a degree program.
(C) Contributions to qualified tuition program and Coverdell education savings accounts
Such term shall include any contribution to a qualified tuition program (as defined in section 529) on behalf of a designated beneficiary (as defined in such section), or to a Coverdell education savings account (as defined in section 530) on behalf of an account beneficiary, who is an individual described in subparagraph (A); but there shall be no increase in the investment in the contract for purposes of applying section 72 by reason of any portion of such contribution which is not includible in gross income by reason of this subparagraph.
(3) Eligible educational institution
The term "eligible educational institution" has the meaning given such term by section 529(e)(5).
(4) Modified adjusted gross income
The term "modified adjusted gross income" means the adjusted gross income of the taxpayer for the taxable year determined—
(A) without regard to this section and sections 85(c), 137, 221, 911, 931, and 933, and
(B) after the application of sections 86, 469, and 219.
(d) Special rules
(1) Adjustment for certain scholarships and veterans benefits
The amount of qualified higher education expenses otherwise taken into account under subsection (a) with respect to the education of an individual shall be reduced (before the application of subsection (b)) by the sum of the amounts received with respect to such individual for the taxable year as—
(A) a qualified scholarship which under section 117 is not includable in gross income,
(B) an educational assistance allowance under
(C) a payment (other than a gift, bequest, devise, or inheritance within the meaning of section 102(a)) for educational expenses, or attributable to attendance at an eligible educational institution, which is exempt from income taxation by any law of the United States, or
(D) a payment, waiver, or reimbursement of qualified higher education expenses under a qualified tuition program (within the meaning of section 529(b)).
(2) Coordination with other higher education benefits
The amount of the qualified higher education expenses otherwise taken into account under subsection (a) with respect to the education of an individual shall be reduced (before the application of subsection (b)) by—
(A) the amount of such expenses which are taken into account in determining the credit allowed to the taxpayer or any other person under section 25A with respect to such expenses; and
(B) the amount of such expenses which are taken into account in determining the exclusions under sections 529(c)(3)(B) and 530(d)(2).
(3) No exclusion for married individuals filing separate returns
If the taxpayer is a married individual (within the meaning of section 7703), this section shall apply only if the taxpayer and his spouse file a joint return for the taxable year.
(4) Regulations
The Secretary may prescribe such regulations as may be necessary or appropriate to carry out this section, including regulations requiring record keeping and information reporting.
(Added
Inflation Adjusted Items for Certain Years
For inflation adjustment of certain items in this section, see Revenue Procedures listed in a table under
Editorial Notes
Prior Provisions
A prior section 135 was renumbered
Amendments
2021—Subsec. (c)(4)(A).
2020—Subsec. (c)(4)(A).
2017—Subsec. (b)(2)(B)(ii).
Subsec. (c)(4)(A).
2004—Subsec. (c)(4)(A).
2001—Subsec. (c)(2)(C).
Subsec. (c)(4)(A).
Subsec. (d)(1)(D).
Subsec. (d)(2)(A).
Subsec. (d)(2)(B).
1998—Subsec. (c)(2)(C).
Subsec. (c)(3).
"(A) an institution described in section 1201(a) or subparagraph (C) or (D) of section 481(a)(1) of the Higher Education Act of 1965 (as in effect on October 21, 1988), and
"(B) an area vocational education school (as defined in subparagraph (C) or (D) of section 521(3) of the Carl D. Perkins Vocational Education Act) which is in any State (as defined in section 521(27) of such Act), as such sections are in effect on October 21, 1988."
Subsec. (c)(4)(A).
Subsec. (d)(2).
1997—Subsec. (c)(2)(C).
Subsec. (d)(2) to (4).
1996—Subsec. (b)(2)(B)(ii).
Subsec. (c)(4)(A).
Subsec. (d)(1)(D).
1990—Subsec. (b)(2)(B).
Subsec. (b)(2)(B)(ii).
Subsec. (b)(2)(C).
1989—Subsec. (d)(1).
Statutory Notes and Related Subsidiaries
Effective Date of 2021 Amendment
Amendment by
Effective Date of 2020 Amendment
Amendment by
Effective Date of 2017 Amendment
Amendment by section 11002(d)(1)(M) of
Amendment by section 13305(b)(1) of
Effective Date of 2004 Amendment
Amendment by
Effective Date of 2001 Amendment
Amendment by
Amendment by section 401(g)(2)(B) of
Amendment by section 402(a)(4)(A), (B), (b)(2)(A) of
Amendment by section 431(c)(1) of
Effective Date of 1998 Amendment
Amendment by
Amendment by
Effective Date of 1997 Amendment
Amendment by section 201(d) of
Amendment by section 211(c) of
Amendment by section 213(e)(2) of
Effective Date of 1996 Amendment
Amendment by section 1703(d) of
Amendment by section 1806(b)(1) of
Amendment by section 1807(c)(2) of
Effective Date of 1990 Amendment
Amendment by section 11101(d)(1)(E) of
Amendment by section 11702(h) of
Effective Date of 1989 Amendment
Amendment by
Effective Date
Section applicable to taxable years beginning after Dec. 31, 1989, see section 6009(d) of
Promotion of Public Awareness of Program
Parental Assistance With Tuition Stamp Study
§136. Energy conservation subsidies provided by public utilities
(a) Exclusion
Gross income shall not include the value of any subsidy provided (directly or indirectly) by a public utility to a customer for the purchase or installation of any energy conservation measure.
(b) Denial of double benefit
Notwithstanding any other provision of this subtitle, no deduction or credit shall be allowed for, or by reason of, any expenditure to the extent of the amount excluded under subsection (a) for any subsidy which was provided with respect to such expenditure. The adjusted basis of any property shall be reduced by the amount excluded under subsection (a) which was provided with respect to such property.
(c) Energy conservation measure
(1) In general
For purposes of this section, the term "energy conservation measure" means any installation or modification primarily designed to reduce consumption of electricity or natural gas or to improve the management of energy demand with respect to a dwelling unit.
(2) Other definitions
For purposes of this subsection—
(A) Dwelling unit
The term "dwelling unit" has the meaning given such term by section 280A(f)(1).
(B) Public utility
The term "public utility" means a person engaged in the sale of electricity or natural gas to residential, commercial, or industrial customers for use by such customers. For purposes of the preceding sentence, the term "person" includes the Federal Government, a State or local government or any political subdivision thereof, or any instrumentality of any of the foregoing.
(d) Exception
This section shall not apply to any payment to or from a qualified cogeneration facility or qualifying small power production facility pursuant to section 210 of the Public Utility Regulatory Policy Act of 1978.
(Added
Editorial Notes
References in Text
Section 210 of the Public Utility Regulatory Policy Act of 1978, referred to in subsec. (d), probably means section 210 of the Public Utility Regulatory Policies Act of 1978,
Prior Provisions
A prior section 136 was renumbered
Amendments
1996—Subsec. (a).
Subsec. (c)(1).
"(A) with respect to a dwelling unit, and
"(B) on or after January 1, 1995, with respect to property other than dwelling units.
The purchase and installation of specially defined energy property shall be treated as an energy conservation measure described in subparagraph (B)."
Subsec. (c)(2).
Statutory Notes and Related Subsidiaries
Effective Date of 1996 Amendment
Effective Date
§137. Adoption assistance programs
(a) Exclusion
(1) In general
Gross income of an employee does not include amounts paid or expenses incurred by the employer for qualified adoption expenses in connection with the adoption of a child by an employee if such amounts are furnished pursuant to an adoption assistance program.
(2) $10,000 exclusion for adoption of child with special needs regardless of expenses
In the case of an adoption of a child with special needs which becomes final during a taxable year, the qualified adoption expenses with respect to such adoption for such year shall be increased by an amount equal to the excess (if any) of $10,000 over the actual aggregate qualified adoption expenses with respect to such adoption during such taxable year and all prior taxable years.
(b) Limitations
(1) Dollar limitation
The aggregate of the amounts paid or expenses incurred which may be taken into account under subsection (a) for all taxable years with respect to the adoption of a child by the taxpayer shall not exceed $10,000.
(2) Income limitation
The amount excludable from gross income under subsection (a) for any taxable year shall be reduced (but not below zero) by an amount which bears the same ratio to the amount so excludable (determined without regard to this paragraph but with regard to paragraph (1)) as—
(A) the amount (if any) by which the taxpayer's adjusted gross income exceeds $150,000, bears to
(B) $40,000.
(3) Determination of adjusted gross income
For purposes of paragraph (2), adjusted gross income shall be determined—
(A) without regard to this section and sections 85(c) 1 221, 911, 931, and 933, and
(B) after the application of sections 86, 135, 219, and 469.
(c) Adoption assistance program
For purposes of this section, an adoption assistance program is a separate written plan of an employer for the exclusive benefit of such employer's employees—
(1) under which the employer provides such employees with adoption assistance, and
(2) which meets requirements similar to the requirements of paragraphs (2), (3), (5), and (6) of section 127(b).
An adoption reimbursement program operated under
(d) Qualified adoption expenses
For purposes of this section, the term "qualified adoption expenses" has the meaning given such term by section 23(d) (determined without regard to reimbursements under this section).
(e) Certain rules to apply
Rules similar to the rules of subsections (e), (f), and (g) of section 23 shall apply for purposes of this section.
(f) Adjustments for inflation
In the case of a taxable year beginning after December 31, 2002, each of the dollar amounts in subsection (a)(2) and paragraphs (1) and (2)(A) of subsection (b) shall be increased by an amount equal to—
(1) such dollar amount, multiplied by
(2) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting "calendar year 2001" for "calendar year 2016" in subparagraph (A)(ii) thereof.
If any amount as increased under the preceding sentence is not a multiple of $10, such amount shall be rounded to the nearest multiple of $10.
(Added
Inflation Adjusted Items for Certain Years
For inflation adjustment of certain items in this section, see Revenue Procedures listed in a table under
Editorial Notes
References in Text
Prior Provisions
A prior section 137 was renumbered
Amendments
2021—Subsec. (b)(3)(A).
2020—Subsec. (b)(3)(A).
2018—Subsec. (c).
2017—Subsec. (b)(3)(A).
Subsec. (f)(2).
2010—Subsec. (a)(2).
Subsec. (b)(1).
Subsec. (d).
Subsec. (e).
Subsec. (f).
"(1) such dollar amount, multiplied by
"(2) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting 'calendar year 2001' for 'calendar year 1992' in subparagraph (B) thereof.
If any amount as increased under the preceding sentence is not a multiple of $10, such amount shall be rounded to the nearest multiple of $10."
2004—Subsec. (b)(1).
Subsec. (b)(3)(A).
2002—Subsec. (a).
"(1) in the case of an adoption of a child other than a child with special needs, the amount of the qualified adoption expenses paid or incurred by the taxpayer, and
"(2) in the case of an adoption of a child with special needs, $10,000."
Subsec. (b)(1).
Subsec. (f).
2001—Subsec. (a).
Subsec. (b)(1).
Subsec. (b)(2)(A).
Subsec. (b)(3)(A).
Subsec. (f).
1998—Subsec. (b)(3)(A).
1997—Subsec. (b)(1).
Statutory Notes and Related Subsidiaries
Effective Date of 2021 Amendment
Amendment by
Effective Date of 2020 Amendment
Amendment by
Effective Date of 2017 Amendment
Amendment by section 11002(d)(1)(N) of
Amendment by section 13305(b)(1) of
Effective and Termination Dates of 2010 Amendment
Amendment by
Amendment by
Effective Date of 2004 Amendments
Amendment by
Amendment by
Effective Date of 2002 Amendment
Amendment by section 411(c)(2) of
Amendment by section 418(a)(2) of
Effective Date of 2001 Amendment
Amendment by section 202(b)(1)(B), (2)(B), (d)(2), (e)(2) of
Amendment by section 202(a)(2) of
Amendment by section 431(c)(1) of
Effective Date of 1998 Amendment
Amendment by
Effective Date of 1997 Amendment
Amendment by
Effective Date
Section applicable to taxable years beginning after Dec. 31, 1996, see section 1807(e) of
Transfer of Functions
For transfer of authorities, functions, personnel, and assets of the Coast Guard, including the authorities and functions of the Secretary of Transportation relating thereto, to the Department of Homeland Security, and for treatment of related references, see
1 So in original. Probably should be followed by a comma.
2 See References in Text note below.
§138. Medicare Advantage MSA
(a) Exclusion
Gross income shall not include any payment to the Medicare Advantage MSA of an individual by the Secretary of Health and Human Services under part C of title XVIII of the Social Security Act.
(b) Medicare Advantage MSA
For purposes of this section, the term "Medicare Advantage MSA" means an Archer MSA (as defined in section 220(d))—
(1) which is designated as a Medicare Advantage MSA,
(2) with respect to which no contribution may be made other than—
(A) a contribution made by the Secretary of Health and Human Services pursuant to part C of title XVIII of the Social Security Act, or
(B) a trustee-to-trustee transfer described in subsection (c)(4),
(3) the governing instrument of which provides that trustee-to-trustee transfers described in subsection (c)(4) may be made to and from such account, and
(4) which is established in connection with an MSA plan described in section 1859(b)(3) of the Social Security Act.
(c) Special rules for distributions
(1) Distributions for qualified medical expenses
In applying section 220 to a Medicare Advantage MSA—
(A) qualified medical expenses shall not include amounts paid for medical care for any individual other than the account holder, and
(B) section 220(d)(2)(C) shall not apply.
(2) Penalty for distributions from Medicare Advantage MSA not used for qualified medical expenses if minimum balance not maintained
(A) In general
The tax imposed by this chapter for any taxable year in which there is a payment or distribution from a Medicare Advantage MSA which is not used exclusively to pay the qualified medical expenses of the account holder shall be increased by 50 percent of the excess (if any) of—
(i) the amount of such payment or distribution, over
(ii) the excess (if any) of—
(I) the fair market value of the assets in such MSA as of the close of the calendar year preceding the calendar year in which the taxable year begins, over
(II) an amount equal to 60 percent of the deductible under the Medicare Advantage MSA plan covering the account holder as of January 1 of the calendar year in which the taxable year begins.
Section 220(f)(4) shall not apply to any payment or distribution from a Medicare Advantage MSA.
(B) Exceptions
Subparagraph (A) shall not apply if the payment or distribution is made on or after the date the account holder—
(i) becomes disabled within the meaning of section 72(m)(7), or
(ii) dies.
(C) Special rules
For purposes of subparagraph (A)—
(i) all Medicare Advantage MSAs of the account holder shall be treated as 1 account,
(ii) all payments and distributions not used exclusively to pay the qualified medical expenses of the account holder during any taxable year shall be treated as 1 distribution, and
(iii) any distribution of property shall be taken into account at its fair market value on the date of the distribution.
(3) Withdrawal of erroneous contributions
Section 220(f)(2) and paragraph (2) of this subsection shall not apply to any payment or distribution from a Medicare Advantage MSA to the Secretary of Health and Human Services of an erroneous contribution to such MSA and of the net income attributable to such contribution.
(4) Trustee-to-trustee transfers
Section 220(f)(2) and paragraph (2) of this subsection shall not apply to any trustee-to-trustee transfer from a Medicare Advantage MSA of an account holder to another Medicare Advantage MSA of such account holder.
(d) Special rules for treatment of account after death of account holder
In applying section 220(f)(8)(A) to an account which was a Medicare Advantage MSA of a decedent, the rules of section 220(f) shall apply in lieu of the rules of subsection (c) of this section with respect to the spouse as the account holder of such Medicare Advantage MSA.
(e) Reports
In the case of a Medicare Advantage MSA, the report under section 220(h)—
(1) shall include the fair market value of the assets in such Medicare Advantage MSA as of the close of each calendar year, and
(2) shall be furnished to the account holder—
(A) not later than January 31 of the calendar year following the calendar year to which such reports relate, and
(B) in such manner as the Secretary prescribes in such regulations.
(f) Coordination with limitation on number of taxpayers having Archer MSAs
Subsection (i) of section 220 shall not apply to an individual with respect to a Medicare Advantage MSA, and Medicare Advantage MSAs shall not be taken into account in determining whether the numerical limitations under section 220(j) are exceeded.
(Added
Editorial Notes
References in Text
The Social Security Act, referred to in subsecs. (a) and (b)(2)(A), is act Aug. 14, 1935, ch. 531,
Prior Provisions
A prior section 138 was renumbered
Amendments
2004—
Subsec. (c)(2)(C)(i).
Subsec. (f).
2000—Subsec. (b).
Subsec. (f).
Statutory Notes and Related Subsidiaries
Effective Date
§139. Disaster relief payments
(a) General rule
Gross income shall not include any amount received by an individual as a qualified disaster relief payment.
(b) Qualified disaster relief payment defined
For purposes of this section, the term "qualified disaster relief payment" means any amount paid to or for the benefit of an individual—
(1) to reimburse or pay reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a qualified disaster,
(2) to reimburse or pay reasonable and necessary expenses incurred for the repair or rehabilitation of a personal residence or repair or replacement of its contents to the extent that the need for such repair, rehabilitation, or replacement is attributable to a qualified disaster,
(3) by a person engaged in the furnishing or sale of transportation as a common carrier by reason of the death or personal physical injuries incurred as a result of a qualified disaster, or
(4) if such amount is paid by a Federal, State, or local government, or agency or instrumentality thereof, in connection with a qualified disaster in order to promote the general welfare,
but only to the extent any expense compensated by such payment is not otherwise compensated for by insurance or otherwise.
(c) Qualified disaster defined
For purposes of this section, the term "qualified disaster" means—
(1) a disaster which results from a terroristic or military action (as defined in section 692(c)(2)),
(2) a federally declared disaster (as defined by section 165(i)(5)(A)),
(3) a disaster which results from an accident involving a common carrier, or from any other event, which is determined by the Secretary to be of a catastrophic nature, or
(4) with respect to amounts described in subsection (b)(4), a disaster which is determined by an applicable Federal, State, or local authority (as determined by the Secretary) to warrant assistance from the Federal, State, or local government or agency or instrumentality thereof.
(d) Coordination with employment taxes
For purposes of
(e) No relief for certain individuals
Subsections (a), (f), and (g) shall not apply with respect to any individual identified by the Attorney General to have been a participant or conspirator in a terroristic action (as so defined), or a representative of such individual.
(f) Exclusion of certain additional payments
Gross income shall not include any amount received as payment under section 406 of the Air Transportation Safety and System Stabilization Act.
(g) Qualified disaster mitigation payments
(1) In general
Gross income shall not include any amount received as a qualified disaster mitigation payment.
(2) Qualified disaster mitigation payment defined
For purposes of this section, the term "qualified disaster mitigation payment" means any amount which is paid pursuant to the Robert T. Stafford Disaster Relief and Emergency Assistance Act (as in effect on the date of the enactment of this subsection) or the National Flood Insurance Act (as in effect on such date) to or for the benefit of the owner of any property for hazard mitigation with respect to such property. Such term shall not include any amount received for the sale or disposition of any property.
(3) No increase in basis
Notwithstanding any other provision of this subtitle, no increase in the basis or adjusted basis of any property shall result from any amount excluded under this subsection with respect to such property.
(h) Denial of double benefit
Notwithstanding any other provision of this subtitle, no deduction or credit shall be allowed (to the person for whose benefit a qualified disaster relief payment or qualified disaster mitigation payment is made) for, or by reason of, any expenditure to the extent of the amount excluded under this section with respect to such expenditure.
(Added
Editorial Notes
References in Text
Section 406 of the Air Transportation Safety and System Stabilization Act, referred to in subsec. (f), is section 406 of
The Robert T. Stafford Disaster Relief and Emergency Assistance Act, referred to in subsec. (g)(2), is
The date of the enactment of this subsection, referred to in subsec. (g)(2), is the date of enactment of
The National Flood Insurance Act, referred to in subsec. (g)(2), probably means the National Flood Insurance Act of 1968, title XIII of
Prior Provisions
A prior section 139 was renumbered
Amendments
2018—Subsec. (c)(2).
2008—Subsec. (c)(2).
2005—Subsec. (d).
Subsec. (e).
Subsecs. (g), (h).
Statutory Notes and Related Subsidiaries
Effective Date of 2008 Amendment
Amendment by
Effective Date of 2005 Amendment
Effective Date
Savings Provision
For provisions that nothing in amendment by section 401(b)(10)(A) of
§139A. Federal subsidies for prescription drug plans
Gross income shall not include any special subsidy payment received under section 1860D–22 of the Social Security Act.
(Added
Editorial Notes
References in Text
Section 1860D–22 of the Social Security Act, referred to in text, is classified to
Amendments
2010—
Statutory Notes and Related Subsidiaries
Effective Date of 2010 Amendment
Effective Date
Section applicable to taxable years ending after Dec. 8, 2003, see section 1202(d) of
§139B. Benefits provided to volunteer firefighters and emergency medical responders
(a) In general
In the case of any member of a qualified volunteer emergency response organization, gross income shall not include—
(1) any qualified State and local tax benefit, and
(2) any qualified payment.
(b) Denial of double benefits
In the case of any member of a qualified volunteer emergency response organization—
(1) the deduction under 164 shall be determined with regard to any qualified State and local tax benefit, and
(2) expenses paid or incurred by the taxpayer in connection with the performance of services as such a member shall be taken into account under section 170 only to the extent such expenses exceed the amount of any qualified payment excluded from gross income under subsection (a).
(c) Definitions
For purposes of this section—
(1) Qualified State and local tax benefit
The term "qualified state and local tax benefit" means any reduction or rebate of a tax described in paragraph (1), (2), or (3) of section 164(a) provided by a State or political division thereof on account of services performed as a member of a qualified volunteer emergency response organization.
(2) Qualified payment
(A) In general
The term "qualified payment" means any payment (whether reimbursement or otherwise) provided by a State or political division thereof on account of the performance of services as a member of a qualified volunteer emergency response organization.
(B) Applicable dollar limitation
The amount determined under subparagraph (A) for any taxable year shall not exceed $50 multiplied by the number of months during such year that the taxpayer performs such services.
(3) Qualified volunteer emergency response organization
The term "qualified volunteer emergency response organization" means any volunteer organization—
(A) which is organized and operated to provide firefighting or emergency medical services for persons in the State or political subdivision, as the case may be, and
(B) which is required (by written agreement) by the State or political subdivision to furnish firefighting or emergency medical services in such State or political subdivision.
(Added
Editorial Notes
Amendments
2020—Subsec. (d).
"(1) after December 31, 2010, and before January 1, 2020, or
"(2) after December 31, 2020."
2019—Subsec. (c)(2).
Subsec. (d).
Statutory Notes and Related Subsidiaries
Effective Date of 2020 Amendment
Effective Date of 2019 Amendment
Effective Date
§139C. Certain disability-related first responder retirement payments
(a) In general
In the case of an individual who receives qualified first responder retirement payments for any taxable year, gross income shall not include so much of such payments as do not exceed the annualized excludable disability amount with respect to such individual.
(b) Qualified first responder retirement payments
For purposes of this section, the term "qualified first responder retirement payments" means, with respect to any taxable year, any pension or annuity which but for this section would be includible in gross income for such taxable year and which is received—
(1) from a plan described in clause (iii), (iv), (v), or (vi) of section 402(c)(8)(B), and
(2) in connection with such individual's qualified first responder service.
(c) Annualized excludable disability amount
For purposes of this section—
(1) In general
The term "annualized excludable disability amount" means, with respect to any individual, the service-connected excludable disability amounts which are properly attributable to the 12-month period immediately preceding the date on which such individual attains retirement age.
(2) Service-connected excludable disability amount
The term "service-connected excludable disability amount" means periodic payments received by an individual which—
(A) are not includible in such individual's gross income under section 104(a)(1),
(B) are received in connection with such individual's qualified first responder service, and
(C) terminate when such individual attains retirement age.
(3) Special rule for partial-year payments
In the case of an individual who only receives service-connected excludable disability amounts properly attributable to a portion of the 12-month period described in paragraph (1), such paragraph shall be applied by multiplying such amounts by the ratio of 365 to the number of days in such period to which such amounts were properly attributable.
(d) Qualified first responder service
For purposes of this section, the term "qualified first responder service" means service as a law enforcement officer, firefighter, paramedic, or emergency medical technician.
(Added
Editorial Notes
Prior Provisions
A prior section, added
Statutory Notes and Related Subsidiaries
Effective Date
§139D. Indian health care benefits
(a) General rule
Except as otherwise provided in this section, gross income does not include the value of any qualified Indian health care benefit.
(b) Qualified Indian health care benefit
For purposes of this section, the term "qualified Indian health care benefit" means—
(1) any health service or benefit provided or purchased, directly or indirectly, by the Indian Health Service through a grant to or a contract or compact with an Indian tribe or tribal organization, or through a third-party program funded by the Indian Health Service,
(2) medical care provided or purchased by, or amounts to reimburse for such medical care provided by, an Indian tribe or tribal organization for, or to, a member of an Indian tribe, including a spouse or dependent of such a member,
(3) coverage under accident or health insurance (or an arrangement having the effect of accident or health insurance), or an accident or health plan, provided by an Indian tribe or tribal organization for medical care to a member of an Indian tribe, include a spouse or dependent of such a member, and
(4) any other medical care provided by an Indian tribe or tribal organization that supplements, replaces, or substitutes for a program or service relating to medical care provided by the Federal government to Indian tribes or members of such a tribe.
(c) Definitions
For purposes of this section—
(1) Indian tribe
The term "Indian tribe" has the meaning given such term by section 45A(c)(6).
(2) Tribal organization
The term "tribal organization" has the meaning given such term by section 4(l) of the Indian Self-Determination and Education Assistance Act.
(3) Medical care
The term "medical care" has the same meaning as when used in section 213.
(4) Accident or health insurance; accident or health plan
The terms "accident or health insurance" and "accident or health plan" have the same meaning as when used in section 105.
(5) Dependent
The term "dependent" has the meaning given such term by section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof.
(d) Denial of double benefit
Subsection (a) shall not apply to the amount of any qualified Indian health care benefit which is not includible in gross income of the beneficiary of such benefit under any other provision of this chapter, or to the amount of any such benefit for which a deduction is allowed to such beneficiary under any other provision of this chapter.
(Added
Editorial Notes
References in Text
Section 4(l) of the Indian Self-Determination and Education Assistance Act, referred to in subsec. (c)(2), is classified to
Codification
Another section 139D, added
Statutory Notes and Related Subsidiaries
Effective Date
No Inference With Respect to Exclusion From Gross Income of Certain Benefits
"(1) benefits provided by an Indian tribe or tribal organization that are not within the scope of this section, and
"(2) benefits provided prior to the date of the enactment of this Act [Mar. 23, 2010]."
§139E. Indian general welfare benefits
(a) In general
Gross income does not include the value of any Indian general welfare benefit.
(b) Indian general welfare benefit
For purposes of this section, the term "Indian general welfare benefit" includes any payment made or services provided to or on behalf of a member of an Indian tribe (or any spouse or dependent of such a member) pursuant to an Indian tribal government program, but only if—
(1) the program is administered under specified guidelines and does not discriminate in favor of members of the governing body of the tribe, and
(2) the benefits provided under such program—
(A) are available to any tribal member who meets such guidelines,
(B) are for the promotion of general welfare,
(C) are not lavish or extravagant, and
(D) are not compensation for services.
(c) Definitions and special rules
For purposes of this section—
(1) Indian tribal government
For purposes of this section, the term "Indian tribal government" includes any agencies or instrumentalities of an Indian tribal government and any Alaska Native regional or village corporation, as defined in, or established pursuant to, the Alaska Native Claims Settlement Act (
(2) Dependent
The term "dependent" has the meaning given such term by section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B).
(3) Lavish or extravagant
The Secretary shall, in consultation with the Tribal Advisory Committee (as established under section 3(a) of the Tribal General Welfare Exclusion Act of 2014), establish guidelines for what constitutes lavish or extravagant benefits with respect to Indian tribal government programs.
(4) Establishment of tribal government program
A program shall not fail to be treated as an Indian tribal government program solely by reason of the program being established by tribal custom or government practice.
(5) Ceremonial activities
Any items of cultural significance, reimbursement of costs, or cash honorarium for participation in cultural or ceremonial activities for the transmission of tribal culture shall not be treated as compensation for services.
(Added
Editorial Notes
References in Text
The Alaska Native Claims Settlement Act, referred to in subsec. (c)(1), is
Section 3(a) of the Tribal General Welfare Exclusion Act of 2014, referred to in subsec. (c)(3), is section 3(a) of
Amendments
2018—Subsec. (c)(1).
Subsec. (c)(3).
Statutory Notes and Related Subsidiaries
Effective Date
"(1)
"(2)
Statutory Construction
Tribal Advisory Committee
"(a)
"(b)
"(1)
"(2)
"(A) training and education for internal revenue field agents who administer and enforce internal revenue laws with respect to Indian tribes on Federal Indian law and the Federal Government's unique legal treaty and trust relationship with Indian tribal governments, and
"(B) training of such internal revenue field agents, and provision of training and technical assistance to tribal financial officers, about implementation of this Act [enacting this section and provisions set out as notes under this section] and the amendments made thereby.
"(c)
"(1)
"(A) Three members appointed by the Secretary of the Treasury.
"(B) One member appointed by the Chairman, and one member appointed by the Ranking Member, of the Committee on Ways and Means of the House of Representatives.
"(C) One member appointed by the Chairman, and one member appointed by the Ranking Member, of the Committee on Finance of the Senate.
"(2)
"(A)
"(B)
Other Relief for Indian Tribes
"(a)
"(b)
"(c)
"(1)
"(2)
§139F. Certain amounts received by wrongfully incarcerated individuals
(a) Exclusion from gross income
In the case of any wrongfully incarcerated individual, gross income shall not include any civil damages, restitution, or other monetary award (including compensatory or statutory damages and restitution imposed in a criminal matter) relating to the incarceration of such individual for the covered offense for which such individual was convicted.
(b) Wrongfully incarcerated individual
For purposes of this section, the term "wrongfully incarcerated individual" means an individual—
(1) who was convicted of a covered offense,
(2) who served all or part of a sentence of imprisonment relating to that covered offense, and
(3)(A) who was pardoned, granted clemency, or granted amnesty for that covered offense because that individual was innocent of that covered offense, or
(B)(i) for whom the judgment of conviction for that covered offense was reversed or vacated, and
(ii) for whom the indictment, information, or other accusatory instrument for that covered offense was dismissed or who was found not guilty at a new trial after the judgment of conviction for that covered offense was reversed or vacated.
(c) Covered offense
For purposes of this section, the term "covered offense" means any criminal offense under Federal or State law, and includes any criminal offense arising from the same course of conduct as that criminal offense.
(Added
Statutory Notes and Related Subsidiaries
Effective Date
Waiver of Limitations
[
§139G. Assignments to Alaska Native Settlement Trusts
(a) In general
In the case of a Native Corporation, gross income shall not include the value of any payments that would otherwise be made, or treated as being made, to such Native Corporation pursuant to, or as required by, any provision of the Alaska Native Claims Settlement Act (
(1) are assigned in writing to a Settlement Trust, and
(2) were not received by such Native Corporation prior to the assignment described in paragraph (1).
(b) Inclusion in gross income
In the case of a Settlement Trust which has been assigned payments described in subsection (a), gross income shall include such payments when received by such Settlement Trust pursuant to the assignment and shall have the same character as if such payments were received by the Native Corporation.
(c) Amount and scope of assignment
The amount and scope of any assignment under subsection (a) shall be described with reasonable particularity and may either be in a percentage of one or more such payments or in a fixed dollar amount.
(d) Duration of assignment; revocability
Any assignment under subsection (a) shall specify—
(1) a duration either in perpetuity or for a period of time, and
(2) whether such assignment is revocable.
(e) Prohibition on deduction
Notwithstanding section 247, no deduction shall be allowed to a Native Corporation for purposes of any amounts described in subsection (a).
(f) Definitions
For purposes of this section, the terms "Native Corporation" and "Settlement Trust" have the same meaning given such terms under section 646(h).
(Added
Editorial Notes
References in Text
The Alaska Native Claims Settlement Act, referred to in subsec. (a), is
Statutory Notes and Related Subsidiaries
Effective Date
§139H. Interest received in action to recover property seized by the Internal Revenue Service based on structuring transaction
Gross income shall not include any interest received from the Federal Government in connection with an action to recover property seized by the Internal Revenue Service pursuant to
(Added
Statutory Notes and Related Subsidiaries
Effective Date
§139I. Continuation coverage premium assistance
In the case of an assistance eligible individual (as defined in subsection (a)(3) of section 9501 of the American Rescue Plan Act of 2021), gross income does not include any premium assistance provided under subsection (a)(1) of such section.
(Added
Editorial Notes
References in Text
Section 9501 of the American Rescue Plan Act of 2021, referred to in text, is section 9501 of
Statutory Notes and Related Subsidiaries
Effective Date
§140. Cross references to other Acts
(a) For exemption of—
(1) Allowances and expenditures to meet losses sustained by persons serving the United States abroad, due to appreciation of foreign currencies, see
(2) Benefits under laws administered by the Department of Veterans Affairs, see
(3) Earnings of ship contractors deposited in special reserve funds, see
(4) Income derived from Federal Reserve banks, including capital stock and surplus, see section 7 of the Federal Reserve Act (
(5) Special pensions of persons on Army and Navy medal of honor roll, see
(b) For extension of military income tax-exemption benefits to commissioned officers of Public Health Service in certain circumstances, see section 212 of the Public Health Service Act (
(Aug. 16, 1954, ch. 736,
Editorial Notes
Amendments
2018—Subsec. (a)(2).
Subsec. (a)(3).
Subsec. (a)(4) to (6).
2006—Subsec. (a)(4).
2002—
1997—
1996—
1992—
1991—Subsec. (a)(3).
Subsec. (a)(6).
1988—
1986—
1984—
Subsec. (a)(6) to (8).
1983—
1981—
1980—Subsec. (a).
Subsec. (a)(8).
1978—
1976—Subsec. (a).
Subsec. (b).
1969—
1966—
1964—
1958—Subsec. (a)(18).
1957—Subsec. (a)(18).
1956—Subsec. (a). Act Aug. 1, 1956, added par. (18) relating to dependency and indemnity compensation.
Statutory Notes and Related Subsidiaries
Effective Date of 1984 Amendment
Amendment by section 2661(o)(2) of
Effective Date of 1980 Amendments
Amendment by
Amendment by
Effective Date of 1976 Amendment
Amendment by
Effective Date of 1958 Amendment
Amendment by
Savings Provision
For provisions that nothing in amendment by section 401(b)(11) of
PART IV—TAX EXEMPTION REQUIREMENTS FOR STATE AND LOCAL BONDS
Editorial Notes
Amendments
1986—
1977—
Subpart A—Private Activity Bonds
Editorial Notes
Amendments
2018—
1986—
1977—
1 So in original. Does not conform to section catchline.
§141. Private activity bond; qualified bond
(a) Private activity bond
For purposes of this title, the term "private activity bond" means any bond issued as part of an issue—
(1) which meets—
(A) the private business use test of paragraph (1) of subsection (b), and
(B) the private security or payment test of paragraph (2) of subsection (b), or
(2) which meets the private loan financing test of subsection (c).
(b) Private business tests
(1) Private business use test
Except as otherwise provided in this subsection, an issue meets the test of this paragraph if more than 10 percent of the proceeds of the issue are to be used for any private business use.
(2) Private security or payment test
Except as otherwise provided in this subsection, an issue meets the test of this paragraph if the payment of the principal of, or the interest on, more than 10 percent of the proceeds of such issue is (under the terms of such issue or any underlying arrangement) directly or indirectly—
(A) secured by any interest in—
(i) property used or to be used for a private business use, or
(ii) payments in respect of such property, or
(B) to be derived from payments (whether or not to the issuer) in respect of property, or borrowed money, used or to be used for a private business use.
(3) 5 percent test for private business use not related or disproportionate to government use financed by the issue
(A) In general
An issue shall be treated as meeting the tests of paragraphs (1) and (2) if such tests would be met if such paragraphs were applied—
(i) by substituting "5 percent" for "10 percent" each place it appears, and
(ii) by taking into account only—
(I) the proceeds of the issue which are to be used for any private business use which is not related to any government use of such proceeds,
(II) the disproportionate related business use proceeds of the issue, and
(III) payments, property, and borrowed money with respect to any use of proceeds described in subclause (I) or (II).
(B) Disproportionate related business use proceeds
For purposes of subparagraph (A), the disproportionate related business use proceeds of an issue is an amount equal to the aggregate of the excesses (determined under the following sentence) for each private business use of the proceeds of an issue which is related to a government use of such proceeds. The excess determined under this sentence is the excess of—
(i) the proceeds of the issue which are to be used for the private business use, over
(ii) the proceeds of the issue which are to be used for the government use to which such private business use relates.
(4) Lower limitation for certain output facilities
An issue 5 percent or more of the proceeds of which are to be used with respect to any output facility (other than a facility for the furnishing of water) shall be treated as meeting the tests of paragraphs (1) and (2) if the nonqualified amount with respect to such issue exceeds the excess of—
(A) $15,000,000, over
(B) the aggregate nonqualified amounts with respect to all prior tax-exempt issues 5 percent or more of the proceeds of which are or will be used with respect to such facility (or any other facility which is part of the same project).
There shall not be taken into account under subparagraph (B) any bond which is not outstanding at the time of the later issue or which is to be redeemed (other than in an advance refunding) from the net proceeds of the later issue.
(5) Coordination with volume cap where nonqualified amount exceeds $15,000,000
If the nonqualified amount with respect to an issue—
(A) exceeds $15,000,000, but
(B) does not exceed the amount which would cause a bond which is part of such issue to be treated as a private activity bond without regard to this paragraph,
such bond shall nonetheless be treated as a private activity bond unless the issuer allocates a portion of its volume cap under section 146 to such issue in an amount equal to the excess of such nonqualified amount over $15,000,000.
(6) Private business use defined
(A) In general
For purposes of this subsection, the term "private business use" means use (directly or indirectly) in a trade or business carried on by any person other than a governmental unit. For purposes of the preceding sentence, use as a member of the general public shall not be taken into account.
(B) Clarification of trade or business
For purposes of the 1st sentence of subparagraph (A), any activity carried on by a person other than a natural person shall be treated as a trade or business.
(C) Clarification relating to qualified carbon dioxide capture facilities
For purposes of this subsection, the sale of carbon dioxide produced by a qualified carbon dioxide capture facility (as defined in section 142(o)) which is owned by a governmental unit shall not constitute private business use.
(7) Government use
The term "government use" means any use other than a private business use.
(8) Nonqualified amount
For purposes of this subsection, the term "nonqualified amount" means, with respect to an issue, the lesser of—
(A) the proceeds of such issue which are to be used for any private business use, or
(B) the proceeds of such issue with respect to which there are payments (or property or borrowed money) described in paragraph (2).
(9) Exception for qualified 501(c)(3) bonds
There shall not be taken into account under this subsection or subsection (c) the portion of the proceeds of an issue which (if issued as a separate issue) would be treated as a qualified 501(c)(3) bond if the issuer elects to treat such portion as a qualified 501(c)(3) bond.
(c) Private loan financing test
(1) In general
An issue meets the test of this subsection if the amount of the proceeds of the issue which are to be used (directly or indirectly) to make or finance loans (other than loans described in paragraph (2)) to persons other than governmental units exceeds the lesser of—
(A) 5 percent of such proceeds, or
(B) $5,000,000.
(2) Exception for tax assessment, etc., loans
For purposes of paragraph (1), a loan is described in this paragraph if such loan—
(A) enables the borrower to finance any governmental tax or assessment of general application for a specific essential governmental function,
(B) is a nonpurpose investment (within the meaning of section 148(f)(6)(A)), or
(C) is a qualified natural gas supply contract (as defined in section 148(b)(4)).
(d) Certain issues used to acquire nongovernmental output property treated as private activity bonds
(1) In general
For purposes of this title, the term "private activity bond" includes any bond issued as part of an issue if the amount of the proceeds of the issue which are to be used (directly or indirectly) for the acquisition by a governmental unit of nongovernmental output property exceeds the lesser of—
(A) 5 percent of such proceeds, or
(B) $5,000,000.
(2) Nongovernmental output property
Except as otherwise provided in this subsection, for purposes of paragraph (1), the term "nongovernmental output property" means any property (or interest therein) which before such acquisition was used (or held for use) by a person other than a governmental unit in connection with an output facility (within the meaning of subsection (b)(4)) (other than a facility for the furnishing of water). For purposes of the preceding sentence, use (or the holding for use) before October 14, 1987, shall not be taken into account.
(3) Exception for property acquired to provide output to certain areas
For purposes of paragraph (1)—
(A) In general
The term "nongovernmental output property" shall not include any property which is to be used in connection with an output facility 95 percent or more of the output of which will be consumed in—
(i) a qualified service area of the governmental unit acquiring the property, or
(ii) a qualified annexed area of such unit.
(B) Definitions
For purposes of subparagraph (A)—
(i) Qualified service area
The term "qualified service area" means, with respect to the governmental unit acquiring the property, any area throughout which such unit provided (at all times during the 10-year period ending on the date such property is acquired by such unit) output of the same type as the output to be provided by such property. For purposes of the preceding sentence, the period before October 14, 1987, shall not be taken into account.
(ii) Qualified annexed area
The term "qualified annexed area" means, with respect to the governmental unit acquiring the property, any area if—
(I) such area is contiguous to, and annexed for general governmental purposes into, a qualified service area of such unit,
(II) output from such property is made available to all members of the general public in the annexed area, and
(III) the annexed area is not greater than 10 percent of such qualified service area.
(C) Limitation on size of annexed area not to apply where output capacity does not increase by more than 10 percent
Subclause (III) of subparagraph (B)(ii) shall not apply to an annexation of an area by a governmental unit if the output capacity of the property acquired in connection with the annexation, when added to the output capacity of all other property which is not treated as nongovernmental output property by reason of subparagraph (A)(ii) with respect to such annexed area, does not exceed 10 percent of the output capacity of the property providing output of the same type to the qualified service area into which it is annexed.
(D) Rules for determining relative size, etc.
For purposes of subparagraphs (B)(ii) and (C)—
(i) The size of any qualified service area and the output capacity of property serving such area shall be determined as the close of the calendar year preceding the calendar year in which the acquisition of nongovernmental output property or the annexation occurs.
(ii) A qualified annexed area shall be treated as part of the qualified service area into which it is annexed for purposes of determining whether any other area annexed in a later year is a qualified annexed area.
(4) Exception for property converted to nonoutput use
For purposes of paragraph (1)—
(A) In general
The term "nongovernmental output property" shall not include any property which is to be converted to a use not in connection with an output facility.
(B) Exception
Subparagraph (A) shall not apply to any property which is part of the output function of a nuclear power facility.
(5) Special rules
In the case of a bond which is a private activity bond solely by reason of this subsection—
(A) subsections (c) and (d) of section 147 (relating to limitations on acquisition of land and existing property) shall not apply, and
(B) paragraph (8) of section 142(a) shall be applied as if it did not contain "local".
(6) Treatment of joint action agencies
With respect to nongovernmental output property acquired by a joint action agency the members of which are governmental units, this subsection shall be applied at the member level by treating each member as acquiring its proportionate share of such property.
(7) Exception for qualified electric and natural gas supply contracts
The term "nongovernmental output property" shall not include any contract for the prepayment of electricity or natural gas which is not investment property under section 148(b)(2).
(e) Qualified bond
For purposes of this part, the term "qualified bond" means any private activity bond if—
(1) In general
Such bond is—
(A) an exempt facility bond,
(B) a qualified mortgage bond,
(C) a qualified veterans' mortgage bond,
(D) a qualified small issue bond,
(E) a qualified student loan bond,
(F) a qualified redevelopment bond, or
(G) a qualified 501(c)(3) bond.
(2) Volume cap
Such bond is issued as part of an issue which meets the applicable requirements of section 146, and 1
(3) Other requirements
Such bond meets the applicable requirements of each subsection of section 147.
(Added
Editorial Notes
Prior Provisions
A prior section 141, acts Aug. 16, 1954, ch. 736,
Amendments
2021—Subsec. (b)(6)(C).
2005—Subsec. (c)(2)(C).
Subsec. (d)(7).
1988—Subsec. (b)(5)(B).
1987—Subsecs. (d), (e).
Statutory Notes and Related Subsidiaries
Effective Date of 2021 Amendment
Amendment by
Effective Date of 2005 Amendment
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1987 Amendment
"(1)
"(2)
"(3)
"(A) after October 13, 1987, by an authority created by a statute—
"(i) approved by the State Governor on July 24, 1986, and
"(ii) sections 1 through 10 of which became effective on January 15, 1987, and
"(B) to provide facilities serving the area specified in such statute on the date of its enactment."
Effective Date; Transitional Rules
"SEC. 1311. GENERAL EFFECTIVE DATES.
"(a)
"(b)
"(1)
"(2)
"(c)
"(d)
"(e)
"(f)
"SEC. 1312. TRANSITIONAL RULES FOR CONSTRUCTION OR BINDING AGREEMENTS AND CERTAIN GOVERNMENT BONDS ISSUED AFTER AUGUST 15, 1986.
"(a)
"(1)
"(A)(i) the original use of which commences with the taxpayer, and the construction, reconstruction, or rehabilitation of which began before September 26, 1985, and was completed on or after such date,
"(ii) the original use of which begins with the taxpayer and with respect to which a binding contract to incur significant expenditures for construction, reconstruction, or rehabilitation was entered into before September 26, 1985, and some of such expenditures are incurred on or after such date, or
"(iii) acquired on or after September 26, 1985, pursuant to a binding contract entered into before such date, and
"(B) described in an inducement resolution or other comparable preliminary approval adopted by an issuing authority (or by a voter referendum) before September 26, 1985.
"(2)
"(b)
"(1)
"(A) The requirement that 95 percent or more of the net proceeds of an issue are to be used for a purpose described in section 103(b)(4) or (5) of such Code in order for section 103(b)(4) or (5) of such Code to apply, including the application of section 142(b)(2) of the 1986 Code (relating to limitation on office space).
"(B) The requirement that 95 percent or more of the net proceeds of an issue are to be used for a purpose described in section 103(b)(6)(A) of the 1954 Code in order for section 103(b)(6)(A) of such Code to apply.
"(C) The requirements of section 143 of the 1986 Code (relating to qualified mortgage bonds and qualified veterans' mortgage bonds) in order for section 103A(b)(2) of the 1954 Code to apply.
"(D) The requirements of section 144(a)(11) of the 1986 Code (relating to limitation on acquisition of depreciable farm property) in order for section 103(b)(6)(A) of the 1954 Code to apply.
"(E) The requirements of section 147(b) of the 1986 Code (relating to maturity may not exceed 120 percent of economic life).
"(F) The requirements of section 147(f) of the 1986 Code (relating to public approval required for private activity bonds).
"(G) The requirements of section 147(g) of the 1986 Code (relating to restriction on issuance costs financed by issue).
"(H) The requirements of section 148 of the 1986 Code (relating to arbitrage).
"(I) The requirements of section 149(e) of the 1986 Code (relating to information reporting).
"(J) The provisions of section 150(b) of the 1986 Code (relating to changes in use).
"(2)
"(3)
"(4)
"(c)
"(1)
"(A) section 1311(a) and (c) and subsection (b) of this section shall be applied by substituting 'August 31, 1986' for 'August 15, 1986' each place it appears,
"(B) subsection (b)(1) shall be applied without regard to subparagraphs (F), (G), and (J), and
"(C) such bond shall not be treated as a private activity bond for purposes of applying the requirements referred to in subparagraphs (H) and (I) of subsection (b)(1).
"(2)
"(A) an industrial development bond, as defined in section 103(b)(2) of the 1954 Code but determined—
"(i) by inserting 'directly or indirectly' after 'is' in the material preceding clause (i) of subparagraph (B) thereof, and
"(ii) without regard to subparagraph (B) of section 103(b)(3) of such Code,
"(B) a mortgage subsidy bond (as defined in section 103A(b)(1) of such Code, without regard to any exception from such definition), or
"(C) a private loan bond (as defined in section 103(o)(2)(A) of such Code, without regard to any exception from such definition other than section 103(o)(2)(C) of such Code).
"(d)
"SEC. 1313. TRANSITIONAL RULES RELATING TO REFUNDINGS.
"(a)
"(1)
"(A) the amount of the refunding bond does not exceed the outstanding amount of the refunded bond, and
"(B)(i) the average maturity of the issue of which the refunding bond is a part does not exceed 120 percent of the average reasonably expected economic life of the facilities being financed with the net proceeds of such issue (determined under section 147(b) of the 1986 Code), or
"(ii) the refunding bond has a maturity date not later than the date which is 17 years after the date on which the qualified bond was issued.
In the case of a qualified bond which was (when issued) a qualified mortgage bond or a qualified veterans' mortgage bond, subparagraph (B)(i) shall not apply and subparagraph (B)(ii) shall be applied by substituting '32 years' for '17 years'.
"(2)
"(A) issued before August 16, 1986, or
"(B) issued after August 15, 1986, if section 1312(a) applies to such bond.
"(3)
"(A) The requirements of section 147(f) (relating to public approval required for private activity bonds) but only if the maturity date of the refunding bond is later than the maturity date of the refunded bond.
"(B) The requirements of section 147(g) (relating to restriction on issuance costs financed by issue).
"(C) The requirements of sections 143(g) and 148 (relating to arbitrage).
"(D) The requirements of section 149(e) (relating to information reporting).
"(E) The provisions of section 150(b) (relating to changes in use).
Subparagraphs (A) and (D) shall apply only if the refunding bond is issued after December 31, 1986. In the case of a refunding bond described in paragraph (1) with respect to a qualified bond described in paragraph (2)(B), the requirements of section 1312(b)(1) which applied to such qualified bond shall be treated as specified in this paragraph with respect to such refunding bond.
"(4)
"(A) paragraph (2) of this subsection shall be applied by substituting 'August 31, 1986' for 'August 15, 1986' and by substituting 'September 1, 1986' for 'August 16, 1986',
"(B) paragraph (3) shall be applied without regard to subparagraphs (A), (B), and (E), and
"(C) such bond shall not be treated as a private activity bond for purposes of applying the requirements referred to in subparagraphs (C) and (D) of paragraph (3).
"(b)
"(1)
"(A) the refunded bond is described in paragraph (2), and
"(B) the requirements of subsection (a)(1)(B) are met.
"(2)
"(3)
"(A) The requirements of section 147(f) (relating to public approval required for private activity bonds).
"(B) The requirements of section 147(g) (relating to restriction on issuance costs financed by issue).
"(C) The requirements of section 148 (relating to arbitrage), except that section 148(d)(3) shall not apply to proceeds of such bonds to be used to discharge the refunded bonds.
"(D) The requirements of [former] paragraphs (3) and (4) of section 149(d) (relating to advance refundings).
"(E) The requirements of section 149(e) (relating to information reporting).
"(F) The provisions of section 150(b) (relating to changes in use).
"(G) Except as provided in the last sentence of subsection (c)(2) of this section, the requirements of section 145(b) (relating to $150,000,000 limitation on bonds other than hospital bonds).
Subparagraphs (A) and (E) shall apply only if the refunding bond is issued after December 31, 1986.
"(4)
"(A) paragraph (2) of this subsection shall be applied by substituting 'September 1, 1986' for 'August 16, 1986',
"(B) paragraph (3) shall be applied without regard to subparagraphs (A), (B), and (F), and
"(C) such bond shall not be treated as a private activity bond for purposes of applying the requirements referred to in subparagraphs (C) and (E).
"(5)
"(c)
"(1) $40,000,000
"(A) the average maturity date of the issue of which the refunding bond is a part is not later than the average maturity date of the bonds to be refunded by such issue,
"(B) the amount of the refunding bond does not exceed the outstanding amount of the refunded bond, and
"(C) the net proceeds of the refunding bond are used to redeem the refunded bond not later than 90 days after the date of the issuance of the refunding bond.
For purposes of subparagraph (A), average maturity shall be determined in accordance with section 147(b)(2)(A) of the 1986 Code.
"(2) $150,000,000
"(A)(i) the average maturity of the issue of which the refunding bond is a part does not exceed 120 percent of the average reasonably expected economic life of the facilities being financed with the net proceeds of such issue (determined under section 147(b) of the 1986 Code), or
"(ii) the refunding bond has a maturity date not later than the later of the date which is 17 years after the date on which the qualified bond (as defined in subsection (a)(2)) was issued, and
"(B) the requirements of subparagraphs (B) and (C) of paragraph (1) are met with respect to the refunding bond.
Subsection (b) of section 145 of the 1986 Code shall not apply to the 1st advance refunding after March 14, 1986, of a bond issued before January 1, 1986.
"(3)
"(d)
"SEC. 1314. SPECIAL RULES WHICH OVERRIDE OTHER RULES IN THIS SUBTITLE.
"(a)
"(b)
"(c)
"(d)
"(1)
"(2)
"(3)
"(A)
"(B)
"(i) the jurisdiction of the issuer, or
"(ii) the jurisdiction of the governmental unit on behalf of which such issuer issued the issue.
"(C)
"(D)
"(E)
"(i) the maturity date of any bond issued as part of such issue exceeds 30 years, and
"(ii) any principal payment on any loan made or financed by the proceeds of the issue is to be used to make or finance additional loans.
"(F)
"(i)
"(I) the issuer, before 1986, issued 1 or more similar issues to make or finance loans to governmental units, and
"(II) the aggregate face amount of such issues issued during 1986 does not exceed 250 percent of the average of the annual aggregate face amounts of such similar issues issued during 1983, 1984, or 1985.
"(ii)
"(I) the bonds issued as part of such issue are offered to the public (pursuant to final offering materials), and
"(II) at least 25 percent of such bonds is sold to the public.
For purposes of the preceding sentence, the sale of a bond to a securities firm, broker, or other person acting in the capacity of an underwriter or wholesaler shall not be treated as a sale to the public.
"(e)
"(f)
"(g)
"(h)
"(i)
"SEC. 1315. TRANSITIONAL RULES RELATING TO VOLUME CAP.
"(a)
"(b)
"(c)
"(1) such bond would not have been taken into account under section 103(n) of the 1954 Code for calendar year 1986 (determined without regard to any carryforward election) were such bond issued on August 15, 1986, or
"(2) such bond would not have been taken into account under section 103(n) of the 1954 Code for calendar year 1986 (determined with regard to any carryforward election made before January 1, 1986) were such bond issued on August 15, 1986.
The preceding sentence shall not apply to the extent section 1313(b)(5) treats any bond as a private activity bond for purposes of section 146 of the 1986 Code.
"(d)
"(1) A facility is described in this paragraph if the amendments made by section 201 of this Act [amending
"(2) A facility or purpose is described in this paragraph if the facility or purpose is described in a paragraph of section 1317.
"(3) A facility is described in this paragraph if the facility—
"(A) serves Los Osos, California, and
"(B) would be described in paragraph (1) were it a solid waste disposal facility.
The aggregate face amount of bonds to which this paragraph applies shall not exceed $35,000,000.
"(4) A facility is described in this paragraph if it is a sewage disposal facility with respect to which—
"(A) on September 13, 1985, the State public facilities authority took official action authorizing the issuance of bonds for such facility, and
"(B) on December 30, 1985, there was an executive order of the State Governor granting allocation of the State ceiling under section 103(n) of the 1954 Code in the amount of $250,000,000 to the Industrial Development Board of the Parish of East Baton Rouge, Louisiana.
The aggregate face amount of bonds to which this paragraph applies shall not exceed $98,500,000.
"(5) A facility is described in this paragraph if—
"(A) such facility is a solid waste disposal facility in Charleston, South Carolina, and
"(B) a State political subdivision took formal action on April 1, 1980, to commit development funds for such facility.
For purposes of determining whether a bond issued as part of an issue for a facility described in the preceding sentence is an exempt facility bond for purposes of part IV of subchapter B of
"The aggregate face amount of bonds to which this paragraph applies shall not exceed $75,000,000.
"(6) A facility is described in this paragraph if—
"(A) such facility is a wastewater treatment facility for which site preparation commenced before September 1985, and
"(B) a parish council approved a service agreement with respect to such facility on December 4, 1985.
The aggregate face amount of bonds to which this paragraph applies shall not exceed $120,000,000.
"(e)
"SEC. 1316. PROVISIONS RELATING TO CERTAIN ESTABLISHED STATE PROGRAMS.
"(a)
"(1)
"(2)
"(A) such bond is a private activity bond solely by reason of section 141(c) of such Code, and
"(B) such bond is issued as part of an issue 95 percent or more of the net proceeds of which are to be used to carry out a program established under State law to provide loans to veterans for the purchase of land and which has been in effect in substantially the same form during the 30-year period ending on July 18, 1984, but only if such proceeds are used to make loans or to fund similar obligations—
"(i) in the same manner in which,
"(ii) in the same (or lesser) amount or multiple of acres per participant, and
"(iii) for the same purposes for which,
such program was operated on March 15, 1984.
"(b)
"(1)
"(2)
"(A) such section 243 were applied by substituting '95 percent or more of the net proceeds' for 'substantially all of the proceeds' in subsection (a)(1) thereof, and
"(B) subparagraph (E) of subsection (a)(1) thereof referred to section 149(b) of the 1986 Code.
"(c)
"(1)
"(2)
"(A) such program has been in effect in substantially the same form since July 1, 1983, and
"(B) such proceeds are to be used to make loans or fund similar obligations for the same purposes as permitted under such program on July 1, 1986.
"(3) $100,000,000
"(4)
"(d)
"(1) a portion of such program has been financed by bonds issued before such date, to which section 103(a) of the 1954 Code applied pursuant to a ruling issued by the Commissioner of the Internal Revenue Service, and
"(2) construction of 1 or more facilities comprising a part of such program commenced before such date.
"(e)
"(1)
"(A) which, when issued, would have been treated as federally guaranteed by reason of being described in clause (ii) of section 103(h)(2)(B) of the 1954 Code if such section had applied to such bond, and
"(B)(i) which was issued before April 15, 1983, or
"(ii) to which such clause did not apply by reason of the except clause in section 631(c)(2) of the Tax Reform Act of 1984 [section 631(c)(2) of
Section 147(c) of the 1986 Code (and section 103(b)(16) of the 1954 Code) shall not apply to any refunding bond permitted under the preceding sentence if section 103(b)(16) of the 1954 Code did not apply to the refunded bond when issued.
"(2)
"(A) the refunding bond has a maturity date not later than the maturity date of the refunded bond,
"(B) the amount of the refunding bond does not exceed the outstanding amount of the refunded bond,
"(C) the weighted average interest rate on the refunding bond is lower than the weighted average interest rate on the refunded bond, and
"(D) the net proceeds of the refunding bond are used to redeem the refunded bond not later than 90 days after the date of the issuance of the refunding bond.
"(f)
"(1)
"(2)
"(A) by substituting 'an application for a license' for 'an application' in section 103(b)(8)(E)(ii) of the 1954 Code, and
"(B) by applying the requirements of section 142(b)(2) of the 1986 Code.
"(g)
"(1) Subsections (d)(3) and (f) of section 148 of the 1986 Code shall not apply to any bond described in section 624(c)(2) of the Tax Reform Act of 1984 [section 624(c)(2) of
"(2)(A) There shall not be taken into account under section 146 of the 1986 Code any bond issued to provide a facility described in paragraph (3) of section 631(a) of the Tax Reform Act of 1984 [section 631(a)(3) of
"(B) If a bond issued as part of an issue substantially all of the proceeds of which are used to provide the convention center to which such paragraph (3) applies, such bond shall be treated as an exempt facility bond as defined in section 142(a) of the 1986 Code.
"(C) If a bond which is issued as part of an issue substantially all of the proceeds of which are used to provide the resource recovery project to which such paragraph (3) applies, such bond shall be treated as an exempt facility bond as defined in section 142(a) of the 1986 Code and section 149(b) of such Code shall not apply.
"(3) The amendments made by section 1301 [for classification see section 1311(a) of this note] shall not apply to bonds issued to finance any property described in section 631(d)(4) of the Tax Reform Act of 1984 [section 631(d)(4) of
"(4) The amendments made by section 1301 [for classification see section 1311(a) of this note] shall not apply to—
"(A) any bond issued to finance property described in section 631(d)(5) of the Tax Reform Act of 1984 [section 631(d)(5) of
"(B) any bond described in paragraph (2), (3), (4), (5), (6), or (7) of section 632(a), or section 632(b), of such Act [
"(C) any bond to which section 632(g)(2) of such Act applies.
In the case of bonds to which this paragraph applies, the requirements of sections 148 and 149(d) shall be treated as included in section 103 of the 1954 Code and shall apply to such bonds.
"(5) The preceding provisions of this subsection shall not apply to any bond issued after December 31, 1988.
"(6) The amendments made by section 1301 [for classification see section 1311(a) of this note] (and the provisions of section 1314) shall not apply to any bond issued to finance property described in section 216(b)(3) of the Tax Equity and Fiscal Responsibility Act of 1982 [section 216(b)(3) of
"(7) In the case of a bond described in section 632(d) of the Tax Reform Act of 1984 [
"(A) section 141 of the 1986 Code shall be applied without regard to subsection (a)(2) and paragraphs (4) and (5) of subsection (b),
"(B) paragraphs (1) and (2) of section 141(b) of the 1986 Code shall be applied by substituting '25 percent' for '10 percent' each place it appears, and
"(C) section 149(b) of the 1986 Code shall not apply.
This paragraph shall not apply to any bond issued after December 31, 1990.
"(8)(A) The amendments made by section 1301 [for classification see section 1311(a) of this note] shall not apply to any bond to which section 629(a)(1) of the Tax Reform Act of 1984 [section 629(a)(1) of
"(B) Section 629 of the Tax Reform Act of 1984 [section 629 of
"(i) in subsection (c)(2), by striking out '$625,000,000' and inserting in lieu thereof '$911,000,000',
"(ii) in subsection (c)(3), by adding at the end thereof the following new subparagraphs:
" '(D) Improvements to existing generating facilities.
" '(E) Transmission lines.
" '(F) Electric generating facilities.', and
"(iii) in subsection (a), by adding at the end thereof the following new sentence: 'The preceding sentence shall be applied by inserting "and a rural electric cooperative utility" after "regulated public utility" but only if not more than 1 percent of the load of the public power authority is sold to such rural electric cooperative utility.'
"(h)
"(i)
"(j)
"(1) by striking out 'or the Dade County, Florida, airport' in the last sentence, and
"(2) by adding at the end thereof the following new sentence: 'In the case of refunding obligations not to exceed $100,000,000 issued after October 21, 1986, by Dade County, Florida, for the purpose of advance refunding its Aviation Revenue Bonds (Series J), the first sentence of this paragraph shall be applied by substituting "the date which is 1 year after the date of the enactment of the Technical and Miscellaneous Revenue Act of 1988" [Nov. 10, 1988] for "December 31, 1984" and the amendments made by section 1301 of the Tax Reform Act of 1986 shall not apply.'
"(k)
"(1) by striking out 'December 31, 1984,' in subsection (p) and inserting in lieu thereof 'December 31, 1984 (other than obligations described in subsection (r)(1)),', and
"(2) by striking out '$55,000,000,' in subsection (r)(1)(B) and inserting in lieu thereof '$110,000,000 of which no more than $55,000,000 shall be outstanding later than November 1, 1987'.
"SEC. 1317. TRANSITIONAL RULES FOR SPECIFIC FACILITIES.
"(1)
"(A) A dock or wharf is described in this subparagraph if—
"(i) the issue to finance such dock or wharf was approved by official city action on September 3, 1985, and by voters on November 5, 1985, and
"(ii) such dock or wharf is for a slack water harbor with respect to which a Corps of Engineers grant of approximately $2,000,000 has been made under section 107 of the Rivers and Harbors Act [
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $2,500,000.
"(B) A dock or wharf is described in this subparagraph if—
"(i) inducement resolutions were adopted on May 23, 1985, September 18, 1985, and September 24, 1985, for the issuance of the bonds to finance such dock or wharf,
"(ii) a harbor dredging contract with respect thereto was entered into on August 2, 1985, and
"(iii) a construction management and joint venture agreement with respect thereto was entered into on October 1, 1984.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $625,000,000.
"(C) A facility is described in this subparagraph if—
"(i) the legislature first authorized on June 29, 1981, the State agency issuing the bond to issue at least $30,000,000 of bonds,
"(ii) the developer of the facility was selected on April 26, 1985, and
"(iii) an inducement resolution for the issuance of such issue was adopted on October 9, 1985.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $200,000,000.
"(D) A facility is described in this subparagraph if—
"(i) an inducement resolution was adopted on October 17, 1985, for such issue, and
"(ii) the city council for the city in which the facility is to be located approved on July 30, 1985, an application for an urban development action grant with respect to such facility.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $36,500,000. A facility shall be treated as described in this subparagraph if it would be so described if '90 percent' were substituted for '95 percent' in the material preceding subparagraph (A) of this paragraph.
"(2)
"(A) A facility is described in this subparagraph if—
"(i) inducement resolutions with respect to such facility were adopted on September 23, 1974, and on April 5, 1985,
"(ii) a bond resolution for such facility was adopted on September 6, 1985, and
"(iii) the issuance of the bonds to finance such facility was delayed by action of the Securities and Exchange Commission (file number 70–7127).
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $120,000,000.
"(B) A facility is described in this subparagraph if—
"(i) there was an inducement resolution for such facility on November 19, 1985, and
"(ii) design and engineering studies for such facility were completed in March of 1985.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $25,000,000.
"(C) A facility is described in this subparagraph if—
"(i) a resolution was adopted by the county board of supervisors pertaining to an issuance of bonds with respect to such facility on April 10, 1974, and
"(ii) such facility was placed in service on June 12, 1985.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $90,000,000. For purposes of this subparagraph, a pollution control facility includes a sewage or solid waste disposal facility (within the meaning of section 103(b)(4)(E) of the 1954 Code).
"(D) A facility is described in this subparagraph if—
"(i) the issuance of the bonds for such facility was approved by a State agency on August 22, 1979, and
"(ii) the authority to issue such bonds was scheduled to expire (under terms of the State approval) on August 22, 1989.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $198,000,000.
"(E) A facility is described in this subparagraph if—
"(i) such facility is 1 of 4 such facilities in 4 States with respect to which the Ball Corporation transmitted a letter of intent to purchase such facilities on February 26, 1986, and
"(ii) inducement resolutions were issued on December 30, 1985, January 15, 1986, January 22, 1986, and March 17, 1986 with respect to bond issuance in the 4 respective States.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $6,000,000.
"(F) A facility is described in this subparagraph if—
"(i) inducement resolutions for bonds with respect to such facility were adopted on September 27, 1977, May 27, 1980, and October 8, 1981, and
"(ii) such facility is located at a geothermal power complex owned and operated by a single investor-owned utility.
For purposes of this subparagraph and section 103 of the 1986 Code, all hydrogen sulfide air and water pollution control equipment, together with functionally related and subordinate equipment and structures, located or to be located at such power complex shall be treated as a single pollution control facility. The aggregate face amount of bonds to which this subparagraph applies shall not exceed $600,000,000.
"(G) A facility is described in this subparagraph if—
"(i) such facility is an air pollution control facility approved by a State bureau of pollution control on July 10, 1986, and by a State board of economic development on July 17, 1986, and
"(ii) on August 15, 1986, the State bond attorney gave notice to the clerk to initiate validation proceedings with respect to such issue and on August 28, 1986, the validation decree was entered.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $900,000.
"(I) A facility is described in this subparagraph if—
"(i) a private company met with a State air control board on November 14, 1985, to propose construction of a sulften unit, and
"(ii) the sulften unit is being constructed under a letter of intent to construct which was signed on April 8, 1986.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $11,000,000.
"(J) A facility is described in this subparagraph if it is part of a 250 megawatt coal-fired electric plant in northeastern Nevada on which the Sierra Pacific Power Company, a subsidiary of Sierra Pacific Resources, began in 1980 work to design, finance, construct, and operate. The aggregate face amount of bonds to which this subparagraph applies shall not exceed $200,000,000.
"(K) A facility is described in this subparagraph if—
"(i) there was an inducement resolution adopted by a State industrial development authority on January 14, 1976, and
"(ii) such facility is named in a resolution of such authority relating to carryforward of the State's unused 1985 private activity bond limit passed by such industrial development authority on December 18, 1985.
This subparagraph shall apply only to obligations issued at the request of the party pursuant to whose request the January 14, 1976, inducement was given. The aggregate face amount of bonds to which this subparagraph applies shall not exceed $75,000,000.
"(L) A facility is described in this subparagraph if a city council passed an ordinance (ordinance number 4626) agreeing to issue bonds for such project, December 16, 1985. The aggregate face amount of obligations to which this subparagraph applies shall not exceed $45,000,000.
"(3)
"(A) A facility is described in this subparagraph if it is a stadium—
"(i) which was the subject of a city ordinance passed on September 23, 1985,
"(ii) for which a loan of approximately $4,000,000 for land acquisition was approved on October 28, 1985, by the State Controlling Board, and
"(iii) a stadium operating corporation with respect to which was incorporated on March 20, 1985.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $200,000,000.
"(B) A facility is described in this subparagraph if—
"(i) it is a stadium with respect to which a lease agreement for the ground on which the stadium is to be built was entered into between a county and the stadium corporation for such stadium on July 3, 1984,
"(ii) there was a resolution approved on November 14, 1984, by an industrial development authority setting forth the terms under which the bonds to be issued to finance such stadium would be issued, and
"(iii) there was an agreement for consultant and engineering services for such stadium entered into on September 28, 1984.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $90,000,000.
"(C) A facility is described in this subparagraph if—
"(i) it is one or more stadiums to be used either by an American League baseball team or a National Football League team currently using a stadium in a city having a population in excess of 2,500,000 and described in section 146(d)(3) of the 1986 Code,
"(ii) the bonds to be used to provide financing for one or more such stadiums are issued by a political subdivision or a State agency pursuant to a resolution approving an inducement resolution adopted by a State agency on November 20, 1985, as it may be amended (whether or not the beneficiaries of such issue or issues are the beneficiaries (if any) specified in such inducement resolution and whether or not the number of such stadiums and the locations thereof are as specified in such inducement resolution) or pursuant to P.A. 84–1470 of the State in which such city is located (and by an agency created thereby), and
"(iii) such stadium or stadiums are located in the city described in (i).
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $250,000,000. In the case of any carryforward of volume cap for one or more stadiums described in the first sentence of this subparagraph, such carryforward shall be valid with respect to bonds issued for such stadiums notwithstanding any other provision of the 1986 Code or the 1954 Code, and whether or not (i) there is a change in the number of stadiums or the beneficiaries or sites of the stadium or stadiums and (ii) the bonds are issued by either of the state agencies described in the first sentence of this subparagraph.
"(D) A facility is described in this subparagraph if—
"(i) such facility is a stadium or sports arena for Memphis, Tennessee,
"(ii) there was an inducement resolution adopted on November 12, 1985, for the issuance of bonds to expand or renovate an existing stadium and sports arena and/or to construct a new arena, and
"(iii) the city council for such city adopted a resolution on April 19, 1983, to include funds in the capital budget of the city for such facility or facilities.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $35,000,000.
"(E) A facility is described in this subparagraph if such facility is a baseball stadium located in Bergen, Essex, Union, Middlesex, or Hudson County, New Jersey with respect to which governmental action occurred on November 7, 1985. The aggregate face amount of bonds to which this subparagraph applies shall not exceed $150,000,000.
"(F) A facility is described in this subparagraph if—
"(i) it is a facility with respect to which—
"(I) an inducement resolution dated December 24, 1985, was adopted by the county industrial development authority,
"(II) a public hearing of the county industrial development authority was held on February 6, 1986, regarding such facility, and
"(III) a contract was entered into by the county, dated February 19, 1986, for engineering services for a highway improvement in connection with such project, or
"(ii) it is a domed football stadium adjacent to Cervantes Convention Center in St. Louis, Missouri, with respect to which a proposal to evaluate market demand, financial operations, and economic impact was dated May 9, 1986.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $175,000,000.
"(G) A project to provide a roof or dome for an existing sports facility is described in this subparagraph if—
"(i) in December 1984 the county sports complex authority filed a carryforward election under section 103(n) of the 1954 Code with respect to such project,
"(ii) in January 1985, the State authorized issuance of $30,000,000 in bonds in the next 3 years for such project, and
"(iii) an 11-member task force was appointed by the county executive in June 1985, to further study the feasibility of the project.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $30,000,000.
"(H) A sports facility renovation or expansion project is described in this subparagraph if—
"(i) an amendment to the sports team's lease agreement for such facility was entered into on May 23, 1985, and
"(ii) the lease agreement had previously been amended in January 1976, on July 6, 1984, on April 1, 1985, and on May 7, 1985.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $20,000,000.
"(I) A facility is described in this subparagraph if—
"(i) an appraisal for such facility was completed on March 6, 1985,
"(ii) an inducement resolution was adopted with respect to such facility on June 7, 1985, and
"(iii) a State bond commission granted preliminary approval for such project on September 3, 1985.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $3,200,000.
"(J) A sports facility renovation or expansion project is described in this subparagraph if—
"(i) such facility is a domed stadium which commenced operations in 1965,
"(ii) such facility has been the subject of an ongoing construction, expansion, or renovation program of planned improvements,
"(iii) part 1 of such improvements began in 1982 with a preliminary renovation program financed by tax-exempt bonds,
"(iv) part 2 of such program was previously scheduled for a bond election on February 25, 1986, pursuant to a Commissioners Court Order of November 5, 1985, and
"(v) the bond election for improvements to such facility was subsequently postponed on December 10, 1985, in order to provide for more comprehensive construction planning.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $60,000,000.
"(K) A facility is described in this subparagraph if—
"(i) the 1985 State legislature appropriated a maximum sum of $22,500,000 to the State urban development corporation to be made available for such project, and
"(ii) a development and operation agreement was entered into among such corporation, the city, the State budget director, and the county industrial development agency, as of March 1, 1986.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $28,000,000.
"(L) A facility is described in this subparagraph if—
"(i) it is to consist of 1 or 2 stadiums appropriate for football games and baseball games with related structures and facilities,
"(ii) governmental action was taken on August 7, 1985, by the county commission, and on December 19, 1985, by the city council, concerning such facility, and
"(iii) such facility is located in a city having a National League baseball team.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $200,000,000.
"(M) A facility is described in this subparagraph if—
"(i) such facility consists of 1 or 2 stadium projects (1 of which may be a stadium renovation or expansion project) with related structures and facilities,
"(ii) a special advisory commission commissioned a study by a national accounting firm with respect to a project for such facility, which study was released in September 1985, and recommended construction of either a new multipurpose or a new baseball-only stadium,
"(iii) a nationally recognized design and architectural firm released a feasibility study with respect to such project in April 1985, and
"(iv) the metropolitan area in which the facility is located is presently the home of an American League baseball team.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $200,000,000.
"(N) A facility is described in this subparagraph if—
"(i) it is to consist of 1 or 2 stadiums appropriate for football games and baseball games with related structures and facilities,
"(ii) the site for such facility was approved by the council of the city in which such facility is to be located on July 9, 1985, and
"(iii) the request for proposals process was authorized by the council of the city in which such facility is to be located on November 5, 1985, and such requests were distributed to potential developers on November 15, 1985, with responses due by February 14, 1986.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $200,000,000.
"(O) A facility is described in this subparagraph if—
"(i) such facility is described in a feasibility study dated September 1985, and
"(ii) resolutions were adopted or other actions taken on February 21, 1985, July 18, 1985, August 8, 1985, October 17, 1985, and November 7, 1985, by the Board of Supervisors of the county in which such facility will be located with respect to such feasibility study, appropriations to obtain land for such facility, and approving the location of such facility in the county.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $20,000,000.
"(P) A facility is described in this subparagraph if such facility constructed on a site acquired with the sale of revenue bonds authorized by a city council on December 2, 1985, (Ordinances No. 669 and 670, series 1985). The aggregate face amount of bonds to which this subparagraph applies shall not exceed $90,000,000.
"(Q) A facility is described in this subparagraph if—
"(i) resolutions were adopted approving a ground lease dated June 27, 1983, by a sports authority (created by a State legislature) with respect to the land on which the facility will be erected,
"(ii) such facility is described in a market study dated June 13, 1983, and
"(iii) such facility was the subject of an Act of the State legislature which was signed on July 1, 1983.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $81,000,000.
"(R) A facility is described in this subparagraph if such facility is a baseball stadium and adjacent parking facilities with respect to which a city made a carryforward election of $52,514,000 on February 25, 1985. The aggregate face amount of bonds to which this subparagraph applies shall not exceed $50,000,000.
"(S) A facility is described in this subparagraph if—
"(i) such facility is to be used by both a National Hockey League team and a National Basketball Association team,
"(ii) such facility is to be constructed on a platform using air rights over land acquired by a State authority and identified as site B in a report dated May 30, 1984, prepared for a State urban development corporation, and
"(iii) such facility is eligible for real property tax (and power and energy) benefits pursuant to State legislation approved and effective as of July 7, 1982.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $225,000,000.
"(T) A facility is described in this subparagraph if—
"(i) a resolution authorizing the financing of the facility through an issuance of revenue bonds was adopted by the City Commission on August 5, 1986, and
"(ii) the metropolitan area in which the facility is to be located is currently the spring training home of an American league baseball team located during the regular season in a city described in subparagraph (C).
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $10,000,000.
"(U) A facility is described in this subparagraph if it is a football stadium located in Oakland, California, with respect to which a design was completed by a nationally recognized architectural firm for a stadium seating approximately 72,000, to be located on property adjacent to an existing coliseum complex, or is a renovation of an existing stadium located in Oakland, California, and used by an American League baseball team. The aggregate face amount of bonds to which this subparagraph applies shall not exceed $100,000,000.
"(V) A facility is described in this subparagraph if it is a sports arena (and related parking facility) for Grand Rapids, Michigan. The aggregate face amount of bonds to which this subparagraph applies shall not exceed $80,000,000.
"(W) A facility is described in this subparagraph if such facility is located adjacent to the Anacostia River in the District of Columbia. The aggregate face amount of bonds to which this subparagraph applies shall not exceed $25,000,000.
"(X) A facility is described in this subparagraph if it is a spectator sports facility for the City of San Antonio, Texas. The aggregate face amount of bonds to which this subparagraph applies shall not exceed $125,000,000.
"(Y) A facility is described in this subparagraph if it will be part of, or adjacent to, an existing stadium which has been owned and operated by a State university and if—
"(i) the stadium was the subject of a feasibility report by a certified public accounting firm which is dated December 28, 1984, and
"(ii) a report by an independent research organization was prepared in December 1985 demonstrating support among donors and season ticket holders for the addition of a dome to the stadium.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $50,000,000.
"(Z) A facility is described in this subparagraph if—
"(i) such facility was a redevelopment project that was approved in concept by the city council sitting as the redevelopment agency in October 1984, and
"(ii) $20,000,000 in funds for such facility was identified in a 5-year budget approved by the city redevelopment agency on October 25, 1984.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $80,000,000.
"(4)
"(A) a contract to purchase such property dated August 12, 1985;
"(B) the county housing authority approved the property and the financing thereof on September 24, 1985, and
"(C) there was an inducement resolution adopted on October 10, 1985, by the county industrial development authority.
The aggregate face amount of bonds to which this paragraph applies shall not exceed $25,400,000.
"(5)
"(A) A facility is described in this subparagraph if such facility is a hotel at an airport facility serving a city described in section 631(a)(3) of the Tax Reform Act of 1984 [section 631(a)(3) of
"(B) A facility is described in this subparagraph if such facility is the primary airport for a city described in paragraph (3)(C). The aggregate face amount of bonds to which this subparagraph applies shall not exceed $500,000,000. Section 148(d)(2) of the 1986 Code shall not apply to any issue to which this subparagraph applies. A facility shall be described in this subparagraph if it would be so described if '90 percent' were substituted for '95 percent' in the material preceding subparagraph (A).
"(C) A facility is described in this subparagraph if such facility is a hotel at Logan airport and such hotel is located on land leased from a State authority under a lease contemplating development of such hotel dated May 1, 1983, or under an amendment, renewal, or extension of such a lease. The aggregate face amount of bonds to which this subparagraph applies shall not exceed $40,000,000.
"(D) A facility is described in this subparagraph if such facility is the airport for the County of Sacramento, California. The aggregate face amount of bonds to which this subparagraph applies shall not exceed $150,000,000.
"(6)
"(A) A project is described in this subparagraph if it was the subject of a city ordinance numbered 82–115 and adopted on December 2, 1982, or numbered 9590 and adopted on April 6, 1983. The aggregate face amount of bonds to which this subparagraph applies shall not exceed $9,000,000.
"(B) A project is described in this subparagraph if it is a redevelopment project for an area in a city described in paragraph (3)(C) which was designated as commercially blighted on November 14, 1975, by the city council and the redevelopment plan for which will be approved by the city council before January 31, 1987. The aggregate face amount of bonds to which this subparagraph applies shall not exceed $20,000,000.
"(C) A project is described in this subparagraph if it is a redevelopment project for an area in a city described in paragraph (3)(C) which was designated as commercially blighted on March 28, 1979, by the city council and the redevelopment plan for which was approved by the city council on June 20, 1984. The aggregate face amount of bonds to which this subparagraph applies shall not exceed $100,000,000.
"(D) A project is described in this subparagraph if it is any one of three redevelopment projects in areas in a city described in paragraph (3)(C) designated as blighted by a city council before January 31, 1987 and with respect to which the redevelopment plan is approved by the city council before January 31, 1987. The aggregate face amount of bonds to which this subparagraph applies shall not exceed $20,000,000.
"(E) A project is described in this subparagraph if such project is for public improvements (including street reconstruction and improvement of underground utilities) for Great Falls, Montana, with respect to which engineering estimates are due on October 1, 1986. The aggregate face amount of bonds to which this subparagraph applies shall not exceed $3,000,000.
"(F) A project is described in this subparagraph if—
"(i) such project is located in an area designated as blighted by the governing body of the city on February 15, 1983 (Resolution No. 4573), and
"(ii) such project is developed pursuant to a redevelopment plan adopted by the governing body of the city on March 1, 1983 (Ordinance No. 15073).
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $5,000,000.
"(G) A project is described in this subparagraph if—
"(i) such project is located in an area designated by the governing body of the city in 1983,
"(ii) such project is described in a letter dated August 8, 1985, from the developer's legal counsel to the development agency of the city, and
"(iii) such project consists primarily of retail facilities to be built by the developer named in a resolution of the governing body of the city on August 30, 1985.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $75,000,000.
"(H) A project is described in this subparagraph if—
"(i) such project is a project for research and development facilities to be used primarily to benefit a State university and related hospital, with respect to which an urban renewal district was created by the city council effective October 11, 1985, and
"(ii) such project was announced by the university and the city in March 1985.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $40,000,000.
"(I) A project is described in this subparagraph if such project is a downtown redevelopment project with respect to which—
"(i) an urban development action grant was made, but only if such grant was preliminarily approved on November 3, 1983, and received final approval before June 1, 1984, and
"(ii) the issuer of bonds with respect to such facility adopted a resolution indicating the issuer's intent to adopt such redevelopment project on October 6, 1981, and the issuer adopted an ordinance adopting such redevelopment project on December 13, 1983.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $10,000,000.
"(J) A project is described in this subparagraph if—
"(i) with respect to such project the city council adopted on December 16, 1985, an ordinance directing the urban renewal authority to study blight and produce an urban renewal plan,
"(ii) the blight survey was accepted and approved by the urban renewal authority on March 20, 1986, and
"(iii) the city planning board approved the urban renewal plan on May 7, 1986.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $60,000,000.
"(K) A project is described in this subparagraph if—
"(i) the city redevelopment agency approved resolutions authorizing issuance of land acquisition and public improvements bonds with respect to such project on August 8, 1978,
"(ii) such resolutions were later amended in June 1979, and
"(iii) the State Supreme Court upheld a lower court decree validating the bonds on December 11, 1980.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $380,000,000.
"(L) A project is described in this subparagraph if it is a mixed use redevelopment project either—
"(i) in an area (known as the Near South Development Area) with respect to which the planning department of a city described in paragraph 3(C) promulgated a draft development plan dated March 1986, and which was the subject of public hearings held by a subcommittee of the plan commission of such city on May 28, 1986, and June 10, 1986, or
"(ii) in an area located within the boundaries of any 1 or more census tracts which are directly adjacent to a river whose course runs through such city.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $75,000,000.
"(M) A project is described in this subparagraph if it is a redevelopment project for an area in a city described in paragraph 3(C) and such area—
"(i) was the subject of a report released in May 1986, prepared by the National Park Service, and
"(ii) was the subject of a report released January 1986, prepared by a task force appointed by the Mayor of such city.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $75,000,000.
"(N) A project is described in this subparagraph if it is a city-university redevelopment project approved by a city ordinance No. 152–0–84 and the development plan for which was adopted on January 28, 1985. The aggregate face amount of bonds to which this subparagraph applies shall not exceed $23,760,000.
"(O) A project is described in this subparagraph if—
"(i) an inducement resolution was passed on March 9, 1984, for issuance of bonds with respect to such project,
"(ii) such resolution was extended by resolutions passed on August 14, 1984, April 2, 1985, August 13, 1985, and July 8, 1986,
"(iii) an urban development action grant was preliminarily approved for part or all of such project on July 3, 1986, and
"(iv) the project is located in a district designated as the Peabody-Gayoso District.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $140,000,000.
"(P) A project is described in this subparagraph if the project is a 1-block area of a central business district containing a YMCA building with respect to which—
"(i) the city council adopted a resolution expressing an intent to issue bonds for the project on September 27, 1985,
"(ii) the city council approved project guidelines for the project on December 20, 1985, and
"(iii) the city council by resolution (adopted on July 30, 1986) directed completion of a development agreement.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $26,000,000.
"(Q) A project is described in this subparagraph if the project is a 2-block area of a central business district designated as blocks E and F with respect to which—
"(i) the city council adopted guidelines and criteria and authorized a request for development proposals on July 22, 1985,
"(ii) the city council adopted a resolution expressing an intent to issue bonds for the project on September 27, 1985, and
"(iii) the city issued requests for development proposals on March 28, 1986.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $47,000,000.
"(R) A project is described in this subparagraph if the project is an urban renewal project covering approximately 5.9 acres of land in the Shaw area of the northwest section of the District of Columbia and the 1st portion of such project was the subject of a District of Columbia public hearing on June 2, 1986. The aggregate face amount of bonds to which this subparagraph applies shall not exceed $10,000,000.
"(S) A project is described in this subparagraph if such project is a hotel, commercial, and residential project on the east bank of the Grand River in Grand Rapids, Michigan, with respect to which a developer was selected by the city in June 1985 and a planning agreement was executed in August 1985. The aggregate face amount of bonds to which this subparagraph applies shall not exceed $39,000,000.
"(T) A project is described in this subparagraph if such project is the Wurzburg Block Redevelopment Project in Grand Rapids, Michigan. The aggregate face amount of bonds to which this subparagraph applies shall not exceed $60,000,000.
"(U) A project is described in this subparagraph if such project is consistent with an urban renewal plan adopted or ordered prepared before August 28, 1986, by the city council of the most populous city in a state which entered the Union on February 14, 1859. The aggregate face amount of bonds to which this subparagraph applies shall not exceed $83,000,000.
"(V) A project is described in this subparagraph if such project is consistent with an urban renewal plan which was adopted (or ordered prepared) before August 13, 1985, by an appropriate jurisdiction of a state which entered the Union on February 14, 1859. The aggregate face amount of bonds to which this subparagraph applies shall not exceed $135,000,000 and the limitation on the period during which bonds under this section may be issued shall not apply to such bonds.
"(W) A project is described in this subparagraph if such project is—
"(i) a part of the Kenosha Downtown Redevelopment project, and
"(ii) located in an area bounded—
"(I) on the east by the east wall of the Army Corps of Engineers Confined Disposal Facility (extended),
"(II) on the north by 48th Street (extended),
"(III) on the west by the present Chicago & Northwestern Railroad tracks, and
"(IV) on the south by the north line of Eichelman Park (60th Street) (extended).
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $105,000,000.
"(X) A project is described in this subparagraph if a redevelopment plan for such project was approved by the city council of Bell Gardens, California, on June 12, 1979. The aggregate face amount of bonds to which this subparagraph applies shall not exceed $10,000,000.
"(Y) Nothing in this paragraph shall be construed as having the effect of exempting from tax interest on any bond issued after June 10, 1987, if such interest would not have been exempt from tax were such bond issued on August 15, 1986.
"(Z) Any designated area with respect to which a project is described in any subparagraph of this paragraph shall be taken into account in applying section 144(c)(4)(C) of the 1986 Code in determining whether other areas (not so described) may be designated.
"(7)
"(A) A facility is described in this subparagraph if—
"(i) a feasibility consultant and a design consultant were hired on April 3, 1985, with respect to such facility, and
"(ii) a draft feasibility report with respect to such facility was presented on November 3, 1985, to the Mayor of the city in which such facility is to be located.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $190,000,000. For purposes of this subparagraph, not more than $20,000,000 of bonds issued to advance refund existing convention facility bonds sold on May 12, 1978, shall be treated as bonds described in this subparagraph and [former] section 149(d)(2) of the 1986 Code shall not apply to bonds so treated.
"(B) A facility is described in this subparagraph if—
"(i) an application for a State loan for such facility was approved by the city council on March 4, 1985, and
"(ii) the city council of the city in which such facility is to be located approved on March 25, 1985, an application for an urban development action grant.
The aggregate face amount of bonds which this subparagraph applies shall not exceed $10,000,000.
"(C) A facility is described in this subparagraph if—
"(i) on November 1, 1983, a convention development tax took effect and was dedicated to financing such facility,
"(ii) the State supreme court of the State in which the facility is to be located validated such tax on February 8, 1985, and
"(iii) an agreement was entered into on November 14, 1985, between the city and county in which such facility is to be located on the terms of the bonds to be issued with respect to such facility.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $66,000,000.
"(D) A facility is described in this subparagraph if—
"(i) it is a convention, trade, or spectator facility,
"(ii) a regional convention, trade, and spectator facilities study committee was created before March 19, 1985, with respect to such facility, and
"(iii) feasibility and preliminary design consultants were hired on May 1, 1985, and October 31, 1985, with respect to such facility.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed the excess of $175,000,000 over the amount of bonds to which paragraph (48)(B) applies.
"(E) A facility is described in this subparagraph if—
"(i) such facility is meeting rooms for a convention center, and
"(ii) resolutions and ordinances were adopted with respect to such meeting rooms on January 17, 1983, July 11, 1983, December 17, 1984, and September 23, 1985.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $75,000,000.
"(F) A facility is described in this subparagraph if it is an international trade center which is part of the 125th Street redevelopment project in New York, New York. The aggregate face amount of obligations to which this subparagraph applies shall not exceed $165,000,000.
"(G) A facility is described in this subparagraph if—
"(i) such facility is located in a city which was the subject of a convention center market analysis or study dated March 1983, and prepared by a nationally recognized accounting firm,
"(ii) such facility's location was approved in December 1985 by a task force created jointly by the Governor of the State within which such facility will be located and the mayor of the capital city of such State, and
"(iii) the size of such facility is not more than 200,000 square feet.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $70,000,000.
"(H) A facility is described in this subparagraph if an analysis of operations and recommendations of utilization of such facility was prepared by a certified public accounting firm pursuant to an engagement authorized on March 6, 1984, and presented on June 11, 1984, to officials of the city in which such facility is located. The aggregate face amount of bonds to which this subparagraph applies shall not exceed $75,000,000.
"(I) A facility is described in this subparagraph if—
"(i) voters approved a bond issue to finance the acquisition of the site for such facility on May 4, 1985,
"(ii) title of the property was transferred from the Illinois Center Gulf Railroad to the city on September 30, 1985, and
"(iii) a United States judge rendered a decision regarding the fair market value of the site of such facility on December 30, 1985.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $131,000,000.
"(J) A facility is described in this subparagraph if—
"(i) such facility is to be used for an annual aquafestival,
"(ii) a referendum was held on April 6, 1985, in which voters permitted the city council to lease 130 acres of dedicated parkland for the purpose of constructing such facility, and
"(iii) the city council passed an inducement resolution on June 19, 1986.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $10,000,000.
"(K) A facility is described in this subparagraph if—
"(i) voters approved a bond issued to finance a portion of the cost of such facility on December 1, 1984, and
"(ii) such facility was the subject of a market study and financial projections dated March 21, 1986, prepared by a nationally recognized accounting firm.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $5,000,000.
"(L) A facility is described in this subparagraph if—
"(i) on July 12, 1984, the city council passed a resolution increasing the local hotel and motel tax to 7 percent to assist in paying for such facility,
"(ii) on October 25, 1984, the city council selected a consulting firm for such facility, and
"(iii) with respect to such facility, the city council appropriated funds for additional work on February 7, 1985, October 3, 1985, and June 26, 1986.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $120,000,000.
"(M) A facility is described in this subparagraph if—
"(i) a board of county commissioners, in an action dated January 21, 1986, supported an application for official approval of the facility, and
"(ii) the State economic development commission adopted a resolution dated February 25, 1986, determining the facility to be an eligible facility pursuant to State law and the rules adopted by the commission.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $7,500,000.
"(8)
"(A) A combined convention and arena facility, or any part thereof (whether on the same or different sites), is described in this subparagraph if—
"(i) bonds for the expansion, acquisition, or construction of such combined facility are payable from a tax and are issued under a plan initially approved by the voters of the taxing authority on April 25, 1978, and
"(ii) such bonds were authorized for expanding a convention center, for acquiring an arena site, and for building an arena or any of the foregoing pursuant to a resolution adopted by the governing body of the bond issuer on March 17, 1986, and superseded by a resolution adopted by such governing body on May 27, 1986.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $160,000,000.
"(B) A sports or convention facility is described in this subparagraph if—
"(i) on March 4, 1986, county commissioners held public hearings on creation of a county convention facilities authority, and
"(ii) on March 7, 1986, the county commissioners voted to create a county convention facilities authority and to submit to county voters a ½ cent sales and use tax to finance such facility.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $150,000,000.
"(C) A sports or convention facility is described in this subparagraph if—
"(i) a feasibility consultant and a design consultant were hired prior to October 1980 with respect to such facility,
"(ii) a feasibility report dated October 1980 with respect to such facility was presented to a city or county in which such facility is to be located, and
"(iii) on September 7, 1982, a joint city/county resolution appointed a committee which was charged with the task of independently reviewing the studies and present need for the facility.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $60,000,000.
"(D) A sports or convention facility is described in this subparagraph if—
"(i) such facility is a multipurpose coliseum facility for which, before January 1, 1985, a city, an auditorium district created by the State legislature within which such facility will be located, and a limited partnership executed an enforceable contract,
"(ii) significant governmental action regarding such facility was taken before May 23, 1983, and
"(iii) inducement resolutions were passed for issuance of bonds with respect to such facility on May 26, 1986.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $25,000,000.
"(9)
"(A) A facility is described in this subparagraph if—
"(i) there was an inducement resolution on March 9, 1984, for the issuance of bonds with respect to such facility, and
"(ii) such resolution was extended by resolutions passed on August 14, 1984, April 2, 1985, August 13, 1985, and July 8, 1986.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $30,000,000.
"(B) A facility is described in this subparagraph if—
"(i) such facility is for a university medical school,
"(ii) the last parcel of land necessary for such facility was purchased on February 4, 1985, and
"(iii) the amount of bonds to be issued with respect to such facility was increased by the State legislature of the State in which the facility is to be located as part of its 1983–1984 general appropriations act.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $9,000,000.
"(C) A facility is described in this subparagraph if—
"(i) the development agreement with respect to the project of which such facility is a part was entered into during May 1984, and
"(ii) an inducement resolution was passed on October 9, 1985, for the issuance of bonds with respect to the facility.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $35,000,000.
"(D) A facility is described in this subparagraph if the city council approved a resolution of intent to issue tax-exempt bonds (Resolution 34083) for such facility on April 30, 1986. The aggregate face amount of bonds to which this subparagraph applies shall not exceed $8,000,000. Solely for purposes of this subparagraph, a heliport constructed as part of such facility shall be deemed to be functionally related and subordinate to such facility.
"(E) A facility is described in this subparagraph if—
"(i) resolutions were adopted by a public joint powers authority relating to such facility on March 6, 1985, May 1, 1985, October 2, 1985, December 4, 1985, and February 5, 1986; and
"(ii) such facility is to be located at an exposition park which includes a coliseum and sports arena.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $150,000,000.
"(F) A facility is described in this subparagraph if—
"(i) it is to be constructed as part of an overall development that is the subject of a development agreement dated October 1, 1983, between a developer and an organization described in section 501(c)(3) of the 1986 Code, and
"(ii) an environmental notification form with respect to the overall development was filed with a State environmental agency on February 28, 1985.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $60,000,000.
"(G) A facility is described in this subparagraph if—
"(i) an inducement resolution was passed by the city redevelopment agency on December 3, 1984, and a resolution to carryforward the private activity bond limit was passed by such agency on December 21, 1984, with respect to such facility, and
"(ii) the owner participation agreement with respect to such facility was entered into on July 30, 1986.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $18,000,000.
"(H) A facility is described in this subparagraph if—
"(i) an application (dated August 28, 1986) for financial assistance was submitted to the county industrial development agency with respect to such facility, and
"(ii) the inducement resolution for such facility was passed by the industrial development agency on September 10, 1986.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $8,000,000.
"(I) A facility is described in this subparagraph if—
"(i) it is located in a city the parking needs of which were comprehensively described in a 'Downtown Parking Plan' dated January 1983, and approved by the city's City Plan Commission on June 1, 1983, and
"(ii) obligations with respect to the construction of which are issued on behalf of a State or local governmental unit by a corporation empowered to issue the same which was created by the legislative body of a State by an Act introduced on May 21, 1985, and thereafter passed, which Act became effective without the governor's signature on June 26, 1985.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $50,000,000.
"(J) A facility is described in this subparagraph if—
"(i) such facility is located in a city which was the subject of a convention center market analysis or study dated March 1983 and prepared by a nationally recognized accounting firm,
"(ii) such facility is intended for use by, among others, persons attending a convention center located within the same town or city, and
"(iii) such facility's location was approved in December 1985 by a task force created jointly by the governor of the State within which such facility will be located and the mayor of the capital city of such State.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $30,000,000.
"(K) A facility is described in this subparagraph if—
"(i) scale and components for the facility were determined by a city downtown plan adopted October 31, 1984 (resolution number 3882), and
"(ii) the site area for the facility is approximately 51,200 square feet.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $5,000,000.
"(L) A facility is described in this subparagraph if—
"(i) the property for such facility was offered for development by a city renewal agency on March 19, 1986 (resolution number 920), and
"(ii) the site area for the facility is approximately 25,600 square feet.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $5,000,000.
"(M) A facility is described in this subparagraph if such facility was approved by official action of the city council on July 26, 1984 (resolution number 33718), and is for the Moyer Theatre. The aggregate face amount of bonds to which this subparagraph applies shall not exceed $8,000,000.
"(N) A facility is described in this subparagraph if it is part of a renovation project involving the Outlet Company building in Providence, Rhode Island. The aggregate face amount of obligations to which this subparagraph applies shall not exceed $6,000,000.
"(10)
"(A) [Former] Section 149(d)(3) of the 1986 Code shall not apply to a bond issued by a State admitted to the Union on November 16, 1907, for the advance refunding of not more than $186,000,000 State turnpike obligations.
"(B) A refunding of the Charleston, West Virginia Town Center Garage Bonds shall not be treated for purposes of part IV of subchapter A of
"(11)
"(A) In the case of a bond issued as part of an issue the proceeds of which are to be used to provide a facility described in subparagraph (B) or (C), the determination of whether such bond is an exempt facility bond shall be made by substituting '90 percent' for '95 percent' in section 142(a) of the 1986 Code.
"(B) A facility is described in this subparagraph if—
"(i) it is a waste-to-energy project for which a contract for the sale of electricity was executed in September 1984, and
"(ii) the design, construction, and operation contract for such project was signed in March 1985 and the order to begin construction was issued on March 31, 1986.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $29,100,000.
"(C) A facility is described in this subparagraph if it is described in section 1865(c)(2)(C) of this Act [set out as a note under
"(12)
"(A) the amount of the refunding bonds does not exceed the aggregate face amount of the refunded bonds,
"(B) the maturity date of such refunding bond is not later than later of—
"(i) the maturity date of the bond to be refunded, or
"(ii) the date which is 15 years after the date on which the refunded bond was issued (or, in the case of a series of refundings, the date on which the original bond was issued),
"(C) the bonds to be refunded were issued by the California Student Loan Finance Corporation, and
"(D) the face amount of the refunding bonds does not exceed $175,000,000.
"(13)
"(A) A residential rental property project is described in this subparagraph if—
"(i) a public building development corporation was formed on June 6, 1984, with respect to such project,
"(ii) a partnership of which the corporation is a general partner was formed on June 8, 1984, and
"(iii) the partnership entered into a preliminary agreement with the State public facilities authority effective as of May 4, 1984, with respect to the issuance of the bonds for such project.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $6,200,000.
"(B) A residential rental property project is described in this subparagraph if—
"(i) the Board of Commissioners of the city housing authority officially selected such project's developer on December 19, 1985,
"(ii) the Board of the City Redevelopment Commission agreed on February 13, 1986, to conduct a public hearing with respect to the project on March 6, 1986,
"(iii) an official action resolution for such project was adopted on March 6, 1986, and
"(iv) an allocation of a portion of the State ceiling was made with respect to such project on July 29, 1986.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $10,000,000.
"(C) A residential rental property project is described in this subparagraph if—
"(i) the issuance of $1,289,882 of bonds for such project was approved by a State agency on September 11, 1985, and
"(ii) the authority to issue such bonds was scheduled to expire (under the terms of the State approval) on September 9, 1986.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $1,300,000.
"(D) A residential rental property project is described in this subparagraph if—
"(i) the issuance of $7,020,000 of bonds for such project was approved by a State agency on October 10, 1985, and
"(ii) the authority to issue such bonds was scheduled to expire (under the terms of the State approval) on October 9, 1986.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $7,020,000.
"(E) A residential rental property project is described in this subparagraph if—
"(i) it is to be located in a city urban renewal project area which was established pursuant to an urban renewal plan adopted by the city council on May 17, 1960,
"(ii) the urban renewal plan was revised in 1972 to permit multifamily dwellings in areas of the urban renewal project designated as a central business district,
"(iii) an inducement resolution was adopted for such project on December 14, 1984, and
"(iv) the city council approved on November 6, 1985, an agreement which provides for conveyance to the city of fee title to such project site.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $60,000,000.
"(F) A residential rental property project is described in this subparagraph if—
"(i) such project is to be located in a city urban renewal project area which was established pursuant to an urban renewal plan adopted by the city council on May 17, 1960,
"(ii) the urban renewal plan was revised in 1972 to permit multifamily dwellings in areas of the urban renewal project designated as a central business district,
"(iii) the amended urban renewal plan adopted by the city council on May 19, 1972, also provides for the conversion of any public area site in Block J of the urban renewal project area for the development of residential facilities, and
"(iv) acquisition of all of the parcels comprising the Block J project site was completed by the city on December 28, 1984.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $60,000,000.
"(G) A residential rental property project is described in this subparagraph if—
"(i) such project is to be located on a city-owned site which is to become available for residential development upon the relocation of a bus maintenance facility,
"(ii) preliminary design studies for such project site were completed in December 1985, and
"(iii) such project is located in the same State as the projects described in subparagraphs (E) and (F).
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $100,000,000.
"(H) A residential rental property project is described in this subparagraph if—
"(i) at least 20 percent of the residential units in such project are to be utilized to fulfill the requirements of a unilateral agreement date July 21, 1983, relating to the provision of low- and moderate-income housing,
"(ii) the unilateral agreement was incorporated into ordinance numbers 83–49 and 83–50, adopted by the city council and approved by the mayor on August 24, 1983, and
"(iii) an inducement resolution was adopted for such project on September 25, 1985.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $8,000,000.
"(I) A residential rental property project is described in this subparagraph if—
"(i) a letter of understanding was entered into on December 11, 1985, between the city and county housing and community development office and the project developer regarding the conveyance of land for such project, and
"(ii) such project is located in the same State as the projects described in subparagraphs (E), (F), (G), and (H).
The aggregate face amount of bonds to which this subparagraph applies shall not exceed an amount which, together with the amounts allowed under subparagraphs (E), (F), (G), and (H), does not exceed $250,000,000.
"(J) A residential rental property project is described in this subparagraph if it is a multifamily residential development located in Arrowhead Springs, within the county of San Bernardino, California, and a portion of the site of which currently is owned by the Campus Crusade for Christ. The aggregate face amount of bonds to which this subparagraph applies shall not exceed $350,000,000.
"(K) A residential rental property project is described in this subparagraph if—
"(i) it is a new residential development with approximately 309 dwelling units located in census tract No. 3202, and
"(ii) there was an inducement ordinance for such project adopted by a city council on November 20, 1985.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $32,000,000.
"(L) A residential rental property project is described in this subparagraph if—
"(i) it is a new residential development with approximately 70 dwelling units located in census tract No. 3901, and
"(ii) there was an inducement ordinance for such project adopted by a city council on August 14, 1984.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $4,000,000.
"(M) A residential rental property project is described in this subparagraph if—
"(i) it is a new residential development with approximately 98 dwelling units located in census tract No. 4701, and
"(ii) there was an inducement ordinance for such project adopted by a city council on August 14, 1984.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $7,000,000.
"(N) A project or projects are described in this subparagraph if they are part of the Willow Road residential improvement plan in Menlo Park, California. The aggregate face amount of obligations to which this subparagraph applies shall not exceed $9,000,000.
"(O) A residential rental property project is described in this subparagraph if—
"(i) an inducement resolution for such project was approved on July 18, 1985, by the city council,
"(ii) such project was approved by such council on August 11, 1986, and
"(iii) such project consists of approximately 22 duplexes to be used for housing qualified low and moderate income tenants.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $1,500,000.
"(P) A residential rental property project is described in this subparagraph if—
"(i) an inducement resolution for such project was approved on April 22, 1986, by the city council,
"(ii) such project was approved by such council on August 11, 1986, and
"(iii) such project consists of a unit apartment complex (having approximately 60 units) to be used for housing qualified low and moderate income tenants.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $1,625,000.
"(Q) A residential rental property project is described in this subparagraph if—
"(i) a State housing authority granted a notice of official action for the project on May 24, 1985, and
"(ii) a binding agreement was executed for such project with the State housing finance authority on May 14, 1986, and such agreement was accepted by the State housing authority on June 5, 1986.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $7,800,000.
"(R) A residential rental property project is described in this subparagraph if such project is either of 2 projects (located in St. Louis, Missouri) which received commitments to provide construction and permanent financing through the issuance of bonds in principal amounts of up to $242,130 and $654,045, on July 16, 1986. The aggregate face amount of bonds to which this subparagraph applies shall not exceed $1,000,000.
"(S) A residential rental property project is described in this subparagraph if—
"(i) a local housing authority approved an inducement resolution for such project on January 28, 1985, and
"(ii) a suit relating to such project was dismissed without right of further appeal on April 4, 1986.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $13,200,000.
"(T) A residential rental property project is described in this subparagraph if—
"(i) such project is the renovation of a hotel for residents for senior citizens,
"(ii) an inducement resolution for such project was adopted on November 20, 1985, by the State Development Finance Authority, and
"(iii) such project is to be located in the metropolitan area of the city described in paragraph (3)(C).
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $9,500,000.
"(U) A residential rental property project is described in this subparagraph if—
"(i) such project is the renovation of apartment housing,
"(ii) an inducement resolution for such project was adopted on December 20, 1985, by the State Housing Development Authority, and
"(iii) such project is to be located in the metropolitan area of the city described in paragraph (3)(C).
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $12,000,000.
"(V) A residential rental project is described in this subparagraph if it is a renovation and construction project for low-income housing in central Louisville, Kentucky, and local board approval for such project was granted April 22, 1986. The aggregate face amount of bonds to which this subparagraph applies shall not exceed $500,000.
"(W) A residential rental project is described in this subparagraph if—
"(i) such project is 1 of 6 residential rental projects having in the aggregate approximately 1,010 units,
"(ii) inducement resolutions for such projects were adopted by the county residential finance authority on November 21, 1985, and
"(iii) a public hearing of the county residential finance authority was held by such authority on December 19, 1985, regarding such projects to be constructed by an in-commonwealth developer.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $62,000,000.
"(X) A residential rental project is described in this subparagraph if—
"(i) an inducement resolution with respect to such project was adopted by the State housing development authority on January 25, 1985, and
"(ii) the issuance of bonds for such project was the subject of a law suit filed on October 25, 1985.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $64,000,000.
"(Y) A project or projects are described in this subparagraph if they are financed with bonds issued by the Tulare, California, County Housing Authority. The aggregate face amount of obligations to which this subparagraph applies shall not exceed $8,000,000.
"(Z) A residential rental project is described in this subparagraph if such project is a multifamily mixed-use housing project located in a city described in paragraph (3)(C), the zoning for which was changed to residential-business planned development on November 26, 1985, and with respect to which both the city on December 4, 1985, and the state housing finance agency on December 20, 1985, adopted inducement resolutions. The aggregate face amount of obligations to which this subparagraph applies shall not exceed $90,000,000.
"(AA) A residential rental property project is described in this subparagraph if it is the Carriage Trace residential rental project in Clinton, Tennessee. The aggregate face amount of bonds to which this subparagraph applies shall not exceed $10,000,000.
"(BB) A residential rental property project is described in this subparagraph if—
"(i) a contract to purchase such property was dated as of August 9, 1985,
"(ii) there was an inducement resolution adopted on September 27, 1985, for the issuance of obligations to finance such property,
"(iii) there was a State court final validation of such financing on November 15, 1985, and
"(iv) the certificate of nonappeal from such validation was available on December 15, 1985.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $27,750,000.
"(14)
"(15)
"(A) A bond is described in this subparagraph if such bond is issued by a city located in a noncontiguous State if—
"(i) the authority to acquire such a contract was approved on September 24, 1985, by city ordinance A085–176, and
"(ii) formal bid requests for such contracts were mailed to insurance companies on September 6, 1985.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $57,000,000.
"(B) A bond is described in this subparagraph if—
"(i) on or before May 12, 1985, the governing board of the city pension fund authorized an agreement with an underwriter to provide planning and financial guidance for a possible bond issue, and
"(ii) the proceeds of the sale of such bond issue are to be used to purchase an annuity to fund the unfunded liability of the City of Berkeley, California's Safety Members Pension Fund.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $40,000,000.
"(C) A bond is described in this subparagraph if such bond is issued by the South Dakota Building Authority if on September 18, 1985, representatives of such authority and its underwriters met with bond counsel and approved financing the purchase of an annuity contract through the sale and leaseback of State properties. The aggregate face amount of bonds to which this subparagraph applies shall not exceed $175,000,000.
"(D) A bond is described in this subparagraph if—
"(i) such bond is issued by Los Angeles County, and
"(ii) such county, before September 25, 1985, paid or incurred at least $50,000 of costs related to the issuance of such bonds.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $500,000,000.
"(16)
"(A) construction of such facility was approved by State law I.C. 36–9–31,
"(B) there was an inducement resolution on November 19, 1984, for the bonds with respect to such facility, and
"(C) a carryforward election of unused 1984 volume cap was made for such project on February 25, 1985.
The aggregate face amount of bonds to which this paragraph applies shall not exceed $120,000,000.
"(17)
"(A) issued in December of 1984 by the Rhode Island Housing and Mortgage Finance Corporation,
"(B) which mature in December of 1986,
"(C) which is not an advance refunding within the meaning of section 149(d)(5) [now 149(d)(2)] of the 1986 Code (determined by substituting '180 days' for '90 days' therein), and
"(D) the aggregate face amount of the refunding bonds does not exceed $25,500,000.
"(18)
"(19)
"(A) A facility is described in this subparagraph if—
"(i) such facility provides access to an international airport,
"(ii) a corporation was formed in connection with such project in September 1984,
"(iii) the Board of Directors of such corporation authorized the hiring of various firms to conduct a feasibility study with respect to such project in April 1985, and
"(iv) such feasibility study was completed in November 1985.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $150,000,000.
"(B) A facility is described in this subparagraph if—
"(i) enabling legislation with respect to such project was approved by the State legislature in 1979,
"(ii) a 1-percent local sales tax assessment to be dedicated to the financing of such project was approved by the voters on August 13, 1983, and
"(iii) a capital fund with respect to such project was established upon the issuance of $90,000,000 of notes on October 22, 1985.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $200,000,000 and such bonds must be issued before January 1, 1996.
"(C) A facility is described in this subparagraph if—
"(i) bonds issued therefor are issued by or on behalf of an authority organized in 1979 pursuant to enabling legislation originally enacted by the State legislature in 1973, and
"(ii) such facility is part of a system connector described in a resolution adopted by the board of directors of the authority on March 27, 1986.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $400,000,000. Notwithstanding the last paragraph of this subsection, this subparagraph shall apply to bonds issued before January 1, 1996.
"(D) A facility is described in this subparagraph if—
"(i) the facility is a fixed guideway project,
"(ii) enabling legislation with respect to the issuing authority was approved by the State legislature in May 1973,
"(iii) on October 28, 1985, a board issued a request for consultants to conduct a feasibility study on mass transit corridor analysis in connection with the facility, and
"(iv) on May 12, 1986, a board approved a further binding contract for expenditures of approximately $1,494,963, to be expended on a facility study.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $250,000,000. Notwithstanding the last paragraph of this subsection, this subparagraph shall apply to bonds issued before January 1, 1996.
"(20)
"(A) is issued by a political subdivision pursuant to home rule and interlocal cooperation powers conferred by the constitution and laws of a State to provide funds to finance the costs of the purchase and construction of educational facilities for private colleges and universities, and
"(B) was the subject of a resolution of official action by such political subdivision (Resolution No. 86–1039) adopted by the governing body of such political subdivision on March 18, 1986.
The aggregate face amount of bonds to which this paragraph applies shall not exceed $100,000,000.
"(21)
"(A) Section 147(b) of the 1986 Code shall not apply to any hospital pooled financing program with respect to which—
"(i) a formal presentation was made to a city hospital facilities authority on January 14, 1986, and
"(ii) such authority passed a resolution approving the bond issue in principle on February 5, 1986.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $95,000,000.
"(B) Subsections (c)(2) and (f) of section 148 of the 1986 Code shall not apply to bonds for which closing occurred on July 16, 1986, and for which a State municipal league served as administrator for use in a State described in section 103A(g)(5)(C) of the Internal Revenue Code of 1954. The aggregate face amount of obligations to which this subparagraph applies shall not exceed $585,000,000.
"(22)
" '(7)
" '(A) on August 15, 1985, a downtown redevelopment authority adopted a resolution to issue obligations for such project,
" '(B) before September 26, 1985, the city expended, or entered into binding contracts to expend, more than $10,000,000 in connection with such project, and
" '(C) the State supreme court issued a ruling regarding the proposed financing structure for such project on December 11, 1985.
The aggregate face amount of obligations to which this paragraph applies shall not exceed $85,000,000 and such obligations must be issued before January 1, 1992.'
"(23)
"(24)
"(A)
"(B)
"(i) which was reincorporated and renewed with perpetual existence as a corporation by specific act of the legislature of the State within which such college or university is located on March 19, 1913, or
"(ii) which—
"(I) was initially incorporated or created on February 28, 1787, on April 29, 1854, or on May 14, 1888, and
"(II) as an instrumentality of the State, serves as a 'State-related' university by a specific act of the legislature of the State within which such college or university is located.
"(25)
"(A)
"(i) located at any non-federally owned dam (or on project waters or adjacent lands) located wholly or partially in 1 or more of 3 counties, 2 of which are contiguous to the third, where the rated capacity of the hydroelectric generating facilities at 5 of such dams on October 18, 1979, was more than 650 megawatts each,
"(ii) located at a dam (or on the project waters or adjacent lands) at which hydroelectric generating facilities were financed with the proceeds of tax-exempt obligations before December 31, 1968,
"(iii) owned and operated by a State, political subdivision of a State, or any agency or instrumentality of any of the foregoing, and
"(iv) located at a dam (or on project waters or adjacent lands) where the general public has access for recreational purposes to such dam or to such project waters or adjacent lands.
"(B)
"(i)
"(ii)
"(iii)
"(I) A fish by-pass facility or fisheries enhancement facility.
"(II) A recreational facility or other improvement which is required by Federal licensing terms and conditions or other Federal, State, or local law requirements.
"(III) A project of repair, maintenance, renewal, or replacement, and safety improvement.
"(IV) Any reconstruction, replacement, or improvement, including any safety improvement, which increases, or allows an increase in, the capacity, efficiency, or productivity of the existing generating equipment.
"(26)
"(A) such bond is issued to provide a sports or convention facility described in section 103(b)(4)(B) or (C) of the 1954 Code,
"(B) such bond is not described in section 103(b)(2) or (o)(2)(A) of such Code,
"(C) legislation by a State legislature in connection with such facility was enacted on July 19, 1985, and was designated
"(D) legislation by a State legislature in connection with the appropriation of funds to a State public benefit corporation for loans in connection with the construction of such facility was enacted on April 17, 1985, and was designated
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $35,000,000.
"(27)
"(A) A facility is described in this subparagraph if—
"(i) the facility is a hotel and office facility located in a State capital,
"(ii) the economic development corporation of the city in which the facility is located adopted an initial inducement resolution on October 30, 1985, and
"(iii) a feasibility consultant was retained on February 21, 1986, with respect to such facility.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $10,000,000.
"(B) A facility is described in this subparagraph if such facility is financed by bonds issued by a State finance authority which was created in April 1985 by Act 1062 of the State General Assembly, and the Bond Guarantee Act (Act 505 of 1985) allowed such authority to pledge the interest from investment of the State's general fund as a guarantee for bonds issued by such authority. The aggregate face amount of bonds to which this subparagraph applies shall not exceed $75,000,000.
"(C) A facility is described in this subparagraph if such facility is a downtown mall and parking project for Holland, Michigan, with respect to which an initial agreement was formulated with the city in May 1985 and a formal memorandum of understanding was executed on July 2, 1986. The aggregate face amount of bonds to which this subparagraph applies shall not exceed $18,200,000.
"(D) A facility is described in this subparagraph if such facility is a downtown mall and parking ramp project for Traverse City, Michigan, with respect to which a final development agreement was signed in June 1986. The aggregate face amount of bonds to which this subparagraph applies shall not exceed $21,500,000.
"(E) A facility is described in this subparagraph if such facility is the rehabilitation of the Heritage Hotel in Marquette, Michigan. The aggregate face amount of bonds to which this subparagraph applies shall not exceed $5,000,000.
"(F) A facility is described in this subparagraph if it is the Lakeland Center Hotel in Lakeland, Florida. The aggregate face amount of obligations to which this subparagraph applies shall not exceed $10,000,000.
"(G) A facility is described in this subparagraph if it is the Marble Arcade office building renovation project in Lakeland, Florida. The aggregate face amount of obligations to which this subparagraph applies shall not exceed $5,900,000.
"(H) A facility is described in this subparagraph if it is a medical office building in Bradenton, Florida, with respect to which—
"(i) a memorandum of agreement was entered into on October 17, 1985, and
"(ii) the city council held a public hearing and approved issuance of the bonds on November 13, 1985.
The aggregate face amount of obligations to which this subparagraph applies shall not exceed $8,500,000.
"(I) A facility is described in this subparagraph if it consists of the rehabilitation of the Andover Town Hall in Andover, Massachusetts. The provisions of section 149(b) of the 1986 Code (relating to federally guaranteed obligations) shall not apply to obligations to finance such project solely as a result of the occupation of a portion of such building by a United States Post Office. For purposes of determining whether any bond to which this subparagraph applies is a qualified small issue bond, there shall not be taken into account under section 144(a) of the 1986 Code capital expenditures with respect to any facility of the United States Government and there shall not be taken into account any bond allocable to the United States Government.
"(J) A facility is described in this subparagraph if it is the Central Bank Building renovation project in Grand Rapids, Michigan. The aggregate face amount of obligations to which this subparagraph applies shall not exceed $1,000,000.
"(28)
"(A) a city Emergency Conservation Plan as set forth in an ordinance adopted by the city council of such city on February 17, 1983, or
"(B) a resolution adopted by the city council of such city on March 10, 1983, committing such city to a goal of reducing the peak load of such city's electric generation and distribution system by 553 megawatts in 15 years.
"(29)
"(A) The nonqualified amount of the proceeds of an issue shall not be taken into account under section 141(b)(5) of the 1986 Code or in determining whether a bond described in subparagraph (B) (which is part of such issue) is a private activity bond for purposes of section 103 and part IV of subchapter B of
"(B) A bond is described in this subparagraph if—
"(i) such bond is issued before January 1, 1993, by the State of Connecticut, and
"(ii) such bond is issued pursuant to a resolution of the State Bond Commission adopted before September 26, 1985.
"(C) The nonqualified amount to which this paragraph applies shall not exceed $150,000,000.
"(D) For purposes of this paragraph, the term 'nonqualified amount' has the meaning given such term by section 141(b)(8) of the 1986 Code, except that such term shall include the amount of the proceeds of an issue which is to be used (directly or indirectly) to make or finance loans (other than loans described in section 141(c)(2) of the 1986 Code) to persons other than governmental units.
"(30)
"(A) construction of such facility began on May 6, 1973, and
"(B) forward funding will be provided for the remainder of the project pursuant to a negotiated agreement between State and local water users and the Secretary of the Interior signed April 15, 1986.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $391,000,000.
"(31)
"(A) such bond would be so described but for the substitution specified in such paragraph,
"(B) on January 7, 1983, an application for a preliminary permit was filed for the project for which such bond is issued and received docket no. 6986, and
"(C) on September 20, 1983, the Federal Energy Regulatory Commission issued an order granting the preliminary permit for the project.
The aggregate face amount of bonds to which this paragraph applies shall not exceed $12,000,000.
"(32)
"(33)
"(A) Proceeds of an issue are described in this subparagraph if—
"(i) such proceeds are used to provide medical school facilities or medical research and clinical facilities for a university medical center,
"(ii) such proceeds are of—
"(I) a $21,550,000 issue dated August 1, 1980,
"(II) a $84,400,000 issue dated September 1, 1984, and
"(III) a $48,500,000 issue (Series 1985 A and 1985 B) dated on December 1, 1985, and
"(iii) the issuer of all such issues is the same.
"(B) Proceeds of an issue are described in this subparagraph if such proceeds are for use by Yale University and—
"(i) the bonds are issued after August 8, 1986, by the State of Connecticut Health and Educational Facilities Authority, or
"(ii) the bonds are the 1st or 2nd refundings (including advance refundings) of the bonds described in clause (i) or of original bonds issued before August 7, 1986, by such Authority.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $90,000,000.
"(C) Proceeds of an issue are described in this subparagraph if—
"(i) such issue is issued on behalf of a university established by Charter granted by King George II of England on October 31, 1754, to accomplish a refunding (including an advance refunding) of bonds issued to finance 1 or more projects, and
"(ii) the application or other request for the issuance of the issue to the appropriate State issuer was made by or on behalf of such university before February 26, 1986.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $250,000,000.
"(D) Proceeds of an issue are described in this subparagraph if—
"(i) such proceeds are to be used for finance construction of a new student recreation center,
"(ii) a contract for the development phase of the project was signed by the university on May 21, 1986, with a private company for 5 percent of the costs of the project, and
"(iii) a committee of the university board of administrators approved the major program elements for the center on August 11, 1986.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $25,000,000.
"(E) Proceeds of an issue are described in this subparagraph if—
"(i) such proceeds are to be used in the construction of new life sciences facilities for a university for medical research and education,
"(ii) the president of the university authorized a faculty/administration planning committee for such facilities on September 17, 1982,
"(iii) the trustees of such university authorized site and architect selection on October 30, 1984, and
"(iv) the university negotiated a $2,600,000 contract with the architect on August 9, 1985.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $47,500,000.
"(F) Proceeds of an issue are described in this subparagraph if such proceeds are to be used to renovate undergraduate chemistry and engineering laboratories, and to rehabilitate other basic science facilities, for an institution of higher education in Philadelphia, Pennsylvania, chartered by legislative Acts of the Commonwealth of Pennsylvania, including an Act dated September 30, 1791. The aggregate face amount of bonds to which this subparagraph applies shall not exceed $6,500,000.
"(G) Proceeds of an issue are described in this subparagraph if such proceeds are of bonds which are the first advance refunding of bonds issued during 1985 for the development of a computer network, and construction and renovation or rehabilitation of other facilities, for an institution of higher education described in subparagraph (F). The aggregate face amount of bonds to which this subparagraph applies shall not exceed $80,000,000.
"(H) Proceeds of an issue are described in this subparagraph if—
"(i) the issue is issued on behalf of a university founded in 1789, and
"(ii) the proceeds of the issue are to be used to finance projects (to be determined by such university and the issuer) which are similar to those projects intended to be financed by bonds that were the subject of a request transmitted to Congress on November 7, 1985[.]
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $200,000,000. Bonds to which this subparagraph applies shall be treated as qualified 501(c)(3) bonds if such bonds would not (if issued on August 15, 1986) be industrial development bonds (as defined in section 103(b)(2) of the 1954 Code), and section 147(f) of the 1986 Code shall not apply to the issue of which such bonds are a part. Bonds issued to finance facilities described in this subparagraph shall be treated as issued to finance such facilities notwithstanding the fact that a period in excess of 1 year has expired since the facilities were placed in service.
"(I) Proceeds of an issue are described in this subparagraph if the issue is issued on behalf of a university established on August 6, 1872, for a project approved by the trustees thereof on November 1, 1985. The aggregate face amount of bonds to which this subparagraph applies shall not exceed $100,000,000.
"(J) Proceeds of an issue are described in this subparagraph if—
"(i) the issue is issued on behalf of a university for which the founding grant was signed on November 11, 1885, and
"(ii) such bond is issued for the purpose of providing a Near West Campus Redevelopment Project and a Student Housing Project.
The aggregate face amount of bonds to which this subparagraph applies shall not exceed $105,000,000.
"(J) Proceeds of an issue are described in this subparagraph if—
"(i) they are the proceeds of advance refunding obligations issued on behalf of a university established on April 21, 1831, and
"(ii) the application or other request for the issuance of such obligations was made to the appropriate State issuer before July 12, 1986.
The aggregate face amount of obligations to which this subparagraph applies shall not exceed $175,000,000.
"(K) Proceeds of an issue are described in this subparagraph if—
"(i) the issue or issues are for the purpose of financing or refinancing costs associated with university facilities including at least 900 units of housing for students, faculty, and staff in up to two buildings and an office building containing up to 245,000 square feet of space, and
"(ii) a bond act authorizing the issuance of such bonds for such project was adopted on July 8, 1986, and such act under Federal law was required to be transmitted to Congress.
The aggregate face amount of obligations to which this subparagraph applies shall not exceed $112,000,000.
"(L) Proceeds of an issue are described in this subparagraph if such issue is for Cornell University in an aggregate face amount of not more than $150,000,000.
"(M) Proceeds of an issue are described in this subparagraph if such issue is issued on behalf of the Society of the New York Hospital to finance completion of a project commenced by such hospital in 1981 for construction of a diagnostic and treatment center or to refund bonds issued on behalf of such hospital in connection with the construction of such diagnostic and treatment center or to finance construction and renovation projects associated with an inpatient psychiatric care facility. The aggregate face amount of bonds to which this subparagraph applies shall not exceed $150,000,000.
"(N) Any bond to which section 145(b) of the 1986 Code does not apply by reason of this paragraph (other than subparagraph (A) thereof) shall be taken into account in determining whether such section applies to any later issue.
"(O) In the case of any refunding bond—
"(i) to which any subparagraph of this paragraph applies, and
"(ii) to which the last sentence of section 1313(c)(2) applies,
such bond shall be treated as having such subparagraph apply (and the refunding bond shall be treated for purposes of such section as issued before January 1, 1986, and as not being an advance refunding) unless the issuer elects the opposite result.
"(34)
"(35)
"(A) In the case of a carryforward under section 103(n)(10) of the 1954 Code of $170,000,000 of bond limit for calendar year 1984 for a project described in subparagraph (B), clause (i) of section 103(n)(10)(C) of the 1954 Code shall be applied by substituting '6 calendar years' for '3 calendar years', and such carryforward may be used by any authority designated by the State in which the facility is located.
"(B) A project is described in this subparagraph if—
"(i) such project is a facility for local furnishing of electricity described in section 645 of the Tax Reform Act of 1984 [
"(ii) construction of such facility commenced within the 3-year period following the calendar year in which the carryforward arose.
"(36)
"(37)
"(38)
"(39)
"(A) such bond would not (if issued on August 15, 1986) be an industrial development bond (as defined in section 103(b)(2) of the 1954 Code), and
"(B) such issue was approved by city voters on January 19, 1985, for construction or renovation of facilities for the cultural and performing arts.
The aggregate face amount of bonds to which this paragraph applies shall not exceed $5,000,000.
"(40)
"(41)
"(A) each refunding bond has a maturity date not later than the maturity date of the refunded bond, and
"(B) the facilities have not been placed in service as of the date of issuance of the refunding bond.
The aggregate face amount of bonds to which this paragraph applies shall not exceed $2,000,000,000. Section 146 of the 1986 Code and the last paragraph of this section shall not apply to bonds to which this paragraph applies.
"(42)
"(43)
"(A) by striking out the second sentence thereof,
"(B) by adding at the end thereof the following new sentence: 'In the case of refunding obligations not exceeding $100,000,000 issued by the Alabama State Docks Department, the first sentence of this paragraph shall be applied by substituting "December 31, 1987" for "December 31, 1984".'
"(44)
| Pool | Maximum Bond Amount |
|---|---|
| Tennessee Utility Districts Pool | $80,000,000 |
| New Mexico Hospital Equipment Loan Council | $35,000,000 |
| Pennsylvania Local Government Investment Trust Pool | $375,000,000 |
| Indiana Bond Bank Pool | $240,000,000 |
| Hernando County, Florida Bond Pool | $300,000,000 |
| Utah Municipal Finance Cooperative Pool | $262,000,000 |
| North Carolina League of Municipalities Pool | $200,000,000 |
| Kentucky Municipal League Bond Pool | $170,000,000 |
| Kentucky Association of Counties Bond Pool | $200,000,000 |
| Homewood Municipal Bond Pool | $50,000,000 |
| Colorado Association of School Boards Pool | $300,000,000 |
| Tennessee Municipal League Pooled Bonds | $75,000,000 |
| Georgia Municipal Association Pool | $130,000,000 |
"(45)
"(A) In the case of a metropolitan service district created pursuant to State revised statutes,
"(B) If—
"(i) official action was taken by an industrial development board on September 16, 1985, with respect to the issuance of not more than $98,500,000, of waste water treatment revenue bonds, and
"(ii) an executive order of the governor granted a carryforward of State bond authority for such project on December 30, 1985,
such carryforward election shall be valid for any year through 1988. The aggregate face amount of obligations to which this subparagraph applies shall not exceed $98,500,000.
"(46)
"(A) obligations are issued in an amount not exceeding $5,000,000 to finance the construction of a hydroelectric generating facility located on the North Fork of Cache Creek in Lake County, California, which was the subject of a preliminary resolution of the issuer of the obligations on June 29, 1982, or are issued to refund any of such obligations,
"(B) substantially all of the electrical power generated by such facility is to be sold to a nongovernmental person pursuant to a long-term power sales agreement in accordance with the Public Utility Regulatory Policies Act of 1978 [
"(C) the initially issued obligations are issued on or before December 31, 1986, and any of such refunding obligations are issued on or before December 31, 1996,
then the person referred to in subparagraph (B) shall not be treated as a principal user of such facilities by reason of such sales for purposes of subparagraphs (D) and (E) of section 103(b)(6) of the 1954 Code.
"(47)
"(A) obligations are issued on or before December 31, 1986, in an amount not exceeding $4,400,000 to finance a facility for the generation and transmission of steam and electricity having a maximum electrical capacity of approximately 5.3 megawatts and located within the City of San Jose, California, or are issued to refund any of such obligations,
"(B) substantially all of the electrical power generated by such facility that is not sold to an institution of higher education created by statute of the State of California is to be sold to a nongovernmental person pursuant to a long-term power sales agreement in accordance with the Public Utility Regulatory Policies Act of 1978 [
"(C) the initially issued obligations are issued on or before December 31, 1986, and any of such refunding obligations are issued on or before December 31, 1996,
then the nongovernmental person referred to in subparagraph (B) shall not be treated as a principal user of such facilities by reason of such sales for purposes of subparagraphs (D) and (E) of section 103(b)(6) of the Internal Revenue Code of 1954.
"(48)
"(A) A facility is described in this subparagraph if it is a governmentally-owned and operated State fair and exposition center with respect to which—
"(i) the 1985 session of the State legislature authorized revenue bonds to be issued in a maximum amount of $10,000,000, and
"(ii) a market feasibility study dated June 30, 1986, relating to a major capital improvemental program at the facility was prepared for the advisory board of the State fair and exposition center by a certified public accounting firm.
The aggregate face amount of obligations to which this subparagraph applies shall not exceed $10,000,000.
"(B) A facility is described in this subparagraph if it is a convention, trade, or spectator facility which is to be located in the State with respect to which paragraph (6)(U) applies and with respect to which feasibility and preliminary design consultants were hired on May 1, 1985 and October 31, 1985. The aggregate face amount of obligations to which this subparagraph applies shall not exceed $175,000,000.
"(C) A facility which is part of a project described in paragraph (6)(O). The aggregate face amount of bonds to which this subparagraph applies shall not exceed $20,000,000.
"(49)
"(A) the bond has an original term to maturity of at least 40 years,
"(B) the maturity date of the refunding bonds does not exceed the maturity date of the refunded bonds,
"(C) the amount of the refunding bonds does not exceed the outstanding amount of the refunded bonds,
"(D) the interest rate on the refunding bonds is lower than the interest rate of the refunded bonds, and
"(E) the refunded bond is required to be redeemed not later than the earliest date on which such bond could be redeemed at par.
"(50)
"(51)
"(A) A project is described in this subparagraph if it consists of a capital improvements program for a metropolitan sewer district, with respect to which a proposition was submitted to voters on August 7, 1984. The aggregate face amount of obligations to which this subparagraph applies shall not exceed $60,000,000.
"(B) Facilities described in this subparagraph if it consists of additions, extensions, and improvements to the wastewater system for Lakeland, Florida. The aggregate face amount of obligations to which this subparagraph applies shall not exceed $20,000,000.
"(C) A project is described in this subparagraph if it is the Central Valley Water Reclamation Project in Utah. The aggregate face amount of obligations to which this subparagraph applies shall not exceed $100,000,000.
"(D) A project is described in this subparagraph if it is a project to construct approximately 26 miles of toll expressways, with respect to which any appeal to validation was filed July 11, 1986. The aggregate face amount of obligations to which this subparagraph applies shall not exceed $450,000,000.
"(52)
"SEC. 1318. DEFINITIONS, ETC., RELATING TO EFFECTIVE DATES AND TRANSITIONAL RULES.
"(a)
"(1) 1954
"(2) 1986
"(3)
"(4)
"(5)
"(6)
"(7)
"(8)
"(A) such law expressly provides that such amendment (or other provision) shall not apply to such bond, or
"(B) such amendment (or other provision) applies to a provision of the 1986 Code—
"(i) for which there is no corresponding provision in section 103 and section 103A (as appropriate) of the 1954 Code, and
"(ii) which is not otherwise treated as included in such sections 103 and 103A with respect to such bond.
"(b)
"(1)
"(A) an industrial development bond (as defined in section 103(b)(2) of the 1954 Code), or
"(B) a private loan bond (as defined in section 103(o)(2)(A) of the 1954 Code, without regard to any exception from such definition other than section 103(o)(2)(C) of such Code).
"(2)
"(A) the amendments made by section 1301 [for classification see section 1311(a) of this note] do not apply to such bond by reason of section 1312 or 1316(g),
"(B) any provision of section 1317 applies to such bond, or
"(C) the proceeds of such bond are used to refund any bond referred to in subparagraph (A) or (B) (or any bond which is part of a series of refundings of such a bond) if the requirements of paragraphs (1), (2), and (3) of subsection (c) are met with respect to the refunding bond.
"(c)
"(1) the average maturity date of the issue of which the refunding bond is a part is not later than the average maturity date of the bonds to be refunded by such issue,
"(2) the amount of the refunding bond does not exceed the outstanding amount of the refunded bond, and
"(3) the net proceeds of the refunding bond are used to redeem the refunded bond not later than 90 days after the date of the issuance of the refunding bond.
For purposes of paragraph (1), average maturity shall be determined in accordance with section 147(b)(2)(A) of the 1986 Code. No limitation in section 1316(g) or 1317 on the period during which bonds may be issued under such section shall apply to any refunding bond which meets the requirements of this subsection.
"(d)
[
[
[
[
[
[
Regulations
Application of Security Interest Test to Bond Financing of Hazardous Waste Clean-Up Activities
State and Local Government Series Modifications
"(1) instruments allowing flexible investment of bond proceeds in a manner eliminating the earning of rebatable arbitrage,
"(2) demand deposits under such program by eliminating advance notice and minimum maturity requirements related to the purchase of bonds,
"(3) operation of such program at no net cost to the Federal Government, and
"(4) deposits for a stated maturity under reasonable advance notice requirements."
Management Contracts
"(1) the term of such contract (including renewal options) does not exceed 5 years,
"(2) the exempt owner has the option to cancel such contract at the end of any 3-year period,
"(3) the manager under the contract is not compensated (in whole or in part) on the basis of a share of net profits, and
"(4) at least 50 percent of the annual compensation of the manager under such contract is based on a periodic fixed fee."
1 So in original. Probably should end with a period after "146".
§142. Exempt facility bond
(a) General rule
For purposes of this part, the term "exempt facility bond" means any bond issued as part of an issue 95 percent or more of the net proceeds of which are to be used to provide—
(1) airports,
(2) docks and wharves,
(3) mass commuting facilities,
(4) facilities for the furnishing of water,
(5) sewage facilities,
(6) solid waste disposal facilities,
(7) qualified residential rental projects,
(8) facilities for the local furnishing of electric energy or gas,
(9) local district heating or cooling facilities,
(10) qualified hazardous waste facilities,
(11) high-speed intercity rail facilities,
(12) environmental enhancements of hydroelectric generating facilities,
(13) qualified public educational facilities,
(14) qualified green building and sustainable design projects,
(15) qualified highway or surface freight transfer facilities,
(16) qualified broadband projects, or
(17) qualified carbon dioxide capture facilities.
(b) Special exempt facility bond rules
For purposes of subsection (a)—
(1) Certain facilities must be governmentally owned
(A) In general
A facility shall be treated as described in paragraph (1), (2), (3), or (12) of subsection (a) only if all of the property to be financed by the net proceeds of the issue is to be owned by a governmental unit.
(B) Safe harbor for leases and management contracts
For purposes of subparagraph (A), property leased by a governmental unit shall be treated as owned by such governmental unit if—
(i) the lessee makes an irrevocable election (binding on the lessee and all successors in interest under the lease) not to claim depreciation or an investment credit with respect to such property,
(ii) the lease term (as defined in section 168(i)(3)) is not more than 80 percent of the reasonably expected economic life of the property (as determined under section 147(b)), and
(iii) the lessee has no option to purchase the property other than at fair market value (as of the time such option is exercised).
Rules similar to the rules of the preceding sentence shall apply to management contracts and similar types of operating agreements.
(2) Limitation on office space
An office shall not be treated as described in a paragraph of subsection (a) unless—
(A) the office is located on the premises of a facility described in such a paragraph, and
(B) not more than a de minimis amount of the functions to be performed at such office is not directly related to the day-to-day operations at such facility.
(c) Airports, docks and wharves, mass commuting facilities and high-speed intercity rail facilities
For purposes of subsection (a)—
(1) Storage and training facilities
Storage or training facilities directly related to a facility described in paragraph (1), (2), (3) or (11) of subsection (a) shall be treated as described in the paragraph in which such facility is described.
(2) Exception for certain private facilities
Property shall not be treated as described in paragraph (1), (2), (3) or (11) of subsection (a) if such property is described in any of the following subparagraphs and is to be used for any private business use (as defined in section 141(b)(6)).
(A) Any lodging facility.
(B) Any retail facility (including food and beverage facilities) in excess of a size necessary to serve passengers and employees at the exempt facility.
(C) Any retail facility (other than parking) for passengers or the general public located outside the exempt facility terminal.
(D) Any office building for individuals who are not employees of a governmental unit or of the operating authority for the exempt facility.
(E) Any industrial park or manufacturing facility.
(d) Qualified residential rental project
For purposes of this section—
(1) In general
The term "qualified residential rental project" means any project for residential rental property if, at all times during the qualified project period, such project meets the requirements of subparagraph (A) or (B), whichever is elected by the issuer at the time of the issuance of the issue with respect to such project:
(A) 20–50 test
The project meets the requirements of this subparagraph if 20 percent or more of the residential units in such project are occupied by individuals whose income is 50 percent or less of area median gross income.
(B) 40–60 test
The project meets the requirements of this subparagraph if 40 percent or more of the residential units in such project are occupied by individuals whose income is 60 percent or less of area median gross income.
For purposes of this paragraph, any property shall not be treated as failing to be residential rental property merely because part of the building in which such property is located is used for purposes other than residential rental purposes.
(2) Definitions and special rules
For purposes of this subsection—
(A) Qualified project period
The term "qualified project period" means the period beginning on the 1st day on which 10 percent of the residential units in the project are occupied and ending on the latest of—
(i) the date which is 15 years after the date on which 50 percent of the residential units in the project are occupied,
(ii) the 1st day on which no tax-exempt private activity bond issued with respect to the project is outstanding, or
(iii) the date on which any assistance provided with respect to the project under section 8 of the United States Housing Act of 1937 terminates.
(B) Income of individuals; area median gross income
(i) In general
The income of individuals and area median gross income shall be determined by the Secretary in a manner consistent with determinations of lower income families and area median gross income under section 8 of the United States Housing Act of 1937 (or, if such program is terminated, under such program as in effect immediately before such termination). Determinations under the preceding sentence shall include adjustments for family size. Subsections (g) and (h) of section 7872 shall not apply in determining the income of individuals under this subparagraph.
(ii) Special rule relating to basic housing allowances
For purposes of determining income under this subparagraph, payments under
(iii) Qualified building
For purposes of clause (ii), the term "qualified building" means any building located—
(I) in any county in which is located a qualified military installation to which the number of members of the Armed Forces of the United States assigned to units based out of such qualified military installation, as of June 1, 2008, has increased by not less than 20 percent, as compared to such number on December 31, 2005, or
(II) in any county adjacent to a county described in subclause (I).
(iv) Qualified military installation
For purposes of clause (iii), the term "qualified military installation" means any military installation or facility the number of members of the Armed Forces of the United States assigned to which, as of June 1, 2008, is not less than 1,000.
(C) Students
Rules similar to the rules of section 42(i)(3)(D) shall apply for purposes of this subsection.
(D) Single-room occupancy units
A unit shall not fail to be treated as a residential unit merely because such unit is a single-room occupancy unit (within the meaning of section 42).
(E) Hold harmless for reductions in area median gross income
(i) In general
Any determination of area median gross income under subparagraph (B) with respect to any project for any calendar year after 2008 shall not be less than the area median gross income determined under such subparagraph with respect to such project for the calendar year preceding the calendar year for which such determination is made.
(ii) Special rule for certain census changes
In the case of a HUD hold harmless impacted project, the area median gross income with respect to such project for any calendar year after 2008 (hereafter in this clause referred to as the current calendar year) shall be the greater of the amount determined without regard to this clause or the sum of—
(I) the area median gross income determined under the HUD hold harmless policy with respect to such project for calendar year 2008, plus
(II) any increase in the area median gross income determined under subparagraph (B) (determined without regard to the HUD hold harmless policy and this subparagraph) with respect to such project for the current calendar year over the area median gross income (as so determined) with respect to such project for calendar year 2008.
(iii) HUD hold harmless policy
The term "HUD hold harmless policy" means the regulations under which a policy similar to the rules of clause (i) applied to prevent a change in the method of determining area median gross income from resulting in a reduction in the area median gross income determined with respect to certain projects in calendar years 2007 and 2008.
(iv) HUD hold harmless impacted project
The term "HUD hold harmless impacted project" means any project with respect to which area median gross income was determined under subparagraph (B) for calendar year 2007 or 2008 if such determination would have been less but for the HUD hold harmless policy.
(3) Current income determinations
For purposes of this subsection—
(A) In general
The determination of whether the income of a resident of a unit in a project exceeds the applicable income limit shall be made at least annually on the basis of the current income of the resident. The preceding sentence shall not apply with respect to any project for any year if during such year no residential unit in the project is occupied by a new resident whose income exceeds the applicable income limit.
(B) Continuing resident's income may increase above the applicable limit
If the income of a resident of a unit in a project did not exceed the applicable income limit upon commencement of such resident's occupancy of such unit (or as of any prior determination under subparagraph (A)), the income of such resident shall be treated as continuing to not exceed the applicable income limit. The preceding sentence shall cease to apply to any resident whose income as of the most recent determination under subparagraph (A) exceeds 140 percent of the applicable income limit if after such determination, but before the next determination, any residential unit of comparable or smaller size in the same project is occupied by a new resident whose income exceeds the applicable income limit.
(C) Exception for projects with respect to which affordable housing credit is allowed
In the case of a project with respect to which credit is allowed under section 42, the second sentence of subparagraph (B) shall be applied by substituting "building (within the meaning of section 42)" for "project".
(4) Special rule in case of deep rent skewing
(A) In general
In the case of any project described in subparagraph (B), the 2d sentence of subparagraph (B) of paragraph (3) shall be applied by substituting—
(i) "170 percent" for "140 percent", and
(ii) "any low-income unit in the same project is occupied by a new resident whose income exceeds 40 percent of area median gross income" for "any residential unit of comparable or smaller size in the same project is occupied by a new resident whose income exceeds the applicable income limit".
(B) Deep rent skewed project
A project is described in this subparagraph if the owner of the project elects to have this paragraph apply and, at all times during the qualified project period, such project meets the requirements of clauses (i), (ii), and (iii):
(i) The project meets the requirements of this clause if 15 percent or more of the low-income units in the project are occupied by individuals whose income is 40 percent or less of area median gross income.
(ii) The project meets the requirements of this clause if the gross rent with respect to each low-income unit in the project does not exceed 30 percent of the applicable income limit which applies to individuals occupying the unit.
(iii) The project meets the requirements of this clause if the gross rent with respect to each low-income unit in the project does not exceed ½ of the average gross rent with respect to units of comparable size which are not occupied by individuals who meet the applicable income limit.
(C) Definitions applicable to subparagraph (B)
For purposes of subparagraph (B)—
(i) Low-income unit
The term "low-income unit" means any unit which is required to be occupied by individuals who meet the applicable income limit.
(ii) Gross rent
The term "gross rent" includes—
(I) any payment under section 8 of the United States Housing Act of 1937, and
(II) any utility allowance determined by the Secretary after taking into account such determinations under such section 8.
(5) Applicable income limit
For purposes of paragraphs (3) and (4), the term "applicable income limit" means—
(A) the limitation under subparagraph (A) or (B) of paragraph (1) which applies to the project, or
(B) in the case of a unit to which paragraph (4)(B)(i) applies, the limitation which applies to such unit.
(6) Special rule for certain high cost housing area
In the case of a project located in a city having 5 boroughs and a population in excess of 5,000,000, subparagraph (B) of paragraph (1) shall be applied by substituting "25 percent" for "40 percent".
(7) Certification to Secretary
The operator of any project with respect to which an election was made under this subsection shall submit to the Secretary (at such time and in such manner as the Secretary shall prescribe) an annual certification as to whether such project continues to meet the requirements of this subsection. Any failure to comply with the provisions of the preceding sentence shall not affect the tax-exempt status of any bond but shall subject the operator to penalty, as provided in section 6652(j).
(e) Facilities for the furnishing of water
For purposes of subsection (a)(4), the term "facilities for the furnishing of water" means any facility for the furnishing of water if—
(1) the water is or will be made available to members of the general public (including electric utility, industrial, agricultural, or commercial users), and
(2) either the facility is operated by a governmental unit or the rates for the furnishing or sale of the water have been established or approved by a State or political subdivision thereof, by an agency or instrumentality of the United States, or by a public service or public utility commission or other similar body of any State or political subdivision thereof.
(f) Local furnishing of electric energy or gas
For purposes of subsection (a)(8)—
(1) In general
The local furnishing of electric energy or gas from a facility shall only include furnishing solely within the area consisting of—
(A) a city and 1 contiguous county, or
(B) 2 contiguous counties.
(2) Treatment of certain electric energy transmitted outside local area
(A) In general
A facility shall not be treated as failing to meet the local furnishing requirement of subsection (a)(8) by reason of electricity transmitted pursuant to an order of the Federal Energy Regulatory Commission under section 211 or 213 of the Federal Power Act (as in effect on the date of the enactment of this paragraph) if the portion of the cost of the facility financed with tax-exempt bonds is not greater than the portion of the cost of the facility which is allocable to the local furnishing of electric energy (determined without regard to this paragraph).
(B) Special rule for existing facilities
In the case of a facility financed with bonds issued before the date of an order referred to in subparagraph (A) which would (but for this subparagraph) cease to be tax-exempt by reason of subparagraph (A), such bonds shall not cease to be tax-exempt bonds (and section 150(b)(4) shall not apply) if, to the extent necessary to comply with subparagraph (A)—
(i) an escrow to pay principal of, premium (if any), and interest on the bonds is established within a reasonable period after the date such order becomes final, and
(ii) bonds are redeemed not later than the earliest date on which such bonds may be redeemed.
(3) Termination of future financing
For purposes of this section, no bond may be issued as part of an issue described in subsection (a)(8) with respect to a facility for the local furnishing of electric energy or gas on or after the date of the enactment of this paragraph unless—
(A) the facility will—
(i) be used by a person who is engaged in the local furnishing of that energy source on January 1, 1997, and
(ii) be used to provide service within the area served by such person on January 1, 1997 (or within a county or city any portion of which is within such area), or
(B) the facility will be used by a successor in interest to such person for the same use and within the same service area as described in subparagraph (A).
(4) Election to terminate tax-exempt bond financing by certain furnishers
(A) In general
In the case of a facility financed with bonds issued before the date of the enactment of this paragraph which would cease to be tax-exempt by reason of the failure to meet the local furnishing requirement of subsection (a)(8) as a result of a service area expansion, such bonds shall not cease to be tax-exempt bonds (and section 150(b)(4) shall not apply) if the person engaged in such local furnishing by such facility makes an election described in subparagraph (B).
(B) Election
An election is described in this subparagraph if it is an election made in such manner as the Secretary prescribes, and such person (or its predecessor in interest) agrees that—
(i) such election is made with respect to all facilities for the local furnishing of electric energy or gas, or both, by such person,
(ii) no bond exempt from tax under section 103 and described in subsection (a)(8) may be issued on or after the date of the enactment of this paragraph with respect to all such facilities of such person,
(iii) any expansion of the service area—
(I) is not financed with the proceeds of any exempt facility bond described in subsection (a)(8), and
(II) is not treated as a nonqualifying use under the rules of paragraph (2), and
(iv) all outstanding bonds used to finance the facilities for such person are redeemed not later than 6 months after the later of—
(I) the earliest date on which such bonds may be redeemed, or
(II) the date of the election.
(C) Related persons
For purposes of this paragraph, the term "person" includes a group of related persons (within the meaning of section 144(a)(3)) which includes such person.
(g) Local district heating or cooling facility
(1) In general
For purposes of subsection (a)(9), the term "local district heating or cooling facility" means property used as an integral part of a local district heating or cooling system.
(2) Local district heating or cooling system
(A) In general
For purposes of paragraph (1), the term "local district heating or cooling system" means any local system consisting of a pipeline or network (which may be connected to a heating or cooling source) providing hot water, chilled water, or steam to 2 or more users for—
(i) residential, commercial, or industrial heating or cooling, or
(ii) process steam.
(B) Local system
For purposes of this paragraph, a local system includes facilities furnishing heating and cooling to an area consisting of a city and 1 contiguous county.
(h) Qualified hazardous waste facilities
For purposes of subsection (a)(10), the term "qualified hazardous waste facility" means any facility for the disposal of hazardous waste by incineration or entombment but only if—
(1) the facility is subject to final permit requirements under subtitle C of title II of the Solid Waste Disposal Act (as in effect on the date of the enactment of the Tax Reform Act of 1986), and
(2) the portion of such facility which is to be provided by the issue does not exceed the portion of the facility which is to be used by persons other than—
(A) the owner or operator of such facility, and
(B) any related person (within the meaning of section 144(a)(3)) to such owner or operator.
(i) High-speed intercity rail facilities
(1) In general
For purposes of subsection (a)(11), the term "high-speed intercity rail facilities" means any facility (not including rolling stock) for the fixed guideway rail transportation of passengers and their baggage between metropolitan statistical areas (within the meaning of section 143(k)(2)(B)) using vehicles that are reasonably expected to be capable of attaining a maximum speed in excess of 150 miles per hour between scheduled stops, but only if such facility will be made available to members of the general public as passengers.
(2) Election by nongovernmental owners
A facility shall be treated as described in subsection (a)(11) only if any owner of such facility which is not a governmental unit irrevocably elects not to claim—
(A) any deduction under section 167 or 168, and
(B) any credit under this subtitle,
with respect to the property to be financed by the net proceeds of the issue.
(3) Use of proceeds
A bond issued as part of an issue described in subsection (a)(11) shall not be considered an exempt facility bond unless any proceeds not used within a 3-year period of the date of the issuance of such bond are used (not later than 6 months after the close of such period) to redeem bonds which are part of such issue.
(j) Environmental enhancements of hydroelectric generating facilities
(1) In general
For purposes of subsection (a)(12), the term "environmental enhancements of hydroelectric generating facilities" means property—
(A) the use of which is related to a federally licensed hydroelectric generating facility owned and operated by a governmental unit, and
(B) which—
(i) protects or promotes fisheries or other wildlife resources, including any fish by-pass facility, fish hatchery, or fisheries enhancement facility, or
(ii) is a recreational facility or other improvement required by the terms and conditions of any Federal licensing permit for the operation of such generating facility.
(2) Use of proceeds
A bond issued as part of an issue described in subsection (a)(12) shall not be considered an exempt facility bond unless at least 80 percent of the net proceeds of the issue of which it is a part are used to finance property described in paragraph (1)(B)(i).
(k) Qualified public educational facilities
(1) In general
For purposes of subsection (a)(13), the term "qualified public educational facility" means any school facility which is—
(A) part of a public elementary school or a public secondary school, and
(B) owned by a private, for-profit corporation pursuant to a public-private partnership agreement with a State or local educational agency described in paragraph (2).
(2) Public-private partnership agreement described
A public-private partnership agreement is described in this paragraph if it is an agreement—
(A) under which the corporation agrees—
(i) to do 1 or more of the following: construct, rehabilitate, refurbish, or equip a school facility, and
(ii) at the end of the term of the agreement, to transfer the school facility to such agency for no additional consideration, and
(B) the term of which does not exceed the term of the issue to be used to provide the school facility.
(3) School facility
For purposes of this subsection, the term "school facility" means—
(A) any school building,
(B) any functionally related and subordinate facility and land with respect to such building, including any stadium or other facility primarily used for school events, and
(C) any property, to which section 168 applies (or would apply but for section 179), for use in a facility described in subparagraph (A) or (B).
(4) Public schools
For purposes of this subsection, the terms "elementary school" and "secondary school" have the meanings given such terms by section 14101 of the Elementary and Secondary Education Act of 1965 (
(5) Annual aggregate face amount of tax-exempt financing
(A) In general
An issue shall not be treated as an issue described in subsection (a)(13) if the aggregate face amount of bonds issued by the State pursuant thereto (when added to the aggregate face amount of bonds previously so issued during the calendar year) exceeds an amount equal to the greater of—
(i) $10 multiplied by the State population, or
(ii) $5,000,000.
(B) Allocation rules
(i) In general
Except as otherwise provided in this subparagraph, the State may allocate the amount described in subparagraph (A) for any calendar year in such manner as the State determines appropriate.
(ii) Rules for carryforward of unused limitation
A State may elect to carry forward an unused limitation for any calendar year for 3 calendar years following the calendar year in which the unused limitation arose under rules similar to the rules of section 146(f), except that the only purpose for which the carryforward may be elected is the issuance of exempt facility bonds described in subsection (a)(13).
(l) Qualified green building and sustainable design projects
(1) In general
For purposes of subsection (a)(14), the term "qualified green building and sustainable design project" means any project which is designated by the Secretary, after consultation with the Administrator of the Environmental Protection Agency, as a qualified green building and sustainable design project and which meets the requirements of clauses (i), (ii), (iii), and (iv) of paragraph (4)(A).
(2) Designations
(A) In general
Within 60 days after the end of the application period described in paragraph (3)(A), the Secretary, after consultation with the Administrator of the Environmental Protection Agency, shall designate qualified green building and sustainable design projects. At least one of the projects designated shall be located in, or within a 10-mile radius of, an empowerment zone as designated pursuant to section 1391, and at least one of the projects designated shall be located in a rural State. No more than one project shall be designated in a State. A project shall not be designated if such project includes a stadium or arena for professional sports exhibitions or games.
(B) Minimum conservation and technology innovation objectives
The Secretary, after consultation with the Administrator of the Environmental Protection Agency, shall ensure that, in the aggregate, the projects designated shall—
(i) reduce electric consumption by more than 150 megawatts annually as compared to conventional generation,
(ii) reduce daily sulfur dioxide emissions by at least 10 tons compared to coal generation power,
(iii) expand by 75 percent the domestic solar photovoltaic market in the United States (measured in megawatts) as compared to the expansion of that market from 2001 to 2002, and
(iv) use at least 25 megawatts of fuel cell energy generation.
(3) Limited designations
A project may not be designated under this subsection unless—
(A) the project is nominated by a State or local government within 180 days of the enactment of this subsection, and
(B) such State or local government provides written assurances that the project will satisfy the eligibility criteria described in paragraph (4).
(4) Application
(A) In general
A project may not be designated under this subsection unless the application for such designation includes a project proposal which describes the energy efficiency, renewable energy, and sustainable design features of the project and demonstrates that the project satisfies the following eligibility criteria:
(i) Green building and sustainable design
At least 75 percent of the square footage of commercial buildings which are part of the project is registered for United States Green Building Council's LEED certification and is reasonably expected (at the time of the designation) to receive such certification. For purposes of determining LEED certification as required under this clause, points shall be credited by using the following:
(I) For wood products, certification under the Sustainable Forestry Initiative Program and the American Tree Farm System.
(II) For renewable wood products, as credited for recycled content otherwise provided under LEED certification.
(III) For composite wood products, certification under standards established by the American National Standards Institute, or such other voluntary standards as published in the Federal Register by the Administrator of the Environmental Protection Agency.
(ii) Brownfield redevelopment
The project includes a brownfield site as defined by section 101(39) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (
(iii) State and local support
The project receives specific State or local government resources which will support the project in an amount equal to at least $5,000,000. For purposes of the preceding sentence, the term "resources" includes tax abatement benefits and contributions in kind.
(iv) Size
The project includes at least one of the following:
(I) At least 1,000,000 square feet of building.
(II) At least 20 acres.
(v) Use of tax benefit
The project proposal includes a description of the net benefit of the tax-exempt financing provided under this subsection which will be allocated for financing of one or more of the following:
(I) The purchase, construction, integration, or other use of energy efficiency, renewable energy, and sustainable design features of the project.
(II) Compliance with certification standards cited under clause (i).
(III) The purchase, remediation, and foundation construction and preparation of the brownfields site.
(vi) Prohibited facilities
An issue shall not be treated as an issue described in subsection (a)(14) if any proceeds of such issue are used to provide any facility the principal business of which is the sale of food or alcoholic beverages for consumption on the premises.
(vii) Employment
The project is projected to provide permanent employment of at least 1,500 full time equivalents (150 full time equivalents in rural States) when completed and construction employment of at least 1,000 full time equivalents (100 full time equivalents in rural States).
The application shall include an independent analysis which describes the project's economic impact, including the amount of projected employment.
(B) Project description
Each application described in subparagraph (A) shall contain for each project a description of—
(i) the amount of electric consumption reduced as compared to conventional construction,
(ii) the amount of sulfur dioxide daily emissions reduced compared to coal generation,
(iii) the amount of the gross installed capacity of the project's solar photovoltaic capacity measured in megawatts, and
(iv) the amount, in megawatts, of the project's fuel cell energy generation.
(5) Certification of use of tax benefit
No later than 30 days after the completion of the project, each project must certify to the Secretary that the net benefit of the tax-exempt financing was used for the purposes described in paragraph (4).
(6) Definitions
For purposes of this subsection—
(A) Rural State
The term "rural State" means any State which has—
(i) a population of less than 4,500,000 according to the 2000 census,
(ii) a population density of less than 150 people per square mile according to the 2000 census, and
(iii) increased in population by less than half the rate of the national increase between the 1990 and 2000 censuses.
(B) Local government
The term "local government" has the meaning given such term by section 1393(a)(5).
(C) Net benefit of tax-exempt financing
The term "net benefit of tax-exempt financing" means the present value of the interest savings (determined by a calculation established by the Secretary) which result from the tax-exempt status of the bonds.
(7) Aggregate face amount of tax-exempt financing
(A) In general
An issue shall not be treated as an issue described in subsection (a)(14) if the aggregate face amount of bonds issued by the State or local government pursuant thereto for a project (when added to the aggregate face amount of bonds previously so issued for such project) exceeds an amount designated by the Secretary as part of the designation.
(B) Limitation on amount of bonds
The Secretary may not allocate authority to issue qualified green building and sustainable design project bonds in an aggregate face amount exceeding $2,000,000,000.
(8) Termination
Subsection (a)(14) shall not apply with respect to any bond issued after September 30, 2012.
(9) Treatment of current refunding bonds
Paragraphs (7)(B) and (8) shall not apply to any bond (or series of bonds) issued to refund a bond issued under subsection (a)(14) before October 1, 2012, if—
(A) the average maturity date of the issue of which the refunding bond is a part is not later than the average maturity date of the bonds to be refunded by such issue,
(B) the amount of the refunding bond does not exceed the outstanding amount of the refunded bond, and
(C) the net proceeds of the refunding bond are used to redeem the refunded bond not later than 90 days after the date of the issuance of the refunding bond.
For purposes of subparagraph (A), average maturity shall be determined in accordance with section 147(b)(2)(A).
(m) Qualified highway or surface freight transfer facilities
(1) In general
For purposes of subsection (a)(15), the term "qualified highway or surface freight transfer facilities" means—
(A) any surface transportation project which receives Federal assistance under
(B) any project for an international bridge or tunnel for which an international entity authorized under Federal or State law is responsible and which receives Federal assistance under
(C) any facility for the transfer of freight from truck to rail or rail to truck (including any temporary storage facilities directly related to such transfers) which receives Federal assistance under either title 23 or
(2) National limitation on amount of tax-exempt financing for facilities
(A) National limitation
The aggregate amount allocated by the Secretary of Transportation under subparagraph (C) shall not exceed $30,000,000,000.
(B) Enforcement of national limitation
An issue shall not be treated as an issue described in subsection (a)(15) if the aggregate face amount of bonds issued pursuant to such issue for any qualified highway or surface freight transfer facility (when added to the aggregate face amount of bonds previously so issued for such facility) exceeds the amount allocated to such facility under subparagraph (C).
(C) Allocation by Secretary of Transportation
The Secretary of Transportation shall allocate the amount described in subparagraph (A) among qualified highway or surface freight transfer facilities in such manner as the Secretary determines appropriate.
(3) Expenditure of proceeds
An issue shall not be treated as an issue described in subsection (a)(15) unless at least 95 percent of the net proceeds of the issue is expended for qualified highway or surface freight transfer facilities within the 5-year period beginning on the date of issuance. If at least 95 percent of such net proceeds is not expended within such 5-year period, an issue shall be treated as continuing to meet the requirements of this paragraph if the issuer uses all unspent proceeds of the issue to redeem bonds of the issue within 90 days after the end of such 5-year period. The Secretary, at the request of the issuer, may extend such 5-year period if the issuer establishes that any failure to meet such period is due to circumstances beyond the control of the issuer.
(4) Exception for current refunding bonds
Paragraph (2) shall not apply to any bond (or series of bonds) issued to refund a bond issued under subsection (a)(15) if—
(A) the average maturity date of the issue of which the refunding bond is a part is not later than the average maturity date of the bonds to be refunded by such issue,
(B) the amount of the refunding bond does not exceed the outstanding amount of the refunded bond, and
(C) the refunded bond is redeemed not later than 90 days after the date of the issuance of the refunding bond.
For purposes of subparagraph (A), average maturity shall be determined in accordance with section 147(b)(2)(A).
(n) Qualified broadband project
(1) In general
For purposes of subsection (a)(16), the term "qualified broadband project" means any project which—
(A) is designed to provide broadband service solely to 1 or more census block groups in which more than 50 percent of residential households do not have access to fixed, terrestrial broadband service which delivers at least 25 megabits per second downstream and at least 3 megabits service upstream, and
(B) results in internet access to residential locations, commercial locations, or a combination of residential and commercial locations at speeds not less than 100 megabits per second for downloads and 20 megabits for second for uploads, but only if at least 90 percent of the locations provided such access under the project are locations where, before the project, a broadband service provider—
(i) did not provide service, or
(ii) did not provide service meeting the minimum speed requirements described in subparagraph (A).
(2) Notice to broadband providers
A project shall not be treated as a qualified broadband project unless, before the issue date of any issue the proceeds of which are to be used to fund the project, the issuer—
(A) notifies each broadband service provider providing broadband service in the area within which broadband services are to be provided under the project of the project and its intended scope,
(B) includes in such notice a request for information from each such provider with respect to the provider's ability to deploy, manage, and maintain a broadband network capable of providing gigabit capable Internet access to residential or commercial locations, and
(C) allows each such provider at least 90 days to respond to such notice and request.
(o) Qualified carbon dioxide capture facility
(1) In general
For purposes of subsection (a)(17), the term "qualified carbon dioxide capture facility" means—
(A) the eligible components of an industrial carbon dioxide facility, and
(B) a direct air capture facility (as defined in section 45Q(e)(3)).
(2) Definitions
For purposes of this subsection:
(A) Eligible component
(i) In general
The term "eligible component" means any equipment which is installed in an industrial carbon dioxide facility that satisfies the requirements under paragraph (3) and which is—
(I) used for the purpose of capture, treatment and purification, compression, transportation, or on-site storage of carbon dioxide produced by the industrial carbon dioxide facility, or
(II) integral or functionally related and subordinate to a process which converts a solid or liquid product from coal, petroleum residue, biomass, or other materials which are recovered for their energy or feedstock value into a synthesis gas composed primarily of carbon dioxide and hydrogen for direct use or subsequent chemical or physical conversion.
(ii) Definitions
For purposes of this subparagraph—
(I) Biomass
(aa) In general
The term "biomass" means any—
(AA) agricultural or plant waste,
(BB) byproduct of wood or paper mill operations, including lignin in spent pulping liquors, and
(CC) other products of forestry maintenance.
(bb) Exclusion
The term "biomass" does not include paper which is commonly recycled.
(II) Coal
The term "coal" means anthracite, bituminous coal, subbituminous coal, lignite, and peat.
(B) Industrial carbon dioxide facility
(i) In general
Except as provided in clause (ii), the term "industrial carbon dioxide facility" means a facility that emits carbon dioxide (including from any fugitive emissions source) that is created as a result of any of the following processes:
(I) Fuel combustion.
(II) Gasification.
(III) Bioindustrial.
(IV) Fermentation.
(V) Any manufacturing industry relating to—
(aa) chemicals,
(bb) fertilizers,
(cc) glass,
(dd) steel,
(ee) petroleum residues,
(ff) forest products,
(gg) agriculture, including feedlots and dairy operations, and
(hh) transportation grade liquid fuels.
(ii) Exceptions
For purposes of clause (i), an industrial carbon dioxide facility shall not include—
(I) any geological gas facility, or
(II) any air separation unit that—
(aa) does not qualify as gasification equipment, or
(bb) is not a necessary component of an oxy-fuel combustion process.
(iii) Definitions
For purposes of this subparagraph—
(I) Petroleum residue
The term "petroleum residue" means the carbonized product of high-boiling hydrocarbon fractions obtained in petroleum processing.
(II) Geological gas facility
The term "geological gas facility" means a facility that—
(aa) produces a raw product consisting of gas or mixed gas and liquid from a geological formation,
(bb) transports or removes impurities from such product, or
(cc) separates such product into its constituent parts.
(3) Special rule for facilities with less than 65 percent capture and storage percentage
(A) In general
Subject to subparagraph (B), the eligible components of an industrial carbon dioxide facility satisfies the requirements of this paragraph if such eligible components are designed to have a capture and storage percentage (as determined under subparagraph (C)) that is equal to or greater than 65 percent.
(B) Exception
In the case of an industrial carbon dioxide facility designed with a capture and storage percentage that is less than 65 percent, the percentage of the cost of the eligible components installed in such facility that may be financed with tax-exempt bonds may not be greater than the designed capture and storage percentage.
(C) Capture and storage percentage
(i) In general
Subject to clause (ii), the capture and storage percentage shall be an amount, expressed as a percentage, equal to the quotient of—
(I) the total metric tons of carbon dioxide designed to be annually captured, transported, and injected into—
(aa) a facility for geologic storage, or
(bb) an enhanced oil or gas recovery well followed by geologic storage, divided by
(II) the total metric tons of carbon dioxide which would otherwise be released into the atmosphere each year as industrial emission of greenhouse gas if the eligible components were not installed in the industrial carbon dioxide facility.
(ii) Limited application of eligible components
In the case of eligible components that are designed to capture carbon dioxide solely from specific sources of emissions or portions thereof within an industrial carbon dioxide facility, the capture and storage percentage under this subparagraph shall be determined based only on such specific sources of emissions or portions thereof.
(4) Regulations
The Secretary shall issue such regulations or other guidance as are necessary to carry out the provisions of this subsection, including methods for determining costs attributable to an eligible component for purposes of paragraph (3)(A).
(Added
Editorial Notes
References in Text
Section 8 of the United States Housing Act of 1937, referred to in subsec. (d)(2)(A)(iii), (B)(i), (4)(C)(ii), is classified to
Sections 211 and 213 of the Federal Power Act, referred to in subsec. (f)(2)(A), are classified to sections 824j and 824l, respectively, of Title 16, Conservation.
The date of the enactment of this paragraph, referred to in subsec. (f)(2)(A), is the date of enactment of
The date of the enactment of this paragraph, referred to in subsec. (f)(3), (4)(A), (B)(ii), is the date of enactment of
The Solid Waste Disposal Act, referred to in subsec. (h)(1), is title II of
The date of the enactment of the Tax Reform Act of 1986, referred to in subsec. (h)(1), is the date of enactment of
Section 14101 of the Elementary and Secondary Education Act of 1965, referred to in subsec. (k)(4), is section 14101 of
The date of the enactment of this subsection, referred to in subsec. (k)(4), means the date of enactment of
The enactment of this subsection, referred to in subsec. (l)(3)(A), probably means the date of enactment of
The date of the enactment of this subsection, referred to in subsec. (m)(1)(A), is the date of enactment of
Prior Provisions
A prior section 142, act Aug. 16, 1954, ch. 736,
Amendments
2022—Subsec. (o)(1)(B).
2021—Subsec. (a)(16).
Subsec. (a)(17).
Subsec. (m)(2)(A).
Subsec. (n).
Subsec. (o).
2018—Subsec. (d)(2)(C).
2009—Subsec. (i)(1).
2008—Subsec. (d)(2)(B).
Subsec. (d)(2)(C).
Subsec. (d)(2)(D).
Subsec. (d)(2)(E).
Subsec. (d)(3)(A).
Subsec. (d)(3)(C).
Subsec. (l)(8).
Subsec. (l)(9).
2006—Subsec. (d)(2)(B).
2005—Subsec. (a)(15).
Subsec. (m).
2004—Subsec. (a)(14).
Subsec. (l).
2001—Subsec. (a)(13).
Subsec. (k).
1998—Subsec. (f)(3)(A)(ii).
1996—Subsec. (b)(1)(A).
Subsec. (f)(3), (4).
1992—Subsec. (a)(12).
Subsec. (b)(1)(A).
Subsec. (f).
"(1) a city and 1 contiguous county, or
"(2) 2 contiguous counties."
Subsec. (j).
1989—Subsec. (d)(2)(B).
Subsec. (d)(4)(B)(iii).
Subsec. (i)(1).
1988—Subsec. (a)(11).
Subsec. (b)(1)(B)(ii).
Subsec. (c).
Subsec. (d)(4)(B)(iii).
Subsec. (i).
Statutory Notes and Related Subsidiaries
Effective Date of 2022 Amendment
Amendment by
Effective Date of 2021 Amendment
Amendment by section 80402(a), (b) of
Effective Date of 2009 Amendment
Effective Date of 2008 Amendment
"(1) determinations made after the date of the enactment of this Act [July 30, 2008], in the case of any qualified building (as defined in section 142(d)(2)(B)(iii) of the Internal Revenue Code of 1986)—
"(A) with respect to which housing credit dollar amounts have been allocated on or before the date of the enactment of this Act [July 30, 2008], or
"(B) with respect to buildings placed in service before such date of enactment, to the extent paragraph (1) of section 42(h) of such Code does not apply to such building by reason of paragraph (4) thereof, but only with respect to bonds issued before such date of enactment, and
"(2) determinations made after the date of enactment of this Act [July 30, 2008], in the case of qualified buildings (as so defined)—
"(A) with respect to which housing credit dollar amounts are allocated after the date of the enactment of this Act [July 30, 2008], or
"(B) with respect to which buildings placed in service after the date of enactment of this Act [July 30, 2008], to the extent paragraph (1) of section 42(h) of such Code does not apply to such building by reason of paragraph (4) thereof, but only with respect to bonds issued after such date of enactment."
[
[
[
Effective Date of 2006 Amendment
Effective Date of 2005 Amendment
Effective Date of 2004 Amendment
Effective Date of 2001 Amendment
Effective Date of 1992 Amendment
Effective Date of 1989 Amendment
Amendment by section 7108(e)(3), (n)(1) of
Amendment by section 7816(s) of
Effective Date of 1988 Amendment
Amendment by section 1013(a)(1), (39) of
Accountability
No Inference With Respect to Outstanding Bonds From Use of Term "Person"
Tax-Exempt Bonds for Sale of Alaska Power Administration Facility
§143. Mortgage revenue bonds: qualified mortgage bond and qualified veterans' mortgage bond
(a) Qualified mortgage bond
(1) Qualified mortgage bond defined
For purposes of this title, the term "qualified mortgage bond" means a bond which is issued as part of a qualified mortgage issue.
(2) Qualified mortgage issue defined
(A) Definition
For purposes of this title, the term "qualified mortgage issue" means an issue by a State or political subdivision thereof of 1 or more bonds, but only if—
(i) all proceeds of such issue (exclusive of issuance costs and a reasonably required reserve) are to be used to finance owner-occupied residences,
(ii) such issue meets the requirements of subsections (c), (d), (e), (f), (g), (h), (i), and (m)(7),
(iii) such issue does not meet the private business tests of paragraphs (1) and (2) of section 141(b), and
(iv) except as provided in subparagraph (D)(ii), repayments of principal on financing provided by the issue are used not later than the close of the 1st semiannual period beginning after the date the prepayment (or complete repayment) is received to redeem bonds which are part of such issue.
Clause (iv) shall not apply to amounts received within 10 years after the date of issuance of the issue (or, in the case of refunding bond, the date of issuance of the original bond).
(B) Good faith effort to comply with mortgage eligibility requirements
An issue which fails to meet 1 or more of the requirements of subsections (c), (d), (e), (f), and (i) shall be treated as meeting such requirements if—
(i) the issuer in good faith attempted to meet all such requirements before the mortgages were executed,
(ii) 95 percent or more of the proceeds devoted to owner-financing was devoted to residences with respect to which (at the time the mortgages were executed) all such requirements were met, and
(iii) any failure to meet the requirements of such subsections is corrected within a reasonable period after such failure is first discovered.
(C) Good faith effort to comply with other requirements
An issue which fails to meet 1 or more of the requirements of subsections (g), (h), and (m)(7) shall be treated as meeting such requirements if—
(i) the issuer in good faith attempted to meet all such requirements, and
(ii) any failure to meet such requirements is due to inadvertent error after taking reasonable steps to comply with such requirements.
(D) Proceeds must be used within 42 months of date of issuance
(i) In general
Except as otherwise provided in this subparagraph, an issue shall not meet the requirement of subparagraph (A)(i) unless—
(I) all proceeds of the issue required to be used to finance owner-occupied residences are so used within the 42-month period beginning on the date of issuance of the issue (or, in the case of a refunding bond, within the 42-month period beginning on the date of issuance of the original bond) or, to the extent not so used within such period, are used within such period to redeem bonds which are part of such issue, and
(II) no portion of the proceeds of the issue are used to make or finance any loan (other than a loan which is a nonpurpose investment within the meaning of section 148(f)(6)(A)) after the close of such period.
(ii) Exception
Clause (i) (and clause (iv) of subparagraph (A)) shall not be construed to require amounts of less than $250,000 to be used to redeem bonds. The Secretary may by regulation treat related issues as 1 issue for purposes of the preceding sentence.
(b) Qualified veterans' mortgage bond defined
For purposes of this part, the term "qualified veterans' mortgage bond" means any bond—
(1) which is issued as part of an issue 95 percent or more of the net proceeds of which are to be used to provide residences for veterans,
(2) the payment of the principal and interest on which is secured by the general obligation of a State,
(3) which is part of an issue which meets the requirements of subsections (c), (g), (i)(1), and (l), and
(4) which is part of an issue which does not meet the private business tests of paragraphs (1) and (2) of section 141(b).
Rules similar to the rules of subparagraphs (B) and (C) of subsection (a)(2) shall apply to the requirements specified in paragraph (3) of this subsection.
(c) Residence requirements
(1) For a residence
A residence meets the requirements of this subsection only if—
(A) it is a single-family residence which can reasonably be expected to become the principal residence of the mortgagor within a reasonable time after the financing is provided, and
(B) it is located within the jurisdiction of the authority issuing the bond.
(2) For an issue
An issue meets the requirements of this subsection only if all of the residences for which owner-financing is provided under the issue meet the requirements of paragraph (1).
(d) 3-year requirement
(1) In general
An issue meets the requirements of this subsection only if 95 percent or more of the net proceeds of such issue are used to finance the residences of mortgagors who had no present ownership interest in their principal residences at any time during the 3-year period ending on the date their mortgage is executed.
(2) Exceptions
For purposes of paragraph (1), the proceeds of an issue which are used to provide—
(A) financing with respect to targeted area residences,
(B) qualified home improvement loans and qualified rehabilitation loans,
(C) financing with respect to land described in subsection (i)(1)(C) and the construction of any residence thereon, and
(D) in the case of bonds issued after the date of the enactment of this subparagraph, financing of any residence for a veteran (as defined in
shall be treated as used as described in paragraph (1).
(3) Mortgagor's interest in residence being financed
For purposes of paragraph (1), a mortgagor's interest in the residence with respect to which the financing is being provided shall not be taken into account.
(e) Purchase price requirement
(1) In general
An issue meets the requirements of this subsection only if the acquisition cost of each residence the owner-financing of which is provided under the issue does not exceed 90 percent of the average area purchase price applicable to such residence.
(2) Average area purchase price
For purposes of paragraph (1), the term "average area purchase price" means, with respect to any residence, the average purchase price of single family residences (in the statistical area in which the residence is located) which were purchased during the most recent 12-month period for which sufficient statistical information is available. The determination under the preceding sentence shall be made as of the date on which the commitment to provide the financing is made (or, if earlier, the date of the purchase of the residence).
(3) Separate application to new residences and old residences
For purposes of this subsection, the determination of average area purchase price shall be made separately with respect to—
(A) residences which have not been previously occupied, and
(B) residences which have been previously occupied.
(4) Special rule for 2 to 4 family residences
For purposes of this subsection, to the extent provided in regulations, the determination of average area purchase price shall be made separately with respect to 1 family, 2 family, 3 family, and 4 family residences.
(5) Special rule for targeted area residences
In the case of a targeted area residence, paragraph (1) shall be applied by substituting "110 percent" for "90 percent".
(6) Exception for qualified home improvement loans
Paragraph (1) shall not apply with respect to any qualified home improvement loan.
(f) Income requirements
(1) In general
An issue meets the requirements of this subsection only if all owner-financing provided under the issue is provided for mortgagors whose family income is 115 percent or less of the applicable median family income.
(2) Determination of family income
For purposes of this subsection, the family income of mortgagors, and area median gross income, shall be determined by the Secretary after taking into account the regulations prescribed under section 8 of the United States Housing Act of 1937 (or, if such program is terminated, under such program as in effect immediately before such termination).
(3) Special rule for applying paragraph (1) in the case of targeted area residences
In the case of any financing provided under any issue for targeted area residences—
(A) 1/3 of the amount of such financing may be provided without regard to paragraph (1), and
(B) paragraph (1) shall be treated as satisfied with respect to the remainder of the owner financing if the family income of the mortgagor is 140 percent or less of the applicable median family income.
(4) Applicable median family income
For purposes of this subsection, the term "applicable median family income" means, with respect to a residence, whichever of the following is the greater:
(A) the area median gross income for the area in which such residence is located, or
(B) the statewide median gross income for the State in which such residence is located.
(5) Adjustment of income requirement based on relation of high housing costs to income
(A) In general
If the residence (for which financing is provided under the issue) is located in a high housing cost area and the limitation determined under this paragraph is greater than the limitation otherwise applicable under paragraph (1), there shall be substituted for the income limitation in paragraph (1), a limitation equal to the percentage determined under subparagraph (B) of the area median gross income for such area.
(B) Income requirements for residences in high housing cost area
The percentage determined under this subparagraph for a residence located in a high housing cost area is the percentage (not greater than 140 percent) equal to the product of—
(I) 115 percent, and
(II) the amount by which the housing cost/income ratio for such area exceeds 0.2.
(C) High housing cost areas
For purposes of this paragraph, the term "high housing cost area" means any statistical area for which the housing cost/income ratio is greater than 1.2.
(D) Housing cost/income ratio
For purposes of this paragraph—
(i) In general
The term "housing cost/income ratio" means, with respect to any statistical area, the number determined by dividing—
(I) the applicable housing price ratio for such area, by
(II) the ratio which the area median gross income for such area bears to the median gross income for the United States.
(ii) Applicable housing price ratio
For purposes of clause (i), the applicable housing price ratio for any area is the new housing price ratio or the existing housing price ratio, whichever results in the housing cost/income ratio being closer to 1.
(iii) New housing price ratio
The new housing price ratio for any area is the ratio which—
(I) the average area purchase price (as defined in subsection (e)(2)) for residences described in subsection (e)(3)(A) which are located in such area bears to
(II) the average purchase price (determined in accordance with the principles of subsection (e)(2)) for residences so described which are located in the United States.
(iv) Existing housing price ratio
The existing housing price ratio for any area is the ratio determined in accordance with clause (iii) but with respect to residences described in subsection (e)(3)(B).
(6) Adjustment to income requirements based on family size
In the case of a mortgagor having a family of fewer than 3 individuals, the preceding provisions of this subsection shall be applied by substituting—
(A) "100 percent" for "115 percent" each place it appears, and
(B) "120 percent" for "140 percent" each place it appears.
(g) Requirements related to arbitrage
(1) In general
An issue meets the requirements of this subsection only if such issue meets the requirements of paragraph (2) of this subsection and, in the case of an issue described in subsection (b)(1), such issue also meets the requirements of paragraph (3) of this subsection. Such requirements shall be in addition to the requirements of section 148.
(2) Effective rate of mortgage interest cannot exceed bond yield by more than 1.125 percentage points
(A) In general
An issue shall be treated as meeting the requirements of this paragraph only if the excess of—
(i) the effective rate of interest on the mortgages provided under the issue, over
(ii) the yield on the issue,
is not greater than 1.125 percentage points.
(B) Effective rate of mortgage interest
(i) In general
In determining the effective rate of interest on any mortgage for purposes of this paragraph, there shall be taken into account all fees, charges, and other amounts borne by the mortgagor which are attributable to the mortgage or to the bond issue.
(ii) Specification of some of the amounts to be treated as borne by the mortgagor
For purposes of clause (i), the following items (among others) shall be treated as borne by the mortgagor:
(I) all points or similar charges paid by the seller of the property, and
(II) the excess of the amounts received from any person other than the mortgagor by any person in connection with the acquisition of the mortgagor's interest in the property over the usual and reasonable acquisition costs of a person acquiring like property where owner-financing is not provided through the use of qualified mortgage bonds or qualified veterans' mortgage bonds.
(iii) Specification of some of the amounts to be treated as not borne by the mortgagor
For purposes of clause (i), the following items shall not be taken into account:
(I) any expected rebate of arbitrage profits, and
(II) any application fee, survey fee, credit report fee, insurance charge, or similar amount to the extent such amount does not exceed amounts charged in such area in cases where owner-financing is not provided through the use of qualified mortgage bonds or qualified veterans' mortgage bonds.
Subclause (II) shall not apply to origination fees, points, or similar amounts.
(iv) Prepayment assumptions
In determining the effective rate of interest—
(I) it shall be assumed that the mortgage prepayment rate will be the rate set forth in the most recent applicable mortgage maturity experience table published by the Federal Housing Administration, and
(II) prepayments of principal shall be treated as received on the last day of the month in which the issuer reasonably expects to receive such prepayments.
The Secretary may by regulation adjust the mortgage prepayment rate otherwise used in determining the effective rate of interest to the extent the Secretary determines that such an adjustment is appropriate by reason of the impact of subsection (m).
(C) Yield on the issue
For purposes of this subsection, the yield on an issue shall be determined on the basis of—
(i) the issue price (within the meaning of sections 1273 and 1274), and
(ii) an expected maturity for the bonds which is consistent with the assumptions required under subparagraph (B)(iv).
(3) Arbitrage and investment gains to be used to reduce costs of owner-financing
(A) In general
An issue shall be treated as meeting the requirements of this paragraph only if an amount equal to the sum of—
(i) the excess of—
(I) the amount earned on all nonpurpose investments (other than investments attributable to an excess described in this clause), over
(II) the amount which would have been earned if such investments were invested at a rate equal to the yield on the issue, plus
(ii) any income attributable to the excess described in clause (i),
is paid or credited to the mortgagors as rapidly as may be practicable.
(B) Investment gains and losses
For purposes of subparagraph (A), in determining the amount earned on all nonpurpose investments, any gain or loss on the disposition of such investments shall be taken into account.
(C) Reduction where issuer does not use full 1.125 percentage points under paragraph (2)
(i) In general
The amount required to be paid or credited to mortgagors under subparagraph (A) (determined under this paragraph without regard to this subparagraph) shall be reduced by the unused paragraph (2) amount.
(ii) Unused paragraph (2) amount
For purposes of clause (i), the unused paragraph (2) amount is the amount which (if it were treated as an interest payment made by mortgagors) would result in the excess referred to in paragraph (2)(A) being equal to 1.125 percentage points. Such amount shall be fixed and determined as of the yield determination date.
(D) Election to pay United States
Subparagraph (A) shall be satisfied with respect to any issue if the issuer elects before issuing the bonds to pay over to the United States—
(i) not less frequently than once each 5 years after the date of issue, an amount equal to 90 percent of the aggregate amount which would be required to be paid or credited to mortgagors under subparagraph (A) (and not theretofore paid to the United States), and
(ii) not later than 60 days after the redemption of the last bond, 100 percent of such aggregate amount not theretofore paid to the United States.
(E) Simplified accounting
The Secretary shall permit any simplified system of accounting for purposes of this paragraph which the issuer establishes to the satisfaction of the Secretary will assure that the purposes of this paragraph are carried out.
(F) Nonpurpose investment
For purposes of this paragraph, the term "nonpurpose investment" has the meaning given such term by section 148(f)(6)(A).
(h) Portion of loans required to be placed in targeted areas
(1) In general
An issue meets the requirements of this subsection only if at least 20 percent of the proceeds of the issue which are devoted to providing owner-financing is made available (with reasonable diligence) for owner-financing of targeted area residences for at least 1 year after the date on which owner-financing is first made available with respect to targeted area residences.
(2) Limitation
Nothing in paragraph (1) shall be treated as requiring the making available of an amount which exceeds 40 percent of the average annual aggregate principal amount of mortgages executed during the immediately preceding 3 calendar years for single-family, owner-occupied residences located in targeted areas within the jurisdiction of the issuing authority.
(i) Other requirements
(1) Mortgages must be new mortgages
(A) In general
An issue meets the requirements of this subsection only if no part of the proceeds of such issue is used to acquire or replace existing mortgages.
(B) Exceptions
Under regulations prescribed by the Secretary, the replacement of—
(i) construction period loans,
(ii) bridge loans or similar temporary initial financing, and
(iii) in the case of a qualified rehabilitation, an existing mortgage,
shall not be treated as the acquisition or replacement of an existing mortgage for purposes of subparagraph (A).
(C) Exception for certain contract for deed agreements
(i) In general
In the case of land possessed under a contract for deed by a mortgagor—
(I) whose principal residence (within the meaning of section 121) is located on such land, and
(II) whose family income (as defined in subsection (f)(2)) is not more than 50 percent of applicable median family income (as defined in subsection (f)(4)),
the contract for deed shall not be treated as an existing mortgage for purposes of subparagraph (A).
(ii) Contract for deed defined
For purposes of this subparagraph, the term "contract for deed" means a seller-financed contract for the conveyance of land under which—
(I) legal title does not pass to the purchaser until the consideration under the contract is fully paid to the seller, and
(II) the seller's remedy for nonpayment is forfeiture rather than judicial or nonjudicial foreclosure.
(2) Certain requirements must be met where mortgage is assumed
An issue meets the requirements of this subsection only if each mortgage with respect to which owner-financing has been provided under such issue may be assumed only if the requirements of subsections (c), (d), and (e), and the requirements of paragraph (1) or (3)(B) of subsection (f) (whichever applies), are met with respect to such assumption.
(j) Targeted area residences
(1) In general
For purposes of this section, the term "targeted area residence" means a residence in an area which is either—
(A) a qualified census tract, or
(B) an area of chronic economic distress.
(2) Qualified census tract
(A) In general
For purposes of paragraph (1), the term "qualified census tract" means a census tract in which 70 percent or more of the families have income which is 80 percent or less of the statewide median family income.
(B) Data used
The determination under subparagraph (A) shall be made on the basis of the most recent decennial census for which data are available.
(3) Area of chronic economic distress
(A) In general
For purposes of paragraph (1), the term "area of chronic economic distress" means an area of chronic economic distress—
(i) designated by the State as meeting the standards established by the State for purposes of this subsection, and
(ii) the designation of which has been approved by the Secretary and the Secretary of Housing and Urban Development.
(B) Criteria to be used in approving State designations
The criteria used by the Secretary and the Secretary of Housing and Urban Development in evaluating any proposed designation of an area for purposes of this subsection shall be—
(i) the condition of the housing stock, including the age of the housing and the number of abandoned and substandard residential units,
(ii) the need of area residents for owner-financing under this section, as indicated by low per capita income, a high percentage of families in poverty, a high number of welfare recipients, and high unemployment rates,
(iii) the potential for use of owner-financing under this section to improve housing conditions in the area, and
(iv) the existence of a housing assistance plan which provides a displacement program and a public improvements and services program.
(k) Other definitions and special rules
For purposes of this section—
(1) Mortgage
The term "mortgage" means any owner-financing.
(2) Statistical area
(A) In general
The term "statistical area" means—
(i) a metropolitan statistical area, and
(ii) any county (or the portion thereof) which is not within a metropolitan statistical area.
(B) Metropolitan statistical area
The term "metropolitan statistical area" includes the area defined as such by the Secretary of Commerce.
(C) Designation where adequate statistical information not available
For purposes of this paragraph, if there is insufficient recent statistical information with respect to a county (or portion thereof) described in subparagraph (A)(ii), the Secretary may substitute for such county (or portion thereof) another area for which there is sufficient recent statistical information.
(D) Designation where no county
In the case of any portion of a State which is not within a county, subparagraphs (A)(ii) and (C) shall be applied by substituting for "county" an area designated by the Secretary which is the equivalent of a county.
(3) Acquisition cost
(A) In general
The term "acquisition cost" means the cost of acquiring the residence as a completed residential unit.
(B) Exceptions
The term "acquisition cost" does not include—
(i) usual and reasonable settlement or financing costs,
(ii) the value of services performed by the mortgagor or members of his family in completing the residence, and
(iii) the cost of land (other than land described in subsection (i)(1)(C)(i)) which has been owned by the mortgagor for at least 2 years before the date on which construction of the residence begins.
(C) Special rule for qualified rehabilitation loans
In the case of a qualified rehabilitation loan, for purposes of subsection (e), the term "acquisition cost" includes the cost of the rehabilitation.
(4) Qualified home improvement loan
The term "qualified home improvement loan" means the financing (in an amount which does not exceed $15,000)—
(A) of alterations, repairs, and improvements on or in connection with an existing residence by the owner thereof, but
(B) only of such items as substantially protect or improve the basic livability or energy efficiency of the property.
(5) Qualified rehabilitation loan
(A) In general
The term "qualified rehabilitation loan" means any owner-financing provided in connection with—
(i) a qualified rehabilitation, or
(ii) the acquisition of a residence with respect to which there has been a qualified rehabilitation,
but only if the mortgagor to whom such financing is provided is the first resident of the residence after the completion of the rehabilitation.
(B) Qualified rehabilitation
For purposes of subparagraph (A), the term "qualified rehabilitation" means any rehabilitation of a building if—
(i) there is a period of at least 20 years between the date on which the building was first used and the date on which the physical work on such rehabilitation begins,
(ii) in the rehabilitation process—
(I) 50 percent or more of the existing external walls of such building are retained in place as external walls,
(II) 75 percent or more of the existing external walls of such building are retained in place as internal or external walls, and
(III) 75 percent or more of the existing internal structural framework of such building is retained in place, and
(iii) the expenditures for such rehabilitation are 25 percent or more of the mortgagor's adjusted basis in the residence.
For purposes of clause (iii), the mortgagor's adjusted basis shall be determined as of the completion of the rehabilitation or, if later, the date on which the mortgagor acquires the residence.
(6) Determinations on actuarial basis
All determinations of yield, effective interest rates, and amounts required to be paid or credited to mortgagors or paid to the United States under subsection (g) shall be made on an actuarial basis taking into account the present value of money.
(7) Single-family and owner-occupied residences include certain residences with 2 to 4 units
Except for purposes of subsection (h)(2), the terms "single-family" and "owner-occupied", when used with respect to residences, include 2, 3, or 4 family residences—
(A) one unit of which is occupied by the owner of the units, and
(B) which were first occupied at least 5 years before the mortgage is executed.
Subparagraph (B) shall not apply to any 2-family residence if the residence is a targeted area residence and the family income of the mortgagor meets the requirement of subsection (f)(3)(B).
(8) Cooperative housing corporations
(A) In general
In the case of any cooperative housing corporation—
(i) each dwelling unit shall be treated as if it were actually owned by the person entitled to occupy such dwelling unit by reason of his ownership of stock in the corporation, and
(ii) any indebtedness of the corporation allocable to the dwelling unit shall be treated as if it were indebtedness of the shareholder entitled to occupy the dwelling unit.
(B) Adjustment to targeted area requirement
In the case of any issue to provide financing to a cooperative housing corporation with respect to cooperative housing not located in a targeted area, to the extent provided in regulations, such issue may be combined with 1 or more other issues for purposes of determining whether the requirements of subsection (h) are met.
(C) Cooperative housing corporation
The term "cooperative housing corporation" has the meaning given to such term by section 216(b)(1).
(9) Treatment of limited equity cooperative housing
(A) Treatment as residential rental property
Except as provided in subparagraph (B), for purposes of this part—
(i) any limited equity cooperative housing shall be treated as residential rental property and not as owner-occupied housing, and
(ii) bonds issued to provide such housing shall be subject to the same requirements and limitations as bonds the proceeds of which are to be used to provide qualified residential rental projects (as defined in section 142(d)).
(B) Bonds subject to qualified mortgage bond termination date
Subparagraph (A) shall not apply to any bond issued after the date specified in subsection (a)(1)(B).
(C) Limited equity cooperative housing
For purposes of this paragraph, the term "limited equity cooperative housing" means any dwelling unit which a person is entitled to occupy by reason of his ownership of stock in a qualified cooperative housing corporation.
(D) Qualified cooperative housing corporation
For purposes of this paragraph, the term "qualified cooperative housing corporation" means any cooperative housing corporation (as defined in section 216(b)(1)) if—
(i) the consideration paid for stock held by any stockholder entitled to occupy any house or apartment in a building owned or leased by the corporation may not exceed the sum of—
(I) the consideration paid for such stock by the first such stockholder, as adjusted by a cost-of-living adjustment determined by the Secretary,
(II) payments made by any stockholder for improvements to such house or apartment, and
(III) payments (other than amounts taken into account under subclause (I) or (II)) attributable to any stockholder to amortize the principal of the corporation's indebtedness arising from the acquisition or development of real property, including improvements thereof,
(ii) the value of the corporation's assets (reduced by any corporate liabilities), to the extent such value exceeds the combined transfer values of the outstanding corporate stock, shall be used only for public benefit or charitable purposes, or directly to benefit the corporation itself, and shall not be used directly to benefit any stockholder, and
(iii) at the time of issuance of the issue, such corporation makes an election under this paragraph.
(E) Effect of election
If a cooperative housing corporation makes an election under this paragraph, section 216 shall not apply with respect to such corporation (or any successor thereof) during the qualified project period (as defined in section 142(d)(2)).
(F) Corporation must continue to be qualified cooperative
Subparagraph (A)(i) shall not apply to limited equity cooperative housing unless the cooperative housing corporation continues to be a qualified cooperative housing corporation at all times during the qualified project period (as defined in section 142(d)(2)).
(G) Election irrevocable
Any election under this paragraph, once made, shall be irrevocable.
(10) Treatment of resale price control and subsidy lien programs
(A) In general
In the case of a residence which is located in a high housing cost area (as defined in section 143(f)(5)), the interest of a governmental unit in such residence by reason of financing provided under any qualified program shall not be taken into account under this section (other than subsection (m)), and the acquisition cost of the residence which is taken into account under subsection (e) shall be such cost reduced by the amount of such financing.
(B) Qualified program
For purposes of subparagraph (A), the term "qualified program" means any governmental program providing mortgage loans (other than 1st mortgage loans) or grants—
(i) which restricts (throughout the 9-year period beginning on the date the financing is provided) the resale of the residence to a purchaser qualifying under this section and to a price determined by an index that reflects less than the full amount of any appreciation in the residence's value, or
(ii) which provides for deferred or reduced interest payments on such financing and grants the governmental unit a share in the appreciation of the residence,
but only if such financing is not provided directly or indirectly through the use of any tax-exempt private activity bond.
(11) Special rules for residences located in disaster areas
In the case of a residence located in an area determined by the President to warrant assistance from the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (as in effect on the date of the enactment of the Taxpayer Relief Act of 1997), this section shall be applied with the following modifications to financing provided with respect to such residence within 2 years after the date of the disaster declaration:
(A) Subsection (d) (relating to 3-year requirement) shall not apply.
(B) Subsections (e) and (f) (relating to purchase price requirement and income requirement) shall be applied as if such residence were a targeted area residence.
The preceding sentence shall apply only with respect to bonds issued after May 1, 2008, and before January 1, 2010.
(12) Special rules for subprime refinancings
(A) In general
Notwithstanding the requirements of subsection (i)(1), the proceeds of a qualified mortgage issue may be used to refinance a mortgage on a residence which was originally financed by the mortgagor through a qualified subprime loan.
(B) Special rules
In applying subparagraph (A) to any refinancing—
(i) subsection (a)(2)(D)(i) shall be applied by substituting "12-month period" for "42-month period" each place it appears,
(ii) subsection (d) (relating to 3-year requirement) shall not apply, and
(iii) subsection (e) (relating to purchase price requirement) shall be applied by using the market value of the residence at the time of refinancing in lieu of the acquisition cost.
(C) Qualified subprime loan
The term "qualified subprime loan" means an adjustable rate single-family residential mortgage loan made after December 31, 2001, and before January 1, 2008, that the bond issuer determines would be reasonably likely to cause financial hardship to the borrower if not refinanced.
(D) Termination
This paragraph shall not apply to any bonds issued after December 31, 2010.
(13) Special rules for residences destroyed in federally declared disasters
(A) Principal residence destroyed
At the election of the taxpayer, if the principal residence (within the meaning of section 121) of such taxpayer is—
(i) rendered unsafe for use as a residence by reason of a federally declared disaster occurring before January 1, 2010, or
(ii) demolished or relocated by reason of an order of the government of a State or political subdivision thereof on account of a federally declared disaster occurring before such date,
then, for the 2-year period beginning on the date of the disaster declaration, subsection (d)(1) shall not apply with respect to such taxpayer and subsection (e) shall be applied by substituting "110" for "90" in paragraph (1) thereof.
(B) Principal residence damaged
(i) In general
At the election of the taxpayer, if the principal residence (within the meaning of section 121) of such taxpayer was damaged as the result of a federally declared disaster occurring before January 1, 2010, any owner-financing provided in connection with the repair or reconstruction of such residence shall be treated as a qualified rehabilitation loan.
(ii) Limitation
The aggregate owner-financing to which clause (i) applies shall not exceed the lesser of—
(I) the cost of such repair or reconstruction, or
(II) $150,000.
(C) Federally declared disaster
For purposes of this paragraph, the term "federally declared disaster" has the meaning given such term by section 165(h)(3)(C)(i).1
(D) Election; denial of double benefit
(i) Election
An election under this paragraph may not be revoked except with the consent of the Secretary.
(ii) Denial of double benefit
If a taxpayer elects the application of this paragraph, paragraph (11) shall not apply with respect to the purchase or financing of any residence by such taxpayer.
(l) Additional requirements for qualified veterans' mortgage bonds
An issue meets the requirements of this subsection only if it meets the requirements of paragraphs (1), (2), and (3).
(1) Veterans to whom financing may be provided
An issue meets the requirements of this paragraph only if each mortgagor to whom financing is provided under the issue is a qualified veteran.
(2) Requirement that State program be in effect before June 22, 1984
An issue meets the requirements of this paragraph only if it is a general obligation of a State which issued qualified veterans' mortgage bonds before June 22, 1984.
(3) Volume limitation
(A) In general
An issue meets the requirements of this paragraph only if the aggregate amount of bonds issued pursuant thereto (when added to the aggregate amount of qualified veterans' mortgage bonds previously issued by the State during the calendar year) does not exceed the State veterans limit for such calendar year.
(B) State veterans limit
(i) In general
In the case of any State to which clause (ii) does not apply, the State veterans limit for any calendar year is the amount equal to—
(I) the aggregate amount of qualified veterans bonds issued by such State during the period beginning on January 1, 1979, and ending on June 22, 1984 (not including the amount of any qualified veterans bond issued by such State during the calendar year (or portion thereof) in such period for which the amount of such bonds so issued was the lowest), divided by
(II) the number (not to exceed 5) of calendar years after 1979 and before 1985 during which the State issued qualified veterans bonds (determined by only taking into account bonds issued on or before June 22, 1984).
(ii) Alaska, Oregon, and Wisconsin
In the case of the following States, the State veterans limit for any calendar year is the amount equal to—
(I) $100,000,000 for the State of Alaska,
(II) $100,000,000 for the State of Oregon, and
(III) $100,000,000 for the State of Wisconsin.
(iii) Phasein
In the case of calendar years beginning before 2010, clause (ii) shall be applied by substituting for each of the dollar amounts therein an amount equal to the applicable percentage of such dollar amount. For purposes of the preceding sentence, the applicable percentage shall be determined in accordance with the following table:
| For Calendar Year: | Applicable percentage is: | |
|---|---|---|
| 2006 | 20 percent | |
| 2007 | 40 percent | |
| 2008 | 60 percent | |
| 2009 | 80 percent. |
(C) Treatment of refunding issues
(i) In general
For purposes of subparagraph (A), the term "qualified veterans' mortgage bond" shall not include any bond issued to refund another bond but only if the maturity date of the refunding bond is not later than the later of—
(I) the maturity date of the bond to be refunded, or
(II) the date 32 years after the date on which the refunded bond was issued (or in the case of a series of refundings, the date on which the original bond was issued).
The preceding sentence shall apply only to the extent that the amount of the refunding bond does not exceed the outstanding amount of the refunded bond.
(ii) Exception for advance refunding
Clause (i) shall not apply to any bond issued to advance refund another bond.
(4) Qualified veteran
For purposes of this subsection, the term "qualified veteran" means any veteran who—
(A) served on active duty, and
(B) applied for the financing before the date 25 years after the last date on which such veteran left active service.
(5) Special rule for certain short-term bonds
In the case of any bond—
(A) which has a term of 1 year or less,
(B) which is authorized to be issued under O.R.S. 407.435 (as in effect on the date of the enactment of this subsection), to provide financing for property taxes, and
(C) which is redeemed at the end of such term,
the amount taken into account under this subsection with respect to such bond shall be 1/15 of its principal amount.
(m) Recapture of portion of Federal subsidy from use of qualified mortgage bonds and mortgage credit certificates
(1) In general
If, during the taxable year, any taxpayer disposes of an interest in a residence with respect to which there is or was any federally-subsidized indebtedness for the payment of which the taxpayer was liable in whole or part, then the taxpayer's tax imposed by this chapter for such taxable year shall be increased by the lesser of—
(A) the recapture amount with respect to such indebtedness, or
(B) 50 percent of the gain (if any) on the disposition of such interest.
(2) Exceptions
Paragraph (1) shall not apply to—
(A) any disposition by reason of death, and
(B) any disposition which is more than 9 years after the testing date.
(3) Federally-subsidized indebtedness
For purposes of this subsection—
(A) In general
The term "federally-subsidized indebtedness" means any indebtedness if—
(i) financing for the indebtedness was provided in whole or part from the proceeds of any tax-exempt qualified mortgage bond, or
(ii) any credit was allowed under section 25 (relating to interest on certain home mortgages) to the taxpayer for interest paid or incurred on such indebtedness.
(B) Exception for home improvement loans
Such term shall not include any indebtedness to the extent such indebtedness is federally-subsidized indebtedness solely by reason of being a qualified home improvement loan (as defined in subsection (k)(4)).
(4) Recapture amount
For purposes of this subsection—
(A) In general
The recapture amount with respect to any indebtedness is the amount equal to the product of—
(i) the federally-subsidized amount with respect to the indebtedness,
(ii) the holding period percentage, and
(iii) the income percentage.
(B) Federally-subsidized amount
The federally-subsidized amount with respect to any indebtedness is the amount equal to 6.25 percent of the highest principal amount of the indebtedness for which the taxpayer was liable.
(C) Holding period percentage
(i) In general
The term "holding period percentage" means the percentage determined in accordance with the following table:
| If the disposition occurs during a year after the testing date which is: | The holding period percentage is: | |
|---|---|---|
| The 1st such year | 20 | |
| The 2d such year | 40 | |
| The 3d such year | 60 | |
| The 4th such year | 80 | |
| The 5th such year | 100 | |
| The 6th such year | 80 | |
| The 7th such year | 60 | |
| The 8th such year | 40 | |
| The 9th such year | 20. |
(ii) Retirements of indebtedness
If the federally-subsidized indebtedness is completely repaid during any year of the 4-year period beginning on the testing date, the holding period percentage for succeeding years shall be determined by reducing ratably to zero over the succeeding 5 years the holding period percentage which would have been determined under this subparagraph had the taxpayer disposed of his interest in the residence on the date of the repayment.
(D) Testing date
The term "testing date" means the earliest date on which all of the following requirements are met:
(i) The indebtedness is federally-subsidized indebtedness.
(ii) The taxpayer is liable in whole or part for payment of the indebtedness.
(E) Income percentage
The term "income percentage" means the percentage (but not greater than 100 percent) which—
(i) the excess of—
(I) the modified adjusted gross income of the taxpayer for the taxable year in which the disposition occurs, over
(II) the adjusted qualifying income for such taxable year, bears to
(ii) $5,000.
The percentage determined under the preceding sentence shall be rounded to the nearest whole percentage point (or, if it includes a half of a percentage point, shall be increased to the nearest whole percentage point).
(5) Adjusted qualifying income; modified adjusted gross income
(A) Adjusted qualifying income
For purposes of paragraph (4), the term "adjusted qualifying income" means the product of—
(i) the highest family income which (as of the date the financing was provided) would have met the requirements of subsection (f) with respect to the residents, and
(ii) 1.05 to the nth power where "n" equals the number of full years during the period beginning on the date the financing was provided and ending on the date of the disposition.
For purposes of clause (i), highest family income shall be determined without regard to subsection (f)(3)(A) and on the basis of the number of members of the taxpayer's family as of the date of the disposition.
(B) Modified adjusted gross income
For purposes of paragraph (4), the term "modified adjusted gross income" means adjusted gross income—
(i) increased by the amount of interest received or accrued by the taxpayer during the taxable year which is excluded from gross income under section 103, and
(ii) decreased by the amount of gain (if any) included in gross income of the taxpayer by reason of the disposition to which this subsection applies.
(6) Special rules relating to limitation on recapture amount based on gain realized
(A) In general
For purposes of paragraph (1), gain shall be taken into account whether or not recognized, and the adjusted basis of the taxpayer's interest in the residence shall be determined without regard to sections 1033(b) and 1034(e) (as in effect on the day before the date of the enactment of the Taxpayer Relief Act of 1997) for purposes of determining gain.
(B) Dispositions other than sales, exchanges, and involuntary conversions
In the case of a disposition other than a sale, exchange, or involuntary conversion, gain shall be determined as if the interest had been sold for its fair market value.
(C) Involuntary conversions resulting from casualties
In the case of property which (as a result of its destruction in whole or in part by fire, storm, or other casualty) is compulsorily or involuntarily converted, paragraph (1) shall not apply to such conversion if the taxpayer purchases (during the period specified in section 1033(a)(2)(B)) property for use as his principal residence on the site of the converted property. For purposes of subparagraph (A), the adjusted basis of the taxpayer in the residence shall not be adjusted for any gain or loss on a conversion to which this subparagraph applies.
(7) Issuer to inform mortgagor of federally-subsidized amount and family income limits
The issuer of the issue which provided the federally-subsidized indebtedness to the mortgagor shall—
(A) at the time of settlement, provide a written statement informing the mortgagor of the potential recapture under this subsection, and
(B) not later than 90 days after the date such indebtedness is provided, provide a written statement to the mortgagor specifying—
(i) the federally-subsidized amount with respect to such indebtedness, and
(ii) the adjusted qualifying income (as defined in paragraph (5)) for each category of family size for each year of the 9-year period beginning on the date the financing was provided.
(8) Special rules
(A) No basis adjustment
No adjustment shall be made to the basis of any property for the increase in tax under this subsection.
(B) Special rule where 2 or more persons hold interests in residence
Except as provided in subparagraph (C) and in regulations prescribed by the Secretary, if 2 or more persons hold interests in any residence and are jointly liable for the federally-subsidized indebtedness, the recapture amount shall be determined separately with respect to their respective interests in the residence.
(C) Transfers to spouses and former spouses
Paragraph (1) shall not apply to any transfer on which no gain or loss is recognized under section 1041. In any such case, the transferee shall be treated under this subsection in the same manner as the transferor would have been treated had such transfer not occurred.
(D) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out this subsection, including regulations dealing with dispositions of partial interests in a residence.
(Added
Editorial Notes
References in Text
The date of the enactment of this subparagraph, referred to in subsec. (d)(2)(D), is the date of enactment of
Section 8 of the United States Housing Act of 1937, referred to in subsec. (f)(2), is classified to
The Robert T. Stafford Disaster Relief and Emergency Assistance Act, referred to in subsec. (k)(11), is
Par. (3) of section 165(h), referred to in subsec. (k)(13)(C), was repealed by
The date of the enactment of this subsection, referred to in subsec. (l)(5)(B), is the date of enactment of
Section 1034(e) (as in effect on the day before the date of the enactment of the Taxpayer Relief Act of 1997), referred to in subsec. (m)(6)(A), means
Prior Provisions
A prior section 143, acts Aug. 16, 1954, ch. 736,
Provisions similar to this section were contained in
Amendments
2014—Subsec. (k)(12), (13).
2008—Subsec. (d)(2)(D).
Subsec. (k)(11).
Subsec. (k)(12).
Subsec. (l)(3)(B)(ii).
Subsec. (l)(4).
2006—Subsec. (d)(2)(D).
Subsec. (l)(3)(B).
Subsec. (l)(3)(B)(iv).
Subsec. (l)(4).
1997—Subsec. (i)(1)(C)(i)(I).
Subsec. (k)(11).
Subsec. (m)(6)(A).
1996—Subsec. (d)(2)(C).
Subsec. (m)(4)(C)(ii).
1993—Subsec. (a)(1).
"(A)
"(B)
Subsec. (d)(2)(C).
Subsec. (i)(1)(C).
Subsec. (k)(3)(B)(iii).
Subsec. (k)(7).
Subsec. (k)(10).
1991—Subsec. (a)(1)(B).
1990—Subsec. (a)(1)(B).
Subsec. (m)(1).
Subsec. (m)(2)(B).
Subsec. (m)(4)(A)(iii).
Subsec. (m)(4)(C)(i).
Subsec. (m)(4)(C)(ii), (iii).
"(I) the excess of 120 over the number of full months during which such requirements were met by
"(II) 60."
Subsec. (m)(4)(E).
Subsec. (m)(5).
Subsec. (m)(5)(A).
Subsec. (m)(5)(B), (C).
"(i) $5,000, plus
"(ii) the product of—
"(I) the highest family income which (as of the date the financing was provided) would have met the requirement of subsection (f) with respect to the residence, and
"(II) the percentage equal to the sum of 100 percent plus 5 percent for each full year during the period beginning on such date and ending on the date of the disposition.
For purposes of clause (ii)(I), highest family income shall be determined without regard to subsection (f)(3)(A) and on the basis of the number of members of the taxpayer's family as of the date of the disposition."
Subsec. (m)(6).
Subsec. (m)(6)(A).
Subsec. (m)(7)(B)(ii).
1989—Subsec. (a)(1)(B).
1988—Subsec. (a)(1)(B).
Subsec. (a)(2)(A).
Subsec. (a)(2)(A)(ii).
Subsec. (a)(2)(A)(iii).
Subsec. (a)(2)(A)(iv).
Subsec. (a)(2)(C).
Subsec. (a)(2)(D).
Subsec. (b)(4).
Subsec. (f)(5).
Subsec. (f)(6).
Subsec. (g)(1).
Subsec. (g)(2)(B)(iv).
Subsec. (m).
Statutory Notes and Related Subsidiaries
Effective Date of 2014 Amendment
Effective Date of 2008 Amendment
Effective Date of 2006 Amendment
Effective Date of 1997 Amendment
Amendment by section 312(d)(1), (3) of
Effective Date of 1996 Amendment
Amendment by section 1702(d)(2) of
Amendment by section 1703(n)(3) of
Effective Date of 1993 Amendment
Effective Date of 1991 Amendment
Effective Date of 1990 Amendment
"(1)
"(2)
"(3)
Effective Date of 1988 Amendment
Amendment by section 1013(a)(2), (3) of
"(1)
"(2)
"(A) the amendments made by subsections (b) and (c) [amending this section] shall apply to financing provided after the date of issuance of the refunding issue, and
"(B) the amendment made by subsection (f) [amending this section] shall apply to payments (including on loans made before such date of issuance) received on or after such date of issuance.
"(3)
"(A)
"(B)
"(i) before June 23, 1988, or
"(ii) before August 1, 1988, pursuant to a written application (made before July 1, 1988) for State bond volume authority."
Transition Rule
Termination Date for Obligations Treated as Qualified Mortgage Bonds Under Former Section 103A
Study of Recapture Provisions
1 See References in Text note below.
§144. Qualified small issue bond; qualified student loan bond; qualified redevelopment bond
(a) Qualified small issue bond
(1) In general
For purposes of this part, the term "qualified small issue bond" means any bond issued as part of an issue the aggregate authorized face amount of which is $1,000,000 or less and 95 percent or more of the net proceeds of which are to be used—
(A) for the acquisition, construction, reconstruction, or improvement of land or property of a character subject to the allowance for depreciation, or
(B) to redeem part or all of a prior issue which was issued for purposes described in subparagraph (A) or this subparagraph.
(2) Certain prior issues taken into account
If—
(A) the proceeds of 2 or more issues of bonds (whether or not the issuer of each such issue is the same) are or will be used primarily with respect to facilities located in the same incorporated municipality or located in the same county (but not in any incorporated municipality),
(B) the principal user of such facilities is or will be the same person or 2 or more related persons, and
(C) but for this paragraph, paragraph (1) (or the corresponding provision of prior law) would apply to each such issue,
then, for purposes of paragraph (1), in determining the aggregate face amount of any later issue there shall be taken into account the aggregate face amount of tax-exempt bonds issued under all prior such issues and outstanding at the time of such later issue (not including as outstanding any bond which is to be redeemed (other than in an advance refunding) from the net proceeds of the later issue).
(3) Related persons
For purposes of this subsection, a person is a related person to another person if—
(A) the relationship between such persons would result in a disallowance of losses under section 267 or 707(b), or
(B) such persons are members of the same controlled group of corporations (as defined in section 1563(a), except that "more than 50 percent" shall be substituted for "at least 80 percent" each place it appears therein).
(4) $10,000,000 limit in certain cases
(A) In general
At the election of the issuer with respect to any issue, this subsection shall be applied—
(i) by substituting "$10,000,000" for "$1,000,000" in paragraph (1), and
(ii) in determining the aggregate face amount of such issue, by taking into account not only the amount described in paragraph (2), but also the aggregate amount of capital expenditures with respect to facilities described in subparagraph (B) paid or incurred during the 6-year period beginning 3 years before the date of such issue and ending 3 years after such date (and financed otherwise than out of the proceeds of outstanding tax-exempt issues to which paragraph (1) (or the corresponding provision of prior law) applied), as if the aggregate amount of such capital expenditures constituted the face amount of a prior outstanding issue described in paragraph (2).
(B) Facilities taken into account
For purposes of subparagraph (A)(ii), the facilities described in this subparagraph are facilities—
(i) located in the same incorporated municipality or located in the same county (but not in any incorporated municipality), and
(ii) the principal user of which is or will be the same person or 2 or more related persons.
For purposes of clause (i), the determination of whether or not facilities are located in the same governmental unit shall be made as of the date of issue of the issue in question.
(C) Certain capital expenditures not taken into account
For purposes of subparagraph (A)(ii), any capital expenditure—
(i) to replace property destroyed or damaged by fire, storm, or other casualty, to the extent of the fair market value of the property replaced,
(ii) required by a change made after the date of issue of the issue in question in a Federal or State law or local ordinance of general application or required by a change made after such date in rules and regulations of general application issued under such a law or ordinance,
(iii) required by circumstances which could not be reasonably foreseen on such date of issue or arising out of a mistake of law or fact (but the aggregate amount of expenditures not taken into account under this clause with respect to any issue shall not exceed $1,000,000), or
(iv) described in clause (i) or (ii) of section 41(b)(2)(A) for which a deduction was allowed under section 174(a),
shall not be taken into account.
(D) Limitation on loss of tax exemption
In applying subparagraph (A)(ii) with respect to capital expenditures made after the date of any issue, no bond issued as a part of such issue shall cease to be treated as a qualified small issue bond by reason of any such expenditure for any period before the date on which such expenditure is paid or incurred.
(E) Certain refinancing issues
In the case of any issue described in paragraph (1)(B), an election may be made under subparagraph (A) of this paragraph only if all of the prior issues being redeemed are issues to which paragraph (1) (or the corresponding provision of prior law) applied. In applying subparagraph (A)(ii) with respect to such a refinancing issue, capital expenditures shall be taken into account only for purposes of determining whether the prior issues being redeemed qualified (and would have continued to qualify) under paragraph (1) (or the corresponding provision of prior law).
(F) Aggregate amount of capital expenditures where there is urban development action grant
In the case of any issue 95 percent or more of the net proceeds of which are to be used to provide facilities with respect to which an urban development action grant has been made under section 119 of the Housing and Community Development Act of 1974, capital expenditures of not to exceed $10,000,000 shall not be taken into account for purposes of applying subparagraph (A)(ii). This subparagraph shall not apply to bonds issued after December 31, 2006.
(G) Additional capital expenditures not taken into account
With respect to bonds issued after December 31, 2006, in addition to any capital expenditure described in subparagraph (C), capital expenditures of not to exceed $10,000,000 shall not be taken into account for purposes of applying subparagraph (A)(ii).
(5) Issues for residential purposes
This subsection shall not apply to any bond issued as part of an issue 5 percent or more of the net proceeds of which are to be used directly or indirectly to provide residential real property for family units.
(6) Limitations on treatment of bonds as part of the same issue
(A) In general
For purposes of this subsection, separate lots of bonds which (but for this subparagraph) would be treated as part of the same issue shall be treated as separate issues unless the proceeds of such lots are to be used with respect to 2 or more facilities—
(i) which are located in more than 1 State, or
(ii) which have, or will have, as the same principal user the same person or related persons.
(B) Franchises
For purposes of subparagraph (A), a person (other than a governmental unit) shall be considered a principal user of a facility if such person (or a group of related persons which includes such person)—
(i) guarantees, arranges, participates in, or assists with the issuance (or pays any portion of the cost of issuance) of any bond the proceeds of which are to be used to finance or refinance such facility, and
(ii) provides any property, or any franchise, trademark, or trade name (within the meaning of section 1253), which is to be used in connection with such facility.
(7) Subsection not to apply if bonds issued with certain other tax-exempt bonds
This subsection shall not apply to any bond issued as part of an issue (other than an issue to which paragraph (4) applies) if the interest on any other bond which is part of such issue is excluded from gross income under any provision of law other than this subsection.
(8) Restrictions on financing certain facilities
This subsection shall not apply to an issue if—
(A) more than 25 percent of the net proceeds of the issue are to be used to provide a facility the primary purpose of which is one of the following: retail food and beverage services, automobile sales or service, or the provision of recreation or entertainment; or
(B) any portion of the proceeds of the issue is to be used to provide the following: any private or commercial golf course, country club, massage parlor, tennis club, skating facility (including roller skating, skateboard, and ice skating), racquet sports facility (including any handball or racquetball court), hot tub facility, suntan facility, or racetrack.
(9) Aggregation of issues with respect to single project
For purposes of this subsection, 2 or more issues part or all of the net proceeds of which are to be used with respect to a single building, an enclosed shopping mall, or a strip of offices, stores, or warehouses using substantial common facilities shall be treated as 1 issue (and any person who is a principal user with respect to any of such issues shall be treated as a principal user with respect to the aggregated issue).
(10) Aggregate limit per taxpayer
(A) In general
This subsection shall not apply to any issue if the aggregate authorized face amount of such issue allocated to any test-period beneficiary (when increased by the outstanding tax-exempt facility-related bonds of such beneficiary) exceeds $40,000,000.
(B) Outstanding tax-exempt facility-related bonds
(i) In general
For purposes of applying subparagraph (A) with respect to any issue, the outstanding tax-exempt facility-related bonds of any person who is a test-period beneficiary with respect to such issue is the aggregate amount of tax-exempt bonds referred to in clause (ii)—
(I) which are allocated to such beneficiary, and
(II) which are outstanding at the time of such later issue (not including as outstanding any bond which is to be redeemed (other than in an advance refunding) from the net proceeds of the later issue).
(ii) Bonds taken into account
For purposes of clause (i), the bonds referred to in this clause are—
(I) exempt facility bonds, qualified small issue bonds, and qualified redevelopment bonds, and
(II) industrial development bonds (as defined in section 103(b)(2), as in effect on the day before the date of the enactment of the Tax Reform Act of 1986) to which section 141(a) does not apply.
(C) Allocation of face amount of issue
(i) In general
Except as otherwise provided in regulations, the portion of the face amount of an issue allocated to any test-period beneficiary of a facility financed by the proceeds of such issue (other than an owner of such facility) is an amount which bears the same relationship to the entire face amount of such issue as the portion of such facility used by such beneficiary bears to the entire facility.
(ii) Owners
Except as otherwise provided in regulations, the portion of the face amount of an issue allocated to any test-period beneficiary who is an owner of a facility financed by the proceeds of such issue is an amount which bears the same relationship to the entire face amount of such issue as the portion of such facility owned by such beneficiary bears to the entire facility.
(D) Test-period beneficiary
For purposes of this paragraph, except as provided in regulations, the term "test-period beneficiary" means any person who is an owner or a principal user of facilities being financed by the issue at any time during the 3-year period beginning on the later of—
(i) the date such facilities were placed in service, or
(ii) the date of issue.
(E) Treatment of related persons
For purposes of this paragraph, all persons who are related (within the meaning of paragraph (3)) to each other shall be treated as 1 person.
(11) Limitation on acquisition of depreciable farm property
(A) In general
This subsection shall not apply to any issue if more than $250,000 of the net proceeds of such issue are to be used to provide depreciable farm property with respect to which the principal user is or will be the same person or 2 or more related persons.
(B) Depreciable farm property
For purposes of this paragraph, the term "depreciable farm property" means property of a character subject to the allowance for depreciation which is to be used in a trade or business of farming.
(C) Prior issues taken into account
In determining the amount of proceeds of an issue to be used as described in subparagraph (A), there shall be taken into account the aggregate amount of each prior issue to which paragraph (1) (or the corresponding provisions of prior law) applied which were or will be so used.
(12) Termination dates
(A) In general
This subsection shall not apply to—
(i) any bond (other than a bond described in clause (ii)) issued after December 31, 1986, or
(ii) any bond (or series of bonds) issued to refund a bond issued on or before such date unless—
(I) the average maturity date of the issue of which the refunding bond is a part is not later than the average maturity date of the bonds to be refunded by such issue,
(II) the amount of the refunding bond does not exceed the outstanding amount of the refunded bond, and
(III) the net proceeds of the refunding bond are used to redeem the refunded bond not later than 90 days after the date of the issuance of the refunding bond.
For purposes of clause (ii)(I), average maturity shall be determined in accordance with section 147(b)(2)(A).
(B) Bonds issued to finance manufacturing facilities and farm property
Subparagraph (A) shall not apply to any bond issued as part of an issue 95 percent or more of the net proceeds of which are to be used to provide—
(i) any manufacturing facility, or
(ii) any land or property in accordance with section 147(c)(2).
(C) Manufacturing facility
For purposes of this paragraph—
(i) In general
The term "manufacturing facility" means any facility which is used in the manufacturing or production of tangible personal property (including the processing resulting in a change in the condition of such property). A rule similar to the rule of section 142(b)(2) shall apply for purposes of the preceding sentence.
(ii) Certain facilities included
Such term includes facilities which are directly related and ancillary to a manufacturing facility (determined without regard to this clause) if—
(I) such facilities are located on the same site as the manufacturing facility, and
(II) not more than 25 percent of the net proceeds of the issue are used to provide such facilities.
(iii) Special rules for bonds issued in 2009 and 2010
In the case of any issue made after the date of enactment of this clause and before January 1, 2011, clause (ii) shall not apply and the net proceeds from a bond shall be considered to be used to provide a manufacturing facility if such proceeds are used to provide—
(I) a facility which is used in the creation or production of intangible property which is described in section 197(d)(1)(C)(iii), or
(II) a facility which is functionally related and subordinate to a manufacturing facility (determined without regard to this subclause) if such facility is located on the same site as the manufacturing facility.
(b) Qualified student loan bond
For purposes of this part—
(1) In general
The term "qualified student loan bond" means any bond issued as part of an issue the applicable percentage or more of the net proceeds of which are to be used directly or indirectly to make or finance student loans under—
(A) a program of general application to which the Higher Education Act of 1965 applies if—
(i) limitations are imposed under the program on—
(I) the maximum amount of loans outstanding to any student, and
(II) the maximum rate of interest payable on any loan,
(ii) the loans are directly or indirectly guaranteed by the Federal Government,
(iii) the financing of loans under the program is not limited by Federal law to the proceeds of tax-exempt bonds, and
(iv) special allowance payments under section 438 of the Higher Education Act of 1965—
(I) are authorized to be paid with respect to loans made under the program, or
(II) would be authorized to be made with respect to loans under the program if such loans were not financed with the proceeds of tax-exempt bonds, or
(B) a program of general application approved by the State if no loan under such program exceeds the difference between the total cost of attendance and other forms of student assistance (not including loans pursuant to section 428B(a)(1) of the Higher Education Act of 1965 (relating to parent loans) or subpart I 1 of part C of title VII of the Public Health Service Act (relating to student assistance)) for which the student borrower may be eligible. A program shall not be treated as described in this subparagraph if such program is described in subparagraph (A).
A bond shall not be treated as a qualified student loan bond if the issue of which such bond is a part meets the private business tests of paragraphs (1) and (2) of section 141(b) (determined by treating 501(c)(3) organizations as governmental units with respect to their activities which do not constitute unrelated trades or businesses, determined by applying section 513(a)).
(2) Applicable percentage
For purposes of paragraph (1), the term "applicable percentage" means—
(A) 90 percent in the case of the program described in paragraph (1)(A), and
(B) 95 percent in the case of the program described in paragraph (1)(B).
(3) Student borrowers must be residents of issuing State, etc.
A student loan shall be treated as being made or financed under a program described in paragraph (1) with respect to an issue only if the student is—
(A) a resident of the State from which the volume cap under section 146 for such loan was derived, or
(B) enrolled at an educational institution located in such State.
(4) Discrimination on basis of school location not permitted
A program shall not be treated as described in paragraph (1)(A) if such program discriminates on the basis of the location (in the United States) of the educational institution in which the student is enrolled.
(c) Qualified redevelopment bond
For purposes of this part—
(1) In general
The term "qualified redevelopment bond" means any bond issued as part of an issue 95 percent or more of the net proceeds of which are to be used for 1 or more redevelopment purposes in any designated blighted area.
(2) Additional requirements
A bond shall not be treated as a qualified redevelopment bond unless—
(A) the issue described in paragraph (1) is issued pursuant to—
(i) a State law which authorizes the issuance of such bonds for redevelopment purposes in blighted areas, and
(ii) a redevelopment plan which is adopted before such issuance by the governing body described in paragraph (4)(A) with respect to the designated blighted area,
(B)(i) the payment of the principal and interest on such issue is primarily secured by taxes of general applicability imposed by a general purpose governmental unit, or
(ii) any increase in real property tax revenues (attributable to increases in assessed value) by reason of the carrying out of such purposes in such area is reserved exclusively for debt service on such issue (and similar issues) to the extent such increase does not exceed such debt service,
(C) each interest in real property located in such area—
(i) which is acquired by a governmental unit with the proceeds of the issue, and
(ii) which is transferred to a person other than a governmental unit,
is transferred for fair market value,
(D) the financed area with respect to such issue meets the no additional charge requirements of paragraph (5), and
(E) the use of the proceeds of the issue meets the requirements of paragraph (6).
(3) Redevelopment purposes
For purposes of paragraph (1)—
(A) In general
The term "redevelopment purposes" means, with respect to any designated blighted area—
(i) the acquisition (by a governmental unit having the power to exercise eminent domain) of real property located in such area,
(ii) the clearing and preparation for redevelopment of land in such area which was acquired by such governmental unit,
(iii) the rehabilitation of real property located in such area which was acquired by such governmental unit, and
(iv) the relocation of occupants of such real property.
(B) New construction not permitted
The term "redevelopment purposes" does not include the construction (other than the rehabilitation) of any property or the enlargement of an existing building.
(4) Designated blighted area
For purposes of this subsection—
(A) In general
The term "designated blighted area" means any blighted area designated by the governing body of a local general purpose governmental unit in the jurisdiction of which such area is located.
(B) Blighted area
The term "blighted area" means any area which the governing body described in subparagraph (A) determines to be a blighted area on the basis of the substantial presence of factors such as excessive vacant land on which structures were previously located, abandoned or vacant buildings, substandard structures, vacancies, and delinquencies in payment of real property taxes.
(C) Designated areas may not exceed 20 percent of total assessed value of real property in government's jurisdiction
(i) In general
An area may be designated by a governmental unit as a blighted area only if the designation percentage with respect to such area, when added to the designation percentages of all other designated blighted areas within the jurisdiction of such governmental unit, does not exceed 20 percent.
(ii) Designation percentage
For purposes of this subparagraph, the term "designation percentage" means, with respect to any area, the percentage (determined at the time such area is designated) which the assessed value of real property located in such area is of the total assessed value of all real property located within the jurisdiction of the governmental unit which designated such area.
(iii) Exception where bonds not outstanding
The designation percentage of a previously designated blighted area shall not be taken into account under clause (i) if no qualified redevelopment bond (or similar bond) is or will be outstanding with respect to such area.
(D) Minimum designated area
(i) In general
Except as provided in clause (ii), an area shall not be treated as a designated blighted area for purposes of this subsection unless such area is contiguous and compact and its area equals or exceeds 100 acres.
(ii) 10-acre minimum in certain cases
Clause (i) shall be applied by substituting "10 acres" for "100 acres" if not more than 25 percent of the financed area is to be provided (pursuant to the issue and all other such issues) to 1 person. For purposes of the preceding sentence, all related persons (as defined in subsection (a)(3)) shall be treated as 1 person. For purposes of this clause, an area provided to a developer on a short-term interim basis shall not be treated as provided to such developer.
(5) No additional charge requirements
The financed area with respect to any issue meets the requirements of this paragraph if, while any bond which is part of such issue is outstanding—
(A) no owner or user of property located in the financed area is subject to a charge or fee which similarly situated owners or users of comparable property located outside such area are not subject, and
(B) the assessment method or rate of real property taxes with respect to property located in the financed area does not differ from the assessment method or rate of real property taxes with respect to comparable property located outside such area.
For purposes of the preceding sentence, the term "comparable property" means property which is of the same type as the property to which it is being compared and which is located within the jurisdiction of the designating governmental unit.
(6) Use of proceeds requirements
The use of the proceeds of an issue meets the requirements of this paragraph if—
(A) not more than 25 percent of the net proceeds of such issue are to be used to provide (including the provision of land for) facilities described in subsection (a)(8) or section 147(e), and
(B) no portion of the proceeds of such issue is to be used to provide (including the provision of land for) any private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, racetrack or other facility used for gambling, or any store the principal business of which is the sale of alcoholic beverages for consumption off premises.
(7) Financed area
For purposes of this subsection, the term "financed area" means, with respect to any issue, the portion of the designated blighted area with respect to which the proceeds of such issue are to be used.
(8) Restriction on acquisition of land not to apply
Section 147(c) (other than paragraphs (1)(B) and (2) thereof) shall not apply to any qualified redevelopment bond.
(Added
Editorial Notes
References in Text
Section 119 of the Housing and Community Development Act of 1974, referred to in subsec. (a)(4)(F), is classified to
The date of the enactment of the Tax Reform Act of 1986, referred to in subsec. (a)(10)(B)(ii)(II), is the date of enactment of
The date of enactment of this clause, referred to in subsec. (a)(12)(C)(iii), is the date of enactment of
The Higher Education Act of 1965, referred to in subsec. (b)(1), is
The Public Health Service Act, referred to in subsec. (b)(1)(B), is act July 1, 1944, ch. 373,
Prior Provisions
A prior section 144, acts Aug. 16, 1954, ch. 736,
Amendments
2009—Subsec. (a)(12)(C).
"(i) such facilities are located on the same site as the manufacturing facility, and
"(ii) not more than 25 percent of the net proceeds of the issue are used to provide such facilities."
2006—Subsec. (a)(4)(F), (G).
2004—Subsec. (a)(4)(F).
Subsec. (a)(4)(G).
1993—Subsec. (a)(12)(B).
"(i) any manufacturing facility, or
"(ii) any land or property in accordance with section 147(c)(2),
subparagraph (A) shall be applied by substituting 'June 30, 1992' for 'December 31, 1986'."
1991—Subsec. (a)(12)(B).
1990—Subsec. (a)(12)(B).
1989—Subsec. (a)(12)(B).
1988—Subsec. (a)(12)(A).
Subsec. (a)(12)(A)(ii).
Subsec. (a)(12)(A)(ii)(I).
Subsec. (a)(12)(A)(ii)(III), (IV).
Subsec. (a)(12)(C).
Subsec. (b)(1).
Statutory Notes and Related Subsidiaries
Effective Date of 2009 Amendment
Effective Date of 1993 Amendment
Effective Date of 1991 Amendment
Effective Date of 1990 Amendment
Effective Date of 1988 Amendment
Amendment by section 1013(a)(4)(A), (B)(i), (ii), (C), (5) of
"(1)
"(2)
"(A) the average maturity date of the issue of which the refunding bond is a part is not later than the average maturity date of the bonds to be refunded by such issue, and
"(B) the amount of the refunding bond does not exceed the outstanding amount of the refunded bond.
For purposes of subparagraph (A), average maturity shall be determined in accordance with section 147(b) of the 1986 Code."
Application of Subsection (a)(12)(A)(ii)(I) to Refunding Bonds Issued Before July 1, 1987
Termination Date for Exemption for Certain Small Issues Under Section 103(b)(6)
1 See References in Text note below.
§145. Qualified 501(c)(3) bond
(a) In general
For purposes of this part, except as otherwise provided in this section, the term "qualified 501(c)(3) bond" means any private activity bond issued as part of an issue if—
(1) all property which is to be provided by the net proceeds of the issue is to be owned by a 501(c)(3) organization or a governmental unit, and
(2) such bond would not be a private activity bond if—
(A) 501(c)(3) organizations were treated as governmental units with respect to their activities which do not constitute unrelated trades or businesses, determined by applying section 513(a), and
(B) paragraphs (1) and (2) of section 141(b) were applied by substituting "5 percent" for "10 percent" each place it appears and by substituting "net proceeds" for "proceeds" each place it appears.
(b) $150,000,000 limitation on bonds other than hospital bonds
(1) In general
A bond (other than a qualified hospital bond) shall not be treated as a qualified 501(c)(3) bond if the aggregate authorized face amount of the issue (of which such bond is a part) allocated to any 501(c)(3) organization which is a test-period beneficiary (when increased by the outstanding tax-exempt nonhospital bonds of such organization) exceeds $150,000,000.
(2) Outstanding tax-exempt nonhospital bonds
(A) In general
For purposes of applying paragraph (1) with respect to any issue, the outstanding tax-exempt nonhospital bonds of any organization which is a test-period beneficiary with respect to such issue is the aggregate amount of tax-exempt bonds referred to in subparagraph (B)—
(i) which are allocated to such organization, and
(ii) which are outstanding at the time of such later issue (not including as outstanding any bond which is to be redeemed (other than in an advance refunding) from the net proceeds of the later issue).
(B) Bonds taken into account
For purposes of subparagraph (A), the bonds referred to in this subparagraph are—
(i) any qualified 501(c)(3) bond other than a qualified hospital bond, and
(ii) any bond to which section 141(a) does not apply if—
(I) such bond would have been an industrial development bond (as defined in section 103(b)(2), as in effect on the day before the date of the enactment of the Tax Reform Act of 1986) if 501(c)(3) organizations were not exempt persons, and
(II) such bond was not described in paragraph (4), (5), or (6) of such section 103(b) (as in effect on the date such bond was issued).
(C) Only nonhospital portion of bonds taken into account
(i) In general
A bond shall be taken into account under subparagraph (B) only to the extent that the proceeds of the issue of which such bond is a part are not used with respect to a hospital.
(ii) Special rule
If 90 percent or more of the net proceeds of an issue are used with respect to a hospital, no bond which is part of such issue shall be taken into account under subparagraph (B)(ii).
(3) Aggregation rule
For purposes of this subsection, 2 or more organizations under common management or control shall be treated as 1 organization.
(4) Allocation of face amount of issue; test-period beneficiary
Rules similar to the rules of subparagraphs (C), (D), and (E) of section 144(a)(10) shall apply for purposes of this subsection.
(5) Termination of limitation
This subsection shall not apply with respect to bonds issued after the date of the enactment of this paragraph as part of an issue 95 percent or more of the net proceeds of which are to be used to finance capital expenditures incurred after such date.
(c) Qualified hospital bond
For purposes of this section, the term "qualified hospital bond" means any bond issued as part of an issue 95 percent or more of the net proceeds of which are to be used with respect to a hospital.
(d) Restrictions on bonds used to provide residential rental housing for family units
(1) In general
Except as otherwise provided in this subsection, a bond which is part of an issue shall not be a qualified 501(c)(3) bond if any portion of the net proceeds of the issue are to be used directly or indirectly to provide residential rental property for family units.
(2) Exception for bonds used to provide qualified residential rental projects
Paragraph (1) shall not apply to any bond issued as part of an issue if the portion of such issue which is to be used as described in paragraph (1) is to be used to provide—
(A) a residential rental property for family units if the first use of such property is pursuant to such issue,
(B) qualified residential rental projects (as defined in section 142(d)), or
(C) property which is to be substantially rehabilitated in a rehabilitation beginning within the 2-year period ending 1 year after the date of the acquisition of such property.
(3) Certain property treated as new property
Solely for purposes of determining under paragraph (2)(A) whether the 1st use of property is pursuant to tax-exempt financing—
(A) In general
If—
(i) the 1st use of property is pursuant to taxable financing,
(ii) there was a reasonable expectation (at the time such taxable financing was provided) that such financing would be replaced by tax-exempt financing, and
(iii) the taxable financing is in fact so replaced within a reasonable period after the taxable financing was provided,
then the 1st use of such property shall be treated as being pursuant to the tax-exempt financing.
(B) Special rule where no operating State or local program for tax-exempt financing
If, at the time of the 1st use of property, there was no operating State or local program for tax-exempt financing of the property, the 1st use of the property shall be treated as pursuant to the 1st tax-exempt financing of the property.
(C) Definitions
For purposes of this paragraph—
(i) Tax-exempt financing
The term "tax-exempt financing" means financing provided by tax-exempt bonds.
(ii) Taxable financing
The term "taxable financing" means financing which is not tax-exempt financing.
(4) Substantial rehabilitation
(A) In general
Except as provided in subparagraph (B), rules similar to the rules of section 47(c)(1)(B) shall apply in determining for purposes of paragraph (2)(C) whether property is substantially rehabilitated.
(B) Exception
For purposes of subparagraph (A), clause (ii) of section 47(c)(1)(B) shall not apply, but the Secretary may extend the 24-month period in section 47(c)(1)(B)(i) where appropriate due to circumstances not within the control of the owner.
(e) Election out
This section shall not apply to an issue if—
(1) the issuer elects not to have this section apply to such issue, and
(2) such issue is an issue of exempt facility bonds, or qualified redevelopment bonds, to which section 146 applies.
(Added
Editorial Notes
References in Text
The date of the enactment of the Tax Reform Act of 1986, referred to in subsec. (b)(2)(B)(ii)(I), is the date of enactment of
The date of the enactment of this paragraph, referred to in subsec. (b)(5), is the date of enactment of
Prior Provisions
A prior section 145, act Aug. 16, 1954, ch. 736,
Amendments
2017—Subsec. (d)(4).
1997—Subsec. (b)(5).
1990—Subsec. (d)(4).
1989—Subsec. (d)(3), (4).
1988—Subsec. (b)(2)(B)(ii)(I).
Subsec. (b)(2)(C)(i).
Subsec. (b)(4).
Subsecs. (d), (e).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Amendment by
Effective Date of 1990 Amendment
Amendment by
Effective Date of 1989 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by section 1013(a)(6)–(8) of
"(1)
"(2)
"(A) The amendments made by this section shall not apply to bonds (other than refunding bonds) with respect to a facility—
"(i)(I) the original use of which begins with the taxpayer, and the construction, reconstruction, or rehabilitation of which began before July 14, 1988, and was completed on or after such date, or
"(II) the original use of which begins with the taxpayer and with respect to which a binding contract to incur significant expenditures for construction, reconstruction, or rehabilitation was entered into before July 14, 1988, and some of such expenditures are incurred on or after such date, and
"(ii) described in an inducement resolution or other comparable preliminary approval adopted by an issuing authority (or by a voter referendum) before July 14, 1988.
For purposes of the preceding sentence, the term 'significant expenditures' means expenditures greater than 10 percent of the reasonably anticipated cost of the construction, reconstruction, or rehabilitation of the facility involved.
"(B) Subparagraph (A) shall not apply to any bond issued after December 31, 1989, and shall not apply unless it is reasonably expected (at the time of issuance of the bond) that the facility will be placed in service before January 1, 1990.
"(3)
"(A) the average maturity date of the issue of which the refunding bond is a part is not later than the average maturity date of the bonds to be refunded by such issue,
"(B) the amount of the refunding bond does not exceed the outstanding amount of the refunded bond, and
"(C) the proceeds of the refunding bond are used to redeem the refunded bond not later than 90 days after the date of the issuance of the refunding bond.
For purposes of subparagraph (A), average maturity shall be determined in accordance with section 147(b) of the 1986 Code."
Savings Provision
For provisions that nothing in amendment by
§146. Volume cap
(a) General rule
A private activity bond issued as part of an issue meets the requirements of this section if the aggregate face amount of the private activity bonds issued pursuant to such issue, when added to the aggregate face amount of tax-exempt private activity bonds previously issued by the issuing authority during the calendar year, does not exceed such authority's volume cap for such calendar year.
(b) Volume cap for State agencies
For purposes of this section—
(1) In general
The volume cap for any agency of the State authorized to issue tax-exempt private activity bonds for any calendar year shall be 50 percent of the State ceiling for such calendar year.
(2) Special rule where State has more than 1 agency
If more than 1 agency of the State is authorized to issue tax-exempt private activity bonds, all such agencies shall be treated as a single agency.
(c) Volume cap for other issuers
For purposes of this section—
(1) In general
The volume cap for any issuing authority (other than a State agency) for any calendar year shall be an amount which bears the same ratio to 50 percent of the State ceiling for such calendar year as—
(A) the population of the jurisdiction of such issuing authority, bears to
(B) the population of the entire State.
(2) Overlapping jurisdictions
For purposes of paragraph (1)(A), if an area is within the jurisdiction of 2 or more governmental units, such area shall be treated as only within the jurisdiction of the unit having jurisdiction over the smallest geographical area unless such unit agrees to surrender all or part of such jurisdiction for such calendar year to the unit with overlapping jurisdiction which has the next smallest geographical area.
(d) State ceiling
For purposes of this section—
(1) In general
The State ceiling applicable to any State for any calendar year shall be the greater of—
(A) an amount equal to $75 ($62.50 in the case of calendar year 2001) multiplied by the State population, or
(B) $225,000,000 ($187,500,000 in the case of calendar year 2001).
(2) Cost-of-living adjustment
In the case of a calendar year after 2002, each of the dollar amounts contained in paragraph (1) shall be increased by an amount equal to—
(A) such dollar amount, multiplied by
(B) the cost-of-living adjustment determined under section 1(f)(3) for such calendar year by substituting "calendar year 2001" for "calendar year 2016" in subparagraph (A)(ii) thereof.
If any increase determined under the preceding sentence is not a multiple of $5 ($5,000 in the case of the dollar amount in paragraph (1)(B)), such increase shall be rounded to the nearest multiple thereof.
(3) Special rule for States with constitutional home rule cities
For purposes of this section—
(A) In general
The volume cap for any constitutional home rule city for any calendar year shall be determined under paragraph (1) of subsection (c) by substituting "100 percent" for "50 percent".
(B) Coordination with other allocations
In the case of any State which contains 1 or more constitutional home rule cities, for purposes of applying subsections (b) and (c) with respect to issuing authorities in such State other than constitutional home rule cities, the State ceiling for any calendar year shall be reduced by the aggregate volume caps determined for such year for all constitutional home rule cities in such State.
(C) Constitutional home rule city
For purposes of this section, the term "constitutional home rule city" means, with respect to any calendar year, any political subdivision of a State which, under a State constitution which was adopted in 1970 and effective on July 1, 1971, had home rule powers on the 1st day of the calendar year.
(4) Special rule for possessions with populations of less than the population of the least populous State
(A) In general
If the population of any possession of the United States for any calendar year is less than the population of the least populous State (other than a possession) for such calendar year, the limitation under paragraph (1)(A) shall not be less than the amount determined under subparagraph (B) for such calendar year.
(B) Limitation
The limitation determined under this subparagraph, with respect to a possession, for any calendar year is an amount equal to the product of—
(i) the fraction—
(I) the numerator of which is the amount applicable under paragraph (1)(B) for such calendar year, and
(II) the denominator of which is the State population of the least populous State (other than a possession) for such calendar year, and
(ii) the population of such possession for such calendar year.
(5) Increase and set aside for housing bonds for 2008
(A) Increase for 2008
In the case of calendar year 2008, the State ceiling for each State shall be increased by an amount equal to $11,000,000,000 multiplied by a fraction—
(i) the numerator of which is the State ceiling applicable to the State for calendar year 2008, determined without regard to this paragraph, and
(ii) the denominator of which is the sum of the State ceilings determined under clause (i) for all States.
(B) Set aside
(i) In general
Any amount of the State ceiling for any State which is attributable to an increase under this paragraph shall be allocated solely for one or more qualified housing issues.
(ii) Qualified housing issue
For purposes of this paragraph, the term "qualified housing issue" means—
(I) an issue described in section 142(a)(7) (relating to qualified residential rental projects), or
(II) a qualified mortgage issue (determined by substituting "12-month period" for "42-month period" each place it appears in section 143(a)(2)(D)(i)).
(e) State may provide for different allocation
For purposes of this section—
(1) In general
Except as provided in paragraph (3), a State may, by law provide a different formula for allocating the State ceiling among the governmental units (or other authorities) in such State having authority to issue tax-exempt private activity bonds.
(2) Interim authority for Governor
(A) In general
Except as otherwise provided in paragraph (3), the Governor of any State may proclaim a different formula for allocating the State ceiling among the governmental units (or other authorities) in such State having authority to issue private activity bonds.
(B) Termination of authority
The authority provided in subparagraph (A) shall not apply to bonds issued after the earlier of—
(i) the last day of the 1st calendar year after 1986 during which the legislature of the State met in regular session, or
(ii) the effective date of any State legislation with respect to the allocation of the State ceiling.
(3) State may not alter allocation to constitutional home rule cities
Except as otherwise provided in a State constitutional amendment (or law changing the home rule provision adopted in the manner provided by the State constitution), the authority provided in this subsection shall not apply to that portion of the State ceiling which is allocated to any constitutional home rule city in the State unless such city agrees to such different allocation.
(f) Elective carryforward of unused limitation for specified purpose
(1) In general
If—
(A) an issuing authority's volume cap for any calendar year after 1985, exceeds
(B) the aggregate amount of tax-exempt private activity bonds issued during such calendar year by such authority,
such authority may elect to treat all (or any portion) of such excess as a carryforward for 1 or more carryforward purposes.
(2) Election must identify purpose
In any election under paragraph (1), the issuing authority shall—
(A) identify the purpose for which the carryforward is elected, and
(B) specify the portion of the excess described in paragraph (1) which is to be a carryforward for each such purpose.
(3) Use of carryforward
(A) In general
If any issuing authority elects a carryforward under paragraph (1) with respect to any carryforward purpose, any private activity bonds issued by such authority with respect to such purpose during the 3 calendar years following the calendar year in which the carryforward arose shall not be taken into account under subsection (a) to the extent the amount of such bonds does not exceed the amount of the carryforward elected for such purpose.
(B) Order in which carryforward used
Carryforwards elected with respect to any purpose shall be used in the order of the calendar years in which they arose.
(4) Election
Any election under this paragraph (and any identification or specification contained therein), once made, shall be irrevocable.
(5) Carryforward purpose
The term "carryforward purpose" means—
(A) the purpose of issuing exempt facility bonds described in 1 of the paragraphs of section 142(a),
(B) the purpose of issuing qualified mortgage bonds or mortgage credit certificates,
(C) the purpose of issuing qualified student loan bonds, and
(D) the purpose of issuing qualified redevelopment bonds.
(6) Special rules for increased volume cap under subsection (d)(5)
No amount which is attributable to the increase under subsection (d)(5) may be used—
(A) for any issue other than a qualified housing issue (as defined in subsection (d)(5)), or
(B) to issue any bond after calendar year 2010.
(g) Exception for certain bonds
Only for purposes of this section, the term "private activity bond" shall not include—
(1) any qualified veterans' mortgage bond,
(2) any qualified 501(c)(3) bond,
(3) any exempt facility bond issued as part of an issue described in paragraph (1), (2), (12), (13), (14), or (15) of section 142(a),
(4) 75 percent of any exempt facility bond issued as part of an issue described in paragraph (11) of section 142(a) (relating to high-speed intercity rail facilities),
(5) 75 percent of any exempt facility bond issued as part of an issue described in paragraph (16) of section 142(a) (relating to qualified broadband projects), and
(6) 75 percent of any exempt facility bond issued as part of an issue described in paragraph (17) of section 142(a) (relating to qualified carbon dioxide capture facilities).
Paragraphs (4) and (5) shall be applied without regard to "75 percent of" if all of the property to be financed by the net proceeds of the issue is to be owned by a governmental unit (within the meaning of section 142(b)(1)).
(h) Exception for government-owned solid waste disposal facilities
(1) In general
Only for purposes of this section, the term "private activity bond" shall not include any exempt facility bond described in section 142(a)(6) which is issued as part of an issue if all of the property to be financed by the net proceeds of such issue is to be owned by a governmental unit.
(2) Safe harbor for determination of government ownership
In determining ownership for purposes of paragraph (1), section 142(b)(1)(B) shall apply, except that a lease term shall be treated as satisfying clause (ii) thereof if it is not more than 20 years.
(i) Treatment of refunding issues
For purposes of the volume cap imposed by this section—
(1) In general
The term "private activity bond" shall not include any bond which is issued to refund another bond to the extent that the amount of such bond does not exceed the outstanding amount of the refunded bond.
(2) Special rules for student loan bonds
In the case of any qualified student loan bond, paragraph (1) shall apply only if the maturity date of the refunding bond is not later than the later of—
(A) the average maturity date of the qualified student loan bonds to be refunded by the issue of which the refunding bond is a part, or
(B) the date 17 years after the date on which the refunded bond was issued (or in the case of a series of refundings, the date on which the original bond was issued).
(3) Special rules for qualified mortgage bonds
In the case of any qualified mortgage bond, paragraph (1) shall apply only if the maturity date of the refunding bond is not later than the later of—
(A) the average maturity date of the qualified mortgage bonds to be refunded by the issue of which the refunding bond is a part, or
(B) the date 32 years after the date on which the refunded bond was issued (or in the case of a series of refundings, the date on which the original bond was issued).
(4) Average maturity
For purposes of paragraphs (2) and (3), average maturity shall be determined in accordance with section 147(b)(2)(A).
(5) Exception for advance refunding
This subsection shall not apply to any bond issued to advance refund another bond.
(6) Treatment of certain residential rental project bonds as refunding bonds irrespective of obligor
(A) In general
If, during the 6-month period beginning on the date of a repayment of a loan financed by an issue 95 percent or more of the net proceeds of which are used to provide projects described in section 142(d), such repayment is used to provide a new loan for any project so described, any bond which is issued to refinance such issue shall be treated as a refunding issue to the extent the principal amount of such refunding issue does not exceed the principal amount of the bonds refunded.
(B) Limitations
Subparagraph (A) shall apply to only one refunding of the original issue and only if—
(i) the refunding issue is issued not later than 4 years after the date on which the original issue was issued,
(ii) the latest maturity date of any bond of the refunding issue is not later than 34 years after the date on which the refunded bond was issued, and
(iii) the refunding issue is approved in accordance with section 147(f) before the issuance of the refunding issue.
(j) Population
For purposes of this section, determinations of the population of any State (or issuing authority) shall be made with respect to any calendar year on the basis of the most recent census estimate of the resident population of such State (or issuing authority) released by the Bureau of Census before the beginning of such calendar year.
(k) Facility must be located within State
(1) In general
Except as provided in paragraphs (2) and (3), no portion of the State ceiling applicable to any State for any calendar year may be used with respect to financing for a facility located outside such State.
(2) Exception for certain facilities where State will get proportionate share of benefits
Paragraph (1) shall not apply to any exempt facility bond described in paragraph (4), (5), (6), or (10) of section 142(a) if the issuer establishes that the State's share of the use of the facility (or its output) will equal or exceed the State's share of the private activity bonds issued to finance the facility.
(3) Treatment of governmental bonds to which volume cap allocated
Paragraph (1) shall not apply to any bond to which volume cap is allocated under section 141(b)(5)—
(A) for an output facility, or
(B) for a facility of a type described in paragraph (4), (5), (6), or (10) of section 142(a),
if the issuer establishes that the State's share of the private business use (as defined by section 141(b)(6)) of the facility will equal or exceed the State's share of the volume cap allocated with respect to bonds issued to finance the facility.
(l) Issuer of qualified scholarship funding bonds
In the case of a qualified scholarship funding bond, such bond shall be treated for purposes of this section as issued by a State or local issuing authority (whichever is appropriate).
(m) Treatment of amounts allocated to private activity portion of government use bonds
(1) In general
The volume cap of an issuer shall be reduced by the amount allocated by the issuer to an issue under section 141(b)(5).
(2) Advance refundings
Except as otherwise provided by the Secretary, any advance refunding of any part of an issue to which an amount was allocated under section 141(b)(5) (or would have been allocated if such section applied to such issue) shall be taken into account under this section to the extent of the amount of the volume cap which was (or would have been) so allocated.
(n) Reduction for mortgage credit certificates, etc.
The volume cap of any issuing authority for any calendar year shall be reduced by the sum of—
(1) the amount of qualified mortgage bonds which such authority elects not to issue under section 25(c)(2)(A)(ii) during such year, plus
(2) the amount of any reduction in such ceiling under section 25(f) applicable to such authority for such year.
(Added
Inflation Adjusted Items for Certain Years
For inflation adjustment of certain items in this section, see Revenue Procedures listed in a table under
Editorial Notes
Amendments
2021—Subsec. (g).
Subsec. (g)(5).
Subsec. (g)(6).
2017—Subsec. (d)(2)(B).
2008—Subsec. (d)(5).
Subsec. (f)(6).
Subsec. (i)(6).
2005—Subsec. (g)(3).
2004—Subsec. (g)(3).
2001—Subsec. (g)(3).
2000—Subsec. (d)(1), (2).
1998—Subsec. (d)(1).
"(A) an amount equal to $75 multiplied by the State population, or
"(B) $250,000,000.
Subparagraph (B) shall not apply to any possession of the United States."
Subsec. (d)(2).
"(A) '$50' for '$75', and
"(B) '$150,000,000' for '$250,000,000'."
1993—Subsec. (g).
1992—Subsec. (g)(3).
1989—Subsec. (g)(3), (4).
1988—Subsec. (d)(4)(B).
Subsec. (f)(5)(A).
Subsec. (g)(3).
Subsec. (i)(2)(A).
Subsec. (i)(3)(A).
Subsec. (i)(4), (5).
Subsec. (k)(1).
Subsec. (k)(3).
1987—Subsec. (f)(5)(A).
Statutory Notes and Related Subsidiaries
Effective Date of 2021 Amendment
Amendment by section 80401(c) of
Amendment by section 80402(c) of
Effective Date of 2017 Amendment
Amendment by
Effective Date of 2008 Amendment
Amendment by section 3007(a) of
Amendment by section 3021(a) of
Effective Date of 2005 Amendment
Amendment by
Effective Date of 2004 Amendment
Amendment by
Effective Date of 2001 Amendment
Amendment by
Effective Date of 2000 Amendment
Effective Date of 1998 Amendment
Effective Date of 1993 Amendment
Effective Date of 1992 Amendment
Amendment by
Effective Date of 1989 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by section 1013(a)(9), (10), (28), (40) of
Amendment by section 6180(b)(3) of
Effective Date of 1987 Amendment
Amendment by
§147. Other requirements applicable to certain private activity bonds
(a) Substantial user requirement
(1) In general
Except as provided in subsection (h), a private activity bond shall not be a qualified bond for any period during which it is held by a person who is a substantial user of the facilities or by a related person of such a substantial user.
(2) Related person
For purposes of paragraph (1), the following shall be treated as related persons—
(A) 2 or more persons if the relationship between such persons would result in a disallowance of losses under section 267 or 707(b),
(B) 2 or more persons which are members of the same controlled group of corporations (as defined in section 1563(a), except that "more than 50 percent" shall be substituted for "at least 80 percent" each place it appears therein),
(C) a partnership and each of its partners (and their spouses and minor children), and
(D) an S corporation and each of its shareholders (and their spouses and minor children).
(b) Maturity may not exceed 120 percent of economic life
(1) General rule
Except as provided in subsection (h), a private activity bond shall not be a qualified bond if it is issued as part of an issue and—
(A) the average maturity of the bonds issued as part of such issue, exceeds
(B) 120 percent of the average reasonably expected economic life of the facilities being financed with the net proceeds of such issue.
(2) Determination of averages
For purposes of paragraph (1)—
(A) the average maturity of any issue shall be determined by taking into account the respective issue prices of the bonds issued as part of such issue, and
(B) the average reasonably expected economic life of the facilities being financed with any issue shall be determined by taking into account the respective cost of such facilities.
(3) Special rules
(A) Determination of economic life
For purposes of this subsection, the reasonably expected economic life of any facility shall be determined as of the later of—
(i) the date on which the bonds are issued, or
(ii) the date on which the facility is placed in service (or expected to be placed in service).
(B) Treatment of land
(i) Land not taken into account
Except as provided in clause (ii), land shall not be taken into account under paragraph (1)(B).
(ii) Issues where 25 percent or more of proceeds used to finance land
If 25 percent or more of the net proceeds of any issue is to be used to finance land, such land shall be taken into account under paragraph (1)(B) and shall be treated as having an economic life of 30 years.
(4) Special rule for pooled financing of 501(c)(3) organization
(A) In general
At the election of the issuer, a qualified 501(c)(3) bond shall be treated as meeting the requirements of paragraph (1) if such bond meets the requirements of subparagraph (B).
(B) Requirements
A qualified 501(c)(3) bond meets the requirements of this subparagraph if—
(i) 95 percent or more of the net proceeds of the issue of which such bond is a part are to be used to make or finance loans to 2 or more 501(c)(3) organizations or governmental units for acquisition of property to be used by such organizations,
(ii) each loan described in clause (i) satisfies the requirements of paragraph (1) (determined by treating each loan as a separate issue),
(iii) before such bond is issued, a demand survey was conducted which shows a demand for financing greater than an amount equal to 120 percent of the lendable proceeds of such issue, and
(iv) 95 percent or more of the net proceeds of such issue are to be loaned to 501(c)(3) organizations or governmental units within 1 year of issuance and, to the extent there are any unspent proceeds after such 1-year period, bonds issued as part of such issue are to be redeemed as soon as possible thereafter (and in no event later than 18 months after issuance).
A bond shall not meet the requirements of this subparagraph if the maturity date of any bond issued as part of such issue is more than 30 years after the date on which the bond was issued (or, in the case of a refunding or series of refundings, the date on which the original bond was issued).
(5) Special rule for certain FHA insured loans
Paragraph (1) shall not apply to any bond issued as part of an issue 95 percent or more of the net proceeds of which are to be used to finance mortgage loans insured under FHA 242 or under a similar Federal Housing Administration program (as in effect on the date of the enactment of the Tax Reform Act of 1986) where the loan term approved by such Administration plus the maximum maturity of debentures which could be issued by such Administration in satisfaction of its obligations exceeds the term permitted under paragraph (1).
(c) Limitation on use for land acquisition
(1) In general
Except as provided in subsection (h), a private activity bond shall not be a qualified bond if—
(A) it is issued as part of an issue and 25 percent or more of the net proceeds of such issue are to be used (directly or indirectly) for the acquisition of land (or an interest therein), or
(B) any portion of the proceeds of such issue is to be used (directly or indirectly) for the acquisition of land (or an interest therein) to be used for farming purposes.
(2) Exception for first-time farmers
(A) In general
If the requirements of subparagraph (B) are met with respect to any land, paragraph (1) shall not apply to such land, and subsection (d) shall not apply to property to be used thereon for farming purposes, but only to the extent of expenditures (financed with the proceeds of the issue) not in excess of $450,000.
(B) Acquisition by first-time farmers
The requirements of this subparagraph are met with respect to any land if—
(i) such land is to be used for farming purposes, and
(ii) such land is to be acquired by an individual who is a first-time farmer, who will be the principal user of such land, and who will materially and substantially participate on the farm of which such land is a part in the operation of such farm.
(C) First-time farmer
For purposes of this paragraph—
(i) In general
The term "first-time farmer" means any individual if such individual—
(I) has not at any time had any direct or indirect ownership interest in substantial farmland in the operation of which such individual materially participated, and
(II) has not received financing under this paragraph in an amount which, when added to the financing to be provided under this paragraph, exceeds the amount in effect under subparagraph (A).
(ii) Aggregation rules
Any ownership or material participation, or financing received, by an individual's spouse or minor child shall be treated as ownership and material participation, or financing received, by the individual.
(iii) Insolvent farmer
For purposes of clause (i), farmland which was previously owned by the individual and was disposed of while such individual was insolvent shall be disregarded if section 108 applied to indebtedness with respect to such farmland.
(D) Farm
For purposes of this paragraph, the term "farm" has the meaning given such term by section 6420(c)(2).
(E) Substantial farmland
For purposes of this paragraph, the term "substantial farmland" means any parcel of land unless such parcel is smaller than 30 percent of the median size of a farm in the county in which such parcel is located.
(F) Used equipment limitation
For purposes of this paragraph, in no event may the amount of financing provided by reason of this paragraph to a first-time farmer for personal property—
(i) of a character subject to the allowance for depreciation,
(ii) the original use of which does not begin with such farmer, and
(iii) which is to be used for farming purposes,
exceed $62,500. A rule similar to the rule of subparagraph (C)(ii) shall apply for purposes of the preceding sentence.
(G) Acquisition from related person
For purposes of this paragraph and section 144(a), the acquisition by a first-time farmer of land or personal property from a related person (within the meaning of section 144(a)(3)) shall not be treated as an acquisition from a related person, if—
(i) the acquisition price is for the fair market value of such land or property, and
(ii) subsequent to such acquisition, the related person does not have a financial interest in the farming operation with respect to which the bond proceeds are to be used.
(H) Adjustments for inflation
In the case of any calendar year after 2008, the dollar amount in subparagraph (A) shall be increased by an amount equal to—
(i) such dollar amount, multiplied by
(ii) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year, determined by substituting "calendar year 2007" for "calendar year 2016" in subparagraph (A)(ii) thereof.
If any amount as increased under the preceding sentence is not a multiple of $100, such amount shall be rounded to the nearest multiple of $100.
(3) Exception for certain land acquired for environmental purposes, etc.
Any land acquired by a governmental unit (or issuing authority) in connection with an airport, mass commuting facility, high-speed intercity rail facility, dock, or wharf shall not be taken into account under paragraph (1) if—
(A) such land is acquired for noise abatement or wetland preservation, or for future use as an airport, mass commuting facility, high-speed intercity rail facility, dock, or wharf, and
(B) there is not other significant use of such land.
(d) Acquisition of existing property not permitted
(1) In general
Except as provided in subsection (h), a private activity bond shall not be a qualified bond if issued as part of an issue and any portion of the net proceeds of such issue is to be used for the acquisition of any property (or an interest therein) unless the 1st use of such property is pursuant to such acquisition.
(2) Exception for certain rehabilitations
Paragraph (1) shall not apply with respect to any building (and the equipment therefor) if—
(A) the rehabilitation expenditures with respect to such building, equal or exceed
(B) 15 percent of the portion of the cost of acquiring such building (and equipment) financed with the net proceeds of the issue.
A rule similar to the rule of the preceding sentence shall apply in the case of structures other than a building except that subparagraph (B) shall be applied by substituting "100 percent" for "15 percent".
(3) Rehabilitation expenditures
For purposes of this subsection—
(A) In general
Except as provided in this paragraph, the term "rehabilitation expenditures" means any amount properly chargeable to capital account which is incurred by the person acquiring the building for property (or additions or improvements to property) in connection with the rehabilitation of a building. In the case of an integrated operation contained in a building before its acquisition, such term includes rehabilitating existing equipment in such building or replacing it with equipment having substantially the same function. For purposes of this subparagraph, any amount incurred by a successor to the person acquiring the building or by the seller under a sales contract with such person shall be treated as incurred by such person.
(B) Certain expenditures not included
The term "rehabilitation expenditures" does not include any expenditure described in section 47(c)(2)(B).
(C) Period during which expenditures must be incurred
The term "rehabilitation expenditures" shall not include any amount which is incurred after the date 2 years after the later of—
(i) the date on which the building was acquired, or
(ii) the date on which the bond was issued.
(4) Special rule for certain projects
In the case of a project involving 2 or more buildings, this subsection shall be applied on a project basis.
(e) No portion of bonds may be issued for skyboxes, airplanes, gambling establishments, etc.
A private activity bond shall not be a qualified bond if issued as part of an issue and any portion of the proceeds of such issue is to be used to provide any airplane, skybox or other private luxury box, health club facility, facility primarily used for gambling, or store the principal business of which is the sale of alcoholic beverages for consumption off premises. The preceding sentence shall not apply to any fixed-wing aircraft equipped for, and exclusively dedicated to providing, acute care emergency medical services (within the meaning of section 4261(g)(2)).
(f) Public approval required for private activity bonds
(1) In general
A private activity bond shall not be a qualified bond unless such bond satisfies the requirements of paragraph (2).
(2) Public approval requirement
(A) In general
A bond shall satisfy the requirements of this paragraph if such bond is issued as a part of an issue which has been approved by—
(i) the governmental unit—
(I) which issued such bond, or
(II) on behalf of which such bond was issued, and
(ii) each governmental unit having jurisdiction over the area in which any facility, with respect to which financing is to be provided from the net proceeds of such issue, is located (except that if more than 1 governmental unit within a State has jurisdiction over the entire area within such State in which such facility is located, only 1 such unit need approve such issue).
(B) Approval by a governmental unit
For purposes of subparagraph (A), an issue shall be treated as having been approved by any governmental unit if such issue is approved—
(i) by the applicable elected representative of such governmental unit after a public hearing following reasonable public notice, or
(ii) by voter referendum of such governmental unit.
(C) Special rules for approval of facility
If there has been public approval under subparagraph (A) of the plan for financing a facility, such approval shall constitute approval under subparagraph (A) for any issue—
(i) which is issued pursuant to such plan within 3 years after the date of the 1st issue pursuant to the approval, and
(ii) all or substantially all of the proceeds of which are to be used to finance such facility or to refund previous financing under such plan.
(D) Refunding bonds
No approval under subparagraph (A) shall be necessary with respect to any bond which is issued to refund (other than to advance refund) a bond approved under subparagraph (A) (or treated as approved under subparagraph (C)) unless the average maturity date of the issue of which the refunding bond is a part is later than the average maturity date of the bonds to be refunded by such issue. For purposes of the preceding sentence, average maturity shall be determined in accordance with subsection (b)(2)(A).
(E) Applicable elected representative
For purposes of this paragraph—
(i) In general
The term "applicable elected representative" means with respect to any governmental unit—
(I) an elected legislative body of such unit, or
(II) the chief elected executive officer, the chief elected State legal officer of the executive branch, or any other elected official of such unit designated for purposes of this paragraph by such chief elected executive officer or by State law.
If the office of any elected official described in subclause (II) is vacated and an individual is appointed by the chief elected executive officer of the governmental unit and confirmed by the elected legislative body of such unit (if any) to serve the remaining term of the elected official, the individual so appointed shall be treated as the elected official for such remaining term.
(ii) No applicable elected representative
If (but for this clause) a governmental unit has no applicable elected representative, the applicable elected representative for purposes of clause (i) shall be the applicable elected representative of the governmental unit—
(I) which is the next higher governmental unit with such a representative, and
(II) from which the authority of the governmental unit with no such representative is derived.
(3) Special rule for approval of airports or high-speed intercity rail facilities
If—
(A) the proceeds of an issue are to be used to finance a facility or facilities located at an airport or high-speed intercity rail facilities, and
(B) the governmental unit issuing such bonds is the owner or operator of such airport or high-speed intercity rail facilities,
such governmental unit shall be deemed to be the only governmental unit having jurisdiction over such airport or high-speed intercity rail facilities for purposes of this subsection.
(4) Special rules for scholarship funding bond issues and volunteer fire department bond issues
(A) Scholarship funding bonds
In the case of a qualified scholarship funding bond, any governmental unit which made a request described in section 150(d)(2)(B) with respect to the issuer of such bond shall be treated for purposes of paragraph (2) of this subsection as the governmental unit on behalf of which such bond was issued. Where more than one governmental unit within a State has made a request described in section 150(d)(2)(B), the State may also be treated for purposes of paragraph (2) of this subsection as the governmental unit on behalf of which such bond was issued.
(B) Volunteer fire department bonds
In the case of a bond of a volunteer fire department which meets the requirements of section 150(e), the political subdivision described in section 150(e)(2)(B) with respect to such department shall be treated for purposes of paragraph (2) of this subsection as the governmental unit on behalf of which such bond was issued.
(g) Restriction on issuance costs financed by issue
(1) In general
A private activity bond shall not be a qualified bond if the issuance costs financed by the issue (of which such bond is a part) exceed 2 percent of the proceeds of the issue.
(2) Special rule for small mortgage revenue bond issues
In the case of an issue of qualified mortgage bonds or qualified veterans' mortgage bonds, paragraph (1) shall be applied by substituting "3.5 percent" for "2 percent" if the proceeds of the issue do not exceed $20,000,000.
(h) Certain rules not to apply to certain bonds
(1) Mortgage revenue bonds and qualified student loan bonds
Subsections (a), (b), (c), and (d) shall not apply to any qualified mortgage bond, qualified veterans' mortgage bond, or qualified student loan bond.
(2) Qualified 501(c)(3) bonds
Subsections (a), (c), and (d) shall not apply to any qualified 501(c)(3) bond and subsection (e) shall be applied as if it did not contain "health club facility" with respect to such a bond.
(3) Exempt facility bonds for qualified public-private schools
Subsection (c) shall not apply to any exempt facility bond issued as part of an issue described in section 142(a)(13) (relating to qualified public educational facilities).
(Added
Inflation Adjusted Items for Certain Years
For inflation adjustment of certain items in this section, see Revenue Procedures listed in a table under
Editorial Notes
References in Text
The date of the enactment of the Tax Reform Act of 1986, referred to in subsec. (b)(5), is the date of enactment of
Codification
Amendments
2017—Subsec. (c)(2)(H)(ii).
2012—Subsec. (e).
2008—Subsec. (c)(2)(A).
Subsec. (c)(2)(C)(i)(II).
Subsec. (c)(2)(E).
"(i) such parcel is smaller than 30 percent of the median size of a farm in the county in which such parcel is located, and
"(ii) the fair market value of the land does not at any time while held by the individual exceed $125,000."
Subsec. (c)(2)(H).
2001—Subsec. (h).
Subsec. (h)(3).
1996—Subsec. (c)(2)(E)(i).
Subsec. (c)(2)(G).
1990—Subsec. (d)(3)(B).
1989—Subsec. (c)(3).
1988—Subsec. (c)(3).
Subsec. (e).
Subsec. (f)(2)(D).
Subsec. (f)(2)(E)(i).
Subsec. (f)(3).
Subsec. (f)(4).
Subsec. (g)(1).
Subsec. (g)(2).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Amendment by
Effective Date of 2012 Amendment
Effective Date of 2008 Amendment
Amendment of this section and repeal of
[
Effective Date of 2001 Amendment
Amendment by
Effective Date of 1996 Amendment
Effective Date of 1990 Amendment
Amendment by
Effective Date of 1989 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by section 1013(a)(11), (12), (29), (36) of
Amendment by section 6180(b)(4), (5) of
Effective Date
Subsec. (f) applicable to bonds issued after Dec. 31, 1986, see section 1311(d) of
Savings Provision
For provisions that nothing in amendment by
Subpart B—Requirements Applicable to All State and Local Bonds
§148. Arbitrage
(a) Arbitrage bond defined
For purposes of section 103, the term "arbitrage bond" means any bond issued as part of an issue any portion of the proceeds of which are reasonably expected (at the time of issuance of the bond) to be used directly or indirectly—
(1) to acquire higher yielding investments, or
(2) to replace funds which were used directly or indirectly to acquire higher yielding investments.
For purposes of this subsection, a bond shall be treated as an arbitrage bond if the issuer intentionally uses any portion of the proceeds of the issue of which such bond is a part in a manner described in paragraph (1) or (2).
(b) Higher yielding investments
For purposes of this section—
(1) In general
The term "higher yielding investments" means any investment property which produces a yield over the term of the issue which is materially higher than the yield on the issue.
(2) Investment property
The term "investment property" means—
(A) any security (within the meaning of section 165(g)(2)(A) or (B)),
(B) any obligation,
(C) any annuity contract,
(D) any investment-type property, or
(E) in the case of a bond other than a private activity bond, any residential rental property for family units which is not located within the jurisdiction of the issuer and which is not acquired to implement a court ordered or approved housing desegregation plan.
(3) Alternative minimum tax bonds treated as investment property in certain cases
(A) In general
Except as provided in subparagraph (B), the term "investment property" does not include any tax-exempt bond.
(B) Exception
With respect to an issue other than an issue a part of which is a specified private activity bond (as defined in section 57(a)(5)(C)), the term "investment property" includes a specified private activity bond (as so defined).
(4) Safe harbor for prepaid natural gas
(A) In general
The term "investment-type property" does not include a prepayment under a qualified natural gas supply contract.
(B) Qualified natural gas supply contract
For purposes of this paragraph, the term "qualified natural gas supply contract" means any contract to acquire natural gas for resale by a utility owned by a governmental unit if the amount of gas permitted to be acquired under the contract by the utility during any year does not exceed the sum of—
(i) the annual average amount during the testing period of natural gas purchased (other than for resale) by customers of such utility who are located within the service area of such utility, and
(ii) the amount of natural gas to be used to transport the prepaid natural gas to the utility during such year.
(C) Natural gas used to generate electricity
Natural gas used to generate electricity shall be taken into account in determining the average under subparagraph (B)(i)—
(i) only if the electricity is generated by a utility owned by a governmental unit, and
(ii) only to the extent that the electricity is sold (other than for resale) to customers of such utility who are located within the service area of such utility.
(D) Adjustments for changes in customer base
(i) New business customers
If—
(I) after the close of the testing period and before the date of issuance of the issue, the utility owned by a governmental unit enters into a contract to supply natural gas (other than for resale) for a business use at a property within the service area of such utility, and
(II) the utility did not supply natural gas to such property during the testing period or the ratable amount of natural gas to be supplied under the contract is significantly greater than the ratable amount of gas supplied to such property during the testing period,
then a contract shall not fail to be treated as a qualified natural gas supply contract by reason of supplying the additional natural gas under the contract referred to in subclause (I).
(ii) Lost customers
The average under subparagraph (B)(i) shall not exceed the annual amount of natural gas reasonably expected to be purchased (other than for resale) by persons who are located within the service area of such utility and who, as of the date of issuance of the issue, are customers of such utility.
(E) Ruling requests
The Secretary may increase the average under subparagraph (B)(i) for any period if the utility owned by the governmental unit establishes to the satisfaction of the Secretary that, based on objective evidence of growth in natural gas consumption or population, such average would otherwise be insufficient for such period.
(F) Adjustment for natural gas otherwise on hand
(i) In general
The amount otherwise permitted to be acquired under the contract for any period shall be reduced by—
(I) the applicable share of natural gas held by the utility on the date of issuance of the issue, and
(II) the natural gas (not taken into account under subclause (I)) which the utility has a right to acquire during such period (determined as of the date of issuance of the issue).
(ii) Applicable share
For purposes of the clause (i), the term "applicable share" means, with respect to any period, the natural gas allocable to such period if the gas were allocated ratably over the period to which the prepayment relates.
(G) Intentional acts
Subparagraph (A) shall cease to apply to any issue if the utility owned by the governmental unit engages in any intentional act to render the volume of natural gas acquired by such prepayment to be in excess of the sum of—
(i) the amount of natural gas needed (other than for resale) by customers of such utility who are located within the service area of such utility, and
(ii) the amount of natural gas used to transport such natural gas to the utility.
(H) Testing period
For purposes of this paragraph, the term "testing period" means, with respect to an issue, the most recent 5 calendar years ending before the date of issuance of the issue.
(I) Service area
For purposes of this paragraph, the service area of a utility owned by a governmental unit shall be comprised of—
(i) any area throughout which such utility provided at all times during the testing period—
(I) in the case of a natural gas utility, natural gas transmission or distribution services, and
(II) in the case of an electric utility, electricity distribution services,
(ii) any area within a county contiguous to the area described in clause (i) in which retail customers of such utility are located if such area is not also served by another utility providing natural gas or electricity services, as the case may be, and
(iii) any area recognized as the service area of such utility under State or Federal law.
(c) Temporary period exception
(1) In general
For purposes of subsection (a), a bond shall not be treated as an arbitrage bond solely by reason of the fact that the proceeds of the issue of which such bond is a part may be invested in higher yielding investments for a reasonable temporary period until such proceeds are needed for the purpose for which such issue was issued.
(2) Limitation on temporary period for pooled financings
(A) In general
The temporary period referred to in paragraph (1) shall not exceed 6 months with respect to the proceeds of an issue which are to be used to make or finance loans (other than nonpurpose investments) to 2 or more persons.
(B) Shorter temporary period for loan repayments, etc.
Subparagraph (A) shall be applied by substituting "3 months" for "6 months" with respect to the proceeds from the sale or repayment of any loan which are to be used to make or finance any loan. For purposes of the preceding sentence, a nonpurpose investment shall not be treated as a loan.
(C) Bonds used to provide construction financing
In the case of an issue described in subparagraph (A) any portion of which is used to make or finance loans for construction expenditures (within the meaning of subsection (f)(4)(C)(iv))—
(i) rules similar to the rules of subsection (f)(4)(C)(v) shall apply, and
(ii) subparagraph (A) shall be applied with respect to such portion by substituting "2 years" for "6 months".
(D) Exception for mortgage revenue bonds
This paragraph shall not apply to any qualified mortgage bond or qualified veterans' mortgage bond.
(d) Special rules for reasonably required reserve or replacement fund
(1) In general
For purposes of subsection (a), a bond shall not be treated as an arbitrage bond solely by reason of the fact that an amount of the proceeds of the issue of which such bond is a part may be invested in higher yielding investments which are part of a reasonably required reserve or replacement fund. The amount referred to in the preceding sentence shall not exceed 10 percent of the proceeds of such issue unless the issuer establishes to the satisfaction of the Secretary that a higher amount is necessary.
(2) Limitation on amount in reserve or replacement fund which may be financed by issue
A bond issued as part of an issue shall be treated as an arbitrage bond if the amount of the proceeds from the sale of such issue which is part of any reserve or replacement fund exceeds 10 percent of the proceeds of the issue (or such higher amount which the issuer establishes is necessary to the satisfaction of the Secretary).
(e) Minor portion may be invested in higher yielding investments
Notwithstanding subsections (a), (c), and (d), a bond issued as part of an issue shall not be treated as an arbitrage bond solely by reason of the fact that an amount of the proceeds of such issue (in addition to the amounts under subsections (c) and (d)) is invested in higher yielding investments if such amount does not exceed the lesser of—
(1) 5 percent of the proceeds of the issue, or
(2) $100,000.
(f) Required rebate to the United States
(1) In general
A bond which is part of an issue shall be treated as an arbitrage bond if the requirements of paragraphs (2) and (3) are not met with respect to such issue. The preceding sentence shall not apply to any qualified veterans' mortgage bond.
(2) Rebate to United States
An issue shall be treated as meeting the requirements of this paragraph only if an amount equal to the sum of—
(A) the excess of—
(i) the amount earned on all nonpurpose investments (other than investments attributable to an excess described in this subparagraph), over
(ii) the amount which would have been earned if such nonpurpose investments were invested at a rate equal to the yield on the issue, plus
(B) any income attributable to the excess described in subparagraph (A),
is paid to the United States by the issuer in accordance with the requirements of paragraph (3).
(3) Due date of payments under paragraph (2)
Except to the extent provided by the Secretary, the amount which is required to be paid to the United States by the issuer shall be paid in installments which are made at least once every 5 years. Each installment shall be in an amount which ensures that 90 percent of the amount described in paragraph (2) with respect to the issue at the time payment of such installment is required will have been paid to the United States. The last installment shall be made no later than 60 days after the day on which the last bond of the issue is redeemed and shall be in an amount sufficient to pay the remaining balance of the amount described in paragraph (2) with respect to such issue. A series of issues which are redeemed during a 6-month period (or such longer period as the Secretary may prescribe) shall be treated (at the election of the issuer) as 1 issue for purposes of the preceding sentence if no bond which is part of any issue in such series has a maturity of more than 270 days or is a private activity bond. In the case of a tax and revenue anticipation bond, the last installment shall not be required to be made before the date 8 months after the date of issuance of the issue of which the bond is a part.
(4) Special rules for applying paragraph (2)
(A) In general
In determining the aggregate amount earned on nonpurpose investments for purposes of paragraph (2)—
(i) any gain or loss on the disposition of a nonpurpose investment shall be taken into account, and
(ii) any amount earned on a bona fide debt service fund shall not be taken into account if the gross earnings on such fund for the bond year is less than $100,000.
In the case of an issue no bond of which is a private activity bond, clause (ii) shall be applied without regard to the dollar limitation therein if the average maturity of the issue (determined in accordance with section 147(b)(2)(A)) is at least 5 years and the rates of interest on bonds which are part of the issue do not vary during the term of the issue.
(B) Temporary investments
Under regulations prescribed by the Secretary—
(i) In general
An issue shall, for purposes of this subsection, be treated as meeting the requirements of paragraph (2) if—
(I) the gross proceeds of such issue are expended for the governmental purposes for which the issue was issued no later than the day which is 6 months after the date of issuance of the issue, and
(II) the requirements of paragraph (2) are met with respect to amounts not required to be spent as provided in subclause (I) (other than earnings on amounts in any bona fide debt service fund).
Gross proceeds which are held in a bona fide debt service fund or a reasonably required reserve or replacement fund, and gross proceeds which arise after such 6 months and which were not reasonably anticipated as of the date of issuance, shall not be considered gross proceeds for purposes of subclause (I) only.
(ii) Additional period for certain bonds
(I) In general
In the case of an issue described in subclause (II), clause (i) shall be applied by substituting "1 year" for "6 months" each place it appears with respect to the portion of the proceeds of the issue which are not expended in accordance with clause (i) if such portion does not exceed 5 percent of the proceeds of the issue.
(II) Issues to which subclause (I) applies
An issue is described in this subclause if no bond which is part of such issue is a private activity bond (other than a qualified 501(c)(3) bond) or a tax or revenue anticipation bond.
(iii) Safe harbor for determining when proceeds of tax and revenue anticipation bonds are expended
(I) In general
For purposes of clause (i), in the case of an issue of tax or revenue anticipation bonds, the net proceeds of such issue (including earnings thereon) shall be treated as expended for the governmental purpose of the issue on the 1st day after the date of issuance that the cumulative cash flow deficit to be financed by such issue exceeds 90 percent of the proceeds of such issue.
(II) Cumulative cash flow deficit
For purposes of subclause (I), the term "cumulative cash flow deficit" means, as of the date of computation, the excess of the expenses paid during the period described in subclause (III) which would ordinarily be paid out of or financed by anticipated tax or other revenues over the aggregate amount available (other than from the proceeds of the issue) during such period for the payment of such expenses.
(III) Period involved
For purposes of subclause (II), the period described in this subclause is the period beginning on the date of issuance of the issue and ending on the earlier of the date 6 months after such date of issuance or the date of the computation of cumulative cash flow deficit.
(iv) Payments of principal not to affect requirements
For purposes of this subparagraph, payments of principal on the bonds which are part of an issue shall not be treated as expended for the governmental purposes of the issue.
(C) Exception from rebate for certain proceeds to be used to finance construction expenditures
(i) In general
In the case of a construction issue, paragraph (2) shall not apply to the available construction proceeds of such issue if the spending requirements of clause (ii) are met.
(ii) Spending requirements
The spending requirements of this clause are met if at least—
(I) 10 percent of the available construction proceeds of the construction issue are spent for the governmental purposes of the issue within the 6-month period beginning on the date the bonds are issued,
(II) 45 percent of such proceeds are spent for such purposes within the 1-year period beginning on such date,
(III) 75 percent of such proceeds are spent for such purposes within the 18-month period beginning on such date, and
(IV) 100 percent of such proceeds are spent for such purposes within the 2-year period beginning on such date.
(iii) Exception for reasonable retainage
The spending requirement of clause (ii)(IV) shall be treated as met if—
(I) such requirement would be met at the close of such 2-year period but for a reasonable retainage (not exceeding 5 percent of the available construction proceeds of the construction issue), and
(II) 100 percent of the available construction proceeds of the construction issue are spent for the governmental purposes of the issue within the 3-year period beginning on the date the bonds are issued.
(iv) Construction issue
For purposes of this subparagraph, the term "construction issue" means any issue if—
(I) at least 75 percent of the available construction proceeds of such issue are to be used for construction expenditures with respect to property which is to be owned by a governmental unit or a 501(c)(3) organization, and
(II) all of the bonds which are part of such issue are qualified 501(c)(3) bonds, bonds which are not private activity bonds, or private activity bonds issued to finance property to be owned by a governmental unit or a 501(c)(3) organization.
For purposes of this subparagraph, the term "construction" includes reconstruction and rehabilitation, and rules similar to the rules of section 142(b)(1)(B) shall apply.
(v) Portions of issues used for construction
If—
(I) all of the construction expenditures to be financed by an issue are to be financed from a portion thereof, and
(II) the issuer elects to treat such portion as a construction issue for purposes of this subparagraph,
then, for purposes of this subparagraph and subparagraph (B), such portion shall be treated as a separate issue.
(vi) Available construction proceeds
For purposes of this subparagraph—
(I) In general
The term "available construction proceeds" means the amount equal to the issue price (within the meaning of sections 1273 and 1274) of the construction issue, increased by earnings on the issue price, earnings on amounts in any reasonably required reserve or replacement fund not funded from the issue, and earnings on all of the foregoing earnings, and reduced by the amount of the issue price in any reasonably required reserve or replacement fund and the issuance costs financed by the issue.
(II) Earnings on reserve included only for certain periods
The term "available construction proceeds" shall not include amounts earned on any reasonably required reserve or replacement fund after the earlier of the close of the 2-year period described in clause (ii) or the date the construction is substantially completed.
(III) Payments on acquired purpose obligations excluded
The term "available construction proceeds" shall not include payments on any obligation acquired to carry out the governmental purposes of the issue and shall not include earnings on such payments.
(IV) Election to rebate on earnings on reserve
At the election of the issuer, the term "available construction proceeds" shall not include earnings on any reasonably required reserve or replacement fund.
(vii) Election to pay penalty in lieu of rebate
(I) In general
At the election of the issuer, paragraph (2) shall not apply to available construction proceeds which do not meet the spending requirements of clause (ii) if the issuer pays a penalty, with respect to each 6-month period after the date the bonds were issued, equal to 1½ percent of the amount of the available construction proceeds of the issue which, as of the close of such 6-month period, is not spent as required by clause (ii).
(II) Termination
The penalty imposed by this clause shall cease to apply only as provided in clause (viii) or after the latest maturity date of any bond in the issue (including any refunding bond with respect thereto).
(viii) Election to terminate 1½ percent penalty
At the election of the issuer (made not later than 90 days after the earlier of the end of the initial temporary period or the date the construction is substantially completed), the penalty under clause (vii) shall not apply to any 6-month period after the initial temporary period under subsection (c) if the requirements of subclauses (I), (II), and (III) are met.
(I) 3 percent penalty
The requirement of this subclause is met if the issuer pays a penalty equal to 3 percent of the amount of available construction proceeds of the issue which is not spent for the governmental purposes of the issue as of the close of such initial temporary period multiplied by the number of years (including fractions thereof) in the initial temporary period.
(II) Yield restriction at close of temporary period
The requirement of this subclause is met if the amount of the available construction proceeds of the issue which is not spent for the governmental purposes of the issue as of the close of such initial temporary period is invested at a yield not exceeding the yield on the issue or which is invested in any tax-exempt bond which is not investment property.
(III) Redemption of bonds at earliest call date
The requirement of this subclause is met if the amount of the available construction proceeds of the issue which is not spent for the governmental purposes of the issue as of the earliest date on which bonds may be redeemed is used to redeem bonds on such date.
(ix) Election to terminate 1½ percent penalty before end of temporary period
If—
(I) the construction to be financed by a construction issue is substantially completed before the end of the initial temporary period,
(II) the issuer identifies an amount of available construction proceeds which will not be spent for the governmental purposes of the issue,
(III) the issuer has made the election under clause (viii), and
(IV) the issuer makes an election under this clause before the close of the initial temporary period and not later than 90 days after the date the construction is substantially completed,
then clauses (vii) and (viii) shall be applied to the available construction proceeds so identified as if the initial temporary period ended as of the date the election is made.
(x) Failure to pay penalties
In the case of a failure (which is not due to willful neglect) to pay any penalty required to be paid under clause (vii) or (viii) in the amount or at the time prescribed therefor, the Secretary may treat such failure as not occurring if, in addition to paying such penalty, the issuer pays a penalty equal to the sum of—
(I) 50 percent of the amount which was not paid in accordance with clauses (vii) and (viii), plus
(II) interest (at the underpayment rate established under section 6621) on the portion of the amount which was not paid on the date required for the period beginning on such date.
The Secretary may waive all or any portion of the penalty under this clause. Bonds which are part of an issue with respect to which there is a failure to pay the amount required under this clause (and any refunding bond with respect thereto) shall be treated as not being, and as never having been, tax-exempt bonds.
(xi) Election for pooled financing bonds
At the election of the issuer of an issue the proceeds of which are to be used to make or finance loans (other than nonpurpose investments) to 2 or more persons, the periods described in clauses (ii) and (iii) shall begin on—
(I) the date the loan is made, in the case of loans made within the 1-year period after the date the bonds are issued, and
(II) the date following such 1-year period, in the case of loans made after such 1-year period.
If such an election applies to an issue, the requirements of paragraph (2) shall apply to amounts earned before the beginning of the periods determined under the preceding sentence.
(xii) Payments of principal not to affect requirements
For purposes of this subparagraph, payments of principal on the bonds which are part of the construction issue shall not be treated as an expenditure of the available construction proceeds of the issue.
(xiii) Refunding bonds
(I) In general
Except as provided in this clause, clause (vii)(II), and the last sentence of clause (x), this subparagraph shall not apply to any refunding bond and no proceeds of a refunded bond shall be treated for purposes of this subparagraph as proceeds of a refunding bond.
(II) Determination of construction portion of issue
For purposes of clause (v), any portion of an issue which is used to refund any issue (or portion thereof) shall be treated as a separate issue.
(III) Coordination with rebate requirement on refunding bonds
The requirements of paragraph (2) shall be treated as met with respect to earnings for any period if a penalty is paid under clause (vii) or (viii) with respect to such earnings for such period.
(xiv) Elections
Any election under this subparagraph (other than clauses (viii) and (ix)) shall be made on or before the date the bonds are issued; and, once made, shall be irrevocable.
(xv) Time for payment of penalties
Any penalty under this subparagraph shall be paid to the United States not later than 90 days after the period to which the penalty relates.
(xvi) Treatment of bona fide debt service funds
If the spending requirements of clause (ii) are met with respect to the available construction proceeds of a construction issue, then paragraph (2) shall not apply to earnings on a bona fide debt service fund for such issue.
(D) Exception for governmental units issuing $5,000,000 or less of bonds
(i) In general
An issue shall, for purposes of this subsection, be treated as meeting the requirements of paragraphs (2) and (3) if—
(I) the issue is issued by a governmental unit with general taxing powers,
(II) no bond which is part of such issue is a private activity bond,
(III) 95 percent or more of the net proceeds of such issue are to be used for local governmental activities of the issuer (or of a governmental unit the jurisdiction of which is entirely within the jurisdiction of the issuer), and
(IV) the aggregate face amount of all tax-exempt bonds (other than private activity bonds) issued by such unit during the calendar year in which such issue is issued is not reasonably expected to exceed $5,000,000.
(ii) Aggregation of issuers
For purposes of subclause (IV) of clause (i)—
(I) an issuer and all entities which issue bonds on behalf of such issuer shall be treated as 1 issuer,
(II) all bonds issued by a subordinate entity shall, for purposes of applying such subclause to each other entity to which such entity is subordinate, be treated as issued by such other entity, and
(III) an entity formed (or, to the extent provided by the Secretary, availed of) to avoid the purposes of such subclause (IV) and all other entities benefiting thereby shall be treated as 1 issuer.
(iii) Certain refunding bonds not taken into account in determining small issuer status
There shall not be taken into account under subclause (IV) of clause (i) any bond issued to refund (other than to advance refund) any bond to the extent the amount of the refunding bond does not exceed the outstanding amount of the refunded bond.
(iv) Certain issues issued by subordinate governmental units, etc., exempt from rebate requirement
An issue issued by a subordinate entity of a governmental unit with general taxing powers shall be treated as described in clause (i)(I) if the aggregate face amount of such issue does not exceed the lesser of—
(I) $5,000,000, or
(II) the amount which, when added to the aggregate face amount of other issues issued by such entity, does not exceed the portion of the $5,000,000 limitation under clause (i)(IV) which such governmental unit allocates to such entity.
For purposes of the preceding sentence, an entity which issues bonds on behalf of a governmental unit with general taxing powers shall be treated as a subordinate entity of such unit. An allocation shall be taken into account under subclause (II) only if it is irrevocable and made before the issuance date of such issue and only to the extent that the limitation so allocated bears a reasonable relationship to the benefits received by such governmental unit from issues issued by such entity.
(v) Determination of whether refunding bonds eligible for exception from rebate requirement
If any portion of an issue is issued to refund other bonds, such portion shall be treated as a separate issue which does not meet the requirements of paragraphs (2) and (3) by reason of this subparagraph unless—
(I) the aggregate face amount of such issue does not exceed $5,000,000,
(II) each refunded bond was issued as part of an issue which was treated as meeting the requirements of paragraphs (2) and (3) by reason of this subparagraph,
(III) the average maturity date of the refunding bonds issued as part of such issue is not later than the average maturity date of the bonds to be refunded by such issue, and
(IV) no refunding bond has a maturity date which is later than the date which is 30 years after the date the original bond was issued.
Subclause (III) shall not apply if the average maturity of the issue of which the original bond was a part (and of the issue of which the bonds to be refunded are a part) is 3 years or less. For purposes of this clause, average maturity shall be determined in accordance with section 147(b)(2)(A).
(vi) Refundings of bonds issued under law prior to Tax Reform Act of 1986
If section 141(a) did not apply to any refunded bond, the issue of which such refunded bond was a part shall be treated as meeting the requirements of subclause (II) of clause (v) if—
(I) such issue was issued by a governmental unit with general taxing powers,
(II) no bond issued as part of such issue was an industrial development bond (as defined in section 103(b)(2), but without regard to subparagraph (B) of section 103(b)(3)) or a private loan bond (as defined in section 103(o)(2)(A), but without regard to any exception from such definition other than section 103(o)(2)(C)), and
(III) the aggregate face amount of all tax-exempt bonds (other than bonds described in subclause (II)) issued by such unit during the calendar year in which such issue was issued did not exceed $5,000,000.
References in subclause (II) to section 103 shall be to such section as in effect on the day before the date of the enactment of the Tax Reform Act of 1986. Rules similar to the rules of clauses (ii) and (iii) shall apply for purposes of subclause (III). For purposes of subclause (II) of clause (i), bonds described in subclause (II) of this clause to which section 141(a) does not apply shall not be treated as private activity bonds.
(vii) Increase in exception for bonds financing public school capital expenditures
Each of the $5,000,000 amounts in the preceding provisions of this subparagraph shall be increased by the lesser of $10,000,000 or so much of the aggregate face amount of the bonds as are attributable to financing the construction (within the meaning of subparagraph (C)(iv)) of public school facilities.
(5) Exemption from gross income of sum rebated
Gross income shall not include the sum described in paragraph (2). Notwithstanding any other provision of this title, no deduction shall be allowed for any amount paid to the United States under paragraph (2).
(6) Definitions
For purposes of this subsection and subsections (c) and (d)—
(A) Nonpurpose investment
The term "nonpurpose investment" means any investment property which—
(i) is acquired with the gross proceeds of an issue, and
(ii) is not acquired in order to carry out the governmental purpose of the issue.
(B) Gross proceeds
Except as otherwise provided by the Secretary, the gross proceeds of an issue include—
(i) amounts received (including repayments of principal) as a result of investing the original proceeds of the issue, and
(ii) amounts to be used to pay debt service on the issue.
(7) Penalty in lieu of loss of tax exemption
In the case of an issue which would (but for this paragraph) fail to meet the requirements of paragraph (2) or (3), the Secretary may treat such issue as not failing to meet such requirements if—
(A) no bond which is part of such issue is a private activity bond (other than a qualified 501(c)(3) bond),
(B) the failure to meet such requirements is not due to willful neglect, and
(C) the issuer pays to the United States a penalty in an amount equal to the sum of—
(i) 50 percent of the amount which was not paid in accordance with paragraphs (2) and (3), plus
(ii) interest (at the underpayment rate established under section 6621) on the portion of the amount which was not paid on the date required under paragraph (3) for the period beginning on such date.
The Secretary may waive all or any portion of the penalty under this paragraph.
(g) Student loan incentive payments
Except to the extent otherwise provided in regulations, payments made by the Secretary of Education pursuant to section 438 of the Higher Education Act of 1965 are not to be taken into account, for purposes of subsection (a)(1), in determining yields on student loan notes.
(h) Determinations of yield
For purposes of this section, the yield on an issue shall be determined on the basis of the issue price (within the meaning of sections 1273 and 1274).
(i) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.
(Added
Inflation Adjusted Items for Certain Years
For inflation adjustment of certain items in this section, see Revenue Procedures listed in a table under
Editorial Notes
References in Text
The date of the enactment of the Tax Reform Act of 1986, referred to in subsec. (f)(4)(C)(vi), is the date of enactment of
Section 438 of the Higher Education Act of 1965, referred to in subsec. (g), is classified to
Amendments
2017—Subsec. (f)(4)(C)(xiv) to (xvii).
2006—Subsec. (f)(4)(D)(ii)(II) to (IV).
2005—Subsec. (b)(4).
2001—Subsec. (f)(4)(D)(vii).
1997—Subsec. (c)(2)(B) to (E).
Subsec. (d)(3).
Subsec. (f)(4)(B)(ii)(I).
Subsec. (f)(4)(C)(xvii).
Subsec. (f)(4)(D)(vii).
Subsec. (f)(4)(E).
1990—Subsec. (c)(2)(D).
Subsec. (c)(2)(D), (E).
Subsec. (f)(4)(B)(i).
Subsec. (f)(4)(B)(i)(II).
Subsec. (f)(4)(B)(iv).
Subsec. (f)(4)(C) to (E).
1989—Subsec. (c)(2)(D), (E).
Subsec. (d)(3)(E)(ii).
Subsec. (f)(4)(B)(i).
Subsec. (f)(4)(B)(ii)(I).
Subsec. (f)(4)(B)(iii)(III).
Subsec. (f)(4)(B)(iv).
Subsec. (f)(4)(C)(ii)(II).
1988—Subsec. (b)(2).
Subsec. (b)(2)(E).
Subsec. (b)(3).
Subsec. (d)(2).
Subsec. (f)(1).
Subsec. (f)(3).
Subsec. (f)(4)(A).
Subsec. (f)(4)(B)(iii)(I).
Subsec. (f)(4)(B)(iii)(III).
Subsec. (f)(4)(C).
Subsec. (f)(4)(C)(i)(IV).
Subsec. (f)(4)(C)(ii).
Subsec. (f)(4)(D)(i).
Subsec. (f)(7)(B).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Effective Date of 2006 Amendment
Effective Date of 2005 Amendment
Amendment by
Effective Date of 2001 Amendment
Effective Date of 1997 Amendment
Effective Date of 1990 Amendment
Amendment by
Effective Date of 1989 Amendment
Amendment by sections 7814(c)(2) and 7816(r), (t) of
Effective Date of 1988 Amendment
"(i) Except as provided in clause (ii), the amendments made by this paragraph [amending this section] shall apply to bonds issued after June 30, 1987.
"(ii) At the election of an issuer (made at such time and in such manner as the Secretary of the Treasury or his delegate may prescribe), the amendments made by this paragraph shall apply to such issuer as if included in the amendments made by section 1301(a) of the Tax Reform Act of 1986 [amending
Amendment by section 1013(a)(14), (15), (18), (19) of
Amendment by section 4005(d)(2) of
Amendment by section 5053(b) of
"(1)
"(2)
"(3)
Effective Date
Subpart applicable to bonds issued after Aug. 15, 1986, except as otherwise provided, see sections 1311 to 1318 of
Extension of Period To Elect To Terminate Percent Penalty for Bonds Issued Before November 5, 1990
Amendment to Arbitrage Regulations
§149. Bonds must be registered to be tax exempt; other requirements
(a) Bonds must be registered to be tax exempt
(1) General rule
Nothing in section 103(a) or in any other provision of law shall be construed to provide an exemption from Federal income tax for interest on any registration-required bond unless such bond is in registered form.
(2) Registration-required bond
For purposes of paragraph (1), the term "registration-required bond" means any bond other than a bond which—
(A) is not of a type offered to the public, or
(B) has a maturity (at issue) of not more than 1 year.
(3) Special rules
(A) Book entries permitted
For purposes of paragraph (1), a book entry bond shall be treated as in registered form if the right to the principal of, and stated interest on, such bond may be transferred only through a book entry consistent with regulations prescribed by the Secretary.
(B) Nominees
The Secretary shall prescribe such regulations as may be necessary to carry out the purpose of paragraph (1) where there is a nominee or chain of nominees.
(b) Federally guaranteed bond is not tax exempt
(1) In general
Section 103(a) shall not apply to any State or local bond if such bond is federally guaranteed.
(2) Federally guaranteed defined
For purposes of paragraph (1), a bond is federally guaranteed if—
(A) the payment of principal or interest with respect to such bond is guaranteed (in whole or in part) by the United States (or any agency or instrumentality thereof),
(B) such bond is issued as part of an issue and 5 percent or more of the proceeds of such issue is to be—
(i) used in making loans the payment of principal or interest with respect to which are to be guaranteed (in whole or in part) by the United States (or any agency or instrumentality thereof), or
(ii) invested (directly or indirectly) in federally insured deposits or accounts, or
(C) the payment of principal or interest on such bond is otherwise indirectly guaranteed (in whole or in part) by the United States (or an agency or instrumentality thereof).
(3) Exceptions
(A) Certain insurance programs
A bond shall not be treated as federally guaranteed by reason of—
(i) any guarantee by the Federal Housing Administration, the Department of Veterans Affairs, the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, or the Government National Mortgage Association,
(ii) any guarantee of student loans and any guarantee by the Student Loan Marketing Association to finance student loans,
(iii) any guarantee by the Bonneville Power Authority pursuant to the Northwest Power Act (
(iv) subject to subparagraph (E), any guarantee by a Federal home loan bank made in connection with the original issuance of a bond during the period beginning on the date of the enactment of this clause and ending on December 31, 2010 (or a renewal or extension of a guarantee so made).
(B) Debt service, etc.
Paragraph (1) shall not apply to—
(i) proceeds of the issue invested for an initial temporary period until such proceeds are needed for the purpose for which such issue was issued,
(ii) investments of a bona fide debt service fund,
(iii) investments of a reserve which meet the requirements of section 148(d),
(iv) investments in bonds issued by the United States Treasury, or
(v) other investments permitted under regulations.
(C) Exception for housing programs
(i) In general
Except as provided in clause (ii), paragraph (1) shall not apply to—
(I) a private activity bond for a qualified residential rental project or a housing program obligation under section 11(b) of the United States Housing Act of 1937,
(II) a qualified mortgage bond, or
(III) a qualified veterans' mortgage bond.
(ii) Exception not to apply where bond invested in federally insured deposits or accounts
Clause (i) shall not apply to any bond which is federally guaranteed within the meaning of paragraph (2)(B)(ii).
(D) Loans to, or guarantees by, financial institutions
Except as provided in paragraph (2)(B)(ii), a bond which is issued as part of an issue shall not be treated as federally guaranteed merely by reason of the fact that the proceeds of such issue are used in making loans to a financial institution or there is a guarantee by a financial institution unless such guarantee constitutes a federally insured deposit or account.
(E) Safety and soundness requirements for Federal home loan banks
Clause (iv) of subparagraph (A) shall not apply to any guarantee by a Federal home loan bank unless such bank meets safety and soundness collateral requirements for such guarantees which are at least as stringent as such requirements which apply under regulations applicable to such guarantees by Federal home loan banks as in effect on April 9, 2008.
(4) Definitions
For purposes of this subsection—
(A) Treatment of certain entities with authority to borrow from United States
To the extent provided in regulations prescribed by the Secretary, any entity with statutory authority to borrow from the United States shall be treated as an instrumentality of the United States. Except in the case of an exempt facility bond, a qualified small issue bond, and a qualified student loan bond, nothing in the preceding sentence shall be construed as treating the District of Columbia or any possession of the United States as an instrumentality of the United States.
(B) Federally insured deposit or account
The term "federally insured deposit or account" means any deposit or account in a financial institution to the extent such deposit or account is insured under Federal law by the Federal Deposit Insurance Corporation, the Federal Savings and Loan Insurance Corporation, the National Credit Union Administration, or any similar federally chartered corporation.
(c) Tax exemption must be derived from this title
(1) General rule
Except as provided in paragraph (2), no interest on any bond shall be exempt from taxation under this title unless such interest is exempt from tax under this title without regard to any provision of law which is not contained in this title and which is not contained in a revenue Act.
(2) Certain prior exemptions
(A) Prior exemptions continued
For purposes of this title, notwithstanding any provision of this part, any bond the interest on which is exempt from taxation under this title by reason of any provision of law (other than a provision of this title) which is in effect on January 6, 1983, shall be treated as a bond described in section 103(a).
(B) Additional requirements for bonds issued after 1983
Subparagraph (A) shall not apply to a bond (not described in subparagraph (C)) issued after 1983 if the appropriate requirements of this part (or the corresponding provisions of prior law) are not met with respect to such bond.
(C) Description of bond
A bond is described in this subparagraph (and treated as described in subparagraph (A)) if—
(i) such bond is issued pursuant to the Northwest Power Act (
(ii) such bond is issued pursuant to section 608(a)(6)(A) of
(iii) such bond is issued before June 19, 1984 under section 11(b) of the United States Housing Act of 1937.
(d) Advance refundings
(1) In general
Nothing in section 103(a) or in any other provision of law shall be construed to provide an exemption from Federal income tax for interest on any bond issued to advance refund another bond.
(2) Advance refunding
For purposes of this part, a bond shall be treated as issued to advance refund another bond if it is issued more than 90 days before the redemption of the refunded bond.
(3) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection.
(e) Information reporting
(1) In general
Nothing in section 103(a) or any other provision of law shall be construed to provide an exemption from Federal income tax for interest on any bond unless such bond satisfies the requirements of paragraph (2).
(2) Information reporting requirements
A bond satisfies the requirements of this paragraph if the issuer submits to the Secretary, not later than the 15th day of the 2d calendar month after the close of the calendar quarter in which the bond is issued (or such later time as the Secretary may prescribe with respect to any portion of the statement), a statement concerning the issue of which the bond is a part which contains—
(A) the name and address of the issuer,
(B) the date of issue, the amount of net proceeds of the issue, the stated interest rate, term, and face amount of each bond which is part of the issue, the amount of issuance costs of the issue, and the amount of reserves of the issue,
(C) where required, the name of the applicable elected representative who approved the issue, or a description of the voter referendum by which the issue was approved,
(D) the name, address, and employer identification number of—
(i) each initial principal user of any facility provided with the proceeds of the issue,
(ii) the common parent of any affiliated group of corporations (within the meaning of section 1504(a)) of which such initial principal user is a member, and
(iii) if the issue is treated as a separate issue under section 144(a)(6)(A), any person treated as a principal user under section 144(a)(6)(B),
(E) a description of any property to be financed from the proceeds of the issue,
(F) a certification by a State official designated by State law (or, where there is no such official, the Governor) that the bond meets the requirements of section 146 (relating to cap on private activity bonds), if applicable, and
(G) such other information as the Secretary may require.
Subparagraphs (C) and (D) shall not apply to any bond which is not a private activity bond. The Secretary may provide that certain information specified in the 1st sentence need not be included in the statement with respect to an issue where the inclusion of such information is not necessary to carry out the purposes of this subsection.
(3) Extension of time
The Secretary may grant an extension of time for the filing of any statement required under paragraph (2) if the failure to file in a timely fashion is not due to willful neglect.
(f) Treatment of certain pooled financing bonds
(1) In general
Section 103(a) shall not apply to any pooled financing bond unless, with respect to the issue of which such bond is a part, the requirements of paragraphs (2), (3), (4), and (5) are met.
(2) Reasonable expectation requirement
(A) In general
The requirements of this paragraph are met with respect to an issue if the issuer reasonably expects that—
(i) as of the close of the 1-year period beginning on the date of issuance of the issue, at least 30 percent of the net proceeds of the issue (as of the close of such period) will have been used directly or indirectly to make or finance loans to ultimate borrowers, and
(ii) as of the close of the 3-year period beginning on such date of issuance, at least 95 percent of the net proceeds of the issue (as of the close of such period) will have been so used.
(B) Certain factors may not be taken into account in determining expectations
Expectations as to changes in interest rates or in the provisions of this title (or in the regulations or rulings thereunder) may not be taken into account in determining whether expectations are reasonable for purposes of this paragraph.
(C) Net proceeds
For purposes of subparagraph (A), the term "net proceeds" has the meaning given such term by section 150 but shall not include proceeds used to finance issuance costs and shall not include proceeds necessary to pay interest (during such period) on the bonds which are part of the issue.
(D) Refunding bonds
For purposes of subparagraph (A), in the case of a refunding bond, the date of issuance taken into account is the date of issuance of the original bond.
(3) Cost of issuance payment requirements
The requirements of this paragraph are met with respect to an issue if—
(A) the payment of legal and underwriting costs associated with the issuance of the issue is not contingent, and
(B) at least 95 percent of the reasonably expected legal and underwriting costs associated with the issuance of the issue are paid not later than the 180th day after the date of the issuance of the issue.
(4) Written loan commitment requirement
(A) In general
The requirement of this paragraph is met with respect to an issue if the issuer receives prior to issuance written loan commitments identifying the ultimate potential borrowers of at least 30 percent of the net proceeds of such issue.
(B) Exception
Subparagraph (A) shall not apply with respect to any issuer which—
(i) is a State (or an integral part of a State) issuing pooled financing bonds to make or finance loans to subordinate governmental units of such State, or
(ii) is a State-created entity providing financing for water-infrastructure projects through the federally-sponsored State revolving fund program.
(5) Redemption requirement
The requirement of this paragraph is met if to the extent that less than the percentage of the proceeds of an issue required to be used under clause (i) or (ii) of paragraph (2)(A) is used by the close of the period identified in such clause, the issuer uses an amount of proceeds equal to the excess of—
(A) the amount required to be used under such clause, over
(B) the amount actually used by the close of such period,
to redeem outstanding bonds within 90 days after the end of such period.
(6) Pooled financing bond
For purposes of this subsection—
(A) In general
The term "pooled financing bond" means any bond issued as part of an issue more than $5,000,000 of the proceeds of which are reasonably expected (at the time of the issuance of the bonds) to be used (or are intentionally used) directly or indirectly to make or finance loans to 2 or more ultimate borrowers.
(B) Exceptions
Such term shall not include any bond if—
(i) section 146 applies to the issue of which such bond is a part (other than by reason of section 141(b)(5)) or would apply but for section 146(i), or
(ii) section 143(l)(3) applies to such issue.
(7) Definition of loan; treatment of mixed use issues
(A) Loan
For purposes of this subsection, the term "loan" does not include—
(i) any loan which is a nonpurpose investment (within the meaning of section 148(f)(6)(A), determined without regard to section 148(b)(3)), and
(ii) any use of proceeds by an agency of the issuer unless such agency is a political subdivision or instrumentality of the issuer.
(B) Portion of issue to be used for loans treated as separate issue
If only a portion of the proceeds of an issue is reasonably expected (at the time of issuance of the bond) to be used (or is intentionally used) as described in paragraph (6)(A), such portion and the other portion of such issue shall be treated as separate issues for purposes of determining whether such portion meets the requirements of this subsection.
(g) Treatment of hedge bonds
(1) In general
Section 103(a) shall not apply to any hedge bond unless, with respect to the issue of which such bond is a part—
(A) the requirement of paragraph (2) is met, and
(B) the requirement of subsection (f)(3) is met.
(2) Reasonable expectations as to when proceeds will be spent
An issue meets the requirement of this paragraph if the issuer reasonably expects that—
(A) 10 percent of the spendable proceeds of the issue will be spent for the governmental purposes of the issue within the 1-year period beginning on the date the bonds are issued,
(B) 30 percent of the spendable proceeds of the issue will be spent for such purposes within the 2-year period beginning on such date,
(C) 60 percent of the spendable proceeds of the issue will be spent for such purposes within the 3-year period beginning on such date, and
(D) 85 percent of the spendable proceeds of the issue will be spent for such purposes within the 5-year period beginning on such date.
(3) Hedge bond
(A) In general
For purposes of this subsection, the term "hedge bond" means any bond issued as part of an issue unless—
(i) the issuer reasonably expects that 85 percent of the spendable proceeds of the issue will be used to carry out the governmental purposes of the issue within the 3-year period beginning on the date the bonds are issued, and
(ii) not more than 50 percent of the proceeds of the issue are invested in nonpurpose investments (as defined in section 148(f)(6)(A)) having a substantially guaranteed yield for 4 years or more.
(B) Exception for investment in tax-exempt bonds not subject to minimum tax
(i) In general
Such term shall not include any bond issued as part of an issue 95 percent of the net proceeds of which are invested in bonds—
(I) the interest on which is not includible in gross income under section 103, and
(II) which are not specified private activity bonds (as defined in section 57(a)(5)(C)).
(ii) Amounts in bona fide debt service fund
Amounts in a bona fide debt service fund shall be treated as invested in bonds described in clause (i).
(iii) Amounts held pending reinvestment or redemption
Amounts held for not more than 30 days pending reinvestment or bond redemption shall be treated as invested in bonds described in clause (i).
(C) Exception for refunding bonds
(i) In general
A refunding bond shall be treated as meeting the requirements of this subsection only if the original bond met such requirements.
(ii) General rule for refunding of pre-effective date bonds
A refunding bond shall be treated as meeting the requirements of this subsection if—
(I) this subsection does not apply to the original bond,
(II) the average maturity date of the issue of which the refunding bond is a part is not later than the average maturity date of the bonds to be refunded by such issue, and
(III) the amount of the refunding bond does not exceed the outstanding amount of the refunded bond.
(iii) Refunding of pre-effective date bonds entitled to 5-year temporary period
A refunding bond shall be treated as meeting the requirements of this subsection if—
(I) this subsection does not apply to the original bond,
(II) the issuer reasonably expected that 85 percent of the spendable proceeds of the issue of which the original bond is a part would be used to carry out the governmental purposes of the issue within the 5-year period beginning on the date the original bonds were issued but did not reasonably expect that 85 percent of such proceeds would be so spent within the 3-year period beginning on such date, and
(III) at least 85 percent of the spendable proceeds of the original issue (and all other prior original issues issued to finance the governmental purposes of such issue) were spent before the date the refunding bonds are issued.
(4) Special rules
For purposes of this subsection—
(A) Construction period in excess of 5 years
The Secretary may, at the request of any issuer, provide that the requirement of paragraph (2) shall be treated as met with respect to the portion of the spendable proceeds of an issue which is to be used for any construction project having a construction period in excess of 5 years if it is reasonably expected that such proceeds will be spent over a reasonable construction schedule specified in such request.
(B) Rules for determining expectations
The rules of subsection (f)(2)(B) shall apply.
(5) Regulations
The Secretary may prescribe regulations to prevent the avoidance of the rules of this subsection, including through the aggregation of projects within a single issue.
(Added
Editorial Notes
References in Text
The Northwest Power Act, referred to in subsecs. (b)(3)(A)(iii) and (c)(2)(C)(i), probably means the Pacific Northwest Electric Power Planning and Conservation Act,
The date of the enactment of the Tax Reform Act of 1984, referred to in subsec. (b)(3)(A)(iii), is the date of enactment of
The date of the enactment of this clause, referred to in subsec. (b)(3)(A)(iv), is the date of enactment of
Section 11(b) of the United States Housing Act of 1937, referred to in subsecs. (b)(3)(C)(i)(I) and (c)(2)(C)(iii), is classified to
Section 608(a)(6)(A) of
The date of the enactment of the Tax Reform Act of 1986, referred to in subsec. (c)(2)(C)(ii), is the date of enactment of
Amendments
2018—Subsec. (b)(3)(A)(i).
2017—Subsec. (d)(1).
Subsec. (d)(2) to (7).
2010—Subsec. (a)(2).
2008—Subsec. (b)(3)(A)(iv).
Subsec. (b)(3)(E).
2006—Subsec. (f)(1).
Subsec. (f)(2)(A).
Subsec. (f)(4) to (6).
Subsec. (f)(7).
Subsec. (f)(7)(B).
1996—Subsec. (g)(3)(B)(iii).
1989—Subsec. (g).
1988—Subsec. (b)(3)(A)(iii).
Subsec. (b)(4)(A).
Subsec. (e)(3).
Subsec. (f).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Amendment by
Effective Date of 2010 Amendment
Effective Date of 2008 Amendment
Effective Date of 2006 Amendment
Amendment by
Effective Date of 1996 Amendment
Effective Date of 1989 Amendment
"(1)
"(2)
"(3)
"(4)
"(5)
Effective Date of 1988 Amendment
Amendment by section 1013(a)(20)–(22) of
"(1)
"(2)
"(A) if the 3-year period described in section 149(f)(2)(A) of the 1986 Code would (but for this paragraph) expire on or before October 22, 1989, such period shall expire on October 21, 1990, and
"(B) if such period expires after October 22, 1989, the portion of the proceeds of the issue of which the refunded bond is a part which is available (on the date of issuance of the refunding issue) to provide loans shall be treated as proceeds of a separate issue (issued after October 21, 1988) for purposes of applying section 149(f) of the 1986 Code."
Effective Date
Subsec. (e) applicable to bonds issued after Dec. 31, 1986, see section 1311(d) of
Transfer of Functions
Federal Savings and Loan Insurance Corporation abolished and its functions transferred, see sections 401 to 406 of
Subpart C—Definitions and Special Rules
§150. Definitions and special rules
(a) General rule
For purposes of this part—
(1) Bond
The term "bond" includes any obligation.
(2) Governmental unit not to include Federal Government
The term "governmental unit" does not include the United States or any agency or instrumentality thereof.
(3) Net proceeds
The term "net proceeds" means, with respect to any issue, the proceeds of such issue reduced by amounts in a reasonably required reserve or replacement fund.
(4) 501(c)(3) organization
The term "501(c)(3) organization" means any organization described in section 501(c)(3) and exempt from tax under section 501(a).
(5) Ownership of property
Property shall be treated as owned by a governmental unit if it is owned on behalf of such unit.
(6) Tax-exempt bond
The term "tax-exempt" means, with respect to any bond (or issue), that the interest on such bond (or on the bonds issued as part of such issue) is excluded from gross income.
(b) Change in use of facilities financed with tax-exempt private activity bonds
(1) Mortgage revenue bonds
(A) In general
In the case of any residence with respect to which financing is provided from the proceeds of a tax-exempt qualified mortgage bond or qualified veterans' mortgage bond, if there is a continuous period of at least 1 year during which such residence is not the principal residence of at least 1 of the mortgagors who received such financing, then no deduction shall be allowed under this chapter for interest on such financing which accrues on or after the date such period began and before the date such residence is again the principal residence of at least 1 of the mortgagors who received such financing.
(B) Exception
Subparagraph (A) shall not apply to the extent the Secretary determines that its application would result in undue hardship and that the failure to meet the requirements of subparagraph (A) resulted from circumstances beyond the mortgagor's control.
(2) Qualified residential rental projects
In the case of any project for residential rental property—
(A) with respect to which financing is provided from the proceeds of any private activity bond which, when issued, purported to be a tax-exempt bond described in paragraph (7) of section 142(a), and
(B) which does not meet the requirements of section 142(d),
no deduction shall be allowed under this chapter for interest on such financing which accrues during the period beginning on the 1st day of the taxable year in which such project fails to meet such requirements and ending on the date such project meets such requirements. If the provisions of prior law corresponding to section 142(d) apply to a refunded bond, such provisions shall apply (in lieu of section 142(d)) to the refunding bond.
(3) Qualified 501(c)(3) bonds
(A) In general
In the case of any facility with respect to which financing is provided from the proceeds of any private activity bond which, when issued, purported to be a tax-exempt qualified 501(c)(3) bond, if any portion of such facility—
(i) is used in a trade or business of any person other than a 501(c)(3) organization or a governmental unit, but
(ii) continues to be owned by a 501(c)(3) organization,
then the owner of such portion shall be treated for purposes of this title as engaged in an unrelated trade or business (as defined in section 513) with respect to such portion. The amount of gross income attributable to such portion for any period shall not be less than the fair rental value of such portion for such period.
(B) Denial of deduction for interest
No deduction shall be allowed under this chapter for interest on financing described in subparagraph (A) which accrues during the period beginning on the date such facility is used as described in subparagraph (A)(i) and ending on the date such facility is not so used.
(4) Certain exempt facility bonds and small issue bonds
(A) In general
In the case of any facility with respect to which financing is provided from the proceeds of any private activity bond to which this paragraph applies, if such facility is not used for a purpose for which a tax-exempt bond could be issued on the date of such issue, no deduction shall be allowed under this chapter for interest on such financing which accrues during the period beginning on the date such facility is not so used and ending on the date such facility is so used.
(B) Bonds to which paragraph applies
This paragraph applies to any private activity bond which, when issued, purported to be a tax-exempt exempt facility bond described in a paragraph (other than paragraph (7)) of section 142(a) or a qualified small issue bond.
(5) Facilities required to be owned by governmental units or 501(c)(3) organizations
If—
(A) financing is provided with respect to any facility from the proceeds of any private activity bond which, when issued, purported to be a tax-exempt bond,
(B) such facility is required to be owned by a governmental unit or a 501(c)(3) organization as a condition of such tax exemption, and
(C) such facility is not so owned,
then no deduction shall be allowed under this chapter for interest on such financing which accrues during the period beginning on the date such facility is not so owned and ending on the date such facility is so owned.
(6) Small issue bonds which exceed capital expenditure limitation
In the case of any financing provided from the proceeds of any bond which, when issued, purported to be a qualified small issue bond, no deduction shall be allowed under this chapter for interest on such financing which accrues during the period such bond is not a qualified small issue bond.
(c) Exception and special rules for purposes of subsection (b)
For purposes of subsection (b)—
(1) Exception
Any use with respect to facilities financed with proceeds of an issue which are not required to be used for the exempt purpose of such issue shall not be taken into account.
(2) Treatment of amounts other than interest
If the amounts payable for the use of a facility are not interest, subsection (b) shall apply to such amounts as if they were interest but only to the extent such amounts for any period do not exceed the amount of interest accrued on the bond financing for such period.
(3) Use of portion of facility
In the case of any person which uses only a portion of the facility, only the interest accruing on the financing allocable to such portion shall be taken into account by such person.
(4) Cessation with respect to portion of facility
In the case of any facility where part but not all of the facility is not used for an exempt purpose, only the interest accruing on the financing allocable to such part shall be taken into account.
(5) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection and subsection (b).
(d) Qualified scholarship funding bond
For purposes of this part and section 103—
(1) Treatment as State or local bond
A qualified scholarship funding bond shall be treated as a State or local bond.
(2) Qualified scholarship funding bond defined
The term "qualified scholarship funding bond" means a bond issued by a corporation which—
(A) is a corporation not for profit established and operated exclusively for the purpose of acquiring student loan notes incurred under the Higher Education Act of 1965, and
(B) is organized at the request of the State or 1 or more political subdivisions thereof or is requested to exercise such power by 1 or more political subdivisions and required by its corporate charter and bylaws, or required by State law, to devote any income (after payment of expenses, debt service, and the creation of reserves for the same) to the purchase of additional student loan notes or to pay over any income to the United States.
(3) Election to cease status as qualified scholarship funding corporation
(A) In general
Any qualified scholarship funding bond, and qualified student loan bond, outstanding on the date of the issuer's election under this paragraph (and any bond (or series of bonds) issued to refund such a bond) shall not fail to be a tax-exempt bond solely because the issuer ceases to be described in subparagraphs (A) and (B) of paragraph (2) if the issuer meets the requirements of subparagraphs (B) and (C) of this paragraph.
(B) Assets and liabilities of issuer transferred to taxable subsidiary
The requirements of this subparagraph are met by an issuer if—
(i) all of the student loan notes of the issuer and other assets pledged to secure the repayment of qualified scholarship funding bond indebtedness of the issuer are transferred to another corporation within a reasonable period after the election is made under this paragraph;
(ii) such transferee corporation assumes or otherwise provides for the payment of all of the qualified scholarship funding bond indebtedness of the issuer within a reasonable period after the election is made under this paragraph;
(iii) to the extent permitted by law, such transferee corporation assumes all of the responsibilities, and succeeds to all of the rights, of the issuer under the issuer's agreements with the Secretary of Education in respect of student loans;
(iv) immediately after such transfer, the issuer, together with any other issuer which has made an election under this paragraph in respect of such transferee, hold all of the senior stock in such transferee corporation; and
(v) such transferee corporation is not exempt from tax under this chapter.
(C) Issuer to operate as independent organization described in section 501(c)(3)
The requirements of this subparagraph are met by an issuer if, within a reasonable period after the transfer referred to in subparagraph (B)—
(i) the issuer is described in section 501(c)(3) and exempt from tax under section 501(a);
(ii) the issuer no longer is described in subparagraphs (A) and (B) of paragraph (2); and
(iii) at least 80 percent of the members of the board of directors of the issuer are independent members.
(D) Senior stock
For purposes of this paragraph, the term "senior stock" means stock—
(i) which participates pro rata and fully in the equity value of the corporation with all other common stock of the corporation but which has the right to payment of liquidation proceeds prior to payment of liquidation proceeds in respect of other common stock of the corporation;
(ii) which has a fixed right upon liquidation and upon redemption to an amount equal to the greater of—
(I) the fair market value of such stock on the date of liquidation or redemption (whichever is applicable); or
(II) the fair market value of all assets transferred in exchange for such stock and reduced by the amount of all liabilities of the corporation which has made an election under this paragraph assumed by the transferee corporation in such transfer;
(iii) the holder of which has the right to require the transferee corporation to redeem on a date that is not later than 10 years after the date on which an election under this paragraph was made and pursuant to such election such stock was issued; and
(iv) in respect of which, during the time such stock is outstanding, there is not outstanding any equity interest in the corporation having any liquidation, redemption or dividend rights in the corporation which are superior to those of such stock.
(E) Independent member
The term "independent member" means a member of the board of directors of the issuer who (except for services as a member of such board) receives no compensation directly or indirectly—
(i) for services performed in connection with such transferee corporation, or
(ii) for services as a member of the board of directors or as an officer of such transferee corporation.
For purposes of clause (ii), the term "officer" includes any individual having powers or responsibilities similar to those of officers.
(F) Coordination with certain private foundation taxes
For purposes of sections 4942 (relating to the excise tax on a failure to distribute income) and 4943 (relating to the excise tax on excess business holdings), the transferee corporation referred to in subparagraph (B) shall be treated as a functionally related business (within the meaning of section 4942(j)(4)) with respect to the issuer during the period commencing with the date on which an election is made under this paragraph and ending on the date that is the earlier of—
(i) the last day of the last taxable year for which more than 50 percent of the gross income of such transferee corporation is derived from, or more than 50 percent of the assets (by value) of such transferee corporation consists of, student loan notes incurred under the Higher Education Act of 1965; or
(ii) the last day of the taxable year of the issuer during which occurs the date which is 10 years after the date on which the election under this paragraph is made.
(G) Election
An election under this paragraph may be revoked only with the consent of the Secretary.
(e) Bonds of certain volunteer fire departments
For purposes of this part and section 103—
(1) In general
A bond of a volunteer fire department shall be treated as a bond of a political subdivision of a State if—
(A) such department is a qualified volunteer fire department with respect to an area within the jurisdiction of such political subdivision, and
(B) such bond is issued as part of an issue 95 percent or more of the net proceeds of which are to be used for the acquisition, construction, reconstruction, or improvement of a firehouse (including land which is functionally related and subordinate thereto) or firetruck used or to be used by such department.
(2) Qualified volunteer fire department
For purposes of this subsection, the term "qualified volunteer fire department" means, with respect to a political subdivision of a State, any organization—
(A) which is organized and operated to provide firefighting or emergency medical services for persons in an area (within the jurisdiction of such political subdivision) which is not provided with any other firefighting services, and
(B) which is required (by written agreement) by the political subdivision to furnish firefighting services in such area.
For purposes of subparagraph (A), other firefighting services provided in an area shall be disregarded in determining whether an organization is a qualified volunteer fire department if such other firefighting services are provided by a qualified volunteer fire department (determined with the application of this sentence) and such organization and the provider of such other services have been continuously providing firefighting services to such area since January 1, 1981.
(3) Treatment as private activity bonds only for certain purposes
Bonds which are part of an issue which meets the requirements of paragraph (1) shall not be treated as private activity bonds except for purposes of sections 147(f) and 149(d).
(Added
Editorial Notes
References in Text
The Higher Education Act of 1965, referred to in subsec. (d)(2)(A), (3)(F)(i), is
Amendments
1996—Subsec. (d)(3).
1988—Subsec. (b)(1)(A).
Subsec. (b)(2).
Subsec. (b)(2)(A).
Subsec. (b)(4).
Subsec. (b)(6).
Subsec. (e)(1)(B).
Subsec. (e)(2).
Subsec. (e)(3).
Statutory Notes and Related Subsidiaries
Effective Date of 1996 Amendment
Effective Date of 1988 Amendment
Amendment by section 1013(a)(23), (30)–(33) of
Effective Date
Section applicable to bonds issued after Aug. 15, 1986, except as otherwise provided, with subsec. (b) applicable to changes in use (and ownership) after Aug. 15, 1986, but only with respect to financing (including refinancings) provided after such date, and with subsec. (d) applicable to payments made after Aug. 15, 1986, see sections 1311 to 1318 of
PART V—DEDUCTIONS FOR PERSONAL EXEMPTIONS
Editorial Notes
Amendments
1976—
§151. Allowance of deductions for personal exemptions
(a) Allowance of deductions
In the case of an individual, the exemptions provided by this section shall be allowed as deductions in computing taxable income.
(b) Taxpayer and spouse
An exemption of the exemption amount for the taxpayer; and an additional exemption of the exemption amount for the spouse of the taxpayer if a joint return is not made by the taxpayer and his spouse, and if the spouse, for the calendar year in which the taxable year of the taxpayer begins, has no gross income and is not the dependent of another taxpayer.
(c) Additional exemption for dependents
An exemption of the exemption amount for each individual who is a dependent (as defined in section 152) of the taxpayer for the taxable year.
(d) Exemption amount
For purposes of this section—
(1) In general
Except as otherwise provided in this subsection, the term "exemption amount" means $2,000.
(2) Exemption amount disallowed in case of certain dependents
In the case of an individual with respect to whom a deduction under this section is allowable to another taxpayer for a taxable year beginning in the calendar year in which the individual's taxable year begins, the exemption amount applicable to such individual for such individual's taxable year shall be zero.
(3) Phaseout
(A) In general
In the case of any taxpayer whose adjusted gross income for the taxable year exceeds the applicable amount in effect under section 68(b), the exemption amount shall be reduced by the applicable percentage.
(B) Applicable percentage
For purposes of subparagraph (A), the term "applicable percentage" means 2 percentage points for each $2,500 (or fraction thereof) by which the taxpayer's adjusted gross income for the taxable year exceeds the applicable amount in effect under section 68(b). In the case of a married individual filing a separate return, the preceding sentence shall be applied by substituting "$1,250" for "$2,500". In no event shall the applicable percentage exceed 100 percent.
(C) Coordination with other provisions
The provisions of this paragraph shall not apply for purposes of determining whether a deduction under this section with respect to any individual is allowable to another taxpayer for any taxable year.
(4) Inflation adjustment
Except as provided in paragraph (5), in the case of any taxable year beginning in a calendar year after 1989, the dollar amount contained in paragraph (1) shall be increased by an amount equal to—
(A) such dollar amount, multiplied by
(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, by substituting "calendar year 1988" for "calendar year 2016" in subparagraph (A)(ii) thereof.
(5) Special rules for taxable years 2018 through 2025
In the case of a taxable year beginning after December 31, 2017, and before January 1, 2026—
(A) Exemption amount
The term "exemption amount" means zero.
(B) References
For purposes of any other provision of this title, the reduction of the exemption amount to zero under subparagraph (A) shall not be taken into account in determining whether a deduction is allowed or allowable, or whether a taxpayer is entitled to a deduction, under this section.
(e) Identifying information required
No exemption shall be allowed under this section with respect to any individual unless the TIN of such individual is included on the return claiming the exemption.
(Aug. 16, 1954, ch. 736,
Inflation Adjusted Items for Certain Years
For inflation adjustment of certain items in this section, see Revenue Procedures listed in a table under
Editorial Notes
Amendments
2017—Subsec. (d)(4).
Subsec. (d)(4)(B).
Subsec. (d)(5).
2013—Subsec. (d)(3)(A), (B).
Subsec. (d)(3)(C), (D).
Subsec. (d)(3)(E), (F).
Subsec. (d)(4).
"(i) such dollar amount, multiplied by
"(ii) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, by substituting 'calendar year 1990' for 'calendar year 1992' in subparagraph (B) thereof."
2004—Subsec. (c).
2002—Subsec. (c)(6)(B)(iii).
Subsec. (c)(6)(C).
2001—Subsec. (d)(3)(E), (F). Pub. L. 107—16 added subpars. (E) and (F).
2000—Subsec. (c)(6).
1996—Subsec. (d)(3)(C)(i).
Subsec. (e).
1993—Subsec. (d)(3)(E).
Subsec. (d)(4)(A)(ii), (B)(ii).
1992—Subsec. (d)(3)(E).
1990—Subsec. (d).
"(1)
"(A) $1,900 for taxable years beginning during 1987,
"(B) $1,950 for taxable years beginning during 1988, and
"(C) $2,000 for taxable years beginning after December 31, 1988.
"(2)
"(3)
"(A) such dollar amount, multiplied by
"(B) the cost-of-living adjustment determined under section 1(f)(3), for the calendar year in which the taxable year begins, by substituting 'calendar year 1988' for 'calendar year 1987' in subparagraph (B) thereof."
Subsec. (d)(3)(B).
1988—Subsec. (c)(1)(B)(ii).
1986—Subsec. (c).
Subsec. (d).
Subsec. (e).
Subsec. (f).
1984—Subsec. (e)(5).
1981—Subsecs. (b), (c), (d)(1), (2), (e)(1).
Subsec. (f).
1978—
1976—Subsec. (e)(4).
1971—
1969—
Subsecs. (b), (c),
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Amendment by section 11002(d)(1)(Q) of
"(1)
"(2)
Effective Date of 2013 Amendment
Amendment by
Effective Date of 2004 Amendment
Amendment by
Effective Date of 2002 Amendment
Effective Date of 2001 Amendment
Effective Date of 2000 Amendment
Effective Date of 1996 Amendment
Amendment by section 1615(a)(1) of
Amendment by section 1702(a)(2) of
Effective Date of 1993 Amendment
Amendment by section 13201(b)(3)(G) of
Effective Date of 1990 Amendment
Amendment by section 11101(d)(1)(F) of
Amendment by section 11104(a) of
Effective Date of 1988 Amendment
Effective Date of 1986 Amendment
Amendment by section 103 of
Amendment by section 1847(b)(3) of
Effective Date of 1984 Amendment
Effective Date of 1981 Amendment
Amendment by
Effective Date of 1978 Amendment
Effective Date of 1976 Amendment
Amendment by
Effective Date of 1971 Amendment
Effective Date of 1969 Amendment
Repeals
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
§152. Dependent defined
(a) In general
For purposes of this subtitle, the term "dependent" means—
(1) a qualifying child, or
(2) a qualifying relative.
(b) Exceptions
For purposes of this section—
(1) Dependents ineligible
If an individual is a dependent of a taxpayer for any taxable year of such taxpayer beginning in a calendar year, such individual shall be treated as having no dependents for any taxable year of such individual beginning in such calendar year.
(2) Married dependents
An individual shall not be treated as a dependent of a taxpayer under subsection (a) if such individual has made a joint return with the individual's spouse under section 6013 for the taxable year beginning in the calendar year in which the taxable year of the taxpayer begins.
(3) Citizens or nationals of other countries
(A) In general
The term "dependent" does not include an individual who is not a citizen or national of the United States unless such individual is a resident of the United States or a country contiguous to the United States.
(B) Exception for adopted child
Subparagraph (A) shall not exclude any child of a taxpayer (within the meaning of subsection (f)(1)(B)) from the definition of "dependent" if—
(i) for the taxable year of the taxpayer, the child has the same principal place of abode as the taxpayer and is a member of the taxpayer's household, and
(ii) the taxpayer is a citizen or national of the United States.
(c) Qualifying child
For purposes of this section—
(1) In general
The term "qualifying child" means, with respect to any taxpayer for any taxable year, an individual—
(A) who bears a relationship to the taxpayer described in paragraph (2),
(B) who has the same principal place of abode as the taxpayer for more than one-half of such taxable year,
(C) who meets the age requirements of paragraph (3),
(D) who has not provided over one-half of such individual's own support for the calendar year in which the taxable year of the taxpayer begins, and
(E) who has not filed a joint return (other than only for a claim of refund) with the individual's spouse under section 6013 for the taxable year beginning in the calendar year in which the taxable year of the taxpayer begins.
(2) Relationship
For purposes of paragraph (1)(A), an individual bears a relationship to the taxpayer described in this paragraph if such individual is—
(A) a child of the taxpayer or a descendant of such a child, or
(B) a brother, sister, stepbrother, or stepsister of the taxpayer or a descendant of any such relative.
(3) Age requirements
(A) In general
For purposes of paragraph (1)(C), an individual meets the requirements of this paragraph if such individual is younger than the taxpayer claiming such individual as a qualifying child and—
(i) has not attained the age of 19 as of the close of the calendar year in which the taxable year of the taxpayer begins, or
(ii) is a student who has not attained the age of 24 as of the close of such calendar year.
(B) Special rule for disabled
In the case of an individual who is permanently and totally disabled (as defined in section 22(e)(3)) at any time during such calendar year, the requirements of subparagraph (A) shall be treated as met with respect to such individual.
(4) Special rule relating to 2 or more who can claim the same qualifying child
(A) In general
Except as provided in subparagraphs (B) and (C), if (but for this paragraph) an individual may be claimed as a qualifying child by 2 or more taxpayers for a taxable year beginning in the same calendar year, such individual shall be treated as the qualifying child of the taxpayer who is—
(i) a parent of the individual, or
(ii) if clause (i) does not apply, the taxpayer with the highest adjusted gross income for such taxable year.
(B) More than 1 parent claiming qualifying child
If the parents claiming any qualifying child do not file a joint return together, such child shall be treated as the qualifying child of—
(i) the parent with whom the child resided for the longest period of time during the taxable year, or
(ii) if the child resides with both parents for the same amount of time during such taxable year, the parent with the highest adjusted gross income.
(C) No parent claiming qualifying child
If the parents of an individual may claim such individual as a qualifying child but no parent so claims the individual, such individual may be claimed as the qualifying child of another taxpayer but only if the adjusted gross income of such taxpayer is higher than the highest adjusted gross income of any parent of the individual.
(d) Qualifying relative
For purposes of this section—
(1) In general
The term "qualifying relative" means, with respect to any taxpayer for any taxable year, an individual—
(A) who bears a relationship to the taxpayer described in paragraph (2),
(B) whose gross income for the calendar year in which such taxable year begins is less than the exemption amount (as defined in section 151(d)),
(C) with respect to whom the taxpayer provides over one-half of the individual's support for the calendar year in which such taxable year begins, and
(D) who is not a qualifying child of such taxpayer or of any other taxpayer for any taxable year beginning in the calendar year in which such taxable year begins.
(2) Relationship
For purposes of paragraph (1)(A), an individual bears a relationship to the taxpayer described in this paragraph if the individual is any of the following with respect to the taxpayer:
(A) A child or a descendant of a child.
(B) A brother, sister, stepbrother, or stepsister.
(C) The father or mother, or an ancestor of either.
(D) A stepfather or stepmother.
(E) A son or daughter of a brother or sister of the taxpayer.
(F) A brother or sister of the father or mother of the taxpayer.
(G) A son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law.
(H) An individual (other than an individual who at any time during the taxable year was the spouse, determined without regard to section 7703, of the taxpayer) who, for the taxable year of the taxpayer, has the same principal place of abode as the taxpayer and is a member of the taxpayer's household.
(3) Special rule relating to multiple support agreements
For purposes of paragraph (1)(C), over one-half of the support of an individual for a calendar year shall be treated as received from the taxpayer if—
(A) no one person contributed over one-half of such support,
(B) over one-half of such support was received from 2 or more persons each of whom, but for the fact that any such person alone did not contribute over one-half of such support, would have been entitled to claim such individual as a dependent for a taxable year beginning in such calendar year,
(C) the taxpayer contributed over 10 percent of such support, and
(D) each person described in subparagraph (B) (other than the taxpayer) who contributed over 10 percent of such support files a written declaration (in such manner and form as the Secretary may by regulations prescribe) that such person will not claim such individual as a dependent for any taxable year beginning in such calendar year.
(4) Special rule relating to income of handicapped dependents
(A) In general
For purposes of paragraph (1)(B), the gross income of an individual who is permanently and totally disabled (as defined in section 22(e)(3)) at any time during the taxable year shall not include income attributable to services performed by the individual at a sheltered workshop if—
(i) the availability of medical care at such workshop is the principal reason for the individual's presence there, and
(ii) the income arises solely from activities at such workshop which are incident to such medical care.
(B) Sheltered workshop defined
For purposes of subparagraph (A), the term "sheltered workshop" means a school—
(i) which provides special instruction or training designed to alleviate the disability of the individual, and
(ii) which is operated by an organization described in section 501(c)(3) and exempt from tax under section 501(a), or by a State, a possession of the United States, any political subdivision of any of the foregoing, the United States, or the District of Columbia.
(5) Special rules for support
(A) In general
For purposes of this subsection—
(i) payments to a spouse of alimony or separate maintenance payments shall not be treated as a payment by the payor spouse for the support of any dependent, and
(ii) in the case of the remarriage of a parent, support of a child received from the parent's spouse shall be treated as received from the parent.
(B) Alimony or separate maintenance payment
For purposes of subparagraph (A), the term "alimony or separate maintenance payment" means any payment in cash if—
(i) such payment is received by (or on behalf of) a spouse under a divorce or separation instrument (as defined in section 121(d)(3)(C)),
(ii) in the case of an individual legally separated from the individual's spouse under a decree of divorce or of separate maintenance, the payee spouse and the payor spouse are not members of the same household at the time such payment is made, and
(iii) there is no liability to make any such payment for any period after the death of the payee spouse and there is no liability to make any payment (in cash or property) as a substitute for such payments after the death of the payee spouse.
(e) Special rule for divorced parents, etc.
(1) In general
Notwithstanding subsection (c)(1)(B), (c)(4), or (d)(1)(C), if—
(A) a child receives over one-half of the child's support during the calendar year from the child's parents—
(i) who are divorced or legally separated under a decree of divorce or separate maintenance,
(ii) who are separated under a written separation agreement, or
(iii) who live apart at all times during the last 6 months of the calendar year, and—
(B) such child is in the custody of 1 or both of the child's parents for more than one-half of the calendar year, such child shall be treated as being the qualifying child or qualifying relative of the noncustodial parent for a calendar year if the requirements described in paragraph (2) or (3) are met.
(2) Exception where custodial parent releases claim to exemption for the year
For purposes of paragraph (1), the requirements described in this paragraph are met with respect to any calendar year if—
(A) the custodial parent signs a written declaration (in such manner and form as the Secretary may by regulations prescribe) that such custodial parent will not claim such child as a dependent for any taxable year beginning in such calendar year, and
(B) the noncustodial parent attaches such written declaration to the noncustodial parent's return for the taxable year beginning during such calendar year.
(3) Exception for certain pre-1985 instruments
(A) In general
For purposes of paragraph (1), the requirements described in this paragraph are met with respect to any calendar year if—
(i) a qualified pre-1985 instrument between the parents applicable to the taxable year beginning in such calendar year provides that the noncustodial parent shall be entitled to any deduction allowable under section 151 for such child, and
(ii) the noncustodial parent provides at least $600 for the support of such child during such calendar year.
For purposes of this subparagraph, amounts expended for the support of a child or children shall be treated as received from the noncustodial parent to the extent that such parent provided amounts for such support.
(B) Qualified pre-1985 instrument
For purposes of this paragraph, the term "qualified pre-1985 instrument" means any decree of divorce or separate maintenance or written agreement—
(i) which is executed before January 1, 1985,
(ii) which on such date contains the provision described in subparagraph (A)(i), and
(iii) which is not modified on or after such date in a modification which expressly provides that this paragraph shall not apply to such decree or agreement.
(4) Custodial parent and noncustodial parent
For purposes of this subsection—
(A) Custodial parent
The term "custodial parent" means the parent having custody for the greater portion of the calendar year.
(B) Noncustodial parent
The term "noncustodial parent" means the parent who is not the custodial parent.
(5) Exception for multiple-support agreement
This subsection shall not apply in any case where over one-half of the support of the child is treated as having been received from a taxpayer under the provision of subsection (d)(3).
(6) Special rule for support received from new spouse of parent
For purposes of this subsection, in the case of the remarriage of a parent, support of a child received from the parent's spouse shall be treated as received from the parent.
(f) Other definitions and rules
For purposes of this section—
(1) Child defined
(A) In general
The term "child" means an individual who is—
(i) a son, daughter, stepson, or stepdaughter of the taxpayer, or
(ii) an eligible foster child of the taxpayer.
(B) Adopted child
In determining whether any of the relationships specified in subparagraph (A)(i) or paragraph (4) exists, a legally adopted individual of the taxpayer, or an individual who is lawfully placed with the taxpayer for legal adoption by the taxpayer, shall be treated as a child of such individual by blood.
(C) Eligible foster child
For purposes of subparagraph (A)(ii), the term "eligible foster child" means an individual who is placed with the taxpayer by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction.
(2) Student defined
The term "student" means an individual who during each of 5 calendar months during the calendar year in which the taxable year of the taxpayer begins—
(A) is a full-time student at an educational organization described in section 170(b)(1)(A)(ii), or
(B) is pursuing a full-time course of institutional on-farm training under the supervision of an accredited agent of an educational organization described in section 170(b)(1)(A)(ii) or of a State or political subdivision of a State.
(3) Determination of household status
An individual shall not be treated as a member of the taxpayer's household if at any time during the taxable year of the taxpayer the relationship between such individual and the taxpayer is in violation of local law.
(4) Brother and sister
The terms "brother" and "sister" include a brother or sister by the half blood.
(5) Special support test in case of students
For purposes of subsections (c)(1)(D) and (d)(1)(C), in the case of an individual who is—
(A) a child of the taxpayer, and
(B) a student,
amounts received as scholarships for study at an educational organization described in section 170(b)(1)(A)(ii) shall not be taken into account.
(6) Treatment of missing children
(A) In general
Solely for the purposes referred to in subparagraph (B), a child of the taxpayer—
(i) who is presumed by law enforcement authorities to have been kidnapped by someone who is not a member of the family of such child or the taxpayer, and
(ii) who had, for the taxable year in which the kidnapping occurred, the same principal place of abode as the taxpayer for more than one-half of the portion of such year before the date of the kidnapping,
shall be treated as meeting the requirement of subsection (c)(1)(B) with respect to a taxpayer for all taxable years ending during the period that the child is kidnapped.
(B) Purposes
Subparagraph (A) shall apply solely for purposes of determining—
(i) the deduction under section 151(c),
(ii) the credit under section 24 (relating to child tax credit),
(iii) whether an individual is a surviving spouse or a head of a household (as such terms are defined in section 2), and
(iv) the earned income credit under section 32.
(C) Comparable treatment of certain qualifying relatives
For purposes of this section, a child of the taxpayer—
(i) who is presumed by law enforcement authorities to have been kidnapped by someone who is not a member of the family of such child or the taxpayer, and
(ii) who was (without regard to this paragraph) a qualifying relative of the taxpayer for the portion of the taxable year before the date of the kidnapping,
shall be treated as a qualifying relative of the taxpayer for all taxable years ending during the period that the child is kidnapped.
(D) Termination of treatment
Subparagraphs (A) and (C) shall cease to apply as of the first taxable year of the taxpayer beginning after the calendar year in which there is a determination that the child is dead (or, if earlier, in which the child would have attained age 18).
(7) Cross references
For provision treating child as dependent of both parents for purposes of certain provisions, see sections 105(b), 132(h)(2)(B), and 213(d)(5).
(Aug. 16, 1954, ch. 736,
Inflation Adjusted Items for Certain Years
For inflation adjustment of certain items in this section, see Revenue Procedures listed in a table under
Editorial Notes
Amendments
2017—Subsec. (d)(5).
"(A) payments to a spouse which are includible in the gross income of such spouse under section 71 or 682 shall not be treated as a payment by the payor spouse for the support of any dependent, and
"(B) in the case of the remarriage of a parent, support of a child received from the parent's spouse shall be treated as received from the parent."
2008—Subsec. (c)(1)(E).
Subsec. (c)(3)(A).
Subsec. (c)(4).
Subsec. (c)(4)(A).
Subsec. (c)(4)(C).
2005—Subsec. (e).
2004—
1986—Subsec. (a)(9).
Subsec. (d)(2).
Subsec. (e)(1)(A).
1984—Subsec. (e).
Subsec. (e)(6).
1976—Subsec. (a)(9).
Subsec. (a)(10).
Subsec. (b)(3).
Subsec. (c)(4).
Subsec. (d).
Subsec. (e)(2)(B)(i).
Subsec. (e)(3), (5).
1972—Subsec. (b)(3).
1969—Subsec. (b)(2).
1967—Subsec. (a).
Subsec. (e).
1959—Subsec. (b)(2).
1958—Subsec. (a)(9).
Subsec. (b)(3).
Subsec. (b)(5).
1955—Subsec. (b)(3). Act Aug. 9, 1955, substituted "January 1, 1956" for "July 5, 1946".
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Amendment by
Effective Date of 2008 Amendment
Amendment by
Effective Date of 2005 Amendment
Amendment by
Effective Date of 2004 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 104(b)(1)(B), (3) of
Amendment by section 1301(j)(8) of
Effective Date of 1984 Amendment
Amendment by section 423(a) of
Amendment by section 482(b)(2) of
Effective Date of 1976 Amendment
Amendment by section 1901(a)(24), (b)(7)(B), (8)(A) of
Effective Date of 1972 Amendment
Effective Date of 1969 Amendment
Effective Date of 1967 Amendment
Effective Date of 1959 Amendment
Effective Date of 1958 Amendment
Amendment by section 4(a), (c) of
Effective Date of 1955 Amendment
Act Aug. 9, 1955, ch. 693, §3(b),
§153. Cross references
(1) For deductions of estates and trusts, in lieu of the exemptions under section 151, see section 642(b).
(2) For exemptions of nonresident aliens, see section 873(b)(3).
(3) For determination of marital status, see section 7703.
(Aug. 16, 1954, ch. 736,
Editorial Notes
Prior Provisions
A prior section 153, act Aug. 16, 1954, ch. 736,
Amendments
2004—Pars. (1) to (4).
1986—Par. (4).
Par. (5).
1976—Par. (5).
1966—Par. (3).
Statutory Notes and Related Subsidiaries
Effective Date of 2004 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 1272(d)(7) of
Amendment by section 1301(j)(8) of
Effective Date of 1976 Amendment
Amendment by
Effective Date of 1966 Amendment
Amendment by
PART VI—ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
Editorial Notes
Amendments
2017—
2015—
2014—
2008—
2006—
2005—
2004—
1997—
1993—
1992—
1990—
1986—
1984—
1983—
1982—
1981—
1980—
1978—
1977—
1976—
1971—
1969—
1964—
1962—
1960—
1958—
1956—Act June 29, 1956, ch. 464, §4(b),
1954—Act Sept. 1, 1954, ch. 1206, title II, §210(b),
1 Section 191 was repealed by
§161. Allowance of deductions
In computing taxable income under section 63, there shall be allowed as deductions the items specified in this part, subject to the exceptions provided in part IX (sec. 261 and following, relating to items not deductible).
(Aug. 16, 1954, ch. 736,
Editorial Notes
Amendments
1977—
Statutory Notes and Related Subsidiaries
Effective Date of 1977 Amendment
Amendment by
§162. Trade or business expenses
(a) In general
There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including—
(1) a reasonable allowance for salaries or other compensation for personal services actually rendered;
(2) traveling expenses (including amounts expended for meals and lodging other than amounts which are lavish or extravagant under the circumstances) while away from home in the pursuit of a trade or business; and
(3) rentals or other payments required to be made as a condition to the continued use or possession, for purposes of the trade or business, of property to which the taxpayer has not taken or is not taking title or in which he has no equity.
For purposes of the preceding sentence, the place of residence of a Member of Congress (including any Delegate and Resident Commissioner) within the State, congressional district, or possession which he represents in Congress shall be considered his home, but amounts expended by such Members within each taxable year for living expenses shall not be deductible for income tax purposes. For purposes of paragraph (2), the taxpayer shall not be treated as being temporarily away from home during any period of employment if such period exceeds 1 year. The preceding sentence shall not apply to any Federal employee during any period for which such employee is certified by the Attorney General (or the designee thereof) as traveling on behalf of the United States in temporary duty status to investigate or prosecute, or provide support services for the investigation or prosecution of, a Federal crime.
(b) Charitable contributions and gifts excepted
No deduction shall be allowed under subsection (a) for any contribution or gift which would be allowable as a deduction under section 170 were it not for the percentage limitations, the dollar limitations, or the requirements as to the time of payment, set forth in such section.
(c) Illegal bribes, kickbacks, and other payments
(1) Illegal payments to government officials or employees
No deduction shall be allowed under subsection (a) for any payment made, directly or indirectly, to an official or employee of any government, or of any agency or instrumentality of any government, if the payment constitutes an illegal bribe or kickback or, if the payment is to an official or employee of a foreign government, the payment is unlawful under the Foreign Corrupt Practices Act of 1977. The burden of proof in respect of the issue, for the purposes of this paragraph, as to whether a payment constitutes an illegal bribe or kickback (or is unlawful under the Foreign Corrupt Practices Act of 1977) shall be upon the Secretary to the same extent as he bears the burden of proof under section 7454 (concerning the burden of proof when the issue relates to fraud).
(2) Other illegal payments
No deduction shall be allowed under subsection (a) for any payment (other than a payment described in paragraph (1)) made, directly or indirectly, to any person, if the payment constitutes an illegal bribe, illegal kickback, or other illegal payment under any law of the United States, or under any law of a State (but only if such State law is generally enforced), which subjects the payor to a criminal penalty or the loss of license or privilege to engage in a trade or business. For purposes of this paragraph, a kickback includes a payment in consideration of the referral of a client, patient, or customer. The burden of proof in respect of the issue, for purposes of this paragraph, as to whether a payment constitutes an illegal bribe, illegal kickback, or other illegal payment shall be upon the Secretary to the same extent as he bears the burden of proof under section 7454 (concerning the burden of proof when the issue relates to fraud).
(3) Kickbacks, rebates, and bribes under medicare and medicaid
No deduction shall be allowed under subsection (a) for any kickback, rebate, or bribe made by any provider of services, supplier, physician, or other person who furnishes items or services for which payment is or may be made under the Social Security Act, or in whole or in part out of Federal funds under a State plan approved under such Act, if such kickback, rebate, or bribe is made in connection with the furnishing of such items or services or the making or receipt of such payments. For purposes of this paragraph, a kickback includes a payment in consideration of the referral of a client, patient, or customer.
(d) Capital contributions to Federal National Mortgage Association
For purposes of this subtitle, whenever the amount of capital contributions evidenced by a share of stock issued pursuant to section 303(c) of the Federal National Mortgage Association Charter Act (
(e) Denial of deduction for certain lobbying and political expenditures
(1) In general
No deduction shall be allowed under subsection (a) for any amount paid or incurred in connection with—
(A) influencing legislation,
(B) participation in, or intervention in, any political campaign on behalf of (or in opposition to) any candidate for public office,
(C) any attempt to influence the general public, or segments thereof, with respect to elections, legislative matters, or referendums, or
(D) any direct communication with a covered executive branch official in an attempt to influence the official actions or positions of such official.
(2) Application to dues of tax-exempt organizations
No deduction shall be allowed under subsection (a) for the portion of dues or other similar amounts paid by the taxpayer to an organization which is exempt from tax under this subtitle which the organization notifies the taxpayer under section 6033(e)(1)(A)(ii) is allocable to expenditures to which paragraph (1) applies.
(3) Influencing legislation
For purposes of this subsection—
(A) In general
The term "influencing legislation" means any attempt to influence any legislation through communication with any member or employee of a legislative body, or with any government official or employee who may participate in the formulation of legislation.
(B) Legislation
The term "legislation" has the meaning given such term by section 4911(e)(2).
(4) Other special rules
(A) Exception for certain taxpayers
In the case of any taxpayer engaged in the trade or business of conducting activities described in paragraph (1), paragraph (1) shall not apply to expenditures of the taxpayer in conducting such activities directly on behalf of another person (but shall apply to payments by such other person to the taxpayer for conducting such activities).
(B) De minimis exception
(i) In general
Paragraph (1) shall not apply to any in-house expenditures for any taxable year if such expenditures do not exceed $2,000. In determining whether a taxpayer exceeds the $2,000 limit under this clause, there shall not be taken into account overhead costs otherwise allocable to activities described in paragraphs (1)(A) and (D).
(ii) In-house expenditures
For purposes of clause (i), the term "in-house expenditures" means expenditures described in paragraphs (1)(A) and (D) other than—
(I) payments by the taxpayer to a person engaged in the trade or business of conducting activities described in paragraph (1) for the conduct of such activities on behalf of the taxpayer, or
(II) dues or other similar amounts paid or incurred by the taxpayer which are allocable to activities described in paragraph (1).
(C) Expenses incurred in connection with lobbying and political activities
Any amount paid or incurred for research for, or preparation, planning, or coordination of, any activity described in paragraph (1) shall be treated as paid or incurred in connection with such activity.
(5) Covered executive branch official
For purposes of this subsection, the term "covered executive branch official" means—
(A) the President,
(B) the Vice President,
(C) any officer or employee of the White House Office of the Executive Office of the President, and the 2 most senior level officers of each of the other agencies in such Executive Office, and
(D)(i) any individual serving in a position in level I of the Executive Schedule under
(6) Cross reference
For reporting requirements and alternative taxes related to this subsection, see section 6033(e).
(f) Fines, penalties, and other amounts
(1) In general
Except as provided in the following paragraphs of this subsection, no deduction otherwise allowable shall be allowed under this chapter for any amount paid or incurred (whether by suit, agreement, or otherwise) to, or at the direction of, a government or governmental entity in relation to the violation of any law or the investigation or inquiry by such government or entity into the potential violation of any law.
(2) Exception for amounts constituting restitution or paid to come into compliance with law
(A) In general
Paragraph (1) shall not apply to any amount that—
(i) the taxpayer establishes—
(I) constitutes restitution (including remediation of property) for damage or harm which was or may be caused by the violation of any law or the potential violation of any law, or
(II) is paid to come into compliance with any law which was violated or otherwise involved in the investigation or inquiry described in paragraph (1),
(ii) is identified as restitution or as an amount paid to come into compliance with such law, as the case may be, in the court order or settlement agreement, and
(iii) in the case of any amount of restitution for failure to pay any tax imposed under this title in the same manner as if such amount were such tax, would have been allowed as a deduction under this chapter if it had been timely paid.
The identification under clause (ii) alone shall not be sufficient to make the establishment required under clause (i).
(B) Limitation
Subparagraph (A) shall not apply to any amount paid or incurred as reimbursement to the government or entity for the costs of any investigation or litigation.
(3) Exception for amounts paid or incurred as the result of certain court orders
Paragraph (1) shall not apply to any amount paid or incurred by reason of any order of a court in a suit in which no government or governmental entity is a party.
(4) Exception for taxes due
Paragraph (1) shall not apply to any amount paid or incurred as taxes due.
(5) Treatment of certain nongovernmental regulatory entities
For purposes of this subsection, the following nongovernmental entities shall be treated as governmental entities:
(A) Any nongovernmental entity which exercises self-regulatory powers (including imposing sanctions) in connection with a qualified board or exchange (as defined in section 1256(g)(7)).
(B) To the extent provided in regulations, any nongovernmental entity which exercises self-regulatory powers (including imposing sanctions) as part of performing an essential governmental function.
(g) Treble damage payments under the antitrust laws
If in a criminal proceeding a taxpayer is convicted of a violation of the antitrust laws, or his plea of guilty or nolo contendere to an indictment or information charging such a violation is entered or accepted in such a proceeding, no deduction shall be allowed under subsection (a) for two-thirds of any amount paid or incurred—
(1) on any judgment for damages entered against the taxpayer under section 4 of the Act entitled "An Act to supplement existing laws against unlawful restraints and monopolies, and for other purposes", approved October 15, 1914 (commonly known as the Clayton Act), on account of such violation or any related violation of the antitrust laws which occurred prior to the date of the final judgment of such conviction, or
(2) in settlement of any action brought under such section 4 on account of such violation or related violation.
(h) State legislators' travel expenses away from home
(1) In general
For purposes of subsection (a), in the case of any individual who is a State legislator at any time during the taxable year and who makes an election under this subsection for the taxable year—
(A) the place of residence of such individual within the legislative district which he represented shall be considered his home,
(B) he shall be deemed to have expended for living expenses (in connection with his trade or business as a legislator) an amount equal to the sum of the amounts determined by multiplying each legislative day of such individual during the taxable year by the greater of—
(i) the amount generally allowable with respect to such day to employees of the State of which he is a legislator for per diem while away from home, to the extent such amount does not exceed 110 percent of the amount described in clause (ii) with respect to such day, or
(ii) the amount generally allowable with respect to such day to employees of the executive branch of the Federal Government for per diem while away from home but serving in the United States, and
(C) he shall be deemed to be away from home in the pursuit of a trade or business on each legislative day.
(2) Legislative days
For purposes of paragraph (1), a legislative day during any taxable year for any individual shall be any day during such year on which—
(A) the legislature was in session (including any day in which the legislature was not in session for a period of 4 consecutive days or less), or
(B) the legislature was not in session but the physical presence of the individual was formally recorded at a meeting of a committee of such legislature.
(3) Election
An election under this subsection for any taxable year shall be made at such time and in such manner as the Secretary shall by regulations prescribe.
(4) Section not to apply to legislators who reside near capitol
This subsection shall not apply to any legislator whose place of residence within the legislative district which he represents is 50 or fewer miles from the capitol building of the State.
[(i) Repealed. Pub. L. 101–239, title VI, §6202(b)(3)(A), Dec. 19, 1989, 103 Stat. 2233 ]
(j) Certain foreign advertising expenses
(1) In general
No deduction shall be allowed under subsection (a) for any expenses of an advertisement carried by a foreign broadcast undertaking and directed primarily to a market in the United States. This paragraph shall apply only to foreign broadcast undertakings located in a country which denies a similar deduction for the cost of advertising directed primarily to a market in the foreign country when placed with a United States broadcast undertaking.
(2) Broadcast undertaking
For purposes of paragraph (1), the term "broadcast undertaking" includes (but is not limited to) radio and television stations.
(k) Stock reacquisition expenses
(1) In general
Except as provided in paragraph (2), no deduction otherwise allowable shall be allowed under this chapter for any amount paid or incurred by a corporation in connection with the reacquisition of its stock or of the stock of any related person (as defined in section 465(b)(3)(C)).
(2) Exceptions
Paragraph (1) shall not apply to—
(A) Certain specific deductions
Any—
(i) deduction allowable under section 163 (relating to interest),
(ii) deduction for amounts which are properly allocable to indebtedness and amortized over the term of such indebtedness, or
(iii) deduction for dividends paid (within the meaning of section 561).
(B) Stock of certain regulated investment companies
Any amount paid or incurred in connection with the redemption of any stock in a regulated investment company which issues only stock which is redeemable upon the demand of the shareholder.
(l) Special rules for health insurance costs of self-employed individuals
(1) Allowance of deduction
In the case of a taxpayer who is an employee within the meaning of section 401(c)(1), there shall be allowed as a deduction under this section an amount equal to the amount paid during the taxable year for insurance which constitutes medical care for—
(A) the taxpayer,
(B) the taxpayer's spouse,
(C) the taxpayer's dependents, and
(D) any child (as defined in section 152(f)(1)) of the taxpayer who as of the end of the taxable year has not attained age 27.
(2) Limitations
(A) Dollar amount
No deduction shall be allowed under paragraph (1) to the extent that the amount of such deduction exceeds the taxpayer's earned income (within the meaning of section 401(c)) derived by the taxpayer from the trade or business with respect to which the plan providing the medical care coverage is established.
(B) Other coverage
Paragraph (1) shall not apply to any taxpayer for any calendar month for which the taxpayer is eligible to participate in any subsidized health plan maintained by any employer of the taxpayer or of the spouse of, or any dependent, or individual described in subparagraph (D) of paragraph (1) with respect to, the taxpayer. The preceding sentence shall be applied separately with respect to—
(i) plans which include coverage for qualified long-term care services (as defined in section 7702B(c)) or are qualified long-term care insurance contracts (as defined in section 7702B(b)), and
(ii) plans which do not include such coverage and are not such contracts.
(C) Long-term care premiums
In the case of a qualified long-term care insurance contract (as defined in section 7702B(b)), only eligible long-term care premiums (as defined in section 213(d)(10)) shall be taken into account under paragraph (1).
(3) Coordination with medical deduction
Any amount paid by a taxpayer for insurance to which paragraph (1) applies shall not be taken into account in computing the amount allowable to the taxpayer as a deduction under section 213(a).
(4) Deduction not allowed for self-employment tax purposes
The deduction allowable by reason of this subsection shall not be taken into account in determining an individual's net earnings from self-employment (within the meaning of section 1402(a)) for purposes of
(5) Treatment of certain S corporation shareholders
This subsection shall apply in the case of any individual treated as a partner under section 1372(a), except that—
(A) for purposes of this subsection, such individual's wages (as defined in section 3121) from the S corporation shall be treated as such individual's earned income (within the meaning of section 401(c)(1)), and
(B) there shall be such adjustments in the application of this subsection as the Secretary may by regulations prescribe.
(m) Certain excessive employee remuneration
(1) In general
In the case of any publicly held corporation, no deduction shall be allowed under this chapter for applicable employee remuneration with respect to any covered employee to the extent that the amount of such remuneration for the taxable year with respect to such employee exceeds $1,000,000.
(2) Publicly held corporation
For purposes of this subsection, the term "publicly held corporation" means any corporation which is an issuer (as defined in section 3 of the Securities Exchange Act of 1934 (
(A) the securities of which are required to be registered under section 12 of such Act (
(B) that is required to file reports under section 15(d) of such Act (
(3) Covered employee
For purposes of this subsection, the term "covered employee" means any employee of the taxpayer if—
(A) such employee is the principal executive officer or principal financial officer of the taxpayer at any time during the taxable year, or was an individual acting in such a capacity,
(B) the total compensation of such employee for the taxable year is required to be reported to shareholders under the Securities Exchange Act of 1934 by reason of such employee being among the 3 highest compensated officers for the taxable year (other than any individual described in subparagraph (A)),
(C) in the case of taxable years beginning after December 31, 2026, such employee is among the 5 highest compensated employees for the taxable year other than any individual described in subparagraph (A) or (B), or
(D) was a covered employee described in subparagraph (A) or (B) of the taxpayer (or any predecessor) for any preceding taxable year beginning after December 31, 2016.
Such term shall include any employee who would be described in subparagraph (B) if the reporting described in such subparagraph were required as so described.
(4) Applicable employee remuneration
For purposes of this subsection—
(A) In general
Except as otherwise provided in this paragraph, the term "applicable employee remuneration" means, with respect to any covered employee for any taxable year, the aggregate amount allowable as a deduction under this chapter for such taxable year (determined without regard to this subsection) for remuneration for services performed by such employee (whether or not during the taxable year).
(B) Exception for existing binding contracts
The term "applicable employee remuneration" shall not include any remuneration payable under a written binding contract which was in effect on February 17, 1993, and which was not modified thereafter in any material respect before such remuneration is paid.
(C) Remuneration
For purposes of this paragraph, the term "remuneration" includes any remuneration (including benefits) in any medium other than cash, but shall not include—
(i) any payment referred to in so much of section 3121(a)(5) as precedes subparagraph (E) thereof, and
(ii) any benefit provided to or on behalf of an employee if at the time such benefit is provided it is reasonable to believe that the employee will be able to exclude such benefit from gross income under this chapter.
For purposes of clause (i), section 3121(a)(5) shall be applied without regard to section 3121(v)(1).
(D) Coordination with disallowed golden parachute payments
The dollar limitation contained in paragraph (1) shall be reduced (but not below zero) by the amount (if any) which would have been included in the applicable employee remuneration of the covered employee for the taxable year but for being disallowed under section 280G.
(E) Coordination with excise tax on specified stock compensation
The dollar limitation contained in paragraph (1) with respect to any covered employee shall be reduced (but not below zero) by the amount of any payment (with respect to such employee) of the tax imposed by section 4985 directly or indirectly by the expatriated corporation (as defined in such section) or by any member of the expanded affiliated group (as defined in such section) which includes such corporation.
(F) Special rule for remuneration paid to beneficiaries, etc.
Remuneration shall not fail to be applicable employee remuneration merely because it is includible in the income of, or paid to, a person other than the covered employee, including after the death of the covered employee.
(5) Special rule for application to employers participating in the Troubled Assets Relief Program
(A) In general
In the case of an applicable employer, no deduction shall be allowed under this chapter—
(i) in the case of executive remuneration for any applicable taxable year which is attributable to services performed by a covered executive during such applicable taxable year, to the extent that the amount of such remuneration exceeds $500,000, or
(ii) in the case of deferred deduction executive remuneration for any taxable year for services performed during any applicable taxable year by a covered executive, to the extent that the amount of such remuneration exceeds $500,000 reduced (but not below zero) by the sum of—
(I) the executive remuneration for such applicable taxable year, plus
(II) the portion of the deferred deduction executive remuneration for such services which was taken into account under this clause in a preceding taxable year.
(B) Applicable employer
For purposes of this paragraph—
(i) In general
Except as provided in clause (ii), the term "applicable employer" means any employer from whom 1 or more troubled assets are acquired under a program established by the Secretary under section 101(a) of the Emergency Economic Stabilization Act of 2008 if the aggregate amount of the assets so acquired for all taxable years exceeds $300,000,000.
(ii) Disregard of certain assets sold through direct purchase
If the only sales of troubled assets by an employer under the program described in clause (i) are through 1 or more direct purchases (within the meaning of section 113(c) of the Emergency Economic Stabilization Act of 2008), such assets shall not be taken into account under clause (i) in determining whether the employer is an applicable employer for purposes of this paragraph.
(iii) Aggregation rules
Two or more persons who are treated as a single employer under subsection (b) or (c) of section 414 shall be treated as a single employer, except that in applying section 1563(a) for purposes of either such subsection, paragraphs (2) and (3) thereof shall be disregarded.
(C) Applicable taxable year
For purposes of this paragraph, the term "applicable taxable year" means, with respect to any employer—
(i) the first taxable year of the employer—
(I) which includes any portion of the period during which the authorities under section 101(a) of the Emergency Economic Stabilization Act of 2008 are in effect (determined under section 120 thereof), and
(II) in which the aggregate amount of troubled assets acquired from the employer during the taxable year pursuant to such authorities (other than assets to which subparagraph (B)(ii) applies), when added to the aggregate amount so acquired for all preceding taxable years, exceeds $300,000,000, and
(ii) any subsequent taxable year which includes any portion of such period.
(D) Covered executive
For purposes of this paragraph—
(i) In general
The term "covered executive" means, with respect to any applicable taxable year, any employee—
(I) who, at any time during the portion of the taxable year during which the authorities under section 101(a) of the Emergency Economic Stabilization Act of 2008 are in effect (determined under section 120 thereof), is the chief executive officer of the applicable employer or the chief financial officer of the applicable employer, or an individual acting in either such capacity, or
(II) who is described in clause (ii).
(ii) Highest compensated employees
An employee is described in this clause if the employee is 1 of the 3 highest compensated officers of the applicable employer for the taxable year (other than an individual described in clause (i)(I)), determined—
(I) on the basis of the shareholder disclosure rules for compensation under the Securities Exchange Act of 1934 (without regard to whether those rules apply to the employer), and
(II) by only taking into account employees employed during the portion of the taxable year described in clause (i)(I).
(iii) Employee remains covered executive
If an employee is a covered executive with respect to an applicable employer for any applicable taxable year, such employee shall be treated as a covered executive with respect to such employer for all subsequent applicable taxable years and for all subsequent taxable years in which deferred deduction executive remuneration with respect to services performed in all such applicable taxable years would (but for this paragraph) be deductible.
(E) Executive remuneration
For purposes of this paragraph, the term "executive remuneration" means the applicable employee remuneration of the covered executive, as determined under paragraph (4) without regard to subparagraph (B) thereof. Such term shall not include any deferred deduction executive remuneration with respect to services performed in a prior applicable taxable year.
(F) Deferred deduction executive remuneration
For purposes of this paragraph, the term "deferred deduction executive remuneration" means remuneration which would be executive remuneration for services performed in an applicable taxable year but for the fact that the deduction under this chapter (determined without regard to this paragraph) for such remuneration is allowable in a subsequent taxable year.
(G) Coordination
Rules similar to the rules of subparagraphs (D) and (E) of paragraph (4) shall apply for purposes of this paragraph.
(H) Regulatory authority
The Secretary may prescribe such guidance, rules, or regulations as are necessary to carry out the purposes of this paragraph and the Emergency Economic Stabilization Act of 2008, including the extent to which this paragraph applies in the case of any acquisition, merger, or reorganization of an applicable employer.
(6) Special rule for application to certain health insurance providers
(A) In general
No deduction shall be allowed under this chapter—
(i) in the case of applicable individual remuneration which is for any disqualified taxable year beginning after December 31, 2012, and which is attributable to services performed by an applicable individual during such taxable year, to the extent that the amount of such remuneration exceeds $500,000, or
(ii) in the case of deferred deduction remuneration for any taxable year beginning after December 31, 2012, which is attributable to services performed by an applicable individual during any disqualified taxable year beginning after December 31, 2009, to the extent that the amount of such remuneration exceeds $500,000 reduced (but not below zero) by the sum of—
(I) the applicable individual remuneration for such disqualified taxable year, plus
(II) the portion of the deferred deduction remuneration for such services which was taken into account under this clause in a preceding taxable year (or which would have been taken into account under this clause in a preceding taxable year if this clause were applied by substituting "December 31, 2009" for "December 31, 2012" in the matter preceding subclause (I)).
(B) Disqualified taxable year
For purposes of this paragraph, the term "disqualified taxable year" means, with respect to any employer, any taxable year for which such employer is a covered health insurance provider.
(C) Covered health insurance provider
For purposes of this paragraph—
(i) In general
The term "covered health insurance provider" means—
(I) with respect to taxable years beginning after December 31, 2009, and before January 1, 2013, any employer which is a health insurance issuer (as defined in section 9832(b)(2)) and which receives premiums from providing health insurance coverage (as defined in section 9832(b)(1)), and
(II) with respect to taxable years beginning after December 31, 2012, any employer which is a health insurance issuer (as defined in section 9832(b)(2)) and with respect to which not less than 25 percent of the gross premiums received from providing health insurance coverage (as defined in section 9832(b)(1)) is from minimum essential coverage (as defined in section 5000A(f)).
(ii) Aggregation rules
Two or more persons who are treated as a single employer under subsection (b), (c), (m), or (o) of section 414 shall be treated as a single employer, except that in applying section 1563(a) for purposes of any such subsection, paragraphs (2) and (3) thereof shall be disregarded.
(D) Applicable individual remuneration
For purposes of this paragraph, the term "applicable individual remuneration" means, with respect to any applicable individual for any disqualified taxable year, the aggregate amount allowable as a deduction under this chapter for such taxable year (determined without regard to this subsection) for remuneration (as defined in paragraph (4) without regard to subparagraph (B) thereof) for services performed by such individual (whether or not during the taxable year). Such term shall not include any deferred deduction remuneration with respect to services performed during the disqualified taxable year.
(E) Deferred deduction remuneration
For purposes of this paragraph, the term "deferred deduction remuneration" means remuneration which would be applicable individual remuneration for services performed in a disqualified taxable year but for the fact that the deduction under this chapter (determined without regard to this paragraph) for such remuneration is allowable in a subsequent taxable year.
(F) Applicable individual
For purposes of this paragraph, the term "applicable individual" means, with respect to any covered health insurance provider for any disqualified taxable year, any individual—
(i) who is an officer, director, or employee in such taxable year, or
(ii) who provides services for or on behalf of such covered health insurance provider during such taxable year.
(G) Coordination
Rules similar to the rules of subparagraphs (D) and (E) of paragraph (4) shall apply for purposes of this paragraph.
(H) Regulatory authority
The Secretary may prescribe such guidance, rules, or regulations as are necessary to carry out the purposes of this paragraph.
(n) Special rule for certain group health plans
(1) In general
No deduction shall be allowed under this chapter to an employer for any amount paid or incurred in connection with a group health plan if the plan does not reimburse for inpatient hospital care services provided in the State of New York—
(A) except as provided in subparagraphs (B) and (C), at the same rate as licensed commercial insurers are required to reimburse hospitals for such services when such reimbursement is not through such a plan,
(B) in the case of any reimbursement through a health maintenance organization, at the same rate as health maintenance organizations are required to reimburse hospitals for such services for individuals not covered by such a plan (determined without regard to any government-supported individuals exempt from such rate), or
(C) in the case of any reimbursement through any corporation organized under Article 43 of the New York State Insurance Law, at the same rate as any such corporation is required to reimburse hospitals for such services for individuals not covered by such a plan.
(2) State law exception
Paragraph (1) shall not apply to any group health plan which is not required under the laws of the State of New York (determined without regard to this subsection or other provisions of Federal law) to reimburse at the rates provided in paragraph (1).
(3) Group health plan
For purposes of this subsection, the term "group health plan" means a plan of, or contributed to by, an employer or employee organization (including a self-insured plan) to provide health care (directly or otherwise) to any employee, any former employee, the employer, or any other individual associated or formerly associated with the employer in a business relationship, or any member of their family.
(o) Treatment of certain expenses of rural mail carriers
(1) General rule
In the case of any employee of the United States Postal Service who performs services involving the collection and delivery of mail on a rural route and who receives qualified reimbursements for the expenses incurred by such employee for the use of a vehicle in performing such services—
(A) the amount allowable as a deduction under this chapter for the use of a vehicle in performing such services shall be equal to the amount of such qualified reimbursements; and
(B) such qualified reimbursements shall be treated as paid under a reimbursement or other expense allowance arrangement for purposes of section 62(a)(2)(A) (and section 62(c) shall not apply to such qualified reimbursements).
(2) Special rule where expenses exceed reimbursements
Notwithstanding paragraph (1)(A), if the expenses incurred by an employee for the use of a vehicle in performing services described in paragraph (1) exceed the qualified reimbursements for such expenses, such excess shall be taken into account in computing the miscellaneous itemized deductions of the employee under section 67.
(3) Definition of qualified reimbursements
For purposes of this subsection, the term "qualified reimbursements" means the amounts paid by the United States Postal Service to employees as an equipment maintenance allowance under the 1991 collective bargaining agreement between the United States Postal Service and the National Rural Letter Carriers' Association. Amounts paid as an equipment maintenance allowance by such Postal Service under later collective bargaining agreements that supersede the 1991 agreement shall be considered qualified reimbursements if such amounts do not exceed the amounts that would have been paid under the 1991 agreement, adjusted by increasing any such amount under the 1991 agreement by an amount equal to—
(A) such amount, multiplied by
(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, by substituting "calendar year 1990" for "calendar year 2016" in subparagraph (A)(ii) thereof.
(p) Treatment of expenses of members of reserve component of Armed Forces of the United States
For purposes of subsection (a)(2), in the case of an individual who performs services as a member of a reserve component of the Armed Forces of the United States at any time during the taxable year, such individual shall be deemed to be away from home in the pursuit of a trade or business for any period during which such individual is away from home in connection with such service.
(q) Payments related to sexual harassment and sexual abuse
No deduction shall be allowed under this chapter for—
(1) any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement, or
(2) attorney's fees related to such a settlement or payment.
(r) Disallowance of FDIC premiums paid by certain large financial institutions
(1) In general
No deduction shall be allowed for the applicable percentage of any FDIC premium paid or incurred by the taxpayer.
(2) Exception for small institutions
Paragraph (1) shall not apply to any taxpayer for any taxable year if the total consolidated assets of such taxpayer (determined as of the close of such taxable year) do not exceed $10,000,000,000.
(3) Applicable percentage
For purposes of this subsection, the term "applicable percentage" means, with respect to any taxpayer for any taxable year, the ratio (expressed as a percentage but not greater than 100 percent) which—
(A) the excess of—
(i) the total consolidated assets of such taxpayer (determined as of the close of such taxable year), over
(ii) $10,000,000,000, bears to
(B) $40,000,000,000.
(4) FDIC premiums
For purposes of this subsection, the term "FDIC premium" means any assessment imposed under section 7(b) of the Federal Deposit Insurance Act (
(5) Total consolidated assets
For purposes of this subsection, the term "total consolidated assets" has the meaning given such term under section 165 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (
(6) Aggregation rule
(A) In general
Members of an expanded affiliated group shall be treated as a single taxpayer for purposes of applying this subsection.
(B) Expanded affiliated group
(i) In general
For purposes of this paragraph, the term "expanded affiliated group" means an affiliated group as defined in section 1504(a), determined—
(I) by substituting "more than 50 percent" for "at least 80 percent" each place it appears, and
(II) without regard to paragraphs (2) and (3) of section 1504(b).
(ii) Control of non-corporate entities
A partnership or any other entity (other than a corporation) shall be treated as a member of an expanded affiliated group if such entity is controlled (within the meaning of section 954(d)(3)) by members of such group (including any entity treated as a member of such group by reason of this clause).
(s) Cross reference
(1) For special rule relating to expenses in connection with subdividing real property for sale, see section 1237.
(2) For special rule relating to the treatment of payments by a transferee of a franchise, trademark, or trade name, see section 1253.
(3) For special rules relating to—
(A) funded welfare benefit plans, see section 419, and
(B) deferred compensation and other deferred benefits, see section 404.
(Aug. 16, 1954, ch. 736,
Editorial Notes
References in Text
The Foreign Corrupt Practices Act of 1977, referred to in subsec. (c)(1), is title I of
The Social Security Act, referred to in subsec. (c)(3), is act Aug. 14, 1935, ch. 531,
Section 4 of the Clayton Act, referred to in subsec. (g)(1), is classified to
The Securities Exchange Act of 1934, referred to in subsec. (m)(3)(B), (5)(D)(ii)(I), is act June 6, 1934, ch. 404,
The Emergency Economic Stabilization Act of 2008, referred to in subsec. (m)(5), is div. A of
Amendments
2021—Subsec. (m)(3)(C), (D).
2017—Subsec. (a).
Subsec. (e)(2) to (8).
Subsec. (f).
Subsec. (m)(2).
Subsec. (m)(3).
Subsec. (m)(3)(A).
Subsec. (m)(3)(B).
Subsec. (m)(3)(C).
Subsec. (m)(4)(B) to (E).
Subsec. (m)(4)(F).
Subsec. (m)(4)(G).
Subsec. (m)(5)(E).
Subsec. (m)(5)(G).
Subsec. (m)(6)(D).
Subsec. (m)(6)(G).
Subsec. (o)(3).
Subsec. (q).
Subsec. (r).
Subsec. (s).
2014—Subsec. (g).
Subsec. (h)(4).
2011—Subsec. (a).
2010—Subsec. (a).
Subsec. (l)(1).
Subsec. (l)(2)(B).
Subsec. (l)(4).
Subsec. (m)(6).
2008—Subsec. (m)(5).
2004—Subsec. (m)(4)(G).
Subsec. (o).
Subsec. (o)(2), (3).
2003—Subsecs. (p), (q).
1998—Subsec. (a).
Subsec. (l)(1)(B).
| "For taxable years beginning in calendar year— | The applicable percentage is— |
|---|---|
| 1997 | 40 |
| 1998 and 1999 | 45 |
| 2000 and 2001 | 50 |
| 2002 | 60 |
| 2003 through 2005 | 80 |
| 2006 | 90 |
| 2007 and thereafter | 100." |
1997—Subsec. (a).
Subsec. (l)(1)(B).
| "For taxable years beginning in calendar year— | The applicable percentage is— |
|---|---|
| 1997 | 40 percent |
| 1998 through 2002 | 45 percent |
| 2003 | 50 percent |
| 2004 | 60 percent |
| 2005 | 70 percent |
| 2006 or thereafter | 80 percent." |
Subsec. (l)(2)(B).
Subsecs. (o), (p).
1996—Subsec. (k).
Subsec. (k)(1).
Subsec. (k)(2)(A).
Subsec. (l)(1).
"(1)
Subsec. (l)(2)(C).
1995—Subsec. (l)(1).
Subsec. (l)(6).
1993—Subsec. (e).
Subsec. (l)(2)(B).
Subsec. (l)(3).
"(A)
"(B)
Subsec. (l)(6).
Subsec. (m).
Subsec. (n).
Subsec. (o).
1992—Subsec. (a).
1991—Subsec. (l)(6).
1990—Subsec. (l)(3).
Subsec. (l)(6).
1989—Subsec. (i).
"(1)
"(2)
Subsec. (k)(2)(B)(iv).
Subsec. (l)(2).
Subsec. (l)(5).
Subsec. (l)(6).
1988—Subsec. (i)(2), (3).
Subsec. (k).
Subsec. (k)(5)(B).
Subsec . (l).
Subsec. (m).
Subsec. (m)(2)(A).
Subsec. (m)(4), (5).
Subsec. (n).
1986—Subsec. (i)(1).
Subsec. (i)(2), (3).
Subsec. (k).
Subsec. (k)(2)(A).
Subsec. (k)(2)(B)(i).
"(I) a qualifying event described in paragraph (3)(B) (relating to terminations and reduced hours), the date which is 18 months after the date of the qualifying event, and
"(II) any qualifying event not described in subclause (I), the date which is 36 months after the date of the qualifying event."
Subsec. (k)(2)(B)(i)(II).
Subsec. (k)(2)(B)(i)(III), (IV).
Subsec. (k)(2)(B)(iii).
Subsec. (k)(2)(B)(iv).
Subsec. (k)(2)(B)(iv)(I).
Subsec. (k)(2)(B)(iv)(II).
Subsec. (k)(2)(B)(v).
Subsec. (k)(3).
Subsec. (k)(5)(B).
Subsec. (k)(6)(B).
Subsec. (k)(6)(C).
Subsec. (k)(6)(D)(i).
Subsec. (k)(7)(B)(iii).
Subsec. (k)(7)(B)(iv).
Subsec. (l).
Subsec. (m).
1984—Subsec. (i)(2).
Subsec. (j).
Subsec. (j)(3).
Subsec. (k).
1982—Subsec. (a).
Subsec. (c)(1).
Subsec. (h).
Subsec. (i).
Subsec. (j).
1981—Subsec. (a).
Subsec. (h).
Subsec. (i).
1976—Subsec. (a).
Subsec. (c).
1971—Subsec. (c).
Subsec. (c)(2).
Subsec. (c)(3).
1969—Subsec. (c).
Subsecs. (f), (g).
Subsec. (h).
1962—Subsec. (a)(2).
Subsecs. (e), (f).
1960—Subsec. (b).
Subsecs. (d), (e).
1958—Subsecs. (c), (d).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Amendment by section 11002(d)(6) of
"(1)
"(2)
Effective Date of 2014 Amendment
Amendment by
Effective Date of 2011 Amendment
Amendment by
Effective Date of 2010 Amendment
Effective Date of 2008 Amendment
Effective Date of 2004 Amendment
Amendment by section 802(b)(2) of
Effective Date of 2003 Amendment
Amendment by
Effective Date of 1998 Amendments
Amendment by
Effective Date of 1997 Amendment
Amendment by section 1602(c) of
Effective Date of 1996 Amendment
Amendment by section 311(a) of
"(A)
"(B)
Effective Date of 1995 Amendment
"(1)
"(2)
Effective Date of 1993 Amendment
Amendment by section 13131(d)(2) of
Effective Date of 1992 Amendment
Effective Date of 1991 Amendment
Effective Date of 1990 Amendment
Amendment by section 11111(d)(2) of
Effective Date of 1989 Amendment
"(i) qualifying events occurring after December 31, 1989, and
"(ii) in the case of qualified beneficiaries who elected continuation coverage after December 31, 1988, the period for which the required premium was paid (or was attempted to be paid but was rejected as such)."
Amendment by
Effective Date of 1988 Amendment
Amendment by sections 1011B(b)(1)–(3) and 1018(t)(7)(B) of
Effective Date of 1986 Amendment
"(1)
"(2)
"(3)
Amendment by section 9307(c)(2)(B) of
"(1)
"(2)
"(A) a qualifying event described in section 162(k)(3)(F) of the Internal Revenue Code of 1986 or section 603(6) of the Employee Retirement Income Security Act of 1974 [
"(B) a qualifying event described in section 162(k)(3)(A) of the Internal Revenue Code of 1986 or section 603(1) of the Employee Retirement Income Security Act of 1974 [
"(3)
"(4)
Amendment by
Effective Date of 1984 Amendment
Amendment by section 512(b) of
Amendment by section 2354(d) of
Effective Date of 1982 Amendment
Amendment by section 128(b) of
Effective Date of 1981 Amendment
Effective Date of 1976 Amendment
Amendment by section 1901(c)(4) of
Effective Date of 1971 Amendment
Effective Date of 1969 Amendment
Amendment by section 516(c)(2)(A) of
Effective Date of 1962 Amendment
Effective Date of 1960 Amendment
Effective Date of 1958 Amendment
Deduction for Special Assessments
Special Rule for Deductions Under Subsection (l) for Certain Taxable Years
Business Use of Automobiles by Rural Mail Carriers
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Living Expenses of Members of Congress While Away From Home; Sense of Congress
State Legislators' Travel Expenses Away From Home
"(a) In
"(1) the place of residence of such individual within the legislative district which he represented shall be considered his home, and
"(2) he shall be deemed to have expended for living expenses (in connection with his trade or business as a legislator) an amount equal to the sum of the amounts determined by multiplying each legislative day of such individual during the taxable year by the amount generally allowable with respect to such day to employees of the executive branch of the Federal Government for per diem while away from home but serving in the United States.
"(b)
"(c)
"(d)
[Amendment of section 604 of
Denial of Deduction for Amounts Paid or Incurred on Judgments in Suits Brought To Recover Price Increases in Purchase of New Principal Residence
No deductions to be allowed in computing taxable income for two-thirds of any amount paid or incurred on a judgment entered against any person in a suit brought under section 208(b) of
Deductibility of Accrued Vacation Pay
Investigation of, and Reports on, Treatment of Entertainment and Certain Other Expenses
Filing of Claims for Refunds of Overpayments
Extension of time for filing of claims for refunds or credit of overpayments of income tax resulting from application of this section, see section 96 of
§163. Interest
(a) General rule
There shall be allowed as a deduction all interest paid or accrued within the taxable year on indebtedness.
(b) Installment purchases where interest charge is not separately stated
(1) General rule
If personal property or educational services are purchased under a contract—
(A) which provides that payment of part or all of the purchase price is to be made in installments, and
(B) in which carrying charges are separately stated but the interest charge cannot be ascertained,
then the payments made during the taxable year under the contract shall be treated for purposes of this section as if they included interest equal to 6 percent of the average unpaid balance under the contract during the taxable year. For purposes of the preceding sentence, the average unpaid balance is the sum of the unpaid balance outstanding on the first day of each month beginning during the taxable year, divided by 12. For purposes of this paragraph, the term "educational services" means any service (including lodging) which is purchased from an educational organization described in section 170(b)(1)(A)(ii) and which is provided for a student of such organization.
(2) Limitation
In the case of any contract to which paragraph (1) applies, the amount treated as interest for any taxable year shall not exceed the aggregate carrying charges which are properly attributable to such taxable year.
(c) Redeemable ground rents
For purposes of this subtitle, any annual or periodic rental under a redeemable ground rent (excluding amounts in redemption thereof) shall be treated as interest on an indebtedness secured by a mortgage.
(d) Limitation on investment interest
(1) In general
In the case of a taxpayer other than a corporation, the amount allowed as a deduction under this chapter for investment interest for any taxable year shall not exceed the net investment income of the taxpayer for the taxable year.
(2) Carryforward of disallowed interest
The amount not allowed as a deduction for any taxable year by reason of paragraph (1) shall be treated as investment interest paid or accrued by the taxpayer in the succeeding taxable year.
(3) Investment interest
For purposes of this subsection—
(A) In general
The term "investment interest" means any interest allowable as a deduction under this chapter (determined without regard to paragraph (1)) which is paid or accrued on indebtedness properly allocable to property held for investment.
(B) Exceptions
The term "investment interest" shall not include—
(i) any qualified residence interest (as defined in subsection (h)(3)), or
(ii) any interest which is taken into account under section 469 in computing income or loss from a passive activity of the taxpayer.
(C) Personal property used in short sale
For purposes of this paragraph, the term "interest" includes any amount allowable as a deduction in connection with personal property used in a short sale.
(4) Net investment income
For purposes of this subsection—
(A) In general
The term "net investment income" means the excess of—
(i) investment income, over
(ii) investment expenses.
(B) Investment income
The term "investment income" means the sum of—
(i) gross income from property held for investment (other than any gain taken into account under clause (ii)(I)),
(ii) the excess (if any) of—
(I) the net gain attributable to the disposition of property held for investment, over
(II) the net capital gain determined by only taking into account gains and losses from dispositions of property held for investment, plus
(iii) so much of the net capital gain referred to in clause (ii)(II) (or, if lesser, the net gain referred to in clause (ii)(I)) as the taxpayer elects to take into account under this clause.
Such term shall include qualified dividend income (as defined in section 1(h)(11)(B)) only to the extent the taxpayer elects to treat such income as investment income for purposes of this subsection.
(C) Investment expenses
The term "investment expenses" means the deductions allowed under this chapter (other than for interest) which are directly connected with the production of investment income.
(D) Income and expenses from passive activities
Investment income and investment expenses shall not include any income or expenses taken into account under section 469 in computing income or loss from a passive activity.
(5) Property held for investment
For purposes of this subsection—
(A) In general
The term "property held for investment" shall include—
(i) any property which produces income of a type described in section 469(e)(1), and
(ii) any interest held by a taxpayer in an activity involving the conduct of a trade or business—
(I) which is not a passive activity, and
(II) with respect to which the taxpayer does not materially participate.
(B) Investment expenses
In the case of property described in subparagraph (A)(i), expenses shall be allocated to such property in the same manner as under section 469.
(C) Terms
For purposes of this paragraph, the terms "activity", "passive activity", and "materially participate" have the meanings given such terms by section 469.
(e) Original issue discount
(1) In general
The portion of the original issue discount with respect to any debt instrument which is allowable as a deduction to the issuer for any taxable year shall be equal to the aggregate daily portions of the original issue discount for days during such taxable year.
(2) Definitions and special rules
For purposes of this subsection—
(A) Debt instrument
The term "debt instrument" has the meaning given such term by section 1275(a)(1).
(B) Daily portions
The daily portion of the original issue discount for any day shall be determined under section 1272(a) (without regard to paragraph (7) thereof and without regard to section 1273(a)(3)).
(C) Short-term obligations
In the case of an obligor of a short-term obligation (as defined in section 1283(a)(1)(A)) who uses the cash receipts and disbursements method of accounting, the original issue discount (and any other interest payable) on such obligation shall be deductible only when paid.
(3) Special rule for original issue discount on obligation held by related foreign person
(A) In general
If any debt instrument having original issue discount is held by a related foreign person, any portion of such original issue discount shall not be allowable as a deduction to the issuer until paid. The preceding sentence shall not apply to the extent that the original issue discount is effectively connected with the conduct by such foreign related person of a trade or business within the United States unless such original issue discount is exempt from taxation (or is subject to a reduced rate of tax) pursuant to a treaty obligation of the United States.
(B) Special rule for certain foreign entities
(i) In general
In the case of any debt instrument having original issue discount which is held by a related foreign person which is a controlled foreign corporation (as defined in section 957) or a passive foreign investment company (as defined in section 1297), a deduction shall be allowable to the issuer with respect to such original issue discount for any taxable year before the taxable year in which paid only to the extent such original issue discount is includible (determined without regard to properly allocable deductions and qualified deficits under section 952(c)(1)(B)) during such prior taxable year in the gross income of a United States person who owns (within the meaning of section 958(a)) stock in such corporation.
(ii) Secretarial authority
The Secretary may by regulation exempt transactions from the application of clause (i), including any transaction which is entered into by a payor in the ordinary course of a trade or business in which the payor is predominantly engaged.
(C) Related foreign person
For purposes of subparagraph (A), the term "related foreign person" means any person—
(i) who is not a United States person, and
(ii) who is related (within the meaning of section 267(b)) to the issuer.
(4) Exception
This subsection shall not apply to any debt instrument described in section 1272(a)(2)(D) (relating to loans between natural persons).
(5) Special rules for original issue discount on certain high yield obligations
(A) In general
In the case of an applicable high yield discount obligation issued by a corporation—
(i) no deduction shall be allowed under this chapter for the disqualified portion of the original issue discount on such obligation, and
(ii) the remainder of such original issue discount shall not be allowable as a deduction until paid.
For purposes of this paragraph, rules similar to the rules of subsection (i)(3)(B) shall apply in determining the amount of the original issue discount and when the original issue discount is paid.
(B) Disqualified portion treated as stock distribution for purposes of dividend received deduction
(i) In general
Solely for purposes of sections 243, 245, 246, and 246A, the dividend equivalent portion of any amount includible in gross income of a corporation under section 1272(a) in respect of an applicable high yield discount obligation shall be treated as a dividend received by such corporation from the corporation issuing such obligation.
(ii) Dividend equivalent portion
For purposes of clause (i), the dividend equivalent portion of any amount includible in gross income under section 1272(a) in respect of an applicable high yield discount obligation is the portion of the amount so includible—
(I) which is attributable to the disqualified portion of the original issue discount on such obligation, and
(II) which would have been treated as a dividend if it had been a distribution made by the issuing corporation with respect to stock in such corporation.
(C) Disqualified portion
(i) In general
For purposes of this paragraph, the disqualified portion of the original issue discount on any applicable high yield discount obligation is the lesser of—
(I) the amount of such original issue discount, or
(II) the portion of the total return on such obligation which bears the same ratio to such total return as the disqualified yield on such obligation bears to the yield to maturity on such obligation.
(ii) Definitions
For purposes of clause (i), the term "disqualified yield" means the excess of the yield to maturity on the obligation over the sum referred to in subsection (i)(1)(B) plus 1 percentage point, and the term "total return" is the amount which would have been the original issue discount on the obligation if interest described in the parenthetical in section 1273(a)(2) were included in the stated redemption price at maturity.
(D) Exception for S corporations
This paragraph shall not apply to any obligation issued by any corporation for any period for which such corporation is an S corporation.
(E) Effect on earnings and profits
This paragraph shall not apply for purposes of determining earnings and profits; except that, for purposes of determining the dividend equivalent portion of any amount includible in gross income under section 1272(a) in respect of an applicable high yield discount obligation, no reduction shall be made for any amount attributable to the disqualified portion of any original issue discount on such obligation.
(F) Suspension of application of paragraph
(i) Temporary suspension
This paragraph shall not apply to any applicable high yield discount obligation issued during the period beginning on September 1, 2008, and ending on December 31, 2009, in exchange (including an exchange resulting from a modification of the debt instrument) for an obligation which is not an applicable high yield discount obligation and the issuer (or obligor) of which is the same as the issuer (or obligor) of such applicable high yield discount obligation. The preceding sentence shall not apply to any obligation the interest on which is interest described in section 871(h)(4) (without regard to subparagraph (D) thereof) or to any obligation issued to a related person (within the meaning of section 108(e)(4)).
(ii) Successive application
Any obligation to which clause (i) applies shall not be treated as an applicable high yield discount obligation for purposes of applying this subparagraph to any other obligation issued in exchange for such obligation.
(iii) Secretarial authority to suspend application
The Secretary may apply this paragraph with respect to debt instruments issued in periods following the period described in clause (i) if the Secretary determines that such application is appropriate in light of distressed conditions in the debt capital markets.
(G) Cross reference
For definition of applicable high yield discount obligation, see subsection (i).
(6) Cross references
For provision relating to deduction of original issue discount on tax-exempt obligation, see section 1288.
For special rules in the case of the borrower under certain loans for personal use, see section 1275(b).
(f) Denial of deduction for interest on certain obligations not in registered form
(1) In general
Nothing in subsection (a) or in any other provision of law shall be construed to provide a deduction for interest on any registration-required obligation unless such obligation is in registered form.
(2) Registration-required obligation
For purposes of this section—
(A) In general
The term "registration-required obligation" means any obligation (including any obligation issued by a governmental entity) other than an obligation which—
(i) is issued by a natural person,
(ii) is not of a type offered to the public, or
(iii) has a maturity (at issue) of not more than 1 year.
(B) Authority to include other obligations
Clauses (ii) and (iii) of subparagraph (A) shall not apply to any obligation if—
(i) such obligation is of a type which the Secretary has determined by regulations to be used frequently in avoiding Federal taxes, and
(ii) such obligation is issued after the date on which the regulations referred to in clause (i) take effect.
(3) Book entries permitted, etc.
For purposes of this subsection, rules similar to the rules of section 149(a)(3) shall apply, except that a dematerialized book entry system or other book entry system specified by the Secretary shall be treated as a book entry system described in such section.
(g) Reduction of deduction where section 25 credit taken
The amount of the deduction under this section for interest paid or accrued during any taxable year on indebtedness with respect to which a mortgage credit certificate has been issued under section 25 shall be reduced by the amount of the credit allowable with respect to such interest under section 25 (determined without regard to section 26).
(h) Disallowance of deduction for personal interest
(1) In general
In the case of a taxpayer other than a corporation, no deduction shall be allowed under this chapter for personal interest paid or accrued during the taxable year.
(2) Personal interest
For purposes of this subsection, the term "personal interest" means any interest allowable as a deduction under this chapter other than—
(A) interest paid or accrued on indebtedness properly allocable to a trade or business (other than the trade or business of performing services as an employee),
(B) any investment interest (within the meaning of subsection (d)),
(C) any interest which is taken into account under section 469 in computing income or loss from a passive activity of the taxpayer,
(D) any qualified residence interest (within the meaning of paragraph (3)),
(E) any interest payable under section 6601 on any unpaid portion of the tax imposed by section 2001 for the period during which an extension of time for payment of such tax is in effect under section 6163, and
(F) any interest allowable as a deduction under section 221 (relating to interest on educational loans).
(3) Qualified residence interest
For purposes of this subsection—
(A) In general
The term "qualified residence interest" means any interest which is paid or accrued during the taxable year on—
(i) acquisition indebtedness with respect to any qualified residence of the taxpayer, or
(ii) home equity indebtedness with respect to any qualified residence of the taxpayer.
For purposes of the preceding sentence, the determination of whether any property is a qualified residence of the taxpayer shall be made as of the time the interest is accrued.
(B) Acquisition indebtedness
(i) In general
The term "acquisition indebtedness" means any indebtedness which—
(I) is incurred in acquiring, constructing, or substantially improving any qualified residence of the taxpayer, and
(II) is secured by such residence.
Such term also includes any indebtedness secured by such residence resulting from the refinancing of indebtedness meeting the requirements of the preceding sentence (or this sentence); but only to the extent the amount of the indebtedness resulting from such refinancing does not exceed the amount of the refinanced indebtedness.
(ii) $1,000,000 limitation
The aggregate amount treated as acquisition indebtedness for any period shall not exceed $1,000,000 ($500,000 in the case of a married individual filing a separate return).
(C) Home equity indebtedness
(i) In general
The term "home equity indebtedness" means any indebtedness (other than acquisition indebtedness) secured by a qualified residence to the extent the aggregate amount of such indebtedness does not exceed—
(I) the fair market value of such qualified residence, reduced by
(II) the amount of acquisition indebtedness with respect to such residence.
(ii) Limitation
The aggregate amount treated as home equity indebtedness for any period shall not exceed $100,000 ($50,000 in the case of a separate return by a married individual).
(D) Treatment of indebtedness incurred on or before October 13, 1987
(i) In general
In the case of any pre-October 13, 1987, indebtedness—
(I) such indebtedness shall be treated as acquisition indebtedness, and
(II) the limitation of subparagraph (B)(ii) shall not apply.
(ii) Reduction in $1,000,000 limitation
The limitation of subparagraph (B)(ii) shall be reduced (but not below zero) by the aggregate amount of outstanding pre-October 13, 1987, indebtedness.
(iii) Pre-October 13, 1987, indebtedness
The term "pre-October 13, 1987, indebtedness" means—
(I) any indebtedness which was incurred on or before October 13, 1987, and which was secured by a qualified residence on October 13, 1987, and at all times thereafter before the interest is paid or accrued, or
(II) any indebtedness which is secured by the qualified residence and was incurred after October 13, 1987, to refinance indebtedness described in subclause (I) (or refinanced indebtedness meeting the requirements of this subclause) to the extent (immediately after the refinancing) the principal amount of the indebtedness resulting from the refinancing does not exceed the principal amount of the refinanced indebtedness (immediately before the refinancing).
(iv) Limitation on period of refinancing
Subclause (II) of clause (iii) shall not apply to any indebtedness after—
(I) the expiration of the term of the indebtedness described in clause (iii)(I), or
(II) if the principal of the indebtedness described in clause (iii)(I) is not amortized over its term, the expiration of the term of the 1st refinancing of such indebtedness (or if earlier, the date which is 30 years after the date of such 1st refinancing).
(E) Mortgage insurance premiums treated as interest
(i) In general
Premiums paid or accrued for qualified mortgage insurance by a taxpayer during the taxable year in connection with acquisition indebtedness with respect to a qualified residence of the taxpayer shall be treated for purposes of this section as interest which is qualified residence interest.
(ii) Phaseout
The amount otherwise treated as interest under clause (i) shall be reduced (but not below zero) by 10 percent of such amount for each $1,000 ($500 in the case of a married individual filing a separate return) (or fraction thereof) that the taxpayer's adjusted gross income for the taxable year exceeds $100,000 ($50,000 in the case of a married individual filing a separate return).
(iii) Limitation
Clause (i) shall not apply with respect to any mortgage insurance contracts issued before January 1, 2007.
(iv) Termination
Clause (i) shall not apply to amounts—
(I) paid or accrued after December 31, 2021, or
(II) properly allocable to any period after such date.
(F) Special rules for taxable years 2018 through 2025
(i) In general
In the case of taxable years beginning after December 31, 2017, and before January 1, 2026—
(I) Disallowance of home equity indebtedness interest
Subparagraph (A)(ii) shall not apply.
(II) Limitation on acquisition indebtedness
Subparagraph (B)(ii) shall be applied by substituting "$750,000 ($375,000" for "$1,000,000 ($500,000".
(III) Treatment of indebtedness incurred on or before December 15, 2017
Subclause (II) shall not apply to any indebtedness incurred on or before December 15, 2017, and, in applying such subclause to any indebtedness incurred after such date, the limitation under such subclause shall be reduced (but not below zero) by the amount of any indebtedness incurred on or before December 15, 2017, which is treated as acquisition indebtedness for purposes of this subsection for the taxable year.
(IV) Binding contract exception
In the case of a taxpayer who enters into a written binding contract before December 15, 2017, to close on the purchase of a principal residence before January 1, 2018, and who purchases such residence before April 1, 2018, subclause (III) shall be applied by substituting "April 1, 2018" for "December 15, 2017".
(ii) Treatment of limitation in taxable years after December 31, 2025
In the case of taxable years beginning after December 31, 2025, the limitation under subparagraph (B)(ii) shall be applied to the aggregate amount of indebtedness of the taxpayer described in subparagraph (B)(i) without regard to the taxable year in which the indebtedness was incurred.
(iii) Treatment of refinancings of indebtedness
(I) In general
In the case of any indebtedness which is incurred to refinance indebtedness, such refinanced indebtedness shall be treated for purposes of clause (i)(III) as incurred on the date that the original indebtedness was incurred to the extent the amount of the indebtedness resulting from such refinancing does not exceed the amount of the refinanced indebtedness.
(II) Limitation on period of refinancing
Subclause (I) shall not apply to any indebtedness after the expiration of the term of the original indebtedness or, if the principal of such original indebtedness is not amortized over its term, the expiration of the term of the 1st refinancing of such indebtedness (or if earlier, the date which is 30 years after the date of such 1st refinancing).
(iv) Coordination with exclusion of income from discharge of indebtedness
Section 108(h)(2) shall be applied without regard to this subparagraph.
(4) Other definitions and special rules
For purposes of this subsection—
(A) Qualified residence
(i) In general
The term "qualified residence" means—
(I) the principal residence (within the meaning of section 121) of the taxpayer, and
(II) 1 other residence of the taxpayer which is selected by the taxpayer for purposes of this subsection for the taxable year and which is used by the taxpayer as a residence (within the meaning of section 280A(d)(1)).
(ii) Married individuals filing separate returns
If a married couple does not file a joint return for the taxable year—
(I) such couple shall be treated as 1 taxpayer for purposes of clause (i), and
(II) each individual shall be entitled to take into account 1 residence unless both individuals consent in writing to 1 individual taking into account the principal residence and 1 other residence.
(iii) Residence not rented
For purposes of clause (i)(II), notwithstanding section 280A(d)(1), if the taxpayer does not rent a dwelling unit at any time during a taxable year, such unit may be treated as a residence for such taxable year.
(B) Special rule for cooperative housing corporations
Any indebtedness secured by stock held by the taxpayer as a tenant-stockholder (as defined in section 216) in a cooperative housing corporation (as so defined) shall be treated as secured by the house or apartment which the taxpayer is entitled to occupy as such a tenant-stockholder. If stock described in the preceding sentence may not be used to secure indebtedness, indebtedness shall be treated as so secured if the taxpayer establishes to the satisfaction of the Secretary that such indebtedness was incurred to acquire such stock.
(C) Unenforceable security interests
Indebtedness shall not fail to be treated as secured by any property solely because, under any applicable State or local homestead or other debtor protection law in effect on August 16, 1986, the security interest is ineffective or the enforceability of the security interest is restricted.
(D) Special rules for estates and trusts
For purposes of determining whether any interest paid or accrued by an estate or trust is qualified residence interest, any residence held by such estate or trust shall be treated as a qualified residence of such estate or trust if such estate or trust establishes that such residence is a qualified residence of a beneficiary who has a present interest in such estate or trust or an interest in the residuary of such estate or trust.
(E) Qualified mortgage insurance
The term "qualified mortgage insurance" means—
(i) mortgage insurance provided by the Department of Veterans Affairs, the Federal Housing Administration, or the Rural Housing Service, and
(ii) private mortgage insurance (as defined by section 2 of the Homeowners Protection Act of 1998 (
(F) Special rules for prepaid qualified mortgage insurance
Any amount paid by the taxpayer for qualified mortgage insurance that is properly allocable to any mortgage the payment of which extends to periods that are after the close of the taxable year in which such amount is paid shall be chargeable to capital account and shall be treated as paid in such periods to which so allocated. No deduction shall be allowed for the unamortized balance of such account if such mortgage is satisfied before the end of its term. The preceding sentences shall not apply to amounts paid for qualified mortgage insurance provided by the Department of Veterans Affairs or the Rural Housing Service.
(i) Applicable high yield discount obligation
(1) In general
For purposes of this section, the term "applicable high yield discount obligation" means any debt instrument if—
(A) the maturity date of such instrument is more than 5 years from the date of issue,
(B) the yield to maturity on such instrument equals or exceeds the sum of—
(i) the applicable Federal rate in effect under section 1274(d) for the calendar month in which the obligation is issued, plus
(ii) 5 percentage points, and
(C) such instrument has significant original issue discount.
For purposes of subparagraph (B)(i), the Secretary may by regulation (i) permit a rate to be used with respect to any debt instrument which is higher than the applicable Federal rate if the taxpayer establishes to the satisfaction of the Secretary that such higher rate is based on the same principles as the applicable Federal rate and is appropriate for the term of the instrument, or (ii) permit, on a temporary basis, a rate to be used with respect to any debt instrument which is higher than the applicable Federal rate if the Secretary determines that such rate is appropriate in light of distressed conditions in the debt capital markets.
(2) Significant original issue discount
For purposes of paragraph (1)(C), a debt instrument shall be treated as having significant original issue discount if—
(A) the aggregate amount which would be includible in gross income with respect to such instrument for periods before the close of any accrual period (as defined in section 1272(a)(5)) ending after the date 5 years after the date of issue, exceeds—
(B) the sum of—
(i) the aggregate amount of interest to be paid under the instrument before the close of such accrual period, and
(ii) the product of the issue price of such instrument (as defined in sections 1273(b) and 1274(a)) and its yield to maturity.
(3) Special rules
For purposes of determining whether a debt instrument is an applicable high yield discount obligation—
(A) any payment under the instrument shall be assumed to be made on the last day permitted under the instrument, and
(B) any payment to be made in the form of another obligation of the issuer (or a related person within the meaning of section 453(f)(1)) shall be assumed to be made when such obligation is required to be paid in cash or in property other than such obligation.
Except for purposes of paragraph (1)(B), any reference to an obligation in subparagraph (B) of this paragraph shall be treated as including a reference to stock.
(4) Debt instrument
For purposes of this subsection, the term "debt instrument" means any instrument which is a debt instrument as defined in section 1275(a).
(5) Regulations
The Secretary shall prescribe such regulations as may be appropriate to carry out the purposes of this subsection and subsection (e)(5), including—
(A) regulations providing for modifications to the provisions of this subsection and subsection (e)(5) in the case of varying rates of interest, put or call options, indefinite maturities, contingent payments, assumptions of debt instruments, conversion rights, or other circumstances where such modifications are appropriate to carry out the purposes of this subsection and subsection (e)(5), and
(B) regulations to prevent avoidance of the purposes of this subsection and subsection (e)(5) through the use of issuers other than C corporations, agreements to borrow amounts due under the debt instrument, or other arrangements.
(j) Limitation on business interest
(1) In general
The amount allowed as a deduction under this chapter for any taxable year for business interest shall not exceed the sum of—
(A) the business interest income of such taxpayer for such taxable year,
(B) 30 percent of the adjusted taxable income of such taxpayer for such taxable year, plus
(C) the floor plan financing interest of such taxpayer for such taxable year.
The amount determined under subparagraph (B) shall not be less than zero.
(2) Carryforward of disallowed business interest
The amount of any business interest not allowed as a deduction for any taxable year by reason of paragraph (1) shall be treated as business interest paid or accrued in the succeeding taxable year.
(3) Exemption for certain small businesses
In the case of any taxpayer (other than a tax shelter prohibited from using the cash receipts and disbursements method of accounting under section 448(a)(3)) which meets the gross receipts test of section 448(c) for any taxable year, paragraph (1) shall not apply to such taxpayer for such taxable year. In the case of any taxpayer which is not a corporation or a partnership, the gross receipts test of section 448(c) shall be applied in the same manner as if such taxpayer were a corporation or partnership.
(4) Application to partnerships, etc.
(A) In general
In the case of any partnership—
(i) this subsection shall be applied at the partnership level and any deduction for business interest shall be taken into account in determining the non-separately stated taxable income or loss of the partnership, and
(ii) the adjusted taxable income of each partner of such partnership—
(I) shall be determined without regard to such partner's distributive share of any items of income, gain, deduction, or loss of such partnership, and
(II) shall be increased by such partner's distributive share of such partnership's excess taxable income.
For purposes of clause (ii)(II), a partner's distributive share of partnership excess taxable income shall be determined in the same manner as the partner's distributive share of nonseparately stated taxable income or loss of the partnership.
(B) Special rules for carryforwards
(i) In general
The amount of any business interest not allowed as a deduction to a partnership for any taxable year by reason of paragraph (1) for any taxable year—
(I) shall not be treated under paragraph (2) as business interest paid or accrued by the partnership in the succeeding taxable year, and
(II) shall, subject to clause (ii), be treated as excess business interest which is allocated to each partner in the same manner as the non-separately stated taxable income or loss of the partnership.
(ii) Treatment of excess business interest allocated to partners
If a partner is allocated any excess business interest from a partnership under clause (i) for any taxable year—
(I) such excess business interest shall be treated as business interest paid or accrued by the partner in the next succeeding taxable year in which the partner is allocated excess taxable income from such partnership, but only to the extent of such excess taxable income, and
(II) any portion of such excess business interest remaining after the application of subclause (I) shall, subject to the limitations of subclause (I), be treated as business interest paid or accrued in succeeding taxable years.
For purposes of applying this paragraph, excess taxable income allocated to a partner from a partnership for any taxable year shall not be taken into account under paragraph (1)(A) with respect to any business interest other than excess business interest from the partnership until all such excess business interest for such taxable year and all preceding taxable years has been treated as paid or accrued under clause (ii).
(iii) Basis adjustments
(I) In general
The adjusted basis of a partner in a partnership interest shall be reduced (but not below zero) by the amount of excess business interest allocated to the partner under clause (i)(II).
(II) Special rule for dispositions
If a partner disposes of a partnership interest, the adjusted basis of the partner in the partnership interest shall be increased immediately before the disposition by the amount of the excess (if any) of the amount of the basis reduction under subclause (I) over the portion of any excess business interest allocated to the partner under clause (i)(II) which has previously been treated under clause (ii) as business interest paid or accrued by the partner. The preceding sentence shall also apply to transfers of the partnership interest (including by reason of death) in a transaction in which gain is not recognized in whole or in part. No deduction shall be allowed to the transferor or transferee under this chapter for any excess business interest resulting in a basis increase under this subclause.
(C) Excess taxable income
The term "excess taxable income" means, with respect to any partnership, the amount which bears the same ratio to the partnership's adjusted taxable income as—
(i) the excess (if any) of—
(I) the amount determined for the partnership under paragraph (1)(B), over
(II) the amount (if any) by which the business interest of the partnership, reduced by the floor plan financing interest, exceeds the business interest income of the partnership, bears to
(ii) the amount determined for the partnership under paragraph (1)(B).
(D) Application to S corporations
Rules similar to the rules of subparagraphs (A) and (C) shall apply with respect to any S corporation and its shareholders.
(5) Business interest
For purposes of this subsection, the term "business interest" means any interest paid or accrued on indebtedness properly allocable to a trade or business. Such term shall not include investment interest (within the meaning of subsection (d)).
(6) Business interest income
For purposes of this subsection, the term "business interest income" means the amount of interest includible in the gross income of the taxpayer for the taxable year which is properly allocable to a trade or business. Such term shall not include investment income (within the meaning of subsection (d)).
(7) Trade or business
For purposes of this subsection—
(A) In general
The term "trade or business" shall not include—
(i) the trade or business of performing services as an employee,
(ii) any electing real property trade or business,
(iii) any electing farming business, or
(iv) the trade or business of the furnishing or sale of—
(I) electrical energy, water, or sewage disposal services,
(II) gas or steam through a local distribution system, or
(III) transportation of gas or steam by pipeline,
if the rates for such furnishing or sale, as the case may be, have been established or approved by a State or political subdivision thereof, by any agency or instrumentality of the United States, by a public service or public utility commission or other similar body of any State or political subdivision thereof, or by the governing or ratemaking body of an electric cooperative.
(B) Electing real property trade or business
For purposes of this paragraph, the term "electing real property trade or business" means any trade or business which is described in section 469(c)(7)(C) and which makes an election under this subparagraph. Any such election shall be made at such time and in such manner as the Secretary shall prescribe, and, once made, shall be irrevocable.
(C) Electing farming business
For purposes of this paragraph, the term "electing farming business" means—
(i) a farming business (as defined in section 263A(e)(4)) which makes an election under this subparagraph, or
(ii) any trade or business of a specified agricultural or horticultural cooperative (as defined in section 199A(g)(2)) 1 with respect to which the cooperative makes an election under this subparagraph.
Any such election shall be made at such time and in such manner as the Secretary shall prescribe, and, once made, shall be irrevocable.
(8) Adjusted taxable income
For purposes of this subsection, the term "adjusted taxable income" means the taxable income of the taxpayer—
(A) computed without regard to—
(i) any item of income, gain, deduction, or loss which is not properly allocable to a trade or business,
(ii) any business interest or business interest income,
(iii) the amount of any net operating loss deduction under section 172,
(iv) the amount of any deduction allowed under section 199A, and
(v) in the case of taxable years beginning before January 1, 2022, any deduction allowable for depreciation, amortization, or depletion, and
(B) computed with such other adjustments as provided by the Secretary.
(9) Floor plan financing interest defined
For purposes of this subsection—
(A) In general
The term "floor plan financing interest" means interest paid or accrued on floor plan financing indebtedness.
(B) Floor plan financing indebtedness
The term "floor plan financing indebtedness" means indebtedness—
(i) used to finance the acquisition of motor vehicles held for sale or lease, and
(ii) secured by the inventory so acquired.
(C) Motor vehicle
The term "motor vehicle" means a motor vehicle that is any of the following:
(i) Any self-propelled vehicle designed for transporting persons or property on a public street, highway, or road.
(ii) A boat.
(iii) Farm machinery or equipment.
(10) Special rule for taxable years beginning in 2019 and 2020
(A) In general
(i) In general
Except as provided in clause (ii) or (iii), in the case of any taxable year beginning in 2019 or 2020, paragraph (1)(B) shall be applied by substituting "50 percent" for "30 percent".
(ii) Special rule for partnerships
In the case of a partnership—
(I) clause (i) shall not apply to any taxable year beginning in 2019, but
(II) unless a partner elects not to have this subclause apply, in the case of any excess business interest of the partnership for any taxable year beginning in 2019 which is allocated to the partner under paragraph (4)(B)(i)(II)—
(aa) 50 percent of such excess business interest shall be treated as business interest which, notwithstanding paragraph (4)(B)(ii), is paid or accrued by the partner in the partner's first taxable year beginning in 2020 and which is not subject to the limits of paragraph (1), and
(bb) 50 percent of such excess business interest shall be subject to the limitations of paragraph (4)(B)(ii) in the same manner as any other excess business interest so allocated.
(iii) Election out
A taxpayer may elect, at such time and in such manner as the Secretary may prescribe, not to have clause (i) apply to any taxable year. Such an election, once made, may be revoked only with the consent of the Secretary. In the case of a partnership, any such election shall be made by the partnership and may be made only for taxable years beginning in 2020.
(B) Election to use 2019 adjusted taxable income for taxable years beginning in 2020
(i) In general
Subject to clause (ii), in the case of any taxable year beginning in 2020, the taxpayer may elect to apply this subsection by substituting the adjusted taxable income of the taxpayer for the last taxable year beginning in 2019 for the adjusted taxable income for such taxable year. In the case of a partnership, any such election shall be made by the partnership.
(ii) Special rule for short taxable years
If an election is made under clause (i) for a taxable year which is a short taxable year, the adjusted taxable income for the taxpayer's last taxable year beginning in 2019 which is substituted under clause (i) shall be equal to the amount which bears the same ratio to such adjusted taxable income determined without regard to this clause as the number of months in the short taxable year bears to 12 2
(11) Cross references
(A) For requirement that an electing real property trade or business use the alternative depreciation system, see section 168(g)(1)(F).
(B) For requirement that an electing farming business use the alternative depreciation system, see section 168(g)(1)(G).
(k) Section 6166 interest
No deduction shall be allowed under this section for any interest payable under section 6601 on any unpaid portion of the tax imposed by section 2001 for the period during which an extension of time for payment of such tax is in effect under section 6166.
(l) Disallowance of deduction on certain debt instruments of corporations
(1) In general
No deduction shall be allowed under this chapter for any interest paid or accrued on a disqualified debt instrument.
(2) Disqualified debt instrument
For purposes of this subsection, the term "disqualified debt instrument" means any indebtedness of a corporation which is payable in equity of the issuer or a related party or equity held by the issuer (or any related party) in any other person.
(3) Special rules for amounts payable in equity
For purposes of paragraph (2), indebtedness shall be treated as payable in equity of the issuer or any other person only if—
(A) a substantial amount of the principal or interest is required to be paid or converted, or at the option of the issuer or a related party is payable in, or convertible into, such equity,
(B) a substantial amount of the principal or interest is required to be determined, or at the option of the issuer or a related party is determined, by reference to the value of such equity, or
(C) the indebtedness is part of an arrangement which is reasonably expected to result in a transaction described in subparagraph (A) or (B).
For purposes of this paragraph, principal or interest shall be treated as required to be so paid, converted, or determined if it may be required at the option of the holder or a related party and there is a substantial certainty the option will be exercised.
(4) Capitalization allowed with respect to equity of persons other than issuer and related parties
If the disqualified debt instrument of a corporation is payable in equity held by the issuer (or any related party) in any other person (other than a related party), the basis of such equity shall be increased by the amount not allowed as a deduction by reason of paragraph (1) with respect to the instrument.
(5) Exception for certain instruments issued by dealers in securities
For purposes of this subsection, the term "disqualified debt instrument" does not include indebtedness issued by a dealer in securities (or a related party) which is payable in, or by reference to, equity (other than equity of the issuer or a related party) held by such dealer in its capacity as a dealer in securities. For purposes of this paragraph, the term "dealer in securities" has the meaning given such term by section 475.
(6) Related party
For purposes of this subsection, a person is a related party with respect to another person if such person bears a relationship to such other person described in section 267(b) or 707(b).
(7) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection, including regulations preventing avoidance of this subsection through the use of an issuer other than a corporation.
(m) Interest on unpaid taxes attributable to nondisclosed reportable transactions
No deduction shall be allowed under this chapter for any interest paid or accrued under section 6601 on any underpayment of tax which is attributable to the portion of any reportable transaction understatement (as defined in section 6662A(b)) with respect to which the requirement of section 6664(d)(2)(A) 1 is not met.
(n) Cross references
(1) For disallowance of certain amounts paid in connection with insurance, endowment, or annuity contracts, see section 264.
(2) For disallowance of deduction for interest relating to tax-exempt income, see section 265(a)(2).
(3) For disallowance of deduction for carrying charges chargeable to capital account, see section 266.
(4) For disallowance of interest with respect to transactions between related taxpayers, see section 267.
(5) For treatment of redeemable ground rents and real property held subject to liabilities under redeemable ground rents, see section 1055.
(Aug. 16, 1954, ch. 736,
Editorial Notes
References in Text
The date of the enactment of this subparagraph, referred to in subsec. (h)(4)(E)(ii), is the date of enactment of
Section 199A(g)(2), referred to in subsec. (j)(7)(C)(ii), probably should be a reference to section 199A(g)(4), which defines "specified agricultural or horticultural cooperative" after the general amendment of section 199A(g) by
Section 6664(d)(2)(A), referred to in subsec. (m), was redesignated as section 6664(d)(3)(A) by
Amendments
2020—Subsec. (h)(3)(E)(iv)(I).
Subsec. (j)(10), (11).
2019—Subsec. (h)(3)(E)(iv)(I).
2018—Subsec. (d)(4)(E).
Subsec. (e)(1).
Subsec. (e)(4).
"(A) subparagraph (D) of section 1272(a)(2) (relating to obligations issued by natural persons before March 2, 1984), and
"(B) subparagraph (E) of section 1272(a)(2) (relating to loans between natural persons)."
Subsec. (e)(5)(C)(ii).
Subsec. (h)(3)(E)(iv)(I).
2017—Subsec. (h)(3)(F).
Subsec. (j).
2015—Subsec. (h)(3)(E)(iv)(I).
2014—Subsec. (d)(6).
Subsec. (h)(3)(E)(iv)(I).
Subsec. (h)(4)(F).
Subsec. (h)(5).
2013—Subsec. (h)(3)(E)(iv)(I).
Subsec. (h)(4)(E)(i).
2010—Subsec. (f)(2)(A)(ii) to (iv).
Subsec. (f)(2)(B).
Subsec. (f)(2)(B)(i).
"(I) subparagraph (A), such obligation is of a type which the Secretary has determined by regulations to be used frequently in avoiding Federal taxes, or
"(II) subparagraph (B), such obligation is of a type specified by the Secretary in regulations, and".
Subsec. (f)(2)(C).
Subsec. (f)(3).
Subsec. (h)(3)(E)(iv)(I).
2009—Subsec. (e)(5)(F), (G).
Subsec. (i)(1).
2007—Subsec. (h)(3)(E)(iv)(I).
2006—Subsec. (h)(3)(E).
Subsec. (h)(4)(E), (F).
Subsec. (j)(8).
Subsec. (j)(9).
2005—Subsec. (j)(6)(A)(i)(III), (IV).
2004—Subsec. (e)(3)(B), (C).
Subsec. (l)(2).
Subsec. (l)(3).
Subsec. (l)(4) to (7).
Subsecs. (m), (n).
2003—Subsec. (d)(4)(B).
1999—Subsec. (j)(3)(C).
1998—Subsec. (h)(2)(F).
1997—Subsec. (h)(2)(E).
Subsec. (h)(4)(A)(i)(I).
Subsec. (j)(2)(B)(iii).
Subsec. (k).
Subsec. (l).
Subsec. (m).
1996—Subsec. (j)(1)(B).
Subsec. (j)(6)(E)(ii).
Subsec. (j)(7), (8).
1993—Subsec. (d)(4)(B).
"(i) gross income (other than gain taken into account under clause (ii)) from property held for investment, and
"(ii) any net gain attributable to the disposition of property held for investment."
Subsec. (j).
Subsec. (j)(3).
"(A)
"(B)
"(i) which was issued on or before July 10, 1989, or
"(ii) which was issued after such date pursuant to a written binding contract in effect on such date and all times thereafter before such indebtedness was issued."
Subsec. (j)(5)(B).
Subsec. (j)(6)(D), (E).
1990—Subsec. (e)(5)(A).
Subsec. (i)(3).
Subsec. (i)(3)(B).
Subsec. (j)(2)(A)(ii).
Subsec. (j)(2)(C).
1989—Subsec. (e)(5), (6).
Subsec. (i).
Subsec. (j).
Subsec. (k).
1988—Subsec. (d)(3)(A).
Subsec. (d)(4)(B).
"(i) gross income (other than gain described in clause (ii)) from property held for investment, and
"(ii) any net gain attributable to the disposition of property held for investment,
but only to the extent such amounts are not derived from the conduct of a trade or business."
Subsec. (d)(6)(A).
"(i) the applicable percentage of the amount which (without regard to this paragraph) is not allowed as a deduction under this subsection for the taxable year to the extent such amount does not exceed the ceiling amount,
"(ii) the amount which (without regard to this paragraph) is not allowed as a deduction under this subsection in excess of the ceiling amount, plus
"(iii) the amount of any carryforward to such taxable year under paragraph (2) with respect to which a deduction was disallowed under this subsection for a preceding taxable year.
For purposes of this subparagraph, the amount under clause (i) or (ii) shall be computed without regard to the amount described in clause (iii)."
Subsec. (e)(2)(B).
Subsec. (h)(2)(A).
Subsec. (h)(2)(E).
Subsec. (h)(3)(C).
Subsec. (h)(4).
Subsec. (h)(4)(A).
Subsec. (h)(4)(B).
Subsec. (h)(4)(C), (D).
Subsec. (h)(5).
Subsec. (h)(6).
Subsec. (i)(2).
1987—Subsec. (d)(4)(E).
Subsec. (h)(3).
"(A)
"(B)
"(i) the fair market value of such qualified residence, or
"(ii) the sum of—
"(I) the taxpayer's basis in such qualified residence (adjusted only by the cost of any improvements to such residence), plus
"(II) the aggregate amount of qualified indebtedness of the taxpayer with respect to such qualified residence.
"(C)
"(i)
"(I) which was incurred on or before August 16, 1986, and which was secured by the qualified residence on August 16, 1986, or
"(II) which is secured by the qualified residence and was incurred after August 16, 1986, to refinance indebtedness described in subclause (I) (or refinanced indebtedness meeting the requirements of this subclause) to the extent (immediately after the refinancing) the principal amount of the indebtedness resulting from the refinancing does not exceed the principal amount of the refinanced indebtedness (immediately before the refinancing).
"(ii)
"(I) the expiration of the term of the indebtedness described in clause (i)(I), or
"(II) if the principal of the indebtedness described in clause (i)(I) is not amortized over its term, the expiration of the term of the 1st refinancing of such indebtedness (or if earlier, the date which is 30 years after the date of such refinancing).
"(D)
Subsec. (h)(4), (5).
1986—Subsec. (d).
Subsec. (e)(2)(C).
Subsec. (e)(3)(A).
Subsec. (e)(5).
Subsec. (f)(3).
Subsec. (h).
Subsec. (i)(2).
1984—Subsec. (d)(3)(D).
Subsec. (e)(1).
Subsec. (e)(2).
Subsec. (e)(3).
Subsec. (e)(4).
Subsec. (f)(2)(C)(i).
Subsecs. (g), (h).
1982—Subsec. (d)(4).
Subsec. (e).
Subsec. (f).
Subsec. (g).
1976—Subsec. (b)(1).
Subsec. (d)(1).
Subsec. (d)(2).
Subsec. (d)(3)(A).
Subsec. (d)(3)(B)(iii).
Subsec. (d)(3)(E).
Subsec. (d)(4)(B), (C).
Subsec. (d)(5).
Subsec. (d)(6).
Subsec. (d)(7).
1971—Subsec. (d)(1)(B).
Subsec. (d)(3)(C).
Subsec. (d)(4)(A)(i).
Subsec. (d)(7).
1969—Subsecs. (d), (e).
1964—Subsec. (b)(1).
1963—Subsecs. (c), (d).
Statutory Notes and Related Subsidiaries
Effective Date of 2020 Amendment
Effective Date of 2019 Amendment
Effective Date of 2018 Amendment
Effective Date of 2017 Amendment
Effective Date of 2015 Amendment
Effective Date of 2014 Amendment
Amendment by section 221(a)(25)(A) of
Effective Date of 2013 Amendment
Effective Date of 2010 Amendment
Amendment by
Effective Date of 2009 Amendment
"(1)
"(2)
Effective Date of 2007 Amendment
Effective Date of 2006 Amendment
Effective Date of 2005 Amendment
Amendment by
Effective Date of 2004 Amendment
Effective Date of 2003 Amendment
Amendment by
Effective Date of 1999 Amendment
Amendment by
Effective Date of 1998 Amendment
Amendment by
Effective Date of 1997 Amendment
Amendment by section 312(d)(1) of
"(1)
"(2)
"(1)
"(2)
"(A) issued pursuant to a written agreement which was binding on such date and at all times thereafter,
"(B) described in a ruling request submitted to the Internal Revenue Service on or before such date, or
"(C) described on or before such date in a public announcement or in a filing with the Securities and Exchange Commission required solely by reason of the issuance."
Effective Date of 1996 Amendment
Amendment by section 1703(n)(4) of
Effective Date of 1993 Amendment
Amendment by section 13206(d)(1) of
Effective Date of 1990 Amendment
Amendment by
Effective Date of 1989 Amendment
"(1)
"(2)
"(A) The amendments made by this section shall not apply to any instrument if—
"(i) such instrument is issued in connection with an acquisition—
"(I) which is made on or before July 10, 1989,
"(II) for which there was a written binding contract in effect on July 10, 1989, and at all times thereafter before such acquisition, or
"(III) for which a tender offer was filed with the Securities and Exchange Commission on or before July 10, 1989,
"(ii) the term of such instrument is not greater than—
"(I) the term specified in the written documents described in clause (iii), or
"(II) if no term is determined under subclause (I), 10 years, and
"(iii) the use of such instrument in connection with such acquisition (and the maximum amount of proceeds from such instrument) was determined on or before July 10, 1989, and such determination is evidenced by written documents—
"(I) which were transmitted on or before July 10, 1989, between the issuer and any governmental regulatory bodies or prospective parties to the issuance or acquisition, and
"(II) which are customarily used for the type of acquisition or financing involved.
"(B) The amendments made by this section shall not apply to any instrument issued pursuant to the terms of a debt instrument issued on or before July 10, 1989, or described in subparagraph (A) or (D).
"(C) The amendments made by this section shall not apply to any instrument issued to refinance an original issue discount debt instrument to which the amendments made by this section do not apply if—
"(i) the maturity date of the refinancing instrument is not later than the maturity date of the refinanced instrument,
"(ii) the issue price of the refinancing instrument does not exceed the adjusted issue price of the refinanced instrument,
"(iii) the stated redemption price at maturity of the refinancing instrument is not greater than the stated redemption price at maturity of the refinanced instrument, and
"(iv) the interest payments required under the refinancing instrument before maturity are not less than (and are paid not later than) the interest payments required under the refinanced instrument.
"(D) The amendments made by this section shall not apply to instruments issued after July 10, 1989, pursuant to a reorganization plan in a title 11 or similar case (as defined in section 368(a)(3) of the Internal Revenue Code of 1986) if the amount of proceeds of such instruments, and the maturities of such instruments, do not exceed the amount or maturities specified in the last reorganization plan filed in such case on or before July 10, 1989."
"(1)
"(2)
Effective Date of 1988 Amendment
Amendment by sections 1006(u)(1) and 1009(b)(6) of
Amendment by section 2004(b)(1) of
Effective Date of 1987 Amendment
Amendment by section 10212(b) of
Effective Date of 1986 Amendment
Amendment by section 902(e)(1) of
Amendment by section 1301(j)(3) of
Amendment by sections 1803(a)(4) and 1810(e)(1) of
Effective Date of 1984 Amendment
Amendment by section 42(a)(3) of
Amendment by section 127(f) of
Amendment by section 128(c) of
Amendment by section 612(c) of
Effective Date of 1982 Amendment
Amendment by
Amendment by
Effective Date of 1976 Amendment
Amendment by section 205(c)(3) of
"(1)
"(2)
"(A) is for a specified term, and
"(B) was incurred before September 11, 1975, or is incurred after September 10, 1975, pursuant to a written contract or commitment which on September 11, 1975, and at all times thereafter before the incurring of such indebtedness, is binding on the taxpayer,
the amendments made by this section shall not apply, but section 163(d) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as in effect before the enactment of this Act [Oct. 4, 1976]) shall apply. For purposes of the preceding sentence, so much of the net investment income (as defined in section 163(d)(3)(A) of such Code) for any taxable year as is not taken into account under section 163(d) of such Code, as amended by this Act, by reason of the last sentence of section 163(d)(3)(A) of such Code, shall be taken into account for purposes of applying such section as in effect before the date of enactment of this Act [Oct. 4, 1976] with respect to interest on indebtedness referred to in the preceding sentence."
Amendment by section 1901(b)(8)(C), (3)(K) of
Effective Date of 1971 Amendment
Effective Date of 1969 Amendment
Effective Date of 1964 Amendment
Effective Date of 1963 Amendment
Subsec. (c) effective as of Jan. 1, 1962, and applicable with respect to taxable years ending on or after such date, see section 2 of
Savings Provision
For provisions that nothing in amendment by section 401(b)(12) of
Application of Subsection (h) to Taxable Years Beginning in 1987
"(A) For purposes of applying section 163(h) of the 1986 Code to any taxable year beginning during 1987, if, incident to a divorce or legal separation—
"(i) an individual acquires the interest of a spouse or former spouse in a qualified residence in a transfer to which section 1041 of the 1986 Code applies, and
"(ii) such individual incurs indebtedness which is secured by such qualified residence,
the amount determined under paragraph (3)(B)(ii)(I) of section 163(h) of the 1986 Code (as in effect before the amendments made by the Revenue Act of 1987 [
"(B) The amount determined under this subparagraph shall be equal to the excess (if any) of—
"(i) the lesser of the amount of the indebtedness described in subparagraph (A)(ii), or the fair market value of the spouse's or former spouse's interest in the qualified residence as of the time of the transfer, over
"(ii) the basis of the spouse or former spouse in such interest in such residence (adjusted only by the cost of any improvements to such residence)."
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Transitional Rule for Treatment of Certain Income From S Corporations
"(a)
"(1) a corporation had an election in effect under subchapter S of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] for the taxable years of such corporation beginning in 1982, 1983, and 1984, and
"(2) a shareholder of such corporation makes an election to have this section apply,
then any qualified income which such shareholder takes into account by reason of holding stock in such corporation for any taxable year of such corporation beginning in 1983 or 1984 shall be treated for purposes of section 163(d) of the Internal Revenue Code of 1986 as such income would have been treated but for the enactment of the Subchapter S Revision Act of 1982 [
"(b)
"(c)
Transitional Rule
For provision that, for purposes of amendments by section 231(b) of
1 See References in Text note below.
2 So in original. Probably should be followed by a period.
§164. Taxes
(a) General rule
Except as otherwise provided in this section, the following taxes shall be allowed as a deduction for the taxable year within which paid or accrued:
(1) State and local, and foreign, real property taxes.
(2) State and local personal property taxes.
(3) State and local, and foreign, income, war profits, and excess profits taxes.
(4) The GST tax imposed on income distributions.
In addition, there shall be allowed as a deduction State and local, and foreign, taxes not described in the preceding sentence which are paid or accrued within the taxable year in carrying on a trade or business or an activity described in section 212 (relating to expenses for production of income). Notwithstanding the preceding sentence, any tax (not described in the first sentence of this subsection) which is paid or accrued by the taxpayer in connection with an acquisition or disposition of property shall be treated as part of the cost of the acquired property or, in the case of a disposition, as a reduction in the amount realized on the disposition.
(b) Definitions and special rules
For purposes of this section—
(1) Personal property taxes
The term "personal property tax" means an ad valorem tax which is imposed on an annual basis in respect of personal property.
(2) State or local taxes
A State or local tax includes only a tax imposed by a State, a possession of the United States, or a political subdivision of any of the foregoing, or by the District of Columbia.
(3) Foreign taxes
A foreign tax includes only a tax imposed by the authority of a foreign country.
(4) Special rules for GST tax
(A) In general
The GST tax imposed on income distributions is—
(i) the tax imposed by section 2601, and
(ii) any State tax described in section 2604 (as in effect before its repeal),
but only to the extent such tax is imposed on a transfer which is included in the gross income of the distributee and to which section 666 does not apply.
(B) Special rule for tax paid before due date
Any tax referred to in subparagraph (A) imposed with respect to a transfer occurring during the taxable year of the distributee (or, in the case of a taxable termination, the trust) which is paid not later than the time prescribed by law (including extensions) for filing the return with respect to such transfer shall be treated as having been paid on the last day of the taxable year in which the transfer was made.
(5) General sales taxes
For purposes of subsection (a)—
(A) Election to deduct State and local sales taxes in lieu of State and local income taxes
At the election of the taxpayer for the taxable year, subsection (a) shall be applied—
(i) without regard to the reference to State and local income taxes, and
(ii) as if State and local general sales taxes were referred to in a paragraph thereof.
(B) Definition of general sales tax
The term "general sales tax" means a tax imposed at one rate with respect to the sale at retail of a broad range of classes of items.
(C) Special rules for food, etc.
In the case of items of food, clothing, medical supplies, and motor vehicles—
(i) the fact that the tax does not apply with respect to some or all of such items shall not be taken into account in determining whether the tax applies with respect to a broad range of classes of items, and
(ii) the fact that the rate of tax applicable with respect to some or all of such items is lower than the general rate of tax shall not be taken into account in determining whether the tax is imposed at one rate.
(D) Items taxed at different rates
Except in the case of a lower rate of tax applicable with respect to an item described in subparagraph (C), no deduction shall be allowed under this paragraph for any general sales tax imposed with respect to an item at a rate other than the general rate of tax.
(E) Compensating use taxes
A compensating use tax with respect to an item shall be treated as a general sales tax. For purposes of the preceding sentence, the term "compensating use tax" means, with respect to any item, a tax which—
(i) is imposed on the use, storage, or consumption of such item, and
(ii) is complementary to a general sales tax, but only if a deduction is allowable under this paragraph with respect to items sold at retail in the taxing jurisdiction which are similar to such item.
(F) Special rule for motor vehicles
In the case of motor vehicles, if the rate of tax exceeds the general rate, such excess shall be disregarded and the general rate shall be treated as the rate of tax.
(G) Separately stated general sales taxes
If the amount of any general sales tax is separately stated, then, to the extent that the amount so stated is paid by the consumer (other than in connection with the consumer's trade or business) to the seller, such amount shall be treated as a tax imposed on, and paid by, such consumer.
(H) Amount of deduction may be determined under tables
(i) In general
At the election of the taxpayer for the taxable year, the amount of the deduction allowed under this paragraph for such year shall be—
(I) the amount determined under this paragraph (without regard to this subparagraph) with respect to motor vehicles, boats, and other items specified by the Secretary, and
(II) the amount determined under tables prescribed by the Secretary with respect to items to which subclause (I) does not apply.
(ii) Requirements for tables
The tables prescribed under clause (i)—
(I) shall reflect the provisions of this paragraph,
(II) shall be based on the average consumption by taxpayers on a State-by-State basis (as determined by the Secretary) of items to which clause (i)(I) does not apply, taking into account filing status, number of dependents, adjusted gross income, and rates of State and local general sales taxation, and
(III) need only be determined with respect to adjusted gross incomes up to the applicable amount (as determined under section 68(b)).
(6) Limitation on individual deductions for taxable years 2018 through 2025
In the case of an individual and a taxable year beginning after December 31, 2017, and before January 1, 2026—
(A) foreign real property taxes shall not be taken into account under subsection (a)(1), and
(B) the aggregate amount of taxes taken into account under paragraphs (1), (2), and (3) of subsection (a) and paragraph (5) of this subsection for any taxable year shall not exceed $10,000 ($5,000 in the case of a married individual filing a separate return).
The preceding sentence shall not apply to any foreign taxes described in subsection (a)(3) or to any taxes described in paragraph (1) and (2) of subsection (a) which are paid or accrued in carrying on a trade or business or an activity described in section 212. For purposes of subparagraph (B), an amount paid in a taxable year beginning before January 1, 2018, with respect to a State or local income tax imposed for a taxable year beginning after December 31, 2017, shall be treated as paid on the last day of the taxable year for which such tax is so imposed.
(c) Deduction denied in case of certain taxes
No deduction shall be allowed for the following taxes:
(1) Taxes assessed against local benefits of a kind tending to increase the value of the property assessed; but this paragraph shall not prevent the deduction of so much of such taxes as is properly allocable to maintenance or interest charges.
(2) Taxes on real property, to the extent that subsection (d) requires such taxes to be treated as imposed on another taxpayer.
(d) Apportionment of taxes on real property between seller and purchaser
(1) General rule
For purposes of subsection (a), if real property is sold during any real property tax year, then—
(A) so much of the real property tax as is properly allocable to that part of such year which ends on the day before the date of the sale shall be treated as a tax imposed on the seller, and
(B) so much of such tax as is properly allocable to that part of such year which begins on the date of the sale shall be treated as a tax imposed on the purchaser.
(2) Special rules
(A) In the case of any sale of real property, if—
(i) a taxpayer may not, by reason of his method of accounting, deduct any amount for taxes unless paid, and
(ii) the other party to the sale is (under the law imposing the real property tax) liable for the real property tax for the real property tax year,
then for purposes of subsection (a) the taxpayer shall be treated as having paid, on the date of the sale, so much of such tax as, under paragraph (1) of this subsection, is treated as imposed on the taxpayer. For purposes of the preceding sentence, if neither party is liable for the tax, then the party holding the property at the time the tax becomes a lien on the property shall be considered liable for the real property tax for the real property tax year.
(B) In the case of any sale of real property, if the taxpayer's taxable income for the taxable year during which the sale occurs is computed under an accrual method of accounting, and if no election under section 461(c) (relating to the accrual of real property taxes) applies, then, for purposes of subsection (a), that portion of such tax which—
(i) is treated, under paragraph (1) of this subsection, as imposed on the taxpayer, and
(ii) may not, by reason of the taxpayer's method of accounting, be deducted by the taxpayer for any taxable year,
shall be treated as having accrued on the date of the sale.
(e) Taxes of shareholder paid by corporation
Where a corporation pays a tax imposed on a shareholder on his interest as a shareholder, and where the shareholder does not reimburse the corporation, then—
(1) the deduction allowed by subsection (a) shall be allowed to the corporation; and
(2) no deduction shall be allowed the shareholder for such tax.
(f) Deduction for one-half of self-employment taxes
(1) In general
In the case of an individual, in addition to the taxes described in subsection (a), there shall be allowed as a deduction for the taxable year an amount equal to one-half of the taxes imposed by section 1401 (other than the taxes imposed by section 1401(b)(2)) for such taxable year.
(2) Deduction treated as attributable to trade or business
For purposes of this chapter, the deduction allowed by paragraph (1) shall be treated as attributable to a trade or business carried on by the taxpayer which does not consist of the performance of services by the taxpayer as an employee.
(g) Cross references
(1) For provisions disallowing any deduction for certain taxes, see section 275.
(2) For treatment of taxes imposed by Indian tribal governments (or their subdivisions), see section 7871.
(Aug. 16, 1954, ch. 736,
Editorial Notes
References in Text
Section 2604, referred to in subsec. (b)(4)(A)(ii), was repealed by
Amendments
2022—Subsec. (b)(6).
2017—Subsec. (b)(6).
2015—Subsec. (b)(5)(I).
2014—Subsec. (a)(5).
Subsec. (a)(6).
Subsec. (b)(4)(A)(ii).
Subsec. (b)(5)(I).
Subsec. (b)(6).
Subsec. (b)(6)(E) to (G).
2013—Subsec. (b)(5)(I).
2010—Subsec. (b)(5)(I).
Subsec. (f)(1).
2009—Subsec. (a)(6).
Subsec. (b)(6).
2008—Subsec. (b)(5)(I).
2006—Subsec. (b)(5)(I).
2005—Subsec. (b)(5)(A).
"(i)
"(I) without regard to the reference to State and local income taxes, and
"(II) as if State and local general sales taxes were referred to in a paragraph thereof."
2004—Subsec. (b)(5).
1996—Subsec. (a)(4), (5).
"(4) The environmental tax imposed by section 59A.
"(5) The GST tax imposed on income distributions."
1988—Subsec. (a)(4).
Subsec. (a)(5).
1986—Subsec. (a).
Subsec. (a)(4).
Subsec. (a)(5).
Subsec. (b)(2).
Subsec. (b)(3).
Subsec. (b)(4).
Subsec. (b)(5).
1984—Subsec. (f).
1983—Subsec. (f).
Subsec. (f)(3).
Subsec. (g).
1980—Subsec. (a)(5).
1978—Subsec. (a)(5).
Subsec. (b)(5).
1976—Subsec. (d)(2).
Subsecs. (f), (g).
1972—Subsec. (b)(2)(E).
1964—Subsec. (a).
Subsec. (b).
Subsec. (c).
Subsec. (f).
Subsec. (g).
1958—Subsecs. (f), (g).
Statutory Notes and Related Subsidiaries
Effective Date of 2022 Amendment
Effective Date of 2017 Amendment
Effective Date of 2015 Amendment
Effective Date of 2014 Amendment
Amendment by section 209(c) of
Amendment by section 221(a)(12)(D), (26), (95)(B)(ii) of
Effective Date of 2013 Amendment
Effective Date of 2010 Amendment
Effective Date of 2009 Amendment
Amendment by
Effective Date of 2008 Amendment
Effective Date of 2006 Amendment
Effective Date of 2005 Amendment
Amendment by
Effective Date of 2004 Amendment
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 134 of
Amendment by section 1432(a)(1), (2) of
Amendment by
Effective Date of 1984 Amendment
Amendment by
Effective Date of 1983 Amendment
Amendment by
For effective date of amendment by
Effective Date of 1980 Amendment
Amendment by
Effective Date of 1978 Amendment
Effective Date of 1976 Amendment
Amendment by
Effective Date of 1972 Amendment
Effective Date of 1964 Amendment
"(1)
"(2)
Effective Date of 1958 Amendment
Savings Provision
§165. Losses
(a) General rule
There shall be allowed as a deduction any loss sustained during the taxable year and not compensated for by insurance or otherwise.
(b) Amount of deduction
For purposes of subsection (a), the basis for determining the amount of the deduction for any loss shall be the adjusted basis provided in section 1011 for determining the loss from the sale or other disposition of property.
(c) Limitation on losses of individuals
In the case of an individual, the deduction under subsection (a) shall be limited to—
(1) losses incurred in a trade or business;
(2) losses incurred in any transaction entered into for profit, though not connected with a trade or business; and
(3) except as provided in subsection (h), losses of property not connected with a trade or business or a transaction entered into for profit, if such losses arise from fire, storm, shipwreck, or other casualty, or from theft.
(d) Wagering losses
Losses from wagering transactions shall be allowed only to the extent of the gains from such transactions. For purposes of the preceding sentence, in the case of taxable years beginning after December 31, 2017, and before January 1, 2026, the term "losses from wagering transactions" includes any deduction otherwise allowable under this chapter incurred in carrying on any wagering transaction.
(e) Theft losses
For purposes of subsection (a), any loss arising from theft shall be treated as sustained during the taxable year in which the taxpayer discovers such loss.
(f) Capital losses
Losses from sales or exchanges of capital assets shall be allowed only to the extent allowed in sections 1211 and 1212.
(g) Worthless securities
(1) General rule
If any security which is a capital asset becomes worthless during the taxable year, the loss resulting therefrom shall, for purposes of this subtitle, be treated as a loss from the sale or exchange, on the last day of the taxable year, of a capital asset.
(2) Security defined
For purposes of this subsection, the term "security" means—
(A) a share of stock in a corporation;
(B) a right to subscribe for, or to receive, a share of stock in a corporation; or
(C) a bond, debenture, note, or certificate, or other evidence of indebtedness, issued by a corporation or by a government or political subdivision thereof, with interest coupons or in registered form.
(3) Securities in affiliated corporation
For purposes of paragraph (1), any security in a corporation affiliated with a taxpayer which is a domestic corporation shall not be treated as a capital asset. For purposes of the preceding sentence, a corporation shall be treated as affiliated with the taxpayer only if—
(A) the taxpayer owns directly stock in such corporation meeting the requirements of section 1504(a)(2), and
(B) more than 90 percent of the aggregate of its gross receipts for all taxable years has been from sources other than royalties, rents (except rents derived from rental of properties to employees of the corporation in the ordinary course of its operating business), dividends, interest (except interest received on deferred purchase price of operating assets sold), annuities, and gains from sales or exchanges of stocks and securities.
In computing gross receipts for purposes of the preceding sentence, gross receipts from sales or exchanges of stocks and securities shall be taken into account only to the extent of gains therefrom.
(h) Treatment of casualty gains and losses
(1) Dollar limitation per casualty
Any loss of an individual described in subsection (c)(3) shall be allowed only to the extent that the amount of the loss to such individual arising from each casualty, or from each theft, exceeds $500 ($100 for taxable years beginning after December 31, 2009).
(2) Net casualty loss allowed only to the extent it exceeds 10 percent of adjusted gross income
(A) In general
If the personal casualty losses for any taxable year exceed the personal casualty gains for such taxable year, such losses shall be allowed for the taxable year only to the extent of the sum of—
(i) the amount of the personal casualty gains for the taxable year, plus
(ii) so much of such excess as exceeds 10 percent of the adjusted gross income of the individual.
(B) Special rule where personal casualty gains exceed personal casualty losses
If the personal casualty gains for any taxable year exceed the personal casualty losses for such taxable year—
(i) all such gains shall be treated as gains from sales or exchanges of capital assets, and
(ii) all such losses shall be treated as losses from sales or exchanges of capital assets.
(3) Definitions of personal casualty gain and personal casualty loss
For purposes of this subsection—
(A) Personal casualty gain
The term "personal casualty gain" means the recognized gain from any involuntary conversion of property which is described in subsection (c)(3) arising from fire, storm, shipwreck, or other casualty, or from theft.
(B) Personal casualty loss
The term "personal casualty loss" means any loss described in subsection (c)(3). For purposes of paragraph (2), the amount of any personal casualty loss shall be determined after the application of paragraph (1).
(4) Special rules
(A) Personal casualty losses allowable in computing adjusted gross income to the extent of personal casualty gains
In any case to which paragraph (2)(A) applies, the deduction for personal casualty losses for any taxable year shall be treated as a deduction allowable in computing adjusted gross income to the extent such losses do not exceed the personal casualty gains for the taxable year.
(B) Joint returns
For purposes of this subsection, a husband and wife making a joint return for the taxable year shall be treated as 1 individual.
(C) Determination of adjusted gross income in case of estates and trusts
For purposes of paragraph (2), the adjusted gross income of an estate or trust shall be computed in the same manner as in the case of an individual, except that the deductions for costs paid or incurred in connection with the administration of the estate or trust shall be treated as allowable in arriving at adjusted gross income.
(D) Coordination with estate tax
No loss described in subsection (c)(3) shall be allowed if, at the time of filing the return, such loss has been claimed for estate tax purposes in the estate tax return.
(E) Claim required to be filed in certain cases
Any loss of an individual described in subsection (c)(3) to the extent covered by insurance shall be taken into account under this section only if the individual files a timely insurance claim with respect to such loss.
(5) Limitation for taxable years 2018 through 2025
(A) In general
In the case of an individual, except as provided in subparagraph (B), any personal casualty loss which (but for this paragraph) would be deductible in a taxable year beginning after December 31, 2017, and before January 1, 2026, shall be allowed as a deduction under subsection (a) only to the extent it is attributable to a Federally declared disaster (as defined in subsection (i)(5)).
(B) Exception related to personal casualty gains
If a taxpayer has personal casualty gains for any taxable year to which subparagraph (A) applies—
(i) subparagraph (A) shall not apply to the portion of the personal casualty loss not attributable to a Federally declared disaster (as so defined) to the extent such loss does not exceed such gains, and
(ii) in applying paragraph (2) for purposes of subparagraph (A) to the portion of personal casualty loss which is so attributable to such a disaster, the amount of personal casualty gains taken into account under paragraph (2)(A) shall be reduced by the portion of such gains taken into account under clause (i).
(i) Disaster losses
(1) Election to take deduction for preceding year
Notwithstanding the provisions of subsection (a), any loss occurring in a disaster area and attributable to a federally declared disaster may, at the election of the taxpayer, be taken into account for the taxable year immediately preceding the taxable year in which the disaster occurred.
(2) Year of loss
If an election is made under this subsection, the casualty resulting in the loss shall be treated for purposes of this title as having occurred in the taxable year for which the deduction is claimed.
(3) Amount of loss
The amount of the loss taken into account in the preceding taxable year by reason of paragraph (1) shall not exceed the uncompensated amount determined on the basis of the facts existing at the date the taxpayer claims the loss.
(4) Use of disaster loan appraisals to establish amount of loss
Nothing in this title shall be construed to prohibit the Secretary from prescribing regulations or other guidance under which an appraisal for the purpose of obtaining a loan of Federal funds or a loan guarantee from the Federal Government as a result of a federally declared disaster may be used to establish the amount of any loss described in paragraph (1) or (2).
(5) Federally declared disasters
For purposes of this subsection—
(A) In general
The term "Federally 1 declared disaster" means any disaster subsequently determined by the President of the United States to warrant assistance by the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act.
(B) Disaster area
The term "disaster area" means the area so determined to warrant such assistance.
(j) Denial of deduction for losses on certain obligations not in registered form
(1) In general
Nothing in subsection (a) or in any other provision of law shall be construed to provide a deduction for any loss sustained on any registration-required obligation unless such obligation is in registered form (or the issuance of such obligation was subject to tax under section 4701).
(2) Definitions
For purposes of this subsection—
(A) Registration-required obligation
The term "registration-required obligation" has the meaning given to such term by section 163(f)(2).
(B) Registered form
The term "registered form" has the same meaning as when used in section 163(f).
(3) Exceptions
The Secretary may, by regulations, provide that this subsection and section 1287 shall not apply with respect to obligations held by any person if—
(A) such person holds such obligations in connection with a trade or business outside the United States,
(B) such person holds such obligations as a broker dealer (registered under Federal or State law) for sale to customers in the ordinary course of his trade or business,
(C) such person complies with reporting requirements with respect to ownership, transfers, and payments as the Secretary may require, or
(D) such person promptly surrenders the obligation to the issuer for the issuance of a new obligation in registered form,
but only if such obligations are held under arrangements provided in regulations or otherwise which are designed to assure that such obligations are not delivered to any United States person other than a person described in subparagraph (A), (B), or (C).
(k) Treatment as disaster loss where taxpayer ordered to demolish or relocate residence in disaster area because of disaster
In the case of a taxpayer whose residence is located in an area which has been determined by the President of the United States to warrant assistance by the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, if—
(1) not later than the 120th day after the date of such determination, the taxpayer is ordered, by the government of the State or any political subdivision thereof in which such residence is located, to demolish or relocate such residence, and
(2) the residence has been rendered unsafe for use as a residence by reason of the disaster,
any loss attributable to such disaster shall be treated as a loss which arises from a casualty and which is described in subsection (i).
(l) Treatment of certain losses in insolvent financial institutions
(1) In general
If—
(A) as of the close of the taxable year, it can reasonably be estimated that there is a loss on a qualified individual's deposit in a qualified financial institution, and
(B) such loss is on account of the bankruptcy or insolvency of such institution,
then the taxpayer may elect to treat the amount so estimated as a loss described in subsection (c)(3) incurred during the taxable year.
(2) Qualified individual defined
For purposes of this subsection, the term "qualified individual" means any individual, except an individual—
(A) who owns at least 1 percent in value of the outstanding stock of the qualified financial institution,
(B) who is an officer of the qualified financial institution,
(C) who is a sibling (whether by the whole or half blood), spouse, aunt, uncle, nephew, niece, ancestor, or lineal descendant of an individual described in subparagraph (A) or (B), or
(D) who otherwise is a related person (as defined in section 267(b)) with respect to an individual described in subparagraph (A) or (B).
(3) Qualified financial institution
For purposes of this subsection, the term "qualified financial institution" means—
(A) any bank (as defined in section 581),
(B) any institution described in section 591,
(C) any credit union the deposits or accounts in which are insured under Federal or State law or are protected or guaranteed under State law, or
(D) any similar institution chartered and supervised under Federal or State law.
(4) Deposit
For purposes of this subsection, the term "deposit" means any deposit, withdrawable account, or withdrawable or repurchasable share.
(5) Election to treat as ordinary loss
(A) In general
In lieu of any election under paragraph (1), the taxpayer may elect to treat the amount referred to in paragraph (1) for the taxable year as an ordinary loss described in subsection (c)(2) incurred during the taxable year.
(B) Limitations
(i) Deposit may not be federally insured
No election may be made under subparagraph (A) with respect to any loss on a deposit in a qualified financial institution if part or all of such deposit is insured under Federal law.
(ii) Dollar limitation
With respect to each financial institution, the aggregate amount of losses attributable to deposits in such financial institution to which an election under subparagraph (A) may be made by the taxpayer for any taxable year shall not exceed $20,000 ($10,000 in the case of a separate return by a married individual). The limitation of the preceding sentence shall be reduced by the amount of any insurance proceeds under any State law which can reasonably be expected to be received with respect to losses on deposits in such institution.
(6) Election
Any election by the taxpayer under this subsection for any taxable year—
(A) shall apply to all losses for such taxable year of the taxpayer on deposits in the institution with respect to which such election was made, and
(B) may be revoked only with the consent of the Secretary.
(7) Coordination with section 166
Section 166 shall not apply to any loss to which an election under this subsection applies.
(m) Cross references
(1) For special rule for banks with respect to worthless securities, see section 582.
(2) For disallowance of deduction for worthlessness of securities to which subsection (g)(2)(C) applies, if issued by a political party or similar organization, see section 271.
(3) For special rule for losses on stock in a small business investment company, see section 1242.
(4) For special rule for losses of a small business investment company, see section 1243.
(5) For special rule for losses on small business stock, see section 1244.
(Aug. 16, 1954, ch. 736,
Editorial Notes
References in Text
The Robert T. Stafford Disaster Relief and Emergency Assistance Act, referred to in subsecs. (i)(5)(A) and (k), is
Amendments
2017—Subsec. (d).
Subsec. (h)(5).
2014—Subsec. (h)(1).
Subsec. (h)(3).
Subsec. (h)(3)(B).
Subsec. (h)(4), (5).
Subsec. (i)(1).
Subsec. (i)(4).
Subsec. (i)(5).
2010—Subsec. (j)(2)(A).
2008—Subsec. (h)(1).
Subsec. (h)(3).
Subsec. (h)(4).
Subsec. (h)(4)(B).
Subsec. (h)(5).
Subsec. (i)(1).
Subsec. (i)(4).
2004—Subsecs. (i)(1), (k).
2000—Subsec. (g)(3).
Subsec. (g)(3)(A).
1997—Subsec. (i)(4).
1988—Subsecs. (i)(1), (k).
Subsec. (l)(5) to (7).
1986—Subsec. (h)(4)(E).
Subsecs. (l), (m).
1984—Subsec. (c)(3).
Subsec. (h).
"(A) the amount of loss to such individual arising from each casualty, or from each theft, exceeds $100, and
"(B) the aggregate amount of all such losses sustained by such individual during the taxable year (determined after application of subparagraph (A) exceeds 10 percent of the adjusted gross income of the individual.";
added par. (2) "Net casualty loss allowed only to the extent it exceeds 10 percent of adjusted gross income" provision and par. (3) "Definitions of personal casualty gain and personal casualty loss" provisions; redesignated as par. (4) former par. (2) catchline; added par. (4)(A) "Personal casualty losses allowable in computing adjusted gross income to the extent of personal casualty gains" provision; redesignated as par. (4)(B) former par. (2)(A) joint returns provision, substituting "For purposes of this section" for "For purposes of the $100 and 10 percent limitations described in paragraph (1)" and "individual" for "one individual"; redesignated as par. (4)(C) former par. (2)(B), substituting therein paragraph "(2)" for "(1)"; and redesignated as par. (4)(D) former par. (2)(C).
Subsec. (j)(3).
Subsecs. (k), (l).
1982—Subsec. (c)(3).
Subsec. (h).
Subsec. (i).
Subsec. (j).
Subsec. (k).
1976—Subsecs. (i), (j).
1974—Subsec. (h).
1972—Subsec. (h).
Subsec. (h)(1).
1971—Subsec. (g)(3).
Subsec. (i)(1).
Subsec. (i)(2)(B).
Subsec. (i)(3).
1970—Subsec. (h)(2).
1964—Subsec. (c)(3).
Subsec. (i).
Subsec. (j).
1962—Subsecs. (h), (i).
1958—Subsec. (g)(3)(B).
Subsec. (h)(3), (4).
Subsec. (h)(5).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Effective Date of 2014 Amendment
Amendment by section 211(c)(1)(C) of
Amendment by section 221(a)(27)(A)–(C) of
Effective Date of 2010 Amendment
Amendment by
Effective Date of 2008 Amendment
Amendment by section 706(a)(1), (2)(A)–(C) of
Amendment by section 706(c) of
Effective Date of 2000 Amendment
Effective Date of 1997 Amendment
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 905(a) of
Effective Date of 1984 Amendment
Amendment by section 42(a)(4) of
Amendment by section 711(c)(1) of
Effective Date of 1982 Amendment
Amendment by section 310(b)(5) of
Effective Date of 1976 Amendment
Amendment by
Effective Date of 1974 Amendment
Amendment by
Effective Date of 1972 Amendment
Effective Date of 1971 Amendment
Effective Date of 1970 Amendment
Effective Date of 1964 Amendment
Effective Date of 1962 Amendment
Effective Date of 1958 Amendment
"(1) amendments made by this title to subtitle A of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (relating to income taxes) [enacting
"(2) amendments made by this title to subtitle F of such Code (relating to procedure and administration) [enacting
Amendment by section 57(c)(1) of
Transitional Rule for 1984 Amendment
"(i) For purposes of paragraph (1)(B) of section 165(h) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954], adjusted gross income shall be determined without regard to the application of section 1231 of such Code to any gain or loss from an involuntary conversion of property described in subsection (c)(3) of section 165 of such Code arising from fire, storm, shipwreck, or other casualty or from theft.
"(ii) Section 1231 of such Code shall be applied after the application of paragraph (1) of section 165(h) of such Code."
Clarification of Treatment of Certain FSLIC Financial Assistance
"(a)
"(1) any FSLIC assistance with respect to any loss of principal, capital, or similar amount upon the disposition of any asset shall be taken into account as compensation for such loss for purposes of section 165 of such Code, and
"(2) any FSLIC assistance with respect to any debt shall be taken into account for purposes of section 166, 585, or 593 of such Code in determining whether such debt is worthless (or the extent to which such debt is worthless) and in determining the amount of any addition to a reserve for bad debts arising from the worthlessness or partial worthlessness of such debts.
"(b)
"(c)
"(1)
"(A) The provisions of this section shall apply to taxable years ending on or after March 4, 1991, but only with respect to FSLIC assistance not credited before March 4, 1991.
"(B) If any FSLIC assistance not credited before March 4, 1991, is with respect to a loss sustained or charge-off in a taxable year ending before March 4, 1991, for purposes of determining the amount of any net operating loss carryover to a taxable year ending on or after March 4, 1991, the provisions of this section shall apply to such assistance for purposes of determining the amount of the net operating loss for the taxable year in which such loss was sustained or debt written off. Except as provided in the preceding sentence, this section shall not apply to any FSLIC assistance with respect to a loss sustained or charge-off in a taxable year ending before March 4, 1991.
"(2)
Overpayments or Underpayments of Tax Attributable to Certain Amendments by Pub. L. 99–514 or Pub. L. 100–647
"(A) credit or refund of any such overpayment may nevertheless be made if claim therefore [sic] is filed before the date 1 year after such date of enactment, and
"(B) assessment of any such underpayment may nevertheless be made if made before the date 1 year after such date of enactment."
Deduction for Bus and Freight Forwarder Operating Authority
"(a)
"(1)
"(2)
"(A) by substituting 'November 19, 1982' for 'July 1, 1980' each place it appears, and
"(B) by substituting 'November 1982' for 'July 1980' in subsection (a) thereof.
"(3)
"(A) a certificate or permit held by a motor common or contract carrier of passengers which was issued pursuant to subchapter II of
"(B) a certificate or permit held by a motor carrier authorizing the transportation of passengers, as a common carrier, over regular routes in intrastate commerce which was issued by the appropriate State agency.
"(b)
"(1)
"(2)
"(A) 60-
"(i) the deregulation month, or
"(ii) at the election of the taxpayer, the 1st month of the taxpayer's 1st taxable year beginning after the deregulation month.
"(B)
"(C)
"(3)
"(c)
"(d)
"(e)
"(1)
"(A)
"(B)
"(2)
Deduction for Motor Carrier Operating Authority
"(a)
"(b)
"(c)
"(1)
"(2)
"(A)
"(i) on or before July 1, 1980 (or after such date pursuant to a binding contract in effect on such date), acquired stock in a corporation which held, directly or indirectly, any motor carrier operating authority at the time of such acquisition, and
"(ii) would have been able to allocate to the basis of such authority that portion of the acquiring corporation's cost basis in such stock attributable to such authority if the acquiring corporation had received such authority in the liquidation of the acquired corporation immediately following such acquisition and such allocation would have been proper under section 334(b)(2) of such Code,
the holder of the authority may, for purposes of this section, allocate a portion of the basis of the acquiring corporation in the stock of the acquired corporation to the basis of such authority in such manner as the Secretary may prescribe in such regulations.
"(B)
"(i) a noncorporate taxpayer or group of noncorporate taxpayers on or before July 1, 1980, acquired in one purchase stock in a corporation which held, directly or indirectly, any motor carrier operating authority at the time of such acquisition, and
"(ii) the acquisition referred to in clause (i) would have satisfied the requirements of subparagraph (A) if the stock had been acquired by a corporation,
then, for purposes of subparagraphs (A) and (C), the noncorporate taxpayer or group of noncorporate taxpayers referred to in clause (i) shall be treated as a corporation. The preceding sentence shall apply only if such noncorporate taxpayer (or group of noncorporate taxpayers) on July 1, 1980, held stock constituting control (within the meaning of section 368(c) of the Internal Revenue Code of 1986) of the corporation holding (directly or indirectly) the motor carrier operating authority.
"(C)
"(3)
"(d)
[
Tax Treatment of Certain 1972 Disaster Loans
"(a)
"(1) who was allowed a deduction under section 165 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (relating to losses) for a loss attributable to a disaster occurring during calendar year 1972 which was determined by the President, under section 102 of the Disaster Relief Act of 1970, to warrant disaster assistance by the Federal Government.
"(2) who in connection with such disaster—
"(A) received income in the form of cancellation of a disaster loan under section 7 of the Small Business Act [
"(B) received income in the form of compensation (not taken into account in computing the amount of the deduction) for such loss in settlement of any claim of the taxpayer against a person for that person's liability in tort for the damage or destruction of that taxpayer's property in connection with the disaster, and
"(3) who elects (at such time and in such manner as the Secretary of the Treasury or his delegate may by regulations prescribe) to take the benefits of this section.
"(b)
"(1) the tax imposed by
"(2) any amount of tax imposed by
"(3) no interest on any deficiency shall be payable for any period before April 16, 1977, to the extent such deficiency is attributable to the receipt of such compensation, and no interest on any installment referred to in paragraph (2) shall be payable for any period before the due date of such installment.
"(c)
"(1) in the case of an individual described in subsection (a)(2)(A), the amount of income (not in excess of $5,000) attributable to the cancellation of a disaster loan under section 7 of the Small Business Act or an emergency loan under subtitle C of the Consolidated Farm and Rural Development Act received by reason of the disaster described in subsection (a)(1), or
"(2) in the case of an individual described in subsection (a)(2)(B), the amount of compensation (not in excess of $5,000) for the loss in settlement of any claim of the taxpayer against a person for that person's liability in tort for the damage or destruction of that taxpayer's property in connection with the disaster described in subsection (a)(1).
"(d)
"(e)
Refund or Credit of Overpayment; Time for Filing Claim; Interest
1 So in original. Probably should not be capitalized.
§166. Bad debts
(a) General rule
(1) Wholly worthless debts
There shall be allowed as a deduction any debt which becomes worthless within the taxable year.
(2) Partially worthless debts
When satisfied that a debt is recoverable only in part, the Secretary may allow such debt, in an amount not in excess of the part charged off within the taxable year, as a deduction.
(b) Amount of deduction
For purposes of subsection (a), the basis for determining the amount of the deduction for any bad debt shall be the adjusted basis provided in section 1011 for determining the loss from the sale or other disposition of property.
[(c) Repealed. Pub. L. 99–514, title VIII, §805(a), Oct. 22, 1986, 100 Stat. 2361 ]
(d) Nonbusiness debts
(1) General rule
In the case of a taxpayer other than a corporation—
(A) subsection (a) shall not apply to any nonbusiness debt; and
(B) where any nonbusiness debt becomes worthless within the taxable year, the loss resulting therefrom shall be considered a loss from the sale or exchange, during the taxable year, of a capital asset held for not more than 1 year.
(2) Nonbusiness debt defined
For purposes of paragraph (1), the term "nonbusiness debt" means a debt other than—
(A) a debt created or acquired (as the case may be) in connection with a trade or business of the taxpayer; or
(B) a debt the loss from the worthlessness of which is incurred in the taxpayer's trade or business.
(e) Worthless securities
This section shall not apply to a debt which is evidenced by a security as defined in section 165(g)(2)(C).
(f) Cross references
(1) For disallowance of deduction for worthlessness of debts owed by political parties and similar organizations, see section 271.
(2) For special rule for banks with respect to worthless securities, see section 582.
(Aug. 16, 1954, ch. 736,
Editorial Notes
Amendments
1988—Subsec. (d)(1)(A).
Subsecs. (f), (g).
1986—Subsec. (c).
Subsec. (f).
Subsec. (g).
"(3) For special rule for bad debt reserves of certain mutual savings banks, domestic building and loan associations, and cooperative banks, see section 593.
"(4) For special rule for bad debt reserves of banks, small business investment-companies, etc., see sections 585 and 586."
1984—Subsec. (d)(1)(B).
1976—Subsecs. (a)(2), (c).
Subsec. (d)(1)(B).
Subsec. (f).
Subsecs. (g), (h).
1969—Subsec. (h)(4).
1966—Subsecs. (g), (h).
1958—Subsec. (d)(2)(A).
Statutory Notes and Related Subsidiaries
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
"(1)
"(2)
"(A) such change shall be treated as initiated by the taxpayer,
"(B) such change shall be treated as made with the consent of the Secretary, and
"(C) the net amount of adjustments required by section 481 of the Internal Revenue Code of 1986 to be taken into account by the taxpayer shall—
"(i) in the case of a taxpayer maintaining a reserve under section 166(f), be reduced by the balance in the suspense account under section 166(f)(4) of such Code as of the close of such last taxable year, and
"(ii) be taken into account ratably in each of the first 4 taxable years beginning after December 31, 1986."
Effective Date of 1984 Amendment
Effective Date of 1976 Amendment
Effective Date of 1969 Amendment
Amendment by
Effective Date of 1966 Amendment
"(a) Except as provided in subsections (b) and (c), the amendments made by the first section of this Act [amending this section and
"(b) If—
"(1) the taxpayer before October 22, 1965, claimed a deduction, for a taxable year ending before such date, under section 166(c) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] for an addition to a reserve for bad debts on account of debt obligations described in section 166(g)(1)(A) of such Code (as amended by the first section of this Act), and
"(2) the assessment of a deficiency of the tax imposed by
then such deduction on account of such debt obligations shall be allowed for each such taxable year under such section 166(c) to the extent that the deduction would have been allowable under the provisions of such section 166(g)(1)(A) if such provisions applied to such taxable years.
"(c) Section 166(g)(2) of the Internal Revenue Code of 1986 (as amended by the first section of this Act) shall apply to taxable years beginning after December 31, 1953, and ending after August 16, 1954."
Effective Date of 1958 Amendment
Amendment by
Establishment of Reserve for Taxable Year Ending After Oct. 21, 1965, and Beginning Before Aug. 2, 1966
§167. Depreciation
(a) General rule
There shall be allowed as a depreciation deduction a reasonable allowance for the exhaustion, wear and tear (including a reasonable allowance for obsolescence)—
(1) of property used in the trade or business, or
(2) of property held for the production of income.
(b) Cross reference
For determination of depreciation deduction in case of property to which section 168 applies, see section 168.
(c) Basis for depreciation
(1) In general
The basis on which exhaustion, wear and tear, and obsolescence are to be allowed in respect of any property shall be the adjusted basis provided in section 1011, for the purpose of determining the gain on the sale or other disposition of such property.
(2) Special rule for property subject to lease
If any property is acquired subject to a lease—
(A) no portion of the adjusted basis shall be allocated to the leasehold interest, and
(B) the entire adjusted basis shall be taken into account in determining the depreciation deduction (if any) with respect to the property subject to the lease.
(d) Life tenants and beneficiaries of trusts and estates
In the case of property held by one person for life with remainder to another person, the deduction shall be computed as if the life tenant were the absolute owner of the property and shall be allowed to the life tenant. In the case of property held in trust, the allowable deduction shall be apportioned between the income beneficiaries and the trustee in accordance with the pertinent provisions of the instrument creating the trust, or, in the absence of such provisions, on the basis of the trust income allocable to each. In the case of an estate, the allowable deduction shall be apportioned between the estate and the heirs, legatees, and devisees on the basis of the income of the estate allocable to each.
(e) Certain term interests not depreciable
(1) In general
No depreciation deduction shall be allowed under this section (and no depreciation or amortization deduction shall be allowed under any other provision of this subtitle) to the taxpayer for any term interest in property for any period during which the remainder interest in such property is held (directly or indirectly) by a related person.
(2) Coordination with other provisions
(A) Section 273
This subsection shall not apply to any term interest to which section 273 applies.
(B) Section 305(e)
This subsection shall not apply to the holder of the dividend rights which were separated from any stripped preferred stock to which section 305(e)(1) applies.
(3) Basis adjustments
If, but for this subsection, a depreciation or amortization deduction would be allowable to the taxpayer with respect to any term interest in property—
(A) the taxpayer's basis in such property shall be reduced by any depreciation or amortization deductions disallowed under this subsection, and
(B) the basis of the remainder interest in such property shall be increased by the amount of such disallowed deductions (properly adjusted for any depreciation deductions allowable under subsection (d) to the taxpayer).
(4) Special rules
(A) Denial of increase in basis of remainderman
No increase in the basis of the remainder interest shall be made under paragraph (3)(B) for any disallowed deductions attributable to periods during which the term interest was held—
(i) by an organization exempt from tax under this subtitle, or
(ii) by a nonresident alien individual or foreign corporation but only if income from the term interest is not effectively connected with the conduct of a trade or business in the United States.
(B) Coordination with subsection (d)
If, but for this subsection, a depreciation or amortization deduction would be allowable to any person with respect to any term interest in property, the principles of subsection (d) shall apply to such person with respect to such term interest.
(5) Definitions
For purposes of this subsection—
(A) Term interest in property
The term "term interest in property" has the meaning given such term by section 1001(e)(2).
(B) Related person
The term "related person" means any person bearing a relationship to the taxpayer described in subsection (b) or (e) of section 267.
(6) Regulations
The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subsection, including regulations preventing avoidance of this subsection through cross-ownership arrangements or otherwise.
(f) Treatment of certain property excluded from section 197
(1) Computer software
(A) In general
If a depreciation deduction is allowable under subsection (a) with respect to any computer software, such deduction shall be computed by using the straight line method and a useful life of 36 months.
(B) Computer software
For purposes of this section, the term "computer software" has the meaning given to such term by section 197(e)(3)(B); except that such term shall not include any such software which is an amortizable section 197 intangible.
(C) Tax-exempt use property subject to lease
In the case of computer software which would be tax-exempt use property as defined in subsection (h) of section 168 if such section applied to computer software, the useful life under subparagraph (A) shall not be less than 125 percent of the lease term (within the meaning of section 168(i)(3)).
(2) Certain interests or rights acquired separately
If a depreciation deduction is allowable under subsection (a) with respect to any property described in subparagraph (B), (C), or (D) of section 197(e)(4), such deduction shall be computed in accordance with regulations prescribed by the Secretary. If such property would be tax-exempt use property as defined in subsection (h) of section 168 if such section applied to such property, the useful life under such regulations shall not be less than 125 percent of the lease term (within the meaning of section 168(i)(3)).
(3) Mortgage servicing rights
If a depreciation deduction is allowable under subsection (a) with respect to any right described in section 197(e)(6), such deduction shall be computed by using the straight line method and a useful life of 108 months.
(g) Depreciation under income forecast method
(1) In general
If the depreciation deduction allowable under this section to any taxpayer with respect to any property is determined under the income forecast method or any similar method—
(A) the income from the property to be taken into account in determining the depreciation deduction under such method shall be equal to the amount of income earned in connection with the property before the close of the 10th taxable year following the taxable year in which the property was placed in service,
(B) the adjusted basis of the property shall only include amounts with respect to which the requirements of section 461(h) are satisfied,
(C) the depreciation deduction under such method for the 10th taxable year beginning after the taxable year in which the property was placed in service shall be equal to the adjusted basis of such property as of the beginning of such 10th taxable year, and
(D) such taxpayer shall pay (or be entitled to receive) interest computed under the look-back method of paragraph (2) for any recomputation year.
(2) Look-back method
The interest computed under the look-back method of this paragraph for any recomputation year shall be determined by—
(A) first determining the depreciation deductions under this section with respect to such property which would have been allowable for prior taxable years if the determination of the amounts so allowable had been made on the basis of the sum of the following (instead of the estimated income from such property)—
(i) the actual income earned in connection with such property for periods before the close of the recomputation year, and
(ii) an estimate of the future income to be earned in connection with such property for periods after the recomputation year and before the close of the 10th taxable year following the taxable year in which the property was placed in service,
(B) second, determining (solely for purposes of computing such interest) the overpayment or underpayment of tax for each such prior taxable year which would result solely from the application of subparagraph (A), and
(C) then using the adjusted overpayment rate (as defined in section 460(b)(7)), compounded daily, on the overpayment or underpayment determined under subparagraph (B).
For purposes of the preceding sentence, any cost incurred after the property is placed in service (which is not treated as a separate property under paragraph (5)) shall be taken into account by discounting (using the Federal mid-term rate determined under section 1274(d) as of the time such cost is incurred) such cost to its value as of the date the property is placed in service. The taxpayer may elect with respect to any property to have the preceding sentence not apply to such property.
(3) Exception from look-back method
Paragraph (1)(D) shall not apply with respect to any property which had a cost basis of $100,000 or less.
(4) Recomputation year
For purposes of this subsection, except as provided in regulations, the term "recomputation year" means, with respect to any property, the 3d and the 10th taxable years beginning after the taxable year in which the property was placed in service, unless the actual income earned in connection with the property for the period before the close of such 3d or 10th taxable year is within 10 percent of the income earned in connection with the property for such period which was taken into account under paragraph (1)(A).
(5) Special rules
(A) Certain costs treated as separate property
For purposes of this subsection, the following costs shall be treated as separate properties:
(i) Any costs incurred with respect to any property after the 10th taxable year beginning after the taxable year in which the property was placed in service.
(ii) Any costs incurred after the property is placed in service and before the close of such 10th taxable year if such costs are significant and give rise to a significant increase in the income from the property which was not included in the estimated income from the property.
(B) Syndication income from television series
In the case of property which is 1 or more episodes in a television series, income from syndicating such series shall not be required to be taken into account under this subsection before the earlier of—
(i) the 4th taxable year beginning after the date the first episode in such series is placed in service, or
(ii) the earliest taxable year in which the taxpayer has an arrangement relating to the future syndication of such series.
(C) Special rules for financial exploitation of characters, etc.
For purposes of this subsection, in the case of television and motion picture films, the income from the property shall include income from the exploitation of characters, designs, scripts, scores, and other incidental income associated with such films, but only to the extent that such income is earned in connection with the ultimate use of such items by, or the ultimate sale of merchandise to, persons who are not related persons (within the meaning of section 267(b)) to the taxpayer.
(D) Collection of interest
For purposes of subtitle F (other than sections 6654 and 6655), any interest required to be paid by the taxpayer under paragraph (1) for any recomputation year shall be treated as an increase in the tax imposed by this chapter for such year.
(E) Treatment of distribution costs
For purposes of this subsection, the income with respect to any property shall be the taxpayer's gross income from such property.
(F) Determinations
For purposes of paragraph (2), determinations of the amount of income earned in connection with any property shall be made in the same manner as for purposes of applying the income forecast method; except that any income from the disposition of such property shall be taken into account.
(G) Treatment of pass-thru entities
Rules similar to the rules of section 460(b)(4) shall apply for purposes of this subsection.
(6) Limitation on property for which income forecast method may be used
The depreciation deduction allowable under this section may be determined under the income forecast method or any similar method only with respect to—
(A) property described in paragraph (3) or (4) of section 168(f),
(B) copyrights,
(C) books,
(D) patents, and
(E) other property specified in regulations.
Such methods may not be used with respect to any amortizable section 197 intangible (as defined in section 197(c)).
(7) Treatment of participations and residuals
(A) In general
For purposes of determining the depreciation deduction allowable with respect to a property under this subsection, the taxpayer may include participations and residuals with respect to such property in the adjusted basis of such property for the taxable year in which the property is placed in service, but only to the extent that such participations and residuals relate to income estimated (for purposes of this subsection) to be earned in connection with the property before the close of the 10th taxable year referred to in paragraph (1)(A).
(B) Participations and residuals
For purposes of this paragraph, the term "participations and residuals" means, with respect to any property, costs the amount of which by contract varies with the amount of income earned in connection with such property.
(C) Special rules relating to recomputation years
If the adjusted basis of any property is determined under this paragraph, paragraph (4) shall be applied by substituting "for each taxable year in such period" for "for such period".
(D) Other special rules
(i) Participations and residuals
Notwithstanding subparagraph (A), the taxpayer may exclude participations and residuals from the adjusted basis of such property and deduct such participations and residuals in the taxable year that such participations and residuals are paid.
(ii) Coordination with other rules
Deductions computed in accordance with this paragraph shall be allowable notwithstanding paragraph (1)(B), section 263, 263A, 404, 419, or 461(h).
(E) Authority to make adjustments
The Secretary shall prescribe appropriate adjustments to the basis of property and to the look-back method for the additional amounts allowable as a deduction solely by reason of this paragraph.
(8) Special rules for certain musical works and copyrights
(A) In general
If an election is in effect under this paragraph for any taxable year, then, notwithstanding paragraph (1), any expense which—
(i) is paid or incurred by the taxpayer in creating or acquiring any applicable musical property placed in service during the taxable year, and
(ii) is otherwise properly chargeable to capital account,
shall be amortized ratably over the 5-year period beginning with the month in which the property was placed in service. The preceding sentence shall not apply to any expense which, without regard to this paragraph, would not be allowable as a deduction.
(B) Exclusive method
Except as provided in this paragraph, no depreciation or amortization deduction shall be allowed with respect to any expense to which subparagraph (A) applies.
(C) Applicable musical property
For purposes of this paragraph—
(i) In general
The term "applicable musical property" means any musical composition (including any accompanying words), or any copyright with respect to a musical composition, which is property to which this subsection applies without regard to this paragraph.
(ii) Exceptions
Such term shall not include any property—
(I) with respect to which expenses are treated as qualified creative expenses to which section 263A(h) applies,
(II) to which a simplified procedure established under section 263A(i)(2) 1 applies, or
(III) which is an amortizable section 197 intangible (as defined in section 197(c)).
(D) Election
An election under this paragraph shall be made at such time and in such form as the Secretary may prescribe and shall apply to all applicable musical property placed in service during the taxable year for which the election applies.
(E) Termination
An election may not be made under this paragraph for any taxable year beginning after December 31, 2010.
(h) Amortization of geological and geophysical expenditures
(1) In general
Any geological and geophysical expenses paid or incurred in connection with the exploration for, or development of, oil or gas within the United States (as defined in section 638) shall be allowed as a deduction ratably over the 24-month period beginning on the date that such expense was paid or incurred.
(2) Half-year convention
For purposes of paragraph (1), any payment paid or incurred during the taxable year shall be treated as paid or incurred on the mid-point of such taxable year.
(3) Exclusive method
Except as provided in this subsection, no depreciation or amortization deduction shall be allowed with respect to such payments.
(4) Treatment upon abandonment
If any property with respect to which geological and geophysical expenses are paid or incurred is retired or abandoned during the 24-month period described in paragraph (1), no deduction shall be allowed on account of such retirement or abandonment and the amortization deduction under this subsection shall continue with respect to such payment.
(5) Special rule for major integrated oil companies
(A) In general
In the case of a major integrated oil company, paragraphs (1) and (4) shall be applied by substituting "7-year" for "24 month".
(B) Major integrated oil company
For purposes of this paragraph, the term "major integrated oil company" means, with respect to any taxable year, a producer of crude oil—
(i) which has an average daily worldwide production of crude oil of at least 500,000 barrels for the taxable year,
(ii) which had gross receipts in excess of $1,000,000,000 for its last taxable year ending during calendar year 2005, and
(iii) to which subsection (c) of section 613A does not apply by reason of paragraph (4) of section 613A(d), determined—
(I) by substituting "15 percent" for "5 percent" each place it occurs in paragraph (3) of section 613A(d), and
(II) without regard to whether subsection (c) of section 613A does not apply by reason of paragraph (2) of section 613A(d).
For purposes of clauses (i) and (ii), all persons treated as a single employer under subsections (a) and (b) of section 52 shall be treated as 1 person and, in case of a short taxable year, the rule under section 448(c)(3)(B) shall apply.
(i) Cross references
(1) For additional rule applicable to depreciation of improvements in the case of mines, oil and gas wells, other natural deposits, and timber, see section 611.
(2) For amortization of goodwill and certain other intangibles, see section 197.
(Aug. 16, 1954, ch. 736,
Editorial Notes
References in Text
Section 263A(i)(2), referred to in subsec. (g)(8)(C)(ii)(II), was redesignated section 263A(j)(2) by
Amendments
2007—Subsec. (g)(8)(C)(ii)(II).
Subsec. (h)(5)(A).
2006—Subsec. (g)(8).
Subsec. (h)(5).
2005—Subsec. (f)(3).
Subsecs. (h), (i).
2004—Subsec. (f)(1)(C).
Subsec. (f)(2).
Subsec. (g)(5)(E) to (G).
Subsec. (g)(7).
1997—Subsec. (g)(6).
1996—Subsecs. (g), (h).
1993—Subsec. (c).
Subsec. (e)(2).
Subsec. (f).
Subsec. (g).
1990—Subsec. (b).
"(1) the straight line method,
"(2) the declining balance method, using a rate not exceeding twice the rate which would have been used had the annual allowance been computed under the method described in paragraph (1),
"(3) the sum of the years-digits method, and
"(4) any other consistent method productive of an annual allowance which, when added to all allowances for the period commencing with the taxpayer's use of the property and including the taxable year, does not, during the first two-thirds of the useful life of the property, exceed the total of such allowances which would have been used had such allowances been computed under the method described in paragraph (2).
Nothing in this subsection shall be construed to limit or reduce an allowance otherwise allowable under subsection (a)."
Subsec. (c).
"(1) the construction, reconstruction, or erection of which is completed after December 31, 1953, and then only to that portion of the basis which is properly attributable to such construction, reconstruction, or erection after December 31, 1953, or
"(2) acquired after December 31, 1953, if the original use of such property commences with the taxpayer and commences after such date.
Paragraphs (2), (3), and (4) of subsection (b) shall not apply to any motion picture film, video tape, or sound recording."
Subsec. (d).
Subsec. (e).
Subsec. (e)(3)(B).
Subsec. (e)(4)(B).
Subsec. (f).
"(1)
"(2)
Subsecs. (g), (h).
Subsec. (j).
Subsec. (k).
Subsec. (l).
Subsec. (m).
Subsec. (p).
Subsec. (q).
Subsecs. (r), (s).
1989—Subsec. (r).
1988—Subsec. (a).
Subsec. (d).
Subsec. (l)(3)(G).
Subsecs. (r), (s).
1986—Subsec. (c).
Subsec. (m)(4).
Subsec. (q)(2)(B).
1984—Subsec. (k)(1), (3)(D).
1983—Subsec. (l)(3)(G).
1981—Subsec. (a).
Subsec. (d).
Subsec. (k)(2).
Subsec. (l)(3)(C).
Subsec. (m)(4).
Subsecs. (n), (o).
Subsec. (r).
Subsec. (s).
1980—Subsec. (k).
Subsec. (n)(4).
Subsec. (o)(3).
Subsecs. (r), (s).
1978—Subsec. (i).
Subsec. (k)(1), (3)(D).
Subsec. (n).
Subsec. (o).
Subsec. (p).
Subsec. (q).
Subsec. (r).
1977—Subsec. (k).
1976—Subsec. (b).
Subsec. (d).
Subsec. (e).
Subsec. (f)(1).
Subsec. (f)(2).
Subsec. (i).
Subsec. (j).
Subsec. (k)(1).
Subsec. (k)(2)(A).
Subsec. (k)(3)(B).
Subsec. (k)(3)(D).
Subsec. (l)(3)(F).
Subsec. (l)(4)(A).
Subsec. (l)(5).
Subsec. (m).
Subsec. (n).
Subsec. (o).
Subsec. (p).
1975—Subsec. (k)(1).
1971—Subsecs. (m), (n).
1969—Subsec. (e)(3).
Subsecs. (j), (k).
Subsec. (l).
Subsec. (m).
1967—Subsec. (i)(1).
Subsec. (i)(3).
1966—Subsecs. (i), (j).
1962—Subsec. (e).
Subsecs. (f) to (i).
1958—Subsec. (d).
Statutory Notes and Related Subsidiaries
Effective Date of 2007 Amendment
Amendment by
Effective Date of 2006 Amendment
Effective Date of 2005 Amendment
Effective Date of 2004 Amendment
Amendment by section 847(b)(1) of
Effective Date of 1997 Amendment
Effective Date of 1996 Amendment
"(1)
"(2)
"(3)
Effective Date of 1993 Amendment
Amendment by section 13261(b) and (f)(1) of
Effective Date of 1990 Amendment
Amendment by
Effective Date of 1989 Amendment
"(1)
"(2)
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 201(d)(1) of
Amendment by section 201(d)(1) of
Amendment by section 1511(c)(4) of
Effective Date of 1983 Amendment
Amendment by
Effective Date of 1981 Amendment
Amendment by sections 203 and 209 of
Amendment by section 212(d)(1) of
Effective Date of 1980 Amendment
Effective and Termination Dates of 1978 Amendment
Amendment by section 312(c)(4) of
Amendment by
Amendment by section 301(d)(3) of
Effective Date of 1976 Amendment
Amendment by section 1901(a)(27)(A) of
Amendment by section 202(c)(3) of
[Section 7(b) of
Effective Date of 1975 Amendment
Effective Date of 1971 Amendment
Effective Date of 1969 Amendment
Effective Date of 1967 Amendment
Amendment by
Effective Date of 1966 Amendment
Amendment by
Effective Date of 1962 Amendment
Amendment by section 13(b) of
Effective Date of 1958 Amendment
Amendment by
Savings Provision
For provisions that nothing in amendment by
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Discontinuation of Retirement-Replacement-Betterment Method of Depreciation; Transitional Rule
"(2)
"(3)
Internal Revenue Code Provisions Relating to Depreciation as Not Applicable to Calculations of Secretary of Health and Human Services in Determining Costs of Programs
Class Life System; Application to Real Property; General Rule
"(1) under Revenue Procedure 62–21 (as amended and supplemented) as in effect on December 31, 1970, or
"(2) on the facts and circumstances."
Transitional Rules for Reasonable Allowance for Depreciation
"(1) [Repealed.
"(2)
Rehabilitation Expenditures for Low Income Rental Housing Incurred After December 31, 1974, and Before January 1, 1978, Pursuant to Contract Entered Before December 31, 1974
1 See References in Text note below.
§168. Accelerated cost recovery system
(a) General rule
Except as otherwise provided in this section, the depreciation deduction provided by section 167(a) for any tangible property shall be determined by using—
(1) the applicable depreciation method,
(2) the applicable recovery period, and
(3) the applicable convention.
(b) Applicable depreciation method
For purposes of this section—
(1) In general
Except as provided in paragraphs (2) and (3), the applicable depreciation method is—
(A) the 200 percent declining balance method,
(B) switching to the straight line method for the 1st taxable year for which using the straight line method with respect to the adjusted basis as of the beginning of such year will yield a larger allowance.
(2) 150 percent declining balance method in certain cases
Paragraph (1) shall be applied by substituting "150 percent" for "200 percent" in the case of—
(A) any 15-year or 20-year property not referred to in paragraph (3),
(B) any property (other than property described in paragraph (3)) which is a qualified smart electric meter or qualified smart electric grid system, or
(C) any property (other than property described in paragraph (3)) with respect to which the taxpayer elects under paragraph (5) to have the provisions of this paragraph apply.
(3) Property to which straight line method applies
The applicable depreciation method shall be the straight line method in the case of the following property:
(A) Nonresidential real property.
(B) Residential rental property.
(C) Any railroad grading or tunnel bore.
(D) Property with respect to which the taxpayer elects under paragraph (5) to have the provisions of this paragraph apply.
(E) Property described in subsection (e)(3)(D)(ii).
(F) Water utility property described in subsection (e)(5).
(G) Qualified improvement property described in subsection (e)(6).
(4) Salvage value treated as zero
Salvage value shall be treated as zero.
(5) Election
An election under paragraph (2)(D) 1 or (3)(D) may be made with respect to 1 or more classes of property for any taxable year and once made with respect to any class shall apply to all property in such class placed in service during such taxable year. Such an election, once made, shall be irrevocable.
(c) Applicable recovery period
For purposes of this section, the applicable recovery period shall be determined in accordance with the following table:
| In the case of: | The applicable recovery period is: |
|---|---|
| 3-year property | 3 years |
| 5-year property | 5 years |
| 7-year property | 7 years |
| 10-year property | 10 years |
| 15-year property | 15 years |
| 20-year property | 20 years |
| Water utility property | 25 years |
| Residential rental property | 27.5 years |
| Nonresidential real property | 39 years. |
| Any railroad grading or tunnel bore | 50 years. |
(d) Applicable convention
For purposes of this section—
(1) In general
Except as otherwise provided in this subsection, the applicable convention is the half-year convention.
(2) Real property
In the case of—
(A) nonresidential real property,
(B) residential rental property, and
(C) any railroad grading or tunnel bore,
the applicable convention is the mid-month convention.
(3) Special rule where substantial property placed in service during last 3 months of taxable year
(A) In general
Except as provided in regulations, if during any taxable year—
(i) the aggregate bases of property to which this section applies placed in service during the last 3 months of the taxable year, exceed
(ii) 40 percent of the aggregate bases of property to which this section applies placed in service during such taxable year,
the applicable convention for all property to which this section applies placed in service during such taxable year shall be the mid-quarter convention.
(B) Certain property not taken into account
For purposes of subparagraph (A), there shall not be taken into account—
(i) any nonresidential real property, residential rental property, and railroad grading or tunnel bore, and
(ii) any other property placed in service and disposed of during the same taxable year.
(4) Definitions
(A) Half-year convention
The half-year convention is a convention which treats all property placed in service during any taxable year (or disposed of during any taxable year) as placed in service (or disposed of) on the mid-point of such taxable year.
(B) Mid-month convention
The mid-month convention is a convention which treats all property placed in service during any month (or disposed of during any month) as placed in service (or disposed of) on the mid-point of such month.
(C) Mid-quarter convention
The mid-quarter convention is a convention which treats all property placed in service during any quarter of a taxable year (or disposed of during any quarter of a taxable year) as placed in service (or disposed of) on the mid-point of such quarter.
(e) Classification of property
For purposes of this section—
(1) In general
Except as otherwise provided in this subsection, property shall be classified under the following table:
| Property shall be treated as: | If such property has a class life (in years) of: |
|---|---|
| 3-year property | 4 or less |
| 5-year property | More than 4 but less than 10 |
| 7-year property | 10 or more but less than 16 |
| 10-year property | 16 or more but less than 20 |
| 15-year property | 20 or more but less than 25 |
| 20-year property | 25 or more. |
(2) Residential rental or nonresidential real property
(A) Residential rental property
(i) Residential rental property
The term "residential rental property" means any building or structure if 80 percent or more of the gross rental income from such building or structure for the taxable year is rental income from dwelling units.
(ii) Definitions
For purposes of clause (i)—
(I) the term "dwelling unit" means a house or apartment used to provide living accommodations in a building or structure, but does not include a unit in a hotel, motel, or other establishment more than one-half of the units in which are used on a transient basis, and
(II) if any portion of the building or structure is occupied by the taxpayer, the gross rental income from such building or structure shall include the rental value of the portion so occupied.
(B) Nonresidential real property
The term "nonresidential real property" means section 1250 property which is not—
(i) residential rental property, or
(ii) property with a class life of less than 27.5 years.
(3) Classification of certain property
(A) 3-year property
The term "3-year property" includes—
(i) any race horse—
(I) which is placed in service before January 1, 2022, and
(II) which is placed in service after December 31, 2021, and which is more than 2 years old at the time such horse is placed in service by such purchaser,
(ii) any horse other than a race horse which is more than 12 years old at the time it is placed in service, and
(iii) any qualified rent-to-own property.
(B) 5-year property
The term "5-year property" includes—
(i) any automobile or light general purpose truck,
(ii) any semi-conductor manufacturing equipment,
(iii) any computer-based telephone central office switching equipment,
(iv) any qualified technological equipment,
(v) any section 1245 property used in connection with research and experimentation,
(vi) any property which—
(I) is described in subparagraph (A) of section 48(a)(3) (or would be so described if "solar or wind energy" were substituted for "solar energy" in clause (i) thereof and the last sentence of such section did not apply to such subparagraph),
(II) is described in paragraph (15) of section 48(l) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990) and has a power production capacity of not greater than 80 megawatts, or
(III) is described in section 48(l)(3)(A)(ix) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990), and
(vii) any machinery or equipment (other than any grain bin, cotton ginning asset, fence, or other land improvement) which is used in a farming business (as defined in section 263A(e)(4)), the original use of which commences with the taxpayer after December 31, 2017.
Nothing in any provision of law shall be construed to treat property as not being described in subclause (I) or (II) of clause (vi) by reason of being public utility property.
(C) 7-year property
The term "7-year property" includes—
(i) any railroad track,
(ii) any motorsports entertainment complex,
(iii) any Alaska natural gas pipeline,
(iv) any natural gas gathering line the original use of which commences with the taxpayer after April 11, 2005, and
(v) any property which—
(I) does not have a class life, and
(II) is not otherwise classified under paragraph (2) or this paragraph.
(D) 10-year property
The term "10-year property" includes—
(i) any single purpose agricultural or horticultural structure (within the meaning of subsection (i)(13)),
(ii) any tree or vine bearing fruit or nuts,
(iii) any qualified smart electric meter, and
(iv) any qualified smart electric grid system.
(E) 15-year property
The term "15-year property" includes—
(i) any municipal wastewater treatment plant,
(ii) any telephone distribution plant and comparable equipment used for 2-way exchange of voice and data communications,
(iii) any section 1250 property which is a retail motor fuels outlet (whether or not food or other convenience items are sold at the outlet),
(iv) initial clearing and grading land improvements with respect to gas utility property,
(v) any section 1245 property (as defined in section 1245(a)(3)) used in the transmission at 69 or more kilovolts of electricity for sale and the original use of which commences with the taxpayer after April 11, 2005,
(vi) any natural gas distribution line the original use of which commences with the taxpayer after April 11, 2005, and which is placed in service before January 1, 2011, and
(vii) any qualified improvement property.
(F) 20-year property
The term "20-year property" means initial clearing and grading land improvements with respect to any electric utility transmission and distribution plant.
(4) Railroad grading or tunnel bore
The term "railroad grading or tunnel bore" means all improvements resulting from excavations (including tunneling), construction of embankments, clearings, diversions of roads and streams, sodding of slopes, and from similar work necessary to provide, construct, reconstruct, alter, protect, improve, replace, or restore a roadbed or right-of-way for railroad track.
(5) Water utility property
The term "water utility property" means property—
(A) which is an integral part of the gathering, treatment, or commercial distribution of water, and which, without regard to this paragraph, would be 20-year property, and
(B) any municipal sewer.
(6) Qualified improvement property
(A) In general
The term "qualified improvement property" means any improvement made by the taxpayer to an interior portion of a building which is nonresidential real property if such improvement is placed in service after the date such building was first placed in service.
(B) Certain improvements not included
Such term shall not include any improvement for which the expenditure is attributable to—
(i) the enlargement of the building,
(ii) any elevator or escalator, or
(iii) the internal structural framework of the building.
(f) Property to which section does not apply
This section shall not apply to—
(1) Certain methods of depreciation
Any property if—
(A) the taxpayer elects to exclude such property from the application of this section, and
(B) for the 1st taxable year for which a depreciation deduction would be allowable with respect to such property in the hands of the taxpayer, the property is properly depreciated under the unit-of-production method or any method of depreciation not expressed in a term of years (other than the retirement-replacement-betterment method or similar method).
(2) Certain public utility property
Any public utility property (within the meaning of subsection (i)(10)) if the taxpayer does not use a normalization method of accounting.
(3) Films and video tape
Any motion picture film or video tape.
(4) Sound recordings
Any works which result from the fixation of a series of musical, spoken, or other sounds, regardless of the nature of the material (such as discs, tapes, or other phonorecordings) in which such sounds are embodied.
(5) Certain property placed in service in churning transactions
(A) In general
Property—
(i) described in paragraph (4) of section 168(e) (as in effect before the amendments made by the Tax Reform Act of 1986), or
(ii) which would be described in such paragraph if such paragraph were applied by substituting "1987" for "1981" and "1986" for "1980" each place such terms appear.
(B) Subparagraph (A)(ii) not to apply
Clause (ii) of subparagraph (A) shall not apply to—
(i) any residential rental property or nonresidential real property,
(ii) any property if, for the 1st taxable year in which such property is placed in service—
(I) the amount allowable as a deduction under this section (as in effect before the date of the enactment of this paragraph) with respect to such property is greater than,
(II) the amount allowable as a deduction under this section (as in effect on or after such date and using the half-year convention) for such taxable year, or
(iii) any property to which this section (as amended by the Tax Reform Act of 1986) applied in the hands of the transferor.
(C) Special rule
In the case of any property to which this section would apply but for this paragraph, the depreciation deduction under section 167 shall be determined under the provisions of this section as in effect before the amendments made by section 201 of the Tax Reform Act of 1986.
(g) Alternative depreciation system for certain property
(1) In general
In the case of—
(A) any tangible property which during the taxable year is used predominantly outside the United States,
(B) any tax-exempt use property,
(C) any tax-exempt bond financed property,
(D) any imported property covered by an Executive order under paragraph (6),
(E) any property to which an election under paragraph (7) applies,
(F) any property described in paragraph (8), and
(G) any property with a recovery period of 10 years or more which is held by an electing farming business (as defined in section 163(j)(7)(C)),
the depreciation deduction provided by section 167(a) shall be determined under the alternative depreciation system.
(2) Alternative depreciation system
For purposes of paragraph (1), the alternative depreciation system is depreciation determined by using—
(A) the straight line method (without regard to salvage value),
(B) the applicable convention determined under subsection (d), and
(C) a recovery period determined under the following table:
| In the case of: | The recovery period shall be: |
|---|---|
| (i) Property not described in clause (ii) or (iii) | The class life. |
| (ii) Personal property with no class life | 12 years. |
| (iii) Residential rental property | 30 years |
| (iv) Nonresidential real property | 40 years |
| (v) Any railroad grading or tunnel bore or water utility property | 50 years |
(3) Special rules for determining class life
(A) Tax-exempt use property subject to lease
In the case of any tax-exempt use property subject to a lease, the recovery period used for purposes of paragraph (2) shall (notwithstanding any other subparagraph of this paragraph) in no event be less than 125 percent of the lease term.
(B) Special rule for certain property assigned to classes
For purposes of paragraph (2), in the case of property described in any of the following subparagraphs of subsection (e)(3), the class life shall be determined as follows:
| If property is described in subparagraph: | The class life is: |
|---|---|
| (A)(iii) | 4 |
| (B)(ii) | 5 |
| (B)(iii) | 9.5 |
| (B)(vii) | 10 |
| (C)(i) | 10 |
| (C)(iii) | 22 |
| (C)(iv) | 14 |
| (D)(i) | 15 |
| (D)(ii) | 20 |
| (E)(i) | 24 |
| (E)(ii) | 24 |
| (E)(iii) | 20 |
| (E)(iv) | 20 |
| (E)(v) | 30 |
| (E)(vi) | 35 |
| (E)(vii) | 20 |
| (F) | 25 |
(C) Qualified technological equipment
In the case of any qualified technological equipment, the recovery period used for purposes of paragraph (2) shall be 5 years.
(D) Automobiles, etc.
In the case of any automobile or light general purpose truck, the recovery period used for purposes of paragraph (2) shall be 5 years.
(E) Certain real property
In the case of any section 1245 property which is real property with no class life, the recovery period used for purposes of paragraph (2) shall be 40 years.
(4) Exception for certain property used outside United States
Subparagraph (A) of paragraph (1) shall not apply to—
(A) any aircraft which is registered by the Administrator of the Federal Aviation Agency and which is operated to and from the United States or is operated under contract with the United States;
(B) rolling stock which is used within and without the United States and which is—
(i) of a rail carrier subject to part A of subtitle IV of title 49, or
(ii) of a United States person (other than a corporation described in clause (i)) but only if the rolling stock is not leased to one or more foreign persons for periods aggregating more than 12 months in any 24-month period;
(C) any vessel documented under the laws of the United States which is operated in the foreign or domestic commerce of the United States;
(D) any motor vehicle of a United States person (as defined in section 7701(a)(30)) which is operated to and from the United States;
(E) any container of a United States person which is used in the transportation of property to and from the United States;
(F) any property (other than a vessel or an aircraft) of a United States person which is used for the purpose of exploring for, developing, removing, or transporting resources from the outer Continental Shelf (within the meaning of section 2 of the Outer Continental Shelf Lands Act, as amended and supplemented; (
(G) any property which is owned by a domestic corporation or by a United States citizen (other than a citizen entitled to the benefits of section 931 or 933) and which is used predominantly in a possession of the United States by such a corporation or such a citizen, or by a corporation created or organized in, or under the law of, a possession of the United States;
(H) any communications satellite (as defined in section 103(3) of the Communications Satellite Act of 1962,
(I) any cable, or any interest therein, of a domestic corporation engaged in furnishing telephone service to which section 168(i)(10)(C) applies (or of a wholly owned domestic subsidiary of such a corporation), if such cable is part of a submarine cable system which constitutes part of a communication link exclusively between the United States and one or more foreign countries;
(J) any property (other than a vessel or an aircraft) of a United States person which is used in international or territorial waters within the northern portion of the Western Hemisphere for the purpose of exploring for, developing, removing, or transporting resources from ocean waters or deposits under such waters;
(K) any property described in section 48(l)(3)(A)(ix) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990) which is owned by a United States person and which is used in international or territorial waters to generate energy for use in the United States; and
(L) any satellite (not described in subparagraph (H)) or other spacecraft (or any interest therein) held by a United States person if such satellite or other spacecraft was launched from within the United States.
For purposes of subparagraph (J), the term "northern portion of the Western Hemisphere" means the area lying west of the 30th meridian west of Greenwich, east of the international dateline, and north of the Equator, but not including any foreign country which is a country of South America.
(5) Tax-exempt bond financed property
For purposes of this subsection—
(A) In general
Except as otherwise provided in this paragraph, the term "tax-exempt bond financed property" means any property to the extent such property is financed (directly or indirectly) by an obligation the interest on which is exempt from tax under section 103(a).
(B) Allocation of bond proceeds
For purposes of subparagraph (A), the proceeds of any obligation shall be treated as used to finance property acquired in connection with the issuance of such obligation in the order in which such property is placed in service.
(C) Qualified residential rental projects
The term "tax-exempt bond financed property" shall not include any qualified residential rental project (within the meaning of section 142(a)(7)).
(6) Imported property
(A) Countries maintaining trade restrictions or engaging in discriminatory acts
If the President determines that a foreign country—
(i) maintains nontariff trade restrictions, including variable import fees, which substantially burden United States commerce in a manner inconsistent with provisions of trade agreements, or
(ii) engages in discriminatory or other acts (including tolerance of international cartels) or policies unjustifiably restricting United States commerce,
the President may by Executive order provide for the application of paragraph (1)(D) to any article or class of articles manufactured or produced in such foreign country for such period as may be provided by such Executive order. Any period specified in the preceding sentence shall not apply to any property ordered before (or the construction, reconstruction, or erection of which began before) the date of the Executive order unless the President determines an earlier date to be in the public interest and specifies such date in the Executive order.
(B) Imported property
For purposes of this subsection, the term "imported property" means any property if—
(i) such property was completed outside the United States, or
(ii) less than 50 percent of the basis of such property is attributable to value added within the United States.
For purposes of this subparagraph, the term "United States" includes the Commonwealth of Puerto Rico and the possessions of the United States.
(7) Election to use alternative depreciation system
(A) In general
If the taxpayer makes an election under this paragraph with respect to any class of property for any taxable year, the alternative depreciation system under this subsection shall apply to all property in such class placed in service during such taxable year. Notwithstanding the preceding sentence, in the case of nonresidential real property or residential rental property, such election may be made separately with respect to each property.
(B) Election irrevocable
An election under subparagraph (A), once made, shall be irrevocable.
(8) Electing real property trade or business
The property described in this paragraph shall consist of any nonresidential real property, residential rental property, and qualified improvement property held by an electing real property trade or business (as defined in 163(j)(7)(B)).
(h) Tax-exempt use property
(1) In general
For purposes of this section—
(A) Property other than nonresidential real property
Except as otherwise provided in this subsection, the term "tax-exempt use property" means that portion of any tangible property (other than nonresidential real property) leased to a tax-exempt entity.
(B) Nonresidential real property
(i) In general
In the case of nonresidential real property, the term "tax-exempt use property" means that portion of the property leased to a tax-exempt entity in a disqualified lease.
(ii) Disqualified lease
For purposes of this subparagraph, the term "disqualified lease" means any lease of the property to a tax-exempt entity, but only if—
(I) part or all of the property was financed (directly or indirectly) by an obligation the interest on which is exempt from tax under section 103(a) and such entity (or a related entity) participated in such financing,
(II) under such lease there is a fixed or determinable price purchase or sale option which involves such entity (or a related entity) or there is the equivalent of such an option,
(III) such lease has a lease term in excess of 20 years, or
(IV) such lease occurs after a sale (or other transfer) of the property by, or lease of the property from, such entity (or a related entity) and such property has been used by such entity (or a related entity) before such sale (or other transfer) or lease.
(iii) 35-percent threshold test
Clause (i) shall apply to any property only if the portion of such property leased to tax-exempt entities in disqualified leases is more than 35 percent of the property.
(iv) Treatment of improvements
For purposes of this subparagraph, improvements to a property (other than land) shall not be treated as a separate property.
(v) Leasebacks during 1st 3 months of use not taken into account
Subclause (IV) of clause (ii) shall not apply to any property which is leased within 3 months after the date such property is first used by the tax-exempt entity (or a related entity).
(C) Exception for short-term leases
(i) In general
Property shall not be treated as tax-exempt use property merely by reason of a short-term lease.
(ii) Short-term lease
For purposes of clause (i), the term "short-term lease" means any lease the term of which is—
(I) less than 3 years, and
(II) less than the greater of 1 year or 30 percent of the property's present class life.
In the case of nonresidential real property and property with no present class life, subclause (II) shall not apply.
(D) Exception where property used in unrelated trade or business
The term "tax-exempt use property" shall not include any portion of a property if such portion is predominantly used by the tax-exempt entity (directly or through a partnership of which such entity is a partner) in an unrelated trade or business the income of which is subject to tax under section 511. For purposes of subparagraph (B)(iii), any portion of a property so used shall not be treated as leased to a tax-exempt entity in a disqualified lease.
(E) Nonresidential real property defined
For purposes of this paragraph, the term "nonresidential real property" includes residential rental property.
(2) Tax-exempt entity
(A) In general
For purposes of this subsection, the term "tax-exempt entity" means—
(i) the United States, any State or political subdivision thereof, any possession of the United States, or any agency or instrumentality of any of the foregoing,
(ii) an organization (other than a cooperative described in section 521) which is exempt from tax imposed by this chapter,
(iii) any foreign person or entity, and
(iv) any Indian tribal government described in section 7701(a)(40).
For purposes of applying this subsection, any Indian tribal government referred to in clause (iv) shall be treated in the same manner as a State.
(B) Exception for certain property subject to United States tax and used by foreign person or entity
Clause (iii) of subparagraph (A) shall not apply with respect to any property if more than 50 percent of the gross income for the taxable year derived by the foreign person or entity from the use of such property is—
(i) subject to tax under this chapter, or
(ii) included under section 951 in the gross income of a United States shareholder for the taxable year with or within which ends the taxable year of the controlled foreign corporation in which such income was derived.
For purposes of the preceding sentence, any exclusion or exemption shall not apply for purposes of determining the amount of the gross income so derived, but shall apply for purposes of determining the portion of such gross income subject to tax under this chapter.
(C) Foreign person or entity
For purposes of this paragraph, the term "foreign person or entity" means—
(i) any foreign government, any international organization, or any agency or instrumentality of any of the foregoing, and
(ii) any person who is not a United States person.
Such term does not include any foreign partnership or other foreign pass-thru entity.
(D) Treatment of certain taxable instrumentalities
For purposes of this subsection, a corporation shall not be treated as an instrumentality of the United States or of any State or political subdivision thereof if—
(i) all of the activities of such corporation are subject to tax under this chapter, and
(ii) a majority of the board of directors of such corporation is not selected by the United States or any State or political subdivision thereof.
(E) Certain previously tax-exempt organizations
(i) In general
For purposes of this subsection, an organization shall be treated as an organization described in subparagraph (A)(ii) with respect to any property (other than property held by such organization) if such organization was an organization (other than a cooperative described in section 521) exempt from tax imposed by this chapter at any time during the 5-year period ending on the date such property was first used by such organization. The preceding sentence and subparagraph (D)(ii) shall not apply to the Federal Home Loan Mortgage Corporation.
(ii) Election not to have clause (i) apply
(I) In general
In the case of an organization formerly exempt from tax under section 501(a) as an organization described in section 501(c)(12), clause (i) shall not apply to such organization with respect to any property if such organization elects not to be exempt from tax under section 501(a) during the tax-exempt use period with respect to such property.
(II) Tax-exempt use period
For purposes of subclause (I), the term "tax-exempt use period" means the period beginning with the taxable year in which the property described in subclause (I) is first used by the organization and ending with the close of the 15th taxable year following the last taxable year of the applicable recovery period of such property.
(III) Election
Any election under subclause (I), once made, shall be irrevocable.
(iii) Treatment of successor organizations
Any organization which is engaged in activities substantially similar to those engaged in by a predecessor organization shall succeed to the treatment under this subparagraph of such predecessor organization.
(iv) First used
For purposes of this subparagraph, property shall be treated as first used by the organization—
(I) when the property is first placed in service under a lease to such organization, or
(II) in the case of property leased to (or held by) a partnership (or other pass-thru entity) in which the organization is a member, the later of when such property is first used by such partnership or pass-thru entity or when such organization is first a member of such partnership or pass-thru entity.
(3) Special rules for certain high technology equipment
(A) Exemption where lease term is 5 years or less
For purposes of this section, the term "tax-exempt use property" shall not include any qualified technological equipment if the lease to the tax-exempt entity has a lease term of 5 years or less. Notwithstanding subsection (i)(3)(A)(i), in determining a lease term for purposes of the preceding sentence, there shall not be taken into account any option of the lessee to renew at the fair market value rent determined at the time of renewal; except that the aggregate period not taken into account by reason of this sentence shall not exceed 24 months.
(B) Exception for certain property
(i) In general
For purposes of subparagraph (A), the term "qualified technological equipment" shall not include any property leased to a tax-exempt entity if—
(I) part or all of the property was financed (directly or indirectly) by an obligation the interest on which is exempt from tax under section 103(a),
(II) such lease occurs after a sale (or other transfer) of the property by, or lease of such property from, such entity (or related entity) and such property has been used by such entity (or a related entity) before such sale (or other transfer) or lease, or
(III) such tax-exempt entity is the United States or any agency or instrumentality of the United States.
(ii) Leasebacks during 1st 3 months of use not taken into account
Subclause (II) of clause (i) shall not apply to any property which is leased within 3 months after the date such property is first used by the tax-exempt entity (or a related entity).
(4) Related entities
For purposes of this subsection—
(A)(i) Each governmental unit and each agency or instrumentality of a governmental unit is related to each other such unit, agency, or instrumentality which directly or indirectly derives its powers, rights, and duties in whole or in part from the same sovereign authority.
(ii) For purposes of clause (i), the United States, each State, and each possession of the United States shall be treated as a separate sovereign authority.
(B) Any entity not described in subparagraph (A)(i) is related to any other entity if the 2 entities have—
(i) significant common purposes and substantial common membership, or
(ii) directly or indirectly substantial common direction or control.
(C)(i) An entity is related to another entity if either entity owns (directly or through 1 or more entities) a 50 percent or greater interest in the capital or profits of the other entity.
(ii) For purposes of clause (i), entities treated as related under subparagraph (A) or (B) shall be treated as 1 entity.
(D) An entity is related to another entity with respect to a transaction if such transaction is part of an attempt by such entities to avoid the application of this subsection.
(5) Tax-exempt use of property leased to partnerships, etc., determined at partner level
For purposes of this subsection—
(A) In general
In the case of any property which is leased to a partnership, the determination of whether any portion of such property is tax-exempt use property shall be made by treating each tax-exempt entity partner's proportionate share (determined under paragraph (6)(C)) of such property as being leased to such partner.
(B) Other pass-thru entities; tiered entities
Rules similar to the rules of subparagraph (A) shall also apply in the case of any pass-thru entity other than a partnership and in the case of tiered partnerships and other entities.
(C) Presumption with respect to foreign entities
Unless it is otherwise established to the satisfaction of the Secretary, it shall be presumed that the partners of a foreign partnership (and the beneficiaries of any other foreign pass-thru entity) are persons who are not United States persons.
(6) Treatment of property owned by partnerships, etc.
(A) In general
For purposes of this subsection, if—
(i) any property which (but for this subparagraph) is not tax-exempt use property is owned by a partnership which has both a tax-exempt entity and a person who is not a tax-exempt entity as partners, and
(ii) any allocation to the tax-exempt entity of partnership items is not a qualified allocation,
an amount equal to such tax-exempt entity's proportionate share of such property shall (except as provided in paragraph (1)(D)) be treated as tax-exempt use property.
(B) Qualified allocation
For purposes of subparagraph (A), the term "qualified allocation" means any allocation to a tax-exempt entity which—
(i) is consistent with such entity's being allocated the same distributive share of each item of income, gain, loss, deduction, credit, and basis and such share remains the same during the entire period the entity is a partner in the partnership, and
(ii) has substantial economic effect within the meaning of section 704(b)(2).
For purposes of this subparagraph, items allocated under section 704(c) shall not be taken into account.
(C) Determination of proportionate share
(i) In general
For purposes of subparagraph (A), a tax-exempt entity's proportionate share of any property owned by a partnership shall be determined on the basis of such entity's share of partnership items of income or gain (excluding gain allocated under section 704(c)), whichever results in the largest proportionate share.
(ii) Determination where allocations vary
For purposes of clause (i), if a tax-exempt entity's share of partnership items of income or gain (excluding gain allocated under section 704(c)) may vary during the period such entity is a partner in the partnership, such share shall be the highest share such entity may receive.
(D) Determination of whether property used in unrelated trade or business
For purposes of this subsection, in the case of any property which is owned by a partnership which has both a tax-exempt entity and a person who is not a tax-exempt entity as partners, the determination of whether such property is used in an unrelated trade or business of such an entity shall be made without regard to section 514.
(E) Other pass-thru entities; tiered entities
Rules similar to the rules of subparagraphs (A), (B), (C), and (D) shall also apply in the case of any pass-thru entity other than a partnership and in the case of tiered partnerships and other entities.
(F) Treatment of certain taxable entities
(i) In general
For purposes of this paragraph and paragraph (5), except as otherwise provided in this subparagraph, any tax-exempt controlled entity shall be treated as a tax-exempt entity.
(ii) Election
If a tax-exempt controlled entity makes an election under this clause—
(I) such entity shall not be treated as a tax-exempt entity for purposes of this paragraph and paragraph (5), and
(II) any gain recognized by a tax-exempt entity on any disposition of an interest in such entity (and any dividend or interest received or accrued by a tax-exempt entity from such tax-exempt controlled entity) shall be treated as unrelated business taxable income for purposes of section 511.
Any such election shall be irrevocable and shall bind all tax-exempt entities holding interests in such tax-exempt controlled entity. For purposes of subclause (II), there shall only be taken into account dividends which are properly allocable to income of the tax-exempt controlled entity which was not subject to tax under this chapter.
(iii) Tax-exempt controlled entity
(I) In general
The term "tax-exempt controlled entity" means any corporation (which is not a tax-exempt entity determined without regard to this subparagraph and paragraph (2)(E)) if 50 percent or more (in value) of the stock in such corporation is held by 1 or more tax-exempt entities (other than a foreign person or entity).
(II) Only 5-percent shareholders taken into account in case of publicly traded stock
For purposes of subclause (I), in the case of a corporation the stock of which is publicly traded on an established securities market, stock held by a tax-exempt entity shall not be taken into account unless such entity holds at least 5 percent (in value) of the stock in such corporation. For purposes of this subclause, related entities (within the meaning of paragraph (4)) shall be treated as 1 entity.
(III) Section 318 to apply
For purposes of this clause, a tax-exempt entity shall be treated as holding stock which it holds through application of section 318 (determined without regard to the 50-percent limitation contained in subsection (a)(2)(C) thereof).
(G) Regulations
For purposes of determining whether there is a qualified allocation under subparagraph (B), the regulations prescribed under paragraph (8) for purposes of this paragraph—
(i) shall set forth the proper treatment for partnership guaranteed payments, and
(ii) may provide for the exclusion or segregation of items.
(7) Lease
For purposes of this subsection, the term "lease" includes any grant of a right to use property.
(8) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection.
(i) Definitions and special rules
For purposes of this section—
(1) Class life
Except as provided in this section, the term "class life" means the class life (if any) which would be applicable with respect to any property as of January 1, 1986, under subsection (m) of section 167 (determined without regard to paragraph (4) and as if the taxpayer had made an election under such subsection). The Secretary, through an office established in the Treasury, shall monitor and analyze actual experience with respect to all depreciable assets. The reference in this paragraph to subsection (m) of section 167 shall be treated as a reference to such subsection as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990.
(2) Qualified technological equipment
(A) In general
The term "qualified technological equipment" means—
(i) any computer or peripheral equipment,
(ii) any high technology telephone station equipment installed on the customer's premises, and
(iii) any high technology medical equipment.
(B) Computer or peripheral equipment defined
For purposes of this paragraph—
(i) In general
The term "computer or peripheral equipment" means—
(I) any computer, and
(II) any related peripheral equipment.
(ii) Computer
The term "computer" means a programmable electronically activated device which—
(I) is capable of accepting information, applying prescribed processes to the information, and supplying the results of these processes with or without human intervention, and
(II) consists of a central processing unit containing extensive storage, logic, arithmetic, and control capabilities.
(iii) Related peripheral equipment
The term "related peripheral equipment" means any auxiliary machine (whether on-line or off-line) which is designed to be placed under the control of the central processing unit of a computer.
(iv) Exceptions
The term "computer or peripheral equipment" shall not include—
(I) any equipment which is an integral part of other property which is not a computer,
(II) typewriters, calculators, adding and accounting machines, copiers, duplicating equipment, and similar equipment, and
(III) equipment of a kind used primarily for amusement or entertainment of the user.
(C) High technology medical equipment
For purposes of this paragraph, the term "high technology medical equipment" means any electronic, electromechanical, or computer-based high technology equipment used in the screening, monitoring, observation, diagnosis, or treatment of patients in a laboratory, medical, or hospital environment.
(3) Lease term
(A) In general
In determining a lease term—
(i) there shall be taken into account options to renew,
(ii) the term of a lease shall include the term of any service contract or similar arrangement (whether or not treated as a lease under section 7701(e))—
(I) which is part of the same transaction (or series of related transactions) which includes the lease, and
(II) which is with respect to the property subject to the lease or substantially similar property, and
(iii) 2 or more successive leases which are part of the same transaction (or a series of related transactions) with respect to the same or substantially similar property shall be treated as 1 lease.
(B) Special rule for fair rental options on nonresidential real property or residential rental property
For purposes of clause (i) of subparagraph (A), in the case of nonresidential real property or residential rental property, there shall not be taken into account any option to renew at fair market value, determined at the time of renewal.
(4) General asset accounts
Under regulations, a taxpayer may maintain 1 or more general asset accounts for any property to which this section applies. Except as provided in regulations, all proceeds realized on any disposition of property in a general asset account shall be included in income as ordinary income.
(5) Changes in use
The Secretary shall, by regulations, provide for the method of determining the deduction allowable under section 167(a) with respect to any tangible property for any taxable year (and the succeeding taxable years) during which such property changes status under this section but continues to be held by the same person.
(6) Treatments of additions or improvements to property
In the case of any addition to (or improvement of) any property—
(A) any deduction under subsection (a) for such addition or improvement shall be computed in the same manner as the deduction for such property would be computed if such property had been placed in service at the same time as such addition or improvement, and
(B) the applicable recovery period for such addition or improvement shall begin on the later of—
(i) the date on which such addition (or improvement) is placed in service, or
(ii) the date on which the property with respect to which such addition (or improvement) was made is placed in service.
(7) Treatment of certain transferees
(A) In general
In the case of any property transferred in a transaction described in subparagraph (B), the transferee shall be treated as the transferor for purposes of computing the depreciation deduction determined under this section with respect to so much of the basis in the hands of the transferee as does not exceed the adjusted basis in the hands of the transferor. In any case where this section as in effect before the amendments made by section 201 of the Tax Reform Act of 1986 applied to the property in the hands of the transferor, the reference in the preceding sentence to this section shall be treated as a reference to this section as so in effect.
(B) Transactions covered
The transactions described in this subparagraph are—
(i) any transaction described in section 332, 351, 361, 721, or 731, and
(ii) any transaction between members of the same affiliated group during any taxable year for which a consolidated return is made by such group.
(C) Property reacquired by the taxpayer
Under regulations, property which is disposed of and then reacquired by the taxpayer shall be treated for purposes of computing the deduction allowable under subsection (a) as if such property had not been disposed of.
(8) Treatment of leasehold improvements
(A) In general
In the case of any building erected (or improvements made) on leased property, if such building or improvement is property to which this section applies, the depreciation deduction shall be determined under the provisions of this section.
(B) Treatment of lessor improvements which are abandoned at termination of lease
An improvement—
(i) which is made by the lessor of leased property for the lessee of such property, and
(ii) which is irrevocably disposed of or abandoned by the lessor at the termination of the lease by such lessee,
shall be treated for purposes of determining gain or loss under this title as disposed of by the lessor when so disposed of or abandoned.
(C) Cross reference
For treatment of qualified long-term real property constructed or improved in connection with cash or rent reduction from lessor to lessee, see section 110(b).
(9) Normalization rules
(A) In general
In order to use a normalization method of accounting with respect to any public utility property for purposes of subsection (f)(2)—
(i) the taxpayer must, in computing its tax expense for purposes of establishing its cost of service for ratemaking purposes and reflecting operating results in its regulated books of account, use a method of depreciation with respect to such property that is the same as, and a depreciation period for such property that is no shorter than, the method and period used to compute its depreciation expense for such purposes; and
(ii) if the amount allowable as a deduction under this section with respect to such property (respecting all elections made by the taxpayer under this section) differs from the amount that would be allowable as a deduction under section 167 using the method (including the period, first and last year convention, and salvage value) used to compute regulated tax expense under clause (i), the taxpayer must make adjustments to a reserve to reflect the deferral of taxes resulting from such difference.
(B) Use of inconsistent estimates and projections, etc.
(i) In general
One way in which the requirements of subparagraph (A) are not met is if the taxpayer, for ratemaking purposes, uses a procedure or adjustment which is inconsistent with the requirements of subparagraph (A).
(ii) Use of inconsistent estimates and projections
The procedures and adjustments which are to be treated as inconsistent for purposes of clause (i) shall include any procedure or adjustment for ratemaking purposes which uses an estimate or projection of the taxpayer's tax expense, depreciation expense, or reserve for deferred taxes under subparagraph (A)(ii) unless such estimate or projection is also used, for ratemaking purposes, with respect to the other 2 such items and with respect to the rate base.
(iii) Regulatory authority
The Secretary may by regulations prescribe procedures and adjustments (in addition to those specified in clause (ii)) which are to be treated as inconsistent for purposes of clause (i).
(C) Public utility property which does not meet normalization rules
In the case of any public utility property to which this section does not apply by reason of subsection (f)(2), the allowance for depreciation under section 167(a) shall be an amount computed using the method and period referred to in subparagraph (A)(i).
(10) Public utility property
The term "public utility property" means property used predominantly in the trade or business of the furnishing or sale of—
(A) electrical energy, water, or sewage disposal services,
(B) gas or steam through a local distribution system,
(C) telephone services, or other communication services if furnished or sold by the Communications Satellite Corporation for purposes authorized by the Communications Satellite Act of 1962 (
(D) transportation of gas or steam by pipeline,
if the rates for such furnishing or sale, as the case may be, have been established or approved by a State or political subdivision thereof, by any agency or instrumentality of the United States, or by a public service or public utility commission or other similar body of any State or political subdivision thereof.
(11) Research and experimentation
The term "research and experimentation" has the same meaning as the term research and experimental has under section 174.
(12) Section 1245 and 1250 property
The terms "section 1245 property" and "section 1250 property" have the meanings given such terms by sections 1245(a)(3) and 1250(c), respectively.
(13) Single purpose agricultural or horticultural structure
(A) In general
The term "single purpose agricultural or horticultural structure" means—
(i) a single purpose livestock structure, and
(ii) a single purpose horticultural structure.
(B) Definitions
For purposes of this paragraph—
(i) Single purpose livestock structure
The term "single purpose livestock structure" means any enclosure or structure specifically designed, constructed, and used—
(I) for housing, raising, and feeding a particular type of livestock and their produce, and
(II) for housing the equipment (including any replacements) necessary for the housing, raising, and feeding referred to in subclause (I).
(ii) Single purpose horticultural structure
The term "single purpose horticultural structure" means—
(I) a greenhouse specifically designed, constructed, and used for the commercial production of plants, and
(II) a structure specifically designed, constructed, and used for the commercial production of mushrooms.
(iii) Structures which include work space
An enclosure or structure which provides work space shall be treated as a single purpose agricultural or horticultural structure only if such work space is solely for—
(I) the stocking, caring for, or collecting of livestock or plants (as the case may be) or their produce,
(II) the maintenance of the enclosure or structure, and
(III) the maintenance or replacement of the equipment or stock enclosed or housed therein.
(iv) Livestock
The term "livestock" includes poultry.
(14) Qualified rent-to-own property
(A) In general
The term "qualified rent-to-own property" means property held by a rent-to-own dealer for purposes of being subject to a rent-to-own contract.
(B) Rent-to-own dealer
The term "rent-to-own dealer" means a person that, in the ordinary course of business, regularly enters into rent-to-own contracts with customers for the use of consumer property, if a substantial portion of those contracts terminate and the property is returned to such person before the receipt of all payments required to transfer ownership of the property from such person to the customer.
(C) Consumer property
The term "consumer property" means tangible personal property of a type generally used within the home for personal use.
(D) Rent-to-own contract
The term "rent-to-own contract" means any lease for the use of consumer property between a rent-to-own dealer and a customer who is an individual which—
(i) is titled "Rent-to-Own Agreement" or "Lease Agreement with Ownership Option," or uses other similar language,
(ii) provides for level (or decreasing where no payment is less than 40 percent of the largest payment), regular periodic payments (for a payment period which is a week or month),
(iii) provides that legal title to such property remains with the rent-to-own dealer until the customer makes all the payments described in clause (ii) or early purchase payments required under the contract to acquire legal title to the item of property,
(iv) provides a beginning date and a maximum period of time for which the contract may be in effect that does not exceed 156 weeks or 36 months from such beginning date (including renewals or options to extend),
(v) provides for payments within the 156-week or 36-month period that, in the aggregate, generally exceed the normal retail price of the consumer property plus interest,
(vi) provides for payments under the contract that, in the aggregate, do not exceed $10,000 per item of consumer property,
(vii) provides that the customer does not have any legal obligation to make all the payments referred to in clause (ii) set forth under the contract, and that at the end of each payment period the customer may either continue to use the consumer property by making the payment for the next payment period or return such property to the rent-to-own dealer in good working order, in which case the customer does not incur any further obligations under the contract and is not entitled to a return of any payments previously made under the contract, and
(viii) provides that the customer has no right to sell, sublease, mortgage, pawn, pledge, encumber, or otherwise dispose of the consumer property until all the payments stated in the contract have been made.
(15) Motorsports entertainment complex
(A) In general
The term "motorsports entertainment complex" means a racing track facility which—
(i) is permanently situated on land, and
(ii) during the 36-month period following the first day of the month in which the asset is placed in service, hosts 1 or more racing events for automobiles (of any type), trucks, or motorcycles which are open to the public for the price of admission.
(B) Ancillary and support facilities
Such term shall include, if owned by the taxpayer who owns the complex and provided for the benefit of patrons of the complex—
(i) ancillary facilities and land improvements in support of the complex's activities (including parking lots, sidewalks, waterways, bridges, fences, and landscaping),
(ii) support facilities (including food and beverage retailing, souvenir vending, and other nonlodging accommodations), and
(iii) appurtenances associated with such facilities and related attractions and amusements (including ticket booths, race track surfaces, suites and hospitality facilities, grandstands and viewing structures, props, walls, facilities that support the delivery of entertainment services, other special purpose structures, facades, shop interiors, and buildings).
(C) Exception
Such term shall not include any transportation equipment, administrative services assets, warehouses, administrative buildings, hotels, or motels.
(D) Termination
Such term shall not include any property placed in service after December 31, 2025.
(16) Alaska natural gas pipeline
The term "Alaska natural gas pipeline" means the natural gas pipeline system located in the State of Alaska which—
(A) has a capacity of more than 500,000,000,000 Btu of natural gas per day, and
(B) is—
(i) placed in service after December 31, 2013, or
(ii) treated as placed in service on January 1, 2014, if the taxpayer who places such system in service before January 1, 2014, elects such treatment.
Such term includes the pipe, trunk lines, related equipment, and appurtenances used to carry natural gas, but does not include any gas processing plant.
(17) Natural gas gathering line
The term "natural gas gathering line" means—
(A) the pipe, equipment, and appurtenances determined to be a gathering line by the Federal Energy Regulatory Commission, and
(B) the pipe, equipment, and appurtenances used to deliver natural gas from the wellhead or a commonpoint to the point at which such gas first reaches—
(i) a gas processing plant,
(ii) an interconnection with a transmission pipeline for which a certificate as an interstate transmission pipeline has been issued by the Federal Energy Regulatory Commission,
(iii) an interconnection with an intrastate transmission pipeline, or
(iv) a direct interconnection with a local distribution company, a gas storage facility, or an industrial consumer.
(18) Qualified smart electric meters
(A) In general
The term "qualified smart electric meter" means any smart electric meter which—
(i) is placed in service by a taxpayer who is a supplier of electric energy or a provider of electric energy services, and
(ii) does not have a class life (determined without regard to subsection (e)) of less than 16 years.
(B) Smart electric meter
For purposes of subparagraph (A), the term "smart electric meter" means any time-based meter and related communication equipment which is capable of being used by the taxpayer as part of a system that—
(i) measures and records electricity usage data on a time-differentiated basis in at least 24 separate time segments per day,
(ii) provides for the exchange of information between supplier or provider and the customer's electric meter in support of time-based rates or other forms of demand response,
(iii) provides data to such supplier or provider so that the supplier or provider can provide energy usage information to customers electronically, and
(iv) provides net metering.
(19) Qualified smart electric grid systems
(A) In general
The term "qualified smart electric grid system" means any smart grid property which—
(i) is used as part of a system for electric distribution grid communications, monitoring, and management placed in service by a taxpayer who is a supplier of electric energy or a provider of electric energy services, and
(ii) does not have a class life (determined without regard to subsection (e)) of less than 16 years.
(B) Smart grid property
For the purposes of subparagraph (A), the term "smart grid property" means electronics and related equipment that is capable of—
(i) sensing, collecting, and monitoring data of or from all portions of a utility's electric distribution grid,
(ii) providing real-time, two-way communications to monitor or manage such grid, and
(iii) providing real time analysis of and event prediction based upon collected data that can be used to improve electric distribution system reliability, quality, and performance.
(j) Property on Indian reservations
(1) In general
For purposes of subsection (a), the applicable recovery period for qualified Indian reservation property shall be determined in accordance with the table contained in paragraph (2) in lieu of the table contained in subsection (c).
(2) Applicable recovery period for Indian reservation property
For purposes of paragraph (1)—
| In the case of: | The applicable recovery period is: |
|---|---|
| 3-year property | 2 years |
| 5-year property | 3 years |
| 7-year property | 4 years |
| 10-year property | 6 years |
| 15-year property | 9 years |
| 20-year property | 12 years |
| Nonresidential real property | 22 years. |
(3) Deduction allowed in computing minimum tax
For purposes of determining alternative minimum taxable income under section 55, the deduction under subsection (a) for qualified Indian reservation property shall be determined under this section without regard to any adjustment under section 56.
(4) Qualified Indian reservation property defined
For purposes of this subsection—
(A) In general
The term "qualified Indian reservation property" means property which is property described in the table in paragraph (2) and which is—
(i) used by the taxpayer predominantly in the active conduct of a trade or business within an Indian reservation,
(ii) not used or located outside the Indian reservation on a regular basis,
(iii) not acquired (directly or indirectly) by the taxpayer from a person who is related to the taxpayer (within the meaning of section 465(b)(3)(C)), and
(iv) not property (or any portion thereof) placed in service for purposes of conducting or housing class I, II, or III gaming (as defined in section 4 of the Indian Regulatory Act (
(B) Exception for alternative depreciation property
The term "qualified Indian reservation property" does not include any property to which the alternative depreciation system under subsection (g) applies, determined—
(i) without regard to subsection (g)(7) (relating to election to use alternative depreciation system), and
(ii) after the application of section 280F(b) (relating to listed property with limited business use).
(C) Special rule for reservation infrastructure investment
(i) In general
Subparagraph (A)(ii) shall not apply to qualified infrastructure property located outside of the Indian reservation if the purpose of such property is to connect with qualified infrastructure property located within the Indian reservation.
(ii) Qualified infrastructure property
For purposes of this subparagraph, the term "qualified infrastructure property" means qualified Indian reservation property (determined without regard to subparagraph (A)(ii)) which—
(I) benefits the tribal infrastructure,
(II) is available to the general public, and
(III) is placed in service in connection with the taxpayer's active conduct of a trade or business within an Indian reservation.
Such term includes, but is not limited to, roads, power lines, water systems, railroad spurs, and communications facilities.
(5) Real estate rentals
For purposes of this subsection, the rental to others of real property located within an Indian reservation shall be treated as the active conduct of a trade or business within an Indian reservation.
(6) Indian reservation defined
For purposes of this subsection, the term "Indian reservation" means a reservation, as defined in—
(A) section 3(d) of the Indian Financing Act of 1974 (
(B) section 4(10) of the Indian Child Welfare Act of 1978 (
For purposes of the preceding sentence, such section 3(d) shall be applied by treating the term "former Indian reservations in Oklahoma" as including only lands which are within the jurisdictional area of an Oklahoma Indian tribe (as determined by the Secretary of the Interior) and are recognized by such Secretary as eligible for trust land status under 25 CFR Part 151 (as in effect on the date of the enactment of this sentence).
(7) Coordination with nonrevenue laws
Any reference in this subsection to a provision not contained in this title shall be treated for purposes of this subsection as a reference to such provision as in effect on the date of the enactment of this paragraph.
(8) Election out
If a taxpayer makes an election under this paragraph with respect to any class of property for any taxable year, paragraph (1) shall not apply to all property in such class placed in service during such taxable year. Such election, once made, shall be irrevocable.
(9) Termination
This subsection shall not apply to property placed in service after December 31, 2021.
(k) Special allowance for certain property
(1) Additional allowance
In the case of any qualified property—
(A) the depreciation deduction provided by section 167(a) for the taxable year in which such property is placed in service shall include an allowance equal to the applicable percentage of the adjusted basis of the qualified property, and
(B) the adjusted basis of the qualified property shall be reduced by the amount of such deduction before computing the amount otherwise allowable as a depreciation deduction under this chapter for such taxable year and any subsequent taxable year.
(2) Qualified property
For purposes of this subsection—
(A) In general
The term "qualified property" means property—
(i)(I) to which this section applies which has a recovery period of 20 years or less,
(II) which is computer software (as defined in section 167(f)(1)(B)) for which a deduction is allowable under section 167(a) without regard to this subsection,
(III) which is water utility property, or 2
(IV) which is a qualified film or television production (as defined in subsection (d) of section 181) for which a deduction would have been allowable under section 181 without regard to subsections (a)(2) and (g) of such section or this subsection, or
(V) which is a qualified live theatrical production (as defined in subsection (e) of section 181) for which a deduction would have been allowable under section 181 without regard to subsections (a)(2) and (g) of such section or this subsection,
(ii) the original use of which begins with the taxpayer or the acquisition of which by the taxpayer meets the requirements of clause (ii) of subparagraph (E), and
(iii) which is placed in service by the taxpayer before January 1, 2027.
(B) Certain property having longer production periods treated as qualified property
(i) In general
The term "qualified property" includes any property if such property—
(I) meets the requirements of clauses (i) and (ii) of subparagraph (A),
(II) is placed in service by the taxpayer before January 1, 2028,
(III) is acquired by the taxpayer (or acquired pursuant to a written binding contract entered into) before January 1, 2027,
(IV) has a recovery period of at least 10 years or is transportation property,
(V) is subject to section 263A, and
(VI) meets the requirements of clause (iii) of section 263A(f)(1)(B) (determined as if such clause also applies to property which has a long useful life (within the meaning of section 263A(f))).
(ii) Only pre-January 1, 2027 basis eligible for additional allowance
In the case of property which is qualified property solely by reason of clause (i), paragraph (1) shall apply only to the extent of the adjusted basis thereof attributable to manufacture, construction, or production before January 1, 2027.
(iii) Transportation property
For purposes of this subparagraph, the term "transportation property" means tangible personal property used in the trade or business of transporting persons or property.
(iv) Application of subparagraph
This subparagraph shall not apply to any property which is described in subparagraph (C).
(C) Certain aircraft
The term "qualified property" includes property—
(i) which meets the requirements of subparagraph (A)(ii) and subclauses (II) and (III) of subparagraph (B)(i),
(ii) which is an aircraft which is not a transportation property (as defined in subparagraph (B)(iii)) other than for agricultural or firefighting purposes,
(iii) which is purchased and on which such purchaser, at the time of the contract for purchase, has made a nonrefundable deposit of the lesser of—
(I) 10 percent of the cost, or
(II) $100,000, and
(iv) which has—
(I) an estimated production period exceeding 4 months, and
(II) a cost exceeding $200,000.
(D) Exception for alternative depreciation property
The term "qualified property" shall not include any property to which the alternative depreciation system under subsection (g) applies, determined—
(i) without regard to paragraph (7) of subsection (g) (relating to election to have system apply), and
(ii) after application of section 280F(b) (relating to listed property with limited business use).
(E) Special rules
(i) Self-constructed property
In the case of a taxpayer manufacturing, constructing, or producing property for the taxpayer's own use, the requirements of subclause (III) of subparagraph (B)(i) shall be treated as met if the taxpayer begins manufacturing, constructing, or producing the property before January 1, 2027.
(ii) Acquisition requirements
An acquisition of property meets the requirements of this clause if—
(I) such property was not used by the taxpayer at any time prior to such acquisition, and
(II) the acquisition of such property meets the requirements of paragraphs (2)(A), (2)(B), (2)(C), and (3) of section 179(d).
(iii) Syndication
For purposes of subparagraph (A)(ii), if—
(I) property is used by a lessor of such property and such use is the lessor's first use of such property,
(II) such property is sold by such lessor or any subsequent purchaser within 3 months after the date such property was originally placed in service (or, in the case of multiple units of property subject to the same lease, within 3 months after the date the final unit is placed in service, so long as the period between the time the first unit is placed in service and the time the last unit is placed in service does not exceed 12 months), and
(III) the user of such property after the last sale during such 3-month period remains the same as when such property was originally placed in service,
such property shall be treated as originally placed in service not earlier than the date of such last sale.
(F) Coordination with section 280F
For purposes of section 280F—
(i) Automobiles
In the case of a passenger automobile (as defined in section 280F(d)(5)) which is qualified property, the Secretary shall increase the limitation under section 280F(a)(1)(A)(i) by $8,000.
(ii) Listed property
The deduction allowable under paragraph (1) shall be taken into account in computing any recapture amount under section 280F(b)(2).
(iii) Phase down
In the case of a passenger automobile acquired by the taxpayer before September 28, 2017, and placed in service by the taxpayer after September 27, 2017, clause (i) shall be applied by substituting for "$8,000"—
(I) in the case of an automobile placed in service during 2018, $6,400, and
(II) in the case of an automobile placed in service during 2019, $4,800.
(G) Deduction allowed in computing minimum tax
For purposes of determining alternative minimum taxable income under section 55, the deduction under section 167 for qualified property shall be determined without regard to any adjustment under section 56.
(H) Production placed in service
For purposes of subparagraph (A)—
(i) a qualified film or television production shall be considered to be placed in service at the time of initial release or broadcast, and
(ii) a qualified live theatrical production shall be considered to be placed in service at the time of the initial live staged performance.
[(3) Repealed. Pub. L. 115–97, title I, §13204(a)(4)(B)(ii), Dec. 22, 2017, 131 Stat. 2111 ]
[(4) Repealed. Pub. L. 115–97, title I, §12001(b)(13), Dec. 22, 2017, 131 Stat. 2094 ]
(5) Special rules for certain plants bearing fruits and nuts
(A) In general
In the case of any specified plant which is planted before January 1, 2027, or is grafted before such date to a plant that has already been planted, by the taxpayer in the ordinary course of the taxpayer's farming business (as defined in section 263A(e)(4)) during a taxable year for which the taxpayer has elected the application of this paragraph—
(i) a depreciation deduction equal to the applicable percentage of the adjusted basis of such specified plant shall be allowed under section 167(a) for the taxable year in which such specified plant is so planted or grafted, and
(ii) the adjusted basis of such specified plant shall be reduced by the amount of such deduction.
(B) Specified plant
For purposes of this paragraph, the term "specified plant" means—
(i) any tree or vine which bears fruits or nuts, and
(ii) any other plant which will have more than one crop or yield of fruits or nuts and which generally has a pre-productive period of more than 2 years from the time of planting or grafting to the time at which such plant begins bearing a marketable crop or yield of fruits or nuts.
Such term shall not include any property which is planted or grafted outside of the United States.
(C) Election revocable only with consent
An election under this paragraph may be revoked only with the consent of the Secretary.
(D) Additional depreciation may be claimed only once
If this paragraph applies to any specified plant, such specified plant shall not be treated as qualified property in the taxable year in which placed in service.
(E) Deduction allowed in computing minimum tax
Rules similar to the rules of paragraph (2)(G) shall apply for purposes of this paragraph.
(6) Applicable percentage
For purposes of this subsection—
(A) In general
Except as otherwise provided in this paragraph, the term "applicable percentage" means—
(i) in the case of property placed in service after September 27, 2017, and before January 1, 2023, 100 percent,
(ii) in the case of property placed in service after December 31, 2022, and before January 1, 2024, 80 percent,
(iii) in the case of property placed in service after December 31, 2023, and before January 1, 2025, 60 percent,
(iv) in the case of property placed in service after December 31, 2024, and before January 1, 2026, 40 percent, and
(v) in the case of property placed in service after December 31, 2025, and before January 1, 2027, 20 percent.
(B) Rule for property with longer production periods
In the case of property described in subparagraph (B) or (C) of paragraph (2), the term "applicable percentage" means—
(i) in the case of property placed in service after September 27, 2017, and before January 1, 2024, 100 percent,
(ii) in the case of property placed in service after December 31, 2023, and before January 1, 2025, 80 percent,
(iii) in the case of property placed in service after December 31, 2024, and before January 1, 2026, 60 percent,
(iv) in the case of property placed in service after December 31, 2025, and before January 1, 2027, 40 percent, and
(v) in the case of property placed in service after December 31, 2026, and before January 1, 2028, 20 percent.
(C) Rule for plants bearing fruits and nuts
In the case of a specified plant described in paragraph (5), the term "applicable percentage" means—
(i) in the case of a plant which is planted or grafted after September 27, 2017, and before January 1, 2023, 100 percent,
(ii) in the case of a plant which is planted or grafted after December 31, 2022, and before January 1, 2024, 80 percent,
(iii) in the case of a plant which is planted or grafted after December 31, 2023, and before January 1, 2025, 60 percent,
(iv) in the case of a plant which is planted or grafted after December 31, 2024, and before January 1, 2026, 40 percent, and
(v) in the case of a plant which is planted or grafted after December 31, 2025, and before January 1, 2027, 20 percent.
(7) Election out
If a taxpayer makes an election under this paragraph with respect to any class of property for any taxable year, paragraphs (1) and (2)(F) shall not apply to any qualified property in such class placed in service during such taxable year. An election under this paragraph may be revoked only with the consent of the Secretary.
(8) Phase down
In the case of qualified property acquired by the taxpayer before September 28, 2017, and placed in service by the taxpayer after September 27, 2017, paragraph (6) shall be applied by substituting for each percentage therein—
(A) "50 percent" in the case of—
(i) property placed in service before January 1, 2018, and
(ii) property described in subparagraph (B) or (C) of paragraph (2) which is placed in service in 2018,
(B) "40 percent" in the case of—
(i) property placed in service in 2018 (other than property described in subparagraph (B) or (C) of paragraph (2)), and
(ii) property described in subparagraph (B) or (C) of paragraph (2) which is placed in service in 2019,
(C) "30 percent" in the case of—
(i) property placed in service in 2019 (other than property described in subparagraph (B) or (C) of paragraph (2)), and
(ii) property described in subparagraph (B) or (C) of paragraph (2) which is placed in service in 2020, and
(D) "0 percent" in the case of—
(i) property placed in service after 2019 (other than property described in subparagraph (B) or (C) of paragraph (2)), and
(ii) property described in subparagraph (B) or (C) of paragraph (2) which is placed in service after 2020.
(9) Exception for certain property
The term "qualified property" shall not include—
(A) any property which is primarily used in a trade or business described in clause (iv) of section 163(j)(7)(A), or
(B) any property used in a trade or business that has had floor plan financing indebtedness (as defined in paragraph (9) of section 163(j)), if the floor plan financing interest related to such indebtedness was taken into account under paragraph (1)(C) of such section.
(10) Special rule for property placed in service during certain periods
(A) In general
In the case of qualified property placed in service by the taxpayer during the first taxable year ending after September 27, 2017, if the taxpayer elects to have this paragraph apply for such taxable year, paragraphs (1)(A) and (5)(A)(i) shall be applied by substituting "50 percent" for "the applicable percentage".
(B) Form of election
Any election under this paragraph shall be made at such time and in such form and manner as the Secretary may prescribe.
(l) Special allowance for second generation biofuel plant property
(1) Additional allowance
In the case of any qualified second generation biofuel plant property—
(A) the depreciation deduction provided by section 167(a) for the taxable year in which such property is placed in service shall include an allowance equal to 50 percent of the adjusted basis of such property, and
(B) the adjusted basis of such property shall be reduced by the amount of such deduction before computing the amount otherwise allowable as a depreciation deduction under this chapter for such taxable year and any subsequent taxable year.
(2) Qualified second generation biofuel plant property
The term "qualified second generation biofuel plant property" means property of a character subject to the allowance for depreciation—
(A) which is used in the United States solely to produce second generation biofuel (as defined in section 40(b)(6)(E)),
(B) the original use of which commences with the taxpayer after the date of the enactment of this subsection,
(C) which is acquired by the taxpayer by purchase (as defined in section 179(d)) after the date of the enactment of this subsection, but only if no written binding contract for the acquisition was in effect on or before the date of the enactment of this subsection, and
(D) which is placed in service by the taxpayer before January 1, 2021.
(3) Exceptions
(A) Bonus depreciation property under subsection (k)
Such term shall not include any property to which subsection (k) applies.
(B) Alternative depreciation property
Such term shall not include any property described in subsection (k)(2)(D).
(C) Tax-exempt bond-financed property
Such term shall not include any property any portion of which is financed with the proceeds of any obligation the interest on which is exempt from tax under section 103.
(D) Election out
If a taxpayer makes an election under this subparagraph with respect to any class of property for any taxable year, this subsection shall not apply to all property in such class placed in service during such taxable year.
(4) Special rules
For purposes of this subsection, rules similar to the rules of subsection (k)(2)(E) shall apply.
(5) Allowance against alternative minimum tax
For purposes of this subsection, rules similar to the rules of subsection (k)(2)(G) shall apply.
(6) Recapture
For purposes of this subsection, rules similar to the rules under section 179(d)(10) shall apply with respect to any qualified second generation biofuel plant property which ceases to be qualified second generation biofuel plant property.
(7) Denial of double benefit
Paragraph (1) shall not apply to any qualified second generation biofuel plant property with respect to which an election has been made under section 179C (relating to election to expense certain refineries).
(m) Special allowance for certain reuse and recycling property
(1) In general
In the case of any qualified reuse and recycling property—
(A) the depreciation deduction provided by section 167(a) for the taxable year in which such property is placed in service shall include an allowance equal to 50 percent of the adjusted basis of the qualified reuse and recycling property, and
(B) the adjusted basis of the qualified reuse and recycling property shall be reduced by the amount of such deduction before computing the amount otherwise allowable as a depreciation deduction under this chapter for such taxable year and any subsequent taxable year.
(2) Qualified reuse and recycling property
For purposes of this subsection—
(A) In general
The term "qualified reuse and recycling property" means any reuse and recycling property—
(i) to which this section applies,
(ii) which has a useful life of at least 5 years,
(iii) the original use of which commences with the taxpayer after August 31, 2008, and
(iv) which is—
(I) acquired by purchase (as defined in section 179(d)(2)) by the taxpayer after August 31, 2008, but only if no written binding contract for the acquisition was in effect before September 1, 2008, or
(II) acquired by the taxpayer pursuant to a written binding contract which was entered into after August 31, 2008.
(B) Exceptions
(i) Bonus depreciation property under subsection (k)
The term "qualified reuse and recycling property" shall not include any property to which subsection (k) (determined without regard to paragraph (4) thereof) applies.
(ii) Alternative depreciation property
The term "qualified reuse and recycling property" shall not include any property to which the alternative depreciation system under subsection (g) applies, determined without regard to paragraph (7) of subsection (g) (relating to election to have system apply).
(iii) Election out
If a taxpayer makes an election under this clause with respect to any class of property for any taxable year, this subsection shall not apply to all property in such class placed in service during such taxable year.
(C) Special rule for self-constructed property
In the case of a taxpayer manufacturing, constructing, or producing property for the taxpayer's own use, the requirements of clause (iv) of subparagraph (A) shall be treated as met if the taxpayer begins manufacturing, constructing, or producing the property after August 31, 2008.
(D) Deduction allowed in computing minimum tax
For purposes of determining alternative minimum taxable income under section 55, the deduction under subsection (a) for qualified reuse and recycling property shall be determined under this section without regard to any adjustment under section 56.
(3) Definitions
For purposes of this subsection—
(A) Reuse and recycling property
(i) In general
The term "reuse and recycling property" means any machinery and equipment (not including buildings or real estate), along with all appurtenances thereto, including software necessary to operate such equipment, which is used exclusively to collect, distribute, or recycle qualified reuse and recyclable materials.
(ii) Exclusion
Such term does not include rolling stock or other equipment used to transport reuse and recyclable materials.
(B) Qualified reuse and recyclable materials
(i) In general
The term "qualified reuse and recyclable materials" means scrap plastic, scrap glass, scrap textiles, scrap rubber, scrap packaging, recovered fiber, scrap ferrous and nonferrous metals, or electronic scrap generated by an individual or business.
(ii) Electronic scrap
For purposes of clause (i), the term "electronic scrap" means—
(I) any cathode ray tube, flat panel screen, or similar video display device with a screen size greater than 4 inches measured diagonally, or
(II) any central processing unit.
(C) Recycling or recycle
The term "recycling" or "recycle" means that process (including sorting) by which worn or superfluous materials are manufactured or processed into specification grade commodities that are suitable for use as a replacement or substitute for virgin materials in manufacturing tangible consumer and commercial products, including packaging.
(Added
Amendment of Subsection (e)(3)(B)
(1) in clause (vi)(III), by striking "and" at the end,
(2) in clause (vii), by striking the period at the end and inserting ", and", and
(3) by inserting after clause (vii) the following:
(viii) any qualified facility (as defined in section 45Y(b)(1)(A)), any qualified property (as defined in subsection (b)(2) of section 48E) which is a qualified investment (as defined in subsection (b)(1) of such section), or any energy storage technology (as defined in subsection (c)(2) of such section).
See 2022 Amendment note below.
Editorial Notes
References in Text
Paragraph (2)(D), referred to in subsec. (b)(5), means par. (2)(D) of subsec. (b) of this section, which was redesignated par. (2)(C) of subsec. (b) by
The date of the enactment of the Revenue Reconciliation Act of 1990, referred to in subsecs. (e)(3)(B)(vi)(II), (III), (g)(4)(K), and (i)(1), is the date of enactment of
Section 168(e) as in effect before the amendments made by the Tax Reform Act of 1986, referred to in subsec. (f)(5)(A)(i), is subsec. (e) of this section prior to the general amendment of this section by
The date of the enactment of this paragraph, referred to in subsec. (f)(5)(B)(ii)(I), probably means the date of enactment of
The Tax Reform Act of 1986, referred to in subsecs. (f)(5)(B)(iii), (C) and (i)(7)(A), is
The Communications Satellite Act of 1962, referred to in subsec. (i)(10)(C), is
The date of the enactment of this sentence, referred to in subsec. (j)(6), is the date of enactment of
The date of the enactment of this paragraph, referred to in subsec. (j)(7), is the date of enactment of
The date of the enactment of this subsection, referred to in subsec. (l)(2)(B), (C), is the date of enactment of
Par. (3) of section 165(h), referred to in subsec. (n)(3)(B), (C), was repealed by
Codification
Prior Provisions
A prior section 168, acts Aug. 16, 1954, ch. 746,
Amendments
2022—Subsec. (e)(3)(B)(viii).
2020—Subsec. (e)(3)(A)(i)(I).
Subsec. (e)(3)(A)(i)(II).
Subsec. (e)(3)(E)(vii).
Subsec. (e)(6)(A).
Subsec. (g)(3)(B).
Subsec. (i)(15)(D).
Subsec. (j)(9).
2019—Subsec. (e)(3)(A)(i)(I).
Subsec. (e)(3)(A)(i)(II).
Subsec. (i)(15)(D).
Subsec. (j)(9).
Subsec. (l)(2)(D).
2018—Subsec. (d)(3)(B)(i).
Subsec. (e)(3)(A)(i)(I).
Subsec. (e)(3)(A)(i)(II).
Subsec. (e)(3)(B).
Subsec. (e)(3)(B)(vi)(II).
Subsec. (e)(3)(C)(i).
Subsec. (g)(4)(G).
Subsec. (i)(15)(D).
Subsec. (j)(3).
Subsec. (j)(8).
Subsec. (j)(9).
Subsec. (k)(2)(B)(i)(III).
Subsec. (k)(5)(B)(ii).
Subsec. (l)(2)(D).
Subsec. (n).
2017—Subsec. (b)(2)(B) to (D).
Subsec. (b)(3)(G) to (I).
"(G) Qualified leasehold improvement property described in subsection (e)(6).
"(H) Qualified restaurant property described in subsection (e)(7).
"(I) Qualified retail improvement property described in subsection (e)(8)."
Subsec. (e)(3)(B)(vii).
Subsec. (e)(3)(E)(iv) to (ix).
"(iv) any qualified leasehold improvement property,
"(v) any qualified restaurant property,
"(ix) any qualified retail improvement property."
Subsec. (e)(6).
Subsec. (e)(7), (8).
Subsec. (g)(1)(F).
Subsec. (g)(1)(G).
Subsec. (g)(2)(C)(iii) to (v).
Subsec. (g)(3)(B).
Subsec. (g)(8).
Subsec. (i)(7)(B).
Subsec. (k).
Subsec. (k)(1)(A).
Subsec. (k)(2)(A)(i)(IV).
Subsec. (k)(2)(A)(i)(V).
Subsec. (k)(2)(A)(ii).
Subsec. (k)(2)(A)(iii).
Subsec. (k)(2)(B)(i)(II).
Subsec. (k)(2)(B)(i)(III).
Subsec. (k)(2)(B)(ii).
Subsec. (k)(2)(E)(i).
Subsec. (k)(2)(E)(ii).
"(I) originally placed in service by a person, and
"(II) sold and leased back by such person within 3 months after the date such property was originally placed in service,
such property shall be treated as originally placed in service not earlier than the date on which such property is used under the leaseback referred to in subclause (II)."
Subsec. (k)(2)(E)(iii)(I).
Subsec. (k)(2)(F)(iii).
Subsec. (k)(2)(H).
Subsec. (k)(3).
Subsec. (k)(4).
Subsec. (k)(5)(A).
Subsec. (k)(5)(A)(i).
Subsec. (k)(5)(F).
"(i) in the case of a plant which is planted (or so grafted) in 2018, '40 percent', and
"(ii) in the case of a plant which is planted (or so grafted) during 2019, '30 percent'."
Subsec. (k)(6).
"(A) in the case of property placed in service in 2018 (or in the case of property placed in service in 2019 and described in paragraph (2)(B) or (C) (determined by substituting '2019' for '2020' in paragraphs (2)(B)(i)(III) and (ii) and paragraph (2)(E)(i)), '40 percent',
"(B) in the case of property placed in service in 2019 (or in the case of property placed in service in 2020 and described in paragraph (2)(B) or (C), '30 percent'."
Subsec. (k)(8).
Subsec. (k)(9).
Subsec. (k)(10).
2015—Subsec. (e)(3)(A)(i)(I).
Subsec. (e)(3)(A)(i)(II).
Subsec. (e)(3)(E)(iv), (v).
Subsec. (e)(3)(E)(ix).
Subsec. (e)(6).
Subsec. (e)(7)(B).
Subsec. (e)(8)(D).
Subsec. (i)(15)(D).
Subsec. (j)(8).
Subsec. (j)(9).
Subsec. (k).
Subsec. (k)(2).
Subsec. (k)(2)(A)(iv).
Subsec. (k)(2)(B)(ii).
Subsec. (k)(3).
Subsec. (k)(4).
Subsec. (k)(4)(D)(iii)(II).
Subsec. (k)(4)(L).
Subsec. (k)(5).
Subsec. (k)(6).
Subsec. (k)(7).
Subsec. (l)(2)(D).
Subsec. (l)(3)(A).
Subsec. (l)(3)(B).
Subsec. (l)(4).
"(A) by substituting 'the date of the enactment of subsection (l)' for 'December 31, 2007' each place it appears therein, and
"(B) by substituting 'qualified second generation biofuel plant property' for 'qualified property' in clause (iv) thereof."
Subsec. (l)(5).
2014—Subsec. (b)(5).
Subsec. (e)(3)(A)(i)(I).
Subsec. (e)(3)(A)(i)(II).
Subsec. (e)(3)(E)(iv), (v), (ix).
Subsec. (e)(7)(B), (8)(D).
Subsec. (i)(15)(D).
Subsec. (i)(18)(A)(ii), (19)(A)(ii).
Subsec. (j)(8).
Subsec. (k).
Subsec. (k)(2).
Subsec. (k)(2)(A)(iv).
Subsec. (k)(2)(B)(i)(IV).
Subsec. (k)(2)(B)(ii).
Subsec. (k)(4)(C)(i).
Subsec. (k)(4)(D)(iii)(II).
Subsec. (k)(4)(E)(iv).
Subsec. (k)(4)(J)(iii).
Subsec. (k)(4)(K).
Subsec. (l)(2)(D).
Subsec. (m)(2)(B)(i).
Subsec. (n)(2)(C)(ii).
2013—Subsec. (e)(3)(E)(iv), (v), (ix).
Subsec. (i)(9)(A)(ii).
Subsec. (i)(15)(D).
Subsec. (j)(8).
Subsec. (k).
Subsec. (k)(2).
Subsec. (k)(2)(A)(iv).
Subsec. (k)(2)(B)(ii).
Subsec. (k)(4)(D)(iii)(II).
Subsec. (k)(4)(J).
Subsec. (l).
Subsec. (l)(2).
Subsec. (l)(2)(A).
Subsec. (l)(2)(D).
Subsec. (l)(3) to (8).
Subsec. (n)(2)(C)(ii).
2010—Subsec. (e)(3)(E)(iv), (v), (ix).
Subsec. (e)(7)(A)(i).
Subsec. (e)(8)(E).
Subsec. (i)(15)(D).
Subsec. (j)(8).
Subsec. (k).
Subsec. (k)(2)(A)(iii).
Subsec. (k)(2)(A)(iv).
Subsec. (k)(2)(B)(ii).
Subsec. (k)(2)(E)(i).
Subsec. (k)(4)(D)(ii).
Subsec. (k)(4)(D)(iii).
Subsec. (k)(4)(D)(iv), (v).
"(iv) 'January 1, 2011' shall be substituted for 'January 1, 2012' in subparagraph (A)(iv) thereof, and
"(v) 'January 1, 2010' shall be substituted for 'January 1, 2011' each place it appears in subparagraph (A) thereof."
Subsec. (k)(4)(I).
Subsec. (k)(5).
Subsec. (l)(5)(A).
Subsec. (l)(5)(B).
Subsec. (l)(5)(C).
Subsec. (n)(2)(C)(ii).
2009—Subsec. (k).
Subsec. (k)(2)(A)(iii)(I), (II).
Subsec. (k)(2)(A)(iv).
Subsec. (k)(2)(B)(ii).
Subsec. (k)(2)(E)(i).
Subsec. (k)(4)(D)(ii).
Subsec. (k)(4)(D)(iii).
Subsec. (k)(4)(H).
Subsec. (l)(5)(B).
Subsec. (n)(2)(C)(ii).
2008—Subsec. (b)(2)(C), (D).
Subsec. (b)(3)(I).
Subsec. (e)(3)(A)(i).
Subsec. (e)(3)(B)(vii).
Subsec. (e)(3)(D)(iii), (iv).
Subsec. (e)(3)(E)(iv), (v).
Subsec. (e)(3)(E)(ix).
Subsec. (e)(7).
"(A) such improvement is placed in service more than 3 years after the date such building was first placed in service, and
"(B) more than 50 percent of the building's square footage is devoted to preparation of, and seating for on-premises consumption of, prepared meals."
Subsec. (e)(8).
Subsec. (g)(3)(B).
Subsec. (i)(15)(D).
Subsec. (i)(18), (19).
Subsec. (j)(8).
Subsec. (k).
Subsec. (k)(1)(A).
Subsec. (k)(2)(A)(iii)(I).
Subsec. (k)(2)(A)(iv).
Subsec. (k)(2)(B)(i)(I).
Subsec. (k)(2)(B)(i)(IV).
Subsec. (k)(2)(B)(ii).
Subsec. (k)(2)(C)(i).
Subsec. (k)(2)(D)(iii).
Subsec. (k)(2)(F)(i).
Subsec. (k)(4).
Subsec. (k)(4)(B)(iii).
Subsec. (l).
Subsec. (l)(2).
Subsec. (l)(3).
Subsec. (l)(4).
Subsec. (l)(5)(A).
Subsec. (l)(5)(B).
Subsec. (m).
Subsec. (n).
2007—Subsec. (l)(3).
2006—Subsec. (e)(3)(E)(iv), (v).
Subsec. (j)(8).
Subsec. (l).
2005—Subsec. (e)(3)(B)(vi)(I).
Subsec. (e)(3)(C)(iv), (v).
Subsec. (e)(3)(E)(vii).
Subsec. (e)(3)(E)(viii).
Subsec. (g)(3)(B).
Subsec. (i)(15)(D).
Subsec. (i)(17).
Subsec. (k)(2)(A)(iv).
Subsec. (k)(4)(B)(ii).
Subsec. (k)(4)(B)(iii).
2004—Subsec. (b)(2)(A).
Subsec. (b)(3)(G), (H).
Subsec. (e)(3)(C)(ii).
Subsec. (e)(3)(C)(iii).
Subsec. (e)(3)(C)(iv).
Subsec. (e)(3)(E)(iv), (v).
Subsec. (e)(3)(E)(vi).
Subsec. (e)(3)(F).
Subsec. (e)(6), (7).
Subsec. (g)(3)(A).
Subsec. (g)(3)(B).
Subsec. (h)(2)(A).
Subsec. (h)(3)(A).
Subsec. (i)(3)(A)(ii), (iii).
Subsec. (i)(15).
Subsec. (i)(16).
Subsec. (j)(8).
Subsec. (k)(2)(A)(iv).
Subsec. (k)(2)(B)(i).
"(I) which meets the requirements of clauses (i), (ii), and (iii) of subparagraph (A),
"(II) which has a recovery period of at least 10 years or is transportation property, and
"(III) which is subject to section 263A by reason of clause (ii) or (iii) of subsection (f)(1)(B) thereof."
Subsec. (k)(2)(B)(iv).
Subsec. (k)(2)(C).
Subsec. (k)(2)(D).
Subsec. (k)(2)(D)(ii).
Subsec. (k)(2)(D)(ii)(I).
Subsec. (k)(2)(D)(iii), (iv).
Subsec. (k)(2)(E).
Subsec. (k)(2)(E)(iii)(II).
Subsec. (k)(2)(F).
Subsec. (k)(2)(G).
Subsec. (k)(4)(A)(ii).
Subsec. (k)(4)(B)(iii).
Subsec. (k)(4)(C).
Subsec. (k)(4)(D).
2003—Subsec. (k).
Subsec. (k)(2)(A)(iii).
Subsec. (k)(2)(B)(ii).
Subsec. (k)(2)(C)(iii).
Subsec. (k)(2)(D)(i).
Subsec. (k)(4).
2002—Subsec. (j)(8).
Subsec. (k).
1998—Subsec. (c).
"(1)
Subsec. (c)(2).
1997—Subsec. (e)(3)(A)(iii).
Subsec. (g)(3)(B).
Subsec. (i)(8)(C).
Subsec. (i)(14).
Subsec. (j)(6).
1996—Subsec. (b)(3)(F).
Subsec. (c)(1).
Subsec. (e)(3)(B).
Subsec. (e)(3)(B)(vi)(I).
Subsec. (e)(3)(B)(vi)(III).
Subsec. (e)(3)(E)(iii).
Subsec. (e)(3)(F).
Subsec. (e)(5).
Subsec. (g)(2)(C)(iv).
Subsec. (g)(3)(B).
Subsec. (g)(4)(K).
Subsec. (i)(8).
1995—Subsec. (g)(4)(B)(i).
1993—Subsec. (c)(1).
Subsec. (j).
1990—Subsec. (e)(2)(A).
Subsec. (e)(3)(B)(vi)(I).
Subsec. (e)(3)(B)(vi)(II).
Subsec. (e)(3)(D)(i).
Subsec. (f)(2).
Subsec. (g)(4).
Subsec. (i)(1).
Subsec. (i)(7)(B)(i).
Subsec. (i)(9)(A)(ii).
Subsec. (i)(10).
Subsec. (i)(13).
1989—Subsec. (b)(3)(D), (E).
Subsec. (b)(5).
Subsec. (c)(2).
Subsec. (i)(1).
1988—Subsec. (b)(2).
Subsec. (b)(2)(B), (C).
Subsec. (b)(3)(C).
Subsec. (b)(3)(D).
Subsec. (b)(5).
Subsec. (c).
Subsec. (c)(1).
Subsec. (d)(2)(C).
Subsec. (d)(3)(A)(i).
Subsec. (d)(3)(B).
Subsec. (d)(3)(B)(i).
Subsec. (e)(3)(B)(v).
Subsec. (e)(3)(C).
Subsec. (e)(3)(D).
Subsec. (e)(3)(E), (F).
Subsec. (e)(4).
Subsec. (f)(4).
Subsec. (f)(5)(B)(ii).
Subsec. (f)(5)(B)(iii).
Subsec. (f)(5)(C).
Subsec. (g)(2)(C).
Subsec. (g)(3)(B).
Subsec. (h)(2)(B).
"(i)
"(I) subject to tax under this chapter, or
"(II) included under section 951 in the gross income of a United States shareholder for the taxable year with or within which ends the taxable year of the controlled foreign corporation in which such income was derived.
For purposes of the preceding sentence, any exclusion or exemption shall not apply for purposes of determining the amount of the gross income so derived, but shall apply for purposes of determining the portion of such gross income subject to tax under this chapter.
"(ii)
Subsec. (i)(1).
Subsec. (i)(1)(E)(iii).
"(I) such property shall be treated as an assigned property,
"(II) the recovery period applicable to such property shall be treated as an assigned item, and
"(III) clause (ii) of subparagraph (D) shall not apply."
Subsec. (i)(7)(A).
Subsec. (i)(7)(B).
Subsec. (i)(7)(D).
Subsec. (j)(9)(E).
"(I)
"(II)
"(III)
1986—
Subsec. (b)(2)(A).
Subsec. (b)(2)(B).
Subsec. (b)(3)(A).
Subsec. (b)(4)(B).
Subsec. (f)(2)(B).
Subsec. (f)(10)(A).
"(i) if the transaction is described in subparagraph (B)(i), the transferee shall be treated in the same manner as the transferor, or
"(ii) if the transaction is described in clause (ii) or (iii) of subparagraph (B) and the transferor made an election with respect to such property under subsection (b)(3) or (f)(2)(C), the transferee shall be treated as having made the same election (or its equivalent)."
for prior provisions.
Subsec. (f)(10)(B).
Subsec. (f)(12)(B)(ii).
Subsec. (f)(12)(C).
"(i) any low-income housing, and
"(ii) any other recovery property which is placed in service in connection with projects for residential rental property financed by the proceeds of obligations described in section 103(b)(4)(A)."
for prior provisions.
Subsec. (f)(14), (15).
Subsec. (j)(2)(B)(ii).
Subsec. (j)(3)(D).
Subsec. (j)(4)(E)(i).
Subsec. (j)(4)(E)(ii).
Subsec. (j)(4)(E)(iv).
"(I) when the property is first placed in service under a lease to such organization, or
"(II) in the case of property leased to (or held by) a partnership (or other pass-thru entity) in which the organization is a member, the later of when such property is first used by such partnership or pass-thru entity or when such organization is first a member of such partnership or pass-thru entity."
Subsec. (j)(5)(C)(iv).
Subsec. (j)(8), (9)(A).
Subsec. (j)(9)(B)(i).
Subsec. (j)(9)(D).
Subsec. (j)(9)(E).
"(I) such entity shall not be treated as a tax-exempt entity for purposes of this paragraph, and
"(II) any gain recognized by a tax-exempt entity on any disposition of an interest in such entity (and any dividend or interest received or accrued by a tax-exempt entity from such tax-exempt controlled entity) shall be treated as unrelated business taxable income for purposes of section 511.
Any such election shall be irrevocable and shall bind all tax-exempt entities holding interests in such tax-exempt controlled entity. For purposes of subclause (II), there shall only be taken into account dividends which are properly allocable to income of the tax-exempt controlled entity which was not subject to tax under this chapter.", and cl. (iii), tax-exempt controlled entity, which read "The term 'tax-exempt controlled entity' means any corporation (which is not a tax-exempt entity determined without regard to this subparagraph and paragraph (4)(E)) if 50 percent or more (by value) of the stock in such corporation is held (directly or through the application of section 318 determined without regard to the 50-percent limitation contained in subsection (a)(2)(C) thereof) by 1 or more tax-exempt entities." Former subpar. (E) was redesignated (F).
Subsec. (j)(9)(F).
Subsec. (j)(9)(G).
1985—Subsec. (b)(2).
Subsec. (b)(2)(A)(i).
Subsec.(b)(3)(A).
Subsec. (b)(3)(B)(ii), (iii).
Subsec. (c)(2)(D).
Subsec. (d)(2)(B).
Subsec. (f)(1)(B)(ii).
Subsec. (f)(1)(B)(iii), (iv).
Subsec. (f)(2), (5).
Subsec. (f)(12)(B)(ii).
Subsec. (j).
1984—Subsec. (b)(2).
Subsec. (b)(2)(A).
Subsec. (b)(2)(A)(i).
Subsec. (b)(2)(A)(ii).
Subsec. (b)(2)(B).
Subsec. (b)(3)(A).
Subsec. (b)(3)(B)(ii).
Subsec. (b)(3)(B)(iii).
Subsec. (b)(4).
Subsec. (c)(2)(D).
Subsec. (c)(2)(F), (G).
Subsec. (d)(2)(B).
Subsec. (e).
Subsec. (e)(5).
Subsec. (f)(1)(B).
Subsec. (f)(2)(B).
Subsec. (f)(2)(C)(i).
Subsec. (f)(2)(C)(ii)(II), (E), (5).
Subsec. (f)(8)(B)(ii)(I).
Subsec. (f)(12)(C).
Subsec. (f)(12)(D), (E).
Subsec. (f)(13).
Subsec. (f)(14).
Subsec. (g)(2).
Subsec. (i)(1)(D)(i).
Subsec. (i)(1)(D)(iii).
Subsec. (i)(4)(A).
Subsecs. (j), (k).
1983—Subsec. (b)(2)(A).
Subsec. (c)(2)(F).
Subsec. (d)(2)(B).
Subsec. (e)(3)(C), (D).
Subsec. (e)(4)(D).
Subsec. (e)(4)(H), (I).
Subsec. (f)(4)(B).
Subsec. (f)(5).
Subsec. (f)(8)(D).
Subsec. (f)(13).
Subsec. (g)(8)(A).
Subsec. (g)(8)(B).
Subsec. (h)(4).
1982—Subsec. (b)(1).
Subsec. (e)(4).
Subsec. (f)(8).
Subsec. (f)(8)(A).
Subsec. (f)(8)(B)(i)(I).
Subsec. (f)(8)(B)(iii).
Subsec. (f)(8)(C)(i).
Subsec. (f)(8)(D).
"(i) new section 38 property (as defined in section 48(b)) of the lessor which is leased within 3 months after such property was placed in service and which, if acquired by the lessee, would have been new section 38 property of the lessee,
"(ii) property—
"(I) which was new section 38 property of the lessee,
"(II) which was leased within 3 months after such property was placed in service by the lessee, and
"(III) with respect to which the adjusted basis of the lessor does not exceed the adjusted basis of the lessee at the time of the lease, or
"(iii) property which is a qualified mass commuting vehicle (as defined in section 103(b)(9)) and which is financed in whole or in part by obligations the interest on which is excludable from income under section 103(a).
For purposes of this title (other than this subparagraph), any property described in clause (i) or (ii) to which subparagraph (A) applies shall be deemed originally placed in service not earlier than the date such property is used under the lease. In the case of property placed in service after December 31, 1980, and before the date of the enactment of this subparagraph, this subparagraph shall be applied by submitting 'the date of the enactment of this subparagraph' for 'such property was placed in service'." See 1983 Amendment note above for subsec. (f)(8)(D).
Subsec. (f)(8)(H) to (K).
Subsec. (f)(10)(B)(i).
Subsec. (f)(12).
Subsec. (i).
Subsec. (j).
Statutory Notes and Related Subsidiaries
Effective Date of 2022 Amendment
Effective Date of 2020 Amendment
Effective Date of 2019 Amendment
Effective Date of 2018 Amendment
"(3) For purposes of applying section 168(k) of the Internal Revenue Code of 1986, as in effect on the day before the date of the enactment of
" '(6)
" '(A) "40 percent" in the case of—
" '(i) property placed in service in 2018 (other than property described in subparagraph (B) or (C) of paragraph (2)), and
" '(ii) property described in subparagraph (B) or (C) of paragraph (2) which is placed in service in 2019, and
" '(B) "30 percent" in the case of—
" '(i) property placed in service in 2019 (other than property described in subparagraph (B) or (C) of paragraph (2)), and
" '(ii) property described in subparagraph (B) or (C) of paragraph (2) which is placed in service in 2020.'
"(4) Section 168(k)(7) of the Internal Revenue Code of 1986, as in effect on the day before the date of the enactment of
"(A) by substituting 'paragraphs (1), (2)(F), and (4)' for 'paragraphs (1) and (2)(F)', and
"(B) as if the application of such substitution had been included in section 143 of the Protecting Americans from Tax Hikes Act of 2015."
Amendment by section 101(d)(1), (2), (e) of
Effective Date of 2017 Amendment
Amendment by section 12001(b)(13) of
"(1)
"(A) is acquired after September 27, 2017, and
"(B) is placed in service after such date.
For purposes of the preceding sentence, property shall not be treated as acquired after the date on which a written binding contract is entered into for such acquisition.
"(2)
"(1)
"(2)
"(3)
"(A) which was placed in service before January 1, 2018,
"(B) which is held by an electing real property trade or business (as defined in section 163(j)(7)(B) of the Internal Revenue Code of 1986), and
"(C) for which subparagraph (A), (B), (C), (D), or (E) of section 168(g)(1) of the Internal Revenue Code of 1986 did not apply prior to such date,
the amendments made by subsection (a)(3)(C) shall apply to taxable years beginning after December 31, 2017."
Effective Date of 2015 Amendment
"(A)
"(B)
"(A)
"(B)
"(i) the product of—
"(I) the maximum increase amount (within the meaning of section 168(k)(4)(C)(iii) of such Code, as in effect before the amendments made by this subsection), multiplied by
"(II) a fraction the numerator of which is the number of days in the taxable year before January 1, 2016, and the denominator of which is the number of days in the taxable year, plus
"(ii) the product of—
"(I) such limitation (determined without regard to this subparagraph), multiplied by
"(II) a fraction the numerator of which is the number of days in the taxable year after December 31, 2015, and the denominator of which is the number of days in the taxable year.
"(C)
"(1)
"(2)
Effective Date of 2014 Amendment
Amendment by section 202(e) of
Amendment by section 210(c), (d), (g)(2) of
Amendment by section 211(b) of
Amendment by section 212(b) of
Effective Date of 2013 Amendment
Effective Date of 2010 Amendment
"(1)
"(2)
Effective Date of 2009 Amendment
"(1)
"(2)
Effective Date of 2008 Amendment
Amendment of this section and repeal of
[
Effective Date of 2007 Amendment
Effective Date of 2006 Amendment
Effective Date of 2005 Amendments
Amendment by section 403(j) of
Amendment by section 1301(f)(5) of
"(1)
"(2)
"(1)
"(2)
Amendment by section 1326(a)–(c) of
Effective Date of 2004 Amendments
"(1)
"(2)
"(3)
Amendment by section 847(a), (c), (d) of
Amendment by section 403(a) of
Effective Date of 2003 Amendment
Effective Date of 2002 Amendment
Effective Date of 1998 Amendment
Amendment by
Effective Date of 1997 Amendment
Amendment by section 1086(b) of
Amendment by section 1213(c) of
"(A) with respect to property (with an applicable recovery period under section 168(j) of the Internal Revenue Code of 1986 of 6 years or less) held by the taxpayer if the taxpayer claimed the benefits of section 168(j) of such Code with respect to such property on a return filed before March 18, 1997, but only if such return is the first return of tax filed for the taxable year in which such property was placed in service, or
"(B) with respect to wages for which the taxpayer claimed the benefits of section 45A of such Code for a taxable year on a return filed before March 18, 1997, but only if such return was the first return of tax filed for such taxable year."
Effective Date of 1996 Amendment
Amendment by section 1702(h)(1) of
Effective Date of 1995 Amendment
Amendment by
Effective Date of 1993 Amendment
"(1)
"(2)
"(A) the taxpayer or a qualified person entered into a binding written contract to purchase or construct such property before May 13, 1993, or
"(B) the construction of such property was commenced by or for the taxpayer or a qualified person before May 13, 1993.
For purposes of this paragraph, the term 'qualified person' means any person who transfers his rights in such a contract or such property to the taxpayer but only if the property is not placed in service by such person before such rights are transferred to the taxpayer."
Effective Date of 1990 Amendment
Amendment by section 11812(b)(2) of
Amendment by section 11813(b)(9) of
Effective Date of 1989 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by sections 1002(a)(5)–(8), (11), (16)(B), (21), (i)(2)(A)–(G), and 1018(b)(2) of
"(1)
"(2)
"(A) is constructed, reconstructed, or acquired by the taxpayer pursuant to a written contract which was binding on July 14, 1988, or
"(B) is constructed or reconstructed by the taxpayer and such construction or reconstruction began by July 14, 1988."
"(1)
"(2)
"(A) is constructed, reconstructed, or acquired by the taxpayer pursuant to a written contract which was binding on July 14, 1988, or
"(B) is constructed or reconstructed by the taxpayer and such construction or reconstruction began by July 14, 1988."
Effective Date of 1986 Amendment; Transitional Rules
"SEC. 203. EFFECTIVE DATES; GENERAL TRANSITIONAL RULES.
"(a)
"(1)
"(A)
"(B)
"(2)
"(A)
"(B)
"(i) the limitation of section 179(b)(1) of the Internal Revenue Code of 1986 (as amended by section 202) shall be reduced by the aggregate deduction under section 179 (as in effect on the day before the date of the enactment of the Tax Reform Act of 1986 [Oct. 22, 1986]) for section 179 property placed in service during such taxable year and before January 1, 1987,
"(ii) the limitation of section 179(b)(2) of such Code (as so amended) shall be applied by taking into account the cost of all section 179 property placed in service during such taxable year, and
"(iii) the limitation of section 179(b)(3) of such Code shall be applied by taking into account the taxable income for the entire taxable year reduced by the amount of any deduction under section 179 of such Code for property placed in service during such taxable year and before January 1, 1987.
"(b)
"(1)
"(A) any property which is constructed, reconstructed, or acquired by the taxpayer pursuant to a written contract which was binding on March 1, 1986,
"(B) property which is constructed or reconstructed by the taxpayer if—
"(i) the lesser of (I) $1,000,000, or (II) 5 percent of the cost of such property has been incurred or committed by March 1, 1986, and
"(ii) the construction or reconstruction of such property began by such date, or
"(C) an equipped building or plant facility if construction has commenced as of March 1, 1986, pursuant to a written specific plan and more than one-half of the cost of such equipped building or facility has been incurred or committed by such date.
For purposes of this paragraph, all members of the same affiliated group of corporations (within the meaning of section 1504 of the Internal Revenue Code of 1986) filing a consolidated return shall be treated as one taxpayer.
"(2)
"(A)
| "In the case of property | The applicable |
| with a class life of: | date is: |
| At least 7 but less than 20 years | January 1, 1989 |
| 20 years or more | January 1, 1991. |
"(B)
"(C)
"(i) the class life of property to which section 168(g)(3)(B) of the Internal Revenue Code of 1986 (as added by section 201) applies shall be the class life in effect on January 1, 1986, except that computer-based telephone central office switching equipment described in section 168(e)(3)(B)(iii) of such Code shall be treated as having a class life of 6 years,
"(ii) property described in section 204(a) shall be treated as having a class life of 20 years, and
"(iii) property with no class life shall be treated as having a class life of 12 years.
"(D)
"(3)
"(A) in whose hands such property met the requirements of paragraphs (1) and (2) or section 204(a) (or would have met such requirements if placed in service by such person), or
"(B) who placed the property in service before January 1, 1987,
and such property is leased back by the taxpayer to such person, or is leased to such person, not later than the earlier of the applicable date under paragraph (2) or the day which is 3 months after such property was placed in service.
"(4)
"(A) a self-contained single operating unit or processing operation,
"(B) located on a single site, and
"(C) identified as a single unitary project as of March 1, 1986.
"(c)
"(1)
"(2)
"(A)
"(i)(I) the original use of which commences with the taxpayer, and the construction, reconstruction, or rehabilitation of which began before March 2, 1986, and was completed on or after such date,
"(II) with respect to which a binding contract to incur significant expenditures for construction, reconstruction, or rehabilitation was entered into before March 2, 1986, and some of such expenditures are incurred on or after such date, or
"(III) acquired on or after March 2, 1986, pursuant to a binding contract entered into before such date, and
"(ii) described in an inducement resolution or other comparable preliminary approval adopted by the issuing authority (or by a voter referendum) before March 2, 1986.
"(B)
"(i)
"(ii)
"(C)
"(D)
"(d)
"(e)
"(1)
"(2)
"(A)
"(i) the reserve for deferred taxes (as described in section 167(l)(3)(G)(ii) or 168(e)(3)(B)(ii) of the Internal Revenue Code of 1954 as in effect on the day before the date of the enactment of this Act [Oct. 22, 1986]), over
"(ii) the amount which would be the balance in such reserve if the amount of such reserve were determined by assuming that the corporate rate reductions provided in this Act [see Tables for classification] were in effect for all prior periods.
"(B)
"(i) the ratio of the aggregate deferred taxes for the property to the aggregate timing differences for the property as of the beginning of the period in question, by
"(ii) the amount of the timing differences which reverse during such period.
"SEC. 204. ADDITIONAL TRANSITIONAL RULES.
"(a)
"(1)
"(A)
"(B)
"(i) described in subparagraph (C), (D), (E), or (G) which before March 1, 1986, was publicly announced by a political subdivision of a State for a renovation of an urban area within its jurisdiction,
"(ii) described in subparagraph (C), (D) or (G) which before March 1, 1986, was identified as a single unitary project in the internal financing plans of the primary developer of the project,
"(iii) described in subparagraph (C) or (D), which is not substantially modified on or after March 1, 1986, and
"(iv) described in subparagraph (F) or (H).
"(C)
"(i) a political subdivision granted on July 11, 1985, development rights to the primary developer-purchaser of such project, and
"(ii) such project was the subject of a development agreement between a political subdivision and a bridge authority on December 19, 1984.
For purposes of this subparagraph, section 203(b)(2) shall be applied by substituting 'January 1, 1994' for 'January 1, 1991' each place it appears.
"(D)
"(i) A project is described in this clause if the development agreement with respect thereto was entered into during April 1984 and the estimated cost of the project is approximately $194,000,000.
"(ii) A project is described in this clause if the development agreement with respect thereto was entered into during May 1984 and the estimated cost of the project is approximately $190,000,000.
"(iii) A project is described in this clause if the project has an estimated cost of approximately $92,000,000 and at least $7,000,000 was spent before September 26, 1985, with respect to such project.
"(iv) A project is described in this clause if the estimated project cost is approximately $39,000,000 and at least $2,000,000 of construction cost for such project were incurred before September 26, 1985.
"(v) A project is described in this clause if the development agreement with respect thereto was entered into before September 26, 1985, and the estimated cost of the project is approximately $150,000,000.
"(vi) A project is described in this clause if the board of directors of the primary developer approved such project in December 1982, and the estimated cost of such project is approximately $107,000,000.
"(vii) A project is described in this clause if the board of directors of the primary developer approved such project in December 1982, and the estimated cost of such project is approximately $59,000,000.
"(viii) A project is described in this clause if the Board of Directors of the primary developer approved such project in December 1983, following selection of the developer by a city council on September 26, 1983, and the estimated cost of such project is approximately $107,000,000.
"(E)
"(i) a State or an agency, instrumentality, or political subdivision thereof approved the filing of a general project plan on June 18, 1981, and on October 4, 1984, a State or an agency, instrumentality, or political subdivision thereof confirmed such plan,
"(ii) the project plan as confirmed on October 4, 1984, included construction or renovation of office buildings, a hotel, a trade mart, theaters, and a subway complex, and
"(iii) significant segments of such project were the subject of one or more conditional designations granted by a State or an agency, instrumentality, or political subdivision thereof to one or more developers before January 1, 1985.
The preceding sentence shall apply with respect to a property only to the extent that a building on such property site was identified as part of the project plan before September 26, 1985, and only to the extent that the size of the building on such property site was not substantially increased by reason of a modification to the project plan with respect to such property on or after such date. For purposes of this subparagraph, section 203(b)(2) shall be applied by substituting 'January 1, 1998' for 'January 1, 1991' each place it appears.
"(F) A project is described in this subparagraph if it is a sports and entertainment facility which—
"(i) is to be used by both a National Hockey League team and a National Basketball Association team;
"(ii) is to be constructed on a platform utilizing air rights over land acquired by a State authority and identified as site B in a report dated May 30, 1984, prepared for a State urban development corporation; and
"(iii) is eligible for real property tax, and power and energy benefits pursuant to the provisions of State legislation approved and effective July 7, 1982.
A project is also described in this subparagraph if it is a mixed-use development which is—
"(I) to be constructed above a public railroad station utilized by the national railroad passenger corporation and commuter railroads serving two States; and
"(II) will include the reconstruction of such station so as to make it a more efficient transportation center and to better integrate the station with the development above, such reconstruction plans to be prepared in cooperation with a State transportation authority.
For purposes of this subparagraph, section 203(b)(2) shall be applied by substituting 'January 1, 1998' for the applicable date that would otherwise apply.
"(G) A project is described in this subparagraph if—
"(i) an inducement resolution was passed on March 9, 1984, for the issuance of obligations with respect to such project,
"(ii) such resolution was extended by resolutions passed on August 14, 1984, April 2, 1985, August 13, 1985, and July 8, 1986,
"(iii) an application was submitted on January 31, 1984, for an Urban Development Action Grant with respect to such project, and
"(iv) an Urban Development Action Grant was preliminarily approved for all or part of such project on July 3, 1986.
"(H) A project is described in this subparagraph if it is a redevelopment project, with respect to which $10,000,000 in industrial revenue bonds were approved by a State Development Finance Authority on January 15, 1986, a village transferred approximately $4,000,000 of bond volume authority to the State in June 1986, and a binding Redevelopment Agreement was executed between a city and the development team on June 30, 1986.
"(2)
"(A) which is certified by the Federal Energy Regulatory Commission before March 2, 1986, as a qualifying facility for purposes of the Public Utility Regulatory Policies Act of 1978 [see Short Title note set out under
"(B) which was granted before March 2, 1986, a hydroelectric license for such project by the Federal Energy Regulatory Commission, or
"(C) which is a hydroelectric project of less than 80 megawatts that filed an application for a permit, exemption, or license with the Federal Energy Regulatory Commission before March 2, 1986.
"(3)
"(4)
"(A) to property described in section 12(c)(2) (as amended by the Technical and Miscellaneous Revenue Act of 1988), 31(g)(5), or 31(g)(17)(J) of the Tax Reform Act of 1984 [sections 12(c)(2) and 31(g)(5), (17)(J) of
"(B) to property described in section 209(d)(1)(B) of the Tax Equity and Fiscal Responsibility Act of 1982, as amended by the Tax Reform Act of 1984 [section 209(d)(1)(B) of
"(C) to property described in section 216(b)(3) of the Tax Equity and Fiscal Responsibility Act of 1982 [section 216(b)(3) of
"(5)
"(A) A project is described in this subparagraph if—
"(i) the project involves production platforms for offshore drilling, oil and gas pipeline to shore, process and storage facilities, and a marine terminal, and
"(ii) at least $900,000,000 of the costs of such project were incurred before September 26, 1985.
"(B) A project is described in this subparagraph if—
"(i) such project involves a fiber optic network of at least 20,000 miles, and
"(ii) before September 26, 1985, construction commenced pursuant to the master plan and at least $85,000,000 was spent on construction.
"(C) A project is described in this subparagraph if—
"(i) such project passes through at least 10 States and involves intercity communication links (including one or more repeater sites, terminals and junction stations for microwave transmissions, regenerators or fiber optics and other related equipment),
"(ii) the lesser of $150,000,000 or 5 percent of the total project cost has been expended, incurred, or committed before March 2, 1986, by one or more taxpayers each of which is a member of the same affiliated group (as defined in section 1504(a) [of the Internal Revenue Code of 1986]), and
"(iii) such project consists of a comprehensive plan for meeting network capacity requirements as encompassed within either:
"(I) a November 5, 1985, presentation made to and accepted by the Chairman of the Board and the president of the taxpayer, or
"(II) the approvals by the Board of Directors of the parent company of the taxpayer on May 3, 1985, and September 22, 1985, and of the executive committee of said board on December 23, 1985.
"(D) A project is described in this subparagraph if—
"(i) such project is part of a flat rolled product modernization plan which was initially presented to the Board of Directors of the taxpayer on July 8, 1983,
"(ii) such program will be carried out at 3 locations, and
"(iii) such project will involve a total estimated minimum capital cost of at least $250,000,000.
"(E) A project is described in this subparagraph if the project is being carried out by a corporation engaged in the production of paint, chemicals, fiberglass, and glass, and if—
"(i) the project includes a production line which applies a thin coating to glass in the manufacture of energy efficient residential products, if approved by the management committee of the corporation on January 29, 1986,
"(ii) the project is a turbogenerator which was approved by the president of such corporation and at least $1,000,000 of the cost of which was incurred or committed before such date,
"(iii) the project is a waste-to-energy disposal system which was initially approved by the management committee of the corporation on March 29, 1982, and at least $5,000,000 of the cost of which was incurred before September 26, 1985,
"(iv) the project, which involves the expansion of an existing service facility and the addition of new lab facilities needed to accommodate topcoat and undercoat production needs of a nearby automotive assembly plant, was approved by the corporation's management committee on March 5, 1986, or
"(v) the project is part of a facility to consolidate and modernize the silica production of such corporation and the project was approved by the president of such corporation on August 19, 1985.
"(F) A project is described in this subparagraph if—
"(i) such project involves a port terminal and oil pipeline extending generally from the area of Los Angeles, California, to the area of Midland, Texas, and
"(ii) before September 26, 1985, there is a binding contract for dredging and channeling with respect thereto and a management contract with a construction manager for such project.
"(G) A project is described in this subparagraph if—
"(i) the project is a newspaper printing and distribution plant project with respect to which a contract for the purchase of 8 printing press units and related equipment to be installed in a single press line was entered into on January 8, 1985, and
"(ii) the contract price for such units and equipment represents at least 50 percent of the total cost of such project.
"(H) A project is described in this subparagraph if it is the second phase of a project involving direct current transmission lines spanning approximately 190 miles from the United States-Canadian border to Ayer, Massachusetts, alternating current transmission lines in Massachusetts from Ayers to Millbury to West Medway, DC–AC converted terminals to Monroe, New Hampshire, and Ayer, Massachusetts, and other related equipment and facilities.
"(I) A project is described in this subparagraph if it involves not more than two natural gas-fired combined cycle electric generating units each having a net electrical capability of approximately 233 megawatts, and a sales contract for approximately one-half of the output of the 1st unit was entered into in December 1985.
"(J) A project is described in this subparagraph if—
"(i) the project involves an automobile manufacturing facility (including equipment and incidental appurtenances) to be located in the United States, and
"(ii) either—
"(I) the project was the subject of a memorandum of understanding between 2 automobile manufacturers that was signed before September 25, 1985, the automobile manufacturing facility (including equipment and incidental appurtenances) will involve a total estimated cost of approximately $750,000,000, and will have an annual production capacity of approximately 240,000 vehicles or
"(II) the Board of Directors of an automobile manufacturer approved a written plan for the conversion of existing facilities to produce new models of a vehicle not currently produced in the United States, such facilities will be placed in service by July 1, 1987, and such Board action occurred in July 1985 with respect to a $602,000,000 expenditure, a $438,000,000 expenditure, and a $321,000,000 expenditure.
"(K) A project is described in this subparagraph if—
"(i) the project involves a joint venture between a utility company and a paper company for a supercalendered paper mill, and at least $50,000,000 was incurred or committed with respect to such project before March 1, 1986, or
"(ii) the project involves a paper mill for the manufacture of newsprint (including a cogeneration facility) is generally based on a written design and feasibility study that was completed on December 15, 1981, and will be placed in service before January 1, 1991, or
"(iii) the project is undertaken by a Maine corporation and involves the modernization of pulp and paper mills in Millinocket and/or East Millinocket, Maine, or
"(iv) the project involves the installation of a paper machine for production of coated publication papers, the modernization of a pulp mill, and the installation of machinery and equipment with respect to related processes, as of December 31, 1985, in excess of $50,000,000 was incurred for the project, as of July 1986, in excess of $150,000,000 was incurred for the project, and the project is located in Pine Bluff, Arkansas, or
"(v) the project involves property of a type described in ADR classes 26.1, 26.2, 25, 00.3 and 00.4 included in a paper plant which will manufacture and distribute tissue, towel or napkin products; is located in Effingham County, Georgia; and is generally based upon a written General Description which was submitted to the Georgia Department of Revenue on or about June 13, 1985.
"(L) A project is described in this subparagraph if—
"(i) a letter of intent with respect to such project was executed on June 4, 1985, and
"(ii) a 5-percent downpayment was made in connection with such project for 2 10-unit press lines and related equipment.
"(M) A project is described in this subparagraph if—
"(i) the project involves the retrofit of ammonia plants,
"(ii) as of March 1, 1986, more than $390,000 had been expended for engineering and equipment, and
"(iii) more than $170,000 was expensed in 1985 as a portion of preliminary engineering expense.
"(N) A project is described in this subparagraph if the project involves bulkhead intermodal flat cars which are placed in service before January 1, 1987, and either—
"(i) more than $2,290,000 of expenditures were made before March 1, 1986, with respect to a project involving up to 300 platforms, or
"(ii) more than $95,000 of expenditures were made before March 1, 1986, with respect to a project involving up to 850 platforms.
"(O) A project is described in this subparagraph if—
"(i) the project involves the production and transportation of oil and gas from a well located north of the Arctic Circle, and
"(ii) more than $200,000,000 of cost had been incurred or committed before September 26, 1985.
"(P) A project is described in this subparagraph if—
"(i) a commitment letter was entered into with a financial institution on January 23, 1986, for the financing of the project,
"(ii) the project involves intercity communication links (including microwave and fiber optics communications systems and related property),
"(iii) the project consists of communications links between—
"(I) Omaha, Nebraska, and Council Bluffs, Iowa,
"(II) Waterloo, Iowa and Sioux City, Iowa,
"(III) Davenport, Iowa and Springfield, Illinois, and
"(iv) the estimated cost of such project is approximately $13,000,000.
"(Q) A project is described in this subparagraph if—
"(i) such project is a mining modernization project involving mining, transport, and milling operations,
"(ii) before September 26, 1985, at least $20,000,000 was expended for engineering studies which were approved by the Board of Directors of the taxpayer on January 27, 1983, and
"(iii) such project will involve a total estimated minimum cost of $350,000,000.
"(R) A project is described in this subparagraph if—
"(i) such project is a dragline acquired in connection with a 3-stage program which began in 1980 to increase production from a coal mine,
"(ii) at least $35,000,000 was spent before September 26, 1985, on the 1st 2 stages of the program, and
"(iii) at least $4,000,000 was spent to prepare the mine site for the dragline.
"(S) A project is described in this subparagraph if—it is a project consisting of a mineral processing facility using a heap leaching system (including waste dumps, low-grade dumps, a leaching area, and mine roads) and if—
"(i) convertible subordinated debentures were issued in August 1985, to finance the project,
"(ii) construction of the project was authorized by the Board of Directors of the taxpayer on or before December 31, 1985,
"(iii) at least $750,000 was paid or incurred with respect to the project on or before December 31, 1985, and
"(iv) the project is placed in service on or before December 31, 1986.
"(T) A project is described in this subparagraph if it is a plant facility on Alaska's North Slope which is placed in service before January 1, 1988, and—
"(i) the approximate cost of which is $675,000,000, of which approximately $400,000,000 was spent on off-site construction,
"(ii) the approximate cost of which is $445,000,000, of which approximately $400,000,000 was spent on off-site construction and more than 50 percent of the project cost was spent prior to December 31, 1985, or
"(iii) the approximate cost of which is $375,000,000, of which approximately $260,000,000 was spent on off-site construction.
"(U) A project is described in this subparagraph if it involves the connecting of existing retail stores in the downtown area of a city to a new covered area, the total project will be 250,000 square feet, a formal Memorandum of Understanding relating to development of the project was executed with the city on July 2, 1986, and the estimated cost of the project is $18,186,424.
"(V) A project is described in this subparagraph if it includes a 200,000 square foot office tower, a 200-room hotel, a 300,000 square foot retail center, an 800-space parking facility, the total cost is projected to be $60,000,000, and $1,250,000 was expended with respect to the site before August 25, 1986.
"(W) A project is described in this subparagraph if it is a joint use and development project including an integrated hotel, convention center, office, related retail facilities and public mass transportation terminal, and vehicle parking facilities which satisfies the following conditions:
"(i) is developed within certain air space rights and upon real property exchanged for such joint use and development project which is owned or acquired by a state department of transportation, a regional mass transit district in a county with a population of at least 5,000,000 and a community redevelopment agency;
"(ii) such project affects an existing, approximately 40 acre public mass transportation bus-way terminal facility located adjacent to an interstate highway;
"(iii) a memorandum of understanding with respect to such joint use and development project is executed by a state department of transportation, such a county regional mass transit district and a community redevelopment agency on or before December 31, 1986, and
"(iv) a major portion of such joint use and development project is placed in service by December 31, 1990.
"(X) A project is described in this subparagraph if—
"(i) it is an $8,000,000 project to provide advanced control technology for adipic acid at a plant, which was authorized by the company's Board of Directors in October 1985, at December 31, 1985, $1,400,000 was committed and $400,000 expended with respect to such project, or
"(ii) it is an $8,300,000 project to achieve compliance with State and Federal regulations for particulates emissions, which was authorized by the company's Board of Directors in December 1985, by March 31, 1986, $250,000 was committed and $250,000 was expended with respect to such project, or
"(iii) it is a $22,000,000 project for the retrofit of a plant that makes a raw material for aspartame, which was approved in the company's December 1985 capital budget, if approximately $3,000,000 of the $22,000,000 was spent before August 1, 1986.
"(Y) A project is described in this subparagraph if such project passes through at least 9 States and involves an intercity communication link (including multiple repeater sites and junction stations for microwave transmissions and amplifiers for fiber optics); the link from Buffalo to New York/Elizabeth was completed in 1984; the link from Buffalo to Chicago was completed in 1985; and the link from New York to Washington is completed in 1986.
"(Z) A project is described in this subparagraph if—
"(i) such project involves a fiber optic network of at least 475 miles, passing through Minnesota and Wisconsin; and
"(ii) before January 1, 1986, at least $15,000,000 was expended or committed for electronic equipment or fiber optic cable to be used in constructing the network.
"(6)
"(A) 3 applications for the construction of such pipeline were filed with the Federal Energy Regulatory Commission before November 22, 1985 (and 2 of which were filed before September 26, 1985), and
"(B) such pipeline has 1 of its terminal points near Bakersfield, California.
"(7)
"(A) the lessee or an affiliate is the original lessee of each building in which such property is to be used,
"(B) such lessee is obligated to lease the building under an agreement to lease entered into before September 26, 1985, and such property is provided for such building, and
"(C) such buildings are to serve as world headquarters of the lessee and its affiliates.
For purposes of this paragraph, a corporation is an affiliate of another corporation if both corporations are members of a controlled group of corporations within the meaning of section 1563(a) of the Internal Revenue Code of 1954 without regard to section 1563(b)(2) of such Code. Such lessee shall include a securities firm that meets the requirements of subparagraph (A), except the lessee is obligated to lease the building under a lease entered into on June 18, 1986.
"(8)
"(A) there is a binding written contract between a service recipient and a service provider with respect to the operation of such facility to pay for the services to be provided by such facility,
"(B) a service recipient or governmental unit (or any entity related to such recipient or unit) made a financial commitment of at least $200,000 for the financing or construction of such facility,
"(C) such facility is the Tri-Cities Solid Waste Recovery Project involving Fremont, Newark, and Union City, California, and has received an authority to construct from the Environmental Protection Agency or from a State or local agency authorized by the Environmental Protection Agency to issue air quality permits under the Clean Air Act [
"(D) a bond volume carryforward election was made for the facility and the facility is for Chattanooga, Knoxville, or Kingsport, Tennessee, or
"(E) such facility is to serve Haverhill, Massachusetts.
"(9)
"(10)
"(A) site preparation for such facility commenced before September 1985, and a parish council approved a service agreement with respect to such facility on December 4, 1985;
"(B) a city-parish advertised in September 1985, for bids for construction of secondary treatment improvements for such facility, in May 1985, the city-parish received statements from 16 firms interested in privatizing the wastewater treatment facilities, and the metropolitan council selected a privatizer at its meeting on November 20, 1985, and adopted a resolution authorizing the Mayor to enter into contractual negotiation with the selected privatizer;
"(C) the property is part of a wastewater treatment facility serving Greenville, South Carolina with respect to which a binding service agreement between a privatizer and the Western Carolina Regional Sewer Authority with respect to such facility was signed before January 1, 1986; or
"(D) such property is part of a wastewater treatment facility (located in Cameron County, Texas, within one mile of the City of Harlingen), an application for a wastewater discharge permit was filed with respect to such facility on December 4, 1985, and a City Commission approved a letter of intent relating to a service agreement with respect to such facility on August 7, 1986; or a wastewater facility (located in Harlingen, Texas) which is a subject of such letter of intent and service agreement and the design of which was contracted for in a letter of intent dated January 23, 1986.
"(11)
"(A) the aircraft is manufactured in the United States. For purposes of this subparagraph, an aircraft is 'manufactured' at the point of its final assembly,
"(B) the aircraft was in inventory or in the planned production schedule of the final assembly manufacturer, with orders placed for the engine(s) on or before August 16, 1986, and
"(C) the aircraft is purchased or subject to a binding contract on or before December 31, 1986, and is delivered and placed in service by the purchaser, before July 1, 1987.
"(12)
"(A) on or before January 28, 1986, there was a binding contract to construct or acquire a satellite, and
"(i) an agreement to launch was in existence on that date, or
"(ii) on or before August 5, 1983, the Federal Communications Commission had authorized the construction and for which the authorized party has a specific although undesignated agreement to launch in existence on January 28, 1986;
"(B) by order adopted on July 25, 1985, the Federal Communications Commission granted the taxpayer an orbital slot and authorized the taxpayer to launch and operate 2 satellites with a cost of approximately $300,000,000; or
"(C) the International Telecommunications Satellite Organization or the International Maritime Satellite Organization entered into written binding contracts before May 1, 1985.
"(13)
"(14)
"(A) at least $100,000 was paid or incurred with respect to the project before March 1, 1986, a memorandum of understanding was executed on September 13, 1985, and the project is placed in service before January 1, 1989,
"(B) at least $500,000 was paid or incurred with respect to the projects before May 6, 1986, the projects involve a 22-megawatt combined cycle gas turbine plant and a 45-megawatt coal waste plant, and applications for qualifying facility status were filed with the Federal Energy Regulatory Commission on March 5, 1986,
"(C) the project cost approximates $125,000,000 to $140,000,000 and an application was made to the Federal Energy Regulatory Commission in July 1985,
"(D) an inducement resolution for such facility was adopted on September 10, 1985, a development authority was given an inducement date of September 10, 1985, for a loan not to exceed $80,000,000 with respect to such facility, and such facility is expected to have a capacity of approximately 30 megawatts of electric power and 70,000 pounds of steam per hour,
"(E) at least $1,000,000 was incurred with respect to the project before May 6, 1986, the project involves a 52-megawatt combined cycle gas turbine plant and a petition was filed with the Connecticut Department of Public Utility Control to approve a power sales agreement with respect to the project on March 27, 1986,
"(F) the project has a planned scheduled capacity of approximately 38,000 kilowatts, the project property is placed in service before January 1, 1991, and the project is operated, established, or constructed pursuant to certain agreements, the negotiation of which began before 1986, with public or municipal utilities conducting business in Massachusetts, or
"(G) the Board of Regents of Oklahoma State University took official action on July 25, 1986, with respect to the project.
In the case of the project described in subparagraph (F), section 203(b)(2)(A) shall be applied by substituting 'January 1, 1991' for 'January 1, 1989'.
"(15)
"(A) a tax-exempt entity will own an equity interest in all property included in the project (except the coal mine equipment), and
"(B) at least $72,000,000 was expended in the acquisition of coal leases, land and water rights, engineering studies, and other development costs before May 6, 1986.
For purposes of this paragraph, section 203(b)(2) shall be applied by substituting 'January 1, 1996' for 'January 1, 1991' each place it appears.
"(16)
"(A)
"(B)
"(17)
"(18)
"(A) the Board of Directors of an electric power cooperation authorized the investigation of a sale leaseback of a nuclear generation facility by resolution dated January 22, 1985, and
"(B) a loan was extended by the Rural Electrification Administration on February 20, 1986, which contained a covenant with respect to used property leasing from unit II.
"(19)
"(A) The amendments made by section 201 shall not apply to a light rail transit system, the approximate cost of which is $235,000,000, if, with respect to which, the board of directors of a corporation (formed in September 1984 for the purpose of developing, financing, and operating the system) authorized a $300,000 expenditure for a feasibility study in April 1985.
"(B) The amendments made by section 201 shall not apply to any project for rehabilitation of regional railroad rights of way and properties including grade crossings which was authorized by the Board of Directors of such company prior to October 1985; and/or was modified, altered or enlarged as a result of termination of company contracts, but approved by said Board of Directors no later than January 30, 1986, and which is in the public interest, and which is subject to binding contracts or substantive commitments by December 31, 1987.
"(20)
"(21)
"(22) The amendments made by section 201 shall not apply to a computer and office support center building in Minneapolis, with respect to which the first contract, with an architecture firm, was signed on April 30, 1985, and a construction contract was signed on March 12, 1986.
"(23)
"(24)
"(A)
"(B)
"(i) the estimated cost of reconstruction is approximately $39,000,000;
"(ii) reconstruction was commenced prior to December 1, 1985;
"(iii) at least $17,000,000 was expended before December 31, 1985; and
"(C)
"(D) The amendments made by section 201 shall not apply to a 562-foot passenger cruise ship, which was purchased in 1980 for the purpose of returning the vessel to United States service, the approximate cost of refurbishment of which is approximately $47,000,000.
"(E) The amendments made by section 201 shall not apply to the Muskegon, Michigan, Cross-Lake Ferry project having a projected cost of approximately $7,200,000.
"(F) The amendments made by section 201 shall not apply to a new automobile carrier vessel, the contract price for which is no greater than $28,000,000, and which will be constructed for and placed in service by OSG Car Carriers, Inc., to transport, under the United States flag and with an American crew, foreign automobiles to North America in a case where negotiations for such transportation arrangements commenced in 1985, and definitive transportation contracts were awarded before June 1986.
"(25)
"(A) a 26.5 megawatt plant in Fresno, California, and
"(B) a 26.5 megawatt plant in Rocklin, California.
"(26) The amendments made by section 201 shall not apply to property which is a geothermal project of less than 20 megawatts that was certified by the Federal Energy Regulatory Commission on July 14, 1986, as a qualifying small power production facility for purposes of the Public Utility Regulatory Policies Act of 1978 [see Short Title note set out under
"(27)
"(A) A mixed use development on the East River the total cost of which is approximately $400,000,000, with respect to which a letter of intent was executed on January 24, 1984, and with respect to which approximately $2.5 million had been spent by March 1, 1986.
"(B) A 356-room hotel, banquet, and conference facility (including 540,000 square feet of office space) the approximate cost of which is $158,000,000, with respect to which a letter of intent was executed on June 1, 1984, and with respect to which an inducement resolution and bond resolution was adopted on August 20, 1985.
"(C) Phase 1 of a 4-phase project involving the construction of laboratory space and ground-floor retail space the estimated cost of which is $22,000,000 and with respect to which a memoradum [sic] of understanding was made on August 29, 1983.
"(D) A project involving the development of a 490,000 square foot mixed-use building at 152 W. 57th Street, New York, New York, the estimated cost of which is $100,000,000, and with respect to which a building permit application was filed in May 1986.
"(E) A mixed-use project containing a 300 unit, 12-story hotel, garage, two multi-rise office buildings, and also included a park, renovated riverboat, and barge with festival marketplace, the capital outlays for which approximate $68,000,000.
"(F) The construction of a three-story office building that will serve as the home office for an insurance group and its affiliated companies, with respect to which a city agreed to transfer its ownership of the land for the project in a Redevelopment Agreement executed on September 18, 1985, once certain conditions are met.
"(G) A commercial bank formed under the laws of the State of New York which entered into an agreement on September 5, 1985, to construct its headquarters at 60 Wall Street, New York, New York, with respect to such headquarters.
"(H) Any property which is part of a commercial and residential project, the first phase of which is currently under construction, to be developed on land which is the subject of an ordinance passed on July 20, 1981, by the city council of the city in which such land is located, designating such land and the improvements to be placed thereon as a residential-business planned development, which development is being financed in part by the proceeds of industrial development bonds in the amount of $62,600,000 issued on December 4, 1985.
"(I) A 600,000 square foot mixed use building known as Flushing Center with respect to which a letter of intent was executed on March 26, 1986.
In the case of the building described in subparagraph (I), section 203(b)(2)(A) shall be applied by substituting 'January 1, 1993' for the applicable date which would otherwise apply.
"(28) The amendments made by section 201 shall not apply to an $80,000,000 capital project steel seamless tubular casings minimill and melting facility located in Youngstown, Ohio, which was purchased by the taxpayer in April 1985, and—
"(A) the purchase and renovation of which was approved by a committee of the Board of Directors on February 22, 1985, and
"(B) as of December 31, 1985, more than $20,000,000 was incurred or committed with respect to the renovation.
"(29) The amendments made by section 201 shall not apply to any project for residential rental property if—
"(A) an inducement resolution with respect to such project was adopted by the State housing development authority on January 25, 1985, and
"(B) such project was the subject of a law suit filed on October 25, 1985.
"(30) The amendments made by section 201 shall not apply to a 30 megawatt electric generating facility fueled by geothermal and wood waste, the approximate cost of which is $55,000,000, and with respect to which a 30-year power sales contract was executed on March 22, 1985.
"(31) The amendments made by section 201 shall not apply to railroad maintenance-of-way equipment, with respect to which a Boston bank entered into a firm binding contract with a major northeastern railroad before March 2, 1986, to finance $10,500,000 of such equipment, if all of the equipment was placed in service before August 1, 1986.
"(32) The amendment made by section 201 shall not apply to—
"(A) a facility constructed on approximately seven acres of land located on Ogle's Poso Creek Oil field, the primary fuel of which will be bituminous coal from Utah or Wyoming, with respect to which an application for an authority to construct was filed on December 26, 1985, an authority to construct was issued on July 2, 1986, and a prevention of significant deterioration permit application was submitted in May 1985,
"(B) a facility constructed on approximately seven acres of land located on Teorco's Jasmin oil field, the primary fuel of which will be bituminous coal from Utah or Wyoming, with respect to which an authority to construct was filed on December 26, 1985, an authority to construct was issued on July 2, 1986, and a prevention of significant deterioration permit application was submitted in July 1985,
"(C) the Mountain View Apartments, in Hadley, Massachusetts,
"(D) a facility expected to have a capacity of not less than 65 megawatts of electricity, the steam from which is to be sold to a pulp and paper mill, with respect to which application was made to the Federal Regulatory Commission for certification as a qualified facility on November 1, 1985, and received such certification on January 24, 1986,
"(E) $5,000,000 of equipment ordered in 1986, in connection with a 60,000 square foot plant in Masontown, Pennsylvania, that was completed in 1983,
"(F) a magnetic resonance imaging machine, with respect to which a binding contract to purchase was entered into in April 1986, in connection with the construction of a magnetic resonance imaging clinic with respect to which a Determination of Need certification was obtained from a State Department of Public Health on October 22, 1985, if such property is placed in service before December 31, 1986,
"(G) a company located in Salina, Kansas, which has been engaged in the construction of highways and city streets since 1946, but only to the extent of $1,410,000 of investment in new section 38 property,
"(H) a $300,000 project undertaken by a small metal finishing company located in Minneapolis, Minnesota, the first parts of which were received and paid for in January 1986, with respect to which the company received Board approval to purchase the largest piece of machinery it has ever ordered in 1985,
"(I) A $1,200,000 finishing machine that was purchased on April 2, 1986 and placed into service in September 1986 by a company located in Davenport, Iowa,
"(J) A 25 megawatt small power production facility, with respect to which Qualifying Facility status numbered QF86–593–000 was granted on March 5, 1986,
"(K) A 250 megawatt coal-fired electric plant in northeastern Nevada estimated to cost $600,000,000 and known as the Thousand Springs project, on which the Sierra Pacific Power Company, a subsidiary of Sierra Pacific Resources, began in 1980 work to design, finance, construct, and operate (and section 203(b)(2) shall be applied with respect to such plant by substituting 'January 1, 1995' for 'January 1, 1991'),
"(L) 128 units of rental housing in connection with the Point Gloria Limited Partnership,
"(M) property which is part of the Kenosha Downtown Redevelopment Project and which is financed with the proceeds of bonds issued pursuant to section 1317(6)(W) [set out as a note under
"(N) Lakeland Park Phase II, in Baton Rouge, Louisiana,
"(O) the Santa Rosa Hotel, in Pensacola, Florida,
"(P) the Sheraton Baton Rouge, in Baton Rouge, Louisiana,
"(Q) $300,000 of equipment placed in service in 1986, in connection with the renovation of the Best Western Townhouse Convention Center in Cedar Rapids, Iowa,
"(R) the segment of a nationwide fiber optics telecommunications network placed in service by SouthernNet, the total estimated cost of which is $37,000,000,
"(S) two cogeneration facilities, to be placed in service by the Reading Anthracite Coal Company (or any subsidiary thereof), costing approximately $110,000,000 each, with respect to which filings were made with the Federal Energy Regulatory Commission by December 31, 1985, and which are located in Pennsylvania,
"(T) a portion of a fiber optics network placed in service by LDX NET after December 31, 1988, but only to the extent the cost of such portion does not exceed $25,000,000,
"(U) 3 newly constructed fishing vessels, and one vessel that is overhauled, constructed by Mid Coast Marine, but only to the extent of $6,700,000 of investment,
"(V) $350,000 of equipment acquired in connection with the reopening of a plant in Bristol, Rhode Island, which plant was purchased by Buttonwoods, Ltd., Associates on February 7, 1986,
"(W) $4,046,000 of equipment placed in service by Brendle's Incorporated, acquired in connection with a Distribution Center,
"(X) a multi-family mixed-use housing project located in a home rule city, the zoning for which was changed to residential business planned development on November 26, 1985, and with respect to which both the home rule city on December 4, 1985, and the State housing finance agency on December 20, 1985, adopted inducement resolutions,
"(Y) the Myrtle Beach Convention Center, in South Carolina, to the extent of $25,000,000 of investment, and
"(Z) railroad cars placed in service by the Pullman Leasing Company, pursuant to an April 3, 1986 purchase order, costing approximately $10,000,000.
"(33) The amendments made by section 201 [amending this section and
"(A) $400,000 of equipment placed in service by Super Key Market, if such equipment is placed in service before January 1, 1987,
"(B) the Trolley Square project, the total project cost of which is $24,500,000, and the amount of depreciable real property of which is $14,700,000.
"(C)(i) a waste-to-energy project in Derry, New Hampshire, costing approximately $60,000,000, and
"(ii) a waste-to-energy project in Manchester, New Hampshire, costing approximately $60,000,000,
"(D) the City of Los Angeles Co-composting project, the estimated cost of which is $62,000,000, with respect to which, on July 17, 1985, the California Pollution Control Financing Authority issued an initial resolution in the maximum amount of $75,000,000 to finance this project,
"(E) the St. Charles, Missouri Mixed-Use Center,
"(F) Oxford Place in Tulsa, Oklahoma,
"(G) an amount of investment generating $20,000,000 of investment tax credits attributable to property used on the Illinois Diversatech Campus,
"(H) $25,000,000 of equipment used in the Melrose Park Engine Plant that is sold and leased back by Navistar,
"(I) 80,000 vending machines, for a cost approximating $3,400,000 placed into service by Folz Vending Co.,
"(J) A 25.85 megawatt alternative energy facility located in Deblois, Maine, with respect to which certification by the Federal Energy Regulatory Commission was made on April 3, 1986,
"(K) Burbank Manors, in Illinois, and
"(L) a cogeneration facility to be built at a paper company in Turners Falls, Massachusetts, with respect to which a letter of intent was executed on behalf of the paper company on September 26, 1985.
"(40) [Par. (40) probably should follow par. (39).]
"(34) The amendments made by section 201 shall not apply to an approximately 240,000 square foot beverage container manufacturing plant located in Batesville, Mississippi, or plant equipment used exclusively on the plant premises if—
"(A) a 2-year supply contract was signed by the taxpayer and a customer on November 1, 1985,
"(B) such contract further obligated the customer to purchase beverage containers for an additional 5-year period if physical signs of construction of the plant are present before September 1986,
"(C) ground clearing for such plant began before August 1986, and
"(D) construction is completed, the equipment is installed, and operations are commenced before July 1, 1987.
"(35) The amendments made by section 201 shall not apply to any property which is part of the multifamily housing at the Columbia Point Project in Boston, Massachusetts. A project shall be treated as not described in the preceding sentence and as not described in section 252(f)(1)(D) [set out as a note under
"(36) The amendments made by section 201 shall not apply to any ethanol facility located in Blair, Nebraska, if—
"(A) in July of 1984 an initial binding construction contract was entered into for such facility,
"(B) in June of 1986, certain Department of Energy recommended contract changes required a change of contractor, and
"(C) in September of 1986, a new contract to construct such facility, consistent with such recommended changes, was entered into.
"(37) The amendments made by section 201 shall not apply to any property which is part of a sewage treatment facility if, prior to January 1, 1986, the City of Conyers, Georgia, selected a privatizer to construct such facility, received a guaranteed maximum price bid for the construction of such facility, signed a letter of intent and began substantial negotiations of a service agreement with respect to such facility.
"(38) The amendments made by section 201 shall not apply to—
"(A) a $28,000,000 wood resource complex for which construction was authorized by the Board of Directors on August 9, 1985,
"(B) an electrical cogeneration plant in Bethel, Maine which is to generate 2 megawatts of electricity from the burning of wood residues, with respect to which a contract was entered into on July 10, 1984, and with respect to which $200,000 of the expected $2,000,000 cost had been committed before June 15, 1986,
"(C) a mixed income housing project in Portland, Maine which is known as the Back Bay Tower and which is expected to cost $17,300,000,
"(D) the Eastman Place project and office building in Rochester, New York, which is projected to cost $20,000,000, with respect to which an inducement resolution was adopted in December 1986, and for which a binding contract of $500,000 was entered into on April 30, 1986,
"(E) the Marquis Two project in Atlanta, Georgia which has a total budget of $72,000,000 and the construction phase of which began under a contract entered into on March 26, 1986,
"(F) a 166-unit continuing care retirement center in New Orleans, Louisiana, the construction contract for which was signed on February 12, 1986, and is for a maximum amount not to exceed $8,500,000,
"(G) the expansion of the capacity of an oil refining facility in Rosemont, Minnesota from 137,000 to 207,000 barrels per day which is expected to be completed by December 31, 1990, and
"(H) a project in Ransom, Pennsylvania which will burn coal waste (known as 'culm') with an approximate cost of $64,000,000 and for which a certification from the Federal Energy Regulatory Commission was received on March 11, 1986.
"(39) The amendments made by section 201 shall not apply to any facility for the manufacture of an improved particle board if a binding contract to purchase such equipment was executed March 3, 1986, such equipment will be placed in service by January 1, 1988, and such facility is located in or near Moncure, North Carolina.
"(b)
"(c)
"(1) Section 203(b)(2) shall be applied by substituting 'January 1, 1992' for 'January 1, 1991' in the following cases.
"(A) in the case of a 2-unit nuclear powered electric generating plant (and equipment and incidental appurtenances), located in Pennsylvania and constructed pursuant to contracts entered into by the owner operator of the facility before December 31, 1975, including contracts with the engineer/constructor and the nuclear steam system supplier, such contracts shall be treated as contracts described in section 203(b)(1)(A),
"(B) a cogeneration facility with respect to which an application with the Federal Energy Regulatory Commission was filed on August 2, 1985, and approved October 15, 1985.
"(C) in the case of a 1,300 megawatt coal-fired steam powered electric generating plant (and related equipment and incidental appurtenances), which the three owners determined in 1984 to convert from nuclear power to coal power and for which more than $600,000,000 had been incurred or committed for construction before September 25, 1985, except that no investment tax credit will be allowable under section 49(d)(3) added by section 211(a) of this Act [
"(2) Section 203(b)(2) shall be applied by substituting 'April 1, 1992' for the applicable date that would otherwise apply, in the case of the second unit of a twin steam electric generating facility and related equipment which was granted a certificate of public convenience and necessity by a public service commission prior to January 1, 1982, if the first unit of the facility was placed in service prior to January 1, 1985, and before September 26, 1985, more than $100,000,000 had been expended toward the construction of the second unit.
"(3) Section 203(b)(2) shall be applied by substituting 'January 1, 1990,' (or, in the case of a project described in subparagraph (B), by substituting 'April 1, 1992') for the applicable date that would otherwise apply in the case of—
"(A) new commercial passenger aircraft used by a domestic airline, if a binding contract with respect to such aircraft was entered into on or before April 1, 1986, and such aircraft has a present class life of 12 years,
"(B) a pumped storage hydroelectric project with respect to which an application was made to the Federal Energy Regulatory Commission for a license on February 4, 1974, and license was issued August 1, 1977, the project number of which is 2740, and
"(C) a newsprint mill in Pend Oreille county, Washington, costing about $290,000,000.
In the case of an aircraft described in subparagraph (A), section 203(b)(1)(A) shall be applied by substituting 'April 1, 1986' for 'March 1, 1986' and section 49(e)(1)(B) of the Internal Revenue Code of 1986 shall not apply.
"(4) The amendments made by section 201 [amending this section and
"(A) Arena project, Michigan, but only with respect to $78,000,000 of investments.
"(B) Campbell Soup Company, Pennsylvania, California, North Carolina, Ohio, Maryland, Florida, Nebraska, Michigan, South Carolina, Texas, New Jersey, and Delaware, but only with respect to $9,329,000 of regular investment tax credits.
"(C) The Southeast Overtown/Park West development, Florida, but only with respect to $200,000,000 of investments.
"(D) Equipment placed in service and operated by Leggett and Platt before July 1, 1987, but only with respect to $2,000,000 of regular investment tax credits, and subsections (c) and (d) of section 49 of the Internal Revenue Code of 1986 shall not apply to such equipment.
"(E) East Bank Housing Project.
"(F) $1,561,215 of investments by Standard Telephone Company.
"(G) Five aircraft placed in service before January 1, 1987, by Presidential Air.
"(H) A rehabilitation project by Ann Arbor Railroad, but only with respect to $2,900,000 of investments.
"(I) Property that is part of a cogeneration project located in Ada, Michigan, but only with respect to $30,000,000 of investments.
"(J) Anchor Store Project, Michigan, but only with respect to $21,000,000 of investments.
"(K) A waste-fired electrical generating facility of Biogen Power, but only with respect to $34,000,000 of investments.
"(L) $14,000,000 of television transmitting towers placed in service by Media General, Inc., which were subject to binding contracts as of January 21, 1986, and will be placed in service before January 1, 1988,
"(M) Interests of Samuel A. Hardage (whether owned individually or in partnership form).
"(N) Two aircraft of Mesa Airlines with an aggregate cost of $5,723,484.
"(O) Yarn-spinning equipment used at Spray Cotton Mills, but only with respect to $3,000,000 of investments.
"(P) 328 units of low-income housing at Angelus Plaza, but only with respect to $20,500,000 of investments.
"(Q) One aircraft of Continental Aviation Services with a cost of approximately $15,000,000 that was purchased pursuant to a contract entered into during March of 1983 and that is placed in service by December 31, 1988.
"(d)
"(1)
"(2)
"(3)
"(e)
"(1)
"(A) shall not apply to any property placed in service during 1987 or 1988, or
"(B) shall apply to any property placed in service during 1985 or 1986,
which is property to replace property lost, damaged, or destroyed in such disaster.
"(2)
Amendment by section 201(a) of
Amendment by sections 1802(a)(1)–(2)(D), (G), (3), (4)(A), (B), (7), (b)(1), 1809(a)(1)–(2)(B), (4)(A), (B) of
"(I) Except as otherwise provided in this clause, the amendment made by clause (i) [amending this section] shall apply to property placed in service after September 27, 1985; except that such amendment shall not apply to any property acquired pursuant to a binding written contract in effect on such date (and at all times thereafter).
"(II) If an election under this subclause is made with respect to any property, the amendment made by clause (i) shall apply to such property whether or not placed in service on or before September 27, 1985."
Effective Date of 1985 Amendment
"(1)
"(2)
"(A) the taxpayer or a qualified person entered into a binding contract to purchase or construct such property before May 9, 1985, or
"(B) construction of such property was commenced by or for the taxpayer or a qualified person before May 9, 1985.
For purposes of this paragraph, the term 'qualified person' means any person whose rights in such a contract or such property are transferred to the taxpayer, but only if such property is not placed in service before such rights are transferred to the taxpayer.
"(3)
"(4)
"(5)
Effective Date of 1984 Amendment
Amendment by section 12 of
"(1)
"(A) to property placed in service by the taxpayer after May 23, 1983, in taxable years ending after such date, and
"(B) to property placed in service by the taxpayer on or before May 23, 1983, if the lease to the tax-exempt entity is entered into after May 23, 1983.
"(2)
"(A) a lease entered into on or before May 23, 1983 (or a sublease under such a lease), or
"(B) any renewal or extension of a lease entered into on or before May 23, 1983, if such renewal or extension is pursuant to an option exercisable by the tax-exempt entity which was held by the tax-exempt entity on May 23, 1983.
"(3)
"(A) The amendments made by this section shall not apply with respect to any property leased to a tax-exempt entity if such lease is pursuant to 1 or more written binding contracts which, on May 23, 1983, and at all times thereafter, required—
"(i) the taxpayer (or his predecessor in interest under the contract) to acquire, construct, reconstruct, or rehabilitate such property, and
"(ii) the tax-exempt entity (or a tax-exempt predecessor thereof) to be the lessee of such property.
"(B) Paragraph (9) of section 168(j) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as added by this section) shall not apply with respect to any property owned by a partnership if—
"(i) such property was acquired by such partnership on or before October 21, 1983, or
"(ii) such partnership entered into a written binding contract which, on October 21, 1983, and at all times thereafter, required the partnership to acquire or construct such property.
"(C) The amendments made by this section shall not apply with respect to any property leased to a tax-exempt entity (other than any foreign person or entity)—
"(i) if—
"(I) on or before May 23, 1983, the taxpayer (or his predecessor in interest under the contract) or the tax-exempt entity entered into a written binding contract to acquire, construct, reconstruct, or rehabilitate such property and such property had not previously been used by the tax-exempt entity, or
"(II) the taxpayer or the tax-exempt entity acquired the property after June 30, 1982, and on or before May 23, 1983, or completed the construction, reconstruction, or rehabilitation of the property after December 31, 1982, and on or before May 23, 1983, and
"(ii) if such lease is pursuant to a written binding contract entered into before January 1, 1985, which requires the tax-exempt entity to be the lessee of such property.
"(4)
"(A)
"(i) on or before November 1, 1983, there was significant official governmental action with respect to the project or its design, and
"(ii) the lease to the tax-exempt entity is pursuant to a written binding contract entered into before January 1, 1985, which requires the tax-exempt entity to be the lessee of the property.
"(B)
"(C)
"(i) such credit union shall not be treated as an agency or instrumentality of the United States; and
"(ii) clause (ii) of subparagraph (A) shall be applied by substituting 'January 1, 1987' for 'January 1, 1985'.
"(D)
"(E)
"(i) on June 16, 1982, the legislative body of the local governmental unit adopted a bond ordinance to provide funds to renovate elevators in a deteriorating building owned by the local governmental unit and listed in the National Register, and
"(ii) the chief executive officer of the local governmental unit, in connection with the renovation of such building, made an application on June 1, 1983, to a State agency for a Federal historic preservation grant and made an application on June 17, 1983, to the Economic Development Administration of the United States Department of Commerce for a grant,
the requirements of clauses (i) and (ii) of subparagraph (A) shall be treated as met.
"(5)
"(A) such vehicle is placed in service before January 1, 1988, or
"(B) such vehicle is placed in service on or after such date—
"(i) pursuant to a binding contract or commitment entered into before April 1, 1983, and
"(ii) solely because of conditions which, as determined by the Secretary of the Treasury or his delegate, are not within the control of the lessor or lessee.
"(6)
"(7)
"(8)
"(A)
"(B)
"(i) on June 15, 1983, the City Council approved a resolution under which the city authorized the procurement of equity investments for such facility, and
"(ii) on July 12, 1983, the Industrial Development Board of the city approved a resolution to issue a $100,000,000 industrial development bond issue to provide funds to purchase such facility.
"(9)
"(10)
"(A) an express appropriation has been made for rentals under such lease for the fiscal year 1983 before May 23, 1983, and
"(B) the United States or an agency or instrumentality thereof has not provided an indemnification against the loss of all or a portion of the tax benefits claimed under the lease or service contract.
"(11)
"(A)
"(B)
"(i) before October 21, 1983, the partnership was organized, a request for exemption with respect to such partnership was filed with the Department of Labor, and a private placement memorandum stating the maximum number of units in the partnership that would be offered had been circulated,
"(ii) the interest in the property to be acquired, directly or indirectly (including through acquiring an interest in another partnership) by such partnership was described in such private placement memorandum, and
"(iii) the marketing of partnership units in such partnership is completed not later than two years after the later of the date of the enactment of this Act [July 18, 1984] or the date of publication in the Federal Register of such exemption by the Department of Labor and the aggregate number of units in such partnership sold does not exceed the amount described in clause (i).
"(C)
"(D)
"(i) before March 6, 1984, the partnership was organized and publicly announced the maximum amount (as shown in the registration statement, prospectus or partnership agreement, whichever is greater) of interests which would be sold in the partnership, and
"(ii) the marketing or partnership interests in such partnership was completed not later than the 90th day after the date of the enactment of this Act [July 18, 1984] and the aggregate amount of interest in such partnership sold does not exceed the maximum amount described in clause (i).
"(12)
"(13)
"(A) such contract or other arrangement if such contract or other arrangement was entered into before November 5, 1983, or
"(B) any renewal or other extension of such contract or other arrangement pursuant to an option contained in such contract or other arrangement on November 5, 1983.
"(14)
"(A) 'November 5, 1983' for 'May 23, 1983' and 'November 1, 1983', as the case may be, and
"(B) 'organization described in section 593 of the Internal Revenue Code of 1986' for 'tax-exempt entity'.
"(15)
"(A)
"(i) is placed in service by the taxpayer before January 1, 1984, and
"(ii) is used by such foreign person or entity pursuant to a lease entered into before January 1, 1984.
"(B)
"(C)
"(i) if—
"(I) on or before May 23, 1983, the taxpayer (or a predecessor in interest under the contract) or the foreign person or entity entered into a written binding contract to acquire, construct, or rehabilitate such property and such property had not previously been used by the foreign person or entity, or
"(II) the taxpayer or the foreign person or entity acquired the property or completed the construction, reconstruction, or rehabilitation of the property after December 31, 1982 and on or before May 23, 1983, and
"(ii) if such lease is pursuant to a written binding contract entered into before January 1, 1984, which requires the foreign person or entity to be the lessee of such property.
"(D)
"(i) on or before November 1, 1983, the foreign person or entity entered into a written binding contract to acquire such aircraft, and
"(ii) such aircraft is originally placed in service by such foreign person or entity (or its successor in interest under the contract) after May 23, 1983, and before January 1, 1986.
"(E)
"(16)
"(A)
"(B)
"(i)
"(ii)
"(I) shall be the amount of tax which would be imposed by section 11 of such Code if the exempt arbitrage profits were taxable income (and there were no other taxable income), and
"(II) shall be imposed for the first taxable year of the tax-exempt use period (as defined in section 168(j)(4)(E)(ii) of such Code).
"(C)
"(i)
"(I) associated with property described in section 168(j)(4)(E)(i), and
"(II) issued before January 1, 1985.
"(ii)
"(D)
"(i)
"(ii)
"(I) part VI of subchapter A of
"(II) determining the amount of any credit allowable under subpart A of part IV of such subchapter.
"(E)
"(i) shall be made at such time and in such manner as the Secretary may prescribe,
"(ii) shall apply to any successor organization which is engaged in substantially similar activities, and
"(iii) once made, shall be irrevocable.
"(17)
"(A) Property is described in this subparagraph if such property is leased to a university, and—
"(i) on June 16, 1983, the Board of Administrators of the university adopted a resolution approving the rehabilitation of the property in connection with an overall campus development program; and
"(ii) the property houses a basketball arena and university offices.
"(B) Property is described in this subparagraph if such property is leased to a charitable organization, and—
"(i) on August 21, 1981, the charitable organization acquired the property, with a view towards rehabilitating the property; and
"(ii) on June 12, 1982, an arson fire caused substantial damage to the property, delaying the planned rehabilitation.
"(C) Property is described in this subparagraph if such property is leased to a corporation that is described in section 501(c)(3) of the Internal Revenue Code of 1986 (relating to organizations exempt from tax) pursuant to a contract—
"(i) which was entered into on August 3, 1983; and
"(ii) under which the corporation first occupied the property on December 22, 1983.
"(D) Property is described in this subparagraph if such property is leased to an educational institution for use as an Arts and Humanities Center and with respect to which—
"(i) in November 1982, an architect was engaged to design a planned renovation;
"(ii) in January 1983, the architectural plans were completed;
"(iii) in December 1983, a demolition contract was entered into; and
"(iv) in March 1984, a renovation contract was entered into.
"(E) Property is described in this subparagraph if such property is used by a college as a dormitory, and—
"(i) in October 1981, the college purchased the property with a view towards renovating the property;
"(ii) renovation plans were delayed because of a zoning dispute; and
"(iii) in May 1983, the court of highest jurisdiction in the State in which the college is located resolved the zoning dispute in favor of the college.
"(F) Property is described in this subparagraph if such property is a fraternity house related to a university with respect to which—
"(i) in August 1982, the university retained attorneys to advise the university regarding the rehabilitation of the property;
"(ii) on January 21, 1983, the governing body of the university established a committee to develop rehabilitation plans;
"(iii) on January 10, 1984, the governor of the state in which the university is located approved historic district designation for an area that includes the property; and
"(iv) on February 2, 1984, historic preservation certification applications for the property were filed with a historic landmarks commission.
"(G) Property is described in this subparagraph if such property is leased to a retirement community with respect to which—
"(i) on January 5, 1977, a certificate of incorporation was filed with the appropriate authority of the state in which the retirement community is located; and
"(ii) on November 22, 1983, the Board of Trustees adopted a resolution evidencing the intention to begin immediate construction of the property.
"(H) Property is described in this subparagraph if such property is used by a university, and—
"(i) in July 1982, the Board of Trustees of the university adopted a master plan for the financing of the property; and
"(ii) as of August 1, 1983, at least $60,000 in private expenditures had been expended in connection with the property.
In the case of Clemson University, the preceding sentence applies only to the Continuing Education Center and the component housing project.
"(I) Property is described in this subparagraph if such property is used by a university as a fine arts center and the Board of Trustees of such university authorized the sale-leaseback agreement with respect to such property on March 7, 1984.
"(J) Property is described in this subparagraph if such property is used by a tax-exempt entity as an international trade center, and
"(i) prior to 1982, an environmental impact study for such property was completed;
"(ii) on June 24, 1981, a developer made a written commitment to provide one-third of the financing for the development of such property; and
"(iii) on October 20, 1983, such developer was approved by the Board of Directors of the tax-exempt entity.
"(K) Property is described in this subparagraph if such property is used by university of osteopathic medicine and health sciences, and on or before December 31, 1983, the Board of Trustees of such university approved the construction of such property.
"(L) Property is described in this subparagraph if such property is used by a tax-exempt entity, and—
"(i) such use is pursuant to a lease with a taxpayer which placed substantial improvements in service;
"(ii) on May 23, 1983, there existed architectural plans and specifications (within the meaning of sec. 48(g)(1)(C)(ii) of the Internal Revenue Code of 1986); and
"(iii) prior to May 23, 1983, at least 10 percent of the total cost of such improvements was actually paid or incurred.
Property is described in this subparagraph if such property was leased to a tax-exempt entity pursuant to a lease recorded in the Register of Deed of Essex County, New Jersey, on May 7, 1984, and a deed of such property was recorded in the Register of Deed of Essex County, New Jersey, on May 7, 1984.
"(M) Property is described in this subparagraph if such property is used as a convention center and on June 2, 1983, the City Council of the city in which the center is located provided for over $6 million for the project.
"(18)
"(A)
"(i) leased by the taxpayer on or before November 1, 1983, or
"(ii) leased by the taxpayer after November 1, 1983, if on or before such date the taxpayer entered into a written binding contract requiring the taxpayer to lease such property.
"(B)
"(19)
"(A)
"(B)
"(20)
"(A)
"(B)
"(i)
"(ii)
"(I) by substituting 'property' for 'building' each place it appears therein,
"(II) by substituting '20 percent' for '25 percent' in clause (ii) thereof, and
"(III) without regard to clause (iii) thereof.
"(C)
"(D)
[
[
"(I) on or before March 28, 1985, the taxpayer (or a predecessor in interest under the contract) or the tax-exempt entity entered into a written binding contract to acquire, construct, or rehabilitate the property, or
"(II) the taxpayer or the tax-exempt entity began the construction, reconstruction, or rehabilitation of the property on or before March 28, 1985."]
"(1)
"(2)
"(A) the taxpayer or a qualified person entered into a binding contract to purchase or construct such property before March 16, 1984, or
"(B) construction of such property was commenced by or for the taxpayer or a qualified person before March 16, 1984.
For purposes of this paragraph the term 'qualified person' means any person who transfers his rights in such a contract or such property to the taxpayer, but only if such property is not placed in service by such person before such rights are transferred to the taxpayer.
"(3)
"(A)
"(i) is held by a person as property described in section 1221(1) [
"(ii) is disposed of by such person before January 1, 1985,
such person shall not, for purposes of paragraph (2), be treated as having placed such property in service before such property is disposed of merely because such person rented such property or held such property for rental. No deduction for depreciation or amortization shall be allowed to such person with respect to such property,
"(B)
"(i) bonds were issued to finance such property before 1984, and
"(ii) an architectural contract was entered into before March 16, 1984,
paragraph (2) shall be applied by substituting 'May 2' for 'March 16'.
"(4)
"(5)
"(A) paragraph (1) shall be applied by substituting 'June 22, 1984' for 'March 15, 1984', and
"(B) paragraph (2) shall be applied by substituting 'June 23, 1984' for 'March 15, 1984' each place it appears."
Amendment by section 113(a)(2) of
"(A) The amendments made by paragraphs (1) of subsection (b) [amending this section] shall apply to any motion picture film or video tape placed in service before, on, or after the date of the enactment of this Act [July 18, 1984], except that such amendment shall not apply to—
"(i) any qualified film placed in service by the taxpayer before March 15, 1984, if the taxpayer treated such film as recovery property for purposes of section 168 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] on a return of tax under
"(ii) any qualified film placed in service by the taxpayer before January 1, 1985, if—
"(I) 20 percent or more of the production costs of such film were incurred before March 16, 1984, and
"(II) the taxpayer treats such film as recovery property for purposes of section 168 of such Code.
No credit shall be allowable under section 38 of such Code with respect to any qualified film described in clause (ii), except to the extent provided in section 48(k) of such Code.
"(B) The amendment made by paragraph (2) and (3) of subsection (b) [amending this section and
"(C) The amendment made by paragraph (4) of subsection (b) [amending
"(D) For purposes of this paragraph, the terms 'qualified film' and 'production costs' have the same respective meanings as when used in section 48(k) of the Internal Revenue Code of 1986."
Amendment by section 474(r)(7) of
Amendment by section 612(e) of
Amendment by section 628(b) of
Effective Date of 1983 Amendment
Amendment by title I of
Amendment by section 541 of
Effective Date of 1982 Amendment
Amendment by
"(1)
"(2)
"(B)
"(3)
"(i) with respect to such property a binding contract to acquire or to construct such property was entered into by the lessee after December 31, 1980, and before July 2, 1982, or
"(ii) such property was acquired by the lessee, or construction of such property was commenced by or for the lessee, after December 31, 1980, and before July 2, 1982.
"(B)
"(i) an agreement to which section 168(f)(8)(A) of the Internal Revenue Code of 1986 applies was entered into before August 15, 1982, and
"(ii) the lessee under such agreement is a qualified lessee (within the meaning of paragraph (6)).
"(i)
"(I) such property is used principally by the taxpayer directly in connection with the trade or business of the taxpayer of the manufacture of automobiles or light-duty trucks,
"(II) such property is automotive manufacturing property, and
"(III) such property would be described in subparagraph (A) if 'October 1' were substituted for 'January 1'.
"(ii)
"(iii)
"(iv)
"(i) is a commercial passenger aircraft (other than a helicopter), and
"(ii) would be described in subparagraph (A) if 'January 1, 1984' were substituted for 'January 1, 1983'.
For purposes of determining whether property described in this subparagraph is described in subparagraph (A), subparagraph (A)(ii) shall be applied by substituting 'June 25, 1981' for 'December 31, 1980' and by substituting 'February 20, 1982' for 'July 2, 1982' and construction of the aircraft shall be treated as having been begun during the period referred to in subparagraph (A)(ii) if during such period construction or reconstruction of a subassembly was commenced, or the stub wing join occurred.
"(i) is a turbine or boiler of a cooperative organization engaged in the furnishing of electric energy to persons in rural areas, and
"(ii) would be property described in subparagraph (A) if 'July 1' were substituted for 'January 1'.
For purposes of determining whether property described in this subparagraph is described in subparagraph (A), such property shall be treated as having been acquired during the period referred to in subparagraph (A)(ii) if at least 20 percent of the cost of such property is paid during such period.
"(i) is used by the taxpayer directly in connection with the trade or business of the taxpayer of the manufacture or production of steel, and
"(ii) would be described in subparagraph (A) if 'January 1, 1984' were substituted for 'January 1, 1983'.
"(G)
"(i)
"(I) is used directly in connection with the manufacture or production of low sulfur gaseous fuel from coal, and
"(II) would be described in subparagraph (A) if 'July 1, 1984' were substituted for 'January 1, 1983'.
"(ii)
"(iii)
"(I) 50 percent of the cost basis of such property, or
"(II) $67,500,000.
"(iv)
"(I) such property shall be treated as placed in service when the taxpayer receives an operating permit with respect to such property from a State environmental protection agency, and
"(II) the term of the lease with respect to such property shall be treated as being 5 years.
"(4)
"(5)
"(A) is placed in service before January 1, 1988, or
"(B) is placed in service after such date—
"(i) pursuant to a binding contract or commitment entered into before April 1, 1983, and
"(ii) solely because of conditions which, as determined by the Secretary of the Treasury or his delegate, are not within the control of the lessor or lessee.
"(6)
"(i) had net operating losses in each of the three most recent taxable years ending before July 1, 1982, and had an aggregate net operating loss for the five most recent taxable years ending before July 1, 1982, and
"(ii) which uses the property subject to the agreement to manufacture and produce within the United States a class of products in an industry with respect to which—
"(I) the taxpayer produced less than 5 percent of the total number of units (or value) of such products during the period covering the three most recent taxable years of the taxpayer ending before July 1, 1982, and
"(II) four or fewer United States persons (including as one person an affiliated group as defined in section 1504(a)) other than the taxpayer manufactured 85 percent or more of the total number of all units (or value) within such class of products manufactured and produced in the United States during such period.
"(i) the term 'class of products' means any of the categories designated and numbered as a 'class of products' in the 1977 Census of Manufacturers compiled and published by the Secretary of Commerce under
"(ii) information—
"(I) compiled or published by the Secretary of Commerce, as part of or in connection with the Statistical Abstract of the United States or the Census of Manufacturers, regarding the number of units (or value) of a class of products manufactured and produced in the United States during any period, or
"(II) if information under subclause (I) is not available, so compiled or published with respect to the number of such units shipped or sold by such manufacturers during any period,
shall constitute prima facie evidence of the total number of all units of such class of products manufactured and produced in the United States in such period.
"(6)
"(7)
[
"(1)
"(A)
"(B)
"(i)
"(ii) $150,000
"(I) the cost basis of the property subject to the agreement, plus
"(II) the cost basis of any property subject to an agreement to which this subparagraph previously applied, which was entered into during the same calendar year, and with respect to which the lessee was the lessee of the agreement described in subclause (I) (or any related person within the meaning of section 168(e)(4)(D)),
exceeds $150,000. For purposes of subclause (II), in the case of an individual, there shall not be taken into account any agreement of any individual who is a related person involving property which is used in a trade or business of farming of such related person which is separate from the trade or business of farming of the lessee described in subclause (II).
"(2)
"(1)
"(2)
"(i) the construction, reconstruction, or rehabilitation of which began before July 1, 1982, or
"(ii) with respect to which a binding agreement to incur significant expenditures was entered into before July 1, 1982.
"(i)
"(ii)
In the case of an inducement resolution adopted by an issuing authority before July 1, 1982, for purposes of applying subparagraphs (A)(i) and (B)(ii) with respect to obligations described in such resolution, the term 'facilities' means the facilities described in such resolution.
"(3)
Amendment by section 224(c)(1), (2) of
Effective Date
"(a)
"(b)
"(c)
"(1)(A) Except as provided in subparagraph (B), the amendments made by subsections (a) and (b) of section 207 [amending
"(B) The amendments made by subparagraph (B)(i) of section 207(a)(2) [amending
"(C) If any net operating loss for any taxable year ending on or before December 31, 1975, could be a net operating loss carryover to a taxable year ending in 1981 by reason of subclause (II) of section 172(b)(1)(E)(ii) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as in effect on the day before the date of the enactment of this Act [Aug. 13, 1981] and as modified by section 1(b) of
"(2)(A) The amendments made by subsection (c)(1) of section 207 [amending
"(B) The amendment made by subsection (c)(2) of section 207 [amending
"(C) The amendments made by subsection (c)(3) of section 207 [amending
"(3)
Savings Provision
For provisions that nothing in amendment by section 401(b)(13)(A), (d)(1)(D)(iv) of
For provisions that nothing in amendment by
Normalization Requirements
"(1)
"(2)
"(A) the taxpayer was required by a regulatory agency to compute depreciation for public utility property on the basis of an average life or composite rate method, and
"(B) the taxpayer's books and underlying records did not contain the vintage account data necessary to apply the average rate assumption method,
the taxpayer will be treated as using a normalization method of accounting if, with respect to such jurisdiction, the taxpayer uses the alternative method for public utility property that is subject to the regulatory authority of that jurisdiction.
"(3)
"(A)
"(i) the reserve for deferred taxes (as described in section 168(i)(9)(A)(ii) of the Internal Revenue Code of 1986) as of the day before the corporate rate reductions provided in the amendments made by this section [amending this section and
"(ii) the amount which would be the balance in such reserve if the amount of such reserve were determined by assuming that the corporate rate reductions provided in this Act [see Tables for classification] were in effect for all prior periods.
"(B)
"(i) the ratio of the aggregate deferred taxes for the property to the aggregate timing differences for the property as of the beginning of the period in question, by
"(ii) the amount of the timing differences which reverse during such period.
"(C)
"(i) computes the excess tax reserve on all public utility property included in the plant account on the basis of the weighted average life or composite rate used to compute depreciation for regulatory purposes, and
"(ii) reduces the excess tax reserve ratably over the remaining regulatory life of the property.
"(4)
"(A) the taxpayer's tax for the taxable year shall be increased by the amount by which it reduces its excess tax reserve more rapidly than permitted under a normalization method of accounting, and
"(B) such taxpayer shall not be treated as using a normalization method of accounting for purposes of subsections (f)(2) and (i)(9)(C) of section 168 of the Internal Revenue Code of 1986."
Depreciation Study
"(1) shall conduct a comprehensive study of the recovery periods and depreciation methods under section 168 of the Internal Revenue Code of 1986, and
"(2) not later than March 31, 2000, shall submit the results of such study, together with recommendations for determining such periods and methods in a more rational manner, to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate."
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Treatment of Certain Farm Finance Leases
"(A)
"(i) any partnership or grantor trust is the lessor under a specified agreement,
"(ii) such partnership or grantor trust met the requirements of section 168(f)(8)(C)(i) of the Internal Revenue Code of 1954 (relating to special rules for finance leases) when the agreement was entered into, and
"(iii) a person became a partner in such partnership (or a beneficiary in such trust) after its formation but before September 26, 1985,
then, for purposes of applying the revenue laws of the United States in respect to such agreement, the portion of the property allocable to partners (or beneficiaries) not described in clause (iii) shall be treated as if it were subject to a separate agreement and the portion of such property allocable to the partner or beneficiary described in clause (iii) shall be treated as if it were subject to a separate agreement.
"(B)
"(i) an agreement dated as of December 20, 1982, as amended and restated as of February 1, 1983, involving approximately $8,734,000 of property at December 31, 1983,
"(ii) an agreement dated as of December 15, 1983, as amended and restated as of January 3, 1984, involving approximately $13,199,000 of property at December 31, 1984, or
"(iii) an agreement dated as of October 25, 1984, as amended and restated as of December 1, 1984, involving approximately $966,000 of property at December 31, 1984."
Certain Residential Real Property Treated as Residential Rental Property
Coordination With Imputed Interest Changes
"(A) any reference in any amendment made by this subsection [amending this section and
"(B) section 168(f)(12)(B)(ii) of the Internal Revenue Code of 1954 [now 1986] (as amended by paragraph (4)(A)) shall be applied by substituting '18 years' for '19 years'."
Termination of Safe Harbor Leasing Rules
Transitional Rules for 1984 Amendment
"(1)
"(A) a binding contract to acquire or to construct such property was entered into by or for the lessee before March 7, 1984, or
"(B) such property was acquired by the lessee, or the construction of such property was begun, by or for the lessee, before March 7, 1984.
The preceding sentence shall not apply to any property with respect to which an election is made under this sentence at such time after the date of the enactment of the Tax Reform Act of 1986 [Oct. 22, 1986] as the Secretary of the Treasury or his delegate may prescribe.
"(2)
"(A)
"(i) which is automotive manufacturing property, and
"(ii) with respect to which the lessee is a qualified lessee (within the meaning of section 208(d)(6) of the Tax Equity and Fiscal Responsibility Act of 1982) [
"(B) $150,000,000
"(i) the cost basis of the property subject to the agreement, plus
"(ii) the cost basis of any property subject to an agreement to which subparagraph (A) previously applied and with respect to which the lessee was the lessee under the agreement described in clause (i) (or any related person within the meaning of section 168(e)(4)(D) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]),
exceeds $150,000,000.
"(C)
"(i) property used principally by the taxpayer directly in connection with the trade or business of the taxpayer of the manufacturing of automobiles or trucks (other than truck tractors) with a gross vehicle weight of 13,000 pounds or less,
"(ii) machinery, equipment, and special tools of the type included in former depreciation range guideline classes 37.11 and 37.12, and
"(iii) any special tools owned by the taxpayer which are used by a vendor solely for the production of component parts for sale to the taxpayer.
"(3)
"(A) for which an application for certification was filed with the Federal Energy Regulatory Commission on December 30, 1983,
"(B) for which an application for a construction permit was filed with a State environmental protection agency on February 20, 1984, and
"(C) which is placed in service before January 1, 1988."
Special Leasing Rule Regarding Coal Gasification Facilities
Certain Leases Before October 20, 1981, Treated as Qualified Leases
Motor Vehicle Operating Leases
"(a)
"(b)
"(1)
"(A) which was entered into before—
"(i) the enactment of any law, or
"(ii) the publication by the Secretary of the Treasury or his delegate of any regulation,
which provides that any agreement with a terminal rental adjustment clause is not a lease,
"(B) with respect to which the lessor under the agreement—
"(i) is personally liable for the repayment of, or
"(ii) has pledged property (but only to the extent of the net fair market value of the lessor's interest in such property), other than property subject to the agreement or property directly or indirectly financed by indebtedness secured by property subject to the agreement, as security for,
all amounts borrowed to finance the acquisition of property subject to the agreement, and
"(C) with respect to which the lessee under the agreement uses the property subject to the agreement in a trade or business or for the production of income.
"(2)
"(c)
Information Returns With Respect to Safe Harbor Leases
"(a)
"(1)
"(2)
"(A)
"(B)
"(3)
"(A) a lessor or lessee fails to file any return within the time prescribed by this subsection, and
"(B) such failure is shown to be due to reasonable cause and not due to willful neglect,
the lessor or lessee shall be treated as having filed a timely return if a return is filed within a reasonable time after the failure is ascertained.
"(b)
"(1) The name, address, and taxpayer identifying number of the lessor and the lessee (and parent company if a consolidated return is filed);
"(2) The district director's office with which the income tax returns of the lessor and lessee are filed;
"(3) A description of each individual property with respect to which the election is made;
"(4) The date on which the lessee places the property in service, the date on which the lease begins and the term of the lease;
"(5) The recovery property class and the ADR midpoint life of the leased property;
"(6) The payment terms between the parties to the lease transaction;
"(7) Whether the ACRS deductions and the investment tax credit are allowable to the same taxpayer;
"(8) The aggregate amount paid to outside parties to arrange or carry out the transaction;
"(9) For the lessor only: the unadjusted basis of the property as defined in section 168(d)(1);
"(10) For the lessor only: if the lessor is a partnership or a grantor trust, the name, address, and taxpayer identifying number of the partners or the beneficiaries, and the district director's office with which the income tax return of each partner or beneficiary is filed; and
"(11) Such other information as may be required by the return or its instructions.
Paragraph (8) shall not apply with respect to any person for any calendar year if it is reasonable to estimate that the aggregate adjusted basis of the property of such person which will be subject to subsection (a) for such year is $1,000,000 or less.
"(c)
Regulated Public Utilities; Special Transitional Rule for Normalization Requirements
Interim Regulations With Respect to Normalization; Authority To Prescribe
1 See References in Text note below.
2 So in original. The word "or" probably should not appear.
§169. Amortization of pollution control facilities
(a) Allowance of deduction
Every person, at his election, shall be entitled to a deduction with respect to the amortization of the amortizable basis of any certified pollution control facility (as defined in subsection (d)), based on a period of 60 months. Such amortization deduction shall be an amount, with respect to each month of such period within the taxable year, equal to the amortizable basis of the pollution control facility at the end of such month divided by the number of months (including the month for which the deduction is computed) remaining in the period. Such amortizable basis at the end of the month shall be computed without regard to the amortization deduction for such month. The amortization deduction provided by this section with respect to any month shall be in lieu of the depreciation deduction with respect to such pollution control facility for such month provided by section 167. The 60-month period shall begin, as to any pollution control facility, at the election of the taxpayer, with the month following the month in which such facility was completed or acquired, or with the succeeding taxable year.
(b) Election of amortization
The election of the taxpayer to take the amortization deduction and to begin the 60-month period with the month following the month in which the facility is completed or acquired, or with the taxable year succeeding the taxable year in which such facility is completed or acquired, shall be made by filing with the Secretary, in such manner, in such form, and within such time, as the Secretary may by regulations prescribe, a statement of such election.
(c) Termination of amortization deduction
A taxpayer which has elected under subsection (b) to take the amortization deduction provided in subsection (a) may, at any time after making such election, discontinue the amortization deduction with respect to the remainder of the amortization period, such discontinuance to begin as of the beginning of any month specified by the taxpayer in a notice in writing filed with the Secretary before the beginning of such month. The depreciation deduction provided under section 167 shall be allowed, beginning with the first month as to which the amortization deduction does not apply, and the taxpayer shall not be entitled to any further amortization deduction under this section with respect to such pollution control facility.
(d) Definitions and special rules
For purposes of this section—
(1) Certified pollution control facility
The term "certified pollution control facility" means a new identifiable treatment facility which is used, in connection with a plant or other property in operation before January 1, 1976, to abate or control water or atmospheric pollution or contamination by removing, altering, disposing, storing, or preventing the creation or emission of pollutants, contaminants, wastes, or heat and which—
(A) the State certifying authority having jurisdiction with respect to such facility has certified to the Federal certifying authority as having been constructed, reconstructed, erected, or acquired in conformity with the State program or requirements for abatement or control of water or atmospheric pollution or contamination;
(B) the Federal certifying authority has certified to the Secretary (i) as being in compliance with the applicable regulations of Federal agencies and (ii) as being in furtherance of the general policy of the United States for cooperation with the States in the prevention and abatement of water pollution under the Federal Water Pollution Control Act, as amended (
(C) does not significantly—
(i) increase the output or capacity, extend the useful life, or reduce the total operating costs of such plant or other property (or any unit thereof), or
(ii) alter the nature of the manufacturing or production process or facility.
(2) State certifying authority
The term "State certifying authority" means, in the case of water pollution, the State water pollution control agency as defined in section 13(a) of the Federal Water Pollution Control Act and, in the case of air pollution, the air pollution control agency as defined in section 302(b) of the Clean Air Act. The term "State certifying authority" includes any interstate agency authorized to act in place of a certifying authority of the State.
(3) Federal certifying authority
The term "Federal certifying authority" means, in the case of water pollution, the Secretary of the Interior and, in the case of air pollution, the Secretary of Health and Human Services.
(4) New identifiable treatment facility
(A) In general
For purposes of paragraph (1), the term "new identifiable treatment facility" includes only tangible property (not including a building and its structural components, other than a building which is exclusively a treatment facility) which is of a character subject to the allowance for depreciation provided in section 167, which is identifiable as a treatment facility, and which is property—
(i) the construction, reconstruction, or erection of which is completed by the taxpayer after December 31, 1968, or
(ii) acquired after December 31, 1968, if the original use of the property commences with the taxpayer and commences after such date.
In applying this section in the case of property described in clause (i) there shall be taken into account only that portion of the basis which is properly attributable to construction, reconstruction, or erection after December 31, 1968.
(B) Certain facilities placed in operation after April 11, 2005
In the case of any facility described in paragraph (1) solely by reason of paragraph (5), subparagraph (A) shall be applied by substituting "April 11, 2005" for "December 31, 1968" each place it appears therein.
(5) Special rule relating to certain atmospheric pollution control facilities
In the case of any atmospheric pollution control facility which is placed in service after April 11, 2005, and used in connection with an electric generation plant or other property which is primarily coal fired—
(A) paragraph (1) shall be applied without regard to the phrase "in operation before January 1, 1976", and
(B) in the case of a facility placed in service in connection with a plant or other property placed in operation after December 31, 1975, this section shall be applied by substituting "84" for "60" each place it appears in subsections (a) and (b).
(e) Profitmaking abatement works, etc.
The Federal certifying authority shall not certify any property under subsection (d)(1)(B) to the extent it appears that by reason of profits derived through the recovery of wastes or otherwise in the operation of such property, its costs will be recovered over its actual useful life.
(f) Amortizable basis
(1) Defined
For purposes of this section, the term "amortizable basis" means that portion of the adjusted basis (for determining gain) of a certified pollution control facility which may be amortized under this section.
(2) Special rules
(A) If a certified pollution control facility has a useful life (determined as of the first day of the first month for which a deduction is allowable under this section) in excess of 15 years, the amortizable basis of such facility shall be equal to an amount which bears the same ratio to the portion of the adjusted basis of such facility, which would be eligible for amortization but for the application of this subparagraph, as 15 bears to the number of years of useful life of such facility.
(B) The amortizable basis of a certified pollution control facility with respect to which an election under this section is in effect shall not be increased, for purposes of this section, for additions or improvements after the amortization period has begun.
(g) Depreciation deduction
The depreciation deduction provided by section 167 shall, despite the provisions of subsection (a), be allowed with respect to the portion of the adjusted basis which is not the amortizable basis.
[(h) Repealed. Pub. L. 92–178, title I, §104(f)(2), Dec. 10, 1971, 85 Stat. 502 ]
(i) Life tenant and remainderman
In the case of property held by one person for life with remainder to another person, the deduction under this section shall be computed as if the life tenant were the absolute owner of the property and shall be allowable to the life tenant.
(j) Cross reference
For special rule with respect to certain gain derived from the disposition of property the adjusted basis of which is determined with regard to this section, see section 1245.
(Added
Editorial Notes
References in Text
The Federal Water Pollution Control Act, as amended (
The Clean Air Act, referred to in subsec. (d)(1)(B), is act July 14, 1955, ch. 360,
Section 302(b) of the Clean Air Act, referred to in subsec. (d)(2), formerly classified to
Prior Provisions
A prior section 169, act Aug. 16, 1954, ch. 736,
Amendments
2018—Subsec. (d)(5)(B).
2005—Subsec. (d).
Subsec. (d)(3).
Subsec. (d)(4)(B).
Subsec. (d)(5).
Subsec. (d)(5)(B).
1976—Subsecs. (b), (c).
Subsec. (d)(1).
Subsec. (d)(4).
1975—Subsec. (d)(4)(B).
1971—Subsec. (h).
Statutory Notes and Related Subsidiaries
Effective Date of 2005 Amendment
Amendment by
Effective Date of 1976 Amendment
Effective Date
Executive Documents
Transfer of Functions
Functions vested in Secretary of the Interior and Secretary of Health, Education, and Welfare by subsec. (d)(1)(B), (3) of this section transferred to Administrator of Environmental Protection Agency by Reorg. Plan No. 3, of 1970, §2(a)(9), eff. Dec. 2, 1970, 35 F.R. 15623,
§170. Charitable, etc., contributions and gifts
(a) Allowance of deduction
(1) General rule
There shall be allowed as a deduction any charitable contribution (as defined in subsection (c)) payment of which is made within the taxable year. A charitable contribution shall be allowable as a deduction only if verified under regulations prescribed by the Secretary.
(2) Corporations on accrual basis
In the case of a corporation reporting its taxable income on the accrual basis, if—
(A) the board of directors authorizes a charitable contribution during any taxable year, and
(B) payment of such contribution is made after the close of such taxable year and on or before the 15th day of the fourth month following the close of such taxable year,
then the taxpayer may elect to treat such contribution as paid during such taxable year. The election may be made only at the time of the filing of the return for such taxable year, and shall be signified in such manner as the Secretary shall by regulations prescribe.
(3) Future interests in tangible personal property
For purposes of this section, payment of a charitable contribution which consists of a future interest in tangible personal property shall be treated as made only when all intervening interests in, and rights to the actual possession or enjoyment of, the property have expired or are held by persons other than the taxpayer or those standing in a relationship to the taxpayer described in section 267(b) or 707(b). For purposes of the preceding sentence, a fixture which is intended to be severed from the real property shall be treated as tangible personal property.
(b) Percentage limitations
(1) Individuals
In the case of an individual, the deduction provided in subsection (a) shall be limited as provided in the succeeding subparagraphs.
(A) General rule
Any charitable contribution to—
(i) a church or a convention or association of churches,
(ii) an educational organization which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on,
(iii) an organization the principal purpose or functions of which are the providing of medical or hospital care or medical education or medical research, if the organization is a hospital, or if the organization is a medical research organization directly engaged in the continuous active conduct of medical research in conjunction with a hospital, and during the calendar year in which the contribution is made such organization is committed to spend such contributions for such research before January 1 of the fifth calendar year which begins after the date such contribution is made,
(iv) an organization which normally receives a substantial part of its support (exclusive of income received in the exercise or performance by such organization of its charitable, educational, or other purpose or function constituting the basis for its exemption under section 501(a)) from the United States or any State or political subdivision thereof or from direct or indirect contributions from the general public, and which is organized and operated exclusively to receive, hold, invest, and administer property and to make expenditures to or for the benefit of a college or university which is an organization referred to in clause (ii) of this subparagraph and which is an agency or instrumentality of a State or political subdivision thereof, or which is owned or operated by a State or political subdivision thereof or by an agency or instrumentality of one or more States or political subdivisions,
(v) a governmental unit referred to in subsection (c)(1),
(vi) an organization referred to in subsection (c)(2) which normally receives a substantial part of its support (exclusive of income received in the exercise or performance by such organization of its charitable, educational, or other purpose or function constituting the basis for its exemption under section 501(a)) from a governmental unit referred to in subsection (c)(1) or from direct or indirect contributions from the general public,
(vii) a private foundation described in subparagraph (F),
(viii) an organization described in section 509(a)(2) or (3), or
(ix) an agricultural research organization directly engaged in the continuous active conduct of agricultural research (as defined in section 1404 of the National Agricultural Research, Extension, and Teaching Policy Act of 1977) in conjunction with a land-grant college or university (as defined in such section) or a non-land grant college of agriculture (as defined in such section), and during the calendar year in which the contribution is made such organization is committed to spend such contribution for such research before January 1 of the fifth calendar year which begins after the date such contribution is made,
shall be allowed to the extent that the aggregate of such contributions does not exceed 50 percent of the taxpayer's contribution base for the taxable year.
(B) Other contributions
Any charitable contribution other than a charitable contribution to which subparagraph (A) applies shall be allowed to the extent that the aggregate of such contributions does not exceed the lesser of—
(i) 30 percent of the taxpayer's contribution base for the taxable year, or
(ii) the excess of 50 percent of the taxpayer's contribution base for the taxable year over the amount of charitable contributions allowable under subparagraph (A) (determined without regard to subparagraph (C)).
If the aggregate of such contributions exceeds the limitation of the preceding sentence, such excess shall be treated (in a manner consistent with the rules of subsection (d)(1)) as a charitable contribution (to which subparagraph (A) does not apply) in each of the 5 succeeding taxable years in order of time.
(C) Special limitation with respect to contributions described in subparagraph (A) of certain capital gain property
(i) In the case of charitable contributions described in subparagraph (A) of capital gain property to which subsection (e)(1)(B) does not apply, the total amount of contributions of such property which may be taken into account under subsection (a) for any taxable year shall not exceed 30 percent of the taxpayer's contribution base for such year. For purposes of this subsection, contributions of capital gain property to which this subparagraph applies shall be taken into account after all other charitable contributions (other than charitable contributions to which subparagraph (D) applies).
(ii) If charitable contributions described in subparagraph (A) of capital gain property to which clause (i) applies exceeds 30 percent of the taxpayer's contribution base for any taxable year, such excess shall be treated, in a manner consistent with the rules of subsection (d)(1), as a charitable contribution of capital gain property to which clause (i) applies in each of the 5 succeeding taxable years in order of time.
(iii) At the election of the taxpayer (made at such time and in such manner as the Secretary prescribes by regulations), subsection (e)(1) shall apply to all contributions of capital gain property (to which subsection (e)(1)(B) does not otherwise apply) made by the taxpayer during the taxable year. If such an election is made, clauses (i) and (ii) shall not apply to contributions of capital gain property made during the taxable year, and, in applying subsection (d)(1) for such taxable year with respect to contributions of capital gain property made in any prior contribution year for which an election was not made under this clause, such contributions shall be reduced as if subsection (e)(1) had applied to such contributions in the year in which made.
(iv) For purposes of this paragraph, the term "capital gain property" means, with respect to any contribution, any capital asset the sale of which at its fair market value at the time of the contribution would have resulted in gain which would have been long-term capital gain. For purposes of the preceding sentence, any property which is property used in the trade or business (as defined in section 1231(b)) shall be treated as a capital asset.
(D) Special limitation with respect to contributions of capital gain property to organizations not described in subparagraph (A)
(i) In general
In the case of charitable contributions (other than charitable contributions to which subparagraph (A) applies) of capital gain property, the total amount of such contributions of such property taken into account under subsection (a) for any taxable year shall not exceed the lesser of—
(I) 20 percent of the taxpayer's contribution base for the taxable year, or
(II) the excess of 30 percent of the taxpayer's contribution base for the taxable year over the amount of the contributions of capital gain property to which subparagraph (C) applies.
For purposes of this subsection, contributions of capital gain property to which this subparagraph applies shall be taken into account after all other charitable contributions.
(ii) Carryover
If the aggregate amount of contributions described in clause (i) exceeds the limitation of clause (i), such excess shall be treated (in a manner consistent with the rules of subsection (d)(1)) as a charitable contribution of capital gain property to which clause (i) applies in each of the 5 succeeding taxable years in order of time.
(E) Contributions of qualified conservation contributions
(i) In general
Any qualified conservation contribution (as defined in subsection (h)(1)) shall be allowed to the extent the aggregate of such contributions does not exceed the excess of 50 percent of the taxpayer's contribution base over the amount of all other charitable contributions allowable under this paragraph.
(ii) Carryover
If the aggregate amount of contributions described in clause (i) exceeds the limitation of clause (i), such excess shall be treated (in a manner consistent with the rules of subsection (d)(1)) as a charitable contribution to which clause (i) applies in each of the 15 succeeding years in order of time.
(iii) Coordination with other subparagraphs
For purposes of applying this subsection and subsection (d)(1), contributions described in clause (i) shall not be treated as described in subparagraph (A), (B), (C), or (D) and such subparagraphs shall apply without regard to such contributions.
(iv) Special rule for contribution of property used in agriculture or livestock production
(I) In general
If the individual is a qualified farmer or rancher for the taxable year for which the contribution is made, clause (i) shall be applied by substituting "100 percent" for "50 percent".
(II) Exception
Subclause (I) shall not apply to any contribution of property made after the date of the enactment of this subparagraph which is used in agriculture or livestock production (or available for such production) unless such contribution is subject to a restriction that such property remain available for such production. This subparagraph shall be applied separately with respect to property to which subclause (I) does not apply by reason of the preceding sentence prior to its application to property to which subclause (I) does apply.
(v) Definition
For purposes of clause (iv), the term "qualified farmer or rancher" means a taxpayer whose gross income from the trade or business of farming (within the meaning of section 2032A(e)(5)) is greater than 50 percent of the taxpayer's gross income for the taxable year.
(F) Certain private foundations
The private foundations referred to in subparagraph (A)(vii) and subsection (e)(1)(B) are—
(i) a private operating foundation (as defined in section 4942(j)(3)),
(ii) any other private foundation (as defined in section 509(a)) which, not later than the 15th day of the third month after the close of the foundation's taxable year in which contributions are received, makes qualifying distributions (as defined in section 4942(g), without regard to paragraph (3) thereof), which are treated, after the application of section 4942(g)(3), as distributions out of corpus (in accordance with section 4942(h)) in an amount equal to 100 percent of such contributions, and with respect to which the taxpayer obtains adequate records or other sufficient evidence from the foundation showing that the foundation made such qualifying distributions, and
(iii) a private foundation all of the contributions to which are pooled in a common fund and which would be described in section 509(a)(3) but for the right of any substantial contributor (hereafter in this clause called "donor") or his spouse to designate annually the recipients, from among organizations described in paragraph (1) of section 509(a), of the income attributable to the donor's contribution to the fund and to direct (by deed or by will) the payment, to an organization described in such paragraph (1), of the corpus in the common fund attributable to the donor's contribution; but this clause shall apply only if all of the income of the common fund is required to be (and is) distributed to one or more organizations described in such paragraph (1) not later than the 15th day of the third month after the close of the taxable year in which the income is realized by the fund and only if all of the corpus attributable to any donor's contribution to the fund is required to be (and is) distributed to one or more of such organizations not later than one year after his death or after the death of his surviving spouse if she has the right to designate the recipients of such corpus.
(G) Increased limitation for cash contributions
(i) In general
In the case of any contribution of cash to an organization described in subparagraph (A), the total amount of such contributions which may be taken into account under subsection (a) for any taxable year beginning after December 31, 2017, and before January 1, 2026, shall not exceed 60 percent of the taxpayer's contribution base for such year.
(ii) Carryover
If the aggregate amount of contributions described in clause (i) exceeds the applicable limitation under clause (i) for any taxable year described in such clause, such excess shall be treated (in a manner consistent with the rules of subsection (d)(1)) as a charitable contribution to which clause (i) applies in each of the 5 succeeding years in order of time.
(iii) Coordination with subparagraphs (A) and (B)
(I) In general
Contributions taken into account under this subparagraph shall not be taken into account under subparagraph (A).
(II) Limitation reduction
For each taxable year described in clause (i), and each taxable year to which any contribution under this subparagraph is carried over under clause (ii), subparagraph (A) shall be applied by reducing (but not below zero) the contribution limitation allowed for the taxable year under such subparagraph by the aggregate contributions allowed under this subparagraph for such taxable year, and subparagraph (B) shall be applied by treating any reference to subparagraph (A) as a reference to both subparagraph (A) and this subparagraph.
(H) Contribution base defined
For purposes of this section, the term "contribution base" means adjusted gross income (computed without regard to any net operating loss carryback to the taxable year under section 172).
(2) Corporations
In the case of a corporation—
(A) In general
The total deductions under subsection (a) for any taxable year (other than for contributions to which subparagraph (B) or (C) applies) shall not exceed 10 percent of the taxpayer's taxable income.
(B) Qualified conservation contributions by certain corporate farmers and ranchers
(i) In general
Any qualified conservation contribution (as defined in subsection (h)(1))—
(I) which is made by a corporation which, for the taxable year during which the contribution is made, is a qualified farmer or rancher (as defined in paragraph (1)(E)(v)) and the stock of which is not readily tradable on an established securities market at any time during such year, and
(II) which, in the case of contributions made after the date of the enactment of this subparagraph, is a contribution of property which is used in agriculture or livestock production (or available for such production) and which is subject to a restriction that such property remain available for such production,
shall be allowed to the extent the aggregate of such contributions does not exceed the excess of the taxpayer's taxable income over the amount of charitable contributions allowable under subparagraph (A).
(ii) Carryover
If the aggregate amount of contributions described in clause (i) exceeds the limitation of clause (i), such excess shall be treated (in a manner consistent with the rules of subsection (d)(2)) as a charitable contribution to which clause (i) applies in each of the 15 succeeding taxable years in order of time.
(C) Qualified conservation contributions by certain Native Corporations
(i) In general
Any qualified conservation contribution (as defined in subsection (h)(1)) which—
(I) is made by a Native Corporation, and
(II) is a contribution of property which was land conveyed under the Alaska Native Claims Settlement Act,
shall be allowed to the extent that the aggregate amount of such contributions does not exceed the excess of the taxpayer's taxable income over the amount of charitable contributions allowable under subparagraph (A).
(ii) Carryover
If the aggregate amount of contributions described in clause (i) exceeds the limitation of clause (i), such excess shall be treated (in a manner consistent with the rules of subsection (d)(2)) as a charitable contribution to which clause (i) applies in each of the 15 succeeding taxable years in order of time.
(iii) Native Corporation
For purposes of this subparagraph, the term "Native Corporation" has the meaning given such term by section 3(m) of the Alaska Native Claims Settlement Act.
(D) Taxable income
For purposes of this paragraph, taxable income shall be computed without regard to—
(i) this section,
(ii) part VIII (except section 248),
(iii) any net operating loss carryback to the taxable year under section 172,
(iv) any capital loss carryback to the taxable year under section 1212(a)(1) 1
(v) section 199A(g).
(c) Charitable contribution defined
For purposes of this section, the term "charitable contribution" means a contribution or gift to or for the use of—
(1) A State, a possession of the United States, or any political subdivision of any of the foregoing, or the United States or the District of Columbia, but only if the contribution or gift is made for exclusively public purposes.
(2) A corporation, trust, or community chest, fund, or foundation—
(A) created or organized in the United States or in any possession thereof, or under the law of the United States, any State, the District of Columbia, or any possession of the United States;
(B) organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals;
(C) no part of the net earnings of which inures to the benefit of any private shareholder or individual; and
(D) which is not disqualified for tax exemption under section 501(c)(3) by reason of attempting to influence legislation, and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.
A contribution or gift by a corporation to a trust, chest, fund, or foundation shall be deductible by reason of this paragraph only if it is to be used within the United States or any of its possessions exclusively for purposes specified in subparagraph (B). Rules similar to the rules of section 501(j) shall apply for purposes of this paragraph.
(3) A post or organization of war veterans, or an auxiliary unit or society of, or trust or foundation for, any such post or organization—
(A) organized in the United States or any of its possessions, and
(B) no part of the net earnings of which inures to the benefit of any private shareholder or individual.
(4) In the case of a contribution or gift by an individual, a domestic fraternal society, order, or association, operating under the lodge system, but only if such contribution or gift is to be used exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals.
(5) A cemetery company owned and operated exclusively for the benefit of its members, or any corporation chartered solely for burial purposes as a cemetery corporation and not permitted by its charter to engage in any business not necessarily incident to that purpose, if such company or corporation is not operated for profit and no part of the net earnings of such company or corporation inures to the benefit of any private shareholder or individual.
For purposes of this section, the term "charitable contribution" also means an amount treated under subsection (g) as paid for the use of an organization described in paragraph (2), (3), or (4).
(d) Carryovers of excess contributions
(1) Individuals
(A) In general
In the case of an individual, if the amount of charitable contributions described in subsection (b)(1)(A) payment of which is made within a taxable year (hereinafter in this paragraph referred to as the "contribution year") exceeds 50 percent of the taxpayer's contribution base for such year, such excess shall be treated as a charitable contribution described in subsection (b)(1)(A) paid in each of the 5 succeeding taxable years in order of time, but, with respect to any such succeeding taxable year, only to the extent of the lesser of the two following amounts:
(i) the amount by which 50 percent of the taxpayer's contribution base for such succeeding taxable year exceeds the sum of the charitable contributions described in subsection (b)(1)(A) payment of which is made by the taxpayer within such succeeding taxable year (determined without regard to this subparagraph) and the charitable contributions described in subsection (b)(1)(A) payment of which was made in taxable years before the contribution year which are treated under this subparagraph as having been paid in such succeeding taxable year; or
(ii) in the case of the first succeeding taxable year, the amount of such excess, and in the case of the second, third, fourth, or fifth succeeding taxable year, the portion of such excess not treated under this subparagraph as a charitable contribution described in subsection (b)(1)(A) paid in any taxable year intervening between the contribution year and such succeeding taxable year.
(B) Special rule for net operating loss carryovers
In applying subparagraph (A), the excess determined under subparagraph (A) for the contribution year shall be reduced to the extent that such excess reduces taxable income (as computed for purposes of the second sentence of section 172(b)(2)) and increases the net operating loss deduction for a taxable year succeeding the contribution year.
(2) Corporations
(A) In general
Any contribution made by a corporation in a taxable year (hereinafter in this paragraph referred to as the "contribution year") in excess of the amount deductible for such year under subsection (b)(2)(A) shall be deductible for each of the 5 succeeding taxable years in order of time, but only to the extent of the lesser of the two following amounts: (i) the excess of the maximum amount deductible for such succeeding taxable year under subsection (b)(2)(A) over the sum of the contributions made in such year plus the aggregate of the excess contributions which were made in taxable years before the contribution year and which are deductible under this subparagraph for such succeeding taxable year; or (ii) in the case of the first succeeding taxable year, the amount of such excess contribution, and in the case of the second, third, fourth, or fifth succeeding taxable year, the portion of such excess contribution not deductible under this subparagraph for any taxable year intervening between the contribution year and such succeeding taxable year.
(B) Special rule for net operating loss carryovers
For purposes of subparagraph (A), the excess of—
(i) the contributions made by a corporation in a taxable year to which this section applies, over
(ii) the amount deductible in such year under the limitation in subsection (b)(2)(A),
shall be reduced to the extent that such excess reduces taxable income (as computed for purposes of the second sentence of section 172(b)(2)) and increases a net operating loss carryover under section 172 to a succeeding taxable year.
(e) Certain contributions of ordinary income and capital gain property
(1) General rule
The amount of any charitable contribution of property otherwise taken into account under this section shall be reduced by the sum of—
(A) the amount of gain which would not have been long-term capital gain (determined without regard to section 1221(b)(3)) if the property contributed had been sold by the taxpayer at its fair market value (determined at the time of such contribution), and
(B) in the case of a charitable contribution—
(i) of tangible personal property—
(I) if the use by the donee is unrelated to the purpose or function constituting the basis for its exemption under section 501 (or, in the case of a governmental unit, to any purpose or function described in subsection (c)), or
(II) which is applicable property (as defined in paragraph (7)(C), but without regard to clause (ii) thereof) which is sold, exchanged, or otherwise disposed of by the donee before the last day of the taxable year in which the contribution was made and with respect to which the donee has not made a certification in accordance with paragraph (7)(D),
(ii) to or for the use of a private foundation (as defined in section 509(a)), other than a private foundation described in subsection (b)(1)(F),
(iii) of any patent, copyright (other than a copyright described in section 1221(a)(3) or 1231(b)(1)(C)), trademark, trade name, trade secret, know-how, software (other than software described in section 197(e)(3)(A)(i)), or similar property, or applications or registrations of such property, or
(iv) of any taxidermy property which is contributed by the person who prepared, stuffed, or mounted the property or by any person who paid or incurred the cost of such preparation, stuffing, or mounting,
the amount of gain which would have been long-term capital gain if the property contributed had been sold by the taxpayer at its fair market value (determined at the time of such contribution).
For purposes of applying this paragraph (other than in the case of gain to which section 617(d)(1), 1245(a), 1250(a), 1252(a), or 1254(a) applies), property which is property used in the trade or business (as defined in section 1231(b)) shall be treated as a capital asset. For purposes of applying this paragraph in the case of a charitable contribution of stock in an S corporation, rules similar to the rules of section 751 shall apply in determining whether gain on such stock would have been long-term capital gain if such stock were sold by the taxpayer.
(2) Allocation of basis
For purposes of paragraph (1), in the case of a charitable contribution of less than the taxpayer's entire interest in the property contributed, the taxpayer's adjusted basis in such property shall be allocated between the interest contributed and any interest not contributed in accordance with regulations prescribed by the Secretary.
(3) Special rule for certain contributions of inventory and other property
(A) Qualified contributions
For purposes of this paragraph, a qualified contribution shall mean a charitable contribution of property described in paragraph (1) or (2) of section 1221(a), by a corporation (other than a corporation which is an S corporation) to an organization which is described in section 501(c)(3) and is exempt under section 501(a) (other than a private foundation, as defined in section 509(a), which is not an operating foundation, as defined in section 4942(j)(3)), but only if—
(i) the use of the property by the donee is related to the purpose or function constituting the basis for its exemption under section 501 and the property is to be used by the donee solely for the care of the ill, the needy, or infants;
(ii) the property is not transferred by the donee in exchange for money, other property, or services;
(iii) the taxpayer receives from the donee a written statement representing that its use and disposition of the property will be in accordance with the provisions of clauses (i) and (ii); and
(iv) in the case where the property is subject to regulation under the Federal Food, Drug, and Cosmetic Act, as amended, such property must fully satisfy the applicable requirements of such Act and regulations promulgated thereunder on the date of transfer and for one hundred and eighty days prior thereto.
(B) Amount of reduction
The reduction under paragraph (1)(A) for any qualified contribution (as defined in subparagraph (A)) shall be no greater than the sum of—
(i) one-half of the amount computed under paragraph (1)(A) (computed without regard to this paragraph), and
(ii) the amount (if any) by which the charitable contribution deduction under this section for any qualified contribution (computed by taking into account the amount determined in clause (i), but without regard to this clause) exceeds twice the basis of such property.
(C) Special rule for contributions of food inventory
(i) General rule
In the case of a charitable contribution of food from any trade or business of the taxpayer, this paragraph shall be applied—
(I) without regard to whether the contribution is made by a C corporation, and
(II) only to food that is apparently wholesome food.
(ii) Limitation
The aggregate amount of such contributions for any taxable year which may be taken into account under this section shall not exceed—
(I) in the case of any taxpayer other than a C corporation, 15 percent of the taxpayer's aggregate net income for such taxable year from all trades or businesses from which such contributions were made for such year, computed without regard to this section, and
(II) in the case of a C corporation, 15 percent of taxable income (as defined in subsection (b)(2)(D)).
(iii) Rules related to limitation
(I) Carryover
If such aggregate amount exceeds the limitation imposed under clause (ii), such excess shall be treated (in a manner consistent with the rules of subsection (d)) as a charitable contribution described in clause (i) in each of the 5 succeeding taxable years in order of time.
(II) Coordination with overall corporate limitation
In the case of any charitable contribution which is allowable after the application of clause (ii)(II), subsection (b)(2)(A) shall not apply to such contribution, but the limitation imposed by such subsection shall be reduced (but not below zero) by the aggregate amount of such contributions. For purposes of subsection (b)(2)(B), such contributions shall be treated as allowable under subsection (b)(2)(A).
(iv) Determination of basis for certain taxpayers
If a taxpayer—
(I) does not account for inventories under section 471, and
(II) is not required to capitalize indirect costs under section 263A,
the taxpayer may elect, solely for purposes of subparagraph (B), to treat the basis of any apparently wholesome food as being equal to 25 percent of the fair market value of such food.
(v) Determination of fair market value
In the case of any such contribution of apparently wholesome food which cannot or will not be sold solely by reason of internal standards of the taxpayer, lack of market, or similar circumstances, or by reason of being produced by the taxpayer exclusively for the purposes of transferring the food to an organization described in subparagraph (A), the fair market value of such contribution shall be determined—
(I) without regard to such internal standards, such lack of market, such circumstances, or such exclusive purpose, and
(II) by taking into account the price at which the same or substantially the same food items (as to both type and quality) are sold by the taxpayer at the time of the contribution (or, if not so sold at such time, in the recent past).
(vi) Apparently wholesome food
For purposes of this subparagraph, the term "apparently wholesome food" has the meaning given to such term by section 22(b)(2) of the Bill Emerson Good Samaritan Food Donation Act (
(D) This paragraph shall not apply to so much of the amount of the gain described in paragraph (1)(A) which would be long-term capital gain but for the application of sections 617, 1245, 1250, or 1252.
(4) Special rule for contributions of scientific property used for research
(A) Limit on reduction
In the case of a qualified research contribution, the reduction under paragraph (1)(A) shall be no greater than the amount determined under paragraph (3)(B).
(B) Qualified research contributions
For purposes of this paragraph, the term "qualified research contribution" means a charitable contribution by a corporation of tangible personal property described in paragraph (1) of section 1221(a), but only if—
(i) the contribution is to an organization described in subparagraph (A) or subparagraph (B) of section 41(e)(6),
(ii) the property is constructed or assembled by the taxpayer,
(iii) the contribution is made not later than 2 years after the date the construction or assembly of the property is substantially completed,
(iv) the original use of the property is by the donee,
(v) the property is scientific equipment or apparatus substantially all of the use of which by the donee is for research or experimentation (within the meaning of section 174), or for research training, in the United States in physical or biological sciences,
(vi) the property is not transferred by the donee in exchange for money, other property, or services, and
(vii) the taxpayer receives from the donee a written statement representing that its use and disposition of the property will be in accordance with the provisions of clauses (v) and (vi).
(C) Construction of property by taxpayer
For purposes of this paragraph, property shall be treated as constructed by the taxpayer only if the cost of the parts used in the construction of such property (other than parts manufactured by the taxpayer or a related person) do not exceed 50 percent of the taxpayer's basis in such property.
(D) Corporation
For purposes of this paragraph, the term "corporation" shall not include—
(i) an S corporation,
(ii) a personal holding company (as defined in section 542), and
(iii) a service organization (as defined in section 414(m)(3)).
(5) Special rule for contributions of stock for which market quotations are readily available
(A) In general
Subparagraph (B)(ii) of paragraph (1) shall not apply to any contribution of qualified appreciated stock.
(B) Qualified appreciated stock
Except as provided in subparagraph (C), for purposes of this paragraph, the term "qualified appreciated stock" means any stock of a corporation—
(i) for which (as of the date of the contribution) market quotations are readily available on an established securities market, and
(ii) which is capital gain property (as defined in subsection (b)(1)(C)(iv)).
(C) Donor may not contribute more than 10 percent of stock of corporation
(i) In general
In the case of any donor, the term "qualified appreciated stock" shall not include any stock of a corporation contributed by the donor in a contribution to which paragraph (1)(B)(ii) applies (determined without regard to this paragraph) to the extent that the amount of the stock so contributed (when increased by the aggregate amount of all prior such contributions by the donor of stock in such corporation) exceeds 10 percent (in value) of all of the outstanding stock of such corporation.
(ii) Special rule
For purposes of clause (i), an individual shall be treated as making all contributions made by any member of his family (as defined in section 267(c)(4)).
[(6) Repealed. Pub. L. 113–295, div. A, title II, §221(a)(28)(B), Dec. 19, 2014, 128 Stat. 4041 ]
(7) Recapture of deduction on certain dispositions of exempt use property
(A) In general
In the case of an applicable disposition of applicable property, there shall be included in the income of the donor of such property for the taxable year of such donor in which the applicable disposition occurs an amount equal to the excess (if any) of—
(i) the amount of the deduction allowed to the donor under this section with respect to such property, over
(ii) the donor's basis in such property at the time such property was contributed.
(B) Applicable disposition
For purposes of this paragraph, the term "applicable disposition" means any sale, exchange, or other disposition by the donee of applicable property—
(i) after the last day of the taxable year of the donor in which such property was contributed, and
(ii) before the last day of the 3-year period beginning on the date of the contribution of such property,
unless the donee makes a certification in accordance with subparagraph (D).
(C) Applicable property
For purposes of this paragraph, the term "applicable property" means charitable deduction property (as defined in section 6050L(a)(2)(A))—
(i) which is tangible personal property the use of which is identified by the donee as related to the purpose or function constituting the basis of the donee's exemption under section 501, and
(ii) for which a deduction in excess of the donor's basis is allowed.
(D) Certification
A certification meets the requirements of this subparagraph if it is a written statement which is signed under penalty of perjury by an officer of the donee organization and—
(i) which—
(I) certifies that the use of the property by the donee was substantial and related to the purpose or function constituting the basis for the donee's exemption under section 501, and
(II) describes how the property was used and how such use furthered such purpose or function, or
(ii) which—
(I) states the intended use of the property by the donee at the time of the contribution, and
(II) certifies that such intended use has become impossible or infeasible to implement.
(f) Disallowance of deduction in certain cases and special rules
(1) In general
No deduction shall be allowed under this section for a contribution to or for the use of an organization or trust described in section 508(d) or 4948(c)(4) subject to the conditions specified in such sections.
(2) Contributions of property placed in trust
(A) Remainder interest
In the case of property transferred in trust, no deduction shall be allowed under this section for the value of a contribution of a remainder interest unless the trust is a charitable remainder annuity trust or a charitable remainder unitrust (described in section 664), or a pooled income fund (described in section 642(c)(5)).
(B) Income interests, etc.
No deduction shall be allowed under this section for the value of any interest in property (other than a remainder interest) transferred in trust unless the interest is in the form of a guaranteed annuity or the trust instrument specifies that the interest is a fixed percentage distributed yearly of the fair market value of the trust property (to be determined yearly) and the grantor is treated as the owner of such interest for purposes of applying section 671. If the donor ceases to be treated as the owner of such an interest for purposes of applying section 671, at the time the donor ceases to be so treated, the donor shall for purposes of this chapter be considered as having received an amount of income equal to the amount of any deduction he received under this section for the contribution reduced by the discounted value of all amounts of income earned by the trust and taxable to him before the time at which he ceases to be treated as the owner of the interest. Such amounts of income shall be discounted to the date of the contribution. The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subparagraph.
(C) Denial of deduction in case of payments by certain trusts
In any case in which a deduction is allowed under this section for the value of an interest in property described in subparagraph (B), transferred in trust, no deduction shall be allowed under this section to the grantor or any other person for the amount of any contribution made by the trust with respect to such interest.
(D) Exception
This paragraph shall not apply in a case in which the value of all interests in property transferred in trust are deductible under subsection (a).
(3) Denial of deduction in case of certain contributions of partial interests in property
(A) In general
In the case of a contribution (not made by a transfer in trust) of an interest in property which consists of less than the taxpayer's entire interest in such property, a deduction shall be allowed under this section only to the extent that the value of the interest contributed would be allowable as a deduction under this section if such interest had been transferred in trust. For purposes of this subparagraph, a contribution by a taxpayer of the right to use property shall be treated as a contribution of less than the taxpayer's entire interest in such property.
(B) Exceptions
Subparagraph (A) shall not apply to—
(i) a contribution of a remainder interest in a personal residence or farm,
(ii) a contribution of an undivided portion of the taxpayer's entire interest in property, and
(iii) a qualified conservation contribution.
(4) Valuation of remainder interest in real property
For purposes of this section, in determining the value of a remainder interest in real property, depreciation (computed on the straight line method) and depletion of such property shall be taken into account, and such value shall be discounted at a rate of 6 percent per annum, except that the Secretary may prescribe a different rate.
(5) Reduction for certain interest
If, in connection with any charitable contribution, a liability is assumed by the recipient or by any other person, or if a charitable contribution is of property which is subject to a liability, then, to the extent necessary to avoid the duplication of amounts, the amount taken into account for purposes of this section as the amount of the charitable contribution—
(A) shall be reduced for interest (i) which has been paid (or is to be paid) by the taxpayer, (ii) which is attributable to the liability, and (iii) which is attributable to any period after the making of the contribution, and
(B) in the case of a bond, shall be further reduced for interest (i) which has been paid (or is to be paid) by the taxpayer on indebtedness incurred or continued to purchase or carry such bond, and (ii) which is attributable to any period before the making of the contribution.
The reduction pursuant to subparagraph (B) shall not exceed the interest (including interest equivalent) on the bond which is attributable to any period before the making of the contribution and which is not (under the taxpayer's method of accounting) includible in the gross income of the taxpayer for any taxable year. For purposes of this paragraph, the term "bond" means any bond, debenture, note, or certificate or other evidence of indebtedness.
(6) Deductions for out-of-pocket expenditures
No deduction shall be allowed under this section for an out-of-pocket expenditure made by any person on behalf of an organization described in subsection (c) (other than an organization described in section 501(h)(5) (relating to churches, etc.)) if the expenditure is made for the purpose of influencing legislation (within the meaning of section 501(c)(3)).
(7) Reformations to comply with paragraph (2)
(A) In general
A deduction shall be allowed under subsection (a) in respect of any qualified reformation (within the meaning of section 2055(e)(3)(B)).
(B) Rules similar to section 2055(e)(3) to apply
For purposes of this paragraph, rules similar to the rules of section 2055(e)(3) shall apply.
(8) Substantiation requirement for certain contributions
(A) General rule
No deduction shall be allowed under subsection (a) for any contribution of $250 or more unless the taxpayer substantiates the contribution by a contemporaneous written acknowledgment of the contribution by the donee organization that meets the requirements of subparagraph (B).
(B) Content of acknowledgement
An acknowledgement meets the requirements of this subparagraph if it includes the following information:
(i) The amount of cash and a description (but not value) of any property other than cash contributed.
(ii) Whether the donee organization provided any goods or services in consideration, in whole or in part, for any property described in clause (i).
(iii) A description and good faith estimate of the value of any goods or services referred to in clause (ii) or, if such goods or services consist solely of intangible religious benefits, a statement to that effect.
For purposes of this subparagraph, the term "intangible religious benefit" means any intangible religious benefit which is provided by an organization organized exclusively for religious purposes and which generally is not sold in a commercial transaction outside the donative context.
(C) Contemporaneous
For purposes of subparagraph (A), an acknowledgment shall be considered to be contemporaneous if the taxpayer obtains the acknowledgment on or before the earlier of—
(i) the date on which the taxpayer files a return for the taxable year in which the contribution was made, or
(ii) the due date (including extensions) for filing such return.
(D) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this paragraph, including regulations that may provide that some or all of the requirements of this paragraph do not apply in appropriate cases.
(9) Denial of deduction where contribution for lobbying activities
No deduction shall be allowed under this section for a contribution to an organization which conducts activities to which section 162(e)(1) applies on matters of direct financial interest to the donor's trade or business, if a principal purpose of the contribution was to avoid Federal income tax by securing a deduction for such activities under this section which would be disallowed by reason of section 162(e) if the donor had conducted such activities directly. No deduction shall be allowed under section 162(a) for any amount for which a deduction is disallowed under the preceding sentence.
(10) Split-dollar life insurance, annuity, and endowment contracts
(A) In general
Nothing in this section or in section 545(b)(2), 642(c), 2055, 2106(a)(2), or 2522 shall be construed to allow a deduction, and no deduction shall be allowed, for any transfer to or for the use of an organization described in subsection (c) if in connection with such transfer—
(i) the organization directly or indirectly pays, or has previously paid, any premium on any personal benefit contract with respect to the transferor, or
(ii) there is an understanding or expectation that any person will directly or indirectly pay any premium on any personal benefit contract with respect to the transferor.
(B) Personal benefit contract
For purposes of subparagraph (A), the term "personal benefit contract" means, with respect to the transferor, any life insurance, annuity, or endowment contract if any direct or indirect beneficiary under such contract is the transferor, any member of the transferor's family, or any other person (other than an organization described in subsection (c)) designated by the transferor.
(C) Application to charitable remainder trusts
In the case of a transfer to a trust referred to in subparagraph (E), references in subparagraphs (A) and (F) to an organization described in subsection (c) shall be treated as a reference to such trust.
(D) Exception for certain annuity contracts
If, in connection with a transfer to or for the use of an organization described in subsection (c), such organization incurs an obligation to pay a charitable gift annuity (as defined in section 501(m)) and such organization purchases any annuity contract to fund such obligation, persons receiving payments under the charitable gift annuity shall not be treated for purposes of subparagraph (B) as indirect beneficiaries under such contract if—
(i) such organization possesses all of the incidents of ownership under such contract,
(ii) such organization is entitled to all the payments under such contract, and
(iii) the timing and amount of payments under such contract are substantially the same as the timing and amount of payments to each such person under such obligation (as such obligation is in effect at the time of such transfer).
(E) Exception for certain contracts held by charitable remainder trusts
A person shall not be treated for purposes of subparagraph (B) as an indirect beneficiary under any life insurance, annuity, or endowment contract held by a charitable remainder annuity trust or a charitable remainder unitrust (as defined in section 664(d)) solely by reason of being entitled to any payment referred to in paragraph (1)(A) or (2)(A) of section 664(d) if—
(i) such trust possesses all of the incidents of ownership under such contract, and
(ii) such trust is entitled to all the payments under such contract.
(F) Excise tax on premiums paid
(i) In general
There is hereby imposed on any organization described in subsection (c) an excise tax equal to the premiums paid by such organization on any life insurance, annuity, or endowment contract if the payment of premiums on such contract is in connection with a transfer for which a deduction is not allowable under subparagraph (A), determined without regard to when such transfer is made.
(ii) Payments by other persons
For purposes of clause (i), payments made by any other person pursuant to an understanding or expectation referred to in subparagraph (A) shall be treated as made by the organization.
(iii) Reporting
Any organization on which tax is imposed by clause (i) with respect to any premium shall file an annual return which includes—
(I) the amount of such premiums paid during the year and the name and TIN of each beneficiary under the contract to which the premium relates, and
(II) such other information as the Secretary may require.
The penalties applicable to returns required under section 6033 shall apply to returns required under this clause. Returns required under this clause shall be furnished at such time and in such manner as the Secretary shall by forms or regulations require.
(iv) Certain rules to apply
The tax imposed by this subparagraph shall be treated as imposed by
(G) Special rule where State requires specification of charitable gift annuitant in contract
In the case of an obligation to pay a charitable gift annuity referred to in subparagraph (D) which is entered into under the laws of a State which requires, in order for the charitable gift annuity to be exempt from insurance regulation by such State, that each beneficiary under the charitable gift annuity be named as a beneficiary under an annuity contract issued by an insurance company authorized to transact business in such State, the requirements of clauses (i) and (ii) of subparagraph (D) shall be treated as met if—
(i) such State law requirement was in effect on February 8, 1999,
(ii) each such beneficiary under the charitable gift annuity is a bona fide resident of such State at the time the obligation to pay a charitable gift annuity is entered into, and
(iii) the only persons entitled to payments under such contract are persons entitled to payments as beneficiaries under such obligation on the date such obligation is entered into.
(H) Member of family
For purposes of this paragraph, an individual's family consists of the individual's grandparents, the grandparents of such individual's spouse, the lineal descendants of such grandparents, and any spouse of such a lineal descendant.
(I) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this paragraph, including regulations to prevent the avoidance of such purposes.
(11) Qualified appraisal and other documentation for certain contributions
(A) In general
(i) Denial of deduction
In the case of an individual, partnership, or corporation, no deduction shall be allowed under subsection (a) for any contribution of property for which a deduction of more than $500 is claimed unless such person meets the requirements of subparagraphs (B), (C), and (D), as the case may be, with respect to such contribution.
(ii) Exceptions
(I) Readily valued property
Subparagraphs (C) and (D) shall not apply to cash, property described in subsection (e)(1)(B)(iii) or section 1221(a)(1), publicly traded securities (as defined in section 6050L(a)(2)(B)), and any qualified vehicle described in paragraph (12)(A)(ii) for which an acknowledgement under paragraph (12)(B)(iii) is provided.
(II) Reasonable cause
Clause (i) shall not apply if it is shown that the failure to meet such requirements is due to reasonable cause and not to willful neglect.
(B) Property description for contributions of more than $500
In the case of contributions of property for which a deduction of more than $500 is claimed, the requirements of this subparagraph are met if the individual, partnership or corporation includes with the return for the taxable year in which the contribution is made a description of such property and such other information as the Secretary may require. The requirements of this subparagraph shall not apply to a C corporation which is not a personal service corporation or a closely held C corporation.
(C) Qualified appraisal for contributions of more than $5,000
In the case of contributions of property for which a deduction of more than $5,000 is claimed, the requirements of this subparagraph are met if the individual, partnership, or corporation obtains a qualified appraisal of such property and attaches to the return for the taxable year in which such contribution is made such information regarding such property and such appraisal as the Secretary may require.
(D) Substantiation for contributions of more than $500,000
In the case of contributions of property for which a deduction of more than $500,000 is claimed, the requirements of this subparagraph are met if the individual, partnership, or corporation attaches to the return for the taxable year a qualified appraisal of such property.
(E) Qualified appraisal and appraiser
For purposes of this paragraph—
(i) Qualified appraisal
The term "qualified appraisal" means, with respect to any property, an appraisal of such property which—
(I) is treated for purposes of this paragraph as a qualified appraisal under regulations or other guidance prescribed by the Secretary, and
(II) is conducted by a qualified appraiser in accordance with generally accepted appraisal standards and any regulations or other guidance prescribed under subclause (I).
(ii) Qualified appraiser
Except as provided in clause (iii), the term "qualified appraiser" means an individual who—
(I) has earned an appraisal designation from a recognized professional appraiser organization or has otherwise met minimum education and experience requirements set forth in regulations prescribed by the Secretary,
(II) regularly performs appraisals for which the individual receives compensation, and
(III) meets such other requirements as may be prescribed by the Secretary in regulations or other guidance.
(iii) Specific appraisals
An individual shall not be treated as a qualified appraiser with respect to any specific appraisal unless—
(I) the individual demonstrates verifiable education and experience in valuing the type of property subject to the appraisal, and
(II) the individual has not been prohibited from practicing before the Internal Revenue Service by the Secretary under section 330(c) 2 of
(F) Aggregation of similar items of property
For purposes of determining thresholds under this paragraph, property and all similar items of property donated to 1 or more donees shall be treated as 1 property.
(G) Special rule for pass-thru entities
In the case of a partnership or S corporation, this paragraph shall be applied at the entity level, except that the deduction shall be denied at the partner or shareholder level.
(H) Regulations
The Secretary may prescribe such regulations as may be necessary or appropriate to carry out the purposes of this paragraph, including regulations that may provide that some or all of the requirements of this paragraph do not apply in appropriate cases.
(12) Contributions of used motor vehicles, boats, and airplanes
(A) In general
In the case of a contribution of a qualified vehicle the claimed value of which exceeds $500—
(i) paragraph (8) shall not apply and no deduction shall be allowed under subsection (a) for such contribution unless the taxpayer substantiates the contribution by a contemporaneous written acknowledgement of the contribution by the donee organization that meets the requirements of subparagraph (B) and includes the acknowledgement with the taxpayer's return of tax which includes the deduction, and
(ii) if the organization sells the vehicle without any significant intervening use or material improvement of such vehicle by the organization, the amount of the deduction allowed under subsection (a) shall not exceed the gross proceeds received from such sale.
(B) Content of acknowledgement
An acknowledgement meets the requirements of this subparagraph if it includes the following information:
(i) The name and taxpayer identification number of the donor.
(ii) The vehicle identification number or similar number.
(iii) In the case of a qualified vehicle to which subparagraph (A)(ii) applies—
(I) a certification that the vehicle was sold in an arm's length transaction between unrelated parties,
(II) the gross proceeds from the sale, and
(III) a statement that the deductible amount may not exceed the amount of such gross proceeds.
(iv) In the case of a qualified vehicle to which subparagraph (A)(ii) does not apply—
(I) a certification of the intended use or material improvement of the vehicle and the intended duration of such use, and
(II) a certification that the vehicle would not be transferred in exchange for money, other property, or services before completion of such use or improvement.
(v) Whether the donee organization provided any goods or services in consideration, in whole or in part, for the qualified vehicle.
(vi) A description and good faith estimate of the value of any goods or services referred to in clause (v) or, if such goods or services consist solely of intangible religious benefits (as defined in paragraph (8)(B)), a statement to that effect.
(C) Contemporaneous
For purposes of subparagraph (A), an acknowledgement shall be considered to be contemporaneous if the donee organization provides it within 30 days of—
(i) the sale of the qualified vehicle, or
(ii) in the case of an acknowledgement including a certification described in subparagraph (B)(iv), the contribution of the qualified vehicle.
(D) Information to Secretary
A donee organization required to provide an acknowledgement under this paragraph shall provide to the Secretary the information contained in the acknowledgement. Such information shall be provided at such time and in such manner as the Secretary may prescribe.
(E) Qualified vehicle
For purposes of this paragraph, the term "qualified vehicle" means any—
(i) motor vehicle manufactured primarily for use on public streets, roads, and highways,
(ii) boat, or
(iii) airplane.
Such term shall not include any property which is described in section 1221(a)(1).
(F) Regulations or other guidance
The Secretary shall prescribe such regulations or other guidance as may be necessary to carry out the purposes of this paragraph. The Secretary may prescribe regulations or other guidance which exempts sales by the donee organization which are in direct furtherance of such organization's charitable purpose from the requirements of subparagraphs (A)(ii) and (B)(iv)(II).
(13) Contributions of certain interests in buildings located in registered historic districts
(A) In general
No deduction shall be allowed with respect to any contribution described in subparagraph (B) unless the taxpayer includes with the return for the taxable year of the contribution a $500 filing fee.
(B) Contribution described
A contribution is described in this subparagraph if such contribution is a qualified conservation contribution (as defined in subsection (h)) which is a restriction with respect to the exterior of a building described in subsection (h)(4)(C)(ii) and for which a deduction is claimed in excess of $10,000.
(C) Dedication of fee
Any fee collected under this paragraph shall be used for the enforcement of the provisions of subsection (h).
(14) Reduction for amounts attributable to rehabilitation credit
In the case of any qualified conservation contribution (as defined in subsection (h)), the amount of the deduction allowed under this section shall be reduced by an amount which bears the same ratio to the fair market value of the contribution as—
(A) the sum of the credits allowed to the taxpayer under section 47 for the 5 preceding taxable years with respect to any building which is a part of such contribution, bears to
(B) the fair market value of the building on the date of the contribution.
(15) Special rule for taxidermy property
(A) Basis
For purposes of this section and notwithstanding section 1012, in the case of a charitable contribution of taxidermy property which is made by the person who prepared, stuffed, or mounted the property or by any person who paid or incurred the cost of such preparation, stuffing, or mounting, only the cost of the preparing, stuffing, or mounting shall be included in the basis of such property.
(B) Taxidermy property
For purposes of this section, the term "taxidermy property" means any work of art which—
(i) is the reproduction or preservation of an animal, in whole or in part,
(ii) is prepared, stuffed, or mounted for purposes of recreating one or more characteristics of such animal, and
(iii) contains a part of the body of the dead animal.
(16) Contributions of clothing and household items
(A) In general
In the case of an individual, partnership, or corporation, no deduction shall be allowed under subsection (a) for any contribution of clothing or a household item unless such clothing or household item is in good used condition or better.
(B) Items of minimal value
Notwithstanding subparagraph (A), the Secretary may by regulation deny a deduction under subsection (a) for any contribution of clothing or a household item which has minimal monetary value.
(C) Exception for certain property
Subparagraphs (A) and (B) shall not apply to any contribution of a single item of clothing or a household item for which a deduction of more than $500 is claimed if the taxpayer includes with the taxpayer's return a qualified appraisal with respect to the property.
(D) Household items
For purposes of this paragraph—
(i) In general
The term "household items" includes furniture, furnishings, electronics, appliances, linens, and other similar items.
(ii) Excluded items
Such term does not include—
(I) food,
(II) paintings, antiques, and other objects of art,
(III) jewelry and gems, and
(IV) collections.
(E) Special rule for pass-thru entities
In the case of a partnership or S corporation, this paragraph shall be applied at the entity level, except that the deduction shall be denied at the partner or shareholder level.
(17) Recordkeeping
No deduction shall be allowed under subsection (a) for any contribution of a cash, check, or other monetary gift unless the donor maintains as a record of such contribution a bank record or a written communication from the donee showing the name of the donee organization, the date of the contribution, and the amount of the contribution.
(18) Contributions to donor advised funds
A deduction otherwise allowed under subsection (a) for any contribution to a donor advised fund (as defined in section 4966(d)(2)) shall only be allowed if—
(A) the sponsoring organization (as defined in section 4966(d)(1)) with respect to such donor advised fund is not—
(i) described in paragraph (3), (4), or (5) of subsection (c), or
(ii) a type III supporting organization (as defined in section 4943(f)(5)(A)) which is not a functionally integrated type III supporting organization (as defined in section 4943(f)(5)(B)), and
(B) the taxpayer obtains a contemporaneous written acknowledgment (determined under rules similar to the rules of paragraph (8)(C)) from the sponsoring organization (as so defined) of such donor advised fund that such organization has exclusive legal control over the assets contributed.
(19) Certain qualified conservation contributions
(A) In general
In the case of a qualified conservation contribution to which this paragraph applies, no deduction shall be allowed under subsection (a) for such contribution unless the partnership making such contribution—
(i) includes on its return for the taxable year in which the contribution is made a statement that the partnership made such a contribution, and
(ii) provides such information about the contribution as the Secretary may require.
(B) Contributions to which this paragraph applies
This paragraph shall apply to any qualified conservation contribution—
(i) the conservation purpose of which is the preservation of any building which is a certified historic structure (as defined in subsection (h)(4)(C)),
(ii) which is made by a partnership (whether directly or as a distributive share of a contribution of another partnership), and
(iii) the amount of which exceeds 2.5 times the sum of each partner's relevant basis (as defined in subsection (h)(7)) in the partnership making the contribution.
(C) Application to other pass-through entities
Except as may be otherwise provided by the Secretary, the rules of this paragraph shall apply to S corporations and other pass-through entities in the same manner as such rules apply to partnerships.
(g) Amounts paid to maintain certain students as members of taxpayer's household
(1) In general
Subject to the limitations provided by paragraph (2), amounts paid by the taxpayer to maintain an individual (other than a dependent, as defined in section 152 (determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof), or a relative of the taxpayer) as a member of his household during the period that such individual is—
(A) a member of the taxpayer's household under a written agreement between the taxpayer and an organization described in paragraph (2), (3), or (4) of subsection (c) to implement a program of the organization to provide educational opportunities for pupils or students in private homes, and
(B) a full-time pupil or student in the twelfth or any lower grade at an educational organization described in section 170(b)(1)(A)(ii) located in the United States,
shall be treated as amounts paid for the use of the organization.
(2) Limitations
(A) Amount
Paragraph (1) shall apply to amounts paid within the taxable year only to the extent that such amounts do not exceed $50 multiplied by the number of full calendar months during the taxable year which fall within the period described in paragraph (1). For purposes of the preceding sentence, if 15 or more days of a calendar month fall within such period such month shall be considered as a full calendar month.
(B) Compensation or reimbursement
Paragraph (1) shall not apply to any amount paid by the taxpayer within the taxable year if the taxpayer receives any money or other property as compensation or reimbursement for maintaining the individual in his household during the period described in paragraph (1).
(3) Relative defined
For purposes of paragraph (1), the term "relative of the taxpayer" means an individual who, with respect to the taxpayer, bears any of the relationships described in subparagraphs (A) through (G) of section 152(d)(2).
(4) No other amount allowed as deduction
No deduction shall be allowed under subsection (a) for any amount paid by a taxpayer to maintain an individual as a member of his household under a program described in paragraph (1)(A) except as provided in this subsection.
(h) Qualified conservation contribution
(1) In general
For purposes of subsection (f)(3)(B)(iii), the term "qualified conservation contribution" means a contribution—
(A) of a qualified real property interest,
(B) to a qualified organization,
(C) exclusively for conservation purposes.
(2) Qualified real property interest
For purposes of this subsection, the term "qualified real property interest" means any of the following interests in real property:
(A) the entire interest of the donor other than a qualified mineral interest,
(B) a remainder interest, and
(C) a restriction (granted in perpetuity) on the use which may be made of the real property.
(3) Qualified organization
For purposes of paragraph (1), the term "qualified organization" means an organization which—
(A) is described in clause (v) or (vi) of subsection (b)(1)(A), or
(B) is described in section 501(c)(3) and—
(i) meets the requirements of section 509(a)(2), or
(ii) meets the requirements of section 509(a)(3) and is controlled by an organization described in subparagraph (A) or in clause (i) of this subparagraph.
(4) Conservation purpose defined
(A) In general
For purposes of this subsection, the term "conservation purpose" means—
(i) the preservation of land areas for outdoor recreation by, or the education of, the general public,
(ii) the protection of a relatively natural habitat of fish, wildlife, or plants, or similar ecosystem,
(iii) the preservation of open space (including farmland and forest land) where such preservation is—
(I) for the scenic enjoyment of the general public, or
(II) pursuant to a clearly delineated Federal, State, or local governmental conservation policy,
and will yield a significant public benefit, or
(iv) the preservation of an historically important land area or a certified historic structure.
(B) Special rules with respect to buildings in registered historic districts
In the case of any contribution of a qualified real property interest which is a restriction with respect to the exterior of a building described in subparagraph (C)(ii), such contribution shall not be considered to be exclusively for conservation purposes unless—
(i) such interest—
(I) includes a restriction which preserves the entire exterior of the building (including the front, sides, rear, and height of the building), and
(II) prohibits any change in the exterior of the building which is inconsistent with the historical character of such exterior,
(ii) the donor and donee enter into a written agreement certifying, under penalty of perjury, that the donee—
(I) is a qualified organization (as defined in paragraph (3)) with a purpose of environmental protection, land conservation, open space preservation, or historic preservation, and
(II) has the resources to manage and enforce the restriction and a commitment to do so, and
(iii) in the case of any contribution made in a taxable year beginning after the date of the enactment of this subparagraph, the taxpayer includes with the taxpayer's return for the taxable year of the contribution—
(I) a qualified appraisal (within the meaning of subsection (f)(11)(E)) of the qualified property interest,
(II) photographs of the entire exterior of the building, and
(III) a description of all restrictions on the development of the building.
(C) Certified historic structure
For purposes of subparagraph (A)(iv), the term "certified historic structure" means—
(i) any building, structure, or land area which is listed in the National Register, or
(ii) any building which is located in a registered historic district (as defined in section 47(c)(3)(B)) and is certified by the Secretary of the Interior to the Secretary as being of historic significance to the district.
A building, structure, or land area satisfies the preceding sentence if it satisfies such sentence either at the time of the transfer or on the due date (including extensions) for filing the transferor's return under this chapter for the taxable year in which the transfer is made.
(5) Exclusively for conservation purposes
For purposes of this subsection—
(A) Conservation purpose must be protected
A contribution shall not be treated as exclusively for conservation purposes unless the conservation purpose is protected in perpetuity.
(B) No surface mining permitted
(i) In general
Except as provided in clause (ii), in the case of a contribution of any interest where there is a retention of a qualified mineral interest, subparagraph (A) shall not be treated as met if at any time there may be extraction or removal of minerals by any surface mining method.
(ii) Special rule
With respect to any contribution of property in which the ownership of the surface estate and mineral interests has been and remains separated, subparagraph (A) shall be treated as met if the probability of surface mining occurring on such property is so remote as to be negligible.
(6) Qualified mineral interest
For purposes of this subsection, the term "qualified mineral interest" means—
(A) subsurface oil, gas, or other minerals, and
(B) the right to access to such minerals.
(7) Limitation on deduction for qualified conservation contributions made by pass-through entities
(A) In general
A contribution by a partnership (whether directly or as a distributive share of a contribution of another partnership) shall not be treated as a qualified conservation contribution for purposes of this section if the amount of such contribution exceeds 2.5 times the sum of each partner's relevant basis in such partnership.
(B) Relevant basis
For purposes of this paragraph—
(i) In general
The term "relevant basis" means, with respect to any partner, the portion of such partner's modified basis in the partnership which is allocable (under rules similar to the rules of section 755) to the portion of the real property with respect to which the contribution described in subparagraph (A) is made.
(ii) Modified basis
The term "modified basis" means, with respect to any partner, such partner's adjusted basis in the partnership as determined—
(I) immediately before the contribution described in subparagraph (A),
(II) without regard to section 752, and
(III) by the partnership after taking into account the adjustments described in subclauses (I) and (II) and such other adjustments as the Secretary may provide.
(C) Exception for contributions outside 3-year holding period
Subparagraph (A) shall not apply to any contribution which is made at least 3 years after the latest of—
(i) the last date on which the partnership that made such contribution acquired any portion of the real property with respect to which such contribution is made,
(ii) the last date on which any partner in the partnership that made such contribution acquired any interest in such partnership, and
(iii) if the interest in the partnership that made such contribution is held through 1 or more partnerships—
(I) the last date on which any such partnership acquired any interest in any other such partnership, and
(II) the last date on which any partner in any such partnership acquired any interest in such partnership.
(D) Exception for family partnerships
(i) In general
Subparagraph (A) shall not apply with respect to any contribution made by any partnership if substantially all of the partnership interests in such partnership are held, directly or indirectly, by an individual and members of the family of such individual.
(ii) Members of the family
For purposes of this subparagraph, the term "members of the family" means, with respect to any individual—
(I) the spouse of such individual, and
(II) any individual who bears a relationship to such individual which is described in subparagraphs (A) through (G) of section 152(d)(2).
(E) Exception for contributions to preserve certified historic structures
Subparagraph (A) shall not apply to any qualified conservation contribution the conservation purpose of which is the preservation of any building which is a certified historic structure (as defined in paragraph (4)(C)).
(F) Application to other pass-through entities
Except as may be otherwise provided by the Secretary, the rules of this paragraph shall apply to S corporations and other pass-through entities in the same manner as such rules apply to partnerships.
(G) Regulations
The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this paragraph, including regulations or other guidance—
(i) to require reporting, including reporting related to tiered partnerships and the modified basis of partners, and
(ii) to prevent the avoidance of the purposes of this paragraph.
(i) Standard mileage rate for use of passenger automobile
For purposes of computing the deduction under this section for use of a passenger automobile, the standard mileage rate shall be 14 cents per mile.
(j) Denial of deduction for certain travel expenses
No deduction shall be allowed under this section for traveling expenses (including amounts expended for meals and lodging) while away from home, whether paid directly or by reimbursement, unless there is no significant element of personal pleasure, recreation, or vacation in such travel.
[(k) Repealed. Pub. L. 113–295, div. A, title II, §221(a)(28)(C), Dec. 19, 2014, 128 Stat. 4041 ]
(l) Treatment of certain amounts paid to or for the benefit of institutions of higher education
(1) In general
No deduction shall be allowed under this section for any amount described in paragraph (2).
(2) Amount described
For purposes of paragraph (1), an amount is described in this paragraph if—
(A) the amount is paid by the taxpayer to or for the benefit of an educational organization—
(i) which is described in subsection (b)(1)(A)(ii), and
(ii) which is an institution of higher education (as defined in section 3304(f)), and
(B) the taxpayer receives (directly or indirectly) as a result of paying such amount the right to purchase tickets for seating at an athletic event in an athletic stadium of such institution.
If any portion of a payment is for the purchase of such tickets, such portion and the remaining portion (if any) of such payment shall be treated as separate amounts for purposes of this subsection.
(m) Certain donee income from intellectual property treated as an additional charitable contribution
(1) Treatment as additional contribution
In the case of a taxpayer who makes a qualified intellectual property contribution, the deduction allowed under subsection (a) for each taxable year of the taxpayer ending on or after the date of such contribution shall be increased (subject to the limitations under subsection (b)) by the applicable percentage of qualified donee income with respect to such contribution which is properly allocable to such year under this subsection.
(2) Reduction in additional deductions to extent of initial deduction
With respect to any qualified intellectual property contribution, the deduction allowed under subsection (a) shall be increased under paragraph (1) only to the extent that the aggregate amount of such increases with respect to such contribution exceed the amount allowed as a deduction under subsection (a) with respect to such contribution determined without regard to this subsection.
(3) Qualified donee income
For purposes of this subsection, the term "qualified donee income" means any net income received by or accrued to the donee which is properly allocable to the qualified intellectual property.
(4) Allocation of qualified donee income to taxable years of donor
For purposes of this subsection, qualified donee income shall be treated as properly allocable to a taxable year of the donor if such income is received by or accrued to the donee for the taxable year of the donee which ends within or with such taxable year of the donor.
(5) 10-year limitation
Income shall not be treated as properly allocable to qualified intellectual property for purposes of this subsection if such income is received by or accrued to the donee after the 10-year period beginning on the date of the contribution of such property.
(6) Benefit limited to life of intellectual property
Income shall not be treated as properly allocable to qualified intellectual property for purposes of this subsection if such income is received by or accrued to the donee after the expiration of the legal life of such property.
(7) Applicable percentage
For purposes of this subsection, the term "applicable percentage" means the percentage determined under the following table which corresponds to a taxable year of the donor ending on or after the date of the qualified intellectual property contribution:
| Taxable Year of Donor Ending on or After Date of Contribution: | Applicable Percentage: |
|---|---|
| 1st | 100 |
| 2nd | 100 |
| 3rd | 90 |
| 4th | 80 |
| 5th | 70 |
| 6th | 60 |
| 7th | 50 |
| 8th | 40 |
| 9th | 30 |
| 10th | 20 |
| 11th | 10 |
| 12th | 10. |
(8) Qualified intellectual property contribution
For purposes of this subsection, the term "qualified intellectual property contribution" means any charitable contribution of qualified intellectual property—
(A) the amount of which taken into account under this section is reduced by reason of subsection (e)(1), and
(B) with respect to which the donor informs the donee at the time of such contribution that the donor intends to treat such contribution as a qualified intellectual property contribution for purposes of this subsection and section 6050L.
(9) Qualified intellectual property
For purposes of this subsection, the term "qualified intellectual property" means property described in subsection (e)(1)(B)(iii) (other than property contributed to or for the use of an organization described in subsection (e)(1)(B)(ii)).
(10) Other special rules
(A) Application of limitations on charitable contributions
Any increase under this subsection of the deduction provided under subsection (a) shall be treated for purposes of subsection (b) as a deduction which is attributable to a charitable contribution to the donee to which such increase relates.
(B) Net income determined by donee
The net income taken into account under paragraph (3) shall not exceed the amount of such income reported under section 6050L(b)(1).
(C) Deduction limited to 12 taxable years
Except as may be provided under subparagraph (D)(i), this subsection shall not apply with respect to any qualified intellectual property contribution for any taxable year of the donor after the 12th taxable year of the donor which ends on or after the date of such contribution.
(D) Regulations
The Secretary may issue regulations or other guidance to carry out the purposes of this subsection, including regulations or guidance—
(i) modifying the application of this subsection in the case of a donor or donee with a short taxable year, and
(ii) providing for the determination of an amount to be treated as net income of the donee which is properly allocable to qualified intellectual property in the case of a donee who uses such property to further a purpose or function constituting the basis of the donee's exemption under section 501 (or, in the case of a governmental unit, any purpose described in section 170(c)) and does not possess a right to receive any payment from a third party with respect to such property.
(n) Expenses paid by certain whaling captains in support of Native Alaskan subsistence whaling
(1) In general
In the case of an individual who is recognized by the Alaska Eskimo Whaling Commission as a whaling captain charged with the responsibility of maintaining and carrying out sanctioned whaling activities and who engages in such activities during the taxable year, the amount described in paragraph (2) (to the extent such amount does not exceed $10,000 for the taxable year) shall be treated for purposes of this section as a charitable contribution.
(2) Amount described
(A) In general
The amount described in this paragraph is the aggregate of the reasonable and necessary whaling expenses paid by the taxpayer during the taxable year in carrying out sanctioned whaling activities.
(B) Whaling expenses
For purposes of subparagraph (A), the term "whaling expenses" includes expenses for—
(i) the acquisition and maintenance of whaling boats, weapons, and gear used in sanctioned whaling activities,
(ii) the supplying of food for the crew and other provisions for carrying out such activities, and
(iii) storage and distribution of the catch from such activities.
(3) Sanctioned whaling activities
For purposes of this subsection, the term "sanctioned whaling activities" means subsistence bowhead whale hunting activities conducted pursuant to the management plan of the Alaska Eskimo Whaling Commission.
(4) Substantiation of expenses
The Secretary shall issue guidance requiring that the taxpayer substantiate the whaling expenses for which a deduction is claimed under this subsection, including by maintaining appropriate written records with respect to the time, place, date, amount, and nature of the expense, as well as the taxpayer's eligibility for such deduction, and that (to the extent provided by the Secretary) such substantiation be provided as part of the taxpayer's return of tax.
(o) Special rules for fractional gifts
(1) Denial of deduction in certain cases
(A) In general
No deduction shall be allowed for a contribution of an undivided portion of a taxpayer's entire interest in tangible personal property unless all interests in the property are held immediately before such contribution by—
(i) the taxpayer, or
(ii) the taxpayer and the donee.
(B) Exceptions
The Secretary may, by regulation, provide for exceptions to subparagraph (A) in cases where all persons who hold an interest in the property make proportional contributions of an undivided portion of the entire interest held by such persons.
(2) Valuation of subsequent gifts
In the case of any additional contribution, the fair market value of such contribution shall be determined by using the lesser of—
(A) the fair market value of the property at the time of the initial fractional contribution, or
(B) the fair market value of the property at the time of the additional contribution.
(3) Recapture of deduction in certain cases; addition to tax
(A) Recapture
The Secretary shall provide for the recapture of the amount of any deduction allowed under this section (plus interest) with respect to any contribution of an undivided portion of a taxpayer's entire interest in tangible personal property—
(i) in any case in which the donor does not contribute all of the remaining interests in such property to the donee (or, if such donee is no longer in existence, to any person described in section 170(c)) on or before the earlier of—
(I) the date that is 10 years after the date of the initial fractional contribution, or
(II) the date of the death of the donor, and
(ii) in any case in which the donee has not, during the period beginning on the date of the initial fractional contribution and ending on the date described in clause (i)—
(I) had substantial physical possession of the property, and
(II) used the property in a use which is related to a purpose or function constituting the basis for the organizations' exemption under section 501.
(B) Addition to tax
The tax imposed under this chapter for any taxable year for which there is a recapture under subparagraph (A) shall be increased by 10 percent of the amount so recaptured.
(4) Definitions
For purposes of this subsection—
(A) Additional contribution
The term "additional contribution" means any charitable contribution by the taxpayer of any interest in property with respect to which the taxpayer has previously made an initial fractional contribution.
(B) Initial fractional contribution
The term "initial fractional contribution" means, with respect to any taxpayer, the first charitable contribution of an undivided portion of the taxpayer's entire interest in any tangible personal property.
(p) Special rule for taxpayers who do not elect to itemize deductions
In the case of any taxable year beginning in 2021, if the individual does not elect to itemize deductions for such taxable year, the deduction under this section shall be equal to the deduction, not in excess of $300 ($600 in the case of a joint return), which would be determined under this section if the only charitable contributions taken into account in determining such deduction were contributions made in cash during such taxable year (determined without regard to subsections (b)(1)(G)(ii) and (d)(1)) to an organization described in section 170(b)(1)(A) and not—
(1) to an organization described in section 509(a)(3), or
(2) for the establishment of a new, or maintenance of an existing, donor advised fund (as defined in section 4966(d)(2)).
(q) Other cross references
(1) For treatment of certain organizations providing child care, see section 501(k).
(2) For charitable contributions of estates and trusts, see section 642(c).
(3) For nondeductibility of contributions by common trust funds, see section 584.
(4) For charitable contributions of partners, see section 702.
(5) For charitable contributions of nonresident aliens, see section 873.
(6) For treatment of gifts for benefit of or use in connection with the Naval Academy as gifts to or for use of the United States, see
(7) For treatment of gifts accepted by the Secretary of State, the Director of the International Communication Agency, or the Director of the United States International Development Cooperation Agency, as gifts to or for the use of the United States, see section 25 of the State Department Basic Authorities Act of 1956.
(8) For treatment of gifts of money accepted by the Attorney General for credit to the "Commissary Funds Federal Prisons" as gifts to or for the use of the United States, see
(9) For charitable contributions to or for the use of Indian tribal governments (or their subdivisions), see section 7871.
(Aug. 16, 1954, ch. 736,
Editorial Notes
References in Text
Section 1404 of the National Agricultural Research, Extension, and Teaching Policy Act of 1977, referred to in subsec. (b)(1)(A)(ix), is classified to
The date of the enactment of this subparagraph, referred to in subsecs. (b)(1)(E)(iv)(II), (2)(B)(i)(II) and (h)(4)(B)(iii), is the date of enactment of
The Alaska Native Claims Settlement Act, referred to in subsec. (b)(2)(C)(i)(II), (iii), is
The Federal Food, Drug, and Cosmetic Act, as amended, referred to in subsec. (e)(3)(A)(iv), is act June 25, 1938, ch. 675,
The date of the enactment of this subparagraph, referred to in subsec. (e)(3)(C)(vi), is the date of enactment of
Section 25 of the State Department Basic Authorities Act of 1956, referred to in subsec. (q)(7), is classified to
Codification
Sections 1202(a), 1204(a), 1206(a), (b)(1), 1213(a)–(d), 1214(a), (b), 1215(a), 1216(a), 1217(a), 1218(a), 1219(c)(1), and 1234(a) of
Amendments
2022—Subsec. (f)(19).
Subsec. (h)(7).
2020—Subsecs. (p), (q).
2018—Subsec. (b)(1)(A)(ix).
Subsec. (e)(3)(D), (E).
Subsec. (p)(6).
2017—Subsec. (b)(1)(G), (H).
Subsec. (b)(2)(D)(iv), (v).
Subsec. (b)(2)(D)(vi).
Subsec. (f)(8)(D), (E).
Subsec. (l)(1).
Subsec. (l)(2)(B).
2015—Subsec. (a)(2)(B).
Subsec. (b)(1)(A)(ix).
Subsec. (b)(1)(E)(vi).
Subsec. (b)(2)(A).
Subsec. (b)(2)(B)(ii).
Subsec. (b)(2)(B)(iii).
Subsec. (b)(2)(C), (D).
Subsec. (e)(3)(C)(ii).
Subsec. (e)(3)(C)(iii).
Subsec. (e)(3)(C)(iv).
Subsec. (e)(3)(C)(v), (vi).
2014—Subsec. (b)(1)(E)(vi).
Subsec. (b)(2)(B)(iii).
Subsec. (b)(3).
Subsec. (e)(3)(C)(iv).
Subsec. (e)(6).
Subsec. (k).
2013—Subsec. (b)(1)(E)(vi).
Subsec. (b)(2)(B)(iii).
Subsec. (e)(3)(C)(iv).
2010—Subsec. (b).
Subsec. (e)(1).
Subsec. (e)(3)(C)(iv).
Subsec. (e)(3)(D)(iv).
Subsec. (e)(6)(G).
2008—Subsec. (b).
Subsec. (b)(3).
Subsec. (e)(3)(C)(iv).
Subsec. (e)(3)(D)(iii).
Subsec. (e)(3)(D)(iv).
Subsec. (e)(6)(G).
2007—Subsec. (b)(1)(A)(vii).
Subsec. (e)(1)(B)(i)(II).
Subsec. (e)(1)(B)(ii).
Subsec. (e)(7)(D)(i)(I).
Subsec. (o)(1)(A).
Subsec. (o)(3)(A)(i).
2006—Subsec. (b)(1)(E) to (G).
Subsec. (b)(2).
"(A) this section,
"(B) part VIII (except section 248),
"(C) section 199,
"(D) any net operating loss carryback to the taxable year under section 172, and
"(E) any capital loss carryback to the taxable year under section 1212(a)(1)."
See Codification note above.
Subsec. (d)(2).
Subsec. (e)(1)(A).
Subsec. (e)(1)(B)(i).
Subsec. (e)(1)(B)(iv).
Subsec. (e)(3)(C)(iv).
Subsec. (e)(3)(D)(iv).
Subsec. (e)(4)(B)(ii).
Subsec. (e)(4)(B)(iii).
Subsec. (e)(6)(B)(ii).
Subsec. (e)(6)(D).
Subsec. (e)(6)(G).
Subsec. (e)(7).
Subsec. (f)(11)(E).
Subsec. (f)(13).
Subsec. (f)(14).
Subsec. (f)(15).
Subsec. (f)(16).
Subsec. (f)(17).
Subsec. (f)(18).
Subsec. (h)(4)(B).
Subsec. (h)(4)(C).
Subsecs. (o), (p).
2005—Subsec. (b)(2)(C) to (E).
Subsec. (e)(3)(C).
Subsec. (e)(3)(D).
Subsec. (e)(3)(E).
Subsec. (f)(12)(B)(v), (vi).
2004—Subsec. (e)(1)(B)(iii).
Subsec. (e)(6)(G).
Subsec. (f)(10)(A).
Subsec. (f)(11).
Subsec. (f)(11)(A)(ii)(I).
Subsec. (f)(12).
Subsec. (g)(1).
Subsec. (g)(3).
Subsec. (m).
Subsec. (n).
Subsec. (o).
2003—Subsec. (e)(6)(B)(i)(III).
2002—Subsec. (e)(6)(B)(i)(III).
Subsec. (e)(6)(B)(iv).
2001—Subsec. (e)(1).
2000—Subsec. (e)(6).
Subsec. (e)(6)(A), (B).
Subsec. (e)(6)(B)(i)(III).
Subsec. (e)(6)(B)(ii).
Subsec. (e)(6)(B)(iv).
Subsec. (e)(6)(B)(viii).
Subsec. (e)(6)(C).
Subsec. (e)(6)(D), (E).
Subsec. (e)(6)(F).
Subsec. (e)(6)(G).
1999—Subsec. (e)(3)(A), (4)(B).
Subsec. (f)(10).
1998—Subsec. (e)(5)(D).
"(i) after December 31, 1994, and before July 1, 1996, or
"(ii) after June 30, 1998."
Subsec. (e)(6)(B)(iv).
Subsec. (e)(6)(B)(vi), (vii).
Subsec. (e)(6)(C)(ii)(I).
Subsec. (e)(6)(F).
1997—Subsec. (e)(5)(D)(ii).
Subsec. (e)(6).
Subsec. (h)(5)(B)(ii).
Subsec. (i).
1996—Subsec. (e)(1).
Subsec. (e)(5)(D).
1993—Subsec. (f)(8).
Subsec. (f)(9).
1990—Subsec. (h)(4)(B)(ii).
Subsec. (i).
Subsecs. (j) to (n).
1988—Subsecs. (m), (n).
1987—Subsec. (c)(2)(D).
1986—Subsec. (b)(1)(C)(iv).
Subsec. (e)(1)(B).
Subsec. (e)(4)(B)(i).
Subsecs. (k) to (m).
1984—Subsec. (a)(3).
Subsec. (b)(1)(A)(vii).
Subsec. (b)(1)(B).
Subsec. (b)(1)(B)(i).
Subsec. (b)(1)(C).
Subsec. (b)(1)(D) to (F).
Subsec. (e)(1).
Subsec. (e)(1)(B)(ii).
Subsec. (e)(3)(C).
Subsec. (e)(5).
Subsec. (f)(7).
Subsec. (h)(5)(B).
Subsec. (j).
Subsec. (k).
Subsec. (l).
1983—Subsec. (h)(4)(B)(ii).
Subsec. (k)(8).
1982—Subsec. (c)(2).
Subsec. (e)(3)(A).
Subsec. (e)(4)(D)(i).
Subsec. (k)(7).
1981—Subsec. (b)(2).
Subsec. (e)(4).
Subsec. (i).
Subsecs. (j), (k).
1980—Subsec. (f)(3).
Subsecs. (h), (i).
Subsec. (i)(6).
Subsec. (j).
1978—Subsec. (e)(1)(B).
1977—Subsec. (f)(3)(B)(iii).
1976—Subsec. (a).
Subsec. (b)(1)(A)(vii).
Subsec. (b)(1)(B)(ii).
Subsec. (b)(1)(C).
Subsec. (b)(1)(D) to (F).
Subsec. (b)(2).
Subsec. (c).
Subsec. (c)(2)(B).
Subsec. (c)(2)(D).
Subsec. (d)(1)(A).
Subsec. (e)(1).
Subsec. (e)(1)(B)(ii).
Subsec. (e)(2).
Subsec. (e)(3).
Subsec. (f)(2).
Subsec. (f)(3).
Subsec. (f)(4).
Subsec. (f)(6).
Subsec. (g).
Subsec. (g)(1)(B).
Subsec. (h).
Subsec. (i).
Subsec. (j).
1969—Subsec. (a)(3).
Subsec. (b).
Subsec. (c).
Subsec. (d).
Subsec. (e).
Subsec. (f).
Subsec. (g).
Subsec. (h).
Subsec. (i).
Subsec. (j).
1966—Subsec. (e).
1964—Subsec. (b)(1)(A)(v), (vi), (2), (5).
Subsec. (e).
Subsec. (f).
Subsec. (g).
Subsecs. (h), (i).
1962—Subsec. (b)(1)(A)(iv).
Subsec. (b)(1)(B).
Subsecs. (e) to (g).
1960—Subsec. (c).
Subsecs. (d) to (f).
1958—Subsec. (b)(1)(C).
Subsec. (b)(3).
Subsec. (b)(4).
1956—Subsec. (b)(1)(A)(iii). Act Aug. 7, 1956, §1, provided for the allowance, as deductions, of contributions to medical research organizations.
Statutory Notes and Related Subsidiaries
Change of Name
International Communication Agency, and Director thereof, redesignated United States Information Agency, and Director thereof, by section 303 of
Effective Date of 2022 Amendment
"(1)
"(2)
Effective Date of 2020 Amendment
Amendment by
Effective Date of 2018 Amendment
Amendment by
Effective Date of 2017 Amendment
Amendment by section 11011(d)(5) of
Amendment by section 13305(b)(2) of
Effective Date of 2015 Amendment
"(1)
"(2)
"(1)
"(2)
"(A)
"(B)
Effective Date of 2014 Amendment
Amendment by section 221(a)(28) of
Effective Date of 2013 Amendment
Effective Date of 2010 Amendment
Amendment by section 301(a) of
Effective Date of 2008 Amendment
Amendment of this section and repeal of
[
Effective Date of 2007 Amendment
Effective Date of 2006 Amendment
"(1)
"(2)
"(3)
"(1)
"(2)
"(3)
Effective Date of 2005 Amendments
Amendments by
Effective Date of 2004 Amendments
Amendment by section 413(c)(30) of
Amendment by section 207(15), (16) of
Effective Date of 2001 Amendment
Amendment by
Effective Date of 2000 Amendment
Effective Date of 1999 Amendment
"(1)
"(2)
"(3)
Effective Date of 1998 Amendments
Amendment by
Effective Date of 1997 Amendment
Effective Date of 1996 Amendment
Effective Date of 1993 Amendment
Amendment by section 13222(b) of
Effective Date of 1990 Amendment
Amendment by section 11813(b)(10) of
Effective Date of 1988 Amendment
"(1)
"(2)
Effective Date of 1987 Amendment
Effective Date of 1986 Amendment
Amendment by section 142(d) of
Amendment by section 231(f) of
Amendment by section 301(b)(2) of
Amendment by section 1831 of
Effective Date of 1984 Amendment
Amendment by section 174(b)(5)(A) of
"(1)
"(2)
Amendment by section 1022(b) of
Effective Date of 1983 Amendment
For effective date of amendment by
Amendment by title I of
Effective Date of 1982 Amendment
Amendment by
Amendment by
Effective Date of 1981 Amendment
Effective Date of 1980 Amendment
Amendment by
Effective Date of 1978 Amendment
Effective Date of 1977 Amendment
Effective Date of 1976 Amendment
Amendment by section 1307 (d)(1)(B)(i), (c) of
Amendment by section 1313(b)(1) of
Amendment by section 1901(a)(28) of
Effective Date of 1969 Amendment
Amendment by section 101(j)(2) of
"(1)(A) Except as provided in subparagraphs (B) and (C), the amendments made by subsection (a) [amending this section and
"(B) Subsections (e) and (f)(1) of section 170 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as amended by subsection (a)) shall apply to contributions paid after December 31, 1969, except that, with respect to a letter or memorandum or similar property described in section 1221(3) of such Code (as amended by section 514 of this Act), such subsection (e) shall apply to contributions paid after July 25, 1969.
"(C) Paragraphs (2), (3), and (4) of section 170(f) of such Code (as amended by subsection (a)) shall apply to transfers in trust and contributions made after July 31, 1969.
"(D) For purposes of applying section 170(d) of such Code (as amended by subsection (a)) with respect to contributions paid in a taxable year beginning before January 1, 1970, subsection (b)(1)(D), subsection (e), and paragraphs (1), (2), (3), and (4) of subsection (f) of section 170 of such Code shall not apply.
"(2) The amendments made by subsection (b) [amending
"(3) The amendment made by subsection (c) [amending
"(4)(A) Except as provided in subparagraphs (B) and (C), the amendments made by paragraphs (1) and (2) of subsection (d) [amending
"(B) Such amendments shall not apply in the case of property passing under the terms of a will executed on or before October 9, 1969—
"(i) if the decedent dies before October 9, 1972, without having republished the will after October 9, 1969, by codicil or otherwise,
"(ii) if the decedent at no time after October 9, 1969, had the right to change the portions of the will which pertain to the passing of the property to, or for the use of, an organization described in section 2055(a) [
"(iii) if the will is not republished by codicil or otherwise before October 9, 1972, and the decedent is on such date and at all times thereafter under a mental disability to republish the will by codicil or otherwise.
"(C) Such amendments shall not apply in the case of property transferred in trust on or before October 9, 1969—
"(i) if the decedent dies before October 9, 1972, without having amended after October 9, 1969, the instrument governing the disposition of the property,
"(ii) if the property transferred was an irrevocable interest to, or for the use of, an organization described in section 2055(a), or
"(iii) if the instrument governing the disposition of the property was not amended by the decedent before October 9, 1972, and the decedent is on such date and at all times thereafter under a mental disability to change the disposition of the property.
"(D) The amendment made by paragraph (3) of subsection (d) [amending
"(E) The amendments made by paragraph (4) of subsection (d) [amending
"(5) The amendment made by subsection (e) [enacting
"(6) The amendments made by subsection (f) [amending
Effective Date of 1966 Amendment
Amendment by
Effective Date of 1964 Amendment
"(1) The amendments made by subsections (a), (b), and (c) [amending this section and
"(2) The amendments made by subsection (d) [amending this section and
"(3) The amendments made by subsection (e) [amending this section] shall apply to transfers of future interests made after December 31, 1963, in taxable years ending after such date, except that such amendments shall not apply to any transfer of a future interest made before July 1, 1964, where—
"(A) the sole intervening interest or right is a nontransferable life interest reserved by the donor, or
"(B) in the case of a joint gift by husband and wife, the sole intervening interest or right is a nontransferable life interest reserved by the donors which expires not later than the death of whichever of such donors dies later.
For purposes of the exception contained in the preceding sentence, a right to make a transfer of the reserved life interest to the donee of the future interest shall not be treated as making a life interest transferable."
Amendment by section 231(b)(1) of
Effective Date of 1962 Amendment
Amendment by
Effective Date of 1960 Amendment
Amendment by
Effective Date of 1958 Amendment
Amendment by section 11 of
Effective Date of 1956 Amendment
Act Aug. 7, 1956, ch. 1031, §2,
Savings Provision
For provisions that nothing in amendment by section 401(b)(14) of
For provisions that nothing in amendment by
Construction; Valid Existing Rights Preserved
Transfer of Functions
United States International Development Cooperation Agency (other than Agency for International Development and Overseas Private Investment Corporation) abolished and functions and authorities transferred, see
For transfer of functions, personnel, assets, and liabilities of the Overseas Private Investment Corporation to the United States International Development Finance Corporation and treatment of related references, see
Extension of Statute of Limitations for Listed Transactions
Safe Harbors and Opportunity for Donor to Correct Certain Deed Errors
"(1)
"(2)
"(A)
"(i) the amended deed is signed by the donor and donee and recorded within such 90-day period, and
"(ii) such amendment is treated as effective as of the date of the recording of the original easement deed.
"(B)
"(i) which—
"(I) is part of a reportable transaction (as defined in section 6707A(c)(1) of the Internal Revenue Code of 1986), or
"(II) is described in Internal Revenue Service Notice 2017–10,
"(ii) which by reason of section 170(h)(7) of such Code, as added by this section, is not treated as a qualified conservation contribution,
"(iii) if a deduction for such contribution under section 170 of such Code has been disallowed by the Secretary of the Treasury (or such Secretary's delegate), and the donor is contesting such disallowance in a case which is docketed in a Federal court on a date before the date the amended deed is recorded by the donor, or
"(iv) if a claimed deduction for such contribution under section 170 of such Code resulted in an underpayment to which a penalty under section 6662 or 6663 of such Code applies and—
"(I) such penalty has been finally determined administratively, or
"(II) if such penalty is challenged in court, the judicial proceeding with respect to such penalty has been concluded by a decision or judgment which has become final."
Temporary Modification of Limitations on Charitable Contributions
"(a)
"(1)
"(2)
"(A)
"(i)
"(ii)
"(B)
"(i)
"(ii)
"(3)
"(A)
"(i) such contribution is paid in cash during calendar year 2020 or 2021 to an organization described in section 170(b)(1)(A) of such Code, and
"(ii) the taxpayer has elected the application of this section with respect to such contribution.
"(B)
"(i) to an organization described in section 509(a)(3) of the Internal Revenue Code of 1986, or
"(ii) for the establishment of a new, or maintenance of an existing, donor advised fund (as defined in section 4966(d)(2) of such Code).
"(C)
"(b)
"(c)
[
Anti-Abuse Rules
"(1) the circumvention of the reduction of the charitable deduction by embedding or bundling the patent or similar property as part of a charitable contribution of property that includes the patent or similar property,
"(2) the manipulation of the basis of the property to increase the amount of the charitable deduction through the use of related persons, pass-thru entities, or other intermediaries, or through the use of any provision of law or regulation (including the consolidated return regulations), and
"(3) a donor from changing the form of the patent or similar property to property of a form for which different deduction rules would apply."
Authority To Waive Appraisal Requirement for Certain Charitable Contributions of Property
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Treatment of Certain Amounts Paid to or for the Benefit of Certain Institutions of Higher Education
Substantiation of Charitable Contributions of Property
"(1)
"(A) to obtain a qualified appraisal for the property contributed,
"(B) to attach an appraisal summary to the return on which such deduction is first claimed for such contribution, and
"(C) to include on such return such additional information (including the cost basis and acquisition date of the contributed property) as the Secretary may prescribe in such regulations.
Such regulations shall require the taxpayer to retain any qualified appraisal.
"(2)
"(A) if such contribution is of property (other than publicly traded securities), and
"(B) if the claimed value of such property (plus the claimed value of all similar items of property donated to 1 or more donees) exceeds $5,000.
In the case of any property which is nonpublicly traded stock, subparagraph (B) shall be applied by substituting '$10,000' for '$5,000'.
"(3)
"(4)
"(A) a description of the property appraised,
"(B) the fair market value of such property on the date of contribution and the specific basis for the valuation,
"(C) a statement that such appraisal was prepared for income tax purposes,
"(D) the qualifications of the qualified appraiser,
"(E) the signature and TIN of such appaiser, [sic] and
"(F) such additional information as the Secretary prescribes in such regulations.
"(5)
"(A)
"(i) the taxpayer,
"(ii) a party to the transaction in which the taxpayer acquired the property,
"(iii) the donee,
"(iv) any person employed by any of the foregoing persons or related to any of the foregoing persons under section 267(b) of the Internal Revenue Code of 1986, or
"(v) to the extent provided in such regulations, any person whose relationship to the taxpayer would cause a reasonable person to question the independence of such appraiser.
"(B)
"(6)
"(A)
"(B)
"(C)
"(D)
"(E)
Charitable Lead Trusts and Charitable Remainder Trusts in Case of Income and Gift Taxes
For includibility of provisions comparable to
Deduction of Contributions to Certain Organizations for Judicial Reform
"(1) to consider proposals for the reorganization of the judicial branch of the government of any State of the United States or political subdivision of such State, and
"(2) to provide information, make recommendations, and seek public support or opposition as to such proposals,
shall be treated as a charitable contribution if no part of the net earnings of such organization inures to the benefit of any private shareholder or individual. The provisions of the preceding sentence shall not apply to any organization which participates in, or intervenes in, any political campaign on behalf of any candidate for public office."
1 So in original. Probably should be followed by ", and".
2 See References in Text note below.
§171. Amortizable bond premium
(a) General rule
In the case of any bond, as defined in subsection (d), the following rules shall apply to the amortizable bond premium (determined under subsection (b)) on the bond:
(1) Taxable bonds
In the case of a bond (other than a bond the interest on which is excludable from gross income), the amount of the amortizable bond premium for the taxable year shall be allowed as a deduction.
(2) Tax-exempt bonds
In the case of any bond the interest on which is excludable from gross income, no deduction shall be allowed for the amortizable bond premium for the taxable year.
(3) Cross reference
For adjustment to basis on account of amortizable bond premium, see section 1016(a)(5).
(b) Amortizable bond premium
(1) Amount of bond premium
For purposes of paragraph (2), the amount of bond premium, in the case of the holder of any bond, shall be determined—
(A) with reference to the amount of the basis (for determining loss on sale or exchange) of such bond,
(B)(i) with reference to the amount payable on maturity (or if it results in a smaller amortizable bond premium attributable to the period before the call date, with reference to the amount payable on the earlier call date), in the case of a bond described in subsection (a)(1), and
(ii) with reference to the amount payable on maturity or on an earlier call date, in the case of a bond described in subsection (a)(2).
(C) with adjustments proper to reflect unamortized bond premium, with respect to the bond, for the period before the date as of which subsection (a) becomes applicable with respect to the taxpayer with respect to such bond.
In no case shall the amount of bond premium on a convertible bond include any amount attributable to the conversion features of the bond.
(2) Amount amortizable
The amortizable bond premium of the taxable year shall be the amount of the bond premium attributable to such year. In the case of a bond to which paragraph (1)(B)(i) applies and which has a call date, the amount of bond premium attributable to the taxable year in which the bond is called shall include an amount equal to the excess of the amount of the adjusted basis (for determining loss on sale or exchange) of such bond as of the beginning of the taxable year over the amount received on redemption of the bond or (if greater) the amount payable on maturity.
(3) Method of determination
(A) In general
Except as provided in regulations prescribed by the Secretary, the determinations required under paragraphs (1) and (2) shall be made on the basis of the taxpayer's yield to maturity determined by—
(i) using the taxpayer's basis (for purposes of determining loss on sale or exchange) of the obligation, and
(ii) compounding at the close of each accrual period (as defined in section 1272(a)(5)).
(B) Special rule where earlier call date is used
For purposes of subparagraph (A), if the amount payable on an earlier call date is used under paragraph (1)(B)(i) in determining the amortizable bond premium attributable to the period before the earlier call date, such bond shall be treated as maturing on such date for the amount so payable and then reissued on such date for the amount so payable.
(4) Treatment of certain bonds acquired in exchange for other property
(A) In general
If—
(i) a bond is acquired by any person in exchange for other property, and
(ii) the basis of such bond is determined (in whole or in part) by reference to the basis of such other property,
for purposes of applying this subsection to such bond while held by such person, the basis of such bond shall not exceed its fair market value immediately after the exchange. A similar rule shall apply in the case of such bond while held by any other person whose basis is determined (in whole or in part) by reference to the basis in the hands of the person referred to in clause (i).
(B) Special rule where bond exchanged in reorganization
Subparagraph (A) shall not apply to an exchange by the taxpayer of a bond for another bond if such exchange is a part of a reorganization (as defined in section 368). If any portion of the basis of the taxpayer in a bond transferred in such an exchange is not taken into account in determining bond premium by reason of this paragraph, such portion shall not be taken into account in determining the amount of bond premium on any bond received in the exchange.
(c) Election as to taxable bonds
(1) Eligibility to elect; bonds with respect to which election permitted
In the case of bonds the interest on which is not excludible from gross income, this section shall apply only if the taxpayer has so elected.
(2) Manner and effect of election
The election authorized under this subsection shall be made in accordance with such regulations as the Secretary shall prescribe. If such election is made with respect to any bond (described in paragraph (1)) of the taxpayer, it shall also apply to all such bonds held by the taxpayer at the beginning of the first taxable year to which the election applies and to all such bonds thereafter acquired by him and shall be binding for all subsequent taxable years with respect to all such bonds of the taxpayer, unless, on application by the taxpayer, the Secretary permits him, subject to such conditions as the Secretary deems necessary, to revoke such election. In the case of bonds held by a common trust fund, as defined in section 584(a), the election authorized under this subsection shall be exercisable with respect to such bonds only by the common trust fund. In case of bonds held by an estate or trust, the election authorized under this subsection shall be exercisable with respect to such bonds only by the fiduciary.
(d) Bond defined
For purposes of this section, the term "bond" means any bond, debenture, note, or certificate or other evidence of indebtedness, but does not include any such obligation which constitutes stock in trade of the taxpayer or any such obligation of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or any such obligation held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business.
(e) Treatment as offset to interest payments
Except as provided in regulations, in the case of any taxable bond—
(1) the amount of any bond premium shall be allocated among the interest payments on the bond under rules similar to the rules of subsection (b)(3), and
(2) in lieu of any deduction under subsection (a), the amount of any premium so allocated to any interest payment shall be applied against (and operate to reduce) the amount of such interest payment.
For purposes of the preceding sentence, the term "taxable bond" means any bond the interest of which is not excludable from gross income.
(f) Dealers in tax-exempt securities
For special rules applicable, in the case of dealers in securities, with respect to premium attributable to certain wholly tax-exempt securities, see section 75.
(Aug. 16, 1954, ch. 736,
Editorial Notes
Amendments
2014—Subsec. (b)(1)(B).
"(i) with reference to the amount payable on maturity or on earlier call date, in the case of any bond other than a bond to which clause (ii) applies, or and
"(ii) with reference to the amount payable on maturity (or if it results in a smaller amortizable bond premium attributable to the period to earlier call date, with reference to the amount payable on earlier call date), in the case of any bond described in subsection (a)(1) which is acquired after December 31, 1957, and".
Subsec. (b)(2), (3)(B).
2004—Subsec. (c)(2).
1988—Subsec. (e).
1986—Subsec. (b)(3).
"(A) in accordance with the method of amortizing bond premium regularly employed by the holder of the bond, if such method is reasonable;
"(B) in all other cases, in accordance with regulations prescribing reasonable methods of amortizing bond premium prescribed by the Secretary."
Subsec. (b)(4).
Subsec. (d).
Subsecs. (e), (f).
1976—Subsec. (a)(1).
Subsec. (a)(2).
Subsec. (a)(3).
Subsec. (a)(4).
Subsec. (b)(1)(B)(i).
Subsec. (b)(1)(B)(ii).
Subsec. (b)(1)(B)(iii).
Subsec. (b)(2).
Subsec. (b)(3)(B).
Subsec. (c)(1).
Subsec. (c)(2).
1958—Subsec. (b)(1)(B).
Subsec. (b)(2).
Statutory Notes and Related Subsidiaries
Effective Date of 2014 Amendment
Amendment by
Effective Date of 2004 Amendment
Amendment by
Effective Date of 1988 Amendment
Effective Date of 1986 Amendment
"(1)
"(2)
"(i) The amendments made by this paragraph [amending this section] shall apply to obligations issued after September 27, 1985.
"(ii) In the case of a taxpayer with respect to whom an election is in effect on the date of the enactment of this Act [Oct. 22, 1986] under section 171(c) of the Internal Revenue Code of 1954 [now 1986], such election shall apply to obligations issued after September 27, 1985, only if the taxpayer chooses (at such time and in such manner as may be prescribed by the Secretary of the Treasury or his delegate) to have such election apply with respect to such obligations."
Effective Date of 1976 Amendment
Amendment by section 1901(b)(1)(E)(iii)–(v) of
Amendment by section 1951(b)(5)(A)(i) of
Effective Date of 1958 Amendment
Savings Provision
"(i) which was issued after January 22, 1951, with a call date not more than 3 years after the date of such issue, and
"(ii) which was acquired by the taxpayer after January 22, 1954, and before January 1, 1958,
the bond premium for a taxable year beginning after December 31, 1975, shall not be determined under section 171(b)(1)(B)(i) but shall be determined with reference to the amount payable on maturity, and if the bond is called before its maturity, the bond premium for the year in which the bond is called shall be determined in accordance with the provisions of section 171(b)(2)."
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
§172. Net operating loss deduction
(a) Deduction allowed
There shall be allowed as a deduction for the taxable year an amount equal to—
(1) in the case of a taxable year beginning before January 1, 2021, the aggregate of the net operating loss carryovers to such year, plus the net operating loss carrybacks to such year, and
(2) in the case of a taxable year beginning after December 31, 2020, the sum of—
(A) the aggregate amount of net operating losses arising in taxable years beginning before January 1, 2018, carried to such taxable year, plus
(B) the lesser of—
(i) the aggregate amount of net operating losses arising in taxable years beginning after December 31, 2017, carried to such taxable year, or
(ii) 80 percent of the excess (if any) of—
(I) taxable income computed without regard to the deductions under this section and sections 199A and 250, over
(II) the amount determined under subparagraph (A).
For purposes of this subtitle, the term "net operating loss deduction" means the deduction allowed by this subsection.
(b) Net operating loss carrybacks and carryovers
(1) Years to which loss may be carried
(A) General rule
A net operating loss for any taxable year—
(i) shall be a net operating loss carryback to the extent provided in subparagraphs (B), (C)(i), and (D), and
(ii) except as provided in subparagraph (C)(ii), shall be a net operating loss carryover—
(I) in the case of a net operating loss arising in a taxable year beginning before January 1, 2018, to each of the 20 taxable years following the taxable year of the loss, and
(II) in the case of a net operating loss arising in a taxable year beginning after December 31, 2017, to each taxable year following the taxable year of the loss.
(B) Farming losses
(i) In general
In the case of any portion of a net operating loss for the taxable year which is a farming loss with respect to the taxpayer, such loss shall be a net operating loss carryback to each of the 2 taxable years preceding the taxable year of such loss.
(ii) Farming loss
For purposes of this section, the term "farming loss" means the lesser of—
(I) the amount which would be the net operating loss for the taxable year if only income and deductions attributable to farming businesses (as defined in section 263A(e)(4)) are taken into account, or
(II) the amount of the net operating loss for such taxable year.
(iii) Coordination with paragraph (2)
For purposes of applying paragraph (2), a farming loss for any taxable year shall be treated as a separate net operating loss for such taxable year to be taken into account after the remaining portion of the net operating loss for such taxable year.
(iv) Election
Any taxpayer entitled to a 2-year carryback under clause (i) from any loss year may elect not to have such clause apply to such loss year. Such election shall be made in such manner as prescribed by the Secretary and shall be made by the due date (including extensions of time) for filing the taxpayer's return for the taxable year of the net operating loss. Such election, once made for any taxable year, shall be irrevocable for such taxable year.
(C) Insurance companies
In the case of an insurance company (as defined in section 816(a)) other than a life insurance company, the net operating loss for any taxable year—
(i) shall be a net operating loss carryback to each of the 2 taxable years preceding the taxable year of such loss, and
(ii) shall be a net operating loss carryover to each of the 20 taxable years following the taxable year of the loss.
(D) Special rule for losses arising in 2018, 2019, and 2020
(i) In general
In the case of any net operating loss arising in a taxable year beginning after December 31, 2017, and before January 1, 2021—
(I) such loss shall be a net operating loss carryback to each of the 5 taxable years preceding the taxable year of such loss, and
(II) subparagraphs (B) and (C)(i) shall not apply.
(ii) Special rules for REITs
For purposes of this subparagraph—
(I) In general
A net operating loss for a REIT year shall not be a net operating loss carryback to any taxable year preceding the taxable year of such loss.
(II) Special rule
In the case of any net operating loss for a taxable year which is not a REIT year, such loss shall not be carried to any preceding taxable year which is a REIT year.
(III) REIT year
For purposes of this subparagraph, the term "REIT year" means any taxable year for which the provisions of part II of subchapter M (relating to real estate investment trusts) apply to the taxpayer.
(iii) Special rule for life insurance companies
In the case of a life insurance company, if a net operating loss is carried pursuant to clause (i)(I) to a life insurance company taxable year beginning before January 1, 2018, such net operating loss carryback shall be treated in the same manner as an operations loss carryback (within the meaning of section 810 as in effect before its repeal) of such company to such taxable year.
(iv) Rule relating to carrybacks to years to which section 965 applies
If a net operating loss of a taxpayer is carried pursuant to clause (i)(I) to any taxable year in which an amount is includible in gross income by reason of section 965(a), the taxpayer shall be treated as having made the election under section 965(n) with respect to each such taxable year.
(v) Special rules for elections under paragraph (3)
(I) Special election to exclude section 965 years
If the 5-year carryback period under clause (i)(I) with respect to any net operating loss of a taxpayer includes 1 or more taxable years in which an amount is includible in gross income by reason of section 965(a), the taxpayer may, in lieu of the election otherwise available under paragraph (3), elect under such paragraph to exclude all such taxable years from such carryback period.
(II) Time of elections
An election under paragraph (3) (including an election described in subclause (I)) with respect to a net operating loss arising in a taxable year beginning in 2018 or 2019 shall be made by the due date (including extensions of time) for filing the taxpayer's return for the first taxable year ending after the date of the enactment of this subparagraph.
(2) Amount of carrybacks and carryovers
The entire amount of the net operating loss for any taxable year (hereinafter in this section referred to as the "loss year") shall be carried to the earliest of the taxable years to which (by reason of paragraph (1)) such loss may be carried. The portion of such loss which shall be carried to each of the other taxable years shall be the excess, if any, of the amount of such loss over the sum of the taxable income for each of the prior taxable years to which such loss may be carried. For purposes of the preceding sentence, the taxable income for any such prior taxable year shall—
(A) be computed with the modifications specified in subsection (d) other than paragraphs (1), (4), and (5) thereof, and by determining the amount of the net operating loss deduction without regard to the net operating loss for the loss year or for any taxable year thereafter,
(B) not be considered to be less than zero, and
(C) for taxable years beginning after December 31, 2020, be reduced by 20 percent of the excess (if any) described in subsection (a)(2)(B)(ii) for such taxable year.
(3) Election to waive carryback
Any taxpayer entitled to a carryback period under paragraph (1) may elect to relinquish the entire carryback period with respect to a net operating loss for any taxable year. Such election shall be made in such manner as may be prescribed by the Secretary, and shall be made by the due date (including extensions of time) for filing the taxpayer's return for the taxable year of the net operating loss for which the election is to be in effect. Such election, once made for any taxable year, shall be irrevocable for such taxable year.
(c) Net operating loss defined
For purposes of this section, the term "net operating loss" means the excess of the deductions allowed by this chapter over the gross income. Such excess shall be computed with the modifications specified in subsection (d).
(d) Modifications
The modifications referred to in this section are as follows:
(1) Net operating loss deduction
No net operating loss deduction shall be allowed.
(2) Capital gains and losses of taxpayers other than corporations
In the case of a taxpayer other than a corporation—
(A) the amount deductible on account of losses from sales or exchanges of capital assets shall not exceed the amount includable on account of gains from sales or exchanges of capital assets; and
(B) the exclusion provided by section 1202 shall not be allowed.
(3) Deduction for personal exemptions
No deduction shall be allowed under section 151 (relating to personal exemptions). No deduction in lieu of any such deduction shall be allowed.
(4) Nonbusiness deductions of taxpayers other than corporations
In the case of a taxpayer other than a corporation, the deductions allowable by this chapter which are not attributable to a taxpayer's trade or business shall be allowed only to the extent of the amount of the gross income not derived from such trade or business. For purposes of the preceding sentence—
(A) any gain or loss from the sale or other disposition of—
(i) property, used in the trade or business, of a character which is subject to the allowance for depreciation provided in section 167, or
(ii) real property used in the trade or business,
shall be treated as attributable to the trade or business;
(B) the modifications specified in paragraphs (1), (2)(B), and (3) shall be taken into account;
(C) any deduction for casualty or theft losses allowable under paragraph (2) or (3) of section 165(c) shall be treated as attributable to the trade or business; and
(D) any deduction allowed under section 404 to the extent attributable to contributions which are made on behalf of an individual who is an employee within the meaning of section 401(c)(1) shall not be treated as attributable to the trade or business of such individual.
(5) Computation of deduction for dividends received
The deductions allowed by sections 243 (relating to dividends received by corporations) and 245 (relating to dividends received from certain foreign corporations) shall be computed without regard to section 246(b) (relating to limitation on aggregate amount of deductions).
(6) Modifications related to real estate investment trusts
In the case of any taxable year for which part II of subchapter M (relating to real estate investment trusts) applies to the taxpayer—
(A) the net operating loss for such taxable year shall be computed by taking into account the adjustments described in section 857(b)(2) (other than the deduction for dividends paid described in section 857(b)(2)(B));
(B) where such taxable year is a "prior taxable year" referred to in paragraph (2) of subsection (b), the term "taxable income" in such paragraph shall mean "real estate investment trust taxable income" (as defined in section 857(b)(2)); and
(C) subsection (a)(2)(B)(ii)(I) shall be applied by substituting "real estate investment trust taxable income (as defined in section 857(b)(2) but without regard to the deduction for dividends paid (as defined in section 561))" for "taxable income".
[(7) Repealed. Pub. L. 115–97, title I, §13305(b)(3), Dec. 22, 2017, 131 Stat. 2126 ]
(8) Qualified business income deduction
Any deduction under section 199A shall not be allowed.
(9) Deduction for foreign-derived intangible income
The deduction under section 250 shall not be allowed.
(e) Law applicable to computations
In determining the amount of any net operating loss carryback or carryover to any taxable year, the necessary computations involving any other taxable year shall be made under the law applicable to such other taxable year.
(f) Special rule for insurance companies
In the case of an insurance company (as defined in section 816(a)) other than a life insurance company—
(1) the amount of the deduction allowed under subsection (a) shall be the aggregate of the net operating loss carryovers to such year, plus the net operating loss carrybacks to such year, and
(2) subparagraph (C) of subsection (b)(2) shall not apply.
(g) Cross references
(1) For treatment of net operating loss carryovers in certain corporate acquisitions, see section 381.
(2) For special limitation on net operating loss carryovers in case of a corporate change of ownership, see section 382.
(Aug. 16, 1954, ch. 736,
Editorial Notes
References in Text
The date of the enactment of this subparagraph, referred to in subsec. (b)(1)(D)(v)(II), is the date of enactment of
Amendments
2020—Subsec. (a).
"(1) the aggregate of the net operating loss carryovers to such year, plus the net operating loss carrybacks to such year, or
"(2) 80 percent of taxable income computed without regard to the deduction allowable under this section."
Subsec. (b)(1)(A).
"(i) except as otherwise provided in this paragraph, shall not be a net operating loss carryback to any taxable year preceding the taxable year of such loss, and
"(ii) shall be a net operating loss carryover to each taxable year following the taxable year of the loss."
Subsec. (b)(1)(A)(i).
Subsec. (b)(1)(D).
Subsec. (b)(2)(C).
Subsec. (d)(6)(C).
2018—Subsec. (d)(5).
Subsec. (d)(8).
2017—Subsec. (a).
Subsec. (b)(1)(A)(i).
Subsec. (b)(1)(A)(ii).
Subsec. (b)(1)(B).
"(i)
"(ii)
"(iii)
Subsec. (b)(1)(C).
Subsec. (b)(1)(D) to (F).
Subsec. (b)(2).
"(A) with the modifications specified in subsection (d) other than paragraphs (1), (4), and (5) thereof, and
"(B) by determining the amount of the net operating loss deduction without regard to the net operating loss for the loss year or for any taxable year thereafter,
and the taxable income so computed shall not be considered to be less than zero."
Subsec. (d)(6)(C).
Subsec. (d)(7).
Subsec. (d)(8).
Subsec. (d)(9).
Subsecs. (f), (g).
Subsecs. (h), (i).
2014—Subsec. (b)(1)(D).
Subsec. (b)(1)(D)(i)(II).
Subsec. (b)(1)(D)(ii).
Subsec. (b)(1)(E).
Subsec. (b)(1)(E)(ii).
Subsec. (b)(1)(E)(ii)(II).
Subsec. (b)(1)(F).
Subsec. (b)(1)(F)(ii)(II).
Subsec. (b)(1)(G) to (J).
Subsec. (d)(5).
Subsec. (g).
Subsec. (g)(2)(F).
Subsec. (g)(4)(B)(ii), (C).
Subsec. (h).
Subsec. (h)(1).
Subsec. (h)(3).
Subsecs. (i) to (k).
2009—Subsec. (b)(1)(H).
Subsecs. (k), (l).
2008—Subsec. (b)(1)(F)(ii).
Subsec. (b)(1)(F)(ii)(II).
Subsec. (b)(1)(F)(ii)(III).
Subsec. (b)(1)(J).
Subsec. (i)(1).
Subsecs. (j) to (l).
2005—Subsec. (b)(1)(I).
Subsec. (b)(1)(I)(i).
Subsec. (b)(1)(I)(ii)(I).
Subsec. (b)(1)(I)(iv) to (vi).
"(iv)
"(v)
Subsec. (d)(7).
2004—Subsec. (b)(1)(H).
2002—Subsec. (b)(1)(F)(i).
Subsec. (b)(1)(H).
Subsecs. (j), (k).
1998—Subsec. (b)(1)(F)(ii).
Subsec. (b)(1)(F)(iv).
Subsec. (b)(1)(G).
Subsec. (d)(4)(C).
Subsec. (f)(1)(B).
"(i) in the case of a liability arising out of a Federal or State law, the act (or failure to act) giving rise to such liability occurs at least 3 years before the beginning of the taxable year, or
"(ii) in the case of a liability arising out of a tort, such liability arises out of a series of actions (or failures to act) over an extended period of time a substantial portion of which occurs at least 3 years before the beginning of the taxable year.
A liability shall not be taken into account under subparagraph (B) unless the taxpayer used an accrual method of accounting throughout the period or periods during which the acts or failures to act giving rise to such liability occurred."
Subsecs. (i), (j).
1997—Subsec. (b)(1)(A)(i).
Subsec. (b)(1)(A)(ii).
Subsec. (b)(1)(F).
1996—Subsec. (b)(1)(E)(ii).
Subsec. (h)(3)(B)(i).
Subsec. (h)(4)(B).
Subsec. (h)(4)(C).
1993—Subsec. (d)(2).
Subsec. (d)(4)(B).
1990—Subsec. (b).
Subsec. (b)(1)(M)(iii).
Subsec. (f).
Subsec. (g).
Subsec. (g)(2).
Subsec. (h).
Subsec. (h)(3)(B)(ii).
"(I) a qualified stock purchase (within the meaning of section 338) to which an election under section 338 applies, or
"(II) except as provided in regulations, an acquisition in which a corporation acquires stock of another corporation which, immediately before the acquisition, was a member of an affiliated group (within the meaning of section 1504(a)) other than the common parent of such group."
Subsec. (h)(4)(B).
Subsec. (i).
Subsec. (j).
Subsec. (k).
Subsecs. (l) to (n).
1989—Subsec. (b)(1)(M).
Subsecs. (m), (n).
1988—Subsec. (b)(1)(A).
Subsec. (b)(1)(B).
Subsec. (b)(1)(K) to (M).
Subsec. (d)(4)(B).
1986—Subsec. (b)(1)(A), (B).
Subsec. (b)(1)(F).
Subsec. (b)(1)(G).
Subsec. (b)(1)(H).
Subsec. (b)(1)(J), (K).
Subsec. (b)(1)(L), (M).
Subsec. (d)(2).
"(A) the amount deductible on account of losses from sales or exchanges of capital assets shall not exceed the amount includible on account of gains from sales or exchanges of capital assets; and
"(B) the deduction for long-term capital gains provided by section 1202 shall not be allowed."
Subsec. (d)(6).
Subsec. (d)(7).
"(A) the deduction provided by the preceding sentence shall be in lieu of any itemized deductions of the taxpayer, and
"(B) such sentence shall not apply to an individual who elects to itemize deductions."
Subsec. (k)(2), (4).
Subsecs. (l), (m).
1984—Subsec. (b)(1)(A).
Subsec. (b)(1)(H).
Subsec. (b)(1)(H)(i), (ii).
Subsec. (b)(1)(K).
Subsec. (b)(2)(A).
Subsec. (d)(4)(D).
Subsec. (d)(6) to (8).
Subsec. (h).
Subsec. (i).
Subsec. (j).
Subsecs. (k), (l).
1982—Subsec. (b)(1)(A).
Subsec. (b)(1)(B).
Subsec. (b)(1)(H).
Subsec. (b)(1)(I).
Subsec. (b)(1)(J).
Subsec. (f).
Subsec. (i).
Subsec. (j).
Subsec. (k).
1981—Subsec. (b)(1)(B).
Subsec. (b)(1)(C).
Subsec. (b)(1)(E)(i)(II).
Subsec. (b)(1)(E)(ii).
Subsec. (g)(3)(C).
1980—Subsec. (b)(1)(A).
Subsec. (b)(1)(B).
Subsec. (b)(1)(E).
Subsec. (b)(1)(I).
1978—Subsec. (b)(1)(A).
Subsec. (b)(1)(B).
Subsec. (b)(1)(H).
Subsec. (b)(3)(A).
Subsec. (b)(3)(B).
Subsec. (b)(3)(C).
Subsec. (b)(3)(D), (E).
Subsecs. (i), (j).
1977—Subsec. (d)(8).
1976—Subsec. (b)(1)(B).
Subsec. (b)(1)(C).
Subsec. (b)(1)(D).
Subsec. (b)(1)(E).
Subsec. (b)(2).
Subsec. (b)(3).
Subsec. (b)(3)(A)(i), (ii).
Subsec. (b)(3)(C)(i).
Subsec. (b)(3)(C)(ii), (iii).
Subsec. (b)(3)(E).
Subsec. (b)(3)(F).
Subsec. (c).
Subsec. (d)(5), (6).
Subsec. (d)(7).
Subsec. (e).
Subsec. (f).
Subsec. (g).
Subsec. (g)(3)(C).
Subsec. (g)(4).
Subsec. (h).
Subsec. (i).
Subsecs. (j) to (l).
1971—Subsec. (b)(1)(D).
Subsec. (b)(2).
Subsec. (k)(3).
1969—Subsec. (b)(1).
1967—Subsec. (b)(1).
Subsec. (b)(3)(E), (F).
1964—Subsec. (b).
Subsec. (j)(1), (2),
Subsecs. (k), (l).
1962—Subsec. (b)(1).
Subsec. (b)(2).
Subsec. (b)(3).
Subsec. (d)(4)(D).
Subsecs. (j), (k).
1958—Subsec. (b).
Subsecs. (f)(3), (4).
Subsec. (g)(3), (4).
Subsecs. (h) to (j).
Statutory Notes and Related Subsidiaries
Effective Date of 2020 Amendment
"(1)
"(A) to taxable years beginning after December 31, 2017, and
"(B) to taxable years beginning on or before December 31, 2017, to which net operating losses arising in taxable years beginning after December 31, 2017, are carried.
"(2)
"(A) net operating losses arising in taxable years beginning after December 31, 2017, and
"(B) taxable years beginning before, on, or after such date to which such net operating losses are carried.
"(3)
"(4)
"(A) an application under section 6411(a) of the Internal Revenue Code of 1986 with respect to the carryback of such net operating loss shall not fail to be treated as timely filed if filed not later than the date which is 120 days after the date of the enactment of this Act [Mar. 27, 2020], and
"(B) an election to—
"(i) forgo any carryback of such net operating loss,
"(ii) reduce any period to which such net operating loss may be carried back, or
"(iii) revoke any election made under section 172(b) to forgo any carryback of such net operating loss,
shall not fail to be treated as timely made if made not later than the date which is 120 days after the date of the enactment of this Act."
Effective Date of 2018 Amendment
Amendment by section 101(a)(2)(B) of
Effective Date of 2017 Amendment
Amendment by section 11011(d)(1) of
"(1)
"(A) taxable years beginning after December 31, 2017, and
"(B) taxable years beginning on or before such date to which net operating losses arising in taxable years beginning after such date are carried.
"(2)
Amendment by section 13305(b)(3) of
Effective Date of 2014 Amendment
Amendment by section 211(c)(1)(B) of
Except as otherwise provided in section 221(a) of
Effective Date of 2009 Amendment
Amendment by
"(1)
"(2)
"(A) any election made under section 172(b)(3) of the Internal Revenue Code of 1986 with respect to such loss may (notwithstanding such section) be revoked before the applicable date,
"(B) any election made under [former] section 172(b)(1)(H) of such Code with respect to such loss shall (notwithstanding such section) be treated as timely made if made before the applicable date, and
"(C) any application under section 6411(a) of such Code with respect to such loss shall be treated as timely filed if filed before the applicable date.
For purposes of this paragraph, the term 'applicable date' means the date which is 60 days after the date of the enactment of this Act [Feb. 17, 2009]."
Effective Date of 2008 Amendment
Amendment by section 706(a)(2)(D)(v), (vi) of
Amendment by section 708(a), (b), (d) of
Effective Date of 2005 Amendment
Amendment by 402(f) of
Amendment by section 403(a)(17) of
Effective Date of 2004 Amendment
Amendment by
Effective Date of 2002 Amendment
Effective Date of 1998 Amendment
Amendment by section 4003(h) of
Effective Date of 1997 Amendment
Effective Date of 1996 Amendment
Amendment by section 1702(h)(2), (16) of
Effective Date of 1993 Amendment
Amendment by
Effective Date of 1990 Amendment
"(1)
"(2)
Amendment by section 11701(d) of
Effective Date of 1989 Amendment
"(1)
"(2)
"(A) acquisitions or redemptions of stock, or distributions with respect to stock, occurring on or before August 2, 1989,
"(B) acquisitions or redemptions of stock after August 2, 1989, pursuant to a binding written contract (or tender offer filed with the Securities and Exchange Commission) in effect on August 2, 1989, and at all times thereafter before such acquisition or redemption, or
"(C) any distribution with respect to stock after August 2, 1989, which was declared on or before August 2, 1989.
Any distribution to which the preceding sentence applies shall be taken into account under section 172(m)(3)(C)(ii)(I) of the Internal Revenue Code of 1986 (relating to base period for distributions)."
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 104(b)(4) of
Amendment by section 301(b)(3) of
Amendment by section 901(d)(4)(B) of
"(1)
"(2)
Amendment by section 1303(b)(1), (2) of
Effective Date of 1984 Amendment
Amendment by section 91(d) of
"(1)
"(2)
"(A)
"(i) for purposes of determining any loss, be equal to the lesser of the adjusted basis of such asset or the fair market value of such asset as of such date, and
"(ii) for purposes of determining any gain, be equal to the higher of the adjusted basis of such asset or the fair market value of such asset as of such date.
"(B)
"(i) is of a character subject to the allowance for depreciation provided by section 167 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954], and
"(ii) is held by the Federal Home Loan Mortgage Corporation on January 1, 1985,
the adjusted basis of such property shall be equal to the lesser of the basis of such property or the fair market value of such property as of such date.
"(3)
"(A)
"(B)
"(4)
"(A)
"(B)
"(5)
"(6)
"(7)
"(A)
"(B)
Amendment by section 491(d)(5) of
Effective Date of 1982 Amendment
Amendment by
Effective Date of 1981 Amendment
Amendment by
Effective Date of 1980 Amendment
Amendment by
Effective Date of 1978 Amendment
Effective Date of 1977 Amendment
Amendment by
Effective Date of 1976 Amendment
Amendment by section 1052(c)(3) of
Amendment by section 1606(b), (c) of
Amendment by section 1901(a)(29) of
Effective Date of 1971 Amendment
Effective Date of 1967 Amendment
Effective Date of 1964 Amendment
Amendment by section 234(b)(5) of
Effective Date of 1962 Amendment
Amendment by
Effective Date of 1958 Amendment
Amendment by section 14(a), (b) of
Anti-Abuse Rules
Savings Provision
For provisions that nothing in amendment by section 11811 of
Special Rules With Respect to Farming Losses
"(1)
"(A)
"(i) the amendments made by subsection (a) [amending this section and
"(ii) the amendments made by subsection (b) [amending this section] shall not apply to any net operating loss arising in any taxable year beginning in 2018, 2019, or 2020.
"(B)
"(i)
"(ii)
"(I)
"(II)
"(C)
"(2)
"(A) which was made before the date of the enactment of the COVID-related Tax Relief Act of 2020, and
"(B) which relates to the carryback period provided under section 172(b)(1)(B) of such Code with respect to any net operating loss arising in taxable years beginning in 2018 or 2019."
[
Net Operating Loss Carryback for Taxable Year Ending During 2001 or 2002
"(A) an application under section 6411(a) of the Internal Revenue Code of 1986 with respect to such loss shall not fail to be treated as timely filed if filed before November 1, 2002,
"(B) any election made under section 172(b)(3) of such Code may (notwithstanding such section) be revoked before November 1, 2002, and
"(C) any election made under [former] section 172(j) of such Code shall (notwithstanding such section) be treated as timely made if made before November 1, 2002."
Amtrak Reform Legislation
Elective Carryback of Existing Carryovers of National Railroad Passenger Corporation
"(a)
"(1)
"(A) makes an election under this section for its first taxable year ending after September 30, 1997, and
"(B) agrees to the conditions specified in paragraph (2),
then the Corporation shall be treated as having made a payment of the tax imposed by
"(2)
"(A)
"(i) except as provided in clause (ii), use any refund of the payment described in paragraph (1) (and any interest thereon) solely to finance qualified expenses of the Corporation, and
"(ii) make the payments to non-Amtrak States as described in subsection (c).
"(B)
"(i)
"(ii)
"(I) no amount shall be treated as remaining unused as of January 1, 2010, if it is obligated as of such date for a qualified expense, and
"(II) the Corporation shall not be treated as failing to meet the requirements of clause (i) by reason of investing any amount for a temporary period.
"(3)
"(A)
"(i) 35 percent of the Corporation's existing qualified carryovers, or
"(ii) the Corporation's net tax liability for the carryback period.
"(B)
"(b)
"(1)
"(2)
"(A)
"(B)
"(C)
"(i) which begins with the first taxable year of any railroad predecessor beginning before January 1, 1971, for which there is a net tax liability, and
"(ii) which ends with the last taxable year of any railroad predecessor beginning before January 1, 1971.
"(3)
"(A)
"(i) any railroad which entered into a contract under section 401 or 404(a) of the Rail Passenger Service Act of 1970 [former
"(ii) any predecessor thereof.
"(B)
"(c)
"(1)
"(2)
"(3)
"(A) any portion of the payment received by the State under paragraph (1) (and any interest thereon) which is used for a purpose other than to finance qualified expenses of the State or which remains unused as of January 1, 2010, or
"(B) if such State ceases to be a non-Amtrak State, the portion of such payment (and any interest thereon) remaining as of the date of the cessation.
Rules similar to the rules of subsection (a)(2)(B) shall apply for purposes of this paragraph.
"(d)
"(1)
"(2)
"(A)
"(B)
"(C)
"(D)
"(3)
"(A) no deduction shall be allowed to the Corporation with respect to any amount paid or incurred which is attributable to such amount, and
"(B) the basis of any property shall be reduced by the portion of the cost of such property which is attributable to such amount.
"(4)
"(e)
"(1)
"(A) in the case of the Corporation—
"(i) the acquisition of equipment, rolling stock, and other capital improvements, the upgrading of maintenance facilities, and the maintenance of existing equipment, in intercity passenger rail service, and
"(ii) the payment of interest and principal on obligations incurred for such acquisition, upgrading, and maintenance, and
"(B) in the case of a non-Amtrak State—
"(i) the acquisition of equipment, rolling stock, and other capital improvements, the upgrading of maintenance facilities, and the maintenance of existing equipment, in intercity passenger rail service,
"(ii) the acquisition of equipment, rolling stock, and other capital improvements, the upgrading of maintenance facilities, and the maintenance of existing equipment, in intercity bus service,
"(iii) the purchase of intercity passenger rail services from the Corporation,
"(iv) capital expenditures related to State-owned rail operations in the State,
"(v) any project that is eligible to receive funding under
"(vi) any project that is eligible to receive funding under
"(vii) the upgrading and maintenance of intercity primary and rural air service facilities, and the purchase of intercity air service between primary and rural airports and regional hubs,
"(viii) the provision of passenger ferryboat service within the State,
"(ix) the provision of harbor improvements within the State, and
"(x) the payment of interest and principal on obligations incurred for such acquisition, upgrading, maintenance, purchase, expenditures, provision, and projects.
In the case of a non-Amtrak State which provides its own intercity passenger rail service on the date of the enactment of this paragraph [Aug. 5, 1997], subparagraph (B) shall be applied by only taking into account clauses (i) and (iv).
"(2)
"(f)
"(1)
"(2)
"(3)
[
Deduction for Special Assessments
Subsec. (f) of this section not applicable to deduction for special assessments, see section 2711(2) of
Carryback of Deferred Statutory or Tort Liability Loss to Taxable Year Beginning Before January 1, 1984
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Refund or Credit of Overpayment; Limitations; Interest
Interest Attributable to Net Operating Loss Carryback for Certain Taxable Years Ending in 1954
For payment of interest attributable to net operating loss carryback, see section 83(e) of
§173. Circulation expenditures
(a) General rule
Notwithstanding section 263, all expenditures (other than expenditures for the purchase of land or depreciable property or for the acquisition of circulation through the purchase of any part of the business of another publisher of a newspaper, magazine, or other periodical) to establish, maintain, or increase the circulation of a newspaper, magazine, or other periodical shall be allowed as a deduction; except that the deduction shall not be allowed with respect to the portion of such expenditures as, under regulations prescribed by the Secretary, is chargeable to capital account if the taxpayer elects, in accordance with such regulations, to treat such portion as so chargeable. Such election, if made, must be for the total amount of such portion of the expenditures which is so chargeable to capital account, and shall be binding for all subsequent taxable years unless, upon application by the taxpayer, the Secretary permits a revocation of such election subject to such conditions as he deems necessary.
(b) Cross reference
For election of 3-year amortization of expenditures allowable as a deduction under subsection (a), see section 59(e).
(Aug. 16, 1954, ch. 736,
Editorial Notes
Amendments
1988—Subsec. (b).
1986—Subsec. (b).
1984—Subsec. (b).
1982—
1976—
Statutory Notes and Related Subsidiaries
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by
Effective Date of 1984 Amendment
Amendment by
Effective Date of 1982 Amendment
Amendment by
Applicability of Certain Amendments by Pub. L. 99–514 in Relation to Treaty Obligations of United States
For applicability of amendment by
§174. Amortization of research and experimental expenditures
(a) In general
In the case of a taxpayer's specified research or experimental expenditures for any taxable year—
(1) except as provided in paragraph (2), no deduction shall be allowed for such expenditures, and
(2) the taxpayer shall—
(A) charge such expenditures to capital account, and
(B) be allowed an amortization deduction of such expenditures ratably over the 5-year period (15-year period in the case of any specified research or experimental expenditures which are attributable to foreign research (within the meaning of section 41(d)(4)(F))) beginning with the midpoint of the taxable year in which such expenditures are paid or incurred.
(b) Specified research or experimental expenditures
For purposes of this section, the term "specified research or experimental expenditures" means, with respect to any taxable year, research or experimental expenditures which are paid or incurred by the taxpayer during such taxable year in connection with the taxpayer's trade or business.
(c) Special rules
(1) Land and other property
This section shall not apply to any expenditure for the acquisition or improvement of land, or for the acquisition or improvement of property to be used in connection with the research or experimentation and of a character which is subject to the allowance under section 167 (relating to allowance for depreciation, etc.) or section 611 (relating to allowance for depletion); but for purposes of this section allowances under section 167, and allowances under section 611, shall be considered as expenditures.
(2) Exploration expenditures
This section shall not apply to any expenditure paid or incurred for the purpose of ascertaining the existence, location, extent, or quality of any deposit of ore or other mineral (including oil and gas).
(3) Software development
For purposes of this section, any amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure.
(d) Treatment upon disposition, retirement, or abandonment
If any property with respect to which specified research or experimental expenditures are paid or incurred is disposed, retired, or abandoned during the period during which such expenditures are allowed as an amortization deduction under this section, no deduction shall be allowed with respect to such expenditures on account of such disposition, retirement, or abandonment and such amortization deduction shall continue with respect to such expenditures.
(Aug. 16, 1954, ch. 736,
Editorial Notes
Amendments
2017—
2014—Subsec. (a)(2)(A).
"(i) which begins after December 31, 1953, and ends after August 16, 1954, and
"(ii) for which expenditures described in paragraph (1) are paid or incurred."
Subsec. (b)(2).
1989—Subsecs. (e), (f).
1988—Subsec. (e)(2).
1986—Subsec. (e)(2).
1982—Subsec. (e).
1976—Subsec. (a)(2)(A).
Subsec. (a)(2)(A)(i).
Subsecs. (a)(3), (b)(1), (2).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment; Applicability of Change in Method of Accounting
"(1) such change shall be treated as initiated by the taxpayer,
"(2) such change shall be treated as made with the consent of the Secretary, and
"(3) such change shall be applied only on a cut-off basis for any research or experimental expenditures paid or incurred in taxable years beginning after December 31, 2021, and no adjustments under section 481(a) shall be made."
Amendment by
Effective Date of 2014 Amendment
Amendment by
Effective Date of 1989 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by
Effective Date of 1982 Amendment
Amendment by
Applicability of Certain Amendments by Pub. L. 99–514 in Relation to Treaty Obligations of United States
For applicability of amendment by
Allocation or Apportionment to Sources Within United States of Research and Experimental Expenditures Paid or Incurred for Research Activities Conducted in United States; 2-Year Program
§175. Soil and water conservation expenditures; endangered species recovery expenditures
(a) In general
A taxpayer engaged in the business of farming may treat expenditures which are paid or incurred by him during the taxable year for the purpose of soil or water conservation in respect of land used in farming, or for the prevention of erosion of land used in farming, or for endangered species recovery, as expenses which are not chargeable to capital account. The expenditures so treated shall be allowed as a deduction.
(b) Limitation
The amount deductible under subsection (a) for any taxable year shall not exceed 25 percent of the gross income derived from farming during the taxable year. If for any taxable year the total of the expenditures treated as expenses which are not chargeable to capital account exceeds 25 percent of the gross income derived from farming during the taxable year, such excess shall be deductible for succeeding taxable years in order of time; but the amount deductible under this section for any one such succeeding taxable year (including the expenditures actually paid or incurred during the taxable year) shall not exceed 25 percent of the gross income derived from farming during the taxable year.
(c) Definitions
For purposes of subsection (a)—
(1) The term "expenditures which are paid or incurred by him during the taxable year for the purpose of soil or water conservation in respect of land used in farming, or for the prevention of erosion of land used in farming, or for endangered species recovery" means expenditures paid or incurred for the treatment or moving of earth, including (but not limited to) leveling, grading and terracing, contour furrowing, the construction, control, and protection of diversion channels, drainage ditches, earthen dams, watercourses, outlets, and ponds, the eradication of brush, and the planting of windbreaks. Such term shall include expenditures paid or incurred for the purpose of achieving site-specific management actions recommended in recovery plans approved pursuant to the Endangered Species Act of 1973. Such term does not include—
(A) the purchase, construction, installation, or improvement of structures, appliances, or facilities which are of a character which is subject to the allowance for depreciation provided in section 167, or
(B) any amount paid or incurred which is allowable as a deduction without regard to this section.
Notwithstanding the preceding sentences, such term also includes any amount, not otherwise allowable as a deduction, paid or incurred to satisfy any part of an assessment levied by a soil or water conservation or drainage district to defray expenditures made by such district (i) which, if paid or incurred by the taxpayer, would without regard to this sentence constitute expenditures deductible under this section, or (ii) for property of a character subject to the allowance for depreciation provided in section 167 and used in the soil or water conservation or drainage district's business as such (to the extent that the taxpayer's share of the assessment levied on the members of the district for such property does not exceed 10 percent of such assessment).
(2) The term "land used in farming" means land used (before or simultaneously with the expenditures described in paragraph (1)) by the taxpayer or his tenant for the production of crops, fruits, or other agricultural products or for the sustenance of livestock.
(3)
(A)
(i) the plan (if any) approved by the Soil Conservation Service of the Department of Agriculture or the recovery plan approved pursuant to the Endangered Species Act of 1973 for the area in which the land is located, or
(ii) if there is no plan described in clause (i), any soil conservation plan of a comparable State agency.
(B)
(d) When method may be adopted
(1) Without consent
A taxpayer may, without the consent of the Secretary, adopt the method provided in this section for the taxpayer's first taxable year for which expenditures described in subsection (a) are paid or incurred.
(2) With consent
A taxpayer may, with the consent of the Secretary, adopt at any time the method provided in this section.
(e) Scope
The method adopted under this section shall apply to all expenditures described in subsection (a). The method adopted shall be adhered to in computing taxable income for the taxable year and for all subsequent taxable years unless, with the approval of the Secretary, a change to a different method is authorized with respect to part or all of such expenditures.
(f) Rules applicable to assessments for depreciable property
(1) Amounts treated as paid or incurred over 9-year period
In the case of an assessment levied to defray expenditures for property described in clause (ii) of the last sentence of subsection (c)(1), if the amount of such assessment paid or incurred by the taxpayer during the taxable year (determined without the application of this paragraph) is in excess of an amount equal to 10 percent of the aggregate amounts which have been and will be assessed as the taxpayer's share of the expenditures by the district for such property, and if such excess is more than $500, the entire excess shall be treated as paid or incurred ratably over each of the 9 succeeding taxable years.
(2) Disposition of land during 9-year period
If paragraph (1) applies to an assessment and the land with respect to which such assessment was made is sold or otherwise disposed of by the taxpayer (other than by the reason of his death) during the 9 succeeding taxable years, any amount of the excess described in paragraph (1) which has not been treated as paid or incurred for a taxable year ending on or before the sale or other disposition shall be added to the adjusted basis of such land immediately prior to its sale or other disposition and shall not thereafter be treated as paid or incurred ratably under paragraph (1).
(3) Disposition by reason of death
If paragraph (1) applies to an assessment and the taxpayer dies during the 9 succeeding taxable years, any amount of the excess described in paragraph (1) which has not been treated as paid or incurred for a taxable year ending before his death shall be treated as paid or incurred in the taxable year in which he dies.
(Aug. 16, 1954, ch. 736,
Editorial Notes
References in Text
The Endangered Species Act of 1973, referred to in subsec. (c)(1), (3)(A)(i), is
Codification
Amendments
2014—Subsec. (d)(1).
"(A) which begins after December 31, 1953, and ends after August 16, 1954, and
"(B) for which expenditures described in subsection (a) are paid or incurred."
2008—
Subsec. (a).
Subsec. (c)(1).
Subsec. (c)(3)(A).
Subsec. (c)(3)(A)(i).
1986—Subsec. (c)(3).
1976—Subsec. (d)(1).
Subsec. (d)(1)(A).
Subsecs. (d)(2), (e).
1968—Subsec. (c)(1).
Subsec. (f).
Statutory Notes and Related Subsidiaries
Effective Date of 2014 Amendment
Amendment by
Effective Date of 2008 Amendment
Amendment of this section and repeal of
[
Effective Date of 1986 Amendment
Effective Date of 1976 Amendment
Amendment by section 1901(a)(30) of
Effective Date of 1968 Amendment
§176. Payments with respect to employees of certain foreign corporations
In the case of a domestic corporation, there shall be allowed as a deduction amounts (to the extent not compensated for) paid or incurred pursuant to an agreement entered into under section 3121(l) with respect to services performed by United States citizens employed by foreign subsidiary corporations. Any reimbursement of any amount previously allowed as a deduction under this section shall be included in gross income for the taxable year in which received.
(Added Sept. 1, 1954, ch. 1206, title II, §210(a),
[§177. Repealed. Pub. L. 99–514, title II, §241(a), Oct. 22, 1986, 100 Stat. 2181 ]
Section, added June 29, 1956, ch. 464, §4(a),
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
"(1)
"(2)
"(A) pursuant to a binding contract entered into before March 2, 1986, or
"(B) with respect to the development, protection, expansion, registration, or defense of a trademark or trade name commenced before March 2, 1986, but only if not less than the lesser of $1,000,000 or 5 percent of the aggregate cost of such development, protection, expansion, registration, or defense has been incurred or committed before such date.
The preceding sentence shall not apply to any expenditure with respect to a trademark or trade name placed in service after December 31, 1987."
§178. Amortization of cost of acquiring a lease
(a) General rule
In determining the amount of the deduction allowable to a lessee for exhaustion, wear and tear, obsolescence, or amortization in respect of any cost of acquiring the lease, the term of the lease shall be treated as including all renewal options (and any other period for which the parties reasonably expect the lease to be renewed) if less than 75 percent of such cost is attributable to the period of the term of the lease remaining on the date of its acquisition.
(b) Certain periods excluded
For purposes of subsection (a), in determining the period of the term of the lease remaining on the date of acquisition, there shall not be taken into account any period for which the lease may subsequently be renewed, extended, or continued pursuant to an option exercisable by the lessee.
(Added
Editorial Notes
Amendments
1988—Subsec. (a).
1986—
Subsec. (b)(2)(B).
Statutory Notes and Related Subsidiaries
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 201(d)(2)(A) of
Amendment by section 201(d)(2)(A) of
Amendment by section 1812(c)(4)(B) of
Effective Date
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
§179. Election to expense certain depreciable business assets
(a) Treatment as expenses
A taxpayer may elect to treat the cost of any section 179 property as an expense which is not chargeable to capital account. Any cost so treated shall be allowed as a deduction for the taxable year in which the section 179 property is placed in service.
(b) Limitations
(1) Dollar limitation
The aggregate cost which may be taken into account under subsection (a) for any taxable year shall not exceed $1,000,000.
(2) Reduction in limitation
The limitation under paragraph (1) for any taxable year shall be reduced (but not below zero) by the amount by which the cost of section 179 property placed in service during such taxable year exceeds $2,500,000.
(3) Limitation based on income from trade or business
(A) In general
The amount allowed as a deduction under subsection (a) for any taxable year (determined after the application of paragraphs (1) and (2)) shall not exceed the aggregate amount of taxable income of the taxpayer for such taxable year which is derived from the active conduct by the taxpayer of any trade or business during such taxable year.
(B) Carryover of disallowed deduction
The amount allowable as a deduction under subsection (a) for any taxable year shall be increased by the lesser of—
(i) the aggregate amount disallowed under subparagraph (A) for all prior taxable years (to the extent not previously allowed as a deduction by reason of this subparagraph), or
(ii) the excess (if any) of—
(I) the limitation of paragraphs (1) and (2) (or if lesser, the aggregate amount of taxable income referred to in subparagraph (A)), over
(II) the amount allowable as a deduction under subsection (a) for such taxable year without regard to this subparagraph.
(C) Computation of taxable income
For purposes of this paragraph, taxable income derived from the conduct of a trade or business shall be computed without regard to the deduction allowable under this section.
(4) Married individuals filing separately
In the case of a husband and wife filing separate returns for the taxable year—
(A) such individuals shall be treated as 1 taxpayer for purposes of paragraphs (1) and (2), and
(B) unless such individuals elect otherwise, 50 percent of the cost which may be taken into account under subsection (a) for such taxable year (before application of paragraph (3)) shall be allocated to each such individual.
(5) Limitation on cost taken into account for certain passenger vehicles
(A) In general
The cost of any sport utility vehicle for any taxable year which may be taken into account under this section shall not exceed $25,000.
(B) Sport utility vehicle
For purposes of subparagraph (A)—
(i) In general
The term "sport utility vehicle" means any 4-wheeled vehicle—
(I) which is primarily designed or which can be used to carry passengers over public streets, roads, or highways (except any vehicle operated exclusively on a rail or rails),
(II) which is not subject to section 280F, and
(III) which is rated at not more than 14,000 pounds gross vehicle weight.
(ii) Certain vehicles excluded
Such term does not include any vehicle which—
(I) is designed to have a seating capacity of more than 9 persons behind the driver's seat,
(II) is equipped with a cargo area of at least 6 feet in interior length which is an open area or is designed for use as an open area but is enclosed by a cap and is not readily accessible directly from the passenger compartment, or
(III) has an integral enclosure, fully enclosing the driver compartment and load carrying device, does not have seating rearward of the driver's seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield.
(6) Inflation adjustment
(A) In general
In the case of any taxable year beginning after 2018, the dollar amounts in paragraphs (1), (2), and (5)(A) shall each be increased by an amount equal to—
(i) such dollar amount, multiplied by
(ii) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting "calendar year 2017" for "calendar year 2016" in subparagraph (A)(ii) thereof.
(B) Rounding
The amount of any increase under subparagraph (A) shall be rounded to the nearest multiple of $10,000 ($100 in the case of any increase in the amount under paragraph (5)(A)).
(c) Election
(1) In general
An election under this section for any taxable year shall—
(A) specify the items of section 179 property to which the election applies and the portion of the cost of each of such items which is to be taken into account under subsection (a), and
(B) be made on the taxpayer's return of the tax imposed by this chapter for the taxable year.
Such election shall be made in such manner as the Secretary may by regulations prescribe.
(2) Election
Any election made under this section, and any specification contained in any such election, may be revoked by the taxpayer with respect to any property, and such revocation, once made, shall be irrevocable.
(d) Definitions and special rules
(1) Section 179 property
For purposes of this section, the term "section 179 property" means property—
(A) which is—
(i) tangible property (to which section 168 applies), or
(ii) computer software (as defined in section 197(e)(3)(B)) which is described in section 197(e)(3)(A)(i) and to which section 167 applies,
(B) which is—
(i) section 1245 property (as defined in section 1245(a)(3)), or
(ii) at the election of the taxpayer, qualified real property (as defined in subsection (e)), and
(C) which is acquired by purchase for use in the active conduct of a trade or business.
Such term shall not include any property described in section 50(b) (other than paragraph (2) thereof).
(2) Purchase defined
For purposes of paragraph (1), the term "purchase" means any acquisition of property, but only if—
(A) the property is not acquired from a person whose relationship to the person acquiring it would result in the disallowance of losses under section 267 or 707(b) (but, in applying section 267(b) and (c) for purposes of this section, paragraph (4) of section 267(c) shall be treated as providing that the family of an individual shall include only his spouse, ancestors, and lineal descendants),
(B) the property is not acquired by one component member of a controlled group from another component member of the same controlled group, and
(C) the basis of the property in the hands of the person acquiring it is not determined—
(i) in whole or in part by reference to the adjusted basis of such property in the hands of the person from whom acquired, or
(ii) under section 1014(a) (relating to property acquired from a decedent).
(3) Cost
For purposes of this section, the cost of property does not include so much of the basis of such property as is determined by reference to the basis of other property held at any time by the person acquiring such property.
(4) Section not to apply to estates and trusts
This section shall not apply to estates and trusts.
(5) Section not to apply to certain noncorporate lessors
This section shall not apply to any section 179 property which is purchased by a person who is not a corporation and with respect to which such person is the lessor unless—
(A) the property subject to the lease has been manufactured or produced by the lessor, or
(B) the term of the lease (taking into account options to renew) is less than 50 percent of the class life of the property (as defined in section 168(i)(1)), and for the period consisting of the first 12 months after the date on which the property is transferred to the lessee the sum of the deductions with respect to such property which are allowable to the lessor solely by reason of section 162 (other than rents and reimbursed amounts with respect to such property) exceeds 15 percent of the rental income produced by such property.
(6) Dollar limitation of controlled group
For purposes of subsection (b) of this section—
(A) all component members of a controlled group shall be treated as one taxpayer, and
(B) the Secretary shall apportion the dollar limitation contained in subsection (b)(1) among the component members of such controlled group in such manner as he shall by regulations prescribe.
(7) Controlled group defined
For purposes of paragraphs (2) and (6), the term "controlled group" has the meaning assigned to it by section 1563(a), except that, for such purposes, the phrase "more than 50 percent" shall be substituted for the phrase "at least 80 percent" each place it appears in section 1563(a)(1).
(8) Treatment of partnerships and S corporations
In the case of a partnership, the limitations of subsection (b) shall apply with respect to the partnership and with respect to each partner. A similar rule shall apply in the case of an S corporation and its shareholders.
(9) Coordination with section 38
No credit shall be allowed under section 38 with respect to any amount for which a deduction is allowed under subsection (a).
(10) Recapture in certain cases
The Secretary shall, by regulations, provide for recapturing the benefit under any deduction allowable under subsection (a) with respect to any property which is not used predominantly in a trade or business at any time.
(e) Qualified real property
For purposes of this section, the term "qualified real property" means—
(1) any qualified improvement property described in section 168(e)(6), and
(2) any of the following improvements to nonresidential real property placed in service after the date such property was first placed in service:
(A) Roofs.
(B) Heating, ventilation, and air-conditioning property.
(C) Fire protection and alarm systems.
(D) Security systems.
(Added
Editorial Notes
Amendments
2018—Subsec. (d)(1)(B)(ii).
Subsecs. (e), (f).
2017—Subsec. (b)(1).
Subsec. (b)(2).
Subsec. (b)(6)(A).
Subsec. (b)(6)(A)(ii).
Subsec. (b)(6)(B).
Subsec. (d)(1).
Subsec. (d)(1)(B).
Subsec. (f).
2015—Subsec. (b)(1).
"(A) $250,000 in the case of taxable years beginning after 2007 and before 2010,
"(B) $500,000 in the case of taxable years beginning after 2009 and before 2015, and
"(C) $25,000 in the case of taxable years beginning after 2014."
Subsec. (b)(2).
"(A) $800,000 in the case of taxable years beginning after 2007 and before 2010,
"(B) $2,000,000 in the case of taxable years beginning after 2009 and before 2015, and
"(C) $200,000 in the case of taxable years beginning after 2014."
Subsec. (b)(6).
Subsec. (c)(2).
Subsec. (d)(1).
Subsec. (d)(1)(A)(ii).
Subsec. (f)(1).
Subsec. (f)(3).
Subsec. (f)(4).
Subsec. (f)(4)(C).
2014—Subsec. (b)(1)(B).
Subsec. (b)(1)(C).
Subsec. (b)(2)(B).
Subsec. (b)(2)(C).
Subsec. (c)(2).
Subsec. (d)(1)(A)(ii).
Subsec. (f)(1).
Subsec. (f)(4).
Subsec. (f)(4)(C).
2013—Subsec. (b)(1)(B).
Subsec. (b)(1)(C), (D).
Subsec. (b)(2)(B).
Subsec. (b)(2)(C), (D).
Subsec. (b)(6).
Subsec. (c)(2).
Subsec. (d)(1)(A)(ii).
Subsec. (f)(1).
Subsec. (f)(4)(A), (B).
Subsec. (f)(4)(C).
2010—Subsec. (b)(1).
Subsec. (b)(1)(C), (D).
Subsec. (b)(2).
Subsec. (b)(2)(C), (D).
Subsec. (b)(5).
Subsec. (b)(6).
Subsec. (b)(7).
Subsec. (c)(2).
Subsec. (d)(1)(A)(ii).
Subsec. (f).
Subsec. (f)(2)(B).
Subsec. (f)(2)(C).
2009—Subsec. (b)(7).
2008—Subsec. (b)(7).
Subsec. (e).
2007—Subsec. (b)(1).
Subsec. (b)(2).
Subsec. (b)(5)(A).
Subsec. (b)(5)(A)(ii).
Subsecs. (c)(2), (d)(1)(A)(ii).
2006—Subsecs. (b)(1), (2), (5)(A), (c)(2), (d)(1)(A)(ii).
2004—Subsec. (b)(1), (2), (5)(A).
Subsec. (b)(6).
Subsecs. (c)(2), (d)(1)(A)(ii).
2003—Subsec. (b)(1).
Subsec. (b)(2).
Subsec. (b)(5).
Subsec. (c)(2).
Subsec. (d)(1).
1996—Subsec. (b)(1).
Subsec. (d)(1).
1993—Subsec. (b)(1).
1990—Subsec. (d)(1).
Subsec. (d)(5).
1988—Subsec. (b)(3).
"(A)
"(B)
"(C)
Subsec. (d)(1).
1986—Subsec. (b).
Subsec. (d)(1).
Subsec. (d)(8).
Subsec. (d)(10).
1984—Subsec. (b)(1).
1983—Subsec. (d)(10).
1982—Subsec. (d)(8).
1981—
1976—Subsecs. (c)(1), (2), (d)(6)(B).
Subsec. (d)(8), (9).
Subsec. (e).
1969—Subsec. (d).
1962—Subsec. (d)(5).
Subsec. (d)(8).
Statutory Notes and Related Subsidiaries
Effective Date of 2018 Amendment
Effective Date of 2017 Amendment
Amendment by section 11002(d)(1)(R) of
Effective Date of 2015 Amendment
"(1)
"(2)
Effective Date of 2014 Amendment
Effective Date of 2013 Amendment
Effective Date of 2010 Amendment
Amendment by section 737(b)(3) of
"(1)
"(2)
Effective Date of 2009 Amendment
Effective Date of 2008 Amendment
Effective Date of 2007 Amendment
Effective Date of 2004 Amendment
Effective Date of 2003 Amendment
Effective Date of 1996 Amendment
Amendment by section 1702(h)(10), (19) of
Effective Date of 1993 Amendment
Effective Date of 1990 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 201(d)(3) of
Amendment by section 201(d)(3) of
Effective Date of 1984 Amendment
Amendment by
Effective Date of 1983 Amendment
Amendment by
Effective Date of 1982 Amendment
Amendment by
Effective Date of 1981 Amendment
Amendment by
Effective Date of 1976 Amendment
Amendment by section 213(a) of
Effective Date of 1969 Amendment
Amendment by
Effective Date of 1962 Amendment
Amendment by
Effective Date
Savings Provision
For provisions that nothing in amendment by
For provisions that nothing in amendment by
[§179A. Repealed. Pub. L. 113–295, div. A, title II, §221(a)(34)(A), Dec. 19, 2014, 128 Stat. 4042 ]
Section, added
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
Repeal effective Dec. 19, 2014, subject to a savings provision, see section 221(b) of
§179B. Deduction for capital costs incurred in complying with Environmental Protection Agency sulfur regulations
(a) Allowance of deduction
In the case of a small business refiner (as defined in section 45H(c)(1)) which elects the application of this section, there shall be allowed as a deduction an amount equal to 75 percent of qualified costs (as defined in section 45H(c)(2)) which are paid or incurred by the taxpayer during the taxable year and which are properly chargeable to capital account.
(b) Reduced percentage
In the case of a small business refiner with average daily domestic refinery runs for the 1-year period ending on December 31, 2002, in excess of 155,000 barrels, the number of percentage points described in subsection (a) shall be reduced (not below zero) by the product of such number (before the application of this subsection) and the ratio of such excess to 50,000 barrels.
(c) Basis reduction
(1) In general
For purposes of this title, the basis of any property shall be reduced by the portion of the cost of such property taken into account under subsection (a).
(2) Ordinary income recapture
For purposes of section 1245, the amount of the deduction allowable under subsection (a) with respect to any property which is of a character subject to the allowance for depreciation shall be treated as a deduction allowed for depreciation under section 167.
(d) Coordination with other provisions
Section 280B shall not apply to amounts which are treated as expenses under this section.
(e) Election to allocate deduction to cooperative owner
(1) In general
If—
(A) a small business refiner to which subsection (a) applies is an organization to which part I of subchapter T applies, and
(B) one or more persons directly holding an ownership interest in the refiner are organizations to which part I of subchapter T apply,
the refiner may elect to allocate all or a portion of the deduction allowable under subsection (a) to such persons. Such allocation shall be equal to the person's ratable share of the total amount allocated, determined on the basis of the person's ownership interest in the taxpayer. The taxable income of the refiner shall not be reduced under section 1382 by reason of any amount to which the preceding sentence applies.
(2) Form and effect of election
An election under paragraph (1) for any taxable year shall be made on a timely filed return for such year. Such election, once made, shall be irrevocable for such taxable year.
(3) Written notice to owners
If any portion of the deduction available under subsection (a) is allocated to owners under paragraph (1), the cooperative shall provide any owner receiving an allocation written notice of the amount of the allocation. Such notice shall be provided before the date on which the return described in paragraph (2) is due.
(Added
Editorial Notes
Amendments
2007—Subsec. (a).
2005—Subsec. (e).
Statutory Notes and Related Subsidiaries
Effective Date of 2007 Amendment
Amendment by
Effective Date of 2005 Amendment
Effective Date
§179C. Election to expense certain refineries
(a) Treatment as expenses
A taxpayer may elect to treat 50 percent of the cost of any qualified refinery property as an expense which is not chargeable to capital account. Any cost so treated shall be allowed as a deduction for the taxable year in which the qualified refinery property is placed in service.
(b) Election
(1) In general
An election under this section for any taxable year shall be made on the taxpayer's return of the tax imposed by this chapter for the taxable year. Such election shall be made in such manner as the Secretary may by regulations prescribe.
(2) Election irrevocable
Any election made under this section may not be revoked except with the consent of the Secretary.
(c) Qualified refinery property
(1) In general
The term "qualified refinery property" means any portion of a qualified refinery—
(A) the original use of which commences with the taxpayer,
(B) which is placed in service by the taxpayer after the date of the enactment of this section and before January 1, 2014,
(C) in the case any portion of a qualified refinery (other than a qualified refinery which is separate from any existing refinery), which meets the requirements of subsection (e),
(D) which meets all applicable environmental laws in effect on the date such portion was placed in service,
(E) no written binding contract for the construction of which was in effect on or before June 14, 2005, and
(F)(i) the construction of which is subject to a written binding construction contract entered into before January 1, 2010,
(ii) which is placed in service before January 1, 2010, or
(iii) in the case of self-constructed property, the construction of which began after June 14, 2005, and before January 1, 2010.
(2) Special rule for sale-leasebacks
For purposes of paragraph (1)(A), if property is—
(A) originally placed in service after the date of the enactment of this section by a person, and
(B) sold and leased back by such person within 3 months after the date such property was originally placed in service,
such property shall be treated as originally placed in service not earlier than the date on which such property is used under the leaseback referred to in subparagraph (B).
(3) Effect of waiver under Clean Air Act
A waiver under the Clean Air Act shall not be taken into account in determining whether the requirements of paragraph (1)(D) are met.
(d) Qualified refinery
For purposes of this section, the term "qualified refinery" means any refinery located in the United States which is designed to serve the primary purpose of processing liquid fuel from crude oil or qualified fuels (as defined in section 45K(c)), or directly from shale or tar sands.
(e) Production capacity
The requirements of this subsection are met if the portion of the qualified refinery—
(1) enables the existing qualified refinery to increase total volume output (determined without regard to asphalt or lube oil) by 5 percent or more on an average daily basis, or
(2) enables the existing qualified refinery to process shale, tar sands, or qualified fuels (as defined in section 45K(c)) at a rate which is equal to or greater than 25 percent of the total throughput of such qualified refinery on an average daily basis.
(f) Ineligible refinery property
No deduction shall be allowed under subsection (a) for any qualified refinery property—
(1) the primary purpose of which is for use as a topping plant, asphalt plant, lube oil facility, crude or product terminal, or blending facility, or
(2) which is built solely to comply with consent decrees or projects mandated by Federal, State, or local governments.
(g) Election to allocate deduction to cooperative owner
(1) In general
If—
(A) a taxpayer to which subsection (a) applies is an organization to which part I of subchapter T applies, and
(B) one or more persons directly holding an ownership interest in the taxpayer are organizations to which part I of subchapter T apply,
the taxpayer may elect to allocate all or a portion of the deduction allowable under subsection (a) to such persons. Such allocation shall be equal to the person's ratable share of the total amount allocated, determined on the basis of the person's ownership interest in the taxpayer. The taxable income of the taxpayer shall not be reduced under section 1382 by reason of any amount to which the preceding sentence applies.
(2) Form and effect of election
An election under paragraph (1) for any taxable year shall be made on a timely filed return for such year. Such election, once made, shall be irrevocable for such taxable year.
(3) Written notice to owners
If any portion of the deduction available under subsection (a) is allocated to owners under paragraph (1), the cooperative shall provide any owner receiving an allocation written notice of the amount of the allocation. Such notice shall be provided before the date on which the return described in paragraph (2) is due.
(h) Reporting
No deduction shall be allowed under subsection (a) to any taxpayer for any taxable year unless such taxpayer files with the Secretary a report containing such information with respect to the operation of the refineries of the taxpayer as the Secretary shall require.
(Added
Editorial Notes
References in Text
The date of the enactment of this section, referred to in subsec. (c)(1)(B), (2)(A), is the date of enactment of
The Clean Air Act, referred to in subsec. (c)(3), is act July 14, 1955, ch. 360,
Amendments
2008—Subsec. (c)(1)(B).
Subsec. (c)(1)(F).
Subsec. (d).
Subsec. (e)(2).
Statutory Notes and Related Subsidiaries
Effective Date of 2008 Amendment
Effective Date
§179D. Energy efficient commercial buildings deduction
(a) In general
There shall be allowed as a deduction an amount equal to the cost of energy efficient commercial building property placed in service during the taxable year.
(b) Maximum amount of deduction
(1) In general
The deduction under subsection (a) with respect to any building for any taxable year shall not exceed the excess (if any) of—
(A) the product of—
(i) the applicable dollar value, and
(ii) the square footage of the building, over
(B) the aggregate amount of the deductions under subsections (a) and (f) with respect to the building for the 3 taxable years immediately preceding such taxable year (or, in the case of any such deduction allowable to a person other than the taxpayer, for any taxable year ending during the 4-taxable-year period ending with such taxable year).
(2) Applicable dollar value
For purposes of paragraph (1)(A)(i), the applicable dollar value shall be an amount equal to $0.50 increased (but not above $1.00) by $0.02 for each percentage point by which the total annual energy and power costs for the building are certified to be reduced by a percentage greater than 25 percent.
(3) Increased deduction amount for certain property
(A) In general
In the case of any property which satisfies the requirements of subparagraph (B), paragraph (2) shall be applied by substituting "$2.50" for "$0.50", "$.10" for "$.02", and "$5.00" for "$1.00".
(B) Property requirements
In the case of any energy efficient commercial building property, energy efficient building retrofit property, or property installed pursuant to a qualified retrofit plan, such property shall meet the requirements of this subparagraph if—
(i) installation of such property begins prior to the date that is 60 days after the Secretary publishes guidance with respect to the requirements of paragraphs (4)(A) and (5), or
(ii) installation of such property satisfies the requirements of paragraphs (4)(A) and (5).
(4) Prevailing wage requirements
(A) In general
The requirements described in this subparagraph with respect to any property are that the taxpayer shall ensure that any laborers and mechanics employed by the taxpayer or any contractor or subcontractor in the installation of any property shall be paid wages at rates not less than the prevailing rates for construction, alteration, or repair of a similar character in the locality in which such property is located as most recently determined by the Secretary of Labor, in accordance with subchapter IV of
(B) Correction and penalty related to failure to satisfy wage requirements
Rules similar to the rules of section 45(b)(7)(B) shall apply.
(5) Apprenticeship requirements
Rules similar to the rules of section 45(b)(8) shall apply.
(6) Regulations
The Secretary shall issue such regulations or other guidance as the Secretary determines necessary to carry out the purposes of this subsection, including regulations or other guidance which provides for requirements for recordkeeping or information reporting for purposes of administering the requirements of this subsection.
(c) Definitions
For purposes of this section—
(1) Energy efficient commercial building property
The term "energy efficient commercial building property" means property—
(A) with respect to which depreciation (or amortization in lieu of depreciation) is allowable,
(B) which is installed on or in any building which is—
(i) located in the United States, and
(ii) within the scope of Reference Standard 90.1,
(C) which is installed as part of—
(i) the interior lighting systems,
(ii) the heating, cooling, ventilation, and hot water systems, or
(iii) the building envelope, and
(D) which is certified in accordance with subsection (d)(5) as being installed as part of a plan designed to reduce the total annual energy and power costs with respect to the interior lighting systems, heating, cooling, ventilation, and hot water systems of the building by 25 percent or more in comparison to a reference building which meets the minimum requirements of Reference Standard 90.1 using methods of calculation under subsection (d)(1).
(2) Reference Standard 90.1
The term "Reference Standard 90.1" means, with respect to any property, the more recent of—
(A) Standard 90.1-2007 published by the American Society of Heating, Refrigerating, and Air Conditioning Engineers and the Illuminating Engineering Society of North America, or
(B) the most recent Standard 90.1 published by the American Society of Heating, Refrigerating, and Air Conditioning Engineers and the Illuminating Engineering Society of North America for which the Department of Energy has issued a final determination and which has been affirmed by the Secretary, after consultation with the Secretary of Energy, for purposes of this section not later than the date that is 4 years before the date such property is placed in service.
(d) Special rules
(1) Methods of calculation
The Secretary, after consultation with the Secretary of Energy, shall promulgate regulations which describe in detail methods for calculating and verifying energy and power consumption and cost with respect to any property, based on the provisions of the most recent California Nonresidential Alternative Calculation Method Approval Manual which has been affirmed by the Secretary, after consultation with the Secretary of Energy, for purposes of this section not later than the date that is 4 years before the date such property is placed in service.
(2) Computer software
(A) In general
Any calculation under paragraph (1) shall be prepared by qualified computer software.
(B) Qualified computer software
For purposes of this paragraph, the term "qualified computer software" means software—
(i) for which the software designer has certified that the software meets all procedures and detailed methods for calculating energy and power consumption and costs as required by the Secretary,
(ii) which provides such forms as required to be filed by the Secretary in connection with energy efficiency of property and the deduction allowed under this section, and
(iii) which provides a notice form which documents the energy efficiency features of the building and its projected annual energy costs.
(3) Allocation of deduction by certain tax-exempt entities
(A) In general
In the case of energy efficient commercial building property installed on or in property owned by a specified tax-exempt entity, the Secretary shall promulgate regulations or guidance to allow the allocation of the deduction to the person primarily responsible for designing the property in lieu of the owner of such property. Such person shall be treated as the taxpayer for purposes of this section.
(B) Specified tax-exempt entity
For purposes of this paragraph, the term "specified tax-exempt entity" means—
(i) the United States, any State or political subdivision thereof, any possession of the United States, or any agency or instrumentality of any of the foregoing,
(ii) an Indian tribal government (as defined in section 30D(g)(9)) or Alaska Native Corporation (as defined in section 3 of the Alaska Native Claims Settlement Act (
(iii) any organization exempt from tax imposed by this chapter.
(4) Notice to owner
Each certification required under this section shall include an explanation to the building owner regarding the energy efficiency features of the building and its projected annual energy costs as provided in the notice under paragraph (2)(B)(iii).
(5) Certification
(A) In general
The Secretary shall prescribe the manner and method for the making of certifications under this section.
(B) Procedures
The Secretary shall include as part of the certification process procedures for inspection and testing by qualified individuals described in subparagraph (C) to ensure compliance of buildings with energy-savings plans and targets. Such procedures shall be comparable, given the difference between commercial and residential buildings, to the requirements in the Mortgage Industry National Accreditation Procedures for Home Energy Rating Systems.
(C) Qualified individuals
Individuals qualified to determine compliance shall be only those individuals who are recognized by an organization certified by the Secretary for such purposes.
(e) Basis reduction
For purposes of this subtitle, if a deduction is allowed under this section with respect to any energy efficient commercial building property, the basis of such property shall be reduced by the amount of the deduction so allowed.
(f) Alternative deduction for energy efficient building retrofit property
(1) In general
In the case of a taxpayer which elects (at such time and in such manner as the Secretary may provide) the application of this subsection with respect to any qualified building, there shall be allowed as a deduction for the taxable year which includes the date of the qualifying final certification with respect to the qualified retrofit plan of such building, an amount equal to the lesser of—
(A) the excess described in subsection (b) (determined by substituting "energy use intensity" for "total annual energy and power costs" in paragraph (2) thereof), or
(B) the aggregate adjusted basis (determined after taking into account all adjustments with respect to such taxable year other than the reduction under subsection (e)) of energy efficient building retrofit property placed in service by the taxpayer pursuant to such qualified retrofit plan.
(2) Qualified retrofit plan
For purposes of this subsection, the term "qualified retrofit plan" means a written plan prepared by a qualified professional which specifies modifications to a building which, in the aggregate, are expected to reduce such building's energy use intensity by 25 percent or more in comparison to the baseline energy use intensity of such building. Such plan shall provide for a qualified professional to—
(A) as of any date during the 1-year period ending on the date on which the property installed pursuant to such plan is placed in service, certify the energy use intensity of such building as of such date,
(B) certify the status of property installed pursuant to such plan as meeting the requirements of subparagraphs (B) and (C) of paragraph (3), and
(C) as of any date that is more than 1 year after the date on which the property installed pursuant to such plan is placed in service, certify the energy use intensity of such building as of such date.
(3) Energy efficient building retrofit property
For purposes of this subsection, the term "energy efficient building retrofit property" means property—
(A) with respect to which depreciation (or amortization in lieu of depreciation) is allowable,
(B) which is installed on or in any qualified building,
(C) which is installed as part of—
(i) the interior lighting systems,
(ii) the heating, cooling, ventilation, and hot water systems, or
(iii) the building envelope, and
(D) which is certified in accordance with paragraph (2)(B) as meeting the requirements of subparagraphs (B) and (C).
(4) Qualified building
For purposes of this subsection, the term "qualified building" means any building which—
(A) is located in the United States, and
(B) was originally placed in service not less than 5 years before the establishment of the qualified retrofit plan with respect to such building.
(5) Qualifying final certification
For purposes of this subsection, the term "qualifying final certification" means, with respect to any qualified retrofit plan, the certification described in paragraph (2)(C) if the energy use intensity certified in such certification is not more than 75 percent of the baseline energy use intensity of the building.
(6) Baseline energy use intensity
(A) In general
For purposes of this subsection, the term "baseline energy use intensity" means the energy use intensity certified under paragraph (2)(A), as adjusted to take into account weather.
(B) Determination of adjustment
For purposes of subparagraph (A), the adjustments described in such subparagraph shall be determined in such manner as the Secretary may provide.
(7) Other definitions
For purposes of this subsection—
(A) Energy use intensity
The term "energy use intensity" means the annualized, measured site energy use intensity determined in accordance with such regulations or other guidance as the Secretary may provide and measured in British thermal units.
(B) Qualified professional
The term "qualified professional" means an individual who is a licensed architect or a licensed engineer and meets such other requirements as the Secretary may provide.
(8) Coordination with deduction otherwise allowed under subsection (a)
(A) In general
In the case of any building with respect to which an election is made under paragraph (1), the term "energy efficient commercial building property" shall not include any energy efficient building retrofit property with respect to which a deduction is allowable under this subsection.
(B) Certain rules not applicable
(i) In general
Except as provided in clause (ii), subsection (d) shall not apply for purposes of this subsection.
(ii) Allocation of deduction by certain tax-exempt entities
Rules similar to subsection (d)(3) shall apply for purposes of this subsection.
(g) Inflation adjustment
In the case of a taxable year beginning after 2022, each dollar amount in subsection (b) shall be increased by an amount equal to—
(1) such dollar amount, multiplied by
(2) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting "calendar year 2021" for "calendar year 2016" in subparagraph (A)(ii) thereof.
Any increase determined under the preceding sentence which is not a multiple of 1 cent shall be rounded to the nearest cent.
(h) Regulations
The Secretary shall promulgate such regulations as necessary—
(1) to take into account new technologies regarding energy efficiency and renewable energy for purposes of determining energy efficiency and savings under this section, and
(2) to provide for a recapture of the deduction allowed under this section if the plan described in subsection (c)(1)(D) is not fully implemented.
(Added
Inflation Adjusted Items for Certain Years
For inflation adjustment of certain items in this section, see Revenue Procedures listed in a table under
Editorial Notes
Amendments
2022—Subsec. (b).
"(1) the product of—
"(A) $1.80, and
"(B) the square footage of the building, over
"(2) the aggregate amount of the deductions under subsection (a) with respect to the building for all prior taxable years."
Subsec. (c)(1)(D).
Subsec. (c)(2).
"(A) Standard 90.1-2007 published by the American Society of Heating, Refrigerating, and Air Conditioning Engineers and the Illuminating Engineering Society of North America, or
"(B) the most recent"
for "the most recent".
Subsec. (c)(2)(B).
Subsec. (d).
Subsec. (d)(1).
Subsec. (d)(2)(A).
Subsec. (d)(3).
Subsec. (d)(4).
Subsec. (f).
Subsec. (g).
Subsec. (g)(2).
Subsec. (h)(2).
2020—Subsec. (c)(1)(B)(ii), (D).
Subsec. (c)(2).
Subsec. (d)(2).
Subsecs. (g), (h).
2019—Subsec. (h).
2018—Subsec. (d)(1)(B).
Subsec. (h).
2015—Subsec. (c)(1)(B)(ii), (D).
Subsec. (c)(2).
Subsec. (f)(1).
Subsec. (f)(2)(C)(i).
Subsec. (h).
2014—Subsec. (h).
2008—Subsec. (h).
2006—Subsec. (h).
Statutory Notes and Related Subsidiaries
Effective Date of 2022 Amendment
"(1)
"(2)
Effective Date of 2020 Amendment
Effective Date of 2019 Amendment
Effective Date of 2018 Amendment
Effective Date of 2015 Amendment
Effective Date of 2014 Amendment
Effective Date
1 So in original. Another closing parenthesis probably should precede the comma.
§179E. Election to expense advanced mine safety equipment
(a) Treatment as expenses
A taxpayer may elect to treat 50 percent of the cost of any qualified advanced mine safety equipment property as an expense which is not chargeable to capital account. Any cost so treated shall be allowed as a deduction for the taxable year in which the qualified advanced mine safety equipment property is placed in service.
(b) Election
(1) In general
An election under this section for any taxable year shall be made on the taxpayer's return of the tax imposed by this chapter for the taxable year. Such election shall specify the advanced mine safety equipment property to which the election applies and shall be made in such manner as the Secretary may by regulations prescribe.
(2) Election irrevocable
Any election made under this section may not be revoked except with the consent of the Secretary.
(c) Qualified advanced mine safety equipment property
For purposes of this section, the term "qualified advanced mine safety equipment property" means any advanced mine safety equipment property for use in any underground mine located in the United States—
(1) the original use of which commences with the taxpayer, and
(2) which is placed in service by the taxpayer after the date of the enactment of this section.
(d) Advanced mine safety equipment property
For purposes of this section, the term "advanced mine safety equipment property" means any of the following:
(1) Emergency communication technology or device which is used to allow a miner to maintain constant communication with an individual who is not in the mine.
(2) Electronic identification and location device which allows an individual who is not in the mine to track at all times the movements and location of miners working in or at the mine.
(3) Emergency oxygen-generating, self-rescue device which provides oxygen for at least 90 minutes.
(4) Pre-positioned supplies of oxygen which (in combination with self-rescue devices) can be used to provide each miner on a shift, in the event of an accident or other event which traps the miner in the mine or otherwise necessitates the use of such a self-rescue device, the ability to survive for at least 48 hours.
(5) Comprehensive atmospheric monitoring system which monitors the levels of carbon monoxide, methane, and oxygen that are present in all areas of the mine and which can detect smoke in the case of a fire in a mine.
(e) Coordination with section 179
No expenditures shall be taken into account under subsection (a) with respect to the portion of the cost of any property specified in an election under section 179.
(f) Reporting
No deduction shall be allowed under subsection (a) to any taxpayer for any taxable year unless such taxpayer files with the Secretary a report containing such information with respect to the operation of the mines of the taxpayer as the Secretary shall require.
(g) Termination
This section shall not apply to property placed in service after December 31, 2017.
(Added
Editorial Notes
References in Text
The date of the enactment of this section, referred to in subsec. (c)(2), is the date of enactment of
Amendments
2018—Subsec. (g).
2015—Subsec. (g).
2014—Subsec. (g).
2013—Subsec. (g).
2010—Subsec. (g).
2008—Subsec. (g).
Statutory Notes and Related Subsidiaries
Effective Date of 2018 Amendment
Effective Date of 2015 Amendment
Effective Date of 2014 Amendment
Effective Date of 2013 Amendment
Effective Date of 2010 Amendment
Effective Date
§180. Expenditures by farmers for fertilizer, etc.
(a) In general
A taxpayer engaged in the business of farming may elect to treat as expenses which are not chargeable to capital account expenditures (otherwise chargeable to capital account) which are paid or incurred by him during the taxable year for the purchase or acquisition of fertilizer, lime, ground limestone, marl, or other materials to enrich, neutralize, or condition land used in farming, or for the application of such materials to such land. The expenditures so treated shall be allowed as a deduction.
(b) Land used in farming
For purposes of subsection (a), the term "land used in farming" means land used (before or simultaneously with the expenditures described in subsection (a)) by the taxpayer or his tenant for the production of crops, fruits, or other agricultural products or for the sustenance of livestock.
(c) Election
The election under subsection (a) for any taxable year shall be made within the time prescribed by law (including extensions thereof) for filing the return for such taxable year. Such election shall be made in such manner as the Secretary may by regulations prescribe. Such election may not be revoked except with the consent of the Secretary.
(Added
Editorial Notes
Amendments
1976—Subsec. (c).
Statutory Notes and Related Subsidiaries
Effective Date
§181. Treatment of certain qualified film and television and live theatrical productions
(a) Election to treat costs as expenses
(1) In general
A taxpayer may elect to treat the cost of any qualified film or television production, and any qualified live theatrical production, as an expense which is not chargeable to capital account. Any cost so treated shall be allowed as a deduction.
(2) Dollar limitation
(A) In general
Paragraph (1) shall not apply to so much of the aggregate cost of any qualified film or television production or any qualified live theatrical production as exceeds $15,000,000.
(B) Higher dollar limitation for productions in certain areas
In the case of any qualified film or television production or any qualified live theatrical production the aggregate cost of which is significantly incurred in an area eligible for designation as—
(i) a low-income community under section 45D, or
(ii) a distressed county or isolated area of distress by the Delta Regional Authority established under
subparagraph (A) shall be applied by substituting "$20,000,000" for "$15,000,000".
(b) No other deduction or amortization deduction allowable
With respect to the basis of any qualified film or television production or any qualified live theatrical production to which an election is made under subsection (a), no other depreciation or amortization deduction shall be allowable.
(c) Election
(1) In general
An election under this section with respect to any qualified film or television production or any qualified live theatrical production shall be made in such manner as prescribed by the Secretary and by the due date (including extensions) for filing the taxpayer's return of tax under this chapter for the taxable year in which costs of the production are first incurred.
(2) Revocation of election
Any election made under this section may not be revoked without the consent of the Secretary.
(d) Qualified film or television production
For purposes of this section—
(1) In general
The term "qualified film or television production" means any production described in paragraph (2) if 75 percent of the total compensation of the production is qualified compensation.
(2) Production
(A) In general
A production is described in this paragraph if such production is property described in section 168(f)(3).
(B) Special rules for television series
In the case of a television series—
(i) each episode of such series shall be treated as a separate production, and
(ii) only the first 44 episodes of such series shall be taken into account.
(C) Exception
A production is not described in this paragraph if records are required under
(3) Qualified compensation
For purposes of paragraph (1)—
(A) In general
The term "qualified compensation" means compensation for services performed in the United States by actors, production personnel, directors, and producers.
(B) Participations and residuals excluded
The term "compensation" does not include participations and residuals (as defined in section 167(g)(7)(B)).
(e) Qualified live theatrical production
For purposes of this section—
(1) In general
The term "qualified live theatrical production" means any production described in paragraph (2) if 75 percent of the total compensation of the production is qualified compensation (as defined in subsection (d)(3)).
(2) Production
(A) In general
A production is described in this paragraph if such production is a live staged production of a play (with or without music) which is derived from a written book or script and is produced or presented by a taxable entity in any venue which has an audience capacity of not more than 3,000 or a series of venues the majority of which have an audience capacity of not more than 3,000.
(B) Touring companies, etc.
In the case of multiple live staged productions—
(i) for which the election under this section would be allowable to the same taxpayer, and
(ii) which are—
(I) separate phases of a production, or
(II) separate simultaneous stagings of the same production in different geographical locations (not including multiple performance locations of any one touring production),
each such live staged production shall be treated as a separate production.
(C) Phase
For purposes of subparagraph (B), the term "phase" with respect to any qualified live theatrical production refers to each of the following, but only if each of the following is treated by the taxpayer as a separate activity for all purposes of this title:
(i) The initial staging of a live theatrical production.
(ii) Subsequent additional stagings or touring of such production which are produced by the same producer as the initial staging.
(D) Seasonal productions
(i) In general
In the case of a live staged production not described in subparagraph (B) which is produced or presented by a taxable entity for not more than 10 weeks of the taxable year, subparagraph (A) shall be applied by substituting "6,500" for "3,000".
(ii) Short taxable years
For purposes of clause (i), in the case of any taxable year of less than 12 months, the number of weeks for which a production is produced or presented shall be annualized by multiplying the number of weeks the production is produced or presented during such taxable year by 12 and dividing the result by the number of months in such taxable year.
(E) Exception
A production is not described in this paragraph if such production includes or consists of any performance of conduct described in
(f) Application of certain other rules
For purposes of this section, rules similar to the rules of subsections (b)(2) and (c)(4) of section 194 shall apply.
(g) Termination
This section shall not apply to qualified film and television productions or qualified live theatrical productions commencing after December 31, 2025.
(Added
Editorial Notes
Prior Provisions
A prior section 181,
Amendments
2020—Subsec. (g).
2019—Subsec. (g).
2018—Subsec. (g).
2015—
Subsec. (a)(1).
Subsecs. (a)(2)(A), (B), (b), (c)(1).
Subsec. (e).
Subsec. (f).
Subsec. (g).
2014—Subsec. (f).
2013—Subsec. (f).
2010—Subsec. (f).
2008—Subsec. (a)(2)(A).
Subsec. (d)(3)(A).
Subsec. (f).
2005—Subsec. (d)(2).
Statutory Notes and Related Subsidiaries
Effective Date of 2020 Amendment
Effective Date of 2019 Amendment
Effective Date of 2018 Amendment
Effective Date of 2015 Amendment
"(1)
"(2)
"(A)
"(B)
Effective Date of 2014 Amendment
Effective Date of 2013 Amendment
Effective Date of 2010 Amendment
Effective Date of 2008 Amendment
"(1)
"(2)
Effective Date of 2005 Amendment
Amendment by
Effective Date
[§182. Repealed. Pub. L. 99–514, title IV, §402(a), Oct. 22, 1986, 100 Stat. 2221 ]
Section, added
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
§183. Activities not engaged in for profit
(a) General rule
In the case of an activity engaged in by an individual or an S corporation, if such activity is not engaged in for profit, no deduction attributable to such activity shall be allowed under this chapter except as provided in this section.
(b) Deductions allowable
In the case of an activity not engaged in for profit to which subsection (a) applies, there shall be allowed—
(1) the deductions which would be allowable under this chapter for the taxable year without regard to whether or not such activity is engaged in for profit, and
(2) a deduction equal to the amount of the deductions which would be allowable under this chapter for the taxable year only if such activity were engaged in for profit, but only to the extent that the gross income derived from such activity for the taxable year exceeds the deductions allowable by reason of paragraph (1).
(c) Activity not engaged in for profit defined
For purposes of this section, the term "activity not engaged in for profit" means any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.
(d) Presumption
If the gross income derived from an activity for 3 or more of the taxable years in the period of 5 consecutive taxable years which ends with the taxable year exceeds the deductions attributable to such activity (determined without regard to whether or not such activity is engaged in for profit), then, unless the Secretary establishes to the contrary, such activity shall be presumed for purposes of this chapter for such taxable year to be an activity engaged in for profit. In the case of an activity which consists in major part of the breeding, training, showing, or racing of horses, the preceding sentence shall be applied by substituting "2" for "3" and "7" for "5".
(e) Special rule
(1) In general
A determination as to whether the presumption provided by subsection (d) applies with respect to any activity shall, if the taxpayer so elects, not be made before the close of the fourth taxable year (sixth taxable year, in the case of an activity described in the last sentence of such subsection) following the taxable year in which the taxpayer first engages in the activity.
(2) Initial period
If the taxpayer makes an election under paragraph (1), the presumption provided by subsection (d) shall apply to each taxable year in the 5-taxable year (or 7-taxable year) period beginning with the taxable year in which the taxpayer first engages in the activity, if the gross income derived from the activity for 3 (or 2 if applicable) or more of the taxable years in such period exceeds the deductions attributable to the activity (determined without regard to whether or not the activity is engaged in for profit).
(3) Election
An election under paragraph (1) shall be made at such time and manner, and subject to such terms and conditions, as the Secretary may prescribe.
(4) Time for assessing deficiency attributable to activity
If a taxpayer makes an election under paragraph (1) with respect to an activity, the statutory period for the assessment of any deficiency attributable to such activity shall not expire before the expiration of 2 years after the date prescribed by law (determined without extensions) for filing the return of tax under
(Added
Editorial Notes
Amendments
2014—Subsec. (e)(1).
1988—Subsec. (e)(2).
1986—Subsec. (d).
1982—Subsec. (a).
1976—Subsecs. (d), (e)(3).
Subsec. (e)(4).
1971—Subsec. (e).
Statutory Notes and Related Subsidiaries
Effective Date of 2014 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by
Effective Date of 1982 Amendment
Amendment by
Effective Date of 1976 Amendment
Effective Date of 1971 Amendment
Effective Date
[§184. Repealed. Pub. L. 101–508, title XI, §11801(a)(12), Nov. 5, 1990, 104 Stat. 1388–520 ]
Section, added
Statutory Notes and Related Subsidiaries
Savings Provision
For provisions that nothing in repeal by
[§185. Repealed. Pub. L. 99–514, title II, §242(a), Oct. 22, 1986, 100 Stat. 2181 ]
Section, added
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
"(1)
"(2)
"(A) pursuant to a binding contract entered into before March 2, 1986, or
"(B) with respect to any improvement commenced before March 2, 1986, but only if not less than the lesser of $1,000,000 or 5 percent of the aggregate cost of such improvement has been incurred or committed before such date.
The preceding sentence shall not apply to any expenditure with respect to an improvement placed in service after December 31, 1987."
§186. Recoveries of damages for antitrust violations, etc.
(a) Allowance of deduction
If a compensatory amount which is included in gross income is received or accrued during the taxable year for a compensable injury, there shall be allowed as a deduction for the taxable year an amount equal to the lesser of—
(1) the amount of such compensatory amount, or
(2) the amount of the unrecovered losses sustained as a result of such compensable injury.
(b) Compensable injury
For purposes of this section, the term "compensable injury" means—
(1) injuries sustained as a result of an infringement of a patent issued by the United States,
(2) injuries sustained as a result of a breach of contract or a breach of fiduciary duty or relationship, or
(3) injuries sustained in business, or to property, by reason of any conduct forbidden in the antitrust laws for which a civil action may be brought under section 4 of the Act entitled "An Act to supplement existing laws against unlawful restraints and monopolies, and for other purposes", approved October 15, 1914 (commonly known as the Clayton Act).
(c) Compensatory amount
For purposes of this section, the term "compensatory amount" means the amount received or accrued during the taxable year as damages as a result of an award in, or in settlement of, a civil action for recovery for a compensable injury, reduced by any amounts paid or incurred in the taxable year in securing such award or settlement.
(d) Unrecovered losses
(1) In general
For purposes of this section, the amount of any unrecovered loss sustained as a result of any compensable injury is—
(A) the sum of the amount of the net operating losses (as determined under section 172) for each taxable year in whole or in part within the injury period, to the extent that such net operating losses are attributable to such compensable injury, reduced by
(B) the sum of—
(i) the amount of the net operating losses described in subparagraph (A) which were allowed for any prior taxable year as a deduction under section 172 as a net operating loss carryback or carryover to such taxable year, and
(ii) the amounts allowed as a deduction under subsection (a) for any prior taxable year for prior recoveries of compensatory amounts for such compensable injury.
(2) Injury period
For purposes of paragraph (1), the injury period is—
(A) with respect to any infringement of a patent, the period in which such infringement occurred,
(B) with respect to a breach of contract or breach of fiduciary duty or relationship, the period during which amounts would have been received or accrued but for the breach of contract or breach of fiduciary duty or relationship, and
(C) with respect to injuries sustained by reason of any conduct forbidden in the antitrust laws, the period in which such injuries were sustained.
(3) Net operating losses attributable to compensable injuries
For purposes of paragraph (1)—
(A) a net operating loss for any taxable year shall be treated as attributable to a compensable injury to the extent of the compensable injury sustained during such taxable year, and
(B) if only a portion of a net operating loss for any taxable year is attributable to a compensable injury, such portion shall (in applying section 172 for purposes of this section) be considered to be a separate net operating loss for such year to be applied after the other portion of such net operating loss.
(e) Effect on net operating loss carryovers
If for the taxable year in which a compensatory amount is received or accrued any portion of a net operating loss carryover to such year is attributable to the compensable injury for which such amount is received or accrued, such portion of such net operating loss carryover shall be reduced by an amount equal to—
(1) the deduction allowed under subsection (a) with respect to such compensatory amount, reduced by
(2) any portion of the unrecovered losses sustained as a result of the compensable injury with respect to which the period for carryover under section 172 has expired.
(Added
Editorial Notes
References in Text
Section 4 of the Clayton Act, referred to in subsec. (b)(3), is classified to
Statutory Notes and Related Subsidiaries
Effective Date
[§187. Repealed. Pub. L. 94–455, title XIX, §1901(a)(31), Oct. 4, 1976, 90 Stat. 1769 ]
Section, added
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
Repeal effective for taxable years beginning after Dec. 31, 1976, see section 1901(d) of
[§188. Repealed. Pub. L. 101–508, title XI, §11801(a)(13), Nov. 5, 1990, 104 Stat. 1388–520 ]
Section, added
Statutory Notes and Related Subsidiaries
Savings Provision
For provisions that nothing in repeal by
[§189. Repealed. Pub. L. 99–514, title VIII, §803(b)(1), Oct. 22, 1986, 100 Stat. 2355 ]
Section, added
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
If any interest costs incurred after Dec. 31, 1986, are attributable to costs incurred before Jan. 1, 1987, the repeal of this section is applicable to such interest costs only to the extent such interest costs are attributable to costs which were required to be capitalized under section 263 of the Internal Revenue Code of 1954 and which would have been taken into account in applying this section (as in effect before its repeal) or, if applicable, section 266 of such Code, see section 7831(d)(2) of
Repeal applicable to costs incurred after Dec. 31, 1986, in taxable years ending after such date, except as otherwise provided, see section 803(d) of
§190. Expenditures to remove architectural and transportation barriers to the handicapped and elderly
(a) Treatment as expenses
(1) In general
A taxpayer may elect to treat qualified architectural and transportation barrier removal expenses which are paid or incurred by him during the taxable year as expenses which are not chargeable to capital account. The expenditures so treated shall be allowed as a deduction.
(2) Election
An election under paragraph (1) shall be made at such time and in such manner as the Secretary prescribes by regulations.
(b) Definitions
For purposes of this section—
(1) Architectural and transportation barrier removal expenses
The term "architectural and transportation barrier removal expenses" means an expenditure for the purpose of making any facility or public transportation vehicle owned or leased by the taxpayer for use in connection with his trade or business more accessible to, and usable by, handicapped and elderly individuals.
(2) Qualified architectural and transportation barrier removal expenses
The term "qualified architectural and transportation barrier removal expense" means, with respect to any such facility or public transportation vehicle, an architectural or transportation barrier removal expense with respect to which the taxpayer establishes, to the satisfaction of the Secretary, that the resulting removal of any such barrier meets the standards promulgated by the Secretary with the concurrence of the Architectural and Transportation Barriers Compliance Board and set forth in regulations prescribed by the Secretary.
(3) Handicapped individual
The term "handicapped individual" means any individual who has a physical or mental disability (including, but not limited to, blindness or deafness) which for such individual constitutes or results in a functional limitation to employment, or who has any physical or mental impairment (including, but not limited to, a sight or hearing impairment) which substantially limits one or more major life activities of such individual.
(c) Limitation
The deduction allowed by subsection (a) for any taxable year shall not exceed $15,000.
(Added
Editorial Notes
Amendments
1990—Subsec. (c).
Subsec. (d).
1986—Subsec. (d)(2).
1984—Subsec. (c).
Subsec. (d).
Statutory Notes and Related Subsidiaries
Effective Date of 1990 Amendment
Amendment by section 11611(c) of
Effective Date of 1984 Amendment
Effective Date
Savings Provision
For provisions that nothing in amendment by section 11801(a)(14) of
[§191. Repealed. Pub. L. 97–34, title II, §212(d)(1), Aug. 13, 1981, 95 Stat. 239 ]
Section, added
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
Repeal applicable to expenditures incurred after Dec. 31, 1981, in taxable years ending after such date, with exceptions, see section 212(e) of
§192. Contributions to black lung benefit trust
(a) Allowance of deduction
There is allowed as a deduction for the taxable year an amount equal to the sum of the amounts contributed by the taxpayer during the taxable year to or under a trust or trusts described in section 501(c)(21).
(b) Limitation
The maximum amount of the deduction allowed by subsection (a) for any taxpayer for any taxable year shall not exceed the greater of—
(1) the amount necessary to fund (with level funding) the remaining unfunded liability of the taxpayer for black lung claims filed (or expected to be filed) by (or with respect to) past or present employees of the taxpayer, or
(2) the aggregate amount necessary to increase each trust described in section 501(c)(21) to the amount required to pay all amounts payable out of such trust for the taxable year.
(c) Special rules
(1) Method of determining amounts referred to in subsection (b)
(A) In general
The amounts described in subsection (b) shall be determined by using reasonable actuarial methods and assumptions which are not inconsistent with regulations prescribed by the Secretary.
(B) Funding period
Except as provided in subparagraph (C), the funding period for purposes of subsection (b)(1) shall be the greater of—
(i) the average remaining working life of miners who are present employees of the taxpayer, or
(ii) 10 taxable years.
For purposes of the preceding sentence, the term "miner" has the same meaning as such term has when used in section 402(d) of the Black Lung Benefits Act (
(C) Different funding periods
To the extent that—
(i) regulations prescribed by the Secretary provide for a different period, or
(ii) the Secretary consents to a different period proposed by the taxpayer,
such different period shall be substituted for the funding period provided in subparagraph (B).
(2) Benefit payments taken into account
In determining the amounts described in subsection (b), only those black lung benefit claims the payment of which is expected to be made from the trust shall be taken into account.
(3) Time when contributions deemed made
For purposes of this section, a taxpayer shall be deemed to have made a payment of a contribution on the last day of a taxable year if the payment is on account of that taxable year and is made not later than the time prescribed by law for filing the return for that taxable year (including extensions thereof).
(4) Contributions to be in cash or certain other items
No deduction shall be allowed under subsection (a) with respect to any contribution to a trust described in section 501(c)(21) other than a contribution in cash or in items in which such trust may invest under subclause (II) of section 501(c)(21)(A)(ii).
(5) Denial of section 162 deduction with respect to liability
No deduction shall be allowed under section 162(a) with respect to any liability taken into account in determining the deduction under subsection (a) of this section of the taxpayer (or a predecessor).
(d) Carryover of excess contributions
If the amount of the deduction determined under subsection (a) for the taxable year (without regard to the limitation imposed by subsection (b)) with respect to a trust exceeds the limitation imposed by subsection (b) for the taxable year, the excess shall be carried over to the succeeding taxable year and treated as contributed to the trust during that year.
(e) Definition of black lung benefit claim
For purposes of this section, the term "black lung benefit claim" means a claim for compensation for disability or death due to pneumoconiosis under part C of title IV of the Federal Mine Safety and Health Act of 1977 or under any State law providing for such compensation.
(Added
Editorial Notes
References in Text
The Federal Mine Safety and Health Act of 1977, referred to in subsec. (e), is
Amendments
1992—Subsec. (c)(4).
1980—Subsec. (e).
1978—Subsec. (b).
Subsec. (c)(1).
Subsec. (c)(5).
Statutory Notes and Related Subsidiaries
Effective Date of 1992 Amendment
Effective Date of 1980 Amendment
Effective Date of 1978 Amendment
Effective Date
§193. Tertiary injectants
(a) Allowance of deduction
There shall be allowed as a deduction for the taxable year an amount equal to the qualified tertiary injectant expenses of the taxpayer for tertiary injectants injected during such taxable year.
(b) Qualified tertiary injectant expenses
For purposes of this section—
(1) In general
The term "qualified tertiary injectant expenses" means any cost paid or incurred (whether or not chargeable to capital account) for any tertiary injectant (other than a hydrocarbon injectant which is recoverable) which is used as a part of a tertiary recovery method.
(2) Hydrocarbon injectant
The term "hydrocarbon injectant" includes natural gas, crude oil, and any other injectant which is comprised of more than an insignificant amount of natural gas or crude oil. The term does not include any tertiary injectant which is hydrocarbon-based, or a hydrocarbon-derivative, and which is comprised of no more than an insignificant amount of natural gas or crude oil. For purposes of this paragraph, that portion of a hydrocarbon injectant which is not a hydrocarbon shall not be treated as a hydrocarbon injectant.
(3) Tertiary recovery method
The term "tertiary recovery method" means—
(A) any method which is described in subparagraphs (1) through (9) of section 212.78(c) of the June 1979 energy regulations (as defined by section 4996(b)(8)(C) as in effect before its repeal), or
(B) any other method to provide tertiary enhanced recovery which is approved by the Secretary for purposes of this section.
(c) Application with other deductions
No deduction shall be allowed under subsection (a) with respect to any expenditure—
(1) with respect to which the taxpayer has made an election under section 263(c), or
(2) with respect to which a deduction is allowed or allowable to the taxpayer under any other provision of this chapter.
(Added
Editorial Notes
References in Text
Section 4996(b)(8)(C), referred to in subsec. (b)(3)(A), was repealed by
Amendments
1988—Subsec. (b)(3)(A).
1983—Subsec. (b)(1).
Statutory Notes and Related Subsidiaries
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1983 Amendment
Amendment by
Effective Date
§194. Treatment of reforestation expenditures
(a) Allowance of deduction
In the case of any qualified timber property with respect to which the taxpayer has made (in accordance with regulations prescribed by the Secretary) an election under this subsection, the taxpayer shall be entitled to a deduction with respect to the amortization of the amortizable basis of qualified timber property based on a period of 84 months. Such amortization deduction shall be an amount, with respect to each month of such period within the taxable year, equal to the amortizable basis at the end of such month divided by the number of months (including the month for which the deduction is computed) remaining in the period. Such amortizable basis at the end of the month shall be computed without regard to the amortization deduction for such month. The 84-month period shall begin on the first day of the first month of the second half of the taxable year in which the amortizable basis is acquired.
(b) Treatment as expenses
(1) Election to treat certain reforestation expenditures as expenses
(A) In general
In the case of any qualified timber property with respect to which the taxpayer has made (in accordance with regulations prescribed by the Secretary) an election under this subsection, the taxpayer shall treat reforestation expenditures which are paid or incurred during the taxable year with respect to such property as an expense which is not chargeable to capital account. The reforestation expenditures so treated shall be allowed as a deduction.
(B) Dollar limitation
The aggregate amount of reforestation expenditures which may be taken into account under subparagraph (A) with respect to each qualified timber property for any taxable year shall not exceed—
(i) except as provided in clause (ii) or (iii), $10,000,
(ii) in the case of a separate return by a married individual (as defined in section 7703), $5,000, and
(iii) in the case of a trust, zero.
(2) Allocation of dollar limit
(A) Controlled group
For purposes of applying the dollar limitation under paragraph (1)(B)—
(i) all component members of a controlled group shall be treated as one taxpayer, and
(ii) the Secretary shall, under regulations prescribed by him, apportion such dollar limitation among the component members of such controlled group.
For purposes of the preceding sentence, the term "controlled group" has the meaning assigned to it by section 1563(a), except that the phrase "more than 50 percent" shall be substituted for the phrase "at least 80 percent" each place it appears in section 1563(a)(1).
(B) Partnerships and S corporations
In the case of a partnership, the dollar limitation contained in paragraph (1)(B) shall apply with respect to the partnership and with respect to each partner. A similar rule shall apply in the case of an S corporation and its shareholders.
(c) Definitions and special rule
For purposes of this section—
(1) Qualified timber property
The term "qualified timber property" means a woodlot or other site located in the United States which will contain trees in significant commercial quantities and which is held by the taxpayer for the planting, cultivating, caring for, and cutting of trees for sale or use in the commercial production of timber products.
(2) Amortizable basis
The term "amortizable basis" means that portion of the basis of the qualified timber property attributable to reforestation expenditures which have not been taken into account under subsection (b).
(3) Reforestation expenditures
(A) In general
The term "reforestation expenditures" means direct costs incurred in connection with forestation or reforestation by planting or artificial or natural seeding, including costs—
(i) for the preparation of the site;
(ii) of seeds or seedlings; and
(iii) for labor and tools, including depreciation of equipment such as tractors, trucks, tree planters, and similar machines used in planting or seeding.
(B) Cost-sharing programs
Reforestation expenditures shall not include any expenditures for which the taxpayer has been reimbursed under any governmental reforestation cost-sharing program unless the amounts reimbursed have been included in the gross income of the taxpayer.
(4) Treatment of trusts and estates
The aggregate amount of reforestation expenditures incurred by any trust or estate shall be apportioned between the income beneficiaries and the fiduciary under regulations prescribed by the Secretary. Any amount so apportioned to a beneficiary shall be taken into account as expenditures incurred by such beneficiary in applying this section to such beneficiary.
(5) Application with other deductions
No deduction shall be allowed under any other provision of this chapter with respect to any expenditure with respect to which a deduction is allowed or allowable under this section to the taxpayer.
(d) Life tenant and remainderman
In the case of property held by one person for life with remainder to another person, the deduction under this section shall be computed as if the life tenant were the absolute owner of the property and shall be allowed to the life tenant.
(Added
Editorial Notes
Prior Provisions
A prior section 194 was renumbered
Amendments
2005—Subsec. (b)(1)(B).
Subsec. (c)(4).
"(A)
"(B)
2004—
Subsec. (b).
Subsec. (b)(1).
Subsec. (b)(2).
Subsec. (b)(3), (4).
Subsec. (c)(2).
Subsec. (c)(4), (5).
1986—Subsec. (b)(1).
1982—Subsec. (b)(2)(B).
Statutory Notes and Related Subsidiaries
Effective Date of 2005 Amendment
Amendments by
Effective Date of 2004 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by
Effective Date of 1982 Amendment
Amendment by
Effective Date
§194A. Contributions to employer liability trusts
(a) Allowance of deduction
There shall be allowed as a deduction for the taxable year an amount equal to the amount—
(1) which is contributed by an employer to a trust described in section 501(c)(22) (relating to withdrawal liability payment fund) which meets the requirements of section 4223(h) of the Employee Retirement Income Security Act of 1974, and
(2) which is properly allocable to such taxable year.
(b) Allocation to taxable year
In the case of a contribution described in subsection (a) which relates to any specified period of time which includes more than one taxable year, the amount properly allocable to any taxable year in such period shall be determined by prorating such amounts to such taxable years under regulations prescribed by the Secretary.
(c) Disallowance of deduction
No deduction shall be allowed under subsection (a) with respect to any contribution described in subsection (a) which does not relate to any specified period of time.
(Added
Editorial Notes
References in Text
Section 4223(h) of the Employee Retirement Income Security Act of 1974, referred to in subsec. (a), is classified to
Statutory Notes and Related Subsidiaries
Effective Date of 1983 Amendment
Effective Date
"(a) Except as otherwise provided in this section, the amendments made by this title [amending
"(b) Subpart C of part I of subchapter D of
"(1) the date on which the last collective-bargaining agreement providing for employer contributions under the plan, which was in effect on the date of the enactment of this Act [Sept. 26, 1980], expires, without regard to extensions agreed to after such date of enactment, or
"(2) 3 years after the date of the enactment of this Act [Sept. 26, 1980].
"(c) The amendments made by section 209 [enacting this section and amending
§195. Start-up expenditures
(a) Capitalization of expenditures
Except as otherwise provided in this section, no deduction shall be allowed for start-up expenditures.
(b) Election to deduct
(1) Allowance of deduction
If a taxpayer elects the application of this subsection with respect to any start-up expenditures—
(A) the taxpayer shall be allowed a deduction for the taxable year in which the active trade or business begins in an amount equal to the lesser of—
(i) the amount of start-up expenditures with respect to the active trade or business, or
(ii) $5,000, reduced (but not below zero) by the amount by which such start-up expenditures exceed $50,000, and
(B) the remainder of such start-up expenditures shall be allowed as a deduction ratably over the 180-month period beginning with the month in which the active trade or business begins.
(2) Dispositions before close of amortization period
In any case in which a trade or business is completely disposed of by the taxpayer before the end of the period to which paragraph (1) applies, any deferred expenses attributable to such trade or business which were not allowed as a deduction by reason of this section may be deducted to the extent allowable under section 165.
(3) Special rule for taxable years beginning in 2010
In the case of a taxable year beginning in 2010, paragraph (1)(A)(ii) shall be applied—
(A) by substituting "$10,000" for "$5,000", and
(B) by substituting "$60,000" for "$50,000".
(c) Definitions
For purposes of this section—
(1) Start-up expenditures
The term "start-up expenditure" means any amount—
(A) paid or incurred in connection with—
(i) investigating the creation or acquisition of an active trade or business, or
(ii) creating an active trade or business, or
(iii) any activity engaged in for profit and for the production of income before the day on which the active trade or business begins, in anticipation of such activity becoming an active trade or business, and
(B) which, if paid or incurred in connection with the operation of an existing active trade or business (in the same field as the trade or business referred to in subparagraph (A)), would be allowable as a deduction for the taxable year in which paid or incurred.
The term "start-up expenditure" does not include any amount with respect to which a deduction is allowable under section 163(a), 164, or 174.
(2) Beginning of trade or business
(A) In general
Except as provided in subparagraph (B), the determination of when an active trade or business begins shall be made in accordance with such regulations as the Secretary may prescribe.
(B) Acquired trade or business
An acquired active trade or business shall be treated as beginning when the taxpayer acquires it.
(d) Election
(1) Time for making election
An election under subsection (b) shall be made not later than the time prescribed by law for filing the return for the taxable year in which the trade or business begins (including extensions thereof).
(2) Scope of election
The period selected under subsection (b) shall be adhered to in computing taxable income for the taxable year for which the election is made and all subsequent taxable years.
(Added
Editorial Notes
Amendments
2010—Subsec. (b)(3).
2004—Subsec. (b).
Subsec. (b)(1).
1984—Subsec. (a).
Subsec. (b).
Subsec. (c).
Subsec. (d).
Statutory Notes and Related Subsidiaries
Effective Date of 2010 Amendment
Effective Date of 2004 Amendment
Effective Date of 1984 Amendment
Effective Date
§196. Deduction for certain unused business credits
(a) Allowance of deduction
If any portion of the qualified business credits determined for any taxable year has not, after the application of section 38(c), been allowed to the taxpayer as a credit under section 38 for any taxable year, an amount equal to the credit not so allowed shall be allowed to the taxpayer as a deduction for the first taxable year following the last taxable year for which such credit could, under section 39, have been allowed as a credit.
(b) Taxpayer's dying or ceasing to exist
If a taxpayer dies or ceases to exist before the first taxable year following the last taxable year for which the qualified business credits could, under section 39, have been allowed as a credit, the amount described in subsection (a) (or the proper portion thereof) shall, under regulations prescribed by the Secretary, be allowed to the taxpayer as a deduction for the taxable year in which such death or cessation occurs.
(c) Qualified business credits
For purposes of this section, the term "qualified business credits" means—
(1) the investment credit determined under section 46 (but only to the extent attributable to property the basis of which is reduced by section 50(c)),
(2) the work opportunity credit determined under section 51(a),
(3) the alcohol fuels credit determined under section 40(a),
(4) the research credit determined under section 41(a) (other than such credit determined under section 280C(c)(3)) 1 for taxable years beginning after December 31, 1988,
(5) the enhanced oil recovery credit determined under section 43(a),
(6) the empowerment zone employment credit determined under section 1396(a),
(7) the Indian employment credit determined under section 45A(a),
(8) the employer Social Security credit determined under section 45B(a),
(9) the new markets tax credit determined under section 45D(a),
(10) the small employer pension plan startup cost credit determined under section 45E(a),
(11) the biodiesel fuels credit determined under section 40A(a),
(12) the low sulfur diesel fuel production credit determined under section 45H(a),
(13) the new energy efficient home credit determined under section 45L(a), and
(14) the small employer health insurance credit determined under section 45R(a).
(d) Special rule for investment tax credit
Subsection (a) shall be applied by substituting "an amount equal to 50 percent of" for "an amount equal to" in the case of the investment credit determined under section 46 (other than the rehabilitation credit).
(Added
Editorial Notes
References in Text
Section 280C(c)(3), referred to in subsec. (c)(4), was redesignated section 280C(c)(2) by
Codification
Another section 339(e) of
Amendments
2018—Subsec. (d).
"(1) the investment credit determined under section 46 (other than the rehabilitation credit), and
"(2) the research credit determined under section 41(a) for a taxable year beginning before January 1, 1990."
2010—Subsec. (c)(14).
2005—Subsec. (c)(13).
2004—Subsec. (c)(11).
Subsec. (c)(12).
2001—Subsec. (c)(10).
2000—Subsec. (c)(9).
1998—Subsec. (c)(8).
1996—Subsec. (c)(2).
1993—Subsec. (c)(6).
Subsec. (c)(7).
1990—Subsec. (c)(1).
Subsec. (c)(5).
Subsec. (d)(1).
1989—Subsec. (c)(4).
Subsec. (d).
Subsec. (d)(2).
1988—Subsec. (c)(4).
Subsec. (d).
1984—
Statutory Notes and Related Subsidiaries
Effective Date of 2010 Amendment
Amendment by
Effective Date of 2005 Amendment
Amendment by
Effective Date of 2004 Amendment
Amendment by section 302(c)(2) of
Amendment by section 339(e) of
Effective Date of 2001 Amendment
Amendment by
Effective Date of 2000 Amendment
Amendment by
Effective Date of 1998 Amendment
Effective Date of 1996 Amendment
Amendment by
Effective Date of 1993 Amendment
Amendment by section 13322(c)(2) of
Effective Date of 1990 Amendment
Amendment by section 11511(b)(3) of
Amendment by section 11813(b)(12) of
Effective Date of 1989 Amendment
Amendment by section 7110(c)(2) of
Amendment by section 7814(e)(1), (2)(D) of
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1984 Amendment
Amendment by
Effective Date
"(A)
"(B)
"(i) is constructed, reconstructed, erected, or acquired pursuant to a contract which was entered into after August 13, 1981, and was, on July 1, 1982, and at all times thereafter, binding on the taxpayer,
"(ii) is placed in service after December 31, 1982, and before January 1, 1986,
"(iii) with respect to which an election under section 168(f)(8)(A) of such Code is not in effect at any time, and
"(iv) is not described in section 167(l)(3)(A) of such Code.
"(C)
"(i)
"(I) the on-site construction of the facility began before July 1, 1982, and
"(II) during the period beginning after August 13, 1981, and ending on July 1, 1982, the taxpayer constructed (or entered into binding contracts for the construction of) more than 20 percent of the cost of such facility.
"(ii)
"(I) located on a single site,
"(II) for the manufacture of 1 or more manufactured products from raw materials by the application of 2 or more integrated manufacturing processes.
"(D)
"(E)
"(i) if the rehabilitation begins after December 31, 1980, and before July 1, 1982, or
"(ii) if—
"(I) before July 1, 1982, a public offering with respect to interests in such property was registered with the Securities and Exchange Commission,
"(II) before such date an application with respect to such property was filed under section 8 of the United States Housing Act of 1937 [
"(III) such property is placed in service before July 1, 1984."
Savings Provision
For provisions that nothing in amendment by
For provisions that nothing in amendment by section 11813(b)(12) of
1 See References in Text note below.
§197. Amortization of goodwill and certain other intangibles
(a) General rule
A taxpayer shall be entitled to an amortization deduction with respect to any amortizable section 197 intangible. The amount of such deduction shall be determined by amortizing the adjusted basis (for purposes of determining gain) of such intangible ratably over the 15-year period beginning with the month in which such intangible was acquired.
(b) No other depreciation or amortization deduction allowable
Except as provided in subsection (a), no depreciation or amortization deduction shall be allowable with respect to any amortizable section 197 intangible.
(c) Amortizable section 197 intangible
For purposes of this section—
(1) In general
Except as otherwise provided in this section, the term "amortizable section 197 intangible" means any section 197 intangible—
(A) which is acquired by the taxpayer after the date of the enactment of this section, and
(B) which is held in connection with the conduct of a trade or business or an activity described in section 212.
(2) Exclusion of self-created intangibles, etc.
The term "amortizable section 197 intangible" shall not include any section 197 intangible—
(A) which is not described in subparagraph (D), (E), or (F) of subsection (d)(1), and
(B) which is created by the taxpayer.
This paragraph shall not apply if the intangible is created in connection with a transaction (or series of related transactions) involving the acquisition of assets constituting a trade or business or substantial portion thereof.
(3) Anti-churning rules
For exclusion of intangibles acquired in certain transactions, see subsection (f)(9).
(d) Section 197 intangible
For purposes of this section—
(1) In general
Except as otherwise provided in this section, the term "section 197 intangible" means—
(A) goodwill,
(B) going concern value,
(C) any of the following intangible items:
(i) workforce in place including its composition and terms and conditions (contractual or otherwise) of its employment,
(ii) business books and records, operating systems, or any other information base (including lists or other information with respect to current or prospective customers),
(iii) any patent, copyright, formula, process, design, pattern, knowhow, format, or other similar item,
(iv) any customer-based intangible,
(v) any supplier-based intangible, and
(vi) any other similar item,
(D) any license, permit, or other right granted by a governmental unit or an agency or instrumentality thereof,
(E) any covenant not to compete (or other arrangement to the extent such arrangement has substantially the same effect as a covenant not to compete) entered into in connection with an acquisition (directly or indirectly) of an interest in a trade or business or substantial portion thereof, and
(F) any franchise, trademark, or trade name.
(2) Customer-based intangible
(A) In general
The term "customer-based intangible" means—
(i) composition of market,
(ii) market share, and
(iii) any other value resulting from future provision of goods or services pursuant to relationships (contractual or otherwise) in the ordinary course of business with customers.
(B) Special rule for financial institutions
In the case of a financial institution, the term "customer-based intangible" includes deposit base and similar items.
(3) Supplier-based intangible
The term "supplier-based intangible" means any value resulting from future acquisitions of goods or services pursuant to relationships (contractual or otherwise) in the ordinary course of business with suppliers of goods or services to be used or sold by the taxpayer.
(e) Exceptions
For purposes of this section, the term "section 197 intangible" shall not include any of the following:
(1) Financial interests
Any interest—
(A) in a corporation, partnership, trust, or estate, or
(B) under an existing futures contract, foreign currency contract, notional principal contract, or other similar financial contract.
(2) Land
Any interest in land.
(3) Computer software
(A) In general
Any—
(i) computer software which is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified, and
(ii) other computer software which is not acquired in a transaction (or series of related transactions) involving the acquisition of assets constituting a trade or business or substantial portion thereof.
(B) Computer software defined
For purposes of subparagraph (A), the term "computer software" means any program designed to cause a computer to perform a desired function. Such term shall not include any data base or similar item unless the data base or item is in the public domain and is incidental to the operation of otherwise qualifying computer software.
(4) Certain interests or rights acquired separately
Any of the following not acquired in a transaction (or series of related transactions) involving the acquisition of assets constituting a trade business or substantial portion thereof:
(A) Any interest in a film, sound recording, video tape, book, or similar property.
(B) Any right to receive tangible property or services under a contract or granted by a governmental unit or agency or instrumentality thereof.
(C) Any interest in a patent or copyright.
(D) To the extent provided in regulations, any right under a contract (or granted by a governmental unit or an agency or instrumentality thereof) if such right—
(i) has a fixed duration of less than 15 years, or
(ii) is fixed as to amount and, without regard to this section, would be recoverable under a method similar to the unit-of-production method.
(5) Interests under leases and debt instruments
Any interest under—
(A) an existing lease of tangible property, or
(B) except as provided in subsection (d)(2)(B), any existing indebtedness.
(6) Mortgage servicing
Any right to service indebtedness which is secured by residential real property unless such right is acquired in a transaction (or series of related transactions) involving the acquisition of assets (other than rights described in this paragraph) constituting a trade or business or substantial portion thereof.
(7) Certain transaction costs
Any fees for professional services, and any transaction costs, incurred by parties to a transaction with respect to which any portion of the gain or loss is not recognized under part III of subchapter C.
(f) Special rules
(1) Treatment of certain dispositions, etc.
(A) In general
If there is a disposition of any amortizable section 197 intangible acquired in a transaction or series of related transactions (or any such intangible becomes worthless) and one or more other amortizable section 197 intangibles acquired in such transaction or series of related transactions are retained—
(i) no loss shall be recognized by reason of such disposition (or such worthlessness), and
(ii) appropriate adjustments to the adjusted bases of such retained intangibles shall be made for any loss not recognized under clause (i).
(B) Special rule for covenants not to compete
In the case of any section 197 intangible which is a covenant not to compete (or other arrangement) described in subsection (d)(1)(E), in no event shall such covenant or other arrangement be treated as disposed of (or becoming worthless) before the disposition of the entire interest described in such subsection in connection with which such covenant (or other arrangement) was entered into.
(C) Special rule
All persons treated as a single taxpayer under section 41(f)(1) shall be so treated for purposes of this paragraph.
(2) Treatment of certain transfers
(A) In general
In the case of any section 197 intangible transferred in a transaction described in subparagraph (B), the transferee shall be treated as the transferor for purposes of applying this section with respect to so much of the adjusted basis in the hands of the transferee as does not exceed the adjusted basis in the hands of the transferor.
(B) Transactions covered
The transactions described in this subparagraph are—
(i) any transaction described in section 332, 351, 361, 721, 731, 1031, or 1033, and
(ii) any transaction between members of the same affiliated group during any taxable year for which a consolidated return is made by such group.
(3) Treatment of amounts paid pursuant to covenants not to compete, etc.
Any amount paid or incurred pursuant to a covenant or arrangement referred to in subsection (d)(1)(E) shall be treated as an amount chargeable to capital account.
(4) Treatment of franchises, etc.
(A) Franchise
The term "franchise" has the meaning given to such term by section 1253(b)(1).
(B) Treatment of renewals
Any renewal of a franchise, trademark, or trade name (or of a license, a permit, or other right referred to in subsection (d)(1)(D)) shall be treated as an acquisition. The preceding sentence shall only apply with respect to costs incurred in connection with such renewal.
(C) Certain amounts not taken into account
Any amount to which section 1253(d)(1) applies shall not be taken into account under this section.
(5) Treatment of certain reinsurance transactions
In the case of any amortizable section 197 intangible resulting from an assumption reinsurance transaction, the amount taken into account as the adjusted basis of such intangible under this section shall be the excess of—
(A) the amount paid or incurred by the acquirer under the assumption reinsurance transaction, over
(B) the amount required to be capitalized under section 848 in connection with such transaction.
Subsection (b) shall not apply to any amount required to be capitalized under section 848.
(6) Treatment of certain subleases
For purposes of this section, a sublease shall be treated in the same manner as a lease of the underlying property involved.
(7) Treatment as depreciable
For purposes of this chapter, any amortizable section 197 intangible shall be treated as property which is of a character subject to the allowance for depreciation provided in section 167.
(8) Treatment of certain increments in value
This section shall not apply to any increment in value if, without regard to this section, such increment is properly taken into account in determining the cost of property which is not a section 197 intangible.
(9) Anti-churning rules
For purposes of this section—
(A) In general
The term "amortizable section 197 intangible" shall not include any section 197 intangible which is described in subparagraph (A) or (B) of subsection (d)(1) (or for which depreciation or amortization would not have been allowable but for this section) and which is acquired by the taxpayer after the date of the enactment of this section, if—
(i) the intangible was held or used at any time on or after July 25, 1991, and on or before such date of enactment by the taxpayer or a related person,
(ii) the intangible was acquired from a person who held such intangible at any time on or after July 25, 1991, and on or before such date of enactment, and, as part of the transaction, the user of such intangible does not change, or
(iii) the taxpayer grants the right to use such intangible to a person (or a person related to such person) who held or used such intangible at any time on or after July 25, 1991, and on or before such date of enactment.
For purposes of this subparagraph, the determination of whether the user of property changes as part of a transaction shall be determined in accordance with regulations prescribed by the Secretary. For purposes of this subparagraph, deductions allowable under section 1253(d) shall be treated as deductions allowable for amortization.
(B) Exception where gain recognized
If—
(i) subparagraph (A) would not apply to an intangible acquired by the taxpayer but for the last sentence of subparagraph (C)(i), and
(ii) the person from whom the taxpayer acquired the intangible elects, notwithstanding any other provision of this title—
(I) to recognize gain on the disposition of the intangible, and
(II) to pay a tax on such gain which, when added to any other income tax on such gain under this title, equals such gain multiplied by the highest rate of income tax applicable to such person under this title,
then subparagraph (A) shall apply to the intangible only to the extent that the taxpayer's adjusted basis in the intangible exceeds the gain recognized under clause (ii)(I).
(C) Related person defined
For purposes of this paragraph—
(i) Related person
A person (hereinafter in this paragraph referred to as the "related person") is related to any person if—
(I) the related person bears a relationship to such person specified in section 267(b) or section 707(b)(1), or
(II) the related person and such person are engaged in trades or businesses under common control (within the meaning of subparagraphs (A) and (B) of section 41(f)(1)).
For purposes of subclause (I), in applying section 267(b) or 707(b)(1), "20 percent" shall be substituted for "50 percent".
(ii) Time for making determination
A person shall be treated as related to another person if such relationship exists immediately before or immediately after the acquisition of the intangible involved.
(D) Acquisitions by reason of death
Subparagraph (A) shall not apply to the acquisition of any property by the taxpayer if the basis of the property in the hands of the taxpayer is determined under section 1014(a).
(E) Special rule for partnerships
With respect to any increase in the basis of partnership property under section 732, 734, or 743, determinations under this paragraph shall be made at the partner level and each partner shall be treated as having owned and used such partner's proportionate share of the partnership assets.
(F) Anti-abuse rules
The term "amortizable section 197 intangible" does not include any section 197 intangible acquired in a transaction, one of the principal purposes of which is to avoid the requirement of subsection (c)(1) that the intangible be acquired after the date of the enactment of this section or to avoid the provisions of subparagraph (A).
(10) Tax-exempt use property subject to lease
In the case of any section 197 intangible which would be tax-exempt use property as defined in subsection (h) of section 168 if such section applied to such intangible, the amortization period under this section shall not be less than 125 percent of the lease term (within the meaning of section 168(i)(3)).
(g) Regulations
The Secretary shall prescribe such regulations as may be appropriate to carry out the purposes of this section, including such regulations as may be appropriate to prevent avoidance of the purposes of this section through related persons or otherwise.
(Added
Editorial Notes
References in Text
The date of the enactment of this section, referred to in subsecs. (c)(1)(A) and (f)(9)(A), (F), is the date of enactment of
Amendments
2004—Subsec. (e)(6) to (8).
Subsec. (f)(10).
Statutory Notes and Related Subsidiaries
Effective Date of 2004 Amendment
Amendment by section 847(b)(3) of
"(1)
"(2)
Effective Date
"(1)
"(2)
"(A)
"(i) the amendments made by this section shall apply to property acquired by the taxpayer after July 25, 1991,
"(ii) subsection (c)(1)(A) of section 197 of the Internal Revenue Code of 1986 (as added by this section) (and so much of subsection (f)(9)(A) of such section 197 as precedes clause (i) thereof) shall be applied with respect to the taxpayer by treating July 25, 1991, as the date of the enactment of such section, and
"(iii) in applying subsection (f)(9) of such section, with respect to any property acquired by the taxpayer or a related person on or before the date of the enactment of this Act, only holding or use on July 25, 1991, shall be taken into account.
"(B)
"(i) may be revoked only with the consent of the Secretary, and
"(ii) shall apply to the taxpayer making such election and any other taxpayer under common control with the taxpayer (within the meaning of subparagraphs (A) and (B) of section 41(f)(1) of such Code) at any time after August 2, 1993, and on or before the date on which such election is made.
"(3)
"(A)
"(i) such acquisition is pursuant to a written binding contract in effect on the date of the enactment of this Act and at all times thereafter before such acquisition,
"(ii) an election under paragraph (2) does not apply to the taxpayer, and
"(iii) the taxpayer makes an election under this paragraph with respect to such contract.
"(B)
"(i) may be revoked only with the consent of the Secretary, and
"(ii) shall apply to all property acquired pursuant to the contract with respect to which such election was made."
§198. Expensing of environmental remediation costs
(a) In general
A taxpayer may elect to treat any qualified environmental remediation expenditure which is paid or incurred by the taxpayer as an expense which is not chargeable to capital account. Any expenditure which is so treated shall be allowed as a deduction for the taxable year in which it is paid or incurred.
(b) Qualified environmental remediation expenditure
For purposes of this section—
(1) In general
The term "qualified environmental remediation expenditure" means any expenditure—
(A) which is otherwise chargeable to capital account, and
(B) which is paid or incurred in connection with the abatement or control of hazardous substances at a qualified contaminated site.
(2) Special rule for expenditures for depreciable property
Such term shall not include any expenditure for the acquisition of property of a character subject to the allowance for depreciation which is used in connection with the abatement or control of hazardous substances at a qualified contaminated site; except that the portion of the allowance under section 167 for such property which is otherwise allocated to such site shall be treated as a qualified environmental remediation expenditure.
(c) Qualified contaminated site
For purposes of this section—
(1) In general
The term "qualified contaminated site" means any area—
(A) which is held by the taxpayer for use in a trade or business or for the production of income, or which is property described in section 1221(a)(1) in the hands of the taxpayer, and
(B) at or on which there has been a release (or threat of release) or disposal of any hazardous substance.
(2) National priorities listed sites not included
Such term shall not include any site which is on, or proposed for, the national priorities list under section 105(a)(8)(B) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (as in effect on the date of the enactment of this section).
(3) Taxpayer must receive statement from State environmental agency
An area shall be treated as a qualified contaminated site with respect to expenditures paid or incurred during any taxable year only if the taxpayer receives a statement from the appropriate agency of the State in which such area is located that such area meets the requirement of paragraph (1)(B).
(4) Appropriate State agency
For purposes of paragraph (3), the chief executive officer of each State may, in consultation with the Administrator of the Environmental Protection Agency, designate the appropriate State environmental agency within 60 days of the date of the enactment of this section. If the chief executive officer of a State has not designated an appropriate environmental agency within such 60-day period, the appropriate environmental agency for such State shall be designated by the Administrator of the Environmental Protection Agency.
(d) Hazardous substance
For purposes of this section—
(1) In general
The term "hazardous substance" means—
(A) any substance which is a hazardous substance as defined in section 101(14) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
(B) any substance which is designated as a hazardous substance under section 102 of such Act, and
(C) any petroleum product (as defined in section 4612(a)(3)).
(2) Exception
Such term shall not include any substance with respect to which a removal or remedial action is not permitted under section 104 of such Act by reason of subsection (a)(3) thereof.
(e) Deduction recaptured as ordinary income on sale, etc.
Solely for purposes of section 1245, in the case of property to which a qualified environmental remediation expenditure would have been capitalized but for this section—
(1) the deduction allowed by this section for such expenditure shall be treated as a deduction for depreciation, and
(2) such property (if not otherwise section 1245 property) shall be treated as section 1245 property solely for purposes of applying section 1245 to such deduction.
(f) Coordination with other provisions
Sections 280B and 468 shall not apply to amounts which are treated as expenses under this section.
(g) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.
(h) Termination
This section shall not apply to expenditures paid or incurred after December 31, 2011.
(Added
Editorial Notes
References in Text
The date of the enactment of this section, referred to in subsec. (c)(2), (4), is the date of enactment of
Sections 101(14), 102, 104, and 105(a)(8)(B) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, referred to in subsecs. (c)(2) and (d), are classified to sections 9601(14), 9602, 9604, and 9605(a)(8)(B), respectively, of Title 42, The Public Health and Welfare.
Amendments
2010—Subsec. (h).
2008—Subsec. (h).
2006—Subsec. (d)(1)(C).
Subsec. (h).
2004—Subsec. (h).
2000—Subsec. (c).
Subsec. (h).
1999—Subsec. (c)(1)(A)(i).
Subsec. (h).
Statutory Notes and Related Subsidiaries
Effective Date of 2010 Amendment
Effective Date of 2008 Amendment
Effective Date of 2006 Amendment
Effective Date of 2004 Amendment
Effective Date of 2000 Amendment
Effective Date of 1999 Amendment
Amendment by section 532(c)(2)(A) of
Effective Date
[§198A. Repealed. Pub. L. 113–295, div. A, title II, §221(a)(35), Dec. 19, 2014, 128 Stat. 4042 ]
Section, added
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
Repeal effective Dec. 19, 2014, subject to a savings provision, see section 221(b) of
[§199. Repealed. Pub. L. 115–97, title I, §13305(a), Dec. 22, 2017, 131 Stat. 2126 ]
Section, added
Subsection (c)(3)(C) of this Section Prior to Repeal
Prior to repeal by section 13305(a) of
(c) Qualified production activities income
(3) Special rules for determining costs
(C) Transportation costs of independent refiners
(i) In general
In the case of any taxpayer who is in the trade or business of refining crude oil and who is not a major integrated oil company (as defined in section 167(h)(5)(B), determined without regard to clause (iii) thereof) for the taxable year, in computing oil related qualified production activities income under subsection (d)(9)(B), the amount allocated to domestic production gross receipts under paragraph (1)(B) for costs related to the transportation of oil shall be 25 percent of the amount properly allocable under such paragraph (determined without regard to this subparagraph).
(ii) Termination
Clause (i) shall not apply to any taxable year beginning after December 31, 2021.
See Amendment Relating to Consolidated Appropriations Act, 2016 note below.
Subsection (d)(8) of this Section Prior to Repeal
Prior to repeal by section 13305(a) of
(d) Definitions and special rules
(8) Treatment of activities in Puerto Rico
(A) In general
In the case of any taxpayer with gross receipts for any taxable year from sources within the Commonwealth of Puerto Rico, if all of such receipts are taxable under section 1 or 11 for such taxable year, then for purposes of determining the domestic production gross receipts of such taxpayer for such taxable year under subsection (c)(4), the term "United States" shall include the Commonwealth of Puerto Rico.
(B) Special rule for applying wage limitation
In the case of any taxpayer described in subparagraph (A), for purposes of applying the limitation under subsection (b) for any taxable year, the determination of W–2 wages of such taxpayer shall be made without regard to any exclusion under section 3401(a)(8) for remuneration paid for services performed in Puerto Rico.
(C) Termination
This paragraph shall apply only with respect to the first 11 taxable years of the taxpayer beginning after December 31, 2005, and before January 1, 2017.
See Extension of Deduction Allowable With Respect to Income Attributable to Domestic Production Activities in Puerto Rico note below.
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
Repeal applicable to taxable years beginning after Dec. 31, 2017, except as provided by transition rule, see section 13305(c) of
Amendment Relating to Consolidated Appropriations Act, 2016
"(a)
"(1) by inserting 'who elects the application of this clause for any taxable year,' after 'In the case of any taxpayer',
"(2) by substituting ', and who' for 'and who',
"(3) by substituting 'such taxable year' for 'the taxable year', and
"(4) by substituting '(as defined in subsection (d)(9)(B))' for 'under subsection (d)(9)(B)'.
"(b)
Extension of Deduction Allowable With Respect to Income Attributable to Domestic Production Activities in Puerto Rico
"(1) by substituting 'first 12 taxable years' for 'first 11 taxable years', and
"(2) by substituting 'January 1, 2018' for 'January 1, 2017'."
§199A. Qualified business income
(a) Allowance of deduction
In the case of a taxpayer other than a corporation, there shall be allowed as a deduction for any taxable year an amount equal to the lesser of—
(1) the combined qualified business income amount of the taxpayer, or
(2) an amount equal to 20 percent of the excess (if any) of—
(A) the taxable income of the taxpayer for the taxable year, over
(B) the net capital gain (as defined in section 1(h)) of the taxpayer for such taxable year.
(b) Combined qualified business income amount
For purposes of this section—
(1) In general
The term "combined qualified business income amount" means, with respect to any taxable year, an amount equal to—
(A) the sum of the amounts determined under paragraph (2) for each qualified trade or business carried on by the taxpayer, plus
(B) 20 percent of the aggregate amount of the qualified REIT dividends and qualified publicly traded partnership income of the taxpayer for the taxable year.
(2) Determination of deductible amount for each trade or business
The amount determined under this paragraph with respect to any qualified trade or business is the lesser of—
(A) 20 percent of the taxpayer's qualified business income with respect to the qualified trade or business, or
(B) the greater of—
(i) 50 percent of the W–2 wages with respect to the qualified trade or business, or
(ii) the sum of 25 percent of the W–2 wages with respect to the qualified trade or business, plus 2.5 percent of the unadjusted basis immediately after acquisition of all qualified property.
(3) Modifications to limit based on taxable income
(A) Exception from limit
In the case of any taxpayer whose taxable income for the taxable year does not exceed the threshold amount, paragraph (2) shall be applied without regard to subparagraph (B).
(B) Phase-in of limit for certain taxpayers
(i) In general
If—
(I) the taxable income of a taxpayer for any taxable year exceeds the threshold amount, but does not exceed the sum of the threshold amount plus $50,000 ($100,000 in the case of a joint return), and
(II) the amount determined under paragraph (2)(B) (determined without regard to this subparagraph) with respect to any qualified trade or business carried on by the taxpayer is less than the amount determined under paragraph (2)(A) with respect such trade or business,
then paragraph (2) shall be applied with respect to such trade or business without regard to subparagraph (B) thereof and by reducing the amount determined under subparagraph (A) thereof by the amount determined under clause (ii).
(ii) Amount of reduction
The amount determined under this subparagraph is the amount which bears the same ratio to the excess amount as—
(I) the amount by which the taxpayer's taxable income for the taxable year exceeds the threshold amount, bears to
(II) $50,000 ($100,000 in the case of a joint return).
(iii) Excess amount
For purposes of clause (ii), the excess amount is the excess of—
(I) the amount determined under paragraph (2)(A) (determined without regard to this paragraph), over
(II) the amount determined under paragraph (2)(B) (determined without regard to this paragraph).
(4) Wages, etc.
(A) In general
The term "W–2 wages" means, with respect to any person for any taxable year of such person, the amounts described in paragraphs (3) and (8) of section 6051(a) paid by such person with respect to employment of employees by such person during the calendar year ending during such taxable year.
(B) Limitation to wages attributable to qualified business income
Such term shall not include any amount which is not properly allocable to qualified business income for purposes of subsection (c)(1).
(C) Return requirement
Such term shall not include any amount which is not properly included in a return filed with the Social Security Administration on or before the 60th day after the due date (including extensions) for such return.
(5) Acquisitions, dispositions, and short taxable years
The Secretary shall provide for the application of this subsection in cases of a short taxable year or where the taxpayer acquires, or disposes of, the major portion of a trade or business or the major portion of a separate unit of a trade or business during the taxable year.
(6) Qualified property
For purposes of this section:
(A) In general
The term "qualified property" means, with respect to any qualified trade or business for a taxable year, tangible property of a character subject to the allowance for depreciation under section 167—
(i) which is held by, and available for use in, the qualified trade or business at the close of the taxable year,
(ii) which is used at any point during the taxable year in the production of qualified business income, and
(iii) the depreciable period for which has not ended before the close of the taxable year.
(B) Depreciable period
The term "depreciable period" means, with respect to qualified property of a taxpayer, the period beginning on the date the property was first placed in service by the taxpayer and ending on the later of—
(i) the date that is 10 years after such date, or
(ii) the last day of the last full year in the applicable recovery period that would apply to the property under section 168 (determined without regard to subsection (g) thereof).
(7) Special rule with respect to income received from cooperatives
In the case of any qualified trade or business of a patron of a specified agricultural or horticultural cooperative, the amount determined under paragraph (2) with respect to such trade or business shall be reduced by the lesser of—
(A) 9 percent of so much of the qualified business income with respect to such trade or business as is properly allocable to qualified payments received from such cooperative, or
(B) 50 percent of so much of the W–2 wages with respect to such trade or business as are so allocable.
(c) Qualified business income
For purposes of this section—
(1) In general
The term "qualified business income" means, for any taxable year, the net amount of qualified items of income, gain, deduction, and loss with respect to any qualified trade or business of the taxpayer. Such term shall not include any qualified REIT dividends or qualified publicly traded partnership income.
(2) Carryover of losses
If the net amount of qualified income, gain, deduction, and loss with respect to qualified trades or businesses of the taxpayer for any taxable year is less than zero, such amount shall be treated as a loss from a qualified trade or business in the succeeding taxable year.
(3) Qualified items of income, gain, deduction, and loss
For purposes of this subsection—
(A) In general
The term "qualified items of income, gain, deduction, and loss" means items of income, gain, deduction, and loss to the extent such items are—
(i) effectively connected with the conduct of a trade or business within the United States (within the meaning of section 864(c), determined by substituting "qualified trade or business (within the meaning of section 199A)" for "nonresident alien individual or a foreign corporation" or for "a 1 foreign corporation" each place it appears), and
(ii) included or allowed in determining taxable income for the taxable year.
(B) Exceptions
The following items shall not be taken into account as a qualified item of income, gain, deduction, or loss:
(i) Any item of short-term capital gain, short-term capital loss, long-term capital gain, or long-term capital loss.
(ii) Any dividend, income equivalent to a dividend, or payment in lieu of dividends described in section 954(c)(1)(G). Any amount described in section 1385(a)(1) shall not be treated as described in this clause.
(iii) Any interest income other than interest income which is properly allocable to a trade or business.
(iv) Any item of gain or loss described in subparagraph (C) or (D) of section 954(c)(1) (applied by substituting "qualified trade or business" for "controlled foreign corporation").
(v) Any item of income, gain, deduction, or loss taken into account under section 954(c)(1)(F) (determined without regard to clause (ii) thereof and other than items attributable to notional principal contracts entered into in transactions qualifying under section 1221(a)(7)).
(vi) Any amount received from an annuity which is not received in connection with the trade or business.
(vii) Any item of deduction or loss properly allocable to an amount described in any of the preceding clauses.
(4) Treatment of reasonable compensation and guaranteed payments
Qualified business income shall not include—
(A) reasonable compensation paid to the taxpayer by any qualified trade or business of the taxpayer for services rendered with respect to the trade or business,
(B) any guaranteed payment described in section 707(c) paid to a partner for services rendered with respect to the trade or business, and
(C) to the extent provided in regulations, any payment described in section 707(a) to a partner for services rendered with respect to the trade or business.
(d) Qualified trade or business
For purposes of this section—
(1) In general
The term "qualified trade or business" means any trade or business other than—
(A) a specified service trade or business, or
(B) the trade or business of performing services as an employee.
(2) Specified service trade or business
The term "specified service trade or business" means any trade or business—
(A) which is described in section 1202(e)(3)(A) (applied without regard to the words "engineering, architecture,") or which would be so described if the term "employees or owners" were substituted for "employees" therein, or
(B) which involves the performance of services that consist of investing and investment management, trading, or dealing in securities (as defined in section 475(c)(2)), partnership interests, or commodities (as defined in section 475(e)(2)).
(3) Exception for specified service businesses based on taxpayer's income
(A) In general
If, for any taxable year, the taxable income of any taxpayer is less than the sum of the threshold amount plus $50,000 ($100,000 in the case of a joint return), then—
(i) any specified service trade or business of the taxpayer shall not fail to be treated as a qualified trade or business due to paragraph (1)(A), but
(ii) only the applicable percentage of qualified items of income, gain, deduction, or loss, and the W–2 wages and the unadjusted basis immediately after acquisition of qualified property, of the taxpayer allocable to such specified service trade or business shall be taken into account in computing the qualified business income, W–2 wages, and the unadjusted basis immediately after acquisition of qualified property of the taxpayer for the taxable year for purposes of applying this section.
(B) Applicable percentage
For purposes of subparagraph (A), the term "applicable percentage" means, with respect to any taxable year, 100 percent reduced (not below zero) by the percentage equal to the ratio of—
(i) the taxable income of the taxpayer for the taxable year in excess of the threshold amount, bears to
(ii) $50,000 ($100,000 in the case of a joint return).
(e) Other definitions
For purposes of this section—
(1) Taxable income
Except as otherwise provided in subsection (g)(2)(B), taxable income shall be computed without regard to any deduction allowable under this section.
(2) Threshold amount
(A) In general
The term "threshold amount" means $157,500 (200 percent of such amount in the case of a joint return).
(B) Inflation adjustment
In the case of any taxable year beginning after 2018, the dollar amount in subparagraph (A) shall be increased by an amount equal to—
(i) such dollar amount, multiplied by
(ii) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting "calendar year 2017" for "calendar year 2016" in subparagraph (A)(ii) thereof.
The amount of any increase under the preceding sentence shall be rounded as provided in section 1(f)(7).
(3) Qualified REIT dividend
The term "qualified REIT dividend" means any dividend from a real estate investment trust received during the taxable year which—
(A) is not a capital gain dividend, as defined in section 857(b)(3), and
(B) is not qualified dividend income, as defined in section 1(h)(11).
(4) Qualified publicly traded partnership income
The term "qualified publicly traded partnership income" means, with respect to any qualified trade or business of a taxpayer, the sum of—
(A) the net amount of such taxpayer's allocable share of each qualified item of income, gain, deduction, and loss (as defined in subsection (c)(3) and determined after the application of subsection (c)(4)) from a publicly traded partnership (as defined in section 7704(a)) 2 which is not treated as a corporation under section 7704(c), plus
(B) any gain recognized by such taxpayer upon disposition of its interest in such partnership to the extent such gain is treated as an amount realized from the sale or exchange of property other than a capital asset under section 751(a).
(f) Special rules
(1) Application to partnerships and S corporations
(A) In general
In the case of a partnership or S corporation—
(i) this section shall be applied at the partner or shareholder level,
(ii) each partner or shareholder shall take into account such person's allocable share of each qualified item of income, gain, deduction, and loss, and
(iii) each partner or shareholder shall be treated for purposes of subsection (b) as having W–2 wages and unadjusted basis immediately after acquisition of qualified property for the taxable year in an amount equal to such person's allocable share of the W–2 wages and the unadjusted basis immediately after acquisition of qualified property of the partnership or S corporation for the taxable year (as determined under regulations prescribed by the Secretary).
For purposes of clause (iii), a partner's or shareholder's allocable share of W–2 wages shall be determined in the same manner as the partner's or shareholder's allocable share of wage expenses. For purposes of such clause, partner's or shareholder's allocable share of the unadjusted basis immediately after acquisition of qualified property shall be determined in the same manner as the partner's or shareholder's allocable share of depreciation. For purposes of this subparagraph, in the case of an S corporation, an allocable share shall be the shareholder's pro rata share of an item.
(B) Application to trusts and estates
Rules similar to the rules under section 199(d)(1)(B)(i) (as in effect on December 1, 2017) for the apportionment of W–2 wages shall apply to the apportionment of W–2 wages and the apportionment of unadjusted basis immediately after acquisition of qualified property under this section.
(C) Treatment of trades or business in Puerto Rico
(i) In general
In the case of any taxpayer with qualified business income from sources within the commonwealth of Puerto Rico, if all such income is taxable under section 1 for such taxable year, then for purposes of determining the qualified business income of such taxpayer for such taxable year, the term "United States" shall include the Commonwealth of Puerto Rico.
(ii) Special rule for applying limit
In the case of any taxpayer described in clause (i), the determination of W–2 wages of such taxpayer with respect to any qualified trade or business conducted in Puerto Rico shall be made without regard to any exclusion under section 3401(a)(8) for remuneration paid for services in Puerto Rico.
(2) Coordination with minimum tax
For purposes of determining alternative minimum taxable income under section 55, qualified business income shall be determined without regard to any adjustments under sections 56 through 59.
(3) Deduction limited to income taxes
The deduction under subsection (a) shall only be allowed for purposes of this chapter.
(4) Regulations
The Secretary shall prescribe such regulations as are necessary to carry out the purposes of this section, including regulations—
(A) for requiring or restricting the allocation of items and wages under this section and such reporting requirements as the Secretary determines appropriate, and
(B) for the application of this section in the case of tiered entities.
(g) Deduction for income attributable to domestic production activities of specified agricultural or horticultural cooperatives
(1) Allowance of deduction
(A) In general
In the case of a taxpayer which is a specified agricultural or horticultural cooperative, there shall be allowed as a deduction an amount equal to 9 percent of the lesser of—
(i) the qualified production activities income of the taxpayer for the taxable year, or
(ii) the taxable income of the taxpayer for the taxable year.
(B) Limitation
(i) In general
The deduction allowable under subparagraph (A) for any taxable year shall not exceed 50 percent of the W–2 wages of the taxpayer for the taxable year.
(ii) W–2 wages
For purposes of this subparagraph, the W–2 wages of the taxpayer shall be determined in the same manner as under subsection (b)(4) (without regard to subparagraph (B) thereof and after application of subsection (b)(5)), except that such wages shall not include any amount which is not properly allocable to domestic production gross receipts for purposes of paragraph (3)(A).
(C) Taxable income of cooperatives determined without regard to certain deductions
For purposes of this subsection, the taxable income of a specified agricultural or horticultural cooperative shall be computed without regard to any deduction allowable under subsection (b) or (c) of section 1382 (relating to patronage dividends, per-unit retain allocations, and nonpatronage distributions).
(2) Deduction allowed to patrons
(A) In general
In the case of any eligible taxpayer who receives a qualified payment from a specified agricultural or horticultural cooperative, there shall be allowed as a deduction for the taxable year in which such payment is received an amount equal to the portion of the deduction allowed under paragraph (1) to such cooperative which is—
(i) allowed with respect to the portion of the qualified production activities income to which such payment is attributable, and
(ii) identified by such cooperative in a written notice mailed to such taxpayer during the payment period described in section 1382(d).
(B) Limitation based on taxable income
The deduction allowed to any taxpayer under this paragraph shall not exceed the taxable income of the taxpayer determined without regard to the deduction allowed under this paragraph and after taking into account any deduction allowed to the taxpayer under subsection (a) for the taxable year.
(C) Cooperative denied deduction for portion of qualified payments
The taxable income of a specified agricultural or horticultural cooperative shall not be reduced under section 1382 by reason of that portion of any qualified payment as does not exceed the deduction allowable under subparagraph (A) with respect to such payment.
(D) Eligible taxpayer
For purposes of this paragraph, the term "eligible taxpayer" means—
(i) a taxpayer other than a corporation, or
(ii) a specified agricultural or horticultural cooperative.
(E) Qualified payment
For purposes of this section, the term "qualified payment" means, with respect to any eligible taxpayer, any amount which—
(i) is described in paragraph (1) or (3) of section 1385(a),
(ii) is received by such taxpayer from a specified agricultural or horticultural cooperative, and
(iii) is attributable to qualified production activities income with respect to which a deduction is allowed to such cooperative under paragraph (1).
(3) Qualified production activities income
For purposes of this subsection—
(A) In general
The term "qualified production activities income" for any taxable year means an amount equal to the excess (if any) of—
(i) the taxpayer's domestic production gross receipts for such taxable year, over
(ii) the sum of—
(I) the cost of goods sold that are allocable to such receipts, and
(II) other expenses, losses, or deductions (other than the deduction allowed under this subsection), which are properly allocable to such receipts.
(B) Allocation method
The Secretary shall prescribe rules for the proper allocation of items described in subparagraph (A) for purposes of determining qualified production activities income. Such rules shall provide for the proper allocation of items whether or not such items are directly allocable to domestic production gross receipts.
(C) Special rules for determining costs
(i) In general
For purposes of determining costs under subclause (I) of subparagraph (A)(ii), any item or service brought into the United States shall be treated as acquired by purchase, and its cost shall be treated as not less than its value immediately after it entered the United States. A similar rule shall apply in determining the adjusted basis of leased or rented property where the lease or rental gives rise to domestic production gross receipts.
(ii) Exports for further manufacture
In the case of any property described in clause (i) that had been exported by the taxpayer for further manufacture, the increase in cost or adjusted basis under clause (i) shall not exceed the difference between the value of the property when exported and the value of the property when brought back into the United States after the further manufacture.
(D) Domestic production gross receipts
(i) In general
The term "domestic production gross receipts" means the gross receipts of the taxpayer which are derived from any lease, rental, license, sale, exchange, or other disposition of any agricultural or horticultural product which was manufactured, produced, grown, or extracted by the taxpayer (determined after the application of paragraph (4)(B)) in whole or significant part within the United States. Such term shall not include gross receipts of the taxpayer which are derived from the lease, rental, license, sale, exchange, or other disposition of land.
(ii) Related persons
(I) In general
The term "domestic production gross receipts" shall not include any gross receipts of the taxpayer derived from property leased, licensed, or rented by the taxpayer for use by any related person.
(II) Related person
For purposes of subclause (I), a person shall be treated as related to another person if such persons are treated as a single employer under subsection (a) or (b) of section 52 or subsection (m) or (o) of section 414, except that determinations under subsections (a) and (b) of section 52 shall be made without regard to section 1563(b).
(4) Specified agricultural or horticultural cooperative
For purposes of this section—
(A) In general
The term "specified agricultural or horticultural cooperative" means an organization to which part I of subchapter T applies which is engaged—
(i) in the manufacturing, production, growth, or extraction in whole or significant part of any agricultural or horticultural product, or
(ii) in the marketing of agricultural or horticultural products.
(B) Application to marketing cooperatives
A specified agricultural or horticultural cooperative described in subparagraph (A)(ii) shall be treated as having manufactured, produced, grown, or extracted in whole or significant part any agricultural or horticultural product marketed by the specified agricultural or horticultural cooperative which its patrons have so manufactured, produced, grown, or extracted.
(5) Definitions and special rules
(A) Special rule for affiliated groups
(i) In general
All members of an expanded affiliated group shall be treated as a single corporation for purposes of this subsection.
(ii) Partnerships owned by expanded affiliated groups
For purposes of paragraph (3)(D), if all of the interests in the capital and profits of a partnership are owned by members of a single expanded affiliated group at all times during the taxable year of such partnership, the partnership and all members of such group shall be treated as a single taxpayer during such period.
(iii) Expanded affiliated group
For purposes of this subsection, the term "expanded affiliated group" means an affiliated group as defined in section 1504(a), determined—
(I) by substituting "more than 50 percent" for "at least 80 percent" each place it appears, and
(II) without regard to paragraphs (2) and (4) of section 1504(b).
(iv) Allocation of deduction
Except as provided in regulations, the deduction under paragraph (1) shall be allocated among the members of the expanded affiliated group in proportion to each member's respective amount (if any) of qualified production activities income.
(B) Special rule for cooperative partners
In the case of a specified agricultural or horticultural cooperative which is a partner in a partnership, rules similar to the rules of subsection (f)(1) shall apply for purposes of this subsection.
(C) Trade or business requirement
This subsection shall be applied by only taking into account items which are attributable to the actual conduct of a trade or business.
(D) Unrelated business taxable income
For purposes of determining the tax imposed by section 511, this section shall be applied by substituting "unrelated business taxable income" for "taxable income" each place it appears in this section (other than this subparagraph).
(E) Special rule for cooperative with oil related qualified production activities income
(i) In general
If a specified agricultural or horticultural cooperative has oil related qualified production activities income for any taxable year, the amount otherwise allowable as a deduction under paragraph (1) shall be reduced by 3 percent of the least of—
(I) the oil related qualified production activities income of the cooperative for the taxable year,
(II) the qualified production activities income of the cooperative for the taxable year, or
(III) taxable income.
(ii) Oil related qualified production activities income
For purposes of this subparagraph, the term "oil related qualified production activities income" means for any taxable year the qualified production activities income which is attributable to the production, refining, processing, transportation, or distribution of oil, gas, or any primary product thereof (within the meaning of section 927(a)(2)(C), as in effect before its repeal) during such taxable year.
(6) Regulations
The Secretary shall prescribe such regulations as are necessary to carry out the purposes of this subsection, including regulations which prevent more than 1 taxpayer from being allowed a deduction under this subsection with respect to any activity described in paragraph (3)(D)(i). Such regulations shall be based on the regulations applicable to cooperatives and their patrons under section 199 (as in effect before its repeal).
(h) Anti-abuse rules
The Secretary shall—
(1) apply rules similar to the rules under section 179(d)(2) in order to prevent the manipulation of the depreciable period of qualified property using transactions between related parties, and
(2) prescribe rules for determining the unadjusted basis immediately after acquisition of qualified property acquired in like-kind exchanges or involuntary conversions.
(i) Termination
This section shall not apply to taxable years beginning after December 31, 2025.
(Added
Inflation Adjusted Items for Certain Years
For inflation adjustment of certain items in this section, see Revenue Procedures listed in a table under
Editorial Notes
References in Text
Section 199(d)(1)(B)(i) (as in effect on December 1, 2017), referred to in subsec. (f)(1)(B), means
Amendments
2018—Subsec. (a).
Subsec. (b)(7).
Subsec. (c)(1).
Subsec. (c)(3)(B).
Subsec. (c)(3)(B)(ii).
Subsec. (e)(1).
Subsec. (e)(4), (5).
Subsec. (g).
Statutory Notes and Related Subsidiaries
Effective Date of 2018 Amendment
Amendment by
Effective Date
Section applicable to taxable years beginning after Dec. 31, 2017, see section 11011(e) of
1 So in original. The word "a" probably should not appear within the quoted text.
2 So in original. Probably should be "7704(b))".
PART VII—ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS
Editorial Notes
Amendments
2020—
2017—
2003—
2001—
2000—
1997—
1996—
1990—
1988—
1986—
1981—
1978—
1976—
1974—
1971—
1964—
1962—
§211. Allowance of deductions
In computing taxable income under section 63, there shall be allowed as deductions the items specified in this part, subject to the exceptions provided in part IX (section 261 and following, relating to items not deductible).
(Aug. 16, 1954, ch. 736,
Editorial Notes
Amendments
1977—
Statutory Notes and Related Subsidiaries
Effective Date of 1977 Amendment
Amendment by
§212. Expenses for production of income
In the case of an individual, there shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year—
(1) for the production or collection of income;
(2) for the management, conservation, or maintenance of property held for the production of income; or
(3) in connection with the determination, collection, or refund of any tax.
(Aug. 16, 1954, ch. 736,
Statutory Notes and Related Subsidiaries
Denial of Deduction for Amounts Paid or Incurred on Judgments in Suits Brought To Recover Price Increases in Purchase of New Principal Residence
No deductions to be allowed in computing taxable income for two-thirds of any amount paid or incurred on a judgment entered against any person in a suit brought under section 208(b) of
§213. Medical, dental, etc., expenses
(a) Allowance of deduction
There shall be allowed as a deduction the expenses paid during the taxable year, not compensated for by insurance or otherwise, for medical care of the taxpayer, his spouse, or a dependent (as defined in section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof), to the extent that such expenses exceed 7.5 percent of adjusted gross income.
(b) Limitation with respect to medicine and drugs
An amount paid during the taxable year for medicine or a drug shall be taken into account under subsection (a) only if such medicine or drug is a prescribed drug or is insulin.
(c) Special rule for decedents
(1) Treatment of expenses paid after death
For purposes of subsection (a), expenses for the medical care of the taxpayer which are paid out of his estate during the 1-year period beginning with the day after the date of his death shall be treated as paid by the taxpayer at the time incurred.
(2) Limitation
Paragraph (1) shall not apply if the amount paid is allowable under section 2053 as a deduction in computing the taxable estate of the decedent, but this paragraph shall not apply if (within the time and in the manner and form prescribed by the Secretary) there is filed—
(A) a statement that such amount has not been allowed as a deduction under section 2053, and
(B) a waiver of the right to have such amount allowed at any time as a deduction under section 2053.
(d) Definitions
For purposes of this section—
(1) The term "medical care" means amounts paid—
(A) for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body,
(B) for transportation primarily for and essential to medical care referred to in subparagraph (A),
(C) for qualified long-term care services (as defined in section 7702B(c)), or
(D) for insurance (including amounts paid as premiums under part B of title XVIII of the Social Security Act, relating to supplementary medical insurance for the aged) covering medical care referred to in subparagraphs (A) and (B) or for any qualified long-term care insurance contract (as defined in section 7702B(b)).
In the case of a qualified long-term care insurance contract (as defined in section 7702B(b)), only eligible long-term care premiums (as defined in paragraph (10)) shall be taken into account under subparagraph (D).
(2)
(A) the medical care referred to in paragraph (1)(A) is provided by a physician in a licensed hospital (or in a medical care facility which is related to, or the equivalent of, a licensed hospital), and
(B) there is no significant element of personal pleasure, recreation, or vacation in the travel away from home.
The amount taken into account under the preceding sentence shall not exceed $50 for each night for each individual.
(3)
(4)
(5)
(6) In the case of an insurance contract under which amounts are payable for other than medical care referred to in subparagraphs (A), (B), and (C) of paragraph (1)—
(A) no amount shall be treated as paid for insurance to which paragraph (1)(D) applies unless the charge for such insurance is either separately stated in the contract, or furnished to the policyholder by the insurance company in a separate statement,
(B) the amount taken into account as the amount paid for such insurance shall not exceed such charge, and
(C) no amount shall be treated as paid for such insurance if the amount specified in the contract (or furnished to the policyholder by the insurance company in a separate statement) as the charge for such insurance is unreasonably large in relation to the total charges under the contract.
(7) Subject to the limitations of paragraph (6), premiums paid during the taxable year by a taxpayer before he attains the age of 65 for insurance covering medical care (within the meaning of subparagraphs (A), (B), and (C) of paragraph (1)) for the taxpayer, his spouse, or a dependent after the taxpayer attains the age of 65 shall be treated as expenses paid during the taxable year for insurance which constitutes medical care if premiums for such insurance are payable (on a level payment basis) under the contract for a period of 10 years or more or until the year in which the taxpayer attains the age of 65 (but in no case for a period of less than 5 years).
(8) The determination of whether an individual is married at any time during the taxable year shall be made in accordance with the provisions of section 6013(d) (relating to determination of status as husband and wife).
(9)
(A)
(B)
(10)
(A)
| In the case of an individual with an attained age before the close of the taxable year of: | The limitation is: |
|---|---|
| 40 or less | $ 200 |
| More than 40 but not more than 50 | 375 |
| More than 50 but not more than 60 | 750 |
| More than 60 but not more than 70 | 2,000 |
| More than 70 | 2,500. |
(B)
(i)
(ii)
(I) the medical care component of the C-CPI-U (as defined in section 1(f)(6)) for August of the preceding calendar year, exceeds
(II) such component of the CPI (as defined in section 1(f)(4)) for August of 1996, multiplied by the amount determined under section 1(f)(3)(B).
The Secretary shall, in consultation with the Secretary of Health and Human Services, prescribe an adjustment which the Secretary determines is more appropriate for purposes of this paragraph than the adjustment described in the preceding sentence, and the adjustment so prescribed shall apply in lieu of the adjustment described in the preceding sentence.
(11)
(A) by the spouse of the individual or by a relative (directly or through a partnership, corporation, or other entity) unless the service is provided by a licensed professional with respect to such service, or
(B) by a corporation or partnership which is related (within the meaning of section 267(b) or 707(b)) to the individual.
For purposes of this paragraph, the term "relative" means an individual bearing a relationship to the individual which is described in any of subparagraphs (A) through (G) of section 152(d)(2). This paragraph shall not apply for purposes of section 105(b) with respect to reimbursements through insurance.
(e) Exclusion of amounts allowed for care of certain dependents
Any expense allowed as a credit under section 21 shall not be treated as an expense paid for medical care.
(Aug. 16, 1954, ch. 736,
Inflation Adjusted Items for Certain Years
For inflation adjustment of certain items in this section, see Revenue Procedures listed in a table under
Editorial Notes
References in Text
The Social Security Act, referred to in subsec. (d)(1)(D), is act Aug. 14, 1935, ch. 531,
Amendments
2020—Subsec. (a).
Subsec. (f).
2019—Subsec. (f).
2017—Subsec. (d)(10)(B)(ii).
"(I) the medical care component of the Consumer Price Index (as defined in section 1(f)(5)) for August of the preceding calendar year, exceeds
"(II) such component for August of 1996."
Subsec. (f).
2010—Subsec. (a).
Subsec. (f).
2004—Subsec. (a).
Subsec. (d)(11).
1996—Subsec. (d)(1).
Subsec. (d)(1)(B).
Subsec. (d)(1)(C).
Subsec. (d)(1)(D).
Subsec. (d)(6).
Subsec. (d)(6)(A).
Subsec. (d)(7).
Subsec. (d)(10), (11).
1993—Subsec. (f).
1990—Subsec. (d)(9).
Subsec. (f).
1986—Subsec. (a).
1984—Subsec. (d)(2), (3).
Subsec. (d)(4).
Subsec. (d)(5).
Subsec. (d)(6).
Subsec. (d)(7).
Subsec. (d)(8).
Subsec. (e).
1982—Subsec. (a).
Subsec. (b).
Subsec. (c).
Subsec. (d).
Subsecs. (e), (f).
1976—Subsec. (d)(2).
Subsec. (f).
1965—Subsec. (a).
"(1) If neither the taxpayer nor his spouse has attained the age of 65 before the close of the taxable year—
"(A) the amount of such expenses for the care of any dependent who—
"(i) is the mother or father of the taxpayer or of his spouse, and
"(ii) has attained the age of 65 before the close of the taxable year, and
"(B) the amount by which such expenses for the care of the taxpayer, his spouse, and such dependents (other than any dependent described in subparagraph (A)) exceed 3 percent of the adjusted gross income.
"(2) If either the taxpayer or his spouse has attained the age of 65 before the close of the taxable year—
"(A) the amount of such expenses for the care of the taxpayer and his spouse.
"(B) the amount of such expenses for the care of any dependent described in paragraph (1)(A), and
"(C) the amount by which such expenses for the care of such dependents (other than any dependent described in paragraph (1)(A)) exceed 3 percent of the adjusted gross income."
Subsec. (b).
"(1) the taxpayer and his spouse, if either of them has attained the age of 65 before the close of the taxable year, or
"(2) any dependent described in subsection (a)(1)(A)."
Subsec. (c).
Subsec. (e).
Subsec. (g).
1964—Subsec. (b).
1962—Subsec. (c).
Subsec. (g).
1960—Subsec. (a).
1958—Subsec. (c).
Subsec. (d)(2)(A).
Subsec. (g).
Statutory Notes and Related Subsidiaries
Effective Date of 2020 Amendment
Effective Date of 2019 Amendment
Amendment by
Effective Date of 2017 Amendment
Amendment by section 11002(d)(7) of
Amendment by section 11027(a) of
Effective Date of 2010 Amendment
Amendment by
Effective Date of 2004 Amendment
Amendment by
Effective Date of 1996 Amendment
Amendment by
Effective Date of 1993 Amendment
Amendment by
Effective Date of 1990 Amendment
Amendment by section 11111(d)(1) of
Effective Date of 1986 Amendment
Amendment by
Effective Date of 1984 Amendment
Amendment by section 423(b) of
Amendment by section 474(r)(9) of
Amendment by section 711(b) of
Effective Date of 1982 Amendment
"(1)
"(2)
Effective Date of 1976 Amendment
Amendment by section 504(c)(1) of
Effective Date of 1965 Amendment
Effective Date of 1964 Amendment
Effective Date of 1962 Amendment
Effective Date of 1960 Amendment
Effective Date of 1958 Amendment
Amendment by section 16 of
[§214. Repealed. Pub. L. 94–455, title V, §504(b)(1), Oct. 4, 1976, 90 Stat. 1565 ]
Section, acts Aug. 16, 1954, ch. 736,
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
Repeal applicable to taxable years beginning after Dec. 31, 1975, see section 508 of
[§215. Repealed. Pub. L. 115–97, title I, §11051(a), Dec. 22, 2017, 131 Stat. 2089 ]
Section, act Aug. 16, 1954, ch. 736,
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
Repeal applicable to any divorce or separation instrument (as defined in former
§216. Deduction of taxes, interest, and business depreciation by cooperative housing corporation tenant-stockholder
(a) Allowance of deduction
In the case of a tenant-stockholder (as defined in subsection (b)(2)), there shall be allowed as a deduction amounts (not otherwise deductible) paid or accrued to a cooperative housing corporation within the taxable year, but only to the extent that such amounts represent the tenant-stockholder's proportionate share of—
(1) the real estate taxes allowable as a deduction to the corporation under section 164 which are paid or incurred by the corporation on the houses or apartment building and on the land on which such houses (or building) are situated, or
(2) the interest allowable as a deduction to the corporation under section 163 which is paid or incurred by the corporation on its indebtedness contracted—
(A) in the acquisition, construction, alteration, rehabilitation, or maintenance of the houses or apartment building, or
(B) in the acquisition of the land on which the houses (or apartment building) are situated.
(b) Definitions
For purposes of this section—
(1) Cooperative housing corporation
The term "cooperative housing corporation" means a corporation—
(A) having one and only one class of stock outstanding,
(B) each of the stockholders of which is entitled, solely by reason of his ownership of stock in the corporation, to occupy for dwelling purposes a house, or an apartment in a building, owned or leased by such corporation,
(C) no stockholder of which is entitled (either conditionally or unconditionally) to receive any distribution not out of earnings and profits of the corporation except on a complete or partial liquidation of the corporation, and
(D) meeting 1 or more of the following requirements for the taxable year in which the taxes and interest described in subsection (a) are paid or incurred:
(i) 80 percent or more of the corporation's gross income for such taxable year is derived from tenant-stockholders.
(ii) At all times during such taxable year, 80 percent or more of the total square footage of the corporation's property is used or available for use by the tenant-stockholders for residential purposes or purposes ancillary to such residential use.
(iii) 90 percent or more of the expenditures of the corporation paid or incurred during such taxable year are paid or incurred for the acquisition, construction, management, maintenance, or care of the corporation's property for the benefit of the tenant-stockholders.
(2) Tenant-stockholder
The term "tenant-stockholder" means a person who is a stockholder in a cooperative housing corporation, and whose stock is fully paid-up in an amount not less than an amount shown to the satisfaction of the Secretary as bearing a reasonable relationship to the portion of the value of the corporation's equity in the houses or apartment building and the land on which situated which is attributable to the house or apartment which such person is entitled to occupy.
(3) Tenant-stockholder's proportionate share
(A) In general
Except as provided in subparagraph (B), the term "tenant-stockholder's proportionate share" means that proportion which the stock of the cooperative housing corporation owned by the tenant-stockholder is of the total outstanding stock of the corporation (including any stock held by the corporation).
(B) Special rule where allocation of taxes or interest reflect cost to corporation of stockholder's unit
(i) In general
If, for any taxable year—
(I) each dwelling unit owned or leased by a cooperative housing corporation is separately allocated a share of such corporation's real estate taxes described in subsection (a)(1) or a share of such corporation's interest described in subsection (a)(2), and
(II) such allocations reasonably reflect the cost to such corporation of such taxes, or of such interest, attributable to the tenant-stockholder's dwelling unit (and such unit's share of the common areas),
then the term "tenant-stockholder's proportionate share" means the shares determined in accordance with the allocations described in subclause (II).
(ii) Election by corporation required
Clause (i) shall apply with respect to any cooperative housing corporation only if such corporation elects its application. Such an election, once made, may be revoked only with the consent of the Secretary.
(4) Stock owned by governmental units
For purposes of this subsection, in determining whether a corporation is a cooperative housing corporation, stock owned and apartments leased by the United States or any of its possessions, a State or any political subdivision thereof, or any agency or instrumentality of the foregoing empowered to acquire shares in a cooperative housing corporation for the purpose of providing housing facilities, shall not be taken into account.
(5) Prior approval of occupancy
For purposes of this section, in the following cases there shall not be taken into account the fact that (by agreement with the cooperative housing corporation) the person or his nominee may not occupy the house or apartment without the prior approval of such corporation:
(A) In any case where a person acquires stock of a cooperative housing corporation by operation of law.
(B) In any case where a person other than an individual acquires stock of a cooperative housing corporation.
(C) In any case where the original seller acquires any stock of the cooperative housing corporation from the corporation not later than 1 year after the date on which the apartments or houses (or leaseholds therein) are transferred by the original seller to the corporation.
(6) Original seller defined
For purposes of paragraph (5), the term "original seller" means the person from whom the corporation has acquired the apartments or houses (or leaseholds therein).
(c) Treatment as property subject to depreciation
(1) In general
So much of the stock of a tenant-stockholder in a cooperative housing corporation as is allocable, under regulations prescribed by the Secretary, to a proprietary lease or right of tenancy in property subject to the allowance for depreciation under section 167(a) shall, to the extent such proprietary lease or right of tenancy is used by such tenant-stockholder in a trade or business or for the production of income, be treated as property subject to the allowance for depreciation under section 167(a). The preceding sentence shall not be construed to limit or deny a deduction for depreciation under section 167(a) by a cooperative housing corporation with respect to property owned by such a corporation and leased to tenant-stockholders.
(2) Deduction limited to adjusted basis in stock
(A) In general
The amount of any deduction for depreciation allowable under section 167(a) to a tenant-stockholder with respect to any stock for any taxable year by reason of paragraph (1) shall not exceed the adjusted basis of such stock as of the close of the taxable year of the tenant-stockholder in which such deduction was incurred.
(B) Carryforward of disallowed amount
The amount of any deduction which is not allowed by reason of subparagraph (A) shall, subject to the provisions of subparagraph (A), be treated as a deduction allowable under section 167(a) in the succeeding taxable year.
(d) Disallowance of deduction for certain payments to the corporation
No deduction shall be allowed to a stockholder in a cooperative housing corporation for any amount paid or accrued to such corporation during any taxable year (in excess of the stockholder's proportionate share of the items described in subsections (a)(1) and (a)(2)) to the extent that, under regulations prescribed by the Secretary, such amount is properly allocable to amounts paid or incurred at any time by the corporation which are chargeable to the corporation's capital account. The stockholder's adjusted basis in the stock in the corporation shall be increased by the amount of such disallowance.
(e) Distributions by cooperative housing corporations
Except as provided in regulations no gain or loss shall be recognized on the distribution by a cooperative housing corporation of a dwelling unit to a stockholder in such corporation if such distribution is in exchange for the stockholder's stock in such corporation and such dwelling unit is used as his principal residence (within the meaning of section 121).
(Aug. 16, 1954, ch. 736,
Editorial Notes
Amendments
2007—Subsec. (b)(1)(D).
1997—Subsec. (e).
1990—Subsec. (e).
1988—Subsec. (e).
1986—Subsec. (b)(2).
Subsec. (b)(3).
Subsec. (b)(5).
Subsec. (b)(6).
Subsec. (c).
Subsec. (d).
1980—Subsec. (b)(6)(A).
Subsec. (b)(6)(B) to (D).
1978—Subsec. (b)(6).
1976—Subsec. (b)(2).
Subsec. (b)(5).
Subsec. (c).
1969—Subsec. (b)(4).
1962—
Statutory Notes and Related Subsidiaries
Effective Date of 2007 Amendment
Effective Date of 1997 Amendment
Amendment by
Effective Date of 1990 Amendment
Amendment by
Effective Date of 1988 Amendment
Effective Date of 1986 Amendment
"(1)
"(2)
"(A) Except as provided in subparagraph (B), subsection (e) [set out below] shall apply to taxable years beginning before January 1, 1986.
"(B) Subsection (e)(7) [set out below] shall apply to amounts paid or incurred, and property acquired, in taxable years beginning, after December 31, 1985."
Effective Date of 1980 Amendment
Amendment by
Effective Date of 1978 Amendment
Effective Date of 1976 Amendment
Effective Date of 1969 Amendment
Effective Date of 1962 Amendment
Treatment of Amounts Received in Connection With Refinancing of Indebtedness of Certain Cooperative Housing Corporations; Treatment of Amounts Paid From Qualified Refinancing-Related Reserve
"(1)
"(A) closing costs, or
"(B) the creation of reserves for the qualified cooperative housing corporation,
in connection with a qualified refinancing.
"(2)
"(A)
"(i) section 216 of the Internal Revenue Code of 1954 [now 1986] (relating to deduction of taxes, interest, and business depreciation by cooperative housing corporation tenant-stockholder), and
"(ii) section 277 of such Code (relating to deductions incurred by certain membership organizations in transactions with members).
"(B)
"(3)
"(A) claimed (on a return of tax imposed by
"(B) reported (before April 16, 1986) by the qualified cooperative housing corporation to its tenant-stockholders as interest described in section 216(a)(2) of such Code,
shall be treated for purposes of such Code as if such amount were paid by such qualified cooperative housing corporation during such taxable year.
"(4)
"(A)
"(i) such corporation is, after the application of paragraphs (1) and (2), a cooperative housing corporation (as defined in section 216(b) of the Internal Revenue Code of 1954 [now 1986]),
"(ii) such corporation is subject to a qualified limited-profit housing companies law, and
"(iii) such corporation either—
"(I) filed for incorporation on July 22, 1965, or
"(II) filed for incorporation on March 5, 1964.
"(B)
"(5)
"(A) which occurred—
"(i) with respect to a qualified cooperative housing corporation described in paragraph (4)(A)(iii)(I) on September 20, 1978, or
"(ii) with respect to a qualified cooperative housing corporation described in paragraph (4)(A)(iii)(II) on November 21, 1978, and
"(B) in which a qualified cooperative housing corporation refinanced a first mortgage loan made to such corporation by a city housing development agency with a first mortgage loan made by a city housing development corporation and insured by an agency of the Federal Government and a second mortgage loan made by such city housing development agency, in the process of which a reserve was created (as required by such Federal agency) and closing costs were paid or reimbursed by such city housing development agency or corporation.
"(6)
"(7)
"(A)
"(i) no deduction shall be allowed under
"(ii) the basis of any property acquired with such payment (determined without regard to this subparagraph) shall be reduced by the amount of such payment.
"(B)
"(i) first from amounts excluded from gross income by reason of paragraph (1) to the extent thereof, and
"(ii) then from other amounts in the reserve."
§217. Moving expenses
(a) Deduction allowed
There shall be allowed as a deduction moving expenses paid or incurred during the taxable year in connection with the commencement of work by the taxpayer as an employee or as a self-employed individual at a new principal place of work.
(b) Definition of moving expenses
(1) In general
For purposes of this section, the term "moving expenses" means only the reasonable expenses—
(A) of moving household goods and personal effects from the former residence to the new residence, and
(B) of traveling (including lodging) from the former residence to the new place of residence.
Such term shall not include any expenses for meals.
(2) Individuals other than taxpayer
In the case of any individual other than the taxpayer, expenses referred to in paragraph (1) shall be taken into account only if such individual has both the former residence and the new residence as his principal place of abode and is a member of the taxpayer's household.
(c) Conditions for allowance
No deduction shall be allowed under this section unless—
(1) the taxpayer's new principal place of work—
(A) is at least 50 miles farther from his former residence than was his former principal place of work, or
(B) if he had no former principal place of work, is at least 50 miles from his former residence, and
(2) either—
(A) during the 12-month period immediately following his arrival in the general location of his new principal place of work, the taxpayer is a full-time employee, in such general location, during at least 39 weeks, or
(B) during the 24-month period immediately following his arrival in the general location of his new principal place of work, the taxpayer is a full-time employee or performs services as a self-employed individual on a full-time basis, in such general location, during at least 78 weeks, of which not less than 39 weeks are during the 12-month period referred to in subparagraph (A).
For purposes of paragraph (1), the distance between two points shall be the shortest of the more commonly traveled routes between such two points.
(d) Rules for application of subsection (c)(2)
(1) The condition of subsection (c)(2) shall not apply if the taxpayer is unable to satisfy such condition by reason of—
(A) death or disability, or
(B) involuntary separation (other than for willful misconduct) from the service of, or transfer for the benefit of, an employer after obtaining full-time employment in which the taxpayer could reasonably have been expected to satisfy such condition.
(2) If a taxpayer has not satisfied the condition of subsection (c)(2) before the time prescribed by law (including extensions thereof) for filing the return for the taxable year during which he paid or incurred moving expenses which would otherwise be deductible under this section, but may still satisfy such condition, then such expenses may (at the election of the taxpayer) be deducted for such taxable year notwithstanding subsection (c)(2).
(3) If—
(A) for any taxable year moving expenses have been deducted in accordance with the rule provided in paragraph (2), and
(B) the condition of subsection (c)(2) cannot be satisfied at the close of a subsequent taxable year,
then an amount equal to the expenses which were so deducted shall be included in gross income for the first such subsequent taxable year.
[(e) Repealed. Pub. L. 103–66, title XIII, §13213(a)(2)(A), Aug. 10, 1993, 107 Stat. 473 ]
(f) Self-employed individual
For purposes of this section, the term "self-employed individual" means an individual who performs personal services—
(1) as the owner of the entire interest in an unincorporated trade or business, or
(2) as a partner in a partnership carrying on a trade or business.
(g) Rules for members of the Armed Forces of the United States
In the case of a member of the Armed Forces of the United States on active duty who moves pursuant to a military order and incident to a permanent change of station—
(1) the limitations under subsection (c) shall not apply;
(2) any moving and storage expenses which are furnished in kind (or for which reimbursement or an allowance is provided, but only to the extent of the expenses paid or incurred) to such member, his spouse, or his dependents, shall not be includible in gross income, and no reporting with respect to such expenses shall be required by the Secretary of Defense or the Secretary of Transportation, as the case may be; and
(3) if moving and storage expenses are furnished in kind (or if reimbursement or an allowance for such expenses is provided) to such member's spouse and his dependents with regard to moving to a location other than the one to which such member moves (or from a location other than the one from which such member moves), this section shall apply with respect to the moving expenses of his spouse and dependents—
(A) as if his spouse commenced work as an employee at a new principal place of work at such location; and
(B) without regard to the limitations under subsection (c).
(h) Special rules for foreign moves
(1) Allowance of certain storage fees
In the case of a foreign move, for purposes of this section, the moving expenses described in subsection (b)(1)(A) include the reasonable expenses—
(A) of moving household goods and personal effects to and from storage, and
(B) of storing such goods and effects for part or all of the period during which the new place of work continues to be the taxpayer's principal place of work.
(2) Foreign move
For purposes of this subsection, the term "foreign move" means the commencement of work by the taxpayer at a new principal place of work located outside the United States.
(3) United States defined
For purposes of this subsection and subsection (i), the term "United States" includes the possessions of the United States.
(i) Allowance of deductions in case of retirees or decedents who were working abroad
(1) In general
In the case of any qualified retiree moving expenses or qualified survivor moving expenses—
(A) this section (other than subsection (h)) shall be applied with respect to such expenses as if they were incurred in connection with the commencement of work by the taxpayer as an employee at a new principal place of work located within the United States, and
(B) the limitations of subsection (c)(2) shall not apply.
(2) Qualified retiree moving expenses
For purposes of paragraph (1), the term "qualified retiree moving expenses" means any moving expenses—
(A) which are incurred by an individual whose former principal place of work and former residence were outside the United States, and
(B) which are incurred for a move to a new residence in the United States in connection with the bona fide retirement of the individual.
(3) Qualified survivor moving expenses
For purposes of paragraph (1), the term "qualified survivor moving expenses" means moving expenses—
(A) which are paid or incurred by the spouse or any dependent of any decedent who (as of the time of his death) had a principal place of work outside the United States, and
(B) which are incurred for a move which begins within 6 months after the death of such decedent and which is to a residence in the United States from a former residence outside the United States which (as of the time of the decedent's death) was the residence of such decedent and the individual paying or incurring the expense.
(j) Regulations
The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this section.
(k) Suspension of deduction for taxable years 2018 through 2025
Except in the case of an individual to whom subsection (g) applies, this section shall not apply to any taxable year beginning after December 31, 2017, and before January 1, 2026.
(Added
Editorial Notes
Prior Provisions
A prior section 217 was renumbered
Amendments
Subsec. (k).
1993—Subsec. (b).
Subsec. (c)(1).
Subsec. (e).
Subsec. (f).
"(1)
"(A) as the owner of the entire interest in an unincorporated trade or business, or
"(B) as a partner in a partnership carrying on a trade or business.
"(2)
Subsec. (g)(3).
Subsec. (h).
"(A) subsection (b)(1)(D) shall be applied by substituting '90 consecutive days' for '30 consecutive days',
"(B) subsection (b)(3)(A) shall be applied by substituting '$4,500' for '$1,500' and by substituting '$6,000' for '$3,000', and
"(C) subsection (b)(3)(B) shall be applied as if the last sentence of such subsection read as follows: 'In the case of a husband and wife filing separate returns, subparagraph (A) shall be applied by substituting "$2,250" for "$4,500", and by substituting "$3,000" for "$6,000".' "
1978—Subsecs. (h) to (j).
1976—Subsec. (b)(3)(A).
Subsec. (b)(3)(B).
Subsec. (c)(1)(A), (B).
Subsecs. (g), (h).
1969—
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Effective Date of 1993 Amendment
Amendment by
Effective Date of 1978 Amendment; Election of Prior Law
Amendment by
Effective Date of 1976 Amendment
Effective Date of 1969 Amendment
"(1) section 217 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as amended by subsection (a)) shall not apply to any item to the extent that the taxpayer received or accrued reimbursement or other expense allowance for such item in a taxable year beginning on or before December 31, 1969, which was not included in his gross income; and
"(2) the amendments made by this section shall not apply (at the election of the taxpayer made at such time and manner as the Secretary of the Treasury or his delegate prescribes) with respect to moving expenses paid or incurred before January 1, 1971, in connection with the commencement of work by the taxpayer as an employee at a new principal place of work of which the taxpayer had been notified by his employer on or before December 19, 1969."
Effective Date
Section applicable to expenses incurred after Dec. 31, 1963, in taxable years ending after such date, see section 213(d) of
Moving Expenses of Members of the Uniformed Services
(1) enter into an agreement with the Secretary concerned under which the Secretary concerned would not be required to withhold tax on, or to report, moving expense reimbursements made to members of the armed forces;
(2) permit any taxpayer who was a member of the armed forces not to include in adjusted gross income the amount of any reimbursement in kind of moving expenses made by the Secretary concerned; and
(3) permit any taxpayer who was a member of the armed forces to deduct any amount paid by him as moving expenses in connection with any move required by the Secretary concerned, in excess of any reimbursement received for such expenses, without regard to the provisions of subsec. (c) of this section, to the extent it was otherwise deductible under this section.
[§218. Repealed. Pub. L. 95–600, title I, §113(a)(1), Nov. 6, 1978, 92 Stat. 2778 ]
Section, added
A prior section 218 was renumbered
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
Repeal effective with respect to contributions the payment of which is made after Dec. 31, 1978, in taxable years beginning after such date, see section 113(d) of
§219. Retirement savings
(a) Allowance of deduction
In the case of an individual, there shall be allowed as a deduction an amount equal to the qualified retirement contributions of the individual for the taxable year.
(b) Maximum amount of deduction
(1) In general
The amount allowable as a deduction under subsection (a) to any individual for any taxable year shall not exceed the lesser of—
(A) the deductible amount, or
(B) an amount equal to the compensation includible in the individual's gross income for such taxable year.
(2) Special rule for employer contributions under simplified employee pensions
This section shall not apply with respect to an employer contribution to a simplified employee pension.
(3) Plans under section 501(c)(18)
Notwithstanding paragraph (1), the amount allowable as a deduction under subsection (a) with respect to any contributions on behalf of an employee to a plan described in section 501(c)(18) shall not exceed the lesser of—
(A) $7,000, or
(B) an amount equal to 25 percent of the compensation (as defined in section 415(c)(3)) includible in the individual's gross income for such taxable year.
(4) Special rule for simple retirement accounts
This section shall not apply with respect to any amount contributed to a simple retirement account established under section 408(p).
(5) Deductible amount
For purposes of paragraph (1)(A)—
(A) In general
The deductible amount is $5,000.
(B) Catch-up contributions for individuals 50 or older
(i) In general
In the case of an individual who has attained the age of 50 before the close of the taxable year, the deductible amount for such taxable year shall be increased by the applicable amount.
(ii) Applicable amount
For purposes of clause (i), the applicable amount is $1,000.
(C) Cost-of-living adjustment
(i) In general
In the case of any taxable year beginning in a calendar year after 2008, the $5,000 amount under subparagraph (A) shall be increased by an amount equal to—
(I) such dollar amount, multiplied by
(II) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting "calendar year 2007" for "calendar year 2016" in subparagraph (A)(ii) thereof.
(ii) Rounding rules
If any amount after adjustment under clause (i) is not a multiple of $500, such amount shall be rounded to the next lower multiple of $500.
(iii) Indexing of catch-up limitation
In the case of any taxable year beginning in a calendar year after 2023, the $1,000 amount under subparagraph (B)(ii) shall be increased by an amount equal to—
(I) such dollar amount, multiplied by
(II) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting "calendar year 2022" for "calendar year 2016" in subparagraph (A)(ii) thereof.
If any amount after adjustment under the preceding sentence is not a multiple of $100, such amount shall be rounded to the next lower multiple of $100.
(c) Kay Bailey Hutchison Spousal IRA
(1) In general
In the case of an individual to whom this paragraph applies for the taxable year, the limitation of paragraph (1) of subsection (b) shall be equal to the lesser of—
(A) the dollar amount in effect under subsection (b)(1)(A) for the taxable year, or
(B) the sum of—
(i) the compensation includible in such individual's gross income for the taxable year, plus
(ii) the compensation includible in the gross income of such individual's spouse for the taxable year reduced by—
(I) the amount allowed as a deduction under subsection (a) to such spouse for such taxable year,
(II) the amount of any designated nondeductible contribution (as defined in section 408(o)) on behalf of such spouse for such taxable year, and
(III) the amount of any contribution on behalf of such spouse to a Roth IRA under section 408A for such taxable year.
(2) Individuals to whom paragraph (1) applies
Paragraph (1) shall apply to any individual if—
(A) such individual files a joint return for the taxable year, and
(B) the amount of compensation (if any) includible in such individual's gross income for the taxable year is less than the compensation includible in the gross income of such individual's spouse for the taxable year.
(d) Other limitations and restrictions
[(1) Repealed. Pub. L. 116–94, div. O, title I, §107(a), Dec. 20, 2019, 133 Stat. 3148 ]
(2) Recontributed amounts
No deduction shall be allowed under this section with respect to a rollover contribution described in section 402(c), 403(a)(4), 403(b)(8), 408(d)(3), or 457(e)(16).
(3) Amounts contributed under endowment contract
In the case of an endowment contract described in section 408(b), no deduction shall be allowed under this section for that portion of the amounts paid under the contract for the taxable year which is properly allocable, under regulations prescribed by the Secretary, to the cost of life insurance.
(4) Denial of deduction for amount contributed to inherited annuities or accounts
No deduction shall be allowed under this section with respect to any amount paid to an inherited individual retirement account or individual retirement annuity (within the meaning of section 408(d)(3)(C)(ii)).
(e) Qualified retirement contribution
For purposes of this section, the term "qualified retirement contribution" means—
(1) any amount paid in cash for the taxable year by or on behalf of an individual to an individual retirement plan for such individual's benefit, and
(2) any amount contributed on behalf of any individual to a plan described in section 501(c)(18).
(f) Other definitions and special rules
(1) Compensation
For purposes of this section, the term "compensation" includes earned income (as defined in section 401(c)(2)). The term "compensation" does not include any amount received as a pension or annuity and does not include any amount received as deferred compensation. For purposes of this paragraph, section 401(c)(2) shall be applied as if the term trade or business for purposes of section 1402 included service described in subsection (c)(6). The term "compensation" includes any differential wage payment (as defined in section 3401(h)(2)). The term "compensation" shall include any amount which is included in the individual's gross income and paid to the individual to aid the individual in the pursuit of graduate or postdoctoral study.
(2) Married individuals
The maximum deduction under subsection (b) shall be computed separately for each individual, and this section shall be applied without regard to any community property laws.
(3) Time when contributions deemed made
For purposes of this section, a taxpayer shall be deemed to have made a contribution to an individual retirement plan on the last day of the preceding taxable year if the contribution is made on account of such taxable year and is made not later than the time prescribed by law for filing the return for such taxable year (not including extensions thereof).
[(4) Repealed. Pub. L. 113–295, div. A, title II, §221(a)(39)(A), Dec. 19, 2014, 128 Stat. 4043 ]
(5) Employer payments
For purposes of this title, any amount paid by an employer to an individual retirement plan shall be treated as payment of compensation to the employee (other than a self-employed individual who is an employee within the meaning of section 401(c)(1)) includible in his gross income in the taxable year for which the amount was contributed, whether or not a deduction for such payment is allowable under this section to the employee.
(6) Excess contributions treated as contribution made during subsequent year for which there is an unused limitation
(A) In general
If for the taxable year the maximum amount allowable as a deduction under this section for contributions to an individual retirement plan exceeds the amount contributed, then the taxpayer shall be treated as having made an additional contribution for the taxable year in an amount equal to the lesser of—
(i) the amount of such excess, or
(ii) the amount of the excess contributions for such taxable year (determined under section 4973(b)(2) without regard to subparagraph (C) thereof).
(B) Amount contributed
For purposes of this paragraph, the amount contributed—
(i) shall be determined without regard to this paragraph, and
(ii) shall not include any rollover contribution.
(C) Special rule where excess deduction was allowed for closed year
Proper reduction shall be made in the amount allowable as a deduction by reason of this paragraph for any amount allowed as a deduction under this section for a prior taxable year for which the period for assessing deficiency has expired if the amount so allowed exceeds the amount which should have been allowed for such prior taxable year.
(7) Special rule for compensation earned by members of the Armed Forces for service in a combat zone.
For purposes of subsections (b)(1)(B) and (c), the amount of compensation includible in an individual's gross income shall be determined without regard to section 112.
(8) Election not to deduct contributions
For election not to deduct contributions to individual retirement plans, see section 408(o)(2)(B)(ii).
(g) Limitation on deduction for active participants in certain pension plans
(1) In general
If (for any part of any plan year ending with or within a taxable year) an individual or the individual's spouse is an active participant, each of the dollar limitations contained in subsections (b)(1)(A) and (c)(1)(A) for such taxable year shall be reduced (but not below zero) by the amount determined under paragraph (2).
(2) Amount of reduction
(A) In general
The amount determined under this paragraph with respect to any dollar limitation shall be the amount which bears the same ratio to such limitation as—
(i) the excess of—
(I) the taxpayer's adjusted gross income for such taxable year, over
(II) the applicable dollar amount, bears to
(ii) $10,000 ($20,000 in the case of a joint return).
(B) No reduction below $200 until complete phase-out
No dollar limitation shall be reduced below $200 under paragraph (1) unless (without regard to this subparagraph) such limitation is reduced to zero.
(C) Rounding
Any amount determined under this paragraph which is not a multiple of $10 shall be rounded to the next lowest $10.
(3) Adjusted gross income; applicable dollar amount
For purposes of this subsection—
(A) Adjusted gross income
Adjusted gross income of any taxpayer shall be determined—
(i) after application of sections 86 and 469, and
(ii) without regard to sections 85(c), 135, 137, 221, and 911 or the deduction allowable under this section.
(B) Applicable dollar amount
The term "applicable dollar amount" means the following:
(i) In the case of a taxpayer filing a joint return, $80,000.
(ii) In the case of any other taxpayer (other than a married individual filing a separate return), $50,000.
(iii) In the case of a married individual filing a separate return, zero.
(4) Special rule for married individuals filing separately and living apart
A husband and wife who—
(A) file separate returns for any taxable year, and
(B) live apart at all times during such taxable year,
shall not be treated as married individuals for purposes of this subsection.
(5) Active participant
For purposes of this subsection, the term "active participant" means, with respect to any plan year, an individual—
(A) who is an active participant in—
(i) a plan described in section 401(a) which includes a trust exempt from tax under section 501(a),
(ii) an annuity plan described in section 403(a),
(iii) a plan established for its employees by the United States, by a State or political subdivision thereof, or by an agency or instrumentality of any of the foregoing,
(iv) an annuity contract described in section 403(b),
(v) a simplified employee pension (within the meaning of section 408(k)), or
(vi) any simple retirement account (within the meaning of section 408(p)), or
(B) who makes deductible contributions to a trust described in section 501(c)(18).
The determination of whether an individual is an active participant shall be made without regard to whether or not such individual's rights under a plan, trust, or contract are nonforfeitable. An eligible deferred compensation plan (within the meaning of section 457(b)) shall not be treated as a plan described in subparagraph (A)(iii).
(6) Certain individuals not treated as active participants
For purposes of this subsection, any individual described in any of the following subparagraphs shall not be treated as an active participant for any taxable year solely because of any participation so described:
(A) Members of reserve components
Participation in a plan described in subparagraph (A)(iii) of paragraph (5) by reason of service as a member of a reserve component of the Armed Forces (as defined in
(B) Volunteer firefighters
A volunteer firefighter—
(i) who is a participant in a plan described in subparagraph (A)(iii) of paragraph (5) based on his activity as a volunteer firefighter, and
(ii) whose accrued benefit as of the beginning of the taxable year is not more than an annual benefit of $1,800 (when expressed as a single life annuity commencing at age 65).
(7) Special rule for spouses who are not active participants
If this subsection applies to an individual for any taxable year solely because their spouse is an active participant, then, in applying this subsection to the individual (but not their spouse)—
(A) the applicable dollar amount under paragraph (3)(B)(i) shall be $150,000; and
(B) the amount applicable under paragraph (2)(A)(ii) shall be $10,000.
(8) Inflation adjustment
In the case of any taxable year beginning in a calendar year after 2006, each of the dollar amounts in paragraphs (3)(B)(i), (3)(B)(ii), and (7)(A) shall be increased by an amount equal to—
(A) such dollar amount, multiplied by
(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting "calendar year 2005" for "calendar year 2016" in subparagraph (A)(ii) thereof.
Any increase determined under the preceding sentence shall be rounded to the nearest multiple of $1,000.
(Added
Inflation Adjusted Items for Certain Years
For inflation adjustment of certain items in this section, see Revenue Procedures listed in a table under
Editorial Notes
Prior Provisions
A prior section 219 was renumbered
Amendments
2022—Subsec. (b)(5)(C)(iii).
2021—Subsec. (g)(3)(A)(ii).
2020—Subsec. (g)(3)(A)(ii).
2019—Subsec. (d)(1).
Subsec. (f)(1).
2018—Subsec. (f)(1).
Subsec. (g)(8).
2017—Subsec. (b)(5)(C)(i)(II).
Subsec. (f)(1).
Subsec. (g)(3)(A)(ii).
Subsec. (g)(8)(B).
2014—Subsec. (b)(5)(A).
Subsec. (b)(5)(B)(ii).
Subsec. (b)(5)(C), (D).
Subsec. (f)(4).
Subsec. (g)(2)(A)(ii).
Subsec. (g)(3)(B)(i), (ii).
Subsec. (g)(8).
Subsec. (h).
2013—Subsec. (c).
2008—Subsec. (f)(1).
2006—Subsec. (b)(5)(C), (D).
Subsec. (f)(7), (8).
Subsec. (g)(8).
2004—Subsec. (g)(3)(A)(ii).
2001—Subsec. (b)(1)(A).
Subsec. (b)(5).
Subsec. (d)(2).
Subsec. (g)(3)(A)(ii).
2000—Subsec. (c)(1)(B)(ii)(II), (III).
1998—Subsec. (g)(1).
Subsec. (g)(2)(A)(ii).
Subsec. (g)(3)(A)(ii).
Subsec. (g)(7).
"(A) the applicable dollar amount under paragraph (3)(B)(i) with respect to the taxpayer shall be $150,000, and
"(B) the amount applicable under paragraph (2)(A)(ii) shall be $10,000."
1997—Subsec. (c)(1)(B)(ii).
Subsec. (g)(1).
Subsec. (g)(2)(A)(ii).
Subsec. (g)(3)(B).
"(i) in the case of a taxpayer filing a joint return, $40,000,
"(ii) in the case of any other taxpayer (other than a married individual filing a separate return), $25,000, and
"(iii) in the case of a married individual filing a separate return, zero."
Subsec. (g)(7).
1996—Subsec. (b)(4).
Subsec. (c).
Subsec. (f)(2).
Subsec. (g)(1).
Subsec. (g)(3)(A)(ii).
Subsec. (g)(5)(A)(vi).
1994—Subsec. (g)(6)(A).
1992—Subsec. (d)(2).
1989—Subsec. (f)(1).
Subsec. (g)(3)(A)(ii).
1988—Subsec. (g)(3)(A)(ii).
Subsec. (g)(4).
1986—Subsec. (b)(2).
Subsec. (b)(2)(C).
Subsec. (b)(3).
"(A) the amount determined under paragraph (1) for such taxable year, reduced by
"(B) the amount of the qualified voluntary employee contributions for the taxable year."
Subsec. (c)(1)(B).
Subsec. (c)(2)(B).
Subsec. (e).
Subsec. (f)(1).
Subsec. (f)(3).
Subsec. (f)(7).
Subsec. (g).
Subsec. (h).
1984—Subsec. (b)(2)(A)(ii).
Subsec. (b)(4).
Subsec. (b)(4)(B).
Subsec. (d)(2).
Subsec. (e)(1).
Subsec. (e)(3).
Subsec. (f)(1).
Subsec. (f)(3)(A).
1983—Subsec. (b)(2)(A).
Subsec. (c)(2)(B).
Subsec. (d)(1).
Subsec. (e)(3)(D), (E).
Subsec. (f)(1).
Subsec. (f)(3)(B).
1982—Subsec. (d)(4).
1981—Subsec. (a).
Subsec. (b).
Subsec. (b)(1).
Subsec. (b)(2)(A)(ii), (C).
Subsec. (b)(3) to (5).
Subsec. (b)(6).
Subsec. (b)(7).
Subsec. (c).
Subsec. (d).
Subsec. (d)(1).
Subsec. (d)(2).
Subsec. (d)(3).
Subsec. (e).
Subsec. (f)(1).
Subsec. (f)(2).
Subsec. (f)(3).
Subsec. (f)(4).
Subsec. (f)(5).
Subsec. (f)(6).
Subsec. (g).
1980—Subsec. (b)(4).
Subsec. (b)(7).
1978—Subsec. (b)(4).
Subsec. (b)(7).
Subsec. (c)(3).
Subsec. (c)(4).
Subsec. (c)(5).
1976—Subsec. (a).
Subsec. (b)(2)(A)(iv).
Subsec. (b)(5).
Subsec. (b)(6).
Subsec. (c)(2).
Subsec. (c)(3).
Subsec. (c)(4).
Statutory Notes and Related Subsidiaries
Effective Date of 2022 Amendment
Effective Date of 2021 Amendment
Amendment by
Effective Date of 2020 Amendment
Amendment by
Effective Date of 2019 Amendment
"(1)
"(2)
Effective Date of 2017 Amendment
Amendment by section 11002(d)(1)(S) of
Amendment by section 11051(b)(3)(C) of
Amendment by section 13305(b)(1) of
Effective Date of 2014 Amendment
Amendment by
Effective Date of 2008 Amendment
Effective Date of 2006 Amendment
Amendment by section 833(b) of
Effective Date of 2004 Amendment
Amendment by
Effective Date of 2001 Amendment
Amendment by section 431(c)(1) of
Amendment by section 641(e)(2) of
Effective Date of 2000 Amendment
Amendment by
Effective Date of 1998 Amendments
Amendment by
Amendment by section 6018(f)(2) of
Amendment by section 6005(a) of
Effective Date of 1997 Amendment
Effective Date of 1996 Amendment
Amendment by section 1421(b)(1) of
Amendment by section 1807(c)(3) of
Effective Date of 1994 Amendment
Amendment by
Effective Date of 1992 Amendment
Amendment by
Effective Date of 1989 Amendment
Amendment by section 7816(c)(1) of
Effective Date of 1988 Amendment
"(A) Except as provided in subparagraph (B), the amendment made by paragraph (1) [amending this section] shall apply to taxable years beginning after December 31, 1987.
"(B) A taxpayer may elect to have the amendment made by paragraph (1) apply to any taxable year beginning in 1987."
Amendment by section 6009(c)(2) of
Effective Date of 1986 Amendment
Amendment by section 301(b)(4) of
Amendment by section 1101(a), (b)(1), (2)(A) of
"(1)
"(2)
Amendment by section 1501(d)(1)(B) of
Amendment by section 1875(c)(4), (6)(B) of
Effective Date of 1984 Amendment
"(1)
"(2)
"(1)
"(2)
"(3)
Amendment by section 491(d)(6)–(8) of
Amendment by section 713(d)(2) of
Effective Date of 1983 Amendment
Amendment by
Effective Date of 1982 Amendment
Amendment by
Effective Date of 1981 Amendment
"(1)
"(2)
"(3)
"(4)
"(5)
"(A)
"(B)
Amendment by section 312(c)(1) of
Effective Date of 1980 Amendment
Amendment by
Effective Date of 1978 Amendment
Amendment by section 152(c) of
Amendment by section 156(c)(3) of
Effective Date of 1976 Amendment
Amendment by section 1501(b)(4) of
Amendment by section 1901(a)(32) of
Effective Date
Contributions for Taxable Years Ending Before May 29, 2006
"(1)
"(2)
"(A)
"(B)
"(3)
Clarification of Treatment of Federal Judges
"(a)
"(1) shall be treated as an active participant in a plan established for its employees by the United States for purposes of section 219(g) of the Internal Revenue Code of 1986, and
"(2) shall be treated as an employee for purposes of
"(b)
Plan Amendments Not Required Until January 1, 1998
For provisions directing that if any amendments made by subtitle D [§§1401–1465] of title I of
Plan Amendments Not Required Until January 1, 1994
For provisions directing that if any amendments made by subtitle B [§§521–523] of title V of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Transitional Rules for Allowable Deductions for First Taxable Year Beginning in 1978
§220. Archer MSAs
(a) Deduction allowed
In the case of an individual who is an eligible individual for any month during the taxable year, there shall be allowed as a deduction for the taxable year an amount equal to the aggregate amount paid in cash during such taxable year by such individual to an Archer MSA of such individual.
(b) Limitations
(1) In general
The amount allowable as a deduction under subsection (a) to an individual for the taxable year shall not exceed the sum of the monthly limitations for months during such taxable year that the individual is an eligible individual.
(2) Monthly limitation
The monthly limitation for any month is the amount equal to 1/12 of—
(A) in the case of an individual who has self-only coverage under the high deductible health plan as of the first day of such month, 65 percent of the annual deductible under such coverage, and
(B) in the case of an individual who has family coverage under the high deductible health plan as of the first day of such month, 75 percent of the annual deductible under such coverage.
(3) Special rule for married individuals
In the case of individuals who are married to each other, if either spouse has family coverage—
(A) both spouses shall be treated as having only such family coverage (and if such spouses each have family coverage under different plans, as having the family coverage with the lowest annual deductible), and
(B) the limitation under paragraph (1) (after the application of subparagraph (A) of this paragraph) shall be divided equally between them unless they agree on a different division.
(4) Deduction not to exceed compensation
(A) Employees
The deduction allowed under subsection (a) for contributions as an eligible individual described in subclause (I) of subsection (c)(1)(A)(iii) shall not exceed such individual's wages, salaries, tips, and other employee compensation which are attributable to such individual's employment by the employer referred to in such subclause.
(B) Self-employed individuals
The deduction allowed under subsection (a) for contributions as an eligible individual described in subclause (II) of subsection (c)(1)(A)(iii) shall not exceed such individual's earned income (as defined in section 401(c)(1)) derived by the taxpayer from the trade or business with respect to which the high deductible health plan is established.
(C) Community property laws not to apply
The limitations under this paragraph shall be determined without regard to community property laws.
(5) Coordination with exclusion for employer contributions
No deduction shall be allowed under this section for any amount paid for any taxable year to an Archer MSA of an individual if—
(A) any amount is contributed to any Archer MSA of such individual for such year which is excludable from gross income under section 106(b), or
(B) if such individual's spouse is covered under the high deductible health plan covering such individual, any amount is contributed for such year to any Archer MSA of such spouse which is so excludable.
(6) Denial of deduction to dependents
No deduction shall be allowed under this section to any individual with respect to whom a deduction under section 151 is allowable to another taxpayer for a taxable year beginning in the calendar year in which such individual's taxable year begins.
(7) Medicare eligible individuals
The limitation under this subsection for any month with respect to an individual shall be zero for the first month such individual is entitled to benefits under title XVIII of the Social Security Act and for each month thereafter.
(c) Definitions
For purposes of this section—
(1) Eligible individual
(A) In general
The term "eligible individual" means, with respect to any month, any individual if—
(i) such individual is covered under a high deductible health plan as of the 1st day of such month,
(ii) such individual is not, while covered under a high deductible health plan, covered under any health plan—
(I) which is not a high deductible health plan, and
(II) which provides coverage for any benefit which is covered under the high deductible health plan, and
(iii)(I) the high deductible health plan covering such individual is established and maintained by the employer of such individual or of the spouse of such individual and such employer is a small employer, or
(II) such individual is an employee (within the meaning of section 401(c)(1)) or the spouse of such an employee and the high deductible health plan covering such individual is not established or maintained by any employer of such individual or spouse.
(B) Certain coverage disregarded
Subparagraph (A)(ii) shall be applied without regard to—
(i) coverage for any benefit provided by permitted insurance, and
(ii) coverage (whether through insurance or otherwise) for accidents, disability, dental care, vision care, or long-term care.
(C) Continued eligibility of employee and spouse establishing Archer MSAs
If, while an employer is a small employer—
(i) any amount is contributed to an Archer MSA of an individual who is an employee of such employer or the spouse of such an employee, and
(ii) such amount is excludable from gross income under section 106(b) or allowable as a deduction under this section,
such individual shall not cease to meet the requirement of subparagraph (A)(iii)(I) by reason of such employer ceasing to be a small employer so long as such employee continues to be an employee of such employer.
(D) Limitations on eligibility
For limitations on number of taxpayers who are eligible to have Archer MSAs, see subsection (i).
(2) High deductible health plan
(A) In general
The term "high deductible health plan" means a health plan—
(i) in the case of self-only coverage, which has an annual deductible which is not less than $1,500 and not more than $2,250,
(ii) in the case of family coverage, which has an annual deductible which is not less than $3,000 and not more than $4,500, and
(iii) the annual out-of-pocket expenses required to be paid under the plan (other than for premiums) for covered benefits does not exceed—
(I) $3,000 for self-only coverage, and
(II) $5,500 for family coverage.
(B) Special rules
(i) Exclusion of certain plans
Such term does not include a health plan if substantially all of its coverage is coverage described in paragraph (1)(B).
(ii) Safe harbor for absence of preventive care deductible
A plan shall not fail to be treated as a high deductible health plan by reason of failing to have a deductible for preventive care if the absence of a deductible for such care is required by State law.
(3) Permitted insurance
The term "permitted insurance" means—
(A) insurance if substantially all of the coverage provided under such insurance relates to—
(i) liabilities incurred under workers' compensation laws,
(ii) tort liabilities,
(iii) liabilities relating to ownership or use of property, or
(iv) such other similar liabilities as the Secretary may specify by regulations,
(B) insurance for a specified disease or illness, and
(C) insurance paying a fixed amount per day (or other period) of hospitalization.
(4) Small employer
(A) In general
The term "small employer" means, with respect to any calendar year, any employer if such employer employed an average of 50 or fewer employees on business days during either of the 2 preceding calendar years. For purposes of the preceding sentence, a preceding calendar year may be taken into account only if the employer was in existence throughout such year.
(B) Employers not in existence in preceding year
In the case of an employer which was not in existence throughout the 1st preceding calendar year, the determination under subparagraph (A) shall be based on the average number of employees that it is reasonably expected such employer will employ on business days in the current calendar year.
(C) Certain growing employers retain treatment as small employer
The term "small employer" includes, with respect to any calendar year, any employer if—
(i) such employer met the requirement of subparagraph (A) (determined without regard to subparagraph (B)) for any preceding calendar year after 1996,
(ii) any amount was contributed to the Archer MSA of any employee of such employer with respect to coverage of such employee under a high deductible health plan of such employer during such preceding calendar year and such amount was excludable from gross income under section 106(b) or allowable as a deduction under this section, and
(iii) such employer employed an average of 200 or fewer employees on business days during each preceding calendar year after 1996.
(D) Special rules
(i) Controlled groups
For purposes of this paragraph, all persons treated as a single employer under subsection (b), (c), (m), or (o) of section 414 shall be treated as 1 employer.
(ii) Predecessors
Any reference in this paragraph to an employer shall include a reference to any predecessor of such employer.
(5) Family coverage
The term "family coverage" means any coverage other than self-only coverage.
(d) Archer MSA
For purposes of this section—
(1) Archer MSA
The term "Archer MSA" means a trust created or organized in the United States as a medical savings account exclusively for the purpose of paying the qualified medical expenses of the account holder, but only if the written governing instrument creating the trust meets the following requirements:
(A) Except in the case of a rollover contribution described in subsection (f)(5), no contribution will be accepted—
(i) unless it is in cash, or
(ii) to the extent such contribution, when added to previous contributions to the trust for the calendar year, exceeds 75 percent of the highest annual limit deductible permitted under subsection (c)(2)(A)(ii) for such calendar year.
(B) The trustee is a bank (as defined in section 408(n)), an insurance company (as defined in section 816), or another person who demonstrates to the satisfaction of the Secretary that the manner in which such person will administer the trust will be consistent with the requirements of this section.
(C) No part of the trust assets will be invested in life insurance contracts.
(D) The assets of the trust will not be commingled with other property except in a common trust fund or common investment fund.
(E) The interest of an individual in the balance in his account is nonforfeitable.
(2) Qualified medical expenses
(A) In general
The term "qualified medical expenses" means, with respect to an account holder, amounts paid by such holder for medical care (as defined in section 213(d)) for such individual, the spouse of such individual, and any dependent (as defined in section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof) of such individual, but only to the extent such amounts are not compensated for by insurance or otherwise. For purposes of this subparagraph, amounts paid for menstrual care products (as defined in section 223(d)(2)(D)) shall be treated as paid for medical care.
(B) Health insurance may not be purchased from account
(i) In general
Subparagraph (A) shall not apply to any payment for insurance.
(ii) Exceptions
Clause (i) shall not apply to any expense for coverage under—
(I) a health plan during any period of continuation coverage required under any Federal law,
(II) a qualified long-term care insurance contract (as defined in section 7702B(b)), or
(III) a health plan during a period in which the individual is receiving unemployment compensation under any Federal or State law.
(C) Medical expenses of individuals who are not eligible individuals
Subparagraph (A) shall apply to an amount paid by an account holder for medical care of an individual who is not described in clauses (i) and (ii) of subsection (c)(1)(A) for the month in which the expense for such care is incurred only if no amount is contributed (other than a rollover contribution) to any Archer MSA of such account holder for the taxable year which includes such month. This subparagraph shall not apply to any expense for coverage described in subclause (I) or (III) of subparagraph (B)(ii).
(3) Account holder
The term "account holder" means the individual on whose behalf the Archer MSA was established.
(4) Certain rules to apply
Rules similar to the following rules shall apply for purposes of this section:
(A) Section 219(d)(2) (relating to no deduction for rollovers).
(B) Section 219(f)(3) (relating to time when contributions deemed made).
(C) Except as provided in section 106(b), section 219(f)(5) (relating to employer payments).
(D) Section 408(g) (relating to community property laws).
(E) Section 408(h) (relating to custodial accounts).
(e) Tax treatment of accounts
(1) In general
An Archer MSA is exempt from taxation under this subtitle unless such account has ceased to be an Archer MSA. Notwithstanding the preceding sentence, any such account is subject to the taxes imposed by section 511 (relating to imposition of tax on unrelated business income of charitable, etc. organizations).
(2) Account terminations
Rules similar to the rules of paragraphs (2) and (4) of section 408(e) shall apply to Archer MSAs, and any amount treated as distributed under such rules shall be treated as not used to pay qualified medical expenses.
(f) Tax treatment of distributions
(1) Amounts used for qualified medical expenses
Any amount paid or distributed out of an Archer MSA which is used exclusively to pay qualified medical expenses of any account holder shall not be includible in gross income.
(2) Inclusion of amounts not used for qualified medical expenses
Any amount paid or distributed out of an Archer MSA which is not used exclusively to pay the qualified medical expenses of the account holder shall be included in the gross income of such holder.
(3) Excess contributions returned before due date of return
(A) In general
If any excess contribution is contributed for a taxable year to any Archer MSA of an individual, paragraph (2) shall not apply to distributions from the Archer MSAs of such individual (to the extent such distributions do not exceed the aggregate excess contributions to all such accounts of such individual for such year) if—
(i) such distribution is received by the individual on or before the last day prescribed by law (including extensions of time) for filing such individual's return for such taxable year, and
(ii) such distribution is accompanied by the amount of net income attributable to such excess contribution.
Any net income described in clause (ii) shall be included in the gross income of the individual for the taxable year in which it is received.
(B) Excess contribution
For purposes of subparagraph (A), the term "excess contribution" means any contribution (other than a rollover contribution) which is neither excludable from gross income under section 106(b) nor deductible under this section.
(4) Additional tax on distributions not used for qualified medical expenses
(A) In general
The tax imposed by this chapter on the account holder for any taxable year in which there is a payment or distribution from an Archer MSA of such holder which is includible in gross income under paragraph (2) shall be increased by 20 percent of the amount which is so includible.
(B) Exception for disability or death
Subparagraph (A) shall not apply if the payment or distribution is made after the account holder becomes disabled within the meaning of section 72(m)(7) or dies.
(C) Exception for distributions after medicare eligibility
Subparagraph (A) shall not apply to any payment or distribution after the date on which the account holder attains the age specified in section 1811 of the Social Security Act.
(5) Rollover contribution
An amount is described in this paragraph as a rollover contribution if it meets the requirements of subparagraphs (A) and (B).
(A) In general
Paragraph (2) shall not apply to any amount paid or distributed from an Archer MSA to the account holder to the extent the amount received is paid into an Archer MSA or a health savings account (as defined in section 223(d)) for the benefit of such holder not later than the 60th day after the day on which the holder receives the payment or distribution.
(B) Limitation
This paragraph shall not apply to any amount described in subparagraph (A) received by an individual from an Archer MSA if, at any time during the 1-year period ending on the day of such receipt, such individual received any other amount described in subparagraph (A) from an Archer MSA which was not includible in the individual's gross income because of the application of this paragraph.
(6) Coordination with medical expense deduction
For purposes of determining the amount of the deduction under section 213, any payment or distribution out of an Archer MSA for qualified medical expenses shall not be treated as an expense paid for medical care.
(7) Transfer of account incident to divorce
The transfer of an individual's interest in an Archer MSA to an individual's spouse or former spouse under a divorce or separation instrument described in clause (i) of section 121(d)(3)(C) shall not be considered a taxable transfer made by such individual notwithstanding any other provision of this subtitle, and such interest shall, after such transfer, be treated as an Archer MSA with respect to which such spouse is the account holder.
(8) Treatment after death of account holder
(A) Treatment if designated beneficiary is spouse
If the account holder's surviving spouse acquires such holder's interest in an Archer MSA by reason of being the designated beneficiary of such account at the death of the account holder, such Archer MSA shall be treated as if the spouse were the account holder.
(B) Other cases
(i) In general
If, by reason of the death of the account holder, any person acquires the account holder's interest in an Archer MSA in a case to which subparagraph (A) does not apply—
(I) such account shall cease to be an Archer MSA as of the date of death, and
(II) an amount equal to the fair market value of the assets in such account on such date shall be includible if such person is not the estate of such holder, in such person's gross income for the taxable year which includes such date, or if such person is the estate of such holder, in such holder's gross income for the last taxable year of such holder.
(ii) Special rules
(I) Reduction of inclusion for pre-death expenses
The amount includible in gross income under clause (i) by any person (other than the estate) shall be reduced by the amount of qualified medical expenses which were incurred by the decedent before the date of the decedent's death and paid by such person within 1 year after such date.
(II) Deduction for estate taxes
An appropriate deduction shall be allowed under section 691(c) to any person (other than the decedent or the decedent's spouse) with respect to amounts included in gross income under clause (i) by such person.
(g) Cost-of-living adjustment
In the case of any taxable year beginning in a calendar year after 1998, each dollar amount in subsection (c)(2) shall be increased by an amount equal to—
(1) such dollar amount, multiplied by
(2) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which such taxable year begins by substituting "calendar year 1997" for "calendar year 2016" in subparagraph (A)(ii) thereof.
If any increase under the preceding sentence is not a multiple of $50, such increase shall be rounded to the nearest multiple of $50.
(h) Reports
The Secretary may require the trustee of an Archer MSA to make such reports regarding such account to the Secretary and to the account holder with respect to contributions, distributions, and such other matters as the Secretary determines appropriate. The reports required by this subsection shall be filed at such time and in such manner and furnished to such individuals at such time and in such manner as may be required by the Secretary.
(i) Limitation on number of taxpayers having Archer MSAs
(1) In general
Except as provided in paragraph (5), no individual shall be treated as an eligible individual for any taxable year beginning after the cut-off year unless—
(A) such individual was an active MSA participant for any taxable year ending on or before the close of the cut-off year, or
(B) such individual first became an active MSA participant for a taxable year ending after the cut-off year by reason of coverage under a high deductible health plan of an MSA-participating employer.
(2) Cut-off year
For purposes of paragraph (1), the term "cut-off year" means the earlier of—
(A) calendar year 2007, or
(B) the first calendar year before 2007 for which the Secretary determines under subsection (j) that the numerical limitation for such year has been exceeded.
(3) Active MSA participant
For purposes of this subsection—
(A) In general
The term "active MSA participant" means, with respect to any taxable year, any individual who is the account holder of any Archer MSA into which any contribution was made which was excludable from gross income under section 106(b), or allowable as a deduction under this section, for such taxable year.
(B) Special rule for cut-off years before 2007
In the case of a cut-off year before 2007—
(i) an individual shall not be treated as an eligible individual for any month of such year or an active MSA participant under paragraph (1)(A) unless such individual is, on or before the cut-off date, covered under a high deductible health plan, and
(ii) an employer shall not be treated as an MSA-participating employer unless the employer, on or before the cut-off date, offered coverage under a high deductible health plan to any employee.
(C) Cut-off date
For purposes of subparagraph (B)—
(i) In general
Except as otherwise provided in this subparagraph, the cut-off date is October 1 of the cut-off year.
(ii) Employees with enrollment periods after October 1
In the case of an individual described in subclause (I) of subsection (c)(1)(A)(iii), if the regularly scheduled enrollment period for health plans of the individual's employer occurs during the last 3 months of the cut-off year, the cut-off date is December 31 of the cut-off year.
(iii) Self-employed individuals
In the case of an individual described in subclause (II) of subsection (c)(1)(A)(iii), the cut-off date is November 1 of the cut-off year.
(iv) Special rules for 1997
If 1997 is a cut-off year by reason of subsection (j)(1)(A)—
(I) each of the cut-off dates under clauses (i) and (iii) shall be 1 month earlier than the date determined without regard to this clause, and
(II) clause (ii) shall be applied by substituting "4 months" for "3 months".
(4) MSA-participating employer
For purposes of this subsection, the term "MSA-participating employer" means any small employer if—
(A) such employer made any contribution to the Archer MSA of any employee during the cut-off year or any preceding calendar year which was excludable from gross income under section 106(b), or
(B) at least 20 percent of the employees of such employer who are eligible individuals for any month of the cut-off year by reason of coverage under a high deductible health plan of such employer each made a contribution of at least $100 to their Archer MSAs for any taxable year ending with or within the cut-off year which was allowable as a deduction under this section.
(5) Additional eligibility after cut-off year
If the Secretary determines under subsection (j)(2)(A) that the numerical limit for the calendar year following a cut-off year described in paragraph (2)(B) has not been exceeded—
(A) this subsection shall not apply to any otherwise eligible individual who is covered under a high deductible health plan during the first 6 months of the second calendar year following the cut-off year (and such individual shall be treated as an active MSA participant for purposes of this subsection if a contribution is made to any Archer MSA with respect to such coverage), and
(B) any employer who offers coverage under a high deductible health plan to any employee during such 6-month period shall be treated as an MSA-participating employer for purposes of this subsection if the requirements of paragraph (4) are met with respect to such coverage.
For purposes of this paragraph, subsection (j)(2)(A) shall be applied for 1998 by substituting "750,000" for "600,000".
(j) Determination of whether numerical limits are exceeded
(1) Determination of whether limit exceeded for 1997
The numerical limitation for 1997 is exceeded if, based on the reports required under paragraph (4), the number of Archer MSAs established as of—
(A) April 30, 1997, exceeds 375,000, or
(B) June 30, 1997, exceeds 525,000.
(2) Determination of whether limit exceeded for 1998, 1999, 2001, 2002, 2004, 2005, or 2006
(A) In general
The numerical limitation for 1998, 1999, 2001, 2002, 2004, 2005, or 2006 is exceeded if the sum of—
(i) the number of MSA returns filed on or before April 15 of such calendar year for taxable years ending with or within the preceding calendar year, plus
(ii) the Secretary's estimate (determined on the basis of the returns described in clause (i)) of the number of MSA returns for such taxable years which will be filed after such date,
exceeds 750,000 (600,000 in the case of 1998). For purposes of the preceding sentence, the term "MSA return" means any return on which any exclusion is claimed under section 106(b) or any deduction is claimed under this section.
(B) Alternative computation of limitation
The numerical limitation for 1998, 1999, 2001, 2002, 2004, 2005, or 2006 is also exceeded if the sum of—
(i) 90 percent of the sum determined under subparagraph (A) for such calendar year, plus
(ii) the product of 2.5 and the number of Archer MSAs established during the portion of such year preceding July 1 (based on the reports required under paragraph (4)) for taxable years beginning in such year,
exceeds 750,000.
(C) No limitation for 2000 or 2003
The numerical limitation shall not apply for 2000 or 2003.
(3) Previously uninsured individuals not included in determination
(A) In general
The determination of whether any calendar year is a cut-off year shall be made by not counting the Archer MSA of any previously uninsured individual.
(B) Previously uninsured individual
For purposes of this subsection, the term "previously uninsured individual" means, with respect to any Archer MSA, any individual who had no health plan coverage (other than coverage referred to in subsection (c)(1)(B)) at any time during the 6-month period before the date such individual's coverage under the high deductible health plan commences.
(4) Reporting by MSA trustees
(A) In general
Not later than August 1 of 1997, 1998, 1999, 2001, 2002, 2004, 2005, and 2006, each person who is the trustee of an Archer MSA established before July 1 of such calendar year shall make a report to the Secretary (in such form and manner as the Secretary shall specify) which specifies—
(i) the number of Archer MSAs established before such July 1 (for taxable years beginning in such calendar year) of which such person is the trustee,
(ii) the name and TIN of the account holder of each such account, and
(iii) the number of such accounts which are accounts of previously uninsured individuals.
(B) Additional report for 1997
Not later than June 1, 1997, each person who is the trustee of an Archer MSA established before May 1, 1997, shall make an additional report described in subparagraph (A) but only with respect to accounts established before May 1, 1997.
(C) Penalty for failure to file report
The penalty provided in section 6693(a) shall apply to any report required by this paragraph, except that—
(i) such section shall be applied by substituting "$25" for "$50", and
(ii) the maximum penalty imposed on any trustee shall not exceed $5,000.
(D) Aggregation of accounts
To the extent practicable, in determining the number of Archer MSAs on the basis of the reports under this paragraph, all Archer MSAs of an individual shall be treated as 1 account and all accounts of individuals who are married to each other shall be treated as 1 account.
(5) Date of making determinations
Any determination under this subsection that a calendar year is a cut-off year shall be made by the Secretary and shall be published not later than October 1 of such year.
(Added
Inflation Adjusted Items for Certain Years
For inflation adjustment of certain items in this section, see Revenue Procedures listed in a table under
Editorial Notes
References in Text
The Social Security Act, referred to in subsecs. (b)(7) and (f)(4)(C), is act Aug. 14, 1935, ch. 531,
Prior Provisions
A prior section 220 was renumbered 224 of this title.
Another prior section 220, added
Another prior section 220, added
Amendments
2020—Subsec. (d)(2)(A).
2017—Subsec. (f)(7).
Subsec. (g)(2).
2010—Subsec. (d)(2)(A).
Subsec. (f)(4)(A).
2006—Subsec. (i)(2), (3)(B).
Subsec. (j)(2).
Subsec. (j)(4)(A).
2004—Subsec. (d)(2)(A).
Subsec. (i)(2), (3)(B).
Subsec. (j)(2).
Subsec. (j)(2)(A), (B).
Subsec. (j)(2)(C).
Subsec. (j)(4)(A).
2003—Subsec. (f)(5)(A).
2002—Subsec. (i)(2).
Subsec. (i)(3)(B).
Subsec. (j)(2).
Subsec. (j)(4)(A).
2000—
Subsecs. (a), (b)(5).
Subsec. (c)(1)(C).
Subsec. (c)(1)(C)(i).
Subsec. (c)(1)(D).
Subsec. (c)(4)(C)(ii).
Subsec. (d).
Subsec. (d)(1).
Subsec. (d)(2)(C), (3).
Subsec. (e)(1).
Subsec. (e)(2).
Subsec. (f).
Subsec. (h).
Subsec. (i).
Subsec. (i)(2)(A), (B).
Subsec. (i)(3)(A).
Subsec. (i)(3)(B).
Subsec. (i)(4)(A).
Subsec. (i)(4)(B).
Subsec. (i)(5)(A).
Subsec. (j)(1).
Subsec. (j)(2).
Subsec. (j)(2)(A).
Subsec. (j)(2)(B)(ii).
Subsec. (j)(2)(C).
Subsec. (j)(3)(A), (B).
Subsec. (j)(4)(A).
Subsec. (j)(4)(A)(i).
Subsec. (j)(4)(B).
Subsec. (j)(4)(D).
1997—Subsec. (b)(7).
Subsec. (c)(3).
Subsec. (d)(2)(C).
Statutory Notes and Related Subsidiaries
Effective Date of 2020 Amendment
Effective Date of 2017 Amendment
Amendment by section 11002(d)(1)(T) of
Amendment by section 11051(b)(3)(D) of
Effective Date of 2010 Amendment
Effective Date of 2004 Amendment
Amendment by section 207(19) of
Effective Date of 2003 Amendment
Amendment by
Effective Date of 2002 Amendment
Effective Date of 2000 Amendment
Effective Date of 1997 Amendments
Amendment by
Amendment by
Effective Date
Section applicable to taxable years beginning after Dec. 31, 1996, see section 301(j) of
Time for Filing Reports, Etc.
"(1) The report required by section 220(j)(4) of the Internal Revenue Code of 1986 to be made on August 1, 2005, or August 1, 2006, as the case may be, shall be treated as timely if made before the close of the 90-day period beginning on the date of the enactment of this Act [Dec. 20, 2006].
"(2) The determination and publication required by section 220(j)(5) of such Code with respect to calendar year 2005 or calendar year 2006, as the case may be, shall be treated as timely if made before the close of the 120-day period beginning on the date of the enactment of this Act. If the determination under the preceding sentence is that 2005 or 2006 is a cut-off year under section 220(i) of such Code, the cut-off date under such section 220(i) shall be the last day of such 120-day period."
"(1) The report required by section 220(j)(4) of the Internal Revenue Code of 1986 to be made on August 1, 2004, shall be treated as timely if made before the close of the 90-day period beginning on the date of the enactment of this Act [Oct. 4, 2004].
"(2) The determination and publication required by section 220(j)(5) of such Code with respect to calendar year 2004 shall be treated as timely if made before the close of the 120-day period beginning on the date of the enactment of this Act. If the determination under the preceding sentence is that 2004 is a cut-off year under section 220(i) of such Code, the cut-off date under such section 220(i) shall be the last day of such 120-day period."
Monitoring of Participation in Medical Savings Accounts
"(1) during 1997, 1998, 1999, and 2000, regularly evaluate the number of individuals who are maintaining medical savings accounts and the reduction in revenues to the United States by reason of such accounts, and
"(2) provide such reports of such evaluations to Congress as such Secretary determines appropriate."
Study of Effects of Medical Savings Accounts on Small Group Market
§221. Interest on education loans
(a) Allowance of deduction
In the case of an individual, there shall be allowed as a deduction for the taxable year an amount equal to the interest paid by the taxpayer during the taxable year on any qualified education loan.
(b) Maximum deduction
(1) In general
Except as provided in paragraph (2), the deduction allowed by subsection (a) for the taxable year shall not exceed $2,500.
(2) Limitation based on modified adjusted gross income
(A) In general
The amount which would (but for this paragraph) be allowable as a deduction under this section shall be reduced (but not below zero) by the amount determined under subparagraph (B).
(B) Amount of reduction
The amount determined under this subparagraph is the amount which bears the same ratio to the amount which would be so taken into account as—
(i) the excess of—
(I) the taxpayer's modified adjusted gross income for such taxable year, over
(II) $50,000 ($100,000 in the case of a joint return), bears to
(ii) $15,000 ($30,000 in the case of a joint return).
(C) Modified adjusted gross income
The term "modified adjusted gross income" means adjusted gross income determined—
(i) without regard to this section and sections 85(c) 1 911, 931, and 933, and
(ii) after application of sections 86, 135, 137, 219, and 469.
(c) Dependents not eligible for deduction
No deduction shall be allowed by this section to an individual for the taxable year if a deduction under section 151 with respect to such individual is allowed to another taxpayer for the taxable year beginning in the calendar year in which such individual's taxable year begins.
(d) Definitions
For purposes of this section—
(1) Qualified education loan
The term "qualified education loan" means any indebtedness incurred by the taxpayer solely to pay qualified higher education expenses—
(A) which are incurred on behalf of the taxpayer, the taxpayer's spouse, or any dependent of the taxpayer as of the time the indebtedness was incurred,
(B) which are paid or incurred within a reasonable period of time before or after the indebtedness is incurred, and
(C) which are attributable to education furnished during a period during which the recipient was an eligible student.
Such term includes indebtedness used to refinance indebtedness which qualifies as a qualified education loan. The term "qualified education loan" shall not include any indebtedness owed to a person who is related (within the meaning of section 267(b) or 707(b)(1)) to the taxpayer or to any person by reason of a loan under any qualified employer plan (as defined in section 72(p)(4)) or under any contract referred to in section 72(p)(5).
(2) Qualified higher education expenses
The term "qualified higher education expenses" means the cost of attendance (as defined in section 472 of the Higher Education Act of 1965,
(A) the amount excluded from gross income under section 127, 135, 529, or 530 by reason of such expenses, and
(B) the amount of any scholarship, allowance, or payment described in section 25A(g)(2).
For purposes of the preceding sentence, the term "eligible educational institution" has the same meaning given such term by section 25A(f)(2), except that such term shall also include an institution conducting an internship or residency program leading to a degree or certificate awarded by an institution of higher education, a hospital, or a health care facility which offers postgraduate training.
(3) Eligible student
The term "eligible student" has the meaning given such term by section 25A(b)(3).
(4) Dependent
The term "dependent" has the meaning given such term by section 152 (determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof).
(e) Special rules
(1) Denial of double benefit
No deduction shall be allowed under this section for any amount for which a deduction is allowable under any other provision of this chapter, or for which an exclusion is allowable under section 127 to the taxpayer by reason of the payment by the taxpayer's employer of any indebtedness on a qualified education loan of the taxpayer. The deduction otherwise allowable under subsection (a) (prior to the application of subsection (b)) to the taxpayer for any taxable year shall be reduced (but not below zero) by so much of the distributions treated as a qualified higher education expense under section 529(c)(9) with respect to loans of the taxpayer as would be includible in gross income under section 529(c)(3)(A) for such taxable year but for such treatment.
(2) Married couples must file joint return
If the taxpayer is married at the close of the taxable year, the deduction shall be allowed under subsection (a) only if the taxpayer and the taxpayer's spouse file a joint return for the taxable year.
(3) Marital status
Marital status shall be determined in accordance with section 7703.
(f) Inflation adjustments
(1) In general
In the case of a taxable year beginning after 2002, the $50,000 and $100,000 amounts in subsection (b)(2) shall each be increased by an amount equal to—
(A) such dollar amount, multiplied by
(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting "calendar year 2001" for "calendar year 2016" in subparagraph (A)(ii) thereof.
(2) Rounding
If any amount as adjusted under paragraph (1) is not a multiple of $5,000, such amount shall be rounded to the next lowest multiple of $5,000.
(Added
Inflation Adjusted Items for Certain Years
For inflation adjustment of certain items in this section, see Revenue Procedures listed in a table under
Editorial Notes
References in Text
The date of the enactment of the Taxpayer Relief Act of 1997, referred to in subsec. (d)(2), is the date of enactment of
Prior Provisions
A prior section 221 was renumbered
Another prior section 221, added
Amendments
2021—Subsec. (b)(2)(C)(i).
2020—Subsec. (b)(2)(C)(i).
Subsec. (e)(1).
2019—Subsec. (e)(1).
2017—Subsec. (b)(2)(C)(i).
Subsec. (f)(1)(B).
2014—Subsec. (b)(1).
2005—Subsec. (d)(2).
2004—Subsec. (b)(2)(C)(i).
Subsec. (d)(4).
Subsec. (f)(1).
2001—Subsec. (b)(2)(B)(i), (ii).
"(i) the excess of—
"(I) the taxpayer's modified adjusted gross income for such taxable year, over
"(II) $40,000 ($60,000 in the case of a joint return), bears to
"(ii) $15,000."
Subsec. (b)(2)(C)(i).
Subsec. (d).
Subsec. (e).
Subsec. (e)(2)(A).
Subsec. (f).
Subsec. (f)(1).
Subsec. (g).
1998—Subsec. (b)(2)(C).
Subsec. (b)(2)(C)(i).
Subsec. (b)(2)(C)(ii).
Subsec. (d).
Subsec. (e)(1).
Statutory Notes and Related Subsidiaries
Effective Date of 2021 Amendment
Amendment by
Effective Date of 2020 Amendment
Amendment by
Amendment by
Effective Date of 2019 Amendment
Effective Date of 2017 Amendment
Amendment by section 11002(d)(1)(U) of
Amendment by section 13305(b)(1) of
Effective Date of 2014 Amendment
Amendment by
Effective Date of 2004 Amendments
Amendment by
Amendment by section 207(20) of
Effective Date of 2001 Amendment
Amendment by section 402(b)(2)(B) of
Amendment by section 431(c)(2) of
Effective Date of 1998 Amendments
Amendment by
Amendment by
Effective Date
Section applicable to any qualified education loan (as defined in subsec. (e)(1) of this section) incurred on, before, or after Aug. 5, 1997, but only with respect to any loan interest payment due and paid after Dec. 31, 1997, and to the portion of the 60-month period referred to in subsec. (d) of this section after Dec. 31, 1997, see section 202(e) of
1 So in original. Probably should be followed by a comma.
[§222. Repealed. Pub. L. 116–260, div. EE, title I, §104(b)(1), Dec. 27, 2020, 134 Stat. 3041 ]
Section, added
A prior section 222 was renumbered
Another prior section 222, added
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
Repeal of section applicable to taxable years beginning after Dec. 31, 2020, see section 104(c) of div. EE of
§223. Health savings accounts
(a) Deduction allowed
In the case of an individual who is an eligible individual for any month during the taxable year, there shall be allowed as a deduction for the taxable year an amount equal to the aggregate amount paid in cash during such taxable year by or on behalf of such individual to a health savings account of such individual.
(b) Limitations
(1) In general
The amount allowable as a deduction under subsection (a) to an individual for the taxable year shall not exceed the sum of the monthly limitations for months during such taxable year that the individual is an eligible individual.
(2) Monthly limitation
The monthly limitation for any month is 1/12 of—
(A) in the case of an eligible individual who has self-only coverage under a high deductible health plan as of the first day of such month, $2,250.
(B) in the case of an eligible individual who has family coverage under a high deductible health plan as of the first day of such month, $4,500.
(3) Additional contributions for individuals 55 or older
(A) In general
In the case of an individual who has attained age 55 before the close of the taxable year, the applicable limitation under subparagraphs (A) and (B) of paragraph (2) shall be increased by the additional contribution amount.
(B) Additional contribution amount
For purposes of this section, the additional contribution amount is the amount determined in accordance with the following table:
| For taxable years beginning in: | The additional contribution amount is: |
|---|---|
| 2004 | $500 |
| 2005 | $600 |
| 2006 | $700 |
| 2007 | $800 |
| 2008 | $900 |
| 2009 and thereafter | $1,000. |
(4) Coordination with other contributions
The limitation which would (but for this paragraph) apply under this subsection to an individual for any taxable year shall be reduced (but not below zero) by the sum of—
(A) the aggregate amount paid for such taxable year to Archer MSAs of such individual,
(B) the aggregate amount contributed to health savings accounts of such individual which is excludable from the taxpayer's gross income for such taxable year under section 106(d) (and such amount shall not be allowed as a deduction under subsection (a)), and
(C) the aggregate amount contributed to health savings accounts of such individual for such taxable year under section 408(d)(9) (and such amount shall not be allowed as a deduction under subsection (a)).
Subparagraph (A) shall not apply with respect to any individual to whom paragraph (5) applies.
(5) Special rule for married individuals
In the case of individuals who are married to each other, if either spouse has family coverage—
(A) both spouses shall be treated as having only such family coverage (and if such spouses each have family coverage under different plans, as having the family coverage with the lowest annual deductible), and
(B) the limitation under paragraph (1) (after the application of subparagraph (A) and without regard to any additional contribution amount under paragraph (3))—
(i) shall be reduced by the aggregate amount paid to Archer MSAs of such spouses for the taxable year, and
(ii) after such reduction, shall be divided equally between them unless they agree on a different division.
(6) Denial of deduction to dependents
No deduction shall be allowed under this section to any individual with respect to whom a deduction under section 151 is allowable to another taxpayer for a taxable year beginning in the calendar year in which such individual's taxable year begins.
(7) Medicare eligible individuals
The limitation under this subsection for any month with respect to an individual shall be zero for the first month such individual is entitled to benefits under title XVIII of the Social Security Act and for each month thereafter.
(8) Increase in limit for individuals becoming eligible individuals after the beginning of the year
(A) In general
For purposes of computing the limitation under paragraph (1) for any taxable year, an individual who is an eligible individual during the last month of such taxable year shall be treated—
(i) as having been an eligible individual during each of the months in such taxable year, and
(ii) as having been enrolled, during each of the months such individual is treated as an eligible individual solely by reason of clause (i), in the same high deductible health plan in which the individual was enrolled for the last month of such taxable year.
(B) Failure to maintain high deductible health plan coverage
(i) In general
If, at any time during the testing period, the individual is not an eligible individual, then—
(I) gross income of the individual for the taxable year in which occurs the first month in the testing period for which such individual is not an eligible individual is increased by the aggregate amount of all contributions to the health savings account of the individual which could not have been made but for subparagraph (A), and
(II) the tax imposed by this chapter for any taxable year on the individual shall be increased by 10 percent of the amount of such increase.
(ii) Exception for disability or death
Subclauses (I) and (II) of clause (i) shall not apply if the individual ceased to be an eligible individual by reason of the death of the individual or the individual becoming disabled (within the meaning of section 72(m)(7)).
(iii) Testing period
The term "testing period" means the period beginning with the last month of the taxable year referred to in subparagraph (A) and ending on the last day of the 12th month following such month.
(c) Definitions and special rules
For purposes of this section—
(1) Eligible individual
(A) In general
The term "eligible individual" means, with respect to any month, any individual if—
(i) such individual is covered under a high deductible health plan as of the 1st day of such month, and
(ii) such individual is not, while covered under a high deductible health plan, covered under any health plan—
(I) which is not a high deductible health plan, and
(II) which provides coverage for any benefit which is covered under the high deductible health plan.
(B) Certain coverage disregarded
Subparagraph (A)(ii) shall be applied without regard to—
(i) coverage for any benefit provided by permitted insurance,
(ii) coverage (whether through insurance or otherwise) for accidents, disability, dental care, vision care, long-term care, or (in the case of months or plan years to which paragraph (2)(E) applies) telehealth and other remote care, and
(iii) for taxable years beginning after December 31, 2006, coverage under a health flexible spending arrangement during any period immediately following the end of a plan year of such arrangement during which unused benefits or contributions remaining at the end of such plan year may be paid or reimbursed to plan participants for qualified benefit expenses incurred during such period if—
(I) the balance in such arrangement at the end of such plan year is zero, or
(II) the individual is making a qualified HSA distribution (as defined in section 106(e)) in an amount equal to the remaining balance in such arrangement as of the end of such plan year, in accordance with rules prescribed by the Secretary.
(C) Special rule for individuals eligible for certain veterans benefits
An individual shall not fail to be treated as an eligible individual for any period merely because the individual receives hospital care or medical services under any law administered by the Secretary of Veterans Affairs for a service-connected disability (within the meaning of
(D) Special rule for individuals receiving benefits subject to surprise billing statutes
An individual shall not fail to be treated as an eligible individual for any period merely because the individual receives benefits for medical care subject to and in accordance with section 9816 or 9817, section 2799A–1 or 2799A–2 of the Public Health Service Act, or section 716 or 717 of the Employee Retirement Income Security Act of 1974, or any State law providing similar protections to such individual.
(2) High deductible health plan
(A) In general
The term "high deductible health plan" means a health plan—
(i) which has an annual deductible which is not less than—
(I) $1,000 for self-only coverage, and
(II) twice the dollar amount in subclause (I) for family coverage, and
(ii) the sum of the annual deductible and the other annual out-of-pocket expenses required to be paid under the plan (other than for premiums) for covered benefits does not exceed—
(I) $5,000 for self-only coverage, and
(II) twice the dollar amount in subclause (I) for family coverage.
(B) Exclusion of certain plans
Such term does not include a health plan if substantially all of its coverage is coverage described in paragraph (1)(B).
(C) Safe harbor for absence of preventive care deductible
A plan shall not fail to be treated as a high deductible health plan by reason of failing to have a deductible for preventive care (within the meaning of section 1861 of the Social Security Act, except as otherwise provided by the Secretary).
(D) Special rules for network plans
In the case of a plan using a network of providers—
(i) Annual out-of-pocket limitation
Such plan shall not fail to be treated as a high deductible health plan by reason of having an out-of-pocket limitation for services provided outside of such network which exceeds the applicable limitation under subparagraph (A)(ii).
(ii) Annual deductible
Such plan's annual deductible for services provided outside of such network shall not be taken into account for purposes of subsection (b)(2).
(E) Safe harbor for absence of deductible for telehealth
In the case of—
(i) months beginning after March 31, 2022, and before January 1, 2023, and
(ii) plan years beginning on or before December 31, 2021, or after December 31, 2022, and before January 1, 2025,
a plan shall not fail to be treated as a high deductible health plan by reason of failing to have a deductible for telehealth and other remote care services.
(F) Special rule for surprise billing
A plan shall not fail to be treated as a high deductible health plan by reason of providing benefits for medical care in accordance with section 9816 or 9817, section 2799A–1 or 2799A–2 of the Public Health Service Act, or section 716 or 717 of the Employee Retirement Income Security Act of 1974, or any State law providing similar protections to individuals, prior to the satisfaction of the deductible under paragraph (2)(A)(i).
(G) Safe harbor for absence of deductible for certain insulin products
(i) In general
A plan shall not fail to be treated as a high deductible health plan by reason of failing to have a deductible for selected insulin products.
(ii) Selected insulin products
For purposes of this subparagraph—
(I) In general
The term "selected insulin products" means any dosage form (such as vial, pump, or inhaler dosage forms) of any different type (such as rapid-acting, short-acting, intermediate-acting, long-acting, ultra long-acting, and premixed) of insulin.
(II) Insulin
The term "insulin" means insulin that is licensed under subsection (a) or (k) of section 351 of the Public Health Service Act (
(3) Permitted insurance
The term "permitted insurance" means—
(A) insurance if substantially all of the coverage provided under such insurance relates to—
(i) liabilities incurred under workers' compensation laws,
(ii) tort liabilities,
(iii) liabilities relating to ownership or use of property, or
(iv) such other similar liabilities as the Secretary may specify by regulations,
(B) insurance for a specified disease or illness, and
(C) insurance paying a fixed amount per day (or other period) of hospitalization.
(4) Family coverage
The term "family coverage" means any coverage other than self-only coverage.
(5) Archer MSA
The term "Archer MSA" has the meaning given such term in section 220(d).
(d) Health savings account
For purposes of this section—
(1) In general
The term "health savings account" means a trust created or organized in the United States as a health savings account exclusively for the purpose of paying the qualified medical expenses of the account beneficiary, but only if the written governing instrument creating the trust meets the following requirements:
(A) Except in the case of a rollover contribution described in subsection (f)(5) or section 220(f)(5), no contribution will be accepted—
(i) unless it is in cash, or
(ii) to the extent such contribution, when added to previous contributions to the trust for the calendar year, exceeds the sum of—
(I) the dollar amount in effect under subsection (b)(2)(B), and
(II) the dollar amount in effect under subsection (b)(3)(B).
(B) The trustee is a bank (as defined in section 408(n)), an insurance company (as defined in section 816), or another person who demonstrates to the satisfaction of the Secretary that the manner in which such person will administer the trust will be consistent with the requirements of this section.
(C) No part of the trust assets will be invested in life insurance contracts.
(D) The assets of the trust will not be commingled with other property except in a common trust fund or common investment fund.
(E) The interest of an individual in the balance in his account is nonforfeitable.
(2) Qualified medical expenses
(A) In general
The term "qualified medical expenses" means, with respect to an account beneficiary, amounts paid by such beneficiary for medical care (as defined in section 213(d)) for such individual, the spouse of such individual, and any dependent (as defined in section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof) of such individual, but only to the extent such amounts are not compensated for by insurance or otherwise. For purposes of this subparagraph, amounts paid for menstrual care products shall be treated as paid for medical care.
(B) Health insurance may not be purchased from account
Subparagraph (A) shall not apply to any payment for insurance.
(C) Exceptions
Subparagraph (B) shall not apply to any expense for coverage under—
(i) a health plan during any period of continuation coverage required under any Federal law,
(ii) a qualified long-term care insurance contract (as defined in section 7702B(b)),
(iii) a health plan during a period in which the individual is receiving unemployment compensation under any Federal or State law, or
(iv) in the case of an account beneficiary who has attained the age specified in section 1811 of the Social Security Act, any health insurance other than a medicare supplemental policy (as defined in section 1882 of the Social Security Act).
(D) Menstrual care product
For purposes of this paragraph, the term "menstrual care product" means a tampon, pad, liner, cup, sponge, or similar product used by individuals with respect to menstruation or other genital-tract secretions.
(3) Account beneficiary
The term "account beneficiary" means the individual on whose behalf the health savings account was established.
(4) Certain rules to apply
Rules similar to the following rules shall apply for purposes of this section:
(A) Section 219(d)(2) (relating to no deduction for rollovers).
(B) Section 219(f)(3) (relating to time when contributions deemed made).
(C) Except as provided in section 106(d), section 219(f)(5) (relating to employer payments).
(D) Section 408(g) (relating to community property laws).
(E) Section 408(h) (relating to custodial accounts).
(e) Tax treatment of accounts
(1) In general
A health savings account is exempt from taxation under this subtitle unless such account has ceased to be a health savings account. Notwithstanding the preceding sentence, any such account is subject to the taxes imposed by section 511 (relating to imposition of tax on unrelated business income of charitable, etc. organizations).
(2) Account terminations
Rules similar to the rules of paragraphs (2) and (4) of section 408(e) shall apply to health savings accounts, and any amount treated as distributed under such rules shall be treated as not used to pay qualified medical expenses.
(f) Tax treatment of distributions
(1) Amounts used for qualified medical expenses
Any amount paid or distributed out of a health savings account which is used exclusively to pay qualified medical expenses of any account beneficiary shall not be includible in gross income.
(2) Inclusion of amounts not used for qualified medical expenses
Any amount paid or distributed out of a health savings account which is not used exclusively to pay the qualified medical expenses of the account beneficiary shall be included in the gross income of such beneficiary.
(3) Excess contributions returned before due date of return
(A) In general
If any excess contribution is contributed for a taxable year to any health savings account of an individual, paragraph (2) shall not apply to distributions from the health savings accounts of such individual (to the extent such distributions do not exceed the aggregate excess contributions to all such accounts of such individual for such year) if—
(i) such distribution is received by the individual on or before the last day prescribed by law (including extensions of time) for filing such individual's return for such taxable year, and
(ii) such distribution is accompanied by the amount of net income attributable to such excess contribution.
Any net income described in clause (ii) shall be included in the gross income of the individual for the taxable year in which it is received.
(B) Excess contribution
For purposes of subparagraph (A), the term "excess contribution" means any contribution (other than a rollover contribution described in paragraph (5) or section 220(f)(5)) which is neither excludable from gross income under section 106(d) nor deductible under this section.
(4) Additional tax on distributions not used for qualified medical expenses
(A) In general
The tax imposed by this chapter on the account beneficiary for any taxable year in which there is a payment or distribution from a health savings account of such beneficiary which is includible in gross income under paragraph (2) shall be increased by 20 percent of the amount which is so includible.
(B) Exception for disability or death
Subparagraph (A) shall not apply if the payment or distribution is made after the account beneficiary becomes disabled within the meaning of section 72(m)(7) or dies.
(C) Exception for distributions after medicare eligibility
Subparagraph (A) shall not apply to any payment or distribution after the date on which the account beneficiary attains the age specified in section 1811 of the Social Security Act.
(5) Rollover contribution
An amount is described in this paragraph as a rollover contribution if it meets the requirements of subparagraphs (A) and (B).
(A) In general
Paragraph (2) shall not apply to any amount paid or distributed from a health savings account to the account beneficiary to the extent the amount received is paid into a health savings account for the benefit of such beneficiary not later than the 60th day after the day on which the beneficiary receives the payment or distribution.
(B) Limitation
This paragraph shall not apply to any amount described in subparagraph (A) received by an individual from a health savings account if, at any time during the 1-year period ending on the day of such receipt, such individual received any other amount described in subparagraph (A) from a health savings account which was not includible in the individual's gross income because of the application of this paragraph.
(6) Coordination with medical expense deduction
For purposes of determining the amount of the deduction under section 213, any payment or distribution out of a health savings account for qualified medical expenses shall not be treated as an expense paid for medical care.
(7) Transfer of account incident to divorce
The transfer of an individual's interest in a health savings account to an individual's spouse or former spouse under a divorce or separation instrument described in clause (i) of section 121(d)(3)(C) shall not be considered a taxable transfer made by such individual notwithstanding any other provision of this subtitle, and such interest shall, after such transfer, be treated as a health savings account with respect to which such spouse is the account beneficiary.
(8) Treatment after death of account beneficiary
(A) Treatment if designated beneficiary is spouse
If the account beneficiary's surviving spouse acquires such beneficiary's interest in a health savings account by reason of being the designated beneficiary of such account at the death of the account beneficiary, such health savings account shall be treated as if the spouse were the account beneficiary.
(B) Other cases
(i) In general
If, by reason of the death of the account beneficiary, any person acquires the account beneficiary's interest in a health savings account in a case to which subparagraph (A) does not apply—
(I) such account shall cease to be a health savings account as of the date of death, and
(II) an amount equal to the fair market value of the assets in such account on such date shall be includible if such person is not the estate of such beneficiary, in such person's gross income for the taxable year which includes such date, or if such person is the estate of such beneficiary, in such beneficiary's gross income for the last taxable year of such beneficiary.
(ii) Special rules
(I) Reduction of inclusion for predeath expenses
The amount includible in gross income under clause (i) by any person (other than the estate) shall be reduced by the amount of qualified medical expenses which were incurred by the decedent before the date of the decedent's death and paid by such person within 1 year after such date.
(II) Deduction for estate taxes
An appropriate deduction shall be allowed under section 691(c) to any person (other than the decedent or the decedent's spouse) with respect to amounts included in gross income under clause (i) by such person.
(g) Cost-of-living adjustment
(1) In general
Each dollar amount in subsections (b)(2) and (c)(2)(A) shall be increased by an amount equal to—
(A) such dollar amount, multiplied by
(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which such taxable year begins determined by substituting for "calendar year 2016" in subparagraph (A)(ii) thereof—
(i) except as provided in clause (ii), "calendar year 1997", and
(ii) in the case of each dollar amount in subsection (c)(2)(A), "calendar year 2003".
In the case of adjustments made for any taxable year beginning after 2007, section 1(f)(4) shall be applied for purposes of this paragraph by substituting "March 31" for "August 31", and the Secretary shall publish the adjusted amounts under subsections (b)(2) and (c)(2)(A) for taxable years beginning in any calendar year no later than June 1 of the preceding calendar year.
(2) Rounding
If any increase under paragraph (1) is not a multiple of $50, such increase shall be rounded to the nearest multiple of $50.
(h) Reports
The Secretary may require—
(1) the trustee of a health savings account to make such reports regarding such account to the Secretary and to the account beneficiary with respect to contributions, distributions, the return of excess contributions, and such other matters as the Secretary determines appropriate, and
(2) any person who provides an individual with a high deductible health plan to make such reports to the Secretary and to the account beneficiary with respect to such plan as the Secretary determines appropriate.
The reports required by this subsection shall be filed at such time and in such manner and furnished to such individuals at such time and in such manner as may be required by the Secretary.
(Added
Inflation Adjusted Items for Certain Years
For inflation adjustment of certain items in this section, see Revenue Procedures listed in a table below and under
Editorial Notes
References in Text
The Social Security Act, referred to in subsecs. (b)(7), (c)(2)(C), (d)(2)(C)(iv), (f)(4)(C), is act Aug. 14, 1935, ch. 531,
Sections 2799A–1 and 2799A–2 of the Public Health Service Act, referred to in subsec. (c)(1)(D), (2)(F), are classified to sections 300gg–111 and 300gg–112, respectively, of Title 42, The Public Health and Welfare.
Sections 716 and 717 of the Employee Retirement Income Security Act of 1974, referred to in subsec. (c)(1)(D), (2)(F), are classified to sections 1185e and 1185f, respectively, of Title 29, Labor.
Section 7002(e)(4) of the Biologics Price Competition and Innovation Act of 2009, referred to in subsec. (c)(2)(G)(ii)(II), is section 7002(e)(4) of
Prior Provisions
A prior section 223 was renumbered
Amendments
2022—Subsec. (c)(1)(B)(ii).
Subsec. (c)(2)(E).
Subsec. (c)(2)(G).
2020—Subsec. (c)(1)(B)(ii).
Subsec. (c)(1)(D).
Subsec. (c)(2)(E).
Subsec. (c)(2)(F).
Subsec. (d)(2)(A).
Subsec. (d)(2)(D).
2018—Subsec. (c)(2)(C).
Subsec. (d)(2)(A).
2017—Subsec. (f)(7).
Subsec. (g)(1)(B).
2015—Subsec. (c)(1)(C).
2010—Subsec. (d)(2)(A).
Subsec. (f)(4)(A).
2006—Subsec. (b)(2)(A).
"(i) the annual deductible under such coverage, or
"(ii) $2,250, or".
Subsec. (b)(2)(B).
"(i) the annual deductible under such coverage, or
"(ii) $4,500."
Subsec. (b)(4)(C).
Subsec. (b)(8).
Subsec. (c)(1)(B)(iii).
Subsec. (d)(1)(A)(ii)(I).
Subsec. (g)(1).
2005—Subsec. (d)(2)(A).
Statutory Notes and Related Subsidiaries
Effective Date of 2022 Amendment
Effective Date of 2020 Amendment
Amendment by section 3702(a) of
Effective Date of 2017 Amendment
Amendment by section 11002(d)(1)(V) of
Amendment by section 11051(b)(3)(E) of
Effective Date of 2015 Amendment
Effective Date of 2010 Amendment
Amendment by section 9003(a) of
Amendment by section 9004(a) of
Effective Date of 2006 Amendment
Effective Date of 2005 Amendment
Amendment by
Effective Date
Section applicable to taxable years beginning after Dec. 31, 2003, see section 1201(k) of
Inflation Adjusted Items for Certain Years
Provisions relating to inflation adjustment of items in this section for certain years were contained in the following:
2023—Revenue Procedure 2022–24.
2022—Revenue Procedure 2021–25.
2021—Revenue Procedure 2020–32.
2020—Revenue Procedure 2019–25.
2019—Revenue Procedure 2018–30.
2018—Revenue Procedure 2017–37.
2017—Revenue Procedure 2016–28.
2016—Revenue Procedure 2015–30.
2015—Revenue Procedure 2014–30.
2014—Revenue Procedure 2013–25.
2013—Revenue Procedure 2012–26.
2012—Revenue Procedure 2011–32.
2011—Revenue Procedure 2010–22.
2010—Revenue Procedure 2009–29.
2009—Revenue Procedure 2008–29.
2008—Revenue Procedure 2007–36.
§224. Cross reference
For deductions in respect of a decedent, see section 691.
(Aug. 16, 1954, ch. 736,
Editorial Notes
Amendments
2003—
2001—
1997—
1996—
1990—
1986—
1981—
1976—
1974—
1971—
1964—
Statutory Notes and Related Subsidiaries
Effective Date of 2003 Amendment
Amendment by
Effective Date of 2001 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 301(b)(5)(A) of
Savings Provision
For provisions that nothing in amendment by section 11802(e)(2) of
PART VIII—SPECIAL DEDUCTIONS FOR CORPORATIONS
Editorial Notes
Amendments
2017—
2014—
1990—
1984—
1976—
1970—
1969—
1 So in original. Does not conform to section catchline.
§241. Allowance of special deductions
In addition to the deductions provided in part VI (sec. 161 and following), there shall be allowed as deductions in computing taxable income the items specified in this part.
(Aug. 16, 1954, ch. 736,
[§242. Repealed. Pub. L. 94–455, title XIX, §1901(a)(33), Oct. 4, 1976, 90 Stat. 1769 ]
Section, acts Aug. 16, 1954, ch. 736,
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
Repeal effective for taxable years beginning after Dec. 31, 1976, see section 1901(d) of
§243. Dividends received by corporations
(a) General rule
In the case of a corporation, there shall be allowed as a deduction an amount equal to the following percentages of the amount received as dividends from a domestic corporation which is subject to taxation under this chapter:
(1) 50 percent, in the case of dividends other than dividends described in paragraph (2) or (3);
(2) 100 percent, in the case of dividends received by a small business investment company operating under the Small Business Investment Act of 1958 (
(3) 100 percent, in the case of qualifying dividends (as defined in subsection (b)(1)).
(b) Qualifying dividends
(1) In general
For purposes of this section, the term "qualifying dividend" means any dividend received by a corporation—
(A) if at the close of the day on which such dividend is received, such corporation is a member of the same affiliated group as the corporation distributing such dividend, and
(B) if such dividend is distributed out of the earnings and profits of a taxable year of the distributing corporation which ends after December 31, 1963, and on each day of which the distributing corporation and the corporation receiving the dividend were members of such affiliated group.
(2) Affiliated group
For purposes of this subsection:
(A) In general
The term "affiliated group" has the meaning given such term by section 1504(a), except that for such purposes sections 1504(b)(2) and 1504(c) shall not apply.
(B) Group must be consistent in foreign tax treatment
The requirements of paragraph (1)(A) shall not be treated as being met with respect to any dividend received by a corporation if, for any taxable year which includes the day on which such dividend is received—
(i) 1 or more members of the affiliated group referred to in paragraph (1)(A) choose to any extent to take the benefits of section 901, and
(ii) 1 or more other members of such group claim to any extent a deduction for taxes otherwise creditable under section 901.
(3) Special rule for groups which include life insurance companies
(A) In general
In the case of an affiliated group which includes 1 or more insurance companies under section 801, no dividend by any member of such group shall be treated as a qualifying dividend unless an election under this paragraph is in effect for the taxable year in which the dividend is received. The preceding sentence shall not apply in the case of a dividend described in paragraph (1)(B)(ii).
(B) Effect of election
If an election under this paragraph is in effect with respect to any affiliated group—
(i) part II of subchapter B of
(ii) for purposes of this subsection, a distribution by any member of such group which is subject to tax under section 801 shall not be treated as a qualifying dividend if such distribution is out of earnings and profits for a taxable year for which an election under this paragraph is not effective and for which such distributing corporation was not a component member of a controlled group of corporations within the meaning of section 1563 solely by reason of section 1563(b)(2)(D).
(C) Election
An election under this paragraph shall be made by the common parent of the affiliated group and at such time and in such manner as the Secretary shall by regulations prescribe. Any such election shall be binding on all members of such group and may be revoked only with the consent of the Secretary.
(c) Increased percentage for dividends from 20-percent owned corporations
(1) In general
In the case of any dividend received from a 20-percent owned corporation, subsection (a)(1) shall be applied by substituting "65 percent" for "50 percent".
(2) 20-percent owned corporation
For purposes of this section, the term "20-percent owned corporation" means any corporation if 20 percent or more of the stock of such corporation (by vote and value) is owned by the taxpayer. For purposes of the preceding sentence, stock described in section 1504(a)(4) shall not be taken into account.
(d) Special rules for certain distributions
For purposes of subsection (a)—
(1) Any amount allowed as a deduction under section 591 (relating to deduction for dividends paid by mutual savings banks, etc.) shall not be treated as a dividend.
(2) A dividend received from a regulated investment company shall be subject to the limitations prescribed in section 854.
(3) Any dividend received from a real estate investment trust which, for the taxable year of the trust in which the dividend is paid, qualifies under part II of subchapter M (section 856 and following) shall not be treated as a dividend.
(e) Certain dividends from foreign corporations
For purposes of subsection (a) and for purposes of section 245, any dividend from a foreign corporation from earnings and profits accumulated by a domestic corporation during a period with respect to which such domestic corporation was subject to taxation under this chapter (or corresponding provisions of prior law) shall be treated as a dividend from a domestic corporation which is subject to taxation under this chapter.
(Aug. 16, 1954, ch. 736,
Editorial Notes
References in Text
The Small Business Investment Act of 1958, referred to in subsec. (a)(2), is
Amendments
2018—Subsec. (b)(1)(B).
"(i) such dividend is distributed out of the earnings and profits of a taxable year of the distributing corporation which ends after December 31, 1963, for which an election under section 1562 was not in effect, and on each day of which the distributing corporation and the corporation receiving the dividend were members of such affiliated group, or
"(ii) such dividend is paid by a corporation with respect to which an election under section 936 is in effect for the taxable year in which such dividend is paid."
Subsec. (b)(2)(A).
2017—Subsec. (a)(1).
Subsec. (c).
Subsec. (c)(1).
2014—Subsec. (c)(1).
"(A) subsection (a)(1) of this section, and
"(B) subsections (a)(3) and (b)(2) of section 244,
shall be applied by substituting '80 percent' for '70 percent'."
Subsec. (d)(4).
1996—Subsec. (b)(2).
Subsec. (b)(3)(A).
1990—Subsec. (b).
1988—Subsec. (b)(6).
1987—Subsec. (a)(1).
Subsecs. (c) to (e).
1986—Subsec. (a)(1).
Subsec. (b)(3)(C).
1984—Subsec. (b)(3)(C).
Subsec. (b)(6).
1981—Subsec. (b)(3)(C)(i).
1976—Subsec. (a)(2).
Subsec. (b)(1).
Subsec. (b)(2), (3), (4).
Subsec. (b)(2)(A).
Subsec. (b)(3)(B).
Subsec. (b)(3)(C).
Subsec. (b)(5).
1975—Subsec. (b)(3)(C)(i).
1969—Subsec. (b)(3)(C)(iii).
1968—Subsec. (b)(3)(C)(v).
1964—Subsec. (a).
Subsec. (b).
Subsec. (c).
Subsec. (d).
1960—Subsec. (c)(3).
Subsec. (d).
1958—Subsec. (a).
Subsecs. (b), (c).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Effective Date of 2014 Amendment
Amendment by
Except as otherwise provided in section 221(a) of
Effective Date of 1996 Amendment
Amendment by
Effective Date of 1990 Amendment
"(1)
"(2)
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1987 Amendment
"(1)
"(2)
Effective Date of 1986 Amendment
Amendment by section 411(b)(2)(C)(iv) of
Amendment by section 611(a)(1) of
Effective Date of 1984 Amendment
Amendment by
Effective Date of 1981 Amendment
Amendment by
Effective Date of 1976 Amendment
For effective date of amendment by section 1031(b)(2) of
For effective date of amendment by section 1051(f)(1), (2) of
Amendment by section 1901(a)(34), (b)(1), (21) of
For effective date of amendment by section 1906(b)(3)(C)(ii) of
Effective Date of 1975 Amendment
Amendment by
Effective Date of 1969 Amendment
"(1)
"(2)
Effective Date of 1968 Amendment
Effective Date of 1964 Amendment
Effective Date of 1960 Amendment
Amendment by section 10(g) of
Effective Date of 1958 Amendment
Savings Provision
For provisions that nothing in amendment by
For provisions that nothing in amendment by
[§244. Repealed. Pub. L. 113–295, div. A, title II, §221(a)(41)(A), Dec. 19, 2014, 128 Stat. 4043 ]
Section, Aug. 16, 1954, ch. 736,
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
Repeal not applicable to preferred stock issued before Oct. 1, 1942 (determined in the same manner as under
Except as otherwise provided in section 221(a) of
§245. Dividends received from certain foreign corporations
(a) Dividends from 10-percent owned foreign corporations
(1) In general
In the case of dividends received by a corporation from a qualified 10-percent owned foreign corporation, there shall be allowed as a deduction an amount equal to the percent (specified in section 243 for the taxable year) of the U.S.-source portion of such dividends.
(2) Qualified 10-percent owned foreign corporation
For purposes of this subsection, the term "qualified 10-percent owned foreign corporation" means any foreign corporation (other than a passive foreign investment company) if at least 10 percent of the stock of such corporation (by vote and value) is owned by the taxpayer.
(3) U.S.-source portion
For purposes of this subsection, the U.S.-source portion of any dividend is an amount which bears the same ratio to such dividend as—
(A) the post-1986 undistributed U.S. earnings, bears to
(B) the total post-1986 undistributed earnings.
(4) Post-1986 undistributed earnings
The term "post-1986 undistributed earnings" means the amount of the earnings and profits of the foreign corporation (computed in accordance with sections 964(a) and 986) accumulated in taxable years beginning after December 31, 1986—
(A) as of the close of the taxable year of the foreign corporation in which the dividend is distributed, and
(B) without diminution by reason of dividends distributed during such taxable year.
(5) Post-1986 undistributed U.S. earnings
For purposes of this subsection, the term "post-1986 undistributed U.S. earnings" means the portion of the post-1986 undistributed earnings which is attributable to—
(A) income of the qualified 10-percent owned foreign corporation which is effectively connected with the conduct of a trade or business within the United States and subject to tax under this chapter, or
(B) any dividend received (directly or through a wholly owned foreign corporation) from a domestic corporation at least 80 percent of the stock of which (by vote and value) is owned (directly or through such wholly owned foreign corporation) by the qualified 10-percent owned foreign corporation.
(6) Special rule
If the 1st day on which the requirements of paragraph (2) are met with respect to any foreign corporation is in a taxable year of such corporation beginning after December 31, 1986, the post-1986 undistributed earnings and the post-1986 undistributed U.S. earnings of such corporation shall be determined by only taking into account periods beginning on and after the 1st day of the 1st taxable year in which such requirements are met.
(7) Coordination with subsection (b)
Earnings and profits of any qualified 10-percent owned foreign corporation for any taxable year shall not be taken into account under this subsection if the deduction provided by subsection (b) would be allowable with respect to dividends paid out of such earnings and profits.
(8) Disallowance of foreign tax credit
No credit shall be allowed under section 901 for any taxes paid or accrued (or treated as paid or accrued) with respect to the United States-source portion of any dividend received by a corporation from a qualified 10-percent-owned foreign corporation.
(9) Coordination with section 904
For purposes of section 904, the U.S.-source portion of any dividend received by a corporation from a qualified 10-percent owned foreign corporation shall be treated as from sources in the United States.
(10) Coordination with treaties
If—
(A) any portion of a dividend received by a corporation from a qualified 10-percent-owned foreign corporation would be treated as from sources in the United States under paragraph (9),
(B) under a treaty obligation of the United States (applied without regard to this subsection), such portion would be treated as arising from sources outside the United States, and
(C) the taxpayer chooses the benefits of this paragraph,
this subsection shall not apply to such dividend (but subsections (a), (b), and (c) of section 904 and sections 907 and 960 shall be applied separately with respect to such portion of such dividend).
(11) Coordination with section 1248
For purposes of this subsection, the term "dividend" does not include any amount treated as a dividend under section 1248.
(12) Dividends derived from RICs and REITs ineligible for deduction
Regulated investment companies and real estate investment trusts shall not be treated as domestic corporations for purposes of paragraph (5)(B).
(b) Certain dividends received from wholly owned foreign subsidiaries
(1) In general
In the case of dividends described in paragraph (2) received from a foreign corporation by a domestic corporation which, for its taxable year in which such dividends are received, owns (directly or indirectly) all of the outstanding stock of such foreign corporation, there shall be allowed as a deduction (in lieu of the deduction provided by subsection (a)) an amount equal to 100 percent of such dividends.
(2) Eligible dividends
Paragraph (1) shall apply only to dividends which are paid out of the earnings and profits of a foreign corporation for a taxable year during which—
(A) all of its outstanding stock is owned (directly or indirectly) by the domestic corporation to which such dividends are paid; and
(B) all of its gross income from all sources is effectively connected with the conduct of a trade or business within the United States.
(3) Exception
Paragraph (1) shall not apply to any dividends if an election under section 1562 is effective for either—
(A) the taxable year of the domestic corporation in which such dividends are received, or
(B) the taxable year of the foreign corporation out of the earnings and profits of which such dividends are paid.
(c) Certain dividends received from FSC
(1) In general
In the case of a domestic corporation, there shall be allowed as a deduction an amount equal to—
(A) 100 percent of any dividend received from another corporation which is distributed out of earnings and profits attributable to foreign trade income for a period during which such other corporation was a FSC, and
(B) 50 percent (65 percent in the case of dividends from a 20-percent owned corporation as defined in section 243(c)(2)) of any dividend received from another corporation which is distributed out of earnings and profits attributable to effectively connected income received or accrued by such other corporation while such other corporation was a FSC.
(2) Exception for certain dividends
Paragraph (1) shall not apply to any dividend which is distributed out of earnings and profits attributable to foreign trade income which—
(A) is section 923(a)(2) nonexempt income (within the meaning of section 927(d)(6)), or
(B) would not, but for section 923(a)(4), be treated as exempt foreign trade income.
(3) No deduction under subsection (a) or (b)
No deduction shall be allowable under subsection (a) or (b) with respect to any dividend which is distributed out of earnings and profits of a corporation accumulated while such corporation was a FSC.
(4) Definitions
For purposes of this subsection—
(A) Foreign trade income; exempt foreign trade income
The terms "foreign trade income" and "exempt foreign trade income" have the respective meanings given such terms by section 923.
(B) Effectively connected income
The term "effectively connected income" means any income which is effectively connected (or treated as effectively connected) with the conduct of a trade or business in the United States and is subject to tax under this chapter. Such term shall not include any foreign trade income.
(C) FSC
The term "FSC" has the meaning given such term by section 922.
(5) References to prior law
Any reference in this subsection to section 922, 923, or 927 shall be treated as a reference to such section as in effect before its repeal by the FSC Repeal and Extraterritorial Income Exclusion Act of 2000.
(Aug. 16, 1954, ch. 736,
Editorial Notes
References in Text
Section 1562, referred to in subsec. (b)(3), was repealed by
The FSC Repeal and Extraterritorial Income Exclusion Act of 2000, referred to in subsec. (c)(5), is
Amendments
2017—Subsec. (a)(4).
Subsec. (a)(10).
Subsec. (c)(1)(B).
2015—Subsec. (a)(12).
2007—Subsec. (c)(4)(C).
Subsec. (c)(5).
2004—Subsec. (a)(2).
1989—Subsec. (a)(8).
1988—Subsec. (a)(8).
Subsec. (a)(10), (11).
Subsec. (c).
Subsec. (d).
1987—Subsec. (c)(1)(B).
1986—Subsec. (a).
Subsec. (c)(1).
Subsec. (c)(3).
Subsec. (c)(4).
1984—Subsec. (c).
1966—Subsec. (a).
Subsecs. (b), (c).
1962—Subsec. (b).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Amendment by section 13002(b) of
Amendment by section 14301(c)(2), (3) of
Effective Date of 2015 Amendment
Effective Date of 2004 Amendment
Amendment by
Effective Date of 1989 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by sections 1006(e)(16) and 1012(l)(2), (3) of
Effective Date of 1987 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 1876(d)(1), (j) of
Effective Date of 1984 Amendment
"(1)
"(2)
"(A) any lease of more than 3 years duration which was entered into before January 1, 1985,
"(B) any contract with respect to which the taxpayer uses the completed contract method of accounting which was entered into before January 1, 1985, or
"(C) in the case of any contract other than a lease or contract described in subparagraph (A) or (B), any contract which was entered into before January 1, 1985; except that this subparagraph shall only apply to the first 3 taxable years of the FSC ending after January 1, 1985, or such later taxable years as the Secretary of the Treasury or his delegate may prescribe.
"(3)
"(4)
Effective Date of 1966 Amendment
Amendment by
Effective Date of 1962 Amendment
Amendment by
Construction of 2015 Amendment
Dividends Received or Accrued During 1987
"(A) subparagraph (B) of section 245(c)(1) of the 1986 Code shall be applied by substituting '80 percent' for the percentage specified therein, and
"(B) subparagraph (B) of section 861(a)(2) of the 1986 Code shall be applied by substituting '100/80ths' for the fraction specified therein."
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
§245A. Deduction for foreign source-portion of dividends received by domestic corporations from specified 10-percent owned foreign corporations
(a) In general
In the case of any dividend received from a specified 10-percent owned foreign corporation by a domestic corporation which is a United States shareholder with respect to such foreign corporation, there shall be allowed as a deduction an amount equal to the foreign-source portion of such dividend.
(b) Specified 10-percent owned foreign corporation
For purposes of this section—
(1) In general
The term "specified 10-percent owned foreign corporation" means any foreign corporation with respect to which any domestic corporation is a United States shareholder with respect to such corporation.
(2) Exclusion of passive foreign investment companies
Such term shall not include any corporation which is a passive foreign investment company (as defined in section 1297) with respect to the shareholder and which is not a controlled foreign corporation.
(c) Foreign-source portion
For purposes of this section—
(1) In general
The foreign-source portion of any dividend from a specified 10-percent owned foreign corporation is an amount which bears the same ratio to such dividend as—
(A) the undistributed foreign earnings of the specified 10-percent owned foreign corporation, bears to
(B) the total undistributed earnings of such foreign corporation.
(2) Undistributed earnings
The term "undistributed earnings" means the amount of the earnings and profits of the specified 10-percent owned foreign corporation (computed in accordance with sections 964(a) and 986)—
(A) as of the close of the taxable year of the specified 10-percent owned foreign corporation in which the dividend is distributed, and
(B) without diminution by reason of dividends distributed during such taxable year.
(3) Undistributed foreign earnings
The term "undistributed foreign earnings" means the portion of the undistributed earnings which is attributable to neither—
(A) income described in subparagraph (A) of section 245(a)(5), nor
(B) dividends described in subparagraph (B) of such section (determined without regard to section 245(a)(12)).
(d) Disallowance of foreign tax credit, etc.
(1) In general
No credit shall be allowed under section 901 for any taxes paid or accrued (or treated as paid or accrued) with respect to any dividend for which a deduction is allowed under this section.
(2) Denial of deduction
No deduction shall be allowed under this chapter for any tax for which credit is not allowable under section 901 by reason of paragraph (1) (determined by treating the taxpayer as having elected the benefits of subpart A of part III of subchapter N).
(e) Special rules for hybrid dividends
(1) In general
Subsection (a) shall not apply to any dividend received by a United States shareholder from a controlled foreign corporation if the dividend is a hybrid dividend.
(2) Hybrid dividends of tiered corporations
If a controlled foreign corporation with respect to which a domestic corporation is a United States shareholder receives a hybrid dividend from any other controlled foreign corporation with respect to which such domestic corporation is also a United States shareholder, then, notwithstanding any other provision of this title—
(A) the hybrid dividend shall be treated for purposes of section 951(a)(1)(A) as subpart F income of the receiving controlled foreign corporation for the taxable year of the controlled foreign corporation in which the dividend was received, and
(B) the United States shareholder shall include in gross income an amount equal to the shareholder's pro rata share (determined in the same manner as under section 951(a)(2)) of the subpart F income described in subparagraph (A).
(3) Denial of foreign tax credit, etc.
The rules of subsection (d) shall apply to any hybrid dividend received by, or any amount included under paragraph (2) in the gross income of, a United States shareholder.
(4) Hybrid dividend
The term "hybrid dividend" means an amount received from a controlled foreign corporation—
(A) for which a deduction would be allowed under subsection (a) but for this subsection, and
(B) for which the controlled foreign corporation received a deduction (or other tax benefit) with respect to any income, war profits, or excess profits taxes imposed by any foreign country or possession of the United States.
(f) Special rule for purging distributions of passive foreign investment companies
Any amount which is treated as a dividend under section 1291(d)(2)(B) shall not be treated as a dividend for purposes of this section.
(g) Regulations
The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions of this section, including regulations for the treatment of United States shareholders owning stock of a specified 10 percent 1 owned foreign corporation through a partnership.
(Added
Statutory Notes and Related Subsidiaries
Effective Date
1 So in original. Probably should be "10-percent".
§246. Rules applying to deductions for dividends received
(a) Deduction not allowed for dividends from certain corporations
(1) In general
The deductions allowed by sections 243 1 245, and 245A shall not apply to any dividend from a corporation which, for the taxable year of the corporation in which the distribution is made, or for the next preceding taxable year of the corporation, is a corporation exempt from tax under section 501 (relating to certain charitable, etc., organizations) or section 521 (relating to farmers' cooperative associations).
(2) Subsection not to apply to certain dividends of Federal Home Loan Banks
(A) Dividends out of current earnings and profits
In the case of any dividend paid by any FHLB out of earnings and profits of the FHLB for the taxable year in which such dividend was paid, paragraph (1) shall not apply to that portion of such dividend which bears the same ratio to the total dividend as—
(i) the dividends received by the FHLB from the FHLMC during such taxable year, bears to
(ii) the total earnings and profits of the FHLB for such taxable year.
(B) Dividends out of accumulated earnings and profits
In the case of any dividend which is paid out of any accumulated earnings and profits of any FHLB, paragraph (1) shall not apply to that portion of the dividend which bears the same ratio to the total dividend as—
(i) the amount of dividends received by such FHLB from the FHLMC which are out of earnings and profits of the FHLMC—
(I) for taxable years ending after December 31, 1984, and
(II) which were not previously treated as distributed under subparagraph (A) or this subparagraph, bears to
(ii) the total accumulated earnings and profits of the FHLB as of the time such dividend is paid.
For purposes of clause (ii), the accumulated earnings and profits of the FHLB as of January 1, 1985, shall be treated as equal to its retained earnings as of such date.
(C) Coordination with section 243
To the extent that paragraph (1) does not apply to any dividend by reason of subparagraph (A) or (B) of this paragraph, the requirement contained in section 243(a) that the corporation paying the dividend be subject to taxation under this chapter shall not apply.
(D) Definitions
For purposes of this paragraph—
(i) FHLB
The term "FHLB" means any Federal Home Loan Bank.
(ii) FHLMC
The term "FHLMC" means the Federal Home Loan Mortgage Corporation.
(iii) Taxable year of FHLB
The taxable year of an FHLB shall, except as provided in regulations prescribed by the Secretary, be treated as the calendar year.
(iv) Earnings and profits
The earnings and profits of any FHLB for any taxable year shall be treated as equal to the sum of—
(I) any dividends received by the FHLB from the FHLMC during such taxable year, and
(II) the total earnings and profits (determined without regard to dividends described in subclause (I)) of the FHLB as reported in its annual financial statement prepared in accordance with section 20 of the Federal Home Loan Bank Act (
(b) Limitation on aggregate amount of deductions
(1) General rule
Except as provided in paragraph (2), the aggregate amount of the deductions allowed by section 243(a)(1), subsection 2 (a) and 2 (b) of section 245, and section 250 shall not exceed the percentage determined under paragraph (3) of the taxable income computed without regard to the deductions allowed by sections 172, 199A, 243(a)(1), subsection 2 (a) and 2 (b) of section 245, and 250, without regard to any adjustment under section 1059, and without regard to any capital loss carryback to the taxable year under section 1212(a)(1).
(2) Effect of net operating loss
Paragraph (1) shall not apply for any taxable year for which there is a net operating loss (as determined under section 172).
(3) Special rules
The provisions of paragraph (1) shall be applied—
(A) first separately with respect to dividends from 20-percent owned corporations (as defined in section 243(c)(2)) and the percentage determined under this paragraph shall be 65 percent, and
(B) then separately with respect to dividends not from 20-percent owned corporations and the percentage determined under this paragraph shall be 50 percent and the taxable income shall be reduced by the aggregate amount of dividends from 20-percent owned corporations (as so defined).
(c) Exclusion of certain dividends
(1) In general
No deduction shall be allowed under section 243 1 245, or 245A, in respect of any dividend on any share of stock—
(A) which is held by the taxpayer for 45 days or less during the 91-day period beginning on the date which is 45 days before the date on which such share becomes ex-dividend with respect to such dividend, or
(B) to the extent that the taxpayer is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property.
(2) 90-day rule in the case of certain preference dividends
In the case of stock having preference in dividends, if the taxpayer receives dividends with respect to such stock which are attributable to a period or periods aggregating in excess of 366 days, paragraph (1)(A) shall be applied—
(A) by substituting "90 days" for "45 days" each place it appears, and
(B) by substituting "181-day period" for "91-day period".
(3) Determination of holding periods
For purposes of this subsection, in determining the period for which the taxpayer has held any share of stock—
(A) the day of disposition, but not the day of acquisition, shall be taken into account, and
(B) paragraph (3) of section 1223 shall not apply.
(4) Holding period reduced for periods where risk of loss diminished
The holding periods determined for purposes of this subsection shall be appropriately reduced (in the manner provided in regulations prescribed by the Secretary) for any period (during such periods) in which—
(A) the taxpayer has an option to sell, is under a contractual obligation to sell, or has made (and not closed) a short sale of, substantially identical stock or securities,
(B) the taxpayer is the grantor of an option to buy substantially identical stock or securities, or
(C) under regulations prescribed by the Secretary, a taxpayer has diminished his risk of loss by holding 1 or more other positions with respect to substantially similar or related property.
The preceding sentence shall not apply in the case of any qualified covered call (as defined in section 1092(c)(4) but without regard to the requirement that gain or loss with respect to the option not be ordinary income or loss), other than a qualified covered call option to which section 1092(f) applies.
(5) Special rules for foreign source portion of dividends received from specified 10-percent owned foreign corporations
(A) 1-year holding period requirement
For purposes of section 245A—
(i) paragraph (1)(A) shall be applied—
(I) by substituting "365 days" for "45 days" each place it appears, and
(II) by substituting "731-day period" for "91-day period", and
(ii) paragraph (2) shall not apply.
(B) Status must be maintained during holding period
For purposes of applying paragraph (1) with respect to section 245A, the taxpayer shall be treated as holding the stock referred to in paragraph (1) for any period only if—
(i) the specified 10-percent owned foreign corporation referred to in section 245A(a) is a specified 10-percent owned foreign corporation at all times during such period, and
(ii) the taxpayer is a United States shareholder with respect to such specified 10-percent owned foreign corporation at all times during such period.
(d) Dividends from a DISC or former DISC
No deduction shall be allowed under section 243 in respect of a dividend from a corporation which is a DISC or former DISC (as defined in section 992(a)) to the extent such dividend is paid out of the corporation's accumulated DISC income or previously taxed income, or is a deemed distribution pursuant to section 995(b)(1).
(Aug. 16, 1954, ch. 736,
Editorial Notes
Amendments
2018—Subsec. (e).
2017—Subsec. (a)(1).
Subsec. (b)(1).
Subsec. (b)(3)(A).
Subsec. (b)(3)(B).
Subsec. (c)(1).
Subsec. (c)(5).
2014—Subsec. (a)(1).
Subsec. (b)(1).
Subsec. (c)(1).
2005—Subsec. (c)(3)(B).
2004—Subsec. (b)(1).
Subsec. (c)(1)(A).
Subsec. (c)(2)(B).
Subsec. (c)(4).
1997—Subsec. (c)(1)(A).
Subsec. (c)(2).
Subsec. (c)(3).
1996—Subsec. (f).
1988—Subsec. (c)(1)(A).
1987—Subsec. (b)(1).
Subsec. (b)(3).
1986—Subsec. (a)(2)(B).
Subsec. (a)(2)(C), (D).
Subsec. (b)(1).
Subsec. (c)(1)(A).
Subsec. (c)(4).
Subsec. (e).
1984—Subsec. (a).
Subsec. (b)(1).
Subsec. (c)(1)(A).
Subsec. (c)(1)(B).
Subsec. (c)(2).
Subsec. (c)(3).
Subsec. (c)(3)(B).
Subsec. (c)(4).
1982—Subsecs. (e), (f).
1976—Subsec. (a).
Subsec. (c)(3).
1971—Subsecs. (d), (e).
1969—Subsec. (b)(1).
Subsec. (d).
1964—Subsec. (b).
1958—Subsec. (b)(1).
Subsec. (c).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Amendment by section 11011(d)(2) of
Amendment by section 13002(c) of
Amendment by section 13305(b)(1) of
Amendment by section 14101(b), (c)(1) of
Amendment by section 14202(b)(2) of
Effective Date of 2014 Amendment
Amendment by
Except as otherwise provided in section 221(a) of
Effective Date of 2005 Amendment
Amendment by
Effective Date of 2004 Amendments
Amendment by section 102(d)(4) of
Amendment by
Effective Date of 1997 Amendment
"(1)
"(2)
"(A) the dividend is paid with respect to stock held by the taxpayer on June 8, 1997, and all times thereafter until the dividend is received,
"(B) such stock is continuously subject to a position described in section 246(c)(4) of the Internal Revenue Code of 1986 on June 8, 1997, and all times thereafter until the dividend is received, and
"(C) such stock and position are clearly identified in the taxpayer's records within 30 days after the date of the enactment of this Act.
Stock shall not be treated as meeting the requirement of subparagraph (B) if the position is sold, closed, or otherwise terminated and reestablished."
Effective Date of 1996 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1987 Amendment
Amendment by
Effective Date of 1986 Amendment
"(1)
"(2)
Amendment by section 1275(a)(2)(B) of
Amendment by section 1812(d)(1) of
Effective Date of 1984 Amendment
Amendment by section 53(d)(2) of
Amendment by section 177(b) of
Amendment by section 801(b)(2)(A) of
Effective Date of 1982 Amendment
"(1)
"(2)
"(3)
Effective Date of 1976 Amendment
For effective date of amendment by section 1051(f)(3) of
Amendment by section 1906(b)(13)(A) of
Effective Date of 1971 Amendment
Amendment by
Effective Date of 1969 Amendment
Amendment by section 512(f)(3) of
Effective Date of 1964 Amendment
Amendment by
Effective Date of 1958 Amendment
Amendment by section 57(c)(2) of
Savings Provision
For provisions that nothing in amendment by
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
1 So in original. Probably should be followed by a comma.
§246A. Dividends received deduction reduced where portfolio stock is debt financed
(a) General rule
In the case of any dividend on debt-financed portfolio stock, there shall be substituted for the percentage which (but for this subsection) would be used in determining the amount of the deduction allowable under section 243 or 245(a) a percentage equal to the product of—
(1) 50 percent (65 percent in the case of any dividend from a 20-percent owned corporation as defined in section 243(c)(2)), and
(2) 100 percent minus the average indebtedness percentage.
(b) Section not to apply to dividends for which 100 percent dividends received deduction allowable
Subsection (a) shall not apply to—
(1) qualifying dividends (as defined in section 243(b)), and
(2) dividends received by a small business investment company operating under the Small Business Investment Act of 1958.
(c) Debt financed portfolio stock
For purposes of this section—
(1) In general
The term "debt financed portfolio stock" means any portfolio stock if at some time during the base period there is portfolio indebtedness with respect to such stock.
(2) Portfolio stock
The term "portfolio stock" means any stock of a corporation unless—
(A) as of the beginning of the ex-dividend date, the taxpayer owns stock of such corporation—
(i) possessing at least 50 percent of the total voting power of the stock of such corporation, and
(ii) having a value equal to at least 50 percent of the total value of the stock of such corporation, or
(B) as of the beginning of the ex-dividend date—
(i) the taxpayer owns stock of such corporation which would meet the requirements of subparagraph (A) if "20 percent" were substituted for "50 percent" each place it appears in such subparagraph, and
(ii) stock meeting the requirements of subparagraph (A) is owned by 5 or fewer corporate shareholders.
(3) Special rule for stock in a bank or bank holding company
(A) In general
If, as of the beginning of the ex-dividend date, the taxpayer owns stock of any bank or bank holding company having a value equal to at least 80 percent of the total value of the stock of such bank or bank holding company, for purposes of paragraph (2)(A)(i), the taxpayer shall be treated as owning any stock of such bank or bank holding company which the taxpayer has an option to acquire.
(B) Definitions
For purposes of subparagraph (A)—
(i) Bank
The term "bank" has the meaning given such term by section 581.
(ii) Bank holding company
The term "bank holding company" means a bank holding company (within the meaning of section 2(a) of the Bank Holding Company Act of 1956).
(4) Treatment of certain preferred stock
For purposes of determining whether the requirements of subparagraph (A) or (B) of paragraph (2) or of subparagraph (A) of paragraph (3) are met, stock described in section 1504(a)(4) shall not be taken into account.
(d) Average indebtedness percentage
For purposes of this section—
(1) In general
Except as provided in paragraph (2), the term "average indebtedness percentage" means the percentage obtained by dividing—
(A) the average amount (determined under regulations prescribed by the Secretary) of the portfolio indebtedness with respect to the stock during the base period, by
(B) the average amount (determined under regulations prescribed by the Secretary) of the adjusted basis of the stock during the base period.
(2) Special rule where stock not held throughout base period
In the case of any stock which was not held by the taxpayer throughout the base period, paragraph (1) shall be applied as if the base period consisted only of that portion of the base period during which the stock was held by the taxpayer.
(3) Portfolio indebtedness
(A) In general
The term "portfolio indebtedness" means any indebtedness directly attributable to investment in the portfolio stock.
(B) Certain amounts received from short sale treated as indebtedness
For purposes of subparagraph (A), any amount received from a short sale shall be treated as indebtedness for the period beginning on the day on which such amount is received and ending on the day the short sale is closed.
(4) Base period
The term "base period" means, with respect to any dividend, the shorter of—
(A) the period beginning on the ex-dividend date for the most recent previous dividend on the stock and ending on the day before the ex-dividend date for the dividend involved, or
(B) the 1-year period ending on the day before the ex-dividend date for the dividend involved.
(e) Reduction in dividends received deduction not to exceed allocable interest
Under regulations prescribed by the Secretary, any reduction under this section in the amount allowable as a deduction under section 243 or 245 with respect to any dividend shall not exceed the amount of any interest deduction (including any deductible short sale expense) allocable to such dividend.
(f) Regulations
The regulations prescribed for purposes of this section under section 7701(f) shall include regulations providing for the disallowance of interest deductions or other appropriate treatment (in lieu of reducing the dividend received deduction) where the obligor of the indebtedness is a person other than the person receiving the dividend.
(Added
Editorial Notes
References in Text
The Small Business Investment Act of 1958, referred to in subsec. (b)(2), is
Section 2(a) of the Bank Holding Company Act of 1956, referred to in subsec. (c)(3)(B)(ii), is classified to
Amendments
2018—Subsec. (b)(1).
2017—Subsec. (a)(1).
2014—Subsecs. (a), (e).
2004—Subsec. (b)(1).
1988—Subsec. (a).
1987—Subsec. (a)(1).
1986—Subsec. (a).
Subsec. (a)(1).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Amendment by
Effective Date of 2014 Amendment
Amendment by
Except as otherwise provided in section 221(a) of
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1987 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 611(a)(4) of
Amendment by section 1804(a) of
Effective Date
Savings Provision
For provisions that nothing in amendment by
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
§247. Contributions to Alaska Native Settlement Trusts
(a) In general
In the case of a Native Corporation, there shall be allowed a deduction for any contributions made by such Native Corporation to a Settlement Trust (regardless of whether an election under section 646 is in effect for such Settlement Trust) for which the Native Corporation has made an annual election under subsection (e).
(b) Amount of deduction
The amount of the deduction under subsection (a) shall be equal to—
(1) in the case of a cash contribution (regardless of the method of payment, including currency, coins, money order, or check), the amount of such contribution, or
(2) in the case of a contribution not described in paragraph (1), the lesser of—
(A) the Native Corporation's adjusted basis in the property contributed, or
(B) the fair market value of the property contributed.
(c) Limitation and carryover
(1) In general
Subject to paragraph (2), the deduction allowed under subsection (a) for any taxable year shall not exceed the taxable income (as determined without regard to such deduction) of the Native Corporation for the taxable year in which the contribution was made.
(2) Carryover
If the aggregate amount of contributions described in subsection (a) for any taxable year exceeds the limitation under paragraph (1), such excess shall be treated as a contribution described in subsection (a) in each of the 15 succeeding years in order of time.
(d) Definitions
For purposes of this section, the terms "Native Corporation" and "Settlement Trust" have the same meaning given such terms under section 646(h).
(e) Manner of making election
(1) In general
For each taxable year, a Native Corporation may elect to have this section apply for such taxable year on the income tax return or an amendment or supplement to the return of the Native Corporation, with such election to have effect solely for such taxable year.
(2) Revocation
Any election made by a Native Corporation pursuant to this subsection may be revoked pursuant to a timely filed amendment or supplement to the income tax return of such Native Corporation.
(f) Additional rules
(1) Earnings and profits
Notwithstanding section 646(d)(2), in the case of a Native Corporation which claims a deduction under this section for any taxable year, the earnings and profits of such Native Corporation for such taxable year shall be reduced by the amount of such deduction.
(2) Gain or loss
No gain or loss shall be recognized by the Native Corporation with respect to a contribution of property for which a deduction is allowed under this section.
(3) Income
Subject to subsection (g), a Settlement Trust shall include in income the amount of any deduction allowed under this section in the taxable year in which the Settlement Trust actually receives such contribution.
(4) Period
The holding period under section 1223 of the Settlement Trust shall include the period the property was held by the Native Corporation.
(5) Basis
The basis that a Settlement Trust has for which a deduction is allowed under this section shall be equal to the lesser of—
(A) the adjusted basis of the Native Corporation in such property immediately before such contribution, or
(B) the fair market value of the property immediately before such contribution.
(6) Prohibition
No deduction shall be allowed under this section with respect to any contributions made to a Settlement Trust which are in violation of subsection (a)(2) or (c)(2) of section 39 of the Alaska Native Claims Settlement Act (
(g) Election by Settlement Trust to defer income recognition
(1) In general
In the case of a contribution which consists of property other than cash, a Settlement Trust may elect to defer recognition of any income related to such property until the sale or exchange of such property, in whole or in part, by the Settlement Trust.
(2) Treatment
In the case of property described in paragraph (1), any income or gain realized on the sale or exchange of such property shall be treated as—
(A) for such amount of the income or gain as is equal to or less than the amount of income which would be included in income at the time of contribution under subsection (f)(3) but for the taxpayer's election under this subsection, ordinary income, and
(B) for any amounts of the income or gain which are in excess of the amount of income which would be included in income at the time of contribution under subsection (f)(3) but for the taxpayer's election under this subsection, having the same character as if this subsection did not apply.
(3) Election
(A) In general
For each taxable year, a Settlement Trust may elect to apply this subsection for any property described in paragraph (1) which was contributed during such year. Any property to which the election applies shall be identified and described with reasonable particularity on the income tax return or an amendment or supplement to the return of the Settlement Trust, with such election to have effect solely for such taxable year.
(B) Revocation
Any election made by a Settlement Trust pursuant to this subsection may be revoked pursuant to a timely filed amendment or supplement to the income tax return of such Settlement Trust.
(C) Certain dispositions
(i) In general
In the case of any property for which an election is in effect under this subsection and which is disposed of within the first taxable year subsequent to the taxable year in which such property was contributed to the Settlement Trust—
(I) this section shall be applied as if the election under this subsection had not been made,
(II) any income or gain which would have been included in the year of contribution under subsection (f)(3) but for the taxpayer's election under this subsection shall be included in income for the taxable year of such contribution, and
(III) the Settlement Trust shall pay any increase in tax resulting from such inclusion, including any applicable interest, and increased by 10 percent of the amount of such increase with interest.
(ii) Assessment
Notwithstanding section 6501(a), any amount described in subclause (III) of clause (i) may be assessed, or a proceeding in court with respect to such amount may be initiated without assessment, within 4 years after the date on which the return making the election under this subsection for such property was filed.
(Added
Editorial Notes
Prior Provisions
A prior section 247, Aug. 16, 1954, ch. 736,
Statutory Notes and Related Subsidiaries
Effective Date
"(A)
"(B)
§248. Organizational expenditures
(a) Election to deduct
If a corporation elects the application of this subsection (in accordance with regulations prescribed by the Secretary) with respect to any organizational expenditures—
(1) the corporation shall be allowed a deduction for the taxable year in which the corporation begins business in an amount equal to the lesser of—
(A) the amount of organizational expenditures with respect to the taxpayer, or
(B) $5,000, reduced (but not below zero) by the amount by which such organizational expenditures exceed $50,000, and
(2) the remainder of such organizational expenditures shall be allowed as a deduction ratably over the 180-month period beginning with the month in which the corporation begins business.
(b) Organizational expenditures defined
The term "organizational expenditures" means any expenditure which—
(1) is incident to the creation of the corporation;
(2) is chargeable to capital account; and
(3) is of a character which, if expended incident to the creation of a corporation having a limited life, would be amortizable over such life.
(c) Time for and scope of election
The election provided by subsection (a) may be made for any taxable year but only if made not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof). The period so elected shall be adhered to in computing the taxable income of the corporation for the taxable year for which the election is made and all subsequent taxable years.
(Aug. 16, 1954, ch. 736,
Editorial Notes
Amendments
2014—Subsec. (c).
2004—Subsec. (a).
1976—Subsec. (a).
Subsec. (c).
Statutory Notes and Related Subsidiaries
Effective Date of 2014 Amendment
Amendment by
Effective Date of 2004 Amendment
Amendment by
Effective Date of 1976 Amendment
Amendment by section 1901(a)(36) of
Amendment by section 1906(b)(13)(A) of
§249. Limitation on deduction of bond premium on repurchase
(a) General rule
No deduction shall be allowed to the issuing corporation for any premium paid or incurred upon the repurchase of a bond, debenture, note, or certificate or other evidence of indebtedness which is convertible into the stock of the issuing corporation, or a corporation in the same parent-subsidiary controlled group (within the meaning of section 1563(a)(1)) as the issuing corporation, to the extent the repurchase price exceeds an amount equal to the adjusted issue price plus a normal call premium on bonds or other evidences of indebtedness which are not convertible. The preceding sentence shall not apply to the extent that the corporation can demonstrate to the satisfaction of the Secretary that such excess is attributable to the cost of borrowing and is not attributable to the conversion feature.
(b) Adjusted issue price
For purposes of subsection (a), the adjusted issue price is the issue price (as defined in sections 1273(b) and 1274) increased by any amount of discount deducted before repurchase, or decreased by any amount of premium included in gross income before repurchase by the issuing corporation.
(Added
Editorial Notes
Amendments
2014—Subsec. (a).
Subsec. (b).
2012—Subsec. (a).
Subsec. (b).
1984—Subsec. (b)(1).
1976—Subsec. (a).
Statutory Notes and Related Subsidiaries
Effective Date of 2014 Amendment
Amendment by section 221(a)(43) of
Effective Date of 2012 Amendment
Effective Date of 1984 Amendment
Amendment by
Effective Date of 1976 Amendment
Amendment by
Effective Date
§250. Foreign-derived intangible income and global intangible low-taxed income
(a) Allowance of deduction
(1) In general
In the case of a domestic corporation for any taxable year, there shall be allowed as a deduction an amount equal to the sum of—
(A) 37.5 percent of the foreign-derived intangible income of such domestic corporation for such taxable year, plus
(B) 50 percent of—
(i) the global intangible low-taxed income amount (if any) which is included in the gross income of such domestic corporation under section 951A for such taxable year, and
(ii) the amount treated as a dividend received by such corporation under section 78 which is attributable to the amount described in clause (i).
(2) Limitation based on taxable income
(A) In general
If, for any taxable year—
(i) the sum of the foreign-derived intangible income and the global intangible low-taxed income amount otherwise taken into account by the domestic corporation under paragraph (1), exceeds
(ii) the taxable income of the domestic corporation (determined without regard to this section),
then the amount of the foreign-derived intangible income and the global intangible low-taxed income amount so taken into account shall be reduced as provided in subparagraph (B).
(B) Reduction
For purposes of subparagraph (A)—
(i) foreign-derived intangible income shall be reduced by an amount which bears the same ratio to the excess described in subparagraph (A) as such foreign-derived intangible income bears to the sum described in subparagraph (A)(i), and
(ii) the global intangible low-taxed income amount shall be reduced by the remainder of such excess.
(3) Reduction in deduction for taxable years after 2025
In the case of any taxable year beginning after December 31, 2025, paragraph (1) shall be applied by substituting—
(A) "21.875 percent" for "37.5 percent" in subparagraph (A), and
(B) "37.5 percent" for "50 percent" in subparagraph (B).
(b) Foreign-derived intangible income
For purposes of this section—
(1) In general
The foreign-derived intangible income of any domestic corporation is the amount which bears the same ratio to the deemed intangible income of such corporation as—
(A) the foreign-derived deduction eligible income of such corporation, bears to
(B) the deduction eligible income of such corporation.
(2) Deemed intangible income
For purposes of this subsection—
(A) In general
The term "deemed intangible income" means the excess (if any) of—
(i) the deduction eligible income of the domestic corporation, over
(ii) the deemed tangible income return of the corporation.
(B) Deemed tangible income return
The term "deemed tangible income return" means, with respect to any corporation, an amount equal to 10 percent of the corporation's qualified business asset investment (as defined in section 951A(d), determined by substituting "deduction eligible income" for "tested income" in paragraph (2) thereof and without regard to whether the corporation is a controlled foreign corporation).
(3) Deduction eligible income
(A) In general
The term "deduction eligible income" means, with respect to any domestic corporation, the excess (if any) of—
(i) gross income of such corporation determined without regard to—
(I) any amount included in the gross income of such corporation under section 951(a)(1),
(II) the global intangible low-taxed income included in the gross income of such corporation under section 951A,
(III) any financial services income (as defined in section 904(d)(2)(D)) of such corporation,
(IV) any dividend received from a corporation which is a controlled foreign corporation of such domestic corporation,
(V) any domestic oil and gas extraction income of such corporation, and
(VI) any foreign branch income (as defined in section 904(d)(2)(J)), over
(ii) the deductions (including taxes) properly allocable to such gross income.
(B) Domestic oil and gas extraction income
For purposes of subparagraph (A), the term "domestic oil and gas extraction income" means income described in section 907(c)(1), determined by substituting "within the United States" for "without the United States".
(4) Foreign-derived deduction eligible income
The term "foreign-derived deduction eligible income" means, with respect to any taxpayer for any taxable year, any deduction eligible income of such taxpayer which is derived in connection with—
(A) property—
(i) which is sold by the taxpayer to any person who is not a United States person, and
(ii) which the taxpayer establishes to the satisfaction of the Secretary is for a foreign use, or
(B) services provided by the taxpayer which the taxpayer establishes to the satisfaction of the Secretary are provided to any person, or with respect to property, not located within the United States.
(5) Rules relating to foreign use property or services
For purposes of this subsection—
(A) Foreign use
The term "foreign use" means any use, consumption, or disposition which is not within the United States.
(B) Property or services provided to domestic intermediaries
(i) Property
If a taxpayer sells property to another person (other than a related party) for further manufacture or other modification within the United States, such property shall not be treated as sold for a foreign use even if such other person subsequently uses such property for a foreign use.
(ii) Services
If a taxpayer provides services to another person (other than a related party) located within the United States, such services shall not be treated as described in paragraph (4)(B) even if such other person uses such services in providing services which are so described.
(C) Special rules with respect to related party transactions
(i) Sales to related parties
If property is sold to a related party who is not a United States person, such sale shall not be treated as for a foreign use unless—
(I) such property is ultimately sold by a related party, or used by a related party in connection with property which is sold or the provision of services, to another person who is an unrelated party who is not a United States person, and
(II) the taxpayer establishes to the satisfaction of the Secretary that such property is for a foreign use.
For purposes of this clause, a sale of property shall be treated as a sale of each of the components thereof.
(ii) Service provided to related parties
If a service is provided to a related party who is not located in the United States, such service shall not be treated described 1 in subparagraph (A)(ii) 2 unless the taxpayer established to the satisfaction of the Secretary that such service is not substantially similar to services provided by such related party to persons located within the United States.
(D) Related party
For purposes of this paragraph, the term "related party" means any member of an affiliated group as defined in section 1504(a), determined—
(i) by substituting "more than 50 percent" for "at least 80 percent" each place it appears, and
(ii) without regard to paragraphs (2) and (3) of section 1504(b).
Any person (other than a corporation) shall be treated as a member of such group if such person is controlled by members of such group (including any entity treated as a member of such group by reason of this sentence) or controls any such member. For purposes of the preceding sentence, control shall be determined under the rules of section 954(d)(3).
(E) Sold
For purposes of this subsection, the terms "sold", "sells", and "sale" shall include any lease, license, exchange, or other disposition.
(c) Regulations
The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions of this section.
(Added
Editorial Notes
Prior Provisions
A prior section 250, added
Statutory Notes and Related Subsidiaries
Effective Date
Section applicable to taxable years beginning after Dec. 31, 2017, see section 14202(c) of
1 So in original. Probably should be preceded by "as".
2 So in original. Probably should be "(B)(ii)".
PART IX—ITEMS NOT DEDUCTIBLE
Editorial Notes
Amendments
2018—
2017—
1996—
1990—
1988—
1987—
1986—
1984—
1983—
1982—
1980—
1977—
1976—
1971—
1969—
1966—
1964—
1962—
§261. General rule for disallowance of deductions
In computing taxable income no deduction shall in any case be allowed in respect of the items specified in this part.
(Aug. 16, 1954, ch. 736,
§262. Personal, living, and family expenses
(a) General rule
Except as otherwise expressly provided in this chapter, no deduction shall be allowed for personal, living, or family expenses.
(b) Treatment of certain phone expenses
For purposes of subsection (a), in the case of an individual, any charge (including taxes thereon) for basic local telephone service with respect to the 1st telephone line provided to any residence of the taxpayer shall be treated as a personal expense.
(Aug. 16, 1954, ch. 736,
Editorial Notes
Amendments
1988—
Statutory Notes and Related Subsidiaries
Effective Date of 1988 Amendment
§263. Capital expenditures
(a) General rule
No deduction shall be allowed for—
(1) Any amount paid out for new buildings or for permanent improvements or betterments made to increase the value of any property or estate. This paragraph shall not apply to—
(A) expenditures for the development of mines or deposits deductible under section 616,
(B) research and experimental expenditures deductible under section 174,
(C) soil and water conservation expenditures deductible under section 175,
(D) expenditures by farmers for fertilizer, etc., deductible under section 180,
(E) expenditures for removal of architectural and transportation barriers to the handicapped and elderly which the taxpayer elects to deduct under section 190,
(F) expenditures for tertiary injectants with respect to which a deduction is allowed under section 193,
(G) expenditures for which a deduction is allowed under section 179,
(H) expenditures for which a deduction is allowed under section 179B,
(I) expenditures for which a deduction is allowed under section 179C,
(J) expenditures for which a deduction is allowed under section 179D, or
(K) expenditures for which a deduction is allowed under section 179E.
(2) Any amount expended in restoring property or in making good the exhaustion thereof for which an allowance is or has been made.
[(b) Repealed. Pub. L. 101–508, title XI, §11801(a)(16), Nov. 5, 1990, 104 Stat. 1388–520 ]
(c) Intangible drilling and development costs in the case of oil and gas wells and geothermal wells
Notwithstanding subsection (a), and except as provided in subsection (i), regulations shall be prescribed by the Secretary under this subtitle corresponding to the regulations which granted the option to deduct as expenses intangible drilling and development costs in the case of oil and gas wells and which were recognized and approved by the Congress in House Concurrent Resolution 50, Seventy-ninth Congress. Such regulations shall also grant the option to deduct as expenses intangible drilling and development costs in the case of wells drilled for any geothermal deposit (as defined in section 613(e)(2)) to the same extent and in the same manner as such expenses are deductible in the case of oil and gas wells. This subsection shall not apply with respect to any costs to which any deduction is allowed under section 59(e) or 291.
(d) Expenditures in connection with certain railroad rolling stock
In the case of expenditures in connection with the rehabilitation of a unit of railroad rolling stock (except a locomotive) used by a domestic common carrier by railroad which would, but for this subsection, be properly chargeable to capital account, such expenditures, if during any 12-month period they do not exceed an amount equal to 20 percent of the basis of such unit in the hands of the taxpayer, shall, at the election of the taxpayer, be treated (notwithstanding subsection (a)) as deductible repairs under section 162 or 212. An election under this subsection shall be made for any taxable year at such time and in such manner as the Secretary prescribes by regulations. An election may not be made under this subsection for any taxable year to which an election under subsection (e) applies to railroad rolling stock (other than locomotives).
[(e) Repealed. Pub. L. 97–34, title II, §201(c), Aug. 13, 1981, 95 Stat. 219 ]
(f) Railroad ties
In the case of a domestic common carrier by rail (including a railroad switching or terminal company) which uses the retirement-replacement method of accounting for depreciation of its railroad track, expenditures for acquiring and installing replacement ties of any material (and fastenings related to such ties) shall be accorded the same tax accounting treatment as expenditures for replacement ties of wood (and fastenings related to such ties).
(g) Certain interest and carrying costs in the case of straddles
(1) General rule
No deduction shall be allowed for interest and carrying charges properly allocable to personal property which is part of a straddle (as defined in section 1092(c)). Any amount not allowed as a deduction by reason of the preceding sentence shall be chargeable to the capital account with respect to the personal property to which such amount relates.
(2) Interest and carrying charges defined
For purposes of paragraph (1), the term "interest and carrying charges" means the excess of—
(A) the sum of—
(i) interest on indebtedness incurred or continued to purchase or carry the personal property, and
(ii) all other amounts (including charges to insure, store, or transport the personal property) paid or incurred to carry the personal property, over
(B) the sum of—
(i) the amount of interest (including original issue discount) includible in gross income for the taxable year with respect to the property described in subparagraph (A),
(ii) any amount treated as ordinary income under section 1271(a)(3)(A), 1276, or 1281(a) with respect to such property for the taxable year,
(iii) the excess of any dividends includible in gross income with respect to such property for the taxable year over the amount of any deduction allowable with respect to such dividends under section 243 or 245, and
(iv) any amount which is a payment with respect to a security loan (within the meaning of section 512(a)(5)) includible in gross income with respect to such property for the taxable year.
For purposes of subparagraph (A), the term "interest" includes any amount paid or incurred in connection with personal property used in a short sale.
(3) Exception for hedging transactions
This subsection shall not apply in the case of any hedging transaction (as defined in section 1256(e)).
(4) Application with other provisions
(A) Subsection (c)
In the case of any short sale, this subsection shall be applied after subsection (h).
(B) Section 1277 or 1282
In the case of any obligation to which section 1277 or 1282 applies, this subsection shall be applied after section 1277 or 1282.
(h) Payments in lieu of dividends in connection with short sales
(1) In general
If—
(A) a taxpayer makes any payment with respect to any stock used by such taxpayer in a short sale and such payment is in lieu of a dividend payment on such stock, and
(B) the closing of such short sale occurs on or before the 45th day after the date of such short sale,
then no deduction shall be allowed for such payment. The basis of the stock used to close the short sale shall be increased by the amount not allowed as a deduction by reason of the preceding sentence.
(2) Longer period in case of extraordinary dividends
If the payment described in paragraph (1)(A) is in respect of an extraordinary dividend, paragraph (1)(B) shall be applied by substituting "the day 1 year after the date of such short sale" for "the 45th day after the date of such short sale".
(3) Extraordinary dividend
For purposes of this subsection, the term "extraordinary dividend" has the meaning given to such term by section 1059(c); except that such section shall be applied by treating the amount realized by the taxpayer in the short sale as his adjusted basis in the stock.
(4) Special rule where risk of loss diminished
The running of any period of time applicable under paragraph (1)(B) (as modified by paragraph (2)) shall be suspended during any period in which—
(A) the taxpayer holds, has an option to buy, or is under a contractual obligation to buy, substantially identical stock or securities, or
(B) under regulations prescribed by the Secretary, a taxpayer has diminished his risk of loss by holding 1 or more other positions with respect to substantially similar or related property.
(5) Deduction allowable to extent of ordinary income from amounts paid by lending broker for use of collateral
(A) In general
Paragraph (1) shall apply only to the extent that the payments or distributions with respect to any short sale exceed the amount which—
(i) is treated as ordinary income by the taxpayer, and
(ii) is received by the taxpayer as compensation for the use of any collateral with respect to any stock used in such short sale.
(B) Exception not to apply to extraordinary dividends
Subparagraph (A) shall not apply if one or more payments or distributions is in respect of an extraordinary dividend.
(6) Application of this subsection with subsection (g)
In the case of any short sale, this subsection shall be applied before subsection (g).
(i) Special rules for intangible drilling and development costs incurred outside the United States
In the case of intangible drilling and development costs paid or incurred with respect to an oil, gas, or geothermal well located outside the United States—
(1) subsection (c) shall not apply, and
(2) such costs shall—
(A) at the election of the taxpayer, be included in adjusted basis for purposes of computing the amount of any deduction allowable under section 611 (determined without regard to section 613), or
(B) if subparagraph (A) does not apply, be allowed as a deduction ratably over the 10-taxable year period beginning with the taxable year in which such costs were paid or incurred.
This subsection shall not apply to costs paid or incurred with respect to a nonproductive well.
(Aug. 16, 1954, ch. 736,
Editorial Notes
Amendments
2018—Subsec. (a)(1)(F), (G).
Subsec. (a)(1)(H) to (L).
2014—Subsec. (a)(1)(H).
Subsec. (g)(2)(B)(iii).
2006—Subsec. (a)(1)(L).
2005—Subsec. (a)(1)(J).
Subsec. (a)(1)(K).
2004—Subsec. (a)(1)(I).
Subsec. (g)(2)(B)(ii).
1997—Subsec. (a)(1)(H).
1990—Subsec. (b).
Subsec. (c).
1988—Subsec. (c).
1986—Subsec. (a)(1)(E) to (H).
Subsec. (c).
Subsec. (g)(2)(B)(iv).
Subsec. (i).
1984—Subsec. (g)(2).
Subsec. (g)(4).
Subsec. (h).
1983—Subsec. (g)(2)(A)(ii).
Subsec. (g)(2)(B)(ii).
1982—Subsec. (c).
1981—Subsec. (a)(1)(H).
Subsec. (e).
Subsec. (g).
1980—Subsec. (a)(1)(G).
1978—Subsec. (c).
1976—Subsec. (a)(1)(F).
Subsec. (a)(3).
Subsec. (d).
Subsec. (e).
Subsec. (f).
1971—Subsec. (e).
Subsec. (f).
1969—Subsec. (e).
1965—Subsec. (a)(3).
Subsec. (d).
1964—Subsec. (a)(3).
1962—Subsec. (a)(1)(E).
1960—Subsec. (a)(1)(D).
Statutory Notes and Related Subsidiaries
Effective Date of 2014 Amendment
Amendment by section 221(a)(41)(G) of
Except as otherwise provided in section 221(a) of
Effective Date of 2006 Amendment
Amendment by
Effective Date of 2005 Amendment
Amendment by section 1323(b)(2) of
Amendment by section 1331(b)(4) of
Effective Date of 2004 Amendment
Amendment by
Effective Date of 1997 Amendment
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 402(b)(1) of
"(1)
"(2)
Amendment by section 701(e)(4)(D) of
Amendment by section 1808(b) of
Effective Date of 1984 Amendment
Amendment by section 56(a) of
Amendment by section 102(e)(7), (8) of
Effective Date of 1983 Amendment
Amendment by section 306 of
Effective Date of 1982 Amendment
Amendment by
Effective Date of 1981 Amendment
Amendment by sections 201(c) and 202(d)(1) of
Amendment by section 502 of
Effective Date of 1980 Amendment
Amendment by
Effective Date of 1978 Amendment
"(1)
"(2)
Effective Date of 1976 Amendment
Amendment by section 2122(b)(2) of
Effective Date of 1971 Amendment
"(2) The amendment made by subsection (b) [amending this section] shall apply to taxable years ending after December 31, 1970.
"(3) The amendments made by subsection (c) [amending this section] shall apply to taxable years beginning after December 31, 1969."
Effective Date of 1969 Amendment
Effective Date of 1965 Amendment
Effective Date of 1962 Amendment
Effective Date of 1960 Amendment
Amendment by
Short Title of 1965 Amendment
Short Title of 1964 Amendment
Savings Provision
For provisions that nothing in amendment by
Applicability of Certain Amendments by Pub. L. 99–514 in Relation to Treaty Obligations of United States
For applicability of amendment by section 701(e)(4)(D) of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
§263A. Capitalization and inclusion in inventory costs of certain expenses
(a) Nondeductibility of certain direct and indirect costs
(1) In general
In the case of any property to which this section applies, any costs described in paragraph (2)—
(A) in the case of property which is inventory in the hands of the taxpayer, shall be included in inventory costs, and
(B) in the case of any other property, shall be capitalized.
(2) Allocable costs
The costs described in this paragraph with respect to any property are—
(A) the direct costs of such property, and
(B) such property's proper share of those indirect costs (including taxes) part or all of which are allocable to such property.
Any cost which (but for this subsection) could not be taken into account in computing taxable income for any taxable year shall not be treated as a cost described in this paragraph.
(b) Property to which section applies
Except as otherwise provided in this section, this section shall apply to—
(1) Property produced by taxpayer
Real or tangible personal property produced by the taxpayer.
(2) Property acquired for resale
Real or personal property described in section 1221(a)(1) which is acquired by the taxpayer for resale.
For purposes of paragraph (1), the term "tangible personal property" shall include a film, sound recording, video tape, book, or similar property.
(c) General exceptions
(1) Personal use property
This section shall not apply to any property produced by the taxpayer for use by the taxpayer other than in a trade or business or an activity conducted for profit.
(2) Research and experimental expenditures
This section shall not apply to any amount allowable as a deduction under section 174.
(3) Certain development and other costs of oil and gas wells or other mineral property
This section shall not apply to any cost allowable as a deduction under section 167(h), 179B, 263(c), 263(i), 291(b)(2), 616, or 617.
(4) Coordination with long-term contract rules
This section shall not apply to any property produced by the taxpayer pursuant to a long-term contract.
(5) Timber and certain ornamental trees
This section shall not apply to—
(A) trees raised, harvested, or grown by the taxpayer other than trees described in clause (ii) of subsection (e)(4)(B) (after application of the last sentence thereof), and
(B) any real property underlying such trees.
(6) Coordination with section 59(e)
Paragraphs (2) and (3) shall apply to any amount allowable as a deduction under section 59(e) for qualified expenditures described in subparagraphs (B), (C), (D), and (E) of paragraph (2) thereof.
(7) Coordination with section 168(k)(5)
This section shall not apply to any amount allowed as a deduction by reason of section 168(k)(5) (relating to special rules for certain plants bearing fruits and nuts).
(d) Exception for farming businesses
(1) Section not to apply to certain property
(A) In general
This section shall not apply to any of the following which is produced by the taxpayer in a farming business:
(i) Any animal.
(ii) Any plant which has a preproductive period of 2 years or less.
(B) Exception for taxpayers required to use accrual method
Subparagraph (A) shall not apply to any corporation, partnership, or tax shelter required to use an accrual method of accounting under section 447 or 448(a)(3).
(2) Treatment of certain plants lost by reason of casualty
(A) In general
If plants bearing an edible crop for human consumption were lost or damaged (while in the hands of the taxpayer) by reason of freezing temperatures, disease, drought, pests, or casualty, this section shall not apply to any costs of the taxpayer of replanting plants bearing the same type of crop (whether on the same parcel of land on which such lost or damaged plants were located or any other parcel of land of the same acreage in the United States).
(B) Special rule for person with minority interest who materially participates
Subparagraph (A) shall apply to amounts paid or incurred by a person (other than the taxpayer described in subparagraph (A)) if—
(i) the taxpayer described in subparagraph (A) has an equity interest of more than 50 percent in the plants described in subparagraph (A) at all times during the taxable year in which such amounts were paid or incurred, and
(ii) such other person holds any part of the remaining equity interest and materially participates in the planting, maintenance, cultivation, or development of the plants described in subparagraph (A) during the taxable year in which such amounts were paid or incurred.
The determination of whether an individual materially participates in any activity shall be made in a manner similar to the manner in which such determination is made under section 2032A(e)(6).
(C) Special temporary rule for citrus plants lost by reason of casualty
(i) In general
In the case of the replanting of citrus plants, subparagraph (A) shall apply to amounts paid or incurred by a person (other than the taxpayer described in subparagraph (A)) if—
(I) the taxpayer described in subparagraph (A) has an equity interest of not less than 50 percent in the replanted citrus plants at all times during the taxable year in which such amounts were paid or incurred and such other person holds any part of the remaining equity interest, or
(II) such other person acquired the entirety of such taxpayer's equity interest in the land on which the lost or damaged citrus plants were located at the time of such loss or damage, and the replanting is on such land.
(ii) Termination
Clause (i) shall not apply to any cost paid or incurred after the date which is 10 years after the date of the enactment of the Tax Cuts and Jobs Act.
(3) Election to have this section not apply
(A) In general
If a taxpayer makes an election under this paragraph, this section shall not apply to any plant produced in any farming business carried on by such taxpayer.
(B) Certain persons not eligible
No election may be made under this paragraph by a corporation, partnership, or tax shelter, if such corporation, partnership, or tax shelter is required to use an accrual method of accounting under section 447 or 448(a)(3).
(C) Special rule for citrus and almond growers
An election under this paragraph shall not apply with respect to any item which is attributable to the planting, cultivation, maintenance, or development of any citrus or almond grove (or part thereof) and which is incurred before the close of the 4th taxable year beginning with the taxable year in which the trees were planted. For purposes of the preceding sentence, the portion of a citrus or almond grove planted in 1 taxable year shall be treated separately from the portion of such grove planted in another taxable year.
(D) Election
Unless the Secretary otherwise consents, an election under this paragraph may be made only for the taxpayer's 1st taxable year which begins after December 31, 1986, and during which the taxpayer engages in a farming business. Any such election, once made, may be revoked only with the consent of the Secretary.
(e) Definitions and special rules for purposes of subsection (d)
(1) Recapture of expensed amounts on disposition
(A) In general
In the case of any plant with respect to which amounts would have been capitalized under subsection (a) but for an election under subsection (d)(3)—
(i) such plant (if not otherwise section 1245 property) shall be treated as section 1245 property, and
(ii) for purposes of section 1245, the recapture amount shall be treated as a deduction allowed for depreciation with respect to such property.
(B) Recapture amount
For purposes of subparagraph (A), the term "recapture amount" means any amount allowable as a deduction to the taxpayer which, but for an election under subsection (d)(3), would have been capitalized with respect to the plant.
(2) Effects of election on depreciation
(A) In general
If the taxpayer (or any related person) makes an election under subsection (d)(3), the provisions of section 168(g)(2) (relating to alternative depreciation) shall apply to all property of the taxpayer used predominantly in the farming business and placed in service in any taxable year during which any such election is in effect.
(B) Related person
For purposes of subparagraph (A), the term "related person" means—
(i) the taxpayer and members of the taxpayer's family,
(ii) any corporation (including an S corporation) if 50 percent or more (in value) of the stock of such corporation is owned (directly or through the application of section 318) by the taxpayer or members of the taxpayer's family,
(iii) a corporation and any other corporation which is a member of the same controlled group described in section 1563(a)(1), and
(iv) any partnership if 50 percent or more (in value) of the interests in such partnership is owned directly or indirectly by the taxpayer or members of the taxpayer's family.
(C) Members of family
For purposes of this paragraph, the term "family" means the taxpayer, the spouse of the taxpayer, and any of their children who have not attained age 18 before the close of the taxable year.
(3) Preproductive period
(A) In general
For purposes of this section, the term "preproductive period" means—
(i) in the case of a plant which will have more than 1 crop or yield, the period before the 1st marketable crop or yield from such plant, or
(ii) in the case of any other plant, the period before such plant is reasonably expected to be disposed of.
For purposes of this subparagraph, use by the taxpayer in a farming business of any supply produced in such business shall be treated as a disposition.
(B) Rule for determining period
In the case of a plant grown in commercial quantities in the United States, the preproductive period for such plant if grown in the United States shall be based on the nationwide weighted average preproductive period for such plant.
(4) Farming business
For purposes of this section—
(A) In general
The term "farming business" means the trade or business of farming.
(B) Certain trades and businesses included
The term "farming business" shall include the trade or business of—
(i) operating a nursery or sod farm, or
(ii) the raising or harvesting of trees bearing fruit, nuts, or other crops, or ornamental trees.
For purposes of clause (ii), an evergreen tree which is more than 6 years old at the time severed from the roots shall not be treated as an ornamental tree.
(5) Certain inventory valuation methods permitted
The Secretary shall by regulations permit the taxpayer to use reasonable inventory valuation methods to compute the amount required to be capitalized under subsection (a) in the case of any plant.
(f) Special rules for allocation of interest to property produced by the taxpayer
(1) Interest capitalized only in certain cases
Subsection (a) shall only apply to interest costs which are—
(A) paid or incurred during the production period, and
(B) allocable to property which is described in subsection (b)(1) and which has—
(i) a long useful life,
(ii) an estimated production period exceeding 2 years, or
(iii) an estimated production period exceeding 1 year and a cost exceeding $1,000,000.
(2) Allocation rules
(A) In general
In determining the amount of interest required to be capitalized under subsection (a) with respect to any property—
(i) interest on any indebtedness directly attributable to production expenditures with respect to such property shall be assigned to such property, and
(ii) interest on any other indebtedness shall be assigned to such property to the extent that the taxpayer's interest costs could have been reduced if production expenditures (not attributable to indebtedness described in clause (i)) had not been incurred.
(B) Exception for qualified residence interest
Subparagraph (A) shall not apply to any qualified residence interest (within the meaning of section 163(h)).
(C) Special rule for flow-through entities
Except as provided in regulations, in the case of any flow-through entity, this paragraph shall be applied first at the entity level and then at the beneficiary level.
(3) Interest relating to property used to produce property
This subsection shall apply to any interest on indebtedness allocable (as determined under paragraph (2)) to property used to produce property to which this subsection applies to the extent such interest is allocable (as so determined) to the produced property.
(4) Exemption for aging process of beer, wine, and distilled spirits
For purposes of this subsection, the production period shall not include the aging period for—
(A) beer (as defined in section 5052(a)),
(B) wine (as described in section 5041(a)), or
(C) distilled spirits (as defined in section 5002(a)(8)), except such spirits that are unfit for use for beverage purposes.
(5) Definitions
For purposes of this subsection—
(A) Long useful life
Property has a long useful life if such property is—
(i) real property, or
(ii) property with a class life of 20 years or more (as determined under section 168).
(B) Production period
The term "production period" means, when used with respect to any property, the period—
(i) beginning on the date on which production of the property begins, and
(ii) except as provided in paragraph (4), ending on the date on which the property is ready to be placed in service or is ready to be held for sale.
(C) Production expenditures
The term "production expenditures" means the costs (whether or not incurred during the production period) required to be capitalized under subsection (a) with respect to the property.
(g) Production
For purposes of this section—
(1) In general
The term "produce" includes construct, build, install, manufacture, develop, or improve.
(2) Treatment of property produced under contract for the taxpayer
The taxpayer shall be treated as producing any property produced for the taxpayer under a contract with the taxpayer; except that only costs paid or incurred by the taxpayer (whether under such contract or otherwise) shall be taken into account in applying subsection (a) to the taxpayer.
(h) Exemption for free lance authors, photographers, and artists
(1) In general
Nothing in this section shall require the capitalization of any qualified creative expense.
(2) Qualified creative expense
For purposes of this subsection, the term "qualified creative expense" means any expense—
(A) which is paid or incurred by an individual in the trade or business of such individual (other than as an employee) of being a writer, photographer, or artist, and
(B) which, without regard to this section, would be allowable as a deduction for the taxable year.
Such term does not include any expense related to printing, photographic plates, motion picture films, video tapes, or similar items.
(3) Definitions
For purposes of this subsection—
(A) Writer
The term "writer" means any individual if the personal efforts of such individual create (or may reasonably be expected to create) a literary manuscript, musical composition (including any accompanying words), or dance score.
(B) Photographer
The term "photographer" means any individual if the personal efforts of such individual create (or may reasonably be expected to create) a photograph or photographic negative or transparency.
(C) Artist
(i) In general
The term "artist" means any individual if the personal efforts of such individual create (or may reasonably be expected to create) a picture, painting, sculpture, statue, etching, drawing, cartoon, graphic design, or original print edition.
(ii) Criteria
In determining whether any expense is paid or incurred in the trade or business of being an artist, the following criteria shall be taken into account:
(I) The originality and uniqueness of the item created (or to be created).
(II) The predominance of aesthetic value over utilitarian value of the item created (or to be created).
(D) Treatment of certain corporations
(i) In general
If—
(I) substantially all of the stock of a corporation is owned by a qualified employee-owner and members of his family (as defined in section 267(c)(4)), and
(II) the principal activity of such corporation is performance of personal services directly related to the activities of the qualified employee-owner and such services are substantially performed by the qualified employee-owner,
this subsection shall apply to any expense of such corporation which directly relates to the activities of such employee-owner in the same manner as if such expense were incurred by such employee-owner.
(ii) Qualified employee-owner
For purposes of this subparagraph, the term "qualified employee-owner" means any individual who is an employee-owner of the corporation (as defined in section 269A(b)(2)) and who is a writer, photographer, or artist.
(i) Exemption for certain small businesses
(1) In general
In the case of any taxpayer (other than a tax shelter prohibited from using the cash receipts and disbursements method of accounting under section 448(a)(3)) which meets the gross receipts test of section 448(c) for any taxable year, this section shall not apply with respect to such taxpayer for such taxable year.
(2) Application of gross receipts test to individuals, etc.
In the case of any taxpayer which is not a corporation or a partnership, the gross receipts test of section 448(c) shall be applied in the same manner as if each trade or business of such taxpayer were a corporation or partnership.
(3) Coordination with section 481
Any change in method of accounting made pursuant to this subsection shall be treated for purposes of section 481 as initiated by the taxpayer and made with the consent of the Secretary.
(j) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including—
(1) regulations to prevent the use of related parties, pass-thru entities, or intermediaries to avoid the application of this section, and
(2) regulations providing for simplified procedures for the application of this section in the case of property described in subsection (b)(2).
(Added
Editorial Notes
References in Text
The date of the enactment of the Tax Cuts and Jobs Act, referred to in subsec. (d)(2)(C)(ii), probably means the date of enactment of title I of
Amendments
2020—Subsec. (f)(4).
2019—Subsec. (f)(4)(B).
2017—Subsec. (b)(2).
Subsec. (d)(2)(C).
Subsec. (f)(4), (5).
Subsec. (f)(5)(B)(ii).
Subsecs. (i), (j).
2015—Subsec. (c)(7).
2005—Subsec. (c)(3).
2004—Subsec. (c)(3).
1999—Subsec. (b)(2)(A).
1989—Subsec. (h)(3)(D).
"(i)
"(ii)
"(iii)
1988—Subsec. (a)(2).
Subsec. (c)(3).
Subsec. (c)(6).
Subsec. (d)(1).
Subsec. (d)(1)(A).
Subsec. (d)(2)(B)(i).
Subsec. (d)(2)(B)(ii).
Subsec. (d)(3)(A).
Subsec. (d)(3)(B).
"(i) by a corporation, partnership, or tax shelter, if such corporation, partnership, or tax shelter is required to use an accrual method of accounting under section 447 or 448(a)(3), or
"(ii) with respect to the planting, cultivation, maintenance, or development of pistachio trees."
Subsec. (e).
Subsec. (f)(3).
Subsecs. (h), (i).
Statutory Notes and Related Subsidiaries
Effective Date of 2020 Amendment
Effective Date of 2019 Amendment
Effective Date of 2017 Amendment
"(1)
"(2)
"(3)
Effective Date of 2015 Amendment
Amendment by
Effective Date of 2005 Amendment
Amendment by
Effective Date of 2004 Amendment
Amendment by
Effective Date of 1999 Amendment
Amendment by
Effective Date of 1989 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by section 1008(b)(1)–(4) of
"(1)
"(2)
"(A)
"(B)
Effective Date
"(1)
"(2)
"(A)
"(B)
"(i) such change shall be treated as initiated by the taxpayer,
"(ii) such change shall be treated as made with the consent of the Secretary, and
"(iii) the period for taking into account the adjustments under section 481 by reason of such change shall not exceed 4 years.
"(3)
"(4)
"(A)
"(i) to which the amendments made by section 201 [amending
"(ii) to which the amendments made by section 251 [amending
"(B)
"(5)
"(A) was incorporated in California on April 15, 1925,
"(B) adopted LIFO accounting as of the close of the taxable year ended December 31, 1950, and
"(C) was, on May 22, 1986, merged into a Delaware corporation incorporated on March 12, 1986,
the amendments made by this section shall apply under a cut-off method whereby the uniform capitalization rules are applied only in costing layers of inventory acquired during taxable years beginning on or after January 1, 1987.
"(6)
"(7)
Construction
[
Allocation Ratio for Apportioning Storage Costs and Related Handling Costs
Amortization of Past Service Pension Costs
"(a)
"(b)
"(1)
"(2)
"(A)
"(B)
"(i) such change shall be treated as initiated by the taxpayer,
"(ii) such change shall be treated as made with the consent of the Secretary of the Treasury or his delegate, and
"(iii) the net amount of adjustments required by section 481 of the Internal Revenue Code of 1986 shall be taken into account over a period not longer than 4 taxable years."
§264. Certain amounts paid in connection with insurance contracts
(a) General rule
No deduction shall be allowed for—
(1) Premiums on any life insurance policy, or endowment or annuity contract, if the taxpayer is directly or indirectly a beneficiary under the policy or contract.
(2) Any amount paid or accrued on indebtedness incurred or continued to purchase or carry a single premium life insurance, endowment, or annuity contract.
(3) Except as provided in subsection (d), any amount paid or accrued on indebtedness incurred or continued to purchase or carry a life insurance, endowment, or annuity contract (other than a single premium contract or a contract treated as a single premium contract) pursuant to a plan of purchase which contemplates the systematic direct or indirect borrowing of part or all of the increases in the cash value of such contract (either from the insurer or otherwise).
(4) Except as provided in subsection (e), any interest paid or accrued on any indebtedness with respect to 1 or more life insurance policies owned by the taxpayer covering the life of any individual, or any endowment or annuity contracts owned by the taxpayer covering any individual.
Paragraph (2) shall apply in respect of annuity contracts only as to contracts purchased after March 1, 1954. Paragraph (3) shall apply only in respect of contracts purchased after August 6, 1963. Paragraph (4) shall apply with respect to contracts purchased after June 20, 1986.
(b) Exceptions to subsection (a)(1)
Subsection (a)(1) shall not apply to—
(1) any annuity contract described in section 72(s)(5), and
(2) any annuity contract to which section 72(u) applies.
(c) Contracts treated as single premium contracts
For purposes of subsection (a)(2), a contract shall be treated as a single premium contract—
(1) if substantially all the premiums on the contract are paid within a period of 4 years from the date on which the contract is purchased, or
(2) if an amount is deposited after March 1, 1954, with the insurer for payment of a substantial number of future premiums on the contract.
(d) Exceptions
Subsection (a)(3) shall not apply to any amount paid or accrued by a person during a taxable year on indebtedness incurred or continued as part of a plan referred to in subsection (a)(3)—
(1) if no part of 4 of the annual premiums due during the 7-year period (beginning with the date the first premium on the contract to which such plan relates was paid) is paid under such plan by means of indebtedness,
(2) if the total of the amounts paid or accrued by such person during such taxable year for which (without regard to this paragraph) no deduction would be allowable by reason of subsection (a)(3) does not exceed $100,
(3) if such amount was paid or accrued on indebtedness incurred because of an unforeseen substantial loss of income or unforeseen substantial increase in his financial obligations, or
(4) if such indebtedness was incurred in connection with his trade or business.
For purposes of applying paragraph (1), if there is a substantial increase in the premiums on a contract, a new 7-year period described in such paragraph with respect to such contract shall commence on the date the first such increased premium is paid.
(e) Special rules for application of subsection (a)(4)
(1) Exception for key persons
Subsection (a)(4) shall not apply to any interest paid or accrued on any indebtedness with respect to policies or contracts covering an individual who is a key person to the extent that the aggregate amount of such indebtedness with respect to policies and contracts covering such individual does not exceed $50,000.
(2) Interest rate cap on key persons and pre-1986 contracts
(A) In general
No deduction shall be allowed by reason of paragraph (1) or the last sentence of subsection (a) with respect to interest paid or accrued for any month beginning after December 31, 1995, to the extent the amount of such interest exceeds the amount which would have been determined if the applicable rate of interest were used for such month.
(B) Applicable rate of interest
For purposes of subparagraph (A)—
(i) In general
The applicable rate of interest for any month is the rate of interest described as Moody's Corporate Bond Yield Average-Monthly Average Corporates as published by Moody's Investors Service, Inc., or any successor thereto, for such month.
(ii) Pre-1986 contracts
In the case of indebtedness on a contract purchased on or before June 20, 1986—
(I) which is a contract providing a fixed rate of interest, the applicable rate of interest for any month shall be the Moody's rate described in clause (i) for the month in which the contract was purchased, or
(II) which is a contract providing a variable rate of interest, the applicable rate of interest for any month in an applicable period shall be such Moody's rate for the third month preceding the first month in such period.
For purposes of subclause (II), the term "applicable period" means the 12-month period beginning on the date the policy is issued (and each successive 12-month period thereafter) unless the taxpayer elects a number of months (not greater than 12) other than such 12-month period to be its applicable period. Such an election shall be made not later than the 90th day after the date of the enactment of this sentence and, if made, shall apply to the taxpayer's first taxable year ending on or after October 13, 1995, and all subsequent taxable years unless revoked with the consent of the Secretary.
(3) Key person
For purposes of paragraph (1), the term "key person" means an officer or 20-percent owner, except that the number of individuals who may be treated as key persons with respect to any taxpayer shall not exceed the greater of—
(A) 5 individuals, or
(B) the lesser of 5 percent of the total officers and employees of the taxpayer or 20 individuals.
(4) 20-percent owner
For purposes of this subsection, the term "20-percent owner" means—
(A) if the taxpayer is a corporation, any person who owns directly 20 percent or more of the outstanding stock of the corporation or stock possessing 20 percent or more of the total combined voting power of all stock of the corporation, or
(B) if the taxpayer is not a corporation, any person who owns 20 percent or more of the capital or profits interest in the taxpayer.
(5) Aggregation rules
(A) In general
For purposes of paragraph (4)(A) and applying the $50,000 limitation in paragraph (1)—
(i) all members of a controlled group shall be treated as one taxpayer, and
(ii) such limitation shall be allocated among the members of such group in such manner as the Secretary may prescribe.
(B) Controlled group
For purposes of this paragraph, all persons treated as a single employer under subsection (a) or (b) of section 52 or subsection (m) or (o) of section 414 shall be treated as members of a controlled group.
(f) Pro rata allocation of interest expense to policy cash values
(1) In general
No deduction shall be allowed for that portion of the taxpayer's interest expense which is allocable to unborrowed policy cash values.
(2) Allocation
For purposes of paragraph (1), the portion of the taxpayer's interest expense which is allocable to unborrowed policy cash values is an amount which bears the same ratio to such interest expense as—
(A) the taxpayer's average unborrowed policy cash values of life insurance policies, and annuity and endowment contracts, issued after June 8, 1997, bears to
(B) the sum of—
(i) in the case of assets of the taxpayer which are life insurance policies or annuity or endowment contracts, the average unborrowed policy cash values of such policies and contracts, and
(ii) in the case of assets of the taxpayer not described in clause (i), the average adjusted bases (within the meaning of section 1016) of such assets.
(3) Unborrowed policy cash value
For purposes of this subsection, the term "unborrowed policy cash value" means, with respect to any life insurance policy or annuity or endowment contract, the excess of—
(A) the cash surrender value of such policy or contract determined without regard to any surrender charge, over
(B) the amount of any loan with respect to such policy or contract.
If the amount described in subparagraph (A) with respect to any policy or contract does not reasonably approximate its actual value, the amount taken into account under subparagraph (A) shall be the greater of the amount of the insurance company liability or the insurance company reserve with respect to such policy or contract (as determined for purposes of the annual statement approved by the National Association of Insurance Commissioners) or shall be such other amount as is determined by the Secretary.
(4) Exception for certain policies and contracts
(A) Policies and contracts covering 20-percent owners, officers, directors, and employees
Paragraph (1) shall not apply to any policy or contract owned by an entity engaged in a trade or business if such policy or contract covers only 1 individual and if such individual is (at the time first covered by the policy or contract)—
(i) a 20-percent owner of such entity, or
(ii) an individual (not described in clause (i)) who is an officer, director, or employee of such trade or business.
A policy or contract covering a 20-percent owner of such entity shall not be treated as failing to meet the requirements of the preceding sentence by reason of covering the joint lives of such owner and such owner's spouse.
(B) Contracts subject to current income inclusion
Paragraph (1) shall not apply to any annuity contract to which section 72(u) applies.
(C) Coordination with paragraph (2)
Any policy or contract to which paragraph (1) does not apply by reason of this paragraph shall not be taken into account under paragraph (2).
(D) 20-percent owner
For purposes of subparagraph (A), the term "20-percent owner" has the meaning given such term by subsection (e)(4).
(E) Master contracts
If coverage for each insured under a master contract is treated as a separate contract for purposes of sections 817(h), 7702, and 7702A, coverage for each such insured shall be treated as a separate contract for purposes of subparagraph (A). For purposes of the preceding sentence, the term "master contract" shall not include any group life insurance contract (as defined in section 848(e)(2)).
(5) Exception for policies and contracts held by natural persons; treatment of partnerships and S corporations
(A) Policies and contracts held by natural persons
(i) In general
This subsection shall not apply to any policy or contract held by a natural person.
(ii) Exception where business is beneficiary
If a trade or business is directly or indirectly the beneficiary under any policy or contract, such policy or contract shall be treated as held by such trade or business and not by a natural person.
(iii) Special rules
(I) Certain trades or businesses not taken into account
Clause (ii) shall not apply to any trade or business carried on as a sole proprietorship and to any trade or business performing services as an employee.
(II) Limitation on unborrowed cash value
The amount of the unborrowed cash value of any policy or contract which is taken into account by reason of clause (ii) shall not exceed the benefit to which the trade or business is directly or indirectly entitled under the policy or contract.
(iv) Reporting
The Secretary shall require such reporting from policyholders and issuers as is necessary to carry out clause (ii).
(B) Treatment of partnerships and S corporations
In the case of a partnership or S corporation, this subsection shall be applied at the partnership and corporate levels.
(6) Special rules
(A) Coordination with subsection (a) and section 265
If interest on any indebtedness is disallowed under subsection (a) or section 265—
(i) such disallowed interest shall not be taken into account for purposes of applying this subsection, and
(ii) the amount otherwise taken into account under paragraph (2)(B) shall be reduced (but not below zero) by the amount of such indebtedness.
(B) Coordination with section 263A
This subsection shall be applied before the application of section 263A (relating to capitalization of certain expenses where taxpayer produces property).
(7) Interest expense
The term "interest expense" means the aggregate amount allowable to the taxpayer as a deduction for interest (within the meaning of section 265(b)(4)) for the taxable year (determined without regard to this subsection, section 265(b), and section 291).
(8) Aggregation rules
(A) In general
All members of a controlled group (within the meaning of subsection (e)(5)(B)) shall be treated as 1 taxpayer for purposes of this subsection.
(B) Treatment of insurance companies
This subsection shall not apply to an insurance company subject to tax under subchapter L, and subparagraph (A) shall be applied without regard to any member of an affiliated group which is an insurance company.
(Aug. 16, 1954, ch. 736,
Editorial Notes
References in Text
The date of the enactment of this sentence, referred to in subsec. (e)(2)(B)(ii), probably means the date of enactment of
Codification
Another section 1084(b) of
Amendments
1998—Subsec. (a)(3).
Subsec. (a)(4).
Subsec. (f)(3).
Subsec. (f)(4)(E).
Subsec. (f)(5)(A)(iv).
Subsec. (f)(8)(A).
1997—Subsec. (a)(1).
Subsec. (a)(4).
"(A) is an officer or employee of, or
"(B) is financially interested in,
any trade or business carried on by the taxpayer."
"(A) is or was an officer or employee, or
"(B) is or was financially interested in,
any trade or business carried on (currently or formerly) by the taxpayer."
Subsecs. (b), (c).
Subsec. (d).
Subsec. (d)(2)(B)(ii).
Subsec. (d)(4)(B).
Subsec. (e).
Subsec. (f).
1996—Subsec. (a)(4).
Subsec. (d).
1986—Subsec. (a).
1964—Subsec. (a).
Subsec. (c).
Statutory Notes and Related Subsidiaries
Effective Date of 1998 Amendments
Amendment by
Amendment by
Effective Date of 1997 Amendment
Amendment by section 1084(a), (b)(1), (c) of
Amendment by section 1602(f)(1)–(3) of
Effective Date of 1996 Amendment
"(1)
"(2)
"(A)
"(i) indebtedness incurred before January 1, 1996, or
"(ii) indebtedness incurred before January 1, 1997 with respect to any contract or policy entered into in 1994 or 1995,
the amendments made by this section shall not apply to qualified interest paid or accrued on such indebtedness after October 13, 1995, and before January 1, 1999.
"(B)
"(i) in the case of any interest paid or accrued after December 31, 1995, indebtedness with respect to no more than 20,000 insured individuals were taken into account, and
"(ii) the lesser of the following rates of interest were used for such month:
"(I) The rate of interest specified under the terms of the indebtedness as in effect on October 13, 1995 (and without regard to modification of such terms after such date).
"(II) The applicable percentage of the rate of interest described as Moody's Corporate Bond Yield Average-Monthly Average Corporates as published by Moody's Investors Service, Inc., or any successor thereto, for such month.
For purposes of clause (i), all persons treated as a single employer under subsection (a) or (b) of section 52 of the Internal Revenue Code of 1986 or subsection (m) or (o) of section 414 of such Code shall be treated as 1 person. Subclause (II) of clause (ii) shall not apply to any month before January 1, 1996.
"(C)
| For calendar year: | The percentage is: |
|---|---|
| 1996 | 100 percent |
| 1997 | 90 percent |
| 1998 | 80 percent." |
Effective Date of 1986 Amendment
Effective Date of 1964 Amendment
Spread of Income Inclusion on Surrender, Etc. of Contracts
"(1)
"(A) on the complete surrender, redemption, or maturity of such policy or contract during calendar year 1996, 1997, or 1998, or
"(B) in full discharge during any such calendar year of the obligation under the policy or contract which is in the nature of a refund of the consideration paid for the policy or contract,
then (in lieu of any other inclusion in gross income) such amount shall be includible in gross income ratably over the 4-taxable year period beginning with the taxable year such amount would (but for this paragraph) be includible. The preceding sentence shall only apply to the extent the amount is includible in gross income for the taxable year in which the event described in subparagraph (A) or (B) occurs.
"(2)
"(A) failing to meet the requirement of section 264(c)(1) of the Internal Revenue Code of 1986, or
"(B) a single premium contract under section 264(b)(1) of such Code,
solely by reason of an occurrence described in subparagraph (A) or (B) of paragraph (1) of this subsection or solely by reason of a lapse occurring after October 13, 1995, by reason of no additional premiums being received under the contract.
"(3)
"(A) section 848 of the Internal Revenue Code of 1986 shall not apply to the unamortized balance (if any) of the specified policy acquisition expenses attributable to such policy or contract immediately before the insurance company's taxable year in which such event occurs, and
"(B) there shall be allowed as a deduction to such company for such taxable year under
§265. Expenses and interest relating to tax-exempt income
(a) General rule
No deduction shall be allowed for—
(1) Expenses
Any amount otherwise allowable as a deduction which is allocable to one or more classes of income other than interest (whether or not any amount of income of that class or classes is received or accrued) wholly exempt from the taxes imposed by this subtitle, or any amount otherwise allowable under section 212 (relating to expenses for production of income) which is allocable to interest (whether or not any amount of such interest is received or accrued) wholly exempt from the taxes imposed by this subtitle.
(2) Interest
Interest on indebtedness incurred or continued to purchase or carry obligations the interest on which is wholly exempt from the taxes imposed by this subtitle.
(3) Certain regulated investment companies
In the case of a regulated investment company which distributes during the taxable year an exempt-interest dividend (including exempt-interest dividends paid after the close of the taxable year as described in section 855), that portion of any amount otherwise allowable as a deduction which the amount of the income of such company wholly exempt from taxes under this subtitle bears to the total of such exempt income and its gross income (excluding from gross income, for this purpose, capital gain net income, as defined in section 1222(9)).
(4) Interest related to exempt-interest dividends
Interest on indebtedness incurred or continued to purchase or carry shares of stock of a regulated investment company which during the taxable year of the holder thereof distributes exempt-interest dividends.
(5) Special rules for application of paragraph (2) in the case of short sales
For purposes of paragraph (2)—
(A) In general
The term "interest" includes any amount paid or incurred—
(i) by any person making a short sale in connection with personal property used in such short sale, or
(ii) by any other person for the use of any collateral with respect to such short sale.
(B) Exception where no return on cash collateral
If—
(i) the taxpayer provides cash as collateral for any short sale, and
(ii) the taxpayer receives no material earnings on such cash during the period of the sale,
subparagraph (A)(i) shall not apply to such short sale.
(6) Section not to apply with respect to parsonage and military housing allowances
No deduction shall be denied under this section for interest on a mortgage on, or real property taxes on, the home of the taxpayer by reason of the receipt of an amount as—
(A) a military housing allowance, or
(B) a parsonage allowance excludable from gross income under section 107.
(b) Pro rata allocation of interest expense of financial institutions to tax-exempt interest
(1) In general
In the case of a financial institution, no deduction shall be allowed for that portion of the taxpayer's interest expense which is allocable to tax-exempt interest.
(2) Allocation
For purposes of paragraph (1), the portion of the taxpayer's interest expense which is allocable to tax-exempt interest is an amount which bears the same ratio to such interest expense as—
(A) the taxpayer's average adjusted bases (within the meaning of section 1016) of tax-exempt obligations acquired after August 7, 1986, bears to
(B) such average adjusted bases for all assets of the taxpayer.
(3) Exception for certain tax-exempt obligations
(A) In general
Any qualified tax-exempt obligation acquired after August 7, 1986, shall be treated for purposes of paragraph (2) and section 291(e)(1)(B) as if it were acquired on August 7, 1986.
(B) Qualified tax-exempt obligation
(i) In general
For purposes of subparagraph (A), the term "qualified tax-exempt obligation" means a tax-exempt obligation—
(I) which is issued after August 7, 1986, by a qualified small issuer,
(II) which is not a private activity bond (as defined in section 141), and
(III) which is designated by the issuer for purposes of this paragraph.
(ii) Certain bonds not treated as private activity bonds
For purposes of clause (i)(II), there shall not be treated as a private activity bond—
(I) any qualified 501(c)(3) bond (as defined in section 145), or
(II) any obligation issued to refund (or which is part of a series of obligations issued to refund) an obligation issued before August 8, 1986, which was not an industrial development bond (as defined in section 103(b)(2) as in effect on the day before the date of the enactment of the Tax Reform Act of 1986) or a private loan bond (as defined in section 103(o)(2)(A), as so in effect, but without regard to any exemption from such definition other than section 103(o)(2)(A)).
(C) Qualified small issuer
(i) In general
For purposes of subparagraph (B), the term "qualified small issuer" means, with respect to obligations issued during any calendar year, any issuer if the reasonably anticipated amount of tax-exempt obligations (other than obligations described in clause (ii)) which will be issued by such issuer during such calendar year does not exceed $10,000,000.
(ii) Obligations not taken into account in determining status as qualified small issuer
For purposes of clause (i), an obligation is described in this clause if such obligation is—
(I) a private activity bond (other than a qualified 501(c)(3) bond, as defined in section 145),
(II) an obligation to which section 141(a) does not apply by reason of section 1312, 1313, 1316(g), or 1317 of the Tax Reform Act of 1986 and which would (if issued on August 15, 1986) have been an industrial development bond (as defined in section 103(b)(2) as in effect on the day before the date of the enactment of such Act) or a private loan bond (as defined in section 103(o)(2)(A), as so in effect, but without regard to any exception from such definition other than section 103(o)(2)(A)), or
(III) an obligation issued to refund (other than to advance refund within the meaning of section 149(d)(5)) 1 any obligation to the extent the amount of the refunding obligation does not exceed the outstanding amount of the refunded obligation.
(iii) Allocation of amount of issue in certain cases
In the case of an issue under which more than 1 governmental entity receives benefits, if—
(I) all governmental entities receiving benefits from such issue irrevocably agree (before the date of issuance of the issue) on an allocation of the amount of such issue for purposes of this subparagraph, and
(II) such allocation bears a reasonable relationship to the respective benefits received by such entities,
then the amount of such issue so allocated to an entity (and only such amount with respect to such issue) shall be taken into account under clause (i) with respect to such entity.
(D) Limitation on amount of obligations which may be designated
(i) In general
Not more than $10,000,000 of obligations issued by an issuer during any calendar year may be designated by such issuer for purposes of this paragraph.
(ii) Certain refundings of designated obligations deemed designated
Except as provided in clause (iii), in the case of a refunding (or series of refundings) of a qualified tax-exempt obligation, the refunding obligation shall be treated as a qualified tax-exempt obligation (and shall not be taken into account under clause (i)) if—
(I) the refunding obligation was not taken into account under subparagraph (C) by reason of clause (ii)(III) thereof,
(II) the average maturity date of the refunding obligations issued as part of the issue of which such refunding obligation is a part is not later than the average maturity date of the obligations to be refunded by such issue, and
(III) the refunding obligation has a maturity date which is not later than the date which is 30 years after the date the original qualified tax-exempt obligation was issued.
Subclause (II) shall not apply if the average maturity of the issue of which the original qualified tax-exempt obligation was a part (and of the issue of which the obligations to be refunded are a part) is 3 years or less. For purposes of this clause, average maturity shall be determined in accordance with section 147(b)(2)(A).
(iii) Certain obligations may not be designated or deemed designated
No obligation issued as part of an issue may be designated under this paragraph (or may be treated as designated under clause (ii)) if—
(I) any obligation issued as part of such issue is issued to refund another obligation, and
(II) the aggregate face amount of such issue exceeds $10,000,000.
(E) Aggregation of issuers
For purposes of subparagraphs (C) and (D)—
(i) an issuer and all entities which issue obligations on behalf of such issuer shall be treated as 1 issuer,
(ii) all obligations issued by a subordinate entity shall, for purposes of applying subparagraphs (C) and (D) to each other entity to which such entity is subordinate, be treated as issued by such other entity, and
(iii) an entity formed (or, to the extent provided by the Secretary, availed of) to avoid the purposes of subparagraph (C) or (D) and all entities benefiting thereby shall be treated as 1 issuer.
(F) Treatment of composite issues
In the case of an obligation which is issued as part of a direct or indirect composite issue, such obligation shall not be treated as a qualified tax-exempt obligation unless—
(i) the requirements of this paragraph are met with respect to such composite issue (determined by treating such composite issue as a single issue), and
(ii) the requirements of this paragraph are met with respect to each separate lot of obligations which are part of the issue (determined by treating each such separate lot as a separate issue).
(G) Special rules for obligations issued during 2009 and 2010
(i) Increase in limitation
In the case of obligations issued during 2009 or 2010, subparagraphs (C)(i), (D)(i), and (D)(iii)(II) shall each be applied by substituting "$30,000,000" for "$10,000,000".
(ii) Qualified 501(c)(3) bonds treated as issued by exempt organization
In the case of a qualified 501(c)(3) bond (as defined in section 145) issued during 2009 or 2010, this paragraph shall be applied by treating the 501(c)(3) organization for whose benefit such bond was issued as the issuer.
(iii) Special rule for qualified financings
In the case of a qualified financing issue issued during 2009 or 2010—
(I) subparagraph (F) shall not apply, and
(II) any obligation issued as a part of such issue shall be treated as a qualified tax-exempt obligation if the requirements of this paragraph are met with respect to each qualified portion of the issue (determined by treating each qualified portion as a separate issue which is issued by the qualified borrower with respect to which such portion relates).
(iv) Qualified financing issue
For purposes of this subparagraph, the term "qualified financing issue" means any composite, pooled, or other conduit financing issue the proceeds of which are used directly or indirectly to make or finance loans to 1 or more ultimate borrowers each of whom is a qualified borrower.
(v) Qualified portion
For purposes of this subparagraph, the term "qualified portion" means that portion of the proceeds which are used with respect to each qualified borrower under the issue.
(vi) Qualified borrower
For purposes of this subparagraph, the term "qualified borrower" means a borrower which is a State or political subdivision thereof or an organization described in section 501(c)(3) and exempt from taxation under section 501(a).
(4) Definitions
For purposes of this subsection—
(A) Interest expense
The term "interest expense" means the aggregate amount allowable to the taxpayer as a deduction for interest for the taxable year (determined without regard to this subsection, section 264, and section 291). For purposes of the preceding sentence, the term "interest" includes amounts (whether or not designated as interest) paid in respect of deposits, investment certificates, or withdrawable or repurchasable shares.
(B) Tax-exempt obligation
The term "tax-exempt obligation" means any obligation the interest on which is wholly exempt from taxes imposed by this subtitle. Such term includes shares of stock of a regulated investment company which during the taxable year of the holder thereof distributes exempt-interest dividends.
(5) Financial institution
For purposes of this subsection, the term "financial institution" means any person who—
(A) accepts deposits from the public in the ordinary course of such person's trade or business, and is subject to Federal or State supervision as a financial institution, or
(B) is a corporation described in section 585(a)(2).
(6) Special rules
(A) Coordination with subsection (a)
If interest on any indebtedness is disallowed under subsection (a) with respect to any tax-exempt obligation—
(i) such disallowed interest shall not be taken into account for purposes of applying this subsection, and
(ii) for purposes of applying paragraph (2), the adjusted basis of such tax-exempt obligation shall be reduced (but not below zero) by the amount of such indebtedness.
(B) Coordination with section 263A
This section shall be applied before the application of section 263A (relating to capitalization of certain expenses where taxpayer produces property).
(7) De minimis exception for bonds issued during 2009 or 2010
(A) In general
In applying paragraph (2)(A), there shall not be taken into account tax-exempt obligations issued during 2009 or 2010.
(B) Limitation
The amount of tax-exempt obligations not taken into account by reason of subparagraph (A) shall not exceed 2 percent of the amount determined under paragraph (2)(B).
(C) Refundings
For purposes of this paragraph, a refunding bond (whether a current or advance refunding) shall be treated as issued on the date of the issuance of the refunded bond (or in the case of a series of refundings, the original bond).
(Aug. 16, 1954, ch. 736,
Editorial Notes
References in Text
The date of the enactment of the Tax Reform Act of 1986, referred to in subsec. (b)(3)(B)(ii)(II), (C)(ii)(II), is the date of enactment of
Sections 1312, 1313, 1316(g), and 1317 of the Tax Reform Act of 1986, referred to in subsec. (b)(3)(C)(ii)(II), are sections 1312, 1313, 1316(g), and 1317 of
Section 149(d)(5), referred to in subsec. (b)(3)(C)(ii)(III), was redesignated section 149(d)(2) by
Codification
Another section 1084(c) of
Amendments
2009—Subsec. (b)(3)(G).
Subsec. (b)(7).
1997—Subsec. (b)(4)(A).
1990—Subsec. (a)(2).
1988—Subsec. (b)(3).
1986—
Par. (2).
Par. (6).
1984—Par. (2).
Par. (5).
1981—Par. (2).
1980—Par. (2).
1976—Par. (2).
Pars. (3), (4).
1964—Par. (2).
Statutory Notes and Related Subsidiaries
Effective Date of 2009 Amendment
Effective Date of 1997 Amendment
Amendment by
Effective Date of 1988 Amendment
"(B) In the case of any obligation issued after August 7, 1986, and before January 1, 1987, the time for making a designation with respect to such obligation under section 265(b)(3)(B)(i)(III) of the 1986 Code shall not expire before January 1, 1989.
"(C) If—
"(i) an obligation is issued on or after January 1, 1986, and on or before August 7, 1986,
"(ii) when such obligation was issued, the issuer made a designation that it intended to qualify under section 802(e)(3) of H.R. 3838 of the 99th Congress as passed by the House of Representatives [H.R. 3838 was enacted as
"(iii) the issuer makes an election under this subparagraph with respect to such obligation,
for purposes of section 265(b)(3) of the 1986 Code, such obligation shall be treated as issued on August 8, 1986.
"(D)(i) Except as provided in clause (ii), the following provisions of section 265(b)(3) of the 1986 Code (as amended by this subparagraph (A)) shall apply to obligations issued after June 30, 1987:
"(I) subparagraph (C)(ii)(III),
"(II) clauses (ii) and (iii) of subparagraph (D), and
"(III) subparagraphs (E) and (F).
"(ii) At the election of an issuer (made at such time and in such manner as the Secretary of the Treasury or his delegate may prescribe), the provisions referred to in clause (i) shall apply to such issuer as if included in the amendments made by section 902(a) of the Tax Reform Act of 1986 [section 902(a) of
Amendment by
Effective Date of 1986 Amendment
Amendment by section 144 of
"(1)
"(2)
"(A) to purchase or repurchase such obligation, and
"(B) entered into on or before September 25, 1985,
shall be treated as an obligation acquired before August 8, 1986.
"(3)
"(A) Park Forest, Illinois, redevelopment project.
"(B) Clinton, Tennessee, Carriage Trace project.
"(C) Savannah, Georgia, Mall Terrace Warehouse project.
"(D) Chattanooga, Tennessee, Warehouse Row project.
"(E) Dalton, Georgia, Towne Square project.
"(F) Milwaukee, Wisconsin, Standard Electric Supply Company—distribution facility.
"(G) Wausau, Wisconsin, urban renewal project.
"(H) Cassville, Missouri, UDAG project.
"(I) Outlook Envelope Company—plant expansion.
"(J) Woodstock, Connecticut, Crabtree Warehouse partnership.
"(K) Louisville, Kentucky, Speed Mansion renovation project.
"(L) Charleston, South Carolina, 2 Festival Market Place projects at Union Pier Terminal and 1 project at the Remount Road Container Yard, State Pier No. 15 at North Charleston Terminal.
"(M) New Orleans, Louisiana, Upper Pontalba Building renovation.
"(N) Woodward Wight Building.
"(O) Minneapolis, Minnesota, Miller Milling Company—flour mill project.
"(P) Homewood, Alabama, the Club Apartments.
"(Q) Charlotte, North Carolina—qualified mortgage bonds acquired by NCNB bank ($5,250,000).
"(R) Grand Rapids, Michigan, Central Bank project.
"(S) Ruppman Marketing Services, Inc.—building project.
"(T) Bellows Falls, Vermont—building project.
"(U) East Broadway Project, Louisville, Kentucky.
"(V) O.K. Industries, Oklahoma.
"(4)
Effective Date of 1984 Amendment
Amendment by section 16(a) of
Amendment by section 56(c) of
Effective Date of 1981 Amendment
"(1)
"(2)
Effective and Termination Dates of 1980 Amendment
Effective Date of 1976 Amendment
Amendment by section 1901(a)(37) of
Amendment by section 2137(e) of
Effective Date of 1964 Amendment
Savings Provision
For provisions that nothing in amendment by
Clarification of Treatment of Amounts Excluded Under Section 597
1 See References in Text note below.
§266. Carrying charges
No deduction shall be allowed for amounts paid or accrued for such taxes and carrying charges as, under regulations prescribed by the Secretary, are chargeable to capital account with respect to property, if the taxpayer elects, in accordance with such regulations, to treat such taxes or charges as so chargeable.
(Aug. 16, 1954, ch. 736,
Editorial Notes
Amendments
1976—
§267. Losses, expenses, and interest with respect to transactions between related taxpayers
(a) In general
(1) Deduction for losses disallowed
No deduction shall be allowed in respect of any loss from the sale or exchange of property, directly or indirectly, between persons specified in any of the paragraphs of subsection (b). The preceding sentence shall not apply to any loss of the distributing corporation (or the distributee) in the case of a distribution in complete liquidation.
(2) Matching of deduction and payee income item in the case of expenses and interest
If—
(A) by reason of the method of accounting of the person to whom the payment is to be made, the amount thereof is not (unless paid) includible in the gross income of such person, and
(B) at the close of the taxable year of the taxpayer for which (but for this paragraph) the amount would be deductible under this chapter, both the taxpayer and the person to whom the payment is to be made are persons specified in any of the paragraphs of subsection (b),
then any deduction allowable under this chapter in respect of such amount shall be allowable as of the day as of which such amount is includible in the gross income of the person to whom the payment is made (or, if later, as of the day on which it would be so allowable but for this paragraph). For purposes of this paragraph, in the case of a personal service corporation (within the meaning of section 441(i)(2)), such corporation and any employee-owner (within the meaning of section 269A(b)(2), as modified by section 441(i)(2)) shall be treated as persons specified in subsection (b).
(3) Payments to foreign persons
(A) In general
The Secretary shall by regulations apply the matching principle of paragraph (2) in cases in which the person to whom the payment is to be made is not a United States person.
(B) Special rule for certain foreign entities
(i) In general
Notwithstanding subparagraph (A), in the case of any item payable to a controlled foreign corporation (as defined in section 957) or a passive foreign investment company (as defined in section 1297), a deduction shall be allowable to the payor with respect to such amount for any taxable year before the taxable year in which paid only to the extent that an amount attributable to such item is includible (determined without regard to properly allocable deductions and qualified deficits under section 952(c)(1)(B)) during such prior taxable year in the gross income of a United States person who owns (within the meaning of section 958(a)) stock in such corporation.
(ii) Secretarial authority
The Secretary may by regulation exempt transactions from the application of clause (i), including any transaction which is entered into by a payor in the ordinary course of a trade or business in which the payor is predominantly engaged and in which the payment of the accrued amounts occurs within 8½ months after accrual or within such other period as the Secretary may prescribe.
(b) Relationships
The persons referred to in subsection (a) are:
(1) Members of a family, as defined in subsection (c)(4);
(2) An individual and a corporation more than 50 percent in value of the outstanding stock of which is owned, directly or indirectly, by or for such individual;
(3) Two corporations which are members of the same controlled group (as defined in subsection (f));
(4) A grantor and a fiduciary of any trust;
(5) A fiduciary of a trust and a fiduciary of another trust, if the same person is a grantor of both trusts;
(6) A fiduciary of a trust and a beneficiary of such trust;
(7) A fiduciary of a trust and a beneficiary of another trust, if the same person is a grantor of both trusts;
(8) A fiduciary of a trust and a corporation more than 50 percent in value of the outstanding stock of which is owned, directly or indirectly, by or for the trust or by or for a person who is a grantor of the trust;
(9) A person and an organization to which section 501 (relating to certain educational and charitable organizations which are exempt from tax) applies and which is controlled directly or indirectly by such person or (if such person is an individual) by members of the family of such individual;
(10) A corporation and a partnership if the same persons own—
(A) more than 50 percent in value of the outstanding stock of the corporation, and
(B) more than 50 percent of the capital interest, or the profits interest, in the partnership;
(11) An S corporation and another S corporation if the same persons own more than 50 percent in value of the outstanding stock of each corporation;
(12) An S corporation and a C corporation, if the same persons own more than 50 percent in value of the outstanding stock of each corporation; or
(13) Except in the case of a sale or exchange in satisfaction of a pecuniary bequest, an executor of an estate and a beneficiary of such estate.
(c) Constructive ownership of stock
For purposes of determining, in applying subsection (b), the ownership of stock—
(1) Stock owned, directly or indirectly, by or for a corporation, partnership, estate, or trust shall be considered as being owned proportionately by or for its shareholders, partners, or beneficiaries;
(2) An individual shall be considered as owning the stock owned, directly or indirectly, by or for his family;
(3) An individual owning (otherwise than by the application of paragraph (2)) any stock in a corporation shall be considered as owning the stock owned, directly or indirectly, by or for his partner;
(4) The family of an individual shall include only his brothers and sisters (whether by the whole or half blood), spouse, ancestors, and lineal descendants; and
(5) Stock constructively owned by a person by reason of the application of paragraph (1) shall, for the purpose of applying paragraph (1), (2), or (3), be treated as actually owned by such person, but stock constructively owned by an individual by reason of the application of paragraph (2) or (3) shall not be treated as owned by him for the purpose of again applying either of such paragraphs in order to make another the constructive owner of such stock.
(d) Amount of gain where loss previously disallowed
(1) In general
If—
(A) in the case of a sale or exchange of property to the taxpayer a loss sustained by the transferor is not allowable to the transferor as a deduction by reason of subsection (a)(1), and
(B) the taxpayer sells or otherwise disposes of such property (or of other property the basis of which in the taxpayer's hands is determined directly or indirectly by reference to such property) at a gain,
then such gain shall be recognized only to the extent that it exceeds so much of such loss as is properly allocable to the property sold or otherwise disposed of by the taxpayer.
(2) Exception for wash sales
Paragraph (1) shall not apply if the loss sustained by the transferor is not allowable to the transferor as a deduction by reason of section 1091 (relating to wash sales).
(3) Exception for transfers from tax indifferent parties
Paragraph (1) shall not apply to the extent any loss sustained by the transferor (if allowed) would not be taken into account in determining a tax imposed under section 1 or 11 or a tax computed as provided by either of such sections.
(e) Special rules for pass-thru entities
(1) In general
In the case of any amount paid or incurred by, to, or on behalf of, a pass-thru entity, for purposes of applying subsection (a)(2)—
(A) such entity,
(B) in the case of—
(i) a partnership, any person who owns (directly or indirectly) any capital interest or profits interest of such partnership, or
(ii) an S corporation, any person who owns (directly or indirectly) any of the stock of such corporation,
(C) any person who owns (directly or indirectly) any capital interest or profits interest of a partnership in which such entity owns (directly or indirectly) any capital interest or profits interest, and
(D) any person related (within the meaning of subsection (b) of this section or section 707(b)(1)) to a person described in subparagraph (B) or (C),
shall be treated as persons specified in a paragraph of subsection (b). Subparagraph (C) shall apply to a transaction only if such transaction is related either to the operations of the partnership described in such subparagraph or to an interest in such partnership.
(2) Pass-thru entity
For purposes of this section, the term "pass-thru entity" means—
(A) a partnership, and
(B) an S corporation.
(3) Constructive ownership in the case of partnerships
For purposes of determining ownership of a capital interest or profits interest of a partnership, the principles of subsection (c) shall apply, except that—
(A) paragraph (3) of subsection (c) shall not apply, and
(B) interests owned (directly or indirectly) by or for a C corporation shall be considered as owned by or for any shareholder only if such shareholder owns (directly or indirectly) 5 percent or more in value of the stock of such corporation.
(4) Subsection (a)(2) not to apply to certain guaranteed payments of partnerships
In the case of any amount paid or incurred by a partnership, subsection (a)(2) shall not apply to the extent that section 707(c) applies to such amount.
(5) Exception for certain expenses and interest of partnerships owning low-income housing
(A) In general
This subsection shall not apply with respect to qualified expenses and interest paid or incurred by a partnership owning low-income housing to—
(i) any qualified 5-percent or less partner of such partnership, or
(ii) any person related (within the meaning of subsection (b) of this section or section 707(b)(1)) to any qualified 5-percent or less partner of such partnership.
(B) Qualified 5-percent or less partner
For purposes of this paragraph, the term "qualified 5-percent or less partner" means any partner who has (directly or indirectly) an interest of 5 percent or less in the aggregate capital and profits interests of the partnership but only if—
(i) such partner owned the low-income housing at all times during the 2-year period ending on the date such housing was transferred to the partnership, or
(ii) such partnership acquired the low-income housing pursuant to a purchase, assignment, or other transfer from the Department of Housing and Urban Development or any State or local housing authority.
For purposes of the preceding sentence, a partner shall be treated as holding any interest in the partnership which is held (directly or indirectly) by any person related (within the meaning of subsection (b) of this section or section 707(b)(1)) to such partner.
(C) Qualified expenses and interest
For purpose of this paragraph, the term "qualified expenses and interest" means any expense or interest incurred by the partnership with respect to low-income housing held by the partnership but—
(i) only if the amount of such expense or interest (as the case may be) is unconditionally required to be paid by the partnership not later than 10 years after the date such amount was incurred, and
(ii) in the case of such interest, only if such interest is incurred at an annual rate not in excess of 12 percent.
(D) Low-income housing
For purposes of this paragraph, the term "low-income housing" means—
(i) any interest in property described in clause (i), (ii), (iii), or (iv) of section 1250(a)(1)(B), and
(ii) any interest in a partnership owning such property.
(6) Cross reference
For additional rules relating to partnerships, see section 707(b).
(f) Controlled group defined; special rules applicable to controlled groups
(1) Controlled group defined
For purposes of this section, the term "controlled group" has the meaning given to such term by section 1563(a), except that—
(A) "more than 50 percent" shall be substituted for "at least 80 percent" each place it appears in section 1563(a), and
(B) the determination shall be made without regard to subsections (a)(4) and (e)(3)(C) of section 1563.
(2) Deferral (rather than denial) of loss from sale or exchange between members
In the case of any loss from the sale or exchange of property which is between members of the same controlled group and to which subsection (a)(1) applies (determined without regard to this paragraph but with regard to paragraph (3))—
(A) subsections (a)(1) and (d) shall not apply to such loss, but
(B) such loss shall be deferred until the property is transferred outside such controlled group and there would be recognition of loss under consolidated return principles or until such other time as may be prescribed in regulations.
(3) Loss deferral rules not to apply in certain cases
(A) Transfer to DISC
For purposes of applying subsection (a)(1), the term "controlled group" shall not include a DISC.
(B) Certain sales of inventory
Except to the extent provided in regulations prescribed by the Secretary, subsection (a)(1) shall not apply to the sale or exchange of property between members of the same controlled group (or persons described in subsection (b)(10)) if—
(i) such property in the hands of the transferor is property described in section 1221(a)(1),
(ii) such sale or exchange is in the ordinary course of the transferor's trade or business,
(iii) such property in the hands of the transferee is property described in section 1221(a)(1), and
(iv) the transferee or the transferor is a foreign corporation.
(C) Certain foreign currency losses
To the extent provided in regulations, subsection (a)(1) shall not apply to any loss sustained by a member of a controlled group on the repayment of a loan made to another member of such group if such loan is payable in a foreign currency or is denominated in such a currency and such loss is attributable to a reduction in value of such foreign currency.
(D) Redemptions by fund-of-funds regulated investment companies
Except to the extent provided in regulations prescribed by the Secretary, subsection (a)(1) shall not apply to any distribution in redemption of stock of a regulated investment company if—
(i) such company issues only stock which is redeemable upon the demand of the stockholder, and
(ii) such redemption is upon the demand of another regulated investment company.
(4) Determination of relationship resulting in disallowance of loss, for purposes of other provisions
For purposes of any other section of this title which refers to a relationship which would result in a disallowance of losses under this section, deferral under paragraph (2) shall be treated as disallowance.
(g) Coordination with section 1041
Subsection (a)(1) shall not apply to any transfer described in section 1041(a) (relating to transfers of property between spouses or incident to divorce).
(Aug. 16, 1954, ch. 736,
Editorial Notes
Amendments
2015—Subsec. (d).
"(1) in the case of a sale or exchange of property to the taxpayer a loss sustained by the transferor is not allowable to the transferor as a deduction by reason of subsection (a)(1); and
"(2) the taxpayer sells or otherwise disposes of such property (or of other property the basis of which in his hands is determined directly or indirectly by reference to such property) at a gain,
then such gain shall be recognized only to the extent that it exceeds so much of such loss as is properly allocable to the property sold or otherwise disposed of by the taxpayer. This subsection shall not apply if the loss sustained by the transferor is not allowable to the transferor as a deduction by reason of section 1091 (relating to wash sales)."
2014—Subsec. (d).
Subsec. (d)(1).
Subsec. (d)(2).
2010—Subsec. (f)(3)(D).
2004—Subsec. (a)(3).
1999—Subsec. (f)(3)(B)(i), (iii).
1997—Subsec. (b)(13).
Subsec. (f)(4).
1988—Subsec. (a)(1).
Subsec. (a)(2).
1986—Subsec. (a)(2).
Subsec. (a)(3).
Subsec. (b)(12).
Subsec. (e)(5)(D).
Subsec. (e)(6).
Subsec. (f)(3)(B).
Subsec. (g).
1984—Subsec. (a).
Subsec. (b)(3).
Subsec. (b)(10).
Subsec. (b)(12).
Subsec. (e).
Subsec. (f).
1982—Subsec. (b)(10) to (12).
Subsec. (f).
1978—Subsec. (e).
Statutory Notes and Related Subsidiaries
Effective Date of 2015 Amendment
Effective Date of 2014 Amendment
Amendment by
Effective Date of 2010 Amendment
Effective Date of 2004 Amendment
Amendment by
Effective Date of 1999 Amendment
Amendment by
Effective Date of 1997 Amendment
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
If any interest costs incurred after Dec. 31, 1986, are attributable to costs incurred before Jan. 1, 1987, the amendment by section 803(b)(5) of
Amendment by section 803(b)(5) of
Amendment by section 806(c)(2) of
Amendment by sections 1812(c)(1), (2), (3)(C), (4)(A) and 1842(a) of
Effective Date of 1984 Amendment
"(1)
"(2)
"(A)
"(B)
"(3)
"(A)
"(i) on indebtedness incurred on or before September 29, 1983, or
"(ii) pursuant to a contract which was binding on September 29, 1983, and at all times thereafter before the amount is paid or incurred.
"(B)
Amendment by section 721(s) of
Effective Date of 1982 Amendment
Amendment by
Effective Date of 1978 Amendment
Construction of Section 806 of Pub. L. 99–514
Nothing in section 806 of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Exception for Certain Indebtedness
§267A. Certain related party amounts paid or accrued in hybrid transactions or with hybrid entities
(a) In general
No deduction shall be allowed under this chapter for any disqualified related party amount paid or accrued pursuant to a hybrid transaction or by, or to, a hybrid entity.
(b) Disqualified related party amount
For purposes of this section—
(1) Disqualified related party amount
The term "disqualified related party amount" means any interest or royalty paid or accrued to a related party to the extent that—
(A) such amount is not included in the income of such related party under the tax law of the country of which such related party is a resident for tax purposes or is subject to tax, or
(B) such related party is allowed a deduction with respect to such amount under the tax law of such country.
Such term shall not include any payment to the extent such payment is included in the gross income of a United States shareholder under section 951(a).
(2) Related party
The term "related party" means a related person as defined in section 954(d)(3), except that such section shall be applied with respect to the person making the payment described in paragraph (1) in lieu of the controlled foreign corporation otherwise referred to in such section.
(c) Hybrid transaction
For purposes of this section, the term "hybrid transaction" means any transaction, series of transactions, agreement, or instrument one or more payments with respect to which are treated as interest or royalties for purposes of this chapter and which are not so treated for purposes the tax law of the foreign country of which the recipient of such payment is resident for tax purposes or is subject to tax.
(d) Hybrid entity
For purposes of this section, the term "hybrid entity" means any entity which is either—
(1) treated as fiscally transparent for purposes of this chapter but not so treated for purposes of the tax law of the foreign country of which the entity is resident for tax purposes or is subject to tax, or
(2) treated as fiscally transparent for purposes of such tax law but not so treated for purposes of this chapter.
(e) Regulations
The Secretary shall issue such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this section, including regulations or other guidance providing for—
(1) rules for treating certain conduit arrangements which involve a hybrid transaction or a hybrid entity as subject to subsection (a),
(2) rules for the application of this section to branches or domestic entities,
(3) rules for treating certain structured transactions as subject to subsection (a),
(4) rules for treating a tax preference as an exclusion from income for purposes of applying subsection (b)(1) if such tax preference has the effect of reducing the generally applicable statutory rate by 25 percent or more,
(5) rules for treating the entire amount of interest or royalty paid or accrued to a related party as a disqualified related party amount if such amount is subject to a participation exemption system or other system which provides for the exclusion or deduction of a substantial portion of such amount,
(6) rules for determining the tax residence of a foreign entity if the entity is otherwise considered a resident of more than one country or of no country,
(7) exceptions from subsection (a) with respect to—
(A) cases in which the disqualified related party amount is taxed under the laws of a foreign country other than the country of which the related party is a resident for tax purposes, and
(B) other cases which the Secretary determines do not present a risk of eroding the Federal tax base,1
(8) requirements for record keeping and information reporting in addition to any requirements imposed by section 6038A.
(Added
Statutory Notes and Related Subsidiaries
Effective Date
1 So in original. Probably should be followed by "and".
§268. Sale of land with unharvested crop
Where an unharvested crop sold by the taxpayer is considered under the provisions of section 1231 as "property used in the trade or business", in computing taxable income no deduction (whether or not for the taxable year of the sale and whether for expenses, depreciation, or otherwise) attributable to the production of such crop shall be allowed.
(Aug. 16, 1954, ch. 736,
§269. Acquisitions made to evade or avoid income tax
(a) In general
If—
(1) any person or persons acquire, directly or indirectly, control of a corporation, or
(2) any corporation acquires, directly or indirectly, property of another corporation, not controlled, directly or indirectly, immediately before such acquisition, by such acquiring corporation or its stockholders, the basis of which property, in the hands of the acquiring corporation, is determined by reference to the basis in the hands of the transferor corporation,
and the principal purpose for which such acquisition was made is evasion or avoidance of Federal income tax by securing the benefit of a deduction, credit, or other allowance which such person or corporation would not otherwise enjoy, then the Secretary may disallow such deduction, credit, or other allowance. For purposes of paragraphs (1) and (2), control means the ownership of stock possessing at least 50 percent of the total combined voting power of all classes of stock entitled to vote or at least 50 percent of the total value of shares of all classes of stock of the corporation.
(b) Certain liquidations after qualified stock purchases
(1) In general
If—
(A) there is a qualified stock purchase by a corporation of another corporation,
(B) an election is not made under section 338 with respect to such purchase,
(C) the acquired corporation is liquidated pursuant to a plan of liquidation adopted not more than 2 years after the acquisition date, and
(D) the principal purpose for such liquidation is the evasion or avoidance of Federal income tax by securing the benefit of a deduction, credit, or other allowance which the acquiring corporation would not otherwise enjoy,
then the Secretary may disallow such deduction, credit, or other allowance.
(2) Meaning of terms
For purposes of paragraph (1), the terms "qualified stock purchase" and "acquisition date" have the same respective meanings as when used in section 338.
(c) Power of Secretary to allow deduction, etc., in part
In any case to which subsection (a) or (b) applies the Secretary is authorized—
(1) to allow as a deduction, credit, or allowance any part of any amount disallowed by such subsection, if he determines that such allowance will not result in the evasion or avoidance of Federal income tax for which the acquisition was made; or
(2) to distribute, apportion, or allocate gross income, and distribute, apportion, or allocate the deductions, credits, or allowances the benefit of which was sought to be secured, between or among the corporations, or properties, or parts thereof, involved, and to allow such deductions, credits, or allowances so distributed, apportioned, or allocated, but to give effect to such allowance only to such extent as he determines will not result in the evasion or avoidance of Federal income tax for which the acquisition was made; or
(3) to exercise his powers in part under paragraph (1) and in part under paragraph (2).
(Aug. 16, 1954, ch. 736,
Editorial Notes
Amendments
2014—Subsec. (a).
1984—Subsecs. (b), (c).
1976—Subsecs. (a), (b).
Subsec. (c).
1964—Subsec. (a).
Statutory Notes and Related Subsidiaries
Effective Date of 2014 Amendment
Amendment by
Effective Date of 1984 Amendment
Effective Date of 1964 Amendment
§269A. Personal service corporations formed or availed of to avoid or evade income tax
(a) General rule
If—
(1) substantially all of the services of a personal service corporation are performed for (or on behalf of) 1 other corporation, partnership, or other entity, and
(2) the principal purpose for forming, or availing of, such personal service corporation is the avoidance or evasion of Federal income tax by reducing the income of, or securing the benefit of any expense, deduction, credit, exclusion, or other allowance for, any employee-owner which would not otherwise be available,
then the Secretary may allocate all income, deductions, credits, exclusions, and other allowances between such personal service corporation and its employee-owners, if such allocation is necessary to prevent avoidance or evasion of Federal income tax or clearly to reflect the income of the personal service corporation or any of its employee-owners.
(b) Definitions
For purposes of this section—
(1) Personal service corporation
The term "personal service corporation" means a corporation the principal activity of which is the performance of personal services and such services are substantially performed by employee-owners.
(2) Employee-owner
The term "employee-owner" means any employee who owns, on any day during the taxable year, more than 10 percent of the outstanding stock of the personal service corporation. For purposes of the preceding sentence, section 318 shall apply, except that "5 percent" shall be substituted for "50 percent" in section 318(a)(2)(C).
(3) Related persons
All related persons (within the meaning of section 144(a)(3)) shall be treated as 1 entity.
(Added
Editorial Notes
Amendments
1986—Subsec. (b)(3).
Statutory Notes and Related Subsidiaries
Effective Date of 1986 Amendment
Amendment by
Effective Date
§269B. Stapled entities
(a) General rule
Except as otherwise provided by regulations, for purposes of this title—
(1) if a domestic corporation and a foreign corporation are stapled entities, the foreign corporation shall be treated as a domestic corporation.
(2) in applying section 1563, stock in a second corporation which constitutes a stapled interest with respect to stock of a first corporation shall be treated as owned by such first corporation, and
(3) in applying subchapter M for purposes of determining whether any stapled entity is a regulated investment company or a real estate investment trust, all entities which are stapled entities with respect to each other shall be treated as 1 entity.
(b) Secretary to prescribe regulations
The Secretary shall prescribe such regulations as may be necessary to prevent avoidance or evasion of Federal income tax through the use of stapled entities. Such regulations may include (but shall not be limited to) regulations providing the extent to which 1 of such entities shall be treated as owning the other entity (to the extent of the stapled interest) and regulations providing that any tax imposed on the foreign corporation referred to in subsection (a)(1) may, if not paid by such corporation, be collected from the domestic corporation referred to in such subsection or the shareholders of such foreign corporation.
(c) Definitions
For purposes of this section—
(1) Entity
The term "entity" means any corporation, partnership, trust, association, estate, or other form of carrying on a business or activity.
(2) Stapled entities
The term "stapled entities" means any group of 2 or more entities if more than 50 percent in value of the beneficial ownership in each of such entities consists of stapled interests.
(3) Stapled interests
Two or more interests are stapled interests if, by reason of form of ownership, restrictions on transfer, or other terms or conditions, in connection with the transfer of 1 of such interests the other such interests are also transferred or required to be transferred.
(d) Special rule for treaties
Nothing in section 894 or 7852(d) or in any other provision of law shall be construed as permitting an exemption, by reason of any treaty obligation of the United States heretofore or hereafter entered into, from the provisions of this section.
(e) Subsection (a)(1) not to apply in certain cases
(1) In general
Subsection (a)(1) shall not apply if it is established to the satisfaction of the Secretary that the domestic corporation and the foreign corporation referred to in such subsection are foreign owned.
(2) Foreign owned
For purposes of paragraph (1), a corporation is foreign owned if less than 50 percent of—
(A) the total combined voting power of all classes of stock of such corporation entitled to vote, and
(B) the total value of the stock of the corporation,
is held directly (or indirectly through applying paragraphs (2) and (3) of section 958(a) and paragraph (4) of section 318(a)) by United States persons (as defined in section 7701(a)(30)).
(Added
Editorial Notes
Amendments
1986—Subsec. (b).
Subsec. (e).
Statutory Notes and Related Subsidiaries
Effective Date of 1986 Amendment
Amendment by
Effective Date
"(1)
"(2)
"(3)
"(A) all members of such group were stapled entities as of June 30, 1983, and
"(B) as of June 30, 1983, such group included one or more real estate investment trusts.
"(4)
"(A) Paragraph (1) of section 269B(a) of such Code shall not apply to a domestic corporation and a qualified Puerto Rican corporation which, on June 30, 1983, were stapled entities.
"(B) For purposes of subparagraph (A), the term 'qualified Puerto Rican corporation' means any corporation organized in Puerto Rico—
"(i) which is described in section 957(c) of such Code or would be so described if any dividends it received from any other corporation described in such section 957(c) were treated as gross income of the type described in such section 957(c), and
"(ii) does not, at any time during the taxable year, own (within the meaning of section 958 of such Code but before applying paragraph (2) of section 269B(a) of such Code) any stock of any corporation which is not described in such section 957(c).
"(5)
"(6)
"(A)
"(B)
"(C)
"(7)
"(A)
"(i) which was created pursuant to a written board of directors resolution adopted on April 5, 1984, and
"(ii) all members of such group were stapled entities as of June 16, 1985.
"(B)
"(i) at least 75 percent of the gross income of which is derived from interest on obligations secured by mortgages on real property (as defined in section 856 of such Code),
"(ii) with respect to which the interest on the obligations described in clause (i) made or acquired by such trust (other than to persons who are independent contractors, as defined in section 856(d)(3) of such Code) is at an arm's length rate or a rate not more than 1 percentage point greater than the associated borrowing cost of the trust, and
"(iii) with respect to which any real property held by the trust is not used in the trade or business of any other member of the group of stapled entities."
Termination of Exception for Certain Real Estate Investment Trusts From the Treatment of Stapled Entities
"(a)
"(b)
"(1)
"(2)
"(A) the acquisition is pursuant to a written agreement (including a put option, buy-sell agreement, and an agreement relating to a third party default) which was binding on such date and at all times thereafter on such REIT or stapled entity; or
"(B) the acquisition is described on or before such date in a public announcement or in a filing with the Securities and Exchange Commission.
"(3)
"(A)
"(i) any improvement to land owned or leased by the exempt REIT or any member of the stapled REIT group; and
"(ii) any repair to, or improvement of, any improvement owned or leased by the exempt REIT or any member of the stapled REIT group,
if such ownership or leasehold interest is a qualified real property interest.
"(B)
"(i) any lease of a qualified real property interest if such lease is not otherwise such an interest; or
"(ii) any renewal of a lease which is a qualified real property interest,
but only if the rent on any lease referred to in clause (i) or any renewal referred to in clause (ii) does not exceed an arm's length rate.
"(C)
"(i)
"(I) the cost of such property; or
"(II) if such property is substituted basis property (as defined in section 7701(a)(42) of the Internal Revenue Code of 1986), the fair market value of the property at the time of acquisition.
"(ii)
"(4)
"(5)
"(A) such stapled entity was a stapled entity with respect to such REIT as of March 26, 1998, and at all times thereafter; and
"(B) as of March 26, 1998, and at all times thereafter, such REIT was a real estate investment trust.
"(6)
"(c)
"(1)
"(2)
"(A)
"(B)
"(3)
"(4)
"(A) percentage ownership of an entity shall be determined in accordance with subsection (e)(4);
"(B) interests in the entity which are acquired by an exempt REIT or a member of the stapled REIT group in any acquisition described in an agreement, announcement, or filing described in subsection (b)(2) shall be treated as acquired on March 26, 1998; and
"(C) except as provided in guidance prescribed by the Secretary, any change in proportionate ownership which is attributable solely to fluctuations in the relative fair market values of different classes of stock shall not be taken into account.
"(5)
"(A)
"(i) an exempt REIT or stapled entity held directly or indirectly at least 60 percent of the capital or profits interest in a partnership; and
"(ii) 90 percent or more of the capital interests and 90 percent or more of the profits interests in such partnership (other than interests held directly or indirectly by the exempt REIT or stapled entity) are, or will be, redeemable or exchangeable for consideration the amount of which is determined by reference to the value of shares of stock in the exempt REIT or stapled entity (or both),
paragraph (3) shall not apply to such partnership, and such REIT or entity shall be treated for all purposes of this section as holding all of the capital and profits interests in such partnership.
"(B)
"(C)
"(d)
"(1)
"(A) the interest income from such obligation which is properly allocable to the property described in paragraph (2); and
"(B) the income of any member of the stapled REIT group from services described in paragraph (2) with respect to such property.
If the income referred to in subparagraph (A) or (B) is of a 10-percent subsidiary entity, only the portion of such income which is properly allocable to the exempt REIT's or the stapled entity's interest in the subsidiary entity shall be taken into account.
"(2)
"(3)
"(A) payments under which would be treated as interest if received by a REIT; and
"(B) the rate of interest on which does not exceed an arm's length rate.
"(4)
"(A) which is secured on March 26, 1998, by an interest in real property; and
"(B) which is held on such date by the exempt REIT or any entity which is a member of the stapled REIT group on such date and at all times thereafter,
but only so long as such obligation is secured by such interest, and the interest payable on such obligation is not changed to a rate which exceeds an arm's length rate unless such change is pursuant to the terms of the obligation in effect on March 26, 1998. The preceding sentence shall not cease to apply by reason of the refinancing of the obligation if (immediately after the refinancing) the principal amount of the obligation resulting from the refinancing does not exceed the principal amount of the refinanced obligation (immediately before the refinancing) and the interest payable on such refinanced obligation does not exceed an arm's length rate.
"(5)
"(6)
"(7)
"(e)
"(1)
"(A) paragraphs (2), (3), and (6) of section 856(c) of the Internal Revenue Code of 1986; and
"(B) section 857(b)(5) of such Code.
"(2)
"(3)
"(A) all entities which are stapled entities with respect to the exempt REIT; and
"(B) all entities which are 10-percent subsidiary entities of the exempt REIT or any such stapled entity.
"(4) 10-
"(A)
"(B)
"(C) 10-
"(i) in the case of an interest in a corporation, ownership of 10 percent (by vote or value) of the stock in such corporation;
"(ii) in the case of an interest in a partnership, ownership of 10 percent of the capital or profits interest in the partnership; and
"(iii) in any other case, ownership of 10 percent of the beneficial interests in the entity.
"(5)
"(f)
"(g)
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
[§270. Repealed. Pub. L. 91–172, title II, §213(b), Dec. 30, 1969, 83 Stat. 572 ]
Section, act Aug. 16, 1954, ch. 736,
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
Repeal applicable to taxable years beginning after Dec. 31, 1969, see section 213(d) of
§271. Debts owed by political parties, etc.
(a) General rule
In the case of a taxpayer (other than a bank as defined in section 581) no deduction shall be allowed under section 166 (relating to bad debts) or under section 165(g) (relating to worthlessness of securities) by reason of the worthlessness of any debt owed by a political party.
(b) Definitions
(1) Political party
For purposes of subsection (a), the term "political party" means—
(A) a political party;
(B) a national, State, or local committee of a political party; or
(C) a committee, association, or organization which accepts contributions or makes expenditures for the purpose of influencing or attempting to influence the election of presidential or vice-presidential electors or of any individual whose name is presented for election to any Federal, State, or local elective public office, whether or not such individual is elected.
(2) Contributions
For purposes of paragraph (1)(C), the term "contributions" includes a gift, subscription, loan, advance, or deposit, of money, or anything of value, and includes a contract, promise, or agreement to make a contribution, whether or not legally enforceable.
(3) Expenditures
For purposes of paragraph (1)(C), the term "expenditures" includes a payment, distribution, loan, advance, deposit, or gift, of money, or anything of value, and includes a contract, promise, or agreement to make an expenditure, whether or not legally enforceable.
(c) Exception
In the case of a taxpayer who uses an accrual method of accounting, subsection (a) shall not apply to a debt which accrued as a receivable on a bona fide sale of goods or services in the ordinary course of the taxpayer's trade or business if—
(1) for the taxable year in which such receivable accrued, more than 30 percent of all receivables which accrued in the ordinary course of the trades and businesses of the taxpayer were due from political parties, and
(2) the taxpayer made substantial continuing efforts to collect on the debt.
(Aug. 16, 1954, ch. 736,
Editorial Notes
Amendments
1976—Subsec. (c).
Statutory Notes and Related Subsidiaries
Effective Date of 1976 Amendment
§272. Disposal of coal or domestic iron ore
Where the disposal of coal or iron ore is covered by section 631, no deduction shall be allowed for expenditures attributable to the making and administering of the contract under which such disposition occurs and to the preservation of the economic interest retained under such contract, except that if in any taxable year such expenditures plus the adjusted depletion basis of the coal or iron ore disposed of in such taxable year exceed the amount realized under such contract, such excess, to the extent not availed of as a reduction of gain under section 1231, shall be a loss deductible under section 165(a). This section shall not apply to any taxable year during which there is no income under the contract.
(Aug. 16, 1954, ch. 736,
Editorial Notes
Amendments
1964—
Statutory Notes and Related Subsidiaries
Effective Date of 1964 Amendment
§273. Holders of life or terminable interest
Amounts paid under the laws of a State, the District of Columbia, a possession of the United States, or a foreign country as income to the holder of a life or terminable interest acquired by gift, bequest, or inheritance shall not be reduced or diminished by any deduction for shrinkage (by whatever name called) in the value of such interest due to the lapse of time.
(Aug. 16, 1954, ch. 736,
Editorial Notes
Amendments
1976—
Statutory Notes and Related Subsidiaries
Effective Date of 1976 Amendment
Amendment by
§274. Disallowance of certain entertainment, etc., expenses
(a) Entertainment, amusement, recreation, or qualified transportation fringes
(1) In general
No deduction otherwise allowable under this chapter shall be allowed for any item—
(A) Activity
With respect to an activity which is of a type generally considered to constitute entertainment, amusement, or recreation, or
(B) Facility
With respect to a facility used in connection with an activity referred to in subparagraph (A).
(2) Special rules
For purposes of applying paragraph (1)—
(A) Dues or fees to any social, athletic, or sporting club or organization shall be treated as items with respect to facilities.
(B) An activity described in section 212 shall be treated as a trade or business.
(3) Denial of deduction for club dues
Notwithstanding the preceding provisions of this subsection, no deduction shall be allowed under this chapter for amounts paid or incurred for membership in any club organized for business, pleasure, recreation, or other social purpose.
(4) Qualified transportation fringes
No deduction shall be allowed under this chapter for the expense of any qualified transportation fringe (as defined in section 132(f)) provided to an employee of the taxpayer.
(b) Gifts
(1) Limitation
No deduction shall be allowed under section 162 or section 212 for any expense for gifts made directly or indirectly to any individual to the extent that such expense, when added to prior expenses of the taxpayer for gifts made to such individual during the same taxable year, exceeds $25. For purposes of this section, the term "gift" means any item excludable from gross income of the recipient under section 102 which is not excludable from his gross income under any other provision of this chapter, but such term does not include—
(A) an item having a cost to the taxpayer not in excess of $4.00 on which the name of the taxpayer is clearly and permanently imprinted and which is one of a number of identical items distributed generally by the taxpayer, or
(B) a sign, display rack, or other promotional material to be used on the business premises of the recipient.
(2) Special rules
(A) In the case of a gift by a partnership, the limitation contained in paragraph (1) shall apply to the partnership as well as to each member thereof.
(B) For purposes of paragraph (1), a husband and wife shall be treated as one taxpayer.
(c) Certain foreign travel
(1) In general
In the case of any individual who travels outside the United States away from home in pursuit of a trade or business or in pursuit of an activity described in section 212, no deduction shall be allowed under section 162 or section 212 for that portion of the expenses of such travel otherwise allowable under such section which, under regulations prescribed by the Secretary, is not allocable to such trade or business or to such activity.
(2) Exception
Paragraph (1) shall not apply to the expenses of any travel outside the United States away from home if—
(A) such travel does not exceed one week, or
(B) the portion of the time of travel outside the United States away from home which is not attributable to the pursuit of the taxpayer's trade or business or an activity described in section 212 is less than 25 percent of the total time on such travel.
(3) Domestic travel excluded
For purposes of this subsection, travel outside the United States does not include any travel from one point in the United States to another point in the United States.
(d) Substantiation required
No deduction or credit shall be allowed—
(1) under section 162 or 212 for any traveling expense (including meals and lodging while away from home),
(2) for any expense for gifts, or
(3) with respect to any listed property (as defined in section 280F(d)(4)),
unless the taxpayer substantiates by adequate records or by sufficient evidence corroborating the taxpayer's own statement (A) the amount of such expense or other item, (B) the time and place of the travel or the date and description of the gift, (C) the business purpose of the expense or other item, and (D) the business relationship to the taxpayer of the person receiving the benefit. The Secretary may by regulations provide that some or all of the requirements of the preceding sentence shall not apply in the case of an expense which does not exceed an amount prescribed pursuant to such regulations. This subsection shall not apply to any qualified nonpersonal use vehicle (as defined in subsection (i)).
(e) Specific exceptions to application of subsection (a)
Subsection (a) shall not apply to—
(1) Food and beverages for employees
Expenses for food and beverages (and facilities used in connection therewith) furnished on the business premises of the taxpayer primarily for his employees.
(2) Expenses treated as compensation
(A) In general
Except as provided in subparagraph (B), expenses for goods, services, and facilities, to the extent that the expenses are treated by the taxpayer, with respect to the recipient of the entertainment, amusement, or recreation, as compensation to an employee on the taxpayer's return of tax under this chapter and as wages to such employee for purposes of
(B) Specified individuals
(i) In general
In the case of a recipient who is a specified individual, subparagraph (A) and paragraph (9) shall each be applied by substituting "to the extent that the expenses do not exceed the amount of the expenses which" for "to the extent that the expenses".
(ii) Specified individual
For purposes of clause (i), the term "specified individual" means any individual who—
(I) is subject to the requirements of section 16(a) of the Securities Exchange Act of 1934 with respect to the taxpayer or a related party to the taxpayer, or
(II) would be subject to such requirements if the taxpayer (or such related party) were an issuer of equity securities referred to in such section.
For purposes of this clause, a person is a related party with respect to another person if such person bears a relationship to such other person described in section 267(b) or 707(b).
(3) Reimbursed expenses
Expenses paid or incurred by the taxpayer, in connection with the performance by him of services for another person (whether or not such other person is his employer), under a reimbursement or other expense allowance arrangement with such other person, but this paragraph shall apply—
(A) where the services are performed for an employer, only if the employer has not treated such expenses in the manner provided in paragraph (2), or
(B) where the services are performed for a person other than an employer, only if the taxpayer accounts (to the extent provided by subsection (d)) to such person.
(4) Recreational, etc., expenses for employees
Expenses for recreational, social, or similar activities (including facilities therefor) primarily for the benefit of employees (other than employees who are highly compensated employees (within the meaning of section 414(q))). For purposes of this paragraph, an individual owning less than a 10-percent interest in the taxpayer's trade or business shall not be considered a shareholder or other owner, and for such purposes an individual shall be treated as owning any interest owned by a member of his family (within the meaning of section 267(c)(4)). This paragraph shall not apply for purposes of subsection (a)(3).
(5) Employees, stockholder, etc., business meetings
Expenses incurred by a taxpayer which are directly related to business meetings of his employees, stockholders, agents, or directors.
(6) Meetings of business leagues, etc.
Expenses directly related and necessary to attendance at a business meeting or convention of any organization described in section 501(c)(6) (relating to business leagues, chambers of commerce, real estate boards, and boards of trade) and exempt from taxation under section 501(a).
(7) Items available to public
Expenses for goods, services, and facilities made available by the taxpayer to the general public.
(8) Entertainment sold to customers
Expenses for goods or services (including the use of facilities) which are sold by the taxpayer in a bona fide transaction for an adequate and full consideration in money or money's worth.
(9) Expenses includible in income of persons who are not employees
Expenses paid or incurred by the taxpayer for goods, services, and facilities to the extent that the expenses are includible in the gross income of a recipient of the entertainment, amusement, or recreation who is not an employee of the taxpayer as compensation for services rendered or as a prize or award under section 74. The preceding sentence shall not apply to any amount paid or incurred by the taxpayer if such amount is required to be included (or would be so required except that the amount is less than $600) in any information return filed by such taxpayer under part III of subchapter A of
For purposes of this subsection, any item referred to in subsection (a) shall be treated as an expense.
(f) Interest, taxes, casualty losses, etc.
This section shall not apply to any deduction allowable to the taxpayer without regard to its connection with his trade or business (or with his income-producing activity). In the case of a taxpayer which is not an individual, the preceding sentence shall be applied as if it were an individual.
(g) Treatment of entertainment, etc., type facility
For purposes of this chapter, if deductions are disallowed under subsection (a) with respect to any portion of a facility, such portion shall be treated as an asset which is used for personal, living, and family purposes (and not as an asset used in the trade or business).
(h) Attendance at conventions, etc.
(1) In general
In the case of any individual who attends a convention, seminar, or similar meeting which is held outside the North American area, no deduction shall be allowed under section 162 for expenses allocable to such meeting unless the taxpayer establishes that the meeting is directly related to the active conduct of his trade or business and that, after taking into account in the manner provided by regulations prescribed by the Secretary—
(A) the purpose of such meeting and the activities taking place at such meeting,
(B) the purposes and activities of the sponsoring organizations or groups,
(C) the residences of the active members of the sponsoring organization and the places at which other meetings of the sponsoring organization or groups have been held or will be held, and
(D) such other relevant factors as the taxpayer may present,
it is as reasonable for the meeting to be held outside the North American area as within the North American area.
(2) Conventions on cruise ships
In the case of any individual who attends a convention, seminar, or other meeting which is held on any cruise ship, no deduction shall be allowed under section 162 for expenses allocable to such meeting, unless the taxpayer meets the requirements of paragraph (5) and establishes that the meeting is directly related to the active conduct of his trade or business and that—
(A) the cruise ship is a vessel registered in the United States; and
(B) all ports of call of such cruise ship are located in the United States or in possessions of the United States.
With respect to cruises beginning in any calendar year, not more than $2,000 of the expenses attributable to an individual attending one or more meetings may be taken into account under section 162 by reason of the preceding sentence.
(3) Definitions
For purposes of this subsection—
(A) North American area
The term "North American area" means the United States, its possessions, and the Trust Territory of the Pacific Islands, and Canada and Mexico.
(B) Cruise ship
The term "cruise ship" means any vessel sailing within or without the territorial waters of the United States.
(4) Subsection to apply to employer as well as to traveler
(A) Except as provided in subparagraph (B), this subsection shall apply to deductions otherwise allowable under section 162 to any person, whether or not such person is the individual attending the convention, seminar, or similar meeting.
(B) This subsection shall not deny a deduction to any person other than the individual attending the convention, seminar, or similar meeting with respect to any amount paid by such person to or on behalf of such individual if includible in the gross income of such individual. The preceding sentence shall not apply if the amount is required to be included in any information return filed by such person under part III of subchapter A of
(5) Reporting requirements
No deduction shall be allowed under section 162 for expenses allocable to attendance at a convention, seminar, or similar meeting on any cruise ship unless the taxpayer claiming the deduction attaches to the return of tax on which the deduction is claimed—
(A) a written statement signed by the individual attending the meeting which includes—
(i) information with respect to the total days of the trip, excluding the days of transportation to and from the cruise ship port, and the number of hours of each day of the trip which such individual devoted to scheduled business activities,
(ii) a program of the scheduled business activities of the meeting, and
(iii) such other information as may be required in regulations prescribed by the Secretary; and
(B) a written statement signed by an officer of the organization or group sponsoring the meeting which includes—
(i) a schedule of the business activities of each day of the meeting,
(ii) the number of hours which the individual attending the meeting attended such scheduled business activities, and
(iii) such other information as may be required in regulations prescribed by the Secretary.
(6) Treatment of conventions in certain Caribbean countries
(A) In general
For purposes of this subsection, the term "North American area" includes, with respect to any convention, seminar, or similar meeting, any beneficiary country if (as of the time such meeting begins)—
(i) there is in effect a bilateral or multilateral agreement described in subparagraph (C) between such country and the United States providing for the exchange of information between the United States and such country, and
(ii) there is not in effect a finding by the Secretary that the tax laws of such country discriminate against conventions held in the United States.
(B) Beneficiary country
For purposes of this paragraph, the term "beneficiary country" has the meaning given to such term by section 212(a)(1)(A) of the Caribbean Basin Economic Recovery Act; except that such term shall include Bermuda.
(C) Authority to conclude exchange of information agreements
(i) In general
The Secretary is authorized to negotiate and conclude an agreement for the exchange of information with any beneficiary country. Except as provided in clause (ii), an exchange of information agreement shall provide for the exchange of such information (not limited to information concerning nationals or residents of the United States or the beneficiary country) as may be necessary or appropriate to carry out and enforce the tax laws of the United States and the beneficiary country (whether criminal or civil proceedings), including information which may otherwise be subject to nondisclosure provisions of the local law of the beneficiary country such as provisions respecting bank secrecy and bearer shares. The exchange of information agreement shall be terminable by either country on reasonable notice and shall provide that information received by either country will be disclosed only to persons or authorities (including courts and administrative bodies) involved in the administration or oversight of, or in the determination of appeals in respect of, taxes of the United States or the beneficiary country and will be used by such persons or authorities only for such purposes.
(ii) Nondisclosure of qualified confidential information sought for civil tax purposes
An exchange of information agreement need not provide for the exchange of qualified confidential information which is sought only for civil tax purposes if—
(I) the Secretary of the Treasury, after making all reasonable efforts to negotiate an agreement which includes the exchange of such information, determines that such an agreement cannot be negotiated but that the agreement which was negotiated will significantly assist in the administration and enforcement of the tax laws of the United States, and
(II) the President determines that the agreement as negotiated is in the national security interest of the United States.
(iii) Qualified confidential information defined
For purposes of this subparagraph, the term "qualified confidential information" means information which is subject to the nondisclosure provisions of any local law of the beneficiary country regarding bank secrecy or ownership of bearer shares.
(iv) Civil tax purposes
For purposes of this subparagraph, the determination of whether information is sought only for civil tax purposes shall be made by the requesting party.
(D) Coordination with other provisions
Any exchange of information agreement negotiated under subparagraph (C) shall be treated as an income tax convention for purposes of section 6103(k)(4). The Secretary may exercise his authority under subchapter A of
(E) Determinations published in the Federal Register
The following shall be published in the Federal Register—
(i) any determination by the President under subparagraph (C)(ii) (including the reasons for such determination),
(ii) any determination by the Secretary under subparagraph (C)(ii) (including the reasons for such determination), and
(iii) any finding by the Secretary under subparagraph (A)(ii) (and any termination thereof).
(7) Seminars, etc. for section 212 purposes
No deduction shall be allowed under section 212 for expenses allocable to a convention, seminar, or similar meeting.
(i) Qualified nonpersonal use vehicle
For purposes of subsection (d), the term "qualified nonpersonal use vehicle" means any vehicle which, by reason of its nature, is not likely to be used more than a de minimis amount for personal purposes.
(j) Employee achievement awards
(1) General rule
No deduction shall be allowed under section 162 or section 212 for the cost of an employee achievement award except to the extent that such cost does not exceed the deduction limitations of paragraph (2).
(2) Deduction limitations
The deduction for the cost of an employee achievement award made by an employer to an employee—
(A) which is not a qualified plan award, when added to the cost to the employer for all other employee achievement awards made to such employee during the taxable year which are not qualified plan awards, shall not exceed $400, and
(B) which is a qualified plan award, when added to the cost to the employer for all other employee achievement awards made to such employee during the taxable year (including employee achievement awards which are not qualified plan awards), shall not exceed $1,600.
(3) Definitions
For purposes of this subsection—
(A) Employee achievement award
(i) In general
The term "employee achievement award" means an item of tangible personal property which is—
(I) transferred by an employer to an employee for length of service achievement or safety achievement,
(II) awarded as part of a meaningful presentation, and
(III) awarded under conditions and circumstances that do not create a significant likelihood of the payment of disguised compensation.
(ii) Tangible personal property
For purposes of clause (i), the term "tangible personal property" shall not include—
(I) cash, cash equivalents, gift cards, gift coupons, or gift certificates (other than arrangements conferring only the right to select and receive tangible personal property from a limited array of such items pre-selected or pre-approved by the employer), or
(II) vacations, meals, lodging, tickets to theater or sporting events, stocks, bonds, other securities, and other similar items.
(B) Qualified plan award
(i) In general
The term "qualified plan award" means an employee achievement award awarded as part of an established written plan or program of the taxpayer which does not discriminate in favor of highly compensated employees (within the meaning of section 414(q)) as to eligibility or benefits.
(ii) Limitation
An employee achievement award shall not be treated as a qualified plan award for any taxable year if the average cost of all employee achievement awards which are provided by the employer during the year, and which would be qualified plan awards but for this subparagraph, exceeds $400. For purposes of the preceding sentence, average cost shall be determined by including the entire cost of qualified plan awards, without taking into account employee achievement awards of nominal value.
(4) Special rules
For purposes of this subsection—
(A) Partnerships
In the case of an employee achievement award made by a partnership, the deduction limitations contained in paragraph (2) shall apply to the partnership as well as to each member thereof.
(B) Length of service awards
An item shall not be treated as having been provided for length of service achievement if the item is received during the recipient's 1st 5 years of employment or if the recipient received a length of service achievement award (other than an award excludable under section 132(e)(1)) during that year or any of the prior 4 years.
(C) Safety achievement awards
An item provided by an employer to an employee shall not be treated as having been provided for safety achievement if—
(i) during the taxable year, employee achievement awards (other than awards excludable under section 132(e)(1)) for safety achievement have previously been awarded by the employer to more than 10 percent of the employees of the employer (excluding employees described in clause (ii)), or
(ii) such item is awarded to a manager, administrator, clerical employee, or other professional employee.
(k) Business meals
(1) In general
No deduction shall be allowed under this chapter for the expense of any food or beverages unless—
(A) such expense is not lavish or extravagant under the circumstances, and
(B) the taxpayer (or an employee of the taxpayer) is present at the furnishing of such food or beverages.
(2) Exceptions
Paragraph (1) shall not apply to—
(A) any expense described in paragraph (2), (3), (4), (7), (8), or (9) of subsection (e), and
(B) any other expense to the extent provided in regulations.
(l) Transportation and commuting benefits
(1) In general
No deduction shall be allowed under this chapter for any expense incurred for providing any transportation, or any payment or reimbursement, to an employee of the taxpayer in connection with travel between the employee's residence and place of employment, except as necessary for ensuring the safety of the employee.
(2) Exception
In the case of any qualified bicycle commuting reimbursement (as described in section 132(f)(5)(F)), this subsection shall not apply for any amounts paid or incurred after December 31, 2017, and before January 1, 2026.
(m) Additional limitations on travel expenses
(1) Luxury water transportation
(A) In general
No deduction shall be allowed under this chapter for expenses incurred for transportation by water to the extent such expenses exceed twice the aggregate per diem amounts for days of such transportation. For purposes of the preceding sentence, the term "per diem amounts" means the highest amount generally allowable with respect to a day to employees of the executive branch of the Federal Government for per diem while away from home but serving in the United States.
(B) Exceptions
Subparagraph (A) shall not apply to—
(i) any expense allocable to a convention, seminar, or other meeting which is held on any cruise ship, and
(ii) any expense described in paragraph (2), (3), (4), (7), (8), or (9) of subsection (e).
(2) Travel as form of education
No deduction shall be allowed under this chapter for expenses for travel as a form of education.
(3) Travel expenses of spouse, dependent, or others
No deduction shall be allowed under this chapter (other than section 217) for travel expenses paid or incurred with respect to a spouse, dependent, or other individual accompanying the taxpayer (or an officer or employee of the taxpayer) on business travel, unless—
(A) the spouse, dependent, or other individual is an employee of the taxpayer,
(B) the travel of the spouse, dependent, or other individual is for a bona fide business purpose, and
(C) such expenses would otherwise be deductible by the spouse, dependent, or other individual.
(n) Only 50 percent of meal expenses allowed as deduction
(1) In general
The amount allowable as a deduction under this chapter for any expense for food or beverages shall not exceed 50 percent of the amount of such expense which would (but for this paragraph) be allowable as a deduction under this chapter.
(2) Exceptions
Paragraph (1) shall not apply to any expense if—
(A) such expense is described in paragraph (2), (3), (4), (7), (8), or (9) of subsection (e),
(B) in the case of an employer who pays or reimburses moving expenses of an employee, such expenses are includible in the income of the employee under section 82,
(C) such expense is for food or beverages—
(i) required by any Federal law to be provided to crew members of a commercial vessel,
(ii) provided to crew members of a commercial vessel—
(I) which is operating on the Great Lakes, the Saint Lawrence Seaway, or any inland waterway of the United States, and
(II) which is of a kind which would be required by Federal law to provide food and beverages to crew members if it were operated at sea,
(iii) provided on an oil or gas platform or drilling rig if the platform or rig is located offshore, or
(iv) provided on an oil or gas platform or drilling rig, or at a support camp which is in proximity and integral to such platform or rig, if the platform or rig is located in the United States north of 54 degrees north latitude, or
(D) such expense is—
(i) for food or beverages provided by a restaurant, and
(ii) paid or incurred before January 1, 2023.
Clauses (i) and (ii) of subparagraph (C) shall not apply to vessels primarily engaged in providing luxury water transportation (determined under the principles of subsection (m)). In the case of the employee, the exception of subparagraph (A) shall not apply to expenses described in subparagraph (B).
(3) Special rule for individuals subject to Federal hours of service
In the case of any expenses for food or beverages consumed while away from home (within the meaning of section 162(a)(2)) by an individual during, or incident to, the period of duty subject to the hours of service limitations of the Department of Transportation, paragraph (1) shall be applied by substituting "80 percent" for "50 percent".
(o) 1 Regulatory authority
The Secretary shall prescribe such regulations as he may deem necessary to carry out the purposes of this section, including regulations prescribing whether subsection (a) or subsection (b) applies in cases where both such subsections would otherwise apply.
(Added
Amendment of Section
(o) Meals provided at convenience of employer
No deduction shall be allowed under this chapter for—
(1) any expense for the operation of a facility described in section 132(e)(2), and any expense for food or beverages, including under section 132(e)(1), associated with such facility, or
(2) any expense for meals described in section 119(a).
See 2017 Amendment note below.
Editorial Notes
References in Text
Section 16 of the Securities Exchange Act of 1934, referred to in subsec. (e)(2)(B)(ii), is classified to
Section 212(a)(1)(A) of the Caribbean Basin Economic Recovery Act, referred to in subsec. (h)(6)(B), is classified to
Amendments
2020—Subsec. (n)(2)(D).
2017—Subsec. (a).
Subsec. (a)(1).
Subsec. (a)(1)(A).
Subsec. (a)(2)(C).
Subsec. (a)(4).
Subsec. (d).
Subsec. (d)(2) to (4).
Subsec. (j)(3)(A).
Subsec. (l).
Subsec. (n).
Subsec. (n)(1).
Subsec. (n)(2).
Subsec. (n)(2)(B).
Subsec. (n)(2)(C).
Subsec. (n)(2)(D), (E).
Subsecs. (o), (p).
2014—Subsec. (n)(3).
2005—Subsec. (e)(2)(B)(ii).
2004—Subsec. (e)(2).
1997—Subsec. (n)(3).
1993—Subsec. (a)(3).
Subsec. (e)(4).
Subsec. (m)(3).
Subsec. (n).
1990—Subsec. (l)(2).
Subsec. (n)(2).
Subsec. (n)(2)(D) to (F).
Subsec. (n)(3).
"(A) an expense for food or beverages is not separately stated,
"(B) more than 50 percent of the participants are away from home,
"(C) at least 40 individuals attend, and
"(D) such food and beverages are part of a program which includes a speaker."
1989—Subsec. (n)(2).
Subsec. (n)(2)(F)(i).
1988—Subsec. (b)(1).
Subsec. (h)(1), (2).
Subsec. (k)(2).
Subsec. (m)(1)(B)(ii).
Subsec. (n)(2).
1986—Subsec. (b)(1).
"(i) the cost of such item to the taxpayer does not exceed $400, or
"(ii) such item is a qualified plan award."
Subsec. (b)(3).
Subsec. (e)(1).
Subsec. (e)(2).
Subsec. (e)(3).
Subsec. (e)(4).
Subsec. (e)(5) to (10).
Subsec. (h).
Subsec. (j).
Subsec. (k).
Subsecs. (l) to (n).
Subsec. (o).
1985—Subsec. (d).
Subsecs. (i), (j).
1984—Subsec. (d).
Subsec. (h)(6)(D).
1983—Subsec. (e)(3).
Subsec. (h)(2).
Subsec. (h)(5).
Subsec. (h)(6).
1982—Subsec. (e)(3).
1981—Subsec. (b)(1)(C).
Subsec. (b)(3).
1980—Subsec. (a)(2)(C).
Subsec. (e)(10).
Subsec. (h)
1978—Subsec. (a)(1).
Subsec. (a)(2)(C).
Subsec. (h)(3).
Subsec. (h)(6)(D).
Subsec. (h)(6)(E).
1976—Subsecs. (c)(1), (d).
Subsec. (h).
Subsec. (i).
1964—Subsec. (c).
Statutory Notes and Related Subsidiaries
Effective Date of 2020 Amendment
Effective Date of 2017 Amendment
"(1)
"(2)
Effective Date of 2014 Amendment
Amendment by
Effective Date of 2005 Amendment
Amendments by
Effective Date of 2004 Amendment
Effective Date of 1997 Amendment
Effective Date of 1993 Amendment
Effective Date of 1989 Amendment
Amendment by section 7816(a) of
Effective Date of 1988 Amendment
Amendment by section 1001(g)(1)–(4)(A), (5) of
"(1) Clauses (i) and (ii) of section 274(n)(2)(F) [now 274(n)(2)(C)] of the 1986 Code, as added by subsection (a), shall apply to taxable years beginning after December 31, 1988.
"(2) Clauses (iii) and (iv) of section 274(n)(2)(F) [now 274(n)(2)(C)] of the 1986 Code, as added by subsection (a), shall apply to taxable years beginning after December 31, 1987."
Effective Date of 1986 Amendment
Amendment by section 122(c), (d) of
Amendment by section 142(a)–(c) of
Amendment by section 1114(b)(6) of
Effective Date of 1985 Amendment
"(a)
"(b)
"(c)
Effective Date of 1984 Amendment
Amendment by section 179(b)(1) of
Amendment by section 801(c) of
Effective Date of 1983 Amendment
Effective Date of 1981 Amendment
Effective Date of 1980 Amendment
Amendment by
Effective Date of 1978 Amendment
Effective Date of 1976 Amendment
Effective Date of 1964 Amendment
Effective Date
Section applicable with respect to taxable years ending after Dec. 31, 1962, but only in respect of periods after such date, see section 4(c) of
Regulations
Secretary of the Treasury or his delegate to issue before Feb. 1, 1988, final regulations to carry out amendments made by section 1114 of
Savings Provision
For provisions that nothing in amendment by
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Certain Recordkeeping Requirements
For treatment of use of automobile by I.R.S. special agent for purposes of this section and
Substantiation by Adequate Contemporaneous Records
Use of Facilities in Case of Independent Contractors, Etc.
"(i)
"(ii)
"(iii)
Executive Documents
Termination of Trust Territory of the Pacific Islands
For termination of Trust Territory of the Pacific Islands, see note set out preceding
1 See Amendment of Section note below.
§275. Certain taxes
(a) General rule
No deduction shall be allowed for the following taxes:
(1) Federal income taxes, including—
(A) the tax imposed by section 3101 (relating to the tax on employees under the Federal Insurance Contributions Act);
(B) the taxes imposed by sections 3201 and 3211 (relating to the taxes on railroad employees and railroad employee representatives); and
(C) the tax withheld at source on wages under section 3402.
(2) Federal war profits and excess profits taxes.
(3) Estate, inheritance, legacy, succession, and gift taxes.
(4) Income, war profits, and excess profits taxes imposed by the authority of any foreign country or possession of the United States if the taxpayer chooses to take to any extent the benefits of section 901.
(5) Taxes on real property, to the extent that section 164(d) requires such taxes to be treated as imposed on another taxpayer.
(6) Taxes imposed by chapters 37, 41, 42, 43, 44, 45, 46, 50A, and 54.
Paragraph (1) shall not apply to any taxes to the extent such taxes are allowable as a deduction under section 164(f).
(b) Cross reference
For disallowance of certain other taxes, see section 164(c).
(Added
Editorial Notes
References in Text
The Federal Insurance Contributions Act, referred to in subsec. (a)(1)(A), is act Aug. 16, 1954, ch. 736, §§3101, 3102, 3111, 3112, 3121 to 3128,
Codification
Amendments
2022—Subsec. (a)(6).
2014—Subsec. (a).
2007—Subsec. (a)(4).
"(A) the taxpayer chooses to take to any extent the benefits of section 901, or
"(B) such taxes are paid or accrued with respect to foreign trade income (within the meaning of section 923(b)) of a FSC,."
2004—Subsec. (a).
Subsec. (a)(4).
Subsec. (a)(6).
2000—Subsec. (a).
Subsec. (a)(4)(C).
1987—Subsec. (a)(6).
1986—Subsec. (a).
1984—Subsec. (a)(4).
Subsec. (a)(6).
1983—Subsec. (a).
Subsec. (a)(1).
1982—Subsec. (a)(1).
1976—Subsec. (a)(1)(C).
Subsec. (a)(6).
1974—Subsec. (a)(6).
Statutory Notes and Related Subsidiaries
Effective Date of 2022 Amendment
Amendment by section 10201(b) of
Amendment by section 11003(b) of
Effective Date of 2014 Amendment
Amendment by
Effective Date of 2004 Amendment
Amendment by section 101(b)(5) of
Amendment by section 802(b)(1) of
Effective Date of 2000 Amendment
Amendment by
Effective Date of 1987 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by
Effective Date of 1984 Amendment
Amendment by section 67(b)(2) of
Amendment by section 801(d)(5) of
Effective Date of 1983 Amendment
Amendment by
Effective Date of 1976 Amendment
For effective date of amendment by section 1307(d)(2)(A) of
For effective date of amendment by section 1605(b)(1) of
Amendment by section 1901(a)(39) of
Effective Date of 1974 Amendment
Amendment by
Effective Date
Section applicable to taxable years beginning after Dec. 31, 1963, see section 207(c) of
§276. Certain indirect contributions to political parties
(a) Disallowance of deduction
No deduction otherwise allowable under this chapter shall be allowed for any amount paid or incurred for—
(1) advertising in a convention program of a political party, or in any other publication if any part of the proceeds of such publication directly or indirectly inures (or is intended to inure) to or for the use of a political party or a political candidate,
(2) admission to any dinner or program, if any part of the proceeds of such dinner or program directly or indirectly inures (or is intended to inure) to or for the use of a political party or a political candidate, or
(3) admission to an inaugural ball, inaugural gala, inaugural parade, or inaugural concert, or to any similar event which is identified with a political party or a political candidate.
(b) Definitions
For purposes of this section—
(1) Political party
The term "political party" means—
(A) a political party;
(B) a National, State, or local committee of a political party; or
(C) a committee, association, or organization, whether incorporated or not, which directly or indirectly accepts contributions (as defined in section 271(b)(2)) or make expenditures (as defined in section 271(b)(3)) for the purpose of influencing or attempting to influence the selection, nomination, or election of any individual to any Federal, State, or local elective public office, or the election of presidential and vice-presidential electors, whether or not such individual or electors are selected, nominated, or elected.
(2) Proceeds inuring to or for the use of political candidates
Proceeds shall be treated as inuring to or for the use of a political candidate only if—
(A) such proceeds may be used directly or indirectly for the purpose of furthering his candidacy for selection, nomination, or election to any elective public office, and
(B) such proceeds are not received by such candidate in the ordinary course of a trade or business (other than the trade or business of holding elective public office).
(c) Cross reference
For disallowance of certain entertainment, etc., expenses, see section 274.
(Added
Editorial Notes
Amendments
1974—Subsecs. (c), (d).
1968—Subsecs. (c), (d).
Statutory Notes and Related Subsidiaries
Effective Date of 1974 Amendment
Amendment by
Effective Date of 1968 Amendment
Effective Date
Program Advertising for Presidential and Vice-Presidential Nominating Conventions
§277. Deductions incurred by certain membership organizations in transactions with members
(a) General rule
In the case of a social club or other membership organization which is operated primarily to furnish services or goods to members and which is not exempt from taxation, deductions for the taxable year attributable to furnishing services, insurance, goods, or other items of value to members shall be allowed only to the extent of income derived during such year from members or transactions with members (including income derived during such year from institutes and trade shows which are primarily for the education of members). If for any taxable year such deductions exceed such income, the excess shall be treated as a deduction attributable to furnishing services, insurance, goods, or other items of value to members paid or incurred in the succeeding taxable year. The deductions provided by sections 243 and 245 (relating to dividends received by corporations) shall not be allowed to any organization to which this section applies for the taxable year.
(b) Exceptions
Subsection (a) shall not apply to any organization—
(1) which for the taxable year is subject to taxation under subchapter H or L,
(2) which has made an election before October 9, 1969, under section 456(c) or which is affiliated with such an organization,
(3) which for each day of any taxable year is a national securities exchange subject to regulation under the Securities Exchange Act of 1934 or a contract market subject to regulation under the Commodity Exchange Act, or
(4) which is engaged primarily in the gathering and distribution of news to its members for publication.
(Added
Editorial Notes
References in Text
The Securities Exchange Act of 1934, referred to in subsec. (b)(3), is act June 6, 1934, ch. 404,
The Commodity Exchange Act, referred to in subsec. (b)(3), is act Sept. 21, 1922, ch. 369,
Amendments
2014—Subsec. (a).
1986—Subsec. (b)(4).
1976—Subsec. (a).
Statutory Notes and Related Subsidiaries
Effective Date of 2014 Amendment
Amendment by
Except as otherwise provided in section 221(a) of
Effective Date of 1986 Amendment
Effective Date of 1976 Amendment
Amendment by
Effective Date
Section applicable to taxable years beginning after Dec. 31, 1970, see section 121(g) of
[§278. Repealed. Pub. L. 99–514, title VIII, §803(b)(6), Oct. 22, 1986, 100 Stat. 2356 ]
Section, added
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
If any interest costs incurred after Dec. 31, 1986, are attributable to costs incurred before Jan. 1, 1987, the repeal of this section is applicable to such interest costs only to the extent such interest costs are attributable to costs which were required to be capitalized under section 263 of the Internal Revenue Code of 1954 and which would have been taken into account in applying section 189 of the Internal Revenue Code of 1954 (as in effect before its repeal by section 803 of
Repeal applicable to costs incurred after Dec. 31, 1986, in taxable years ending after such date, except as otherwise provided, see section 803(d) of
§279. Interest on indebtedness incurred by corporation to acquire stock or assets of another corporation
(a) General rule
No deduction shall be allowed for any interest paid or incurred by a corporation during the taxable year with respect to its corporate acquisition indebtedness to the extent that such interest exceeds—
(1) $5,000,000, reduced by
(2) the amount of interest paid or incurred by such corporation during such year on obligations (A) issued to provide consideration for an acquisition described in paragraph (1) of subsection (b), but (B) which are not corporate acquisition indebtedness.
(b) Corporate acquisition indebtedness
For purposes of this section, the term "corporate acquisition indebtedness" means any obligation evidenced by a bond, debenture, note, or certificate or other evidence of indebtedness issued by a corporation (hereinafter in this section referred to as "issuing corporation") if—
(1) such obligation is issued to provide consideration for the acquisition of—
(A) stock in another corporation (hereinafter in this section referred to as "acquired corporation"), or
(B) assets of another corporation (hereinafter in this section referred to as "acquired corporation") pursuant to a plan under which at least two-thirds (in value) of all the assets (excluding money) used in trades and businesses carried on by such corporation are acquired,
(2) such obligation is either—
(A) subordinated to the claims of trade creditors of the issuing corporation generally, or
(B) expressly subordinated in right of payment to the payment of any substantial amount of unsecured indebtedness, whether outstanding or subsequently issued, of the issuing corporation,
(3) the bond or other evidence of indebtedness is either—
(A) convertible directly or indirectly into stock of the issuing corporation, or
(B) part of an investment unit or other arrangement which includes, in addition to such bond or other evidence of indebtedness, an option to acquire, directly or indirectly, stock in the issuing corporation, and
(4) as of a day determined under subsection (c)(1), either—
(A) the ratio of debt to equity (as defined in subsection (c)(2)) of the issuing corporation exceeds 2 to 1, or
(B) the projected earnings (as defined in subsection (c)(3)) do not exceed 3 times the annual interest to be paid or incurred (determined under subsection (c)(4)).
(c) Rules for application of subsection (b)(4)
For purposes of subsection (b)(4)—
(1) Time of determination
Determinations are to be made as of the last day of any taxable year of the issuing corporation in which it issues any obligation to provide consideration for an acquisition described in subsection (b)(1) of stock in, or assets of, the acquired corporation.
(2) Ratio of debt to equity
The term "ratio of debt to equity" means the ratio which the total indebtedness of the issuing corporation bears to the sum of its money and all its other assets (in an amount equal to their adjusted basis for determining gain) less such total indebtedness.
(3) Projected earnings
(A) The term "projected earnings" means the "average annual earnings" (as defined in subparagraph (B)) of—
(i) the issuing corporation only, if clause (ii) does not apply, or
(ii) both the issuing corporation and the acquired corporation, in any case where the issuing corporation has acquired control (as defined in section 368(c)), or has acquired substantially all of the properties, of the acquired corporation.
(B) The average annual earnings referred to in subparagraph (A) is, for any corporation, the amount of its earnings and profits for any 3-year period ending with the last day of a taxable year of the issuing corporation described in paragraph (1), computed without reduction for—
(i) interest paid or incurred,
(ii) depreciation or amortization allowed under this chapter,
(iii) liability for tax under this chapter, and
(iv) distributions to which section 301(c)(1) applies (other than such distributions from the acquired to the issuing corporation),
and reduced to an annual average for such 3-year period pursuant to regulations prescribed by the Secretary. Such regulations shall include rules for cases where any corporation was not in existence for all of such 3-year period or such period includes only a portion of a taxable year of any corporation.
(4) Annual interest to be paid or incurred
The term "annual interest to be paid or incurred" means—
(A) if subparagraph (B) does not apply, the annual interest to be paid or incurred by the issuing corporation only, determined by reference to its total indebtedness outstanding, or
(B) if projected earnings are determined under clause (ii) of paragraph (3)(A), the annual interest to be paid or incurred by both the issuing corporation and the acquired corporation, determined by reference to their combined total indebtedness outstanding.
(5) Special rules for banks and lending or finance companies
With respect to any corporation which is a bank (as defined in section 581) or is primarily engaged in a lending or finance business—
(A) in determining under paragraph (2) the ratio of debt to equity of such corporation (or of the affiliated group of which such corporation is a member), the total indebtedness of such corporation (and the assets of such corporation) shall be reduced by an amount equal to the total indebtedness owed to such corporation which arises out of the banking business of such corporation, or out of the lending or finance business of such corporation, as the case may be;
(B) in determining under paragraph (4) the annual interest to be paid or incurred by such corporation (or by the issuing and acquired corporations referred to in paragraph (4)(B) or by the affiliated group of which such corporation is a member) the amount of such interest (determined without regard to this paragraph) shall be reduced by an amount which bears the same ratio to the amount of such interest as the amount of the reduction for the taxable year under subparagraph (A) bears to the total indebtedness of such corporation; and
(C) in determining under paragraph (3)(B) the average annual earnings, the amount of the earnings and profits for the 3-year period shall be reduced by the sum of the reductions under subparagraph (B) for such period.
For purposes of this paragraph, the term "lending or finance business" means a business of making loans or purchasing or discounting accounts receivable, notes, or installment obligations.
(d) Taxable years to which applicable
In applying this section—
(1) First year of disallowance
The deduction of interest on any obligation shall not be disallowed under subsection (a) before the first taxable year of the issuing corporation as of the last day of which the application of either subparagraph (A) or subparagraph (B) of subsection (b)(4) results in such obligation being corporate acquisition indebtedness.
(2) General rule for succeeding years
Except as provided in paragraphs (3), (4), and (5), if an obligation is determined to be corporate acquisition indebtedness as of the last day of any taxable year of the issuing corporation, it shall be corporate acquisition indebtedness for such taxable year and all subsequent taxable years.
(3) Redetermination where control, etc., is acquired
If an obligation is determined to be corporate acquisition indebtedness as of the close of a taxable year of the issuing corporation in which clause (i) of subsection (c)(3)(A) applied, but would not be corporate acquisition indebtedness if the determination were made as of the close of the first taxable year of such corporation thereafter in which clause (ii) of subsection (c)(3)(A) could apply, such obligation shall be considered not to be corporate acquisition indebtedness for such later taxable year and all taxable years thereafter.
(4) Special 3-year rule
If an obligation which has been determined to be corporate acquisition indebtedness for any taxable year would not be such indebtedness for each of any 3 consecutive taxable years thereafter if subsection (b)(4) were applied as of the close of each of such 3 years, then such obligation shall not be corporate acquisition indebtedness for all taxable years after such 3 consecutive taxable years.
(5) 5 percent stock rule
In the case of obligations issued to provide consideration for the acquisition of stock in another corporation, such obligations shall be corporate acquisition indebtedness for a taxable year only if at some time before the close of such year the issuing corporation owns 5 percent or more of the total combined voting power of all classes of stock entitled to vote of such other corporation.
(e) Certain nontaxable transactions
An acquisition of stock of a corporation of which the issuing corporation is in control (as defined in section 368(c)) in a transaction in which gain or loss is not recognized shall be deemed an acquisition described in paragraph (1) of subsection (b) only if immediately before such transaction (1) the acquired corporation was in existence, and (2) the issuing corporation was not in control (as defined in section 368(c)) of such corporation.
(f) Exemption for certain acquisitions of foreign corporations
For purposes of this section, the term "corporate acquisition indebtedness" does not include any indebtedness issued to any person to provide consideration for the acquisition of stock in, or assets of, any foreign corporation substantially all of the income of which, for the 3-year period ending with the date of such acquisition or for such part of such period as the foreign corporation was in existence, is from sources without the United States.
(g) Affiliated groups
In any case in which the issuing corporation is a member of an affiliated group, the application of this section shall be determined, pursuant to regulations prescribed by the Secretary, by treating all of the members of the affiliated group in the aggregate as the issuing corporation, except that the ratio of debt to equity of, projected earnings of, and annual interest to be paid or incurred by any corporation (other than the issuing corporation determined without regard to this subsection) shall be included in the determinations required under subparagraphs (A) and (B) of subsection (b)(4) as of any day only if such corporation is a member of the affiliated group on such day, and, in determining projected earnings of such corporation under subsection (c)(3), there shall be taken into account only the earnings and profits of such corporation for the period during which it was a member of the affiliated group. For purposes of the preceding sentence, the term "affiliated group" has the meaning assigned to such term by section 1504(a), except that all corporations other than the acquired corporation shall be treated as includible corporations (without any exclusion under section 1504(b)) and the acquired corporation shall not be treated as an includible corporation.
(h) Changes in obligation
For purposes of this section—
(1) Any extension, renewal, or refinancing of an obligation evidencing a preexisting indebtedness shall not be deemed to be the issuance of a new obligation.
(2) Any obligation which is corporate acquisition indebtedness of the issuing corporation is also corporate acquisition indebtedness of any corporation which becomes liable for such obligation as guarantor, endorser, or indemnitor or which assumes liability for such obligation in any transaction.
(i) Effect on other provisions
No inference shall be drawn from any provision in this section that any instrument designated as a bond, debenture, note, or certificate or other evidence of indebtedness by its issuer represents an obligation or indebtedness of such issuer in applying any other provision of this title.
(Added
Editorial Notes
Amendments
2014—Subsec. (a)(2).
Subsec. (b).
Subsec. (d)(5).
Subsecs. (i), (j).
"(1) stock or assets pursuant to a binding written contract which was in effect on October 9, 1969, and at all times thereafter before such acquisition, or
"(2) stock in any corporation where the issuing corporation, on October 9, 1969, and at all times thereafter before such acquisition, owned at least 50 percent of the total combined voting power of all classes of stock entitled to vote of the acquired corporation."
1976—Subsecs. (c)(3)(B), (g).
Subsec. (i).
Statutory Notes and Related Subsidiaries
Effective Date of 2014 Amendment
"(i) apply to obligations issued on or before October 9, 1969 (determined in the same manner as under section 279 of the Internal Revenue Code of 1986 as in effect before such amendments), and
"(ii) be construed to require interest on obligations issued on or before December 31, 1967, to be taken into account under section 279(a)(2) of such Code (as in effect after such amendments)."
Except as otherwise provided in section 221(a) of
Effective Date of 1976 Amendment
Effective Date
[§280. Repealed. Pub. L. 99–514, title VIII, §803(b)(2)(A), Oct. 22, 1986, 100 Stat. 2355 ]
Section, added
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
If any interest costs incurred after Dec. 31, 1986, are attributable to costs incurred before Jan. 1, 1987, the repeal of this section is applicable to such interest costs only to the extent such interest costs are attributable to costs which were required to be capitalized under section 263 of the Internal Revenue Code of 1954 and which would have been taken into account in applying section 189 of the Internal Revenue Code of 1954 (as in effect before its repeal by section 803 of
Repeal applicable to costs incurred after Dec. 31, 1986, in taxable years ending after such date, except as otherwise provided, see section 803(d) of
§280A. Disallowance of certain expenses in connection with business use of home, rental of vacation homes, etc.
(a) General rule
Except as otherwise provided in this section, in the case of a taxpayer who is an individual or an S corporation, no deduction otherwise allowable under this chapter shall be allowed with respect to the use of a dwelling unit which is used by the taxpayer during the taxable year as a residence.
(b) Exception for interest, taxes, casualty losses, etc.
Subsection (a) shall not apply to any deduction allowable to the taxpayer without regard to its connection with his trade or business (or with his income-producing activity).
(c) Exceptions for certain business or rental use; limitation on deductions for such use
(1) Certain business use
Subsection (a) shall not apply to any item to the extent such item is allocable to a portion of the dwelling unit which is exclusively used on a regular basis—
(A) as the principal place of business for any trade or business of the taxpayer,
(B) as a place of business which is used by patients, clients, or customers in meeting or dealing with the taxpayer in the normal course of his trade or business, or
(C) in the case of a separate structure which is not attached to the dwelling unit, in connection with the taxpayer's trade or business.
In the case of an employee, the preceding sentence shall apply only if the exclusive use referred to in the preceding sentence is for the convenience of his employer. For purposes of subparagraph (A), the term "principal place of business" includes a place of business which is used by the taxpayer for the administrative or management activities of any trade or business of the taxpayer if there is no other fixed location of such trade or business where the taxpayer conducts substantial administrative or management activities of such trade or business.
(2) Certain storage use
Subsection (a) shall not apply to any item to the extent such item is allocable to space within the dwelling unit which is used on a regular basis as a storage unit for the inventory or product samples of the taxpayer held for use in the taxpayer's trade or business of selling products at retail or wholesale, but only if the dwelling unit is the sole fixed location of such trade or business.
(3) Rental use
Subsection (a) shall not apply to any item which is attributable to the rental of the dwelling unit or portion thereof (determined after the application of subsection (e)).
(4) Use in providing day care services
(A) In general
Subsection (a) shall not apply to any item to the extent that such item is allocable to the use of any portion of the dwelling unit on a regular basis in the taxpayer's trade or business of providing day care for children, for individuals who have attained age 65, or for individuals who are physically or mentally incapable of caring for themselves.
(B) Licensing, etc., requirement
Subparagraph (A) shall apply to items accruing for a period only if the owner or operator of the trade or business referred to in subparagraph (A)—
(i) has applied for (and such application has not been rejected),
(ii) has been granted (and such granting has not been revoked), or
(iii) is exempt from having,
a license, certification, registration, or approval as a day care center or as a family or group day care home under the provisions of any applicable State law. This subparagraph shall apply only to items accruing in periods beginning on or after the first day of the first month which begins more than 90 days after the date of the enactment of the Tax Reduction and Simplification Act of 1977.
(C) Allocation formula
If a portion of the taxpayer's dwelling unit used for the purposes described in subparagraph (A) is not used exclusively for those purposes, the amount of the expenses attributable to that portion shall not exceed an amount which bears the same ratio to the total amount of the items allocable to such portion as the number of hours the portion is used for such purposes bears to the number of hours the portion is available for use.
(5) Limitation on deductions
In the case of a use described in paragraph (1), (2), or (4), and in the case of a use described in paragraph (3) where the dwelling unit is used by the taxpayer during the taxable year as a residence, the deductions allowed under this chapter for the taxable year by reason of being attributed to such use shall not exceed the excess of—
(A) the gross income derived from such use for the taxable year, over
(B) the sum of—
(i) the deductions allocable to such use which are allowable under this chapter for the taxable year whether or not such unit (or portion thereof) was so used, and
(ii) the deductions allocable to the trade or business (or rental activity) in which such use occurs (but which are not allocable to such use) for such taxable year.
Any amount not allowable as a deduction under this chapter by reason of the preceding sentence shall be taken into account as a deduction (allocable to such use) under this chapter for the succeeding taxable year. Any amount taken into account for any taxable year under the preceding sentence shall be subject to the limitation of the 1st sentence of this paragraph whether or not the dwelling unit is used as a residence during such taxable year.
(6) Treatment of rental to employer
Paragraphs (1) and (3) shall not apply to any item which is attributable to the rental of the dwelling unit (or any portion thereof) by the taxpayer to his employer during any period in which the taxpayer uses the dwelling unit (or portion) in performing services as an employee of the employer.
(d) Use as residence
(1) In general
For purposes of this section, a taxpayer uses a dwelling unit during the taxable year as a residence if he uses such unit (or portion thereof) for personal purposes for a number of days which exceeds the greater of—
(A) 14 days, or
(B) 10 percent of the number of days during such year for which such unit is rented at a fair rental.
For purposes of subparagraph (B), a unit shall not be treated as rented at a fair rental for any day for which it is used for personal purposes.
(2) Personal use of unit
For purposes of this section, the taxpayer shall be deemed to have used a dwelling unit for personal purposes for a day if, for any part of such day, the unit is used—
(A) for personal purposes by the taxpayer or any other person who has an interest in such unit, or by any member of the family (as defined in section 267(c)(4)) of the taxpayer or such other person;
(B) by any individual who uses the unit under an arrangement which enables the taxpayer to use some other dwelling unit (whether or not a rental is charged for the use of such other unit); or
(C) by any individual (other than an employee with respect to whose use section 119 applies), unless for such day the dwelling unit is rented for a rental which, under the facts and circumstances, is fair rental.
The Secretary shall prescribe regulations with respect to the circumstances under which use of the unit for repairs and annual maintenance will not constitute personal use under this paragraph, except that if the taxpayer is engaged in repair and maintenance on a substantially full time basis for any day, such authority shall not allow the Secretary to treat a dwelling unit as being used for personal use by the taxpayer on such day merely because other individuals who are on the premises on such day are not so engaged.
(3) Rental to family member, etc., for use as principal residence
(A) In general
A taxpayer shall not be treated as using a dwelling unit for personal purposes by reason of a rental arrangement for any period if for such period such dwelling unit is rented, at a fair rental, to any person for use as such person's principal residence.
(B) Special rules for rental to person having interest in unit
(i) Rental must be pursuant to shared equity financing agreement
Subparagraph (A) shall apply to a rental to a person who has an interest in the dwelling unit only if such rental is pursuant to a shared equity financing agreement.
(ii) Determination of fair rental
In the case of a rental pursuant to a shared equity financing agreement, fair rental shall be determined as of the time the agreement is entered into and by taking into account the occupant's qualified ownership interest.
(C) Shared equity financing agreement
For purposes of this paragraph, the term "shared equity financing agreement" means an agreement under which—
(i) 2 or more persons acquire qualified ownership interests in a dwelling unit, and
(ii) the person (or persons) holding 1 or more of such interests—
(I) is entitled to occupy the dwelling unit for use as a principal residence, and
(II) is required to pay rent to 1 or more other persons holding qualified ownership interests in the dwelling unit.
(D) Qualified ownership interest
For purposes of this paragraph, the term "qualified ownership interest" means an undivided interest for more than 50 years in the entire dwelling unit and appurtenant land being acquired in the transaction to which the shared equity financing agreement relates.
(4) Rental of principal residence
(A) In general
For purposes of applying subsection (c)(5) to deductions allocable to a qualified rental period, a taxpayer shall not be considered to have used a dwelling unit for personal purposes for any day during the taxable year which occurs before or after a qualified rental period described in subparagraph (B)(i), or before a qualified rental period described in subparagraph (B)(ii), if with respect to such day such unit constitutes the principal residence (within the meaning of section 121) of the taxpayer.
(B) Qualified rental period
For purposes of subparagraph (A), the term "qualified rental period" means a consecutive period of—
(i) 12 or more months which begins or ends in such taxable year, or
(ii) less than 12 months which begins in such taxable year and at the end of which such dwelling unit is sold or exchanged, and
for which such unit is rented, or is held for rental, at a fair rental.
(e) Expenses attributable to rental
(1) In general
In any case where a taxpayer who is an individual or an S corporation uses a dwelling unit for personal purposes on any day during the taxable year (whether or not he is treated under this section as using such unit as a residence), the amount deductible under this chapter with respect to expenses attributable to the rental of the unit (or portion thereof) for the taxable year shall not exceed an amount which bears the same relationship to such expenses as the number of days during each year that the unit (or portion thereof) is rented at a fair rental bears to the total number of days during such year that the unit (or portion thereof) is used.
(2) Exception for deductions otherwise allowable
This subsection shall not apply with respect to deductions which would be allowable under this chapter for the taxable year whether or not such unit (or portion thereof) was rented.
(f) Definitions and special rules
(1) Dwelling unit defined
For purposes of this section—
(A) In general
The term "dwelling unit" includes a house, apartment, condominium, mobile home, boat, or similar property, and all structures or other property appurtenant to such dwelling unit.
(B) Exception
The term "dwelling unit" does not include that portion of a unit which is used exclusively as a hotel, motel, inn, or similar establishment.
(2) Personal use by shareholders of S corporation
In the case of an S corporation, subparagraphs (A) and (B) of subsection (d)(2) shall be applied by substituting "any shareholder of the S corporation" for "the taxpayer" each place it appears.
(3) Coordination with section 183
If subsection (a) applies with respect to any dwelling unit (or portion thereof) for the taxable year—
(A) section 183 (relating to activities not engaged in for profit) shall not apply to such unit (or portion thereof) for such year, but
(B) such year shall be taken into account as a taxable year for purposes of applying subsection (d) of section 183 (relating to 5-year presumption).
(4) Coordination with section 162(a)(2)
Nothing in this section shall be construed to disallow any deduction allowable under section 162(a)(2) (or any deduction which meets the tests of section 162(a)(2) but is allowable under another provision of this title) by reason of the taxpayer's being away from home in the pursuit of a trade or business (other than the trade or business of renting dwelling units).
(g) Special rule for certain rental use
Notwithstanding any other provision of this section or section 183, if a dwelling unit is used during the taxable year by the taxpayer as a residence and such dwelling unit is actually rented for less than 15 days during the taxable year, then—
(1) no deduction otherwise allowable under this chapter because of the rental use of such dwelling unit shall be allowed, and
(2) the income derived from such use for the taxable year shall not be included in the gross income of such taxpayer under section 61.
(Added
Editorial Notes
References in Text
The date of enactment of the Tax Reduction and Simplification Act of 1977, referred to in subsec. (c)(4)(B), is the date of enactment of
Amendments
1997—Subsec. (c)(1).
Subsec. (d)(4)(A).
1996—Subsec. (c)(1)(A).
Subsec. (c)(2).
1988—Subsec. (c)(5).
1986—Subsec. (c)(5)(B).
Subsec. (c)(6).
1982—Subsecs. (a), (e)(1).
Subsec. (f)(2).
Subsec. (f)(4).
1981—Subsec. (c)(1)(A).
Subsec. (d)(2).
Subsec. (d)(3), (4).
Subsec. (f)(4).
1978—Subsec. (d)(3).
1977—Subsec. (c)(4), (5).
Statutory Notes and Related Subsidiaries
Effective Date of 1997 Amendment
Amendment by section 312(d)(1) of
Effective Date of 1996 Amendment
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by
Effective Dates of 1982 Amendment
Amendment by
Amendment by
Effective Date of 1981 Amendment
Effective Date of 1978 Amendment
Effective Date of 1977 Amendment
Effective Date
§280B. Demolition of structures
In the case of the demolition of any structure—
(1) no deduction otherwise allowable under this chapter shall be allowed to the owner or lessee of such structure for—
(A) any amount expended for such demolition, or
(B) any loss sustained on account of such demolition; and
(2) amounts described in paragraph (1) shall be treated as properly chargeable to capital account with respect to the land on which the demolished structure was located.
(Added
Editorial Notes
Amendments
1984—
1981—Subsec. (a).
Subsec. (b).
1980—Subsec. (c).
1978—Subsec. (b).
Statutory Notes and Related Subsidiaries
Effective Date of 1984 Amendment
"(1) The amendments made by this section [amending this section] shall apply to taxable years ending after December 31, 1983, but shall not apply to any demolition (other than of a certified historic structure) commencing before July 19, 1984.
"(2) For purposes of paragraph (1), if a demolition is delayed until the completion of the replacement structure on the same site, the demolition shall be treated as commencing when construction of the replacement structure commences.
"(3) The amendments made by this section [amending this section] shall not apply to any demolition commencing before September 1, 1984, pursuant to a bank headquarters building project if—
"(A) on April 1, 1984, a corporation was retained to advise the bank on the final completion of the project, and
"(B) on June 12, 1984, the Comptroller of the Currency approved the project.
"(4) The amendments made by this section shall not apply to the remaining adjusted basis at the time of demolition of any structure if—
"(A) such structure was used in the manufacture, storage, or distribution of lead alkyl antiknock products and intermediate and related products at facilities located in or near Baton Rouge, Louisiana, and Houston, Texas, owned by the same corporation, and
"(B) demolition of at least one such structure at the Baton Rouge facility commenced before January 1, 1984."
Effective Date of 1981 Amendment
Amendment by
Effective Date of 1978 Amendment
Amendment by
Effective Date
§280C. Certain expenses for which credits are allowable
(a) Rule for employment credits
No deduction shall be allowed for that portion of the wages or salaries paid or incurred for the taxable year which is equal to the sum of the credits determined for the taxable year under sections 45A(a), 45P(a), 45S(a), 51(a), and 1396(a). In the case of a corporation which is a member of a controlled group of corporations (within the meaning of section 52(a)) or a trade or business which is treated as being under common control with other trades or businesses (within the meaning of section 52(b)), this subsection shall be applied under rules prescribed by the Secretary similar to the rules applicable under subsections (a) and (b) of section 52.
(b) Credit for qualified clinical testing expenses for certain drugs
(1) In general
No deduction shall be allowed for that portion of the qualified clinical testing expenses (as defined in section 45C(b)) otherwise allowable as a deduction for the taxable year which is equal to the amount of the credit allowable for the taxable year under section 45C (determined without regard to section 38(c)).
(2) Similar rule where taxpayer capitalizes rather than deducts expenses
If—
(A) the amount of the credit allowable for the taxable year under section 45C (determined without regard to section 38(c)), exceeds
(B) the amount allowable as a deduction for the taxable year for qualified clinical testing expenses (determined without regard to paragraph (1)),
the amount chargeable to capital account for the taxable year for such expenses shall be reduced by the amount of such excess.
(3) Election of reduced credit
(A) In general
In the case of any taxable year for which an election is made under this paragraph—
(i) paragraphs (1) and (2) shall not apply, and
(ii) the amount of the credit under section 45C(a) shall be the amount determined under subparagraph (B).
(B) Amount of reduced credit
The amount of credit determined under this subparagraph for any taxable year shall be the amount equal to the excess of—
(i) the amount of credit determined under section 45C(a) without regard to this paragraph, over
(ii) the product of—
(I) the amount described in clause (i), and
(II) the maximum rate of tax under section 11(b).
(C) Election
An election under this paragraph for any taxable year shall be made not later than the time for filing the return of tax for such year (including extensions), shall be made on such return, and shall be made in such manner as the Secretary shall prescribe. Such an election, once made, shall be irrevocable.
(4) Controlled groups
In the case of a corporation which is a member of a controlled group of corporations (within the meaning of section 41(f)(5)) or a trade or business which is treated as being under common control with other trades or business (within the meaning of section 41(f)(1)(B)), this subsection shall be applied under rules prescribed by the Secretary similar to the rules applicable under subparagraphs (A) and (B) of section 41(f)(1).
(c) Credit for increasing research activities
(1) In general
If—
(A) the amount of the credit determined for the taxable year under section 41(a)(1), exceeds
(B) the amount allowable as a deduction for such taxable year for qualified research expenses or basic research expenses,
the amount chargeable to capital account for the taxable year for such expenses shall be reduced by the amount of such excess.
(2) Election of reduced credit
(A) In general
In the case of any taxable year for which an election is made under this paragraph—
(i) paragraph (1) shall not apply, and
(ii) the amount of the credit under section 41(a) shall be the amount determined under subparagraph (B).
(B) Amount of reduced credit
The amount of credit determined under this subparagraph for any taxable year shall be the amount equal to the excess of—
(i) the amount of credit determined under section 41(a) without regard to this paragraph, over
(ii) the product of—
(I) the amount described in clause (i), and
(II) the maximum rate of tax under section 11(b).
(C) Election
An election under this paragraph for any taxable year shall be made not later than the time for filing the return of tax for such year (including extensions), shall be made on such return, and shall be made in such manner as the Secretary may prescribe. Such an election, once made, shall be irrevocable.
(3) Controlled groups
Paragraph (3) of subsection (b) shall apply for purposes of this subsection.
(d) Credit for low sulfur diesel fuel production
The deductions otherwise allowed under this chapter for the taxable year shall be reduced by the amount of the credit determined for the taxable year under section 45H(a).
(e) Mine rescue team training credit
No deduction shall be allowed for that portion of the expenses otherwise allowable as a deduction for the taxable year which is equal to the amount of the credit determined for the taxable year under section 45N(a).
(f) Credit for security of agricultural chemicals
No deduction shall be allowed for that portion of the expenses otherwise allowable as a deduction taken into account in determining the credit under section 45O for the taxable year which is equal to the amount of the credit determined for such taxable year under section 45O(a).
(g) Credit for health insurance premiums
No deduction shall be allowed for the portion of the premiums paid by the taxpayer for coverage of 1 or more individuals under a qualified health plan which is equal to the amount of the credit determined for the taxable year under section 36B(a) with respect to such premiums.
(h) Credit for employee health insurance expenses of small employers
No deduction shall be allowed for that portion of the premiums for qualified health plans (as defined in section 1301(a) of the Patient Protection and Affordable Care Act), or for health insurance coverage in the case of taxable years beginning in 2010, 2011, 2012, or 2013, paid by an employer which is equal to the amount of the credit determined under section 45R(a) with respect to the premiums.
(Added
Editorial Notes
References in Text
Section 1301(a) of the Patient Protection and Affordable Care Act, referred to in subsec. (h), is classified to
Codification
Amendments
2018—Subsec. (a).
Subsec. (g).
2017—Subsec. (a).
Subsec. (b)(3), (4).
Subsec. (c)(1).
Subsec. (c)(2).
Subsec. (c)(3).
Subsec. (c)(3)(B)(ii)(II).
Subsec. (c)(4).
2010—Subsec. (g).
Subsec. (h).
2008—Subsec. (a).
Subsec. (f).
2007—Subsec. (d).
2006—Subsec. (e).
2005—Subsec. (a).
2004—Subsec. (d).
2000—Subsec. (c)(1).
1999—Subsec. (c)(1).
1996—Subsec. (b)(1).
Subsec. (b)(2)(A).
1993—Subsec. (a).
1989—Subsec. (c)(1), (2)(A).
Subsec. (c)(3).
Subsec. (c)(3)(B)(ii)(I).
Subsec. (c)(4).
1988—Subsec. (c).
1986—Subsec. (b)(1), (2)(A).
Subsec. (b)(3).
1984—Subsec. (a).
Subsec. (b).
Subsec. (b)(1), (2)(A).
Subsec. (b)(3).
Subsec. (c).
1983—
Subsec. (c).
1978—
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Amendment by section 13001(b)(1)(A) of
Amendment by section 13206(d)(2) of
Amendment by section 13401(b) of
Amendment by section 13403(d)(1) of
Effective Date of 2010 Amendment
Amendment by section 1401(b) of
Amendment by section 1421(d)(1) of
Amendment by section 9023(c)(2) of
Amendment by section 10105(e)(3) of
Effective Date of 2008 Amendment
Amendment of this section and repeal of
Amendment by section 15343(c) of
Amendment by
Effective Date of 2007 Amendment
Amendment by
Effective Date of 2006 Amendment
Amendment by
Effective Date of 2004 Amendment
Amendment by
Effective Date of 2000 Amendment
Effective Date of 1999 Amendment
Amendment by
Effective Date of 1996 Amendment
Amendment by
Effective Date of 1993 Amendment
Amendment by section 13322(c)(1) of
Effective Date of 1989 Amendment
Amendment by section 7110(c)(1) of
Amendment by section 7814(e)(2)(A) of
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 231(d)(3)(E) of
Amendment by section 1847(b)(8) of
Effective Date of 1984 Amendment
Amendment by
Effective Date of 1983 Amendment
Amendment by
Effective Date of 1978 Amendment
"(1)
"(2)
"(A)
"(B)
[
Effective Date
Section applicable to taxable years beginning after Dec. 31, 1976, and to credit carrybacks from such years, see section 202(e) of
Savings Provision
For provisions that amendment made by section 401(d)(3)(B)(iii) of
For provisions that amendment made by section 401(d)(6)(B)(iv) of
For provisions that nothing in amendment by section 401(d)(3)(B)(iii), (6)(B)(iv) of
Time and Form of Certain Elections Under Subsection (c)(2)
"(i) at any time before the date which is 75 days after such date of enactment, and
"(ii) in such form and manner as the Secretary of the Treasury or his delegate may prescribe."
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
[§280D. Repealed. Pub. L. 100–418, title I, §1941(b)(4)(A), Aug. 23, 1988, 102 Stat. 1324 ]
Section, added
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
Repeal applicable to crude oil removed from the premises on or after Aug. 23, 1988, see section 1941(c) of
§280E. Expenditures in connection with the illegal sale of drugs
No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.
(Added
Editorial Notes
References in Text
The Controlled Substances Act, referred to in text, is title II of
Statutory Notes and Related Subsidiaries
Effective Date
§280F. Limitation on depreciation for luxury automobiles; limitation where certain property used for personal purposes
(a) Limitation on amount of depreciation for luxury automobiles
(1) Depreciation
(A) Limitation
The amount of the depreciation deduction for any taxable year for any passenger automobile shall not exceed—
(i) $10,000 for the 1st taxable year in the recovery period,
(ii) $16,000 for the 2nd taxable year in the recovery period,
(iii) $9,600 for the 3rd taxable year in the recovery period, and
(iv) $5,760 for each succeeding taxable year in the recovery period.
(B) Disallowed deductions allowed for years after recovery period
(i) In general
Except as provided in clause (ii), the unrecovered basis of any passenger automobile shall be treated as an expense for the 1st taxable year after the recovery period. Any excess of the unrecovered basis over the limitation of clause (ii) shall be treated as an expense in the succeeding taxable year.
(ii) $5,760 limitation
The amount treated as an expense under clause (i) for any taxable year shall not exceed $5,760.
(iii) Property must be depreciable
No amount shall be allowable as a deduction by reason of this subparagraph with respect to any property for any taxable year unless a depreciation deduction would be allowable with respect to such property for such taxable year.
(iv) Amount treated as depreciation deduction
For purposes of this subtitle, any amount allowable as a deduction by reason of this subparagraph shall be treated as a depreciation deduction allowable under section 168.
(2) Coordination with reductions in amount allowable by reason of personal use, etc.
This subsection shall be applied before—
(A) the application of subsection (b), and
(B) the application of any other reduction in the amount of any depreciation deduction allowable under section 168 by reason of any use not qualifying the property for such credit or depreciation deduction.
(b) Limitation where business use of listed property not greater than 50 percent
(1) Depreciation
If any listed property is not predominantly used in a qualified business use for any taxable year, the deduction allowed under section 168 with respect to such property for such taxable year and any subsequent taxable year shall be determined under section 168(g) (relating to alternative depreciation system).
(2) Recapture
(A) Where business use percentage does not exceed 50 percent
If—
(i) property is predominantly used in a qualified business use in a taxable year in which it is placed in service, and
(ii) such property is not predominantly used in a qualified business use for any subsequent taxable year,
then any excess depreciation shall be included in gross income for the taxable year referred to in clause (ii), and the depreciation deduction for the taxable year referred to in clause (ii) and any subsequent taxable years shall be determined under section 168(g) (relating to alternative depreciation system).
(B) Excess depreciation
For purposes of subparagraph (A), the term "excess depreciation" means the excess (if any) of—
(i) the amount of the depreciation deductions allowable with respect to the property for taxable years before the 1st taxable year in which the property was not predominantly used in a qualified business use, over
(ii) the amount which would have been so allowable if the property had not been predominantly used in a qualified business use for the taxable year in which it was placed in service.
(3) Property predominantly used in qualified business use
For purposes of this subsection, property shall be treated as predominantly used in a qualified business use for any taxable year if the business use percentage for such taxable year exceeds 50 percent.
(c) Treatment of leases
(1) Lessor's deductions not affected
This section shall not apply to any listed property leased or held for leasing by any person regularly engaged in the business of leasing such property.
(2) Lessee's deductions reduced
For purposes of determining the amount allowable as a deduction under this chapter for rentals or other payments under a lease for a period of 30 days or more of listed property, only the allowable percentage of such payments shall be taken into account.
(3) Allowable percentage
For purposes of paragraph (2), the allowable percentage shall be determined under tables prescribed by the Secretary. Such tables shall be prescribed so that the reduction in the deduction under paragraph (2) is substantially equivalent to the applicable restrictions contained in subsections (a) and (b).
(4) Lease term
In determining the term of any lease for purposes of paragraph (2), the rules of section 168(i)(3)(A) shall apply.
(5) Lessee recapture
Under regulations prescribed by the Secretary, rules similar to the rules of subsection (b)(3) shall apply to any lessee to which paragraph (2) applies.
(d) Definitions and special rules
For purposes of this section—
(1) Coordination with section 179
Any deduction allowable under section 179 with respect to any listed property shall be subject to the limitations of subsections (a) and (b), and the limitation of paragraph (3) of this subsection, in the same manner as if it were a depreciation deduction allowable under section 168.
(2) Subsequent depreciation deductions reduced for deductions allocable to personal use
Solely for purposes of determining the amount of the depreciation deduction for subsequent taxable years, if less than 100 percent of the use of any listed property during any taxable year is use in a trade or business (including the holding for the production of income), all of the use of such property during such taxable year shall be treated as use so described.
(3) Deductions of employee
(A) In general
Any employee use of listed property shall not be treated as use in a trade or business for purposes of determining the amount of any depreciation deduction allowable to the employee (or the amount of any deduction allowable to the employee for rentals or other payments under a lease of listed property) unless such use is for the convenience of the employer and required as a condition of employment.
(B) Employee use
For purposes of subparagraph (A), the term "employee use" means any use in connection with the performance of services as an employee.
(4) Listed property
(A) In general
Except as provided in subparagraph (B), the term "listed property" means—
(i) any passenger automobile,
(ii) any other property used as a means of transportation,
(iii) any property of a type generally used for purposes of entertainment, recreation, or amusement, and
(iv) any other property of a type specified by the Secretary by regulations.
(B) Exception for property used in business of transporting persons or property
Except to the extent provided in regulations, clause (ii) of subparagraph (A) shall not apply to any property substantially all of the use of which is in a trade or business of providing to unrelated persons services consisting of the transportation of persons or property for compensation or hire.
(5) Passenger automobile
(A) In general
Except as provided in subparagraph (B), the term "passenger automobile" means any 4-wheeled vehicle—
(i) which is manufactured primarily for use on public streets, roads, and highways, and
(ii) which is rated at 6,000 pounds unloaded gross vehicle weight or less.
In the case of a truck or van, clause (ii) shall be applied by substituting "gross vehicle weight" for "unloaded gross vehicle weight".
(B) Exception for certain vehicles
The term "passenger automobile" shall not include—
(i) any ambulance, hearse, or combination ambulance-hearse used by the taxpayer directly in a trade or business,
(ii) any vehicle used by the taxpayer directly in the trade or business of transporting persons or property for compensation or hire, and
(iii) under regulations, any truck or van.
(6) Business use percentage
(A) In general
The term "business use percentage" means the percentage of the use of any listed property during any taxable year which is a qualified business use.
(B) Qualified business use
Except as provided in subparagraph (C), the term "qualified business use" means any use in a trade or business of the taxpayer.
(C) Exception for certain use by 5-percent owners and related persons
(i) In general
The term "qualified business use" shall not include—
(I) leasing property to any 5-percent owner or related person,
(II) use of property provided as compensation for the performance of services by a 5-percent owner or related person, or
(III) use of property provided as compensation for the performance of services by any person not described in subclause (II) unless an amount is included in the gross income of such person with respect to such use, and, where required, there was withholding under
(ii) Special rule for aircraft
Clause (i) shall not apply with respect to any aircraft if at least 25 percent of the total use of the aircraft during the taxable year consists of qualified business use not described in clause (i).
(D) Definitions
For purposes of this paragraph—
(i) 5-percent owner
The term "5-percent owner" means any person who is a 5-percent owner with respect to the taxpayer (as defined in section 416(i)(1)(B)(i)).
(ii) Related person
The term "related person" means any person related to the taxpayer (within the meaning of section 267(b)).
(7) Automobile price inflation adjustment
(A) In general
In the case of any passenger automobile placed in service after 2018, subsection (a) shall be applied by increasing each dollar amount contained in such subsection by the automobile price inflation adjustment for the calendar year in which such automobile is placed in service. Any increase under the preceding sentence shall be rounded to the nearest multiple of $100 (or if the increase is a multiple of $50, such increase shall be increased to the next higher multiple of $100).
(B) Automobile price inflation adjustment
For purposes of this paragraph—
(i) In general
The automobile price inflation adjustment for any calendar year is the percentage (if any) by which—
(I) the C-CPI-U automobile component for October of the preceding calendar year, exceeds
(II) the automobile component of the CPI (as defined in section 1(f)(4)) for October of 2017, multiplied by the amount determined under 1(f)(3)(B).
(ii) C-CPI-U automobile component
The term "C-CPI-U automobile component" means the automobile component of the Chained Consumer Price Index for All Urban Consumers (as described in section 1(f)(6)).
(8) Unrecovered basis
For purposes of subsection (a)(1), the term "unrecovered basis" means the adjusted basis of the passenger automobile determined after the application of subsection (a) and as if all use during the recovery period were use in a trade or business (including the holding of property for the production of income).
(9) All taxpayers holding interests in passenger automobile treated as 1 taxpayer
All taxpayers holding interests in any passenger automobile shall be treated as 1 taxpayer for purposes of applying subsection (a) to such automobile, and the limitations of subsection (a) shall be allocated among such taxpayers in proportion to their interests in such automobile.
(10) Special rule for property acquired in nonrecognition transactions
For purposes of subsection (a)(1) any property acquired in a nonrecognition transaction shall be treated as a single property originally placed in service in the taxable year in which it was placed in service after being so acquired.
(e) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including regulations with respect to items properly included in, or excluded from, the adjusted basis of any listed property.
(Added
Inflation Adjusted Items for Certain Calendar Years
For inflation adjustment of certain items in this section, see Revenue Procedures listed in a table below.
Editorial Notes
Amendments
2017—Subsec. (a)(1)(A)(i).
Subsec. (a)(1)(A)(ii).
Subsec. (a)(1)(A)(iii).
Subsec. (a)(1)(A)(iv).
Subsec. (a)(1)(B)(ii).
Subsec. (d)(4)(A)(iv), (v).
Subsec. (d)(4)(B), (C).
Subsec. (d)(7)(A).
Subsec. (d)(7)(B).
Subsec. (d)(7)(B)(i)(II).
2014—Subsec. (a)(1)(C).
Subsec. (d)(8), (10).
2010—Subsec. (d)(4)(A).
2002—Subsec. (a)(1)(C)(iii).
1998—Subsec. (a)(1)(C)(ii).
1997—Subsec. (a)(1)(C).
1996—Subsec. (a).
1990—
Subsec. (a)(1).
Subsec. (a)(2).
Subsec. (a)(2)(B).
Subsec. (a)(3).
Subsec. (a)(4).
Subsec. (b).
Subsec. (c)(1).
Subsec. (d)(3)(A).
1989—Subsec. (d)(4)(A)(v), (vi).
1988—Subsec. (b)(3)(B)(i).
Subsec. (d)(1).
Subsec. (d)(3)(A).
1986—Subsec. (a)(2)(A).
"(i) $3,200 for the first taxable year in the recovery period, and
"(ii) $4,800 for each succeeding taxable year in the recovery period."
Subsec. (a)(2)(B).
Subsec. (a)(3)(B).
Subsec. (b)(2).
Subsec. (b)(3)(A).
Subsec. (b)(4).
Subsec. (c)(4).
Subsec. (d)(1).
Subsec. (d)(2).
Subsec. (d)(3)(A).
Subsec. (d)(4)(A)(iv).
Subsec. (d)(4)(B).
Subsec. (d)(4)(C).
Subsec. (d)(5)(A).
Subsec. (d)(8).
"(A) the unadjusted basis (as defined in section 168(d)(1)(A)) of the passenger automobile, over
"(B) the amount of the recovery deductions which would have been allowable for taxable years in the recovery period determined after the application of subsection (a) and as if all use during the recovery period were use described in section 168(c)(1)."
Subsec. (d)(10).
1985—Subsec. (a)(1).
Subsec. (a)(2)(A)(i).
Subsec. (a)(2)(A)(ii), (B)(ii).
Subsec. (d)(7)(A).
Subsec. (d)(7)(B)(i).
Subsec. (d)(7)(B)(i)(II).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Amendment by section 11002(d)(8) of
Effective Date of 2014 Amendment
Amendment by section 221(a)(34)(E) of
Effective Date of 2010 Amendment
Effective Date of 2002 Amendment
Effective Date of 1998 Amendment
Amendment by
Effective Date of 1997 Amendment
Effective Date of 1996 Amendment
Amendment by
Effective Date of 1990 Amendment
Amendment by
Effective Date of 1989 Amendment
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 201(d)(4) of
Amendment by section 201(d)(4) of
Amendment by section 1812(e)(1)(A), (C), (2)–(5) of
Effective Date of 1985 Amendment
"(1) Except as provided in paragraph (2), the amendments made by section 4 [amending this section] shall apply to—
"(A) property placed in service after April 2, 1985, in taxable years ending after such date, and
"(B) property leased after April 2, 1985, in taxable years ending after such date.
"(2) The amendments made by section 4 [amending this section] shall not apply to any property—
"(A) acquired by the taxpayer pursuant to a binding contract in effect on April 1, 1985, and at all times thereafter, but only if the property is placed in service before August 1, 1985, or
"(B) of which the taxpayer is the lessee, but only if the lease is pursuant to a binding contract in effect on April 1, 1985, and at all times thereafter, and only if the taxpayer first uses such property under the lease before August 1, 1985."
Effective Date
"(1)
"(A) Except as provided in subparagraph (B), the amendments made by subsections (a) and (c) [enacting this section] shall apply to—
"(i) property placed in service after June 18, 1984, in taxable years ending after such date, and
"(ii) property leased after June 18, 1984, in taxable years ending after such date.
"(B) The amendments made by subsections (a) and (c) shall not apply to any property—
"(i) acquired by the taxpayer pursuant to a binding contract in effect on June 18, 1984, and at all times thereafter (or under construction on such date) but only if the property is placed in service before January 1, 1985 (January 1, 1987, in the case of 15-year real property), or
"(ii) of which the taxpayer is the lessee but only if the lease is pursuant to a binding contract in effect on June 18, 1984, and at all times thereafter and only if the taxpayer first uses such property under the lease before January 1, 1985 (January 1, 1987, in the case of 15-year real property).
For purposes of the preceding sentence, the term '15-year real property' includes 18-year real property.
"(2)
Savings Provision
For provisions that nothing in amendment by
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Inflation Adjusted Items for Certain Years
Provisions relating to inflation adjustment of items in this section for certain years were contained in the following:
2023—Revenue Procedure 2023—14.
2022—Revenue Procedure 2022–17.
2021—Revenue Procedure 2021–31.
2020—Revenue Procedure 2020–37.
2019—Revenue Procedure 2019–26.
2018—Revenue Procedure 2018–25.
2017—Revenue Procedure 2017–29.
2016—Revenue Procedure 2016–23.
2015—Revenue Procedure 2015–19.
2014—Revenue Procedure 2014–21.
2013—Revenue Procedure 2013–21.
2012—Revenue Procedure 2012–23.
2011—Revenue Procedure 2011–21.
2010—Revenue Procedure 2010–18.
2009—Revenue Procedure 2009–24.
2008—Revenue Procedure 2008–22.
2007—Revenue Procedure 2007–30.
2006—Revenue Procedure 2006–18.
2005—Revenue Procedure 2005–13.
2004—Revenue Procedure 2004–20.
2003—Revenue Procedure 2003–75.
2002—Revenue Procedure 2002–14.
2001—Revenue Procedure 2001–19.
2000—Revenue Procedure 2000–18.
1999—Revenue Procedure 99–14.
1998—Revenue Procedures 98–24 and 98–30.
1997—Revenue Procedure 97–20.
1996—Revenue Procedure 96–25.
§280G. Golden parachute payments
(a) General rule
No deduction shall be allowed under this chapter for any excess parachute payment.
(b) Excess parachute payment
For purposes of this section—
(1) In general
The term "excess parachute payment" means an amount equal to the excess of any parachute payment over the portion of the base amount allocated to such payment.
(2) Parachute payment defined
(A) In general
The term "parachute payment" means any payment in the nature of compensation to (or for the benefit of) a disqualified individual if—
(i) such payment is contingent on a change—
(I) in the ownership or effective control of the corporation, or
(II) in the ownership of a substantial portion of the assets of the corporation, and
(ii) the aggregate present value of the payments in the nature of compensation to (or for the benefit of) such individual which are contingent on such change equals or exceeds an amount equal to 3 times the base amount.
For purposes of clause (ii), payments not treated as parachute payments under paragraph (4)(A), (5), or (6) shall not be taken into account.
(B) Agreements
The term "parachute payment" shall also include any payment in the nature of compensation to (or for the benefit of) a disqualified individual if such payment is made pursuant to an agreement which violates any generally enforced securities laws or regulations. In any proceeding involving the issue of whether any payment made to a disqualified individual is a parachute payment on account of a violation of any generally enforced securities laws or regulations, the burden of proof with respect to establishing the occurrence of a violation of such a law or regulation shall be upon the Secretary.
(C) Treatment of certain agreements entered into within 1 year before change of ownership
For purposes of subparagraph (A)(i), any payment pursuant to—
(i) an agreement entered into within 1 year before the change described in subparagraph (A)(i), or
(ii) an amendment made within such 1-year period of a previous agreement,
shall be presumed to be contingent on such change unless the contrary is established by clear and convincing evidence.
(3) Base amount
(A) In general
The term "base amount" means the individual's annualized includible compensation for the base period.
(B) Allocation
The portion of the base amount allocated to any parachute payment shall be an amount which bears the same ratio to the base amount as—
(i) the present value of such payment, bears to
(ii) the aggregate present value of all such payments.
(4) Treatment of amounts which taxpayer establishes as reasonable compensation
In the case of any payment described in paragraph (2)(A)—
(A) the amount treated as a parachute payment shall not include the portion of such payment which the taxpayer establishes by clear and convincing evidence is reasonable compensation for personal services to be rendered on or after the date of the change described in paragraph (2)(A)(i), and
(B) the amount treated as an excess parachute payment shall be reduced by the portion of such payment which the taxpayer establishes by clear and convincing evidence is reasonable compensation for personal services actually rendered before the date of the change described in paragraph (2)(A)(i).
For purposes of subparagraph (B), reasonable compensation for services actually rendered before the date of the change described in paragraph (2)(A)(i) shall be first offset against the base amount.
(5) Exemption for small business corporations, etc.
(A) In general
Notwithstanding paragraph (2), the term "parachute payment" does not include—
(i) any payment to a disqualified individual with respect to a corporation which (immediately before the change described in paragraph (2)(A)(i)) was a small business corporation (as defined in section 1361(b) but without regard to paragraph (1)(C) thereof), and
(ii) any payment to a disqualified individual with respect to a corporation (other than a corporation described in clause (i)) if—
(I) immediately before the change described in paragraph (2)(A)(i), no stock in such corporation was readily tradeable on an established securities market or otherwise, and
(II) the shareholder approval requirements of subparagraph (B) are met with respect to such payment.
The Secretary may, by regulations, prescribe that the requirements of subclause (I) of clause (ii) are not met where a substantial portion of the assets of any entity consists (directly or indirectly) of stock in such corporation and interests in such other entity are readily tradeable on an established securities market, or otherwise. Stock described in section 1504(a)(4) shall not be taken into account under clause (ii)(I) if the payment does not adversely affect the shareholder's redemption and liquidation rights.
(B) Shareholder approval requirements
The shareholder approval requirements of this subparagraph are met with respect to any payment if—
(i) such payment was approved by a vote of the persons who owned, immediately before the change described in paragraph (2)(A)(i), more than 75 percent of the voting power of all outstanding stock of the corporation, and
(ii) there was adequate disclosure to shareholders of all material facts concerning all payments which (but for this paragraph) would be parachute payments with respect to a disqualified individual.
The regulations prescribed under subsection (e) shall include regulations providing for the application of this subparagraph in the case of shareholders which are not individuals (including the treatment of nonvoting interests in an entity which is a shareholder) and where an entity holds a de minimis amount of stock in the corporation.
(6) Exemption for payments under qualified plans
Notwithstanding paragraph (2), the term "parachute payment" shall not include any payment to or from—
(A) a plan described in section 401(a) which includes a trust exempt from tax under section 501(a),
(B) an annuity plan described in section 403(a),
(C) a simplified employee pension (as defined in section 408(k)), or
(D) a simple retirement account described in section 408(p).
(c) Disqualified individuals
For purposes of this section, the term "disqualified individual" means any individual who is—
(1) an employee, independent contractor, or other person specified in regulations by the Secretary who performs personal services for any corporation, and
(2) is an officer, shareholder, or highly-compensated individual.
For purposes of this section, a personal service corporation (or similar entity) shall be treated as an individual. For purposes of paragraph (2), the term "highly-compensated individual" only includes an individual who is (or would be if the individual were an employee) a member of the group consisting of the highest paid 1 percent of the employees of the corporation or, if less, the highest paid 250 employees of the corporation.
(d) Other definitions and special rules
For purposes of this section—
(1) Annualized includible compensation for base period
The term "annualized includible compensation for the base period" means the average annual compensation which—
(A) was payable by the corporation with respect to which the change in ownership or control described in paragraph (2)(A) of subsection (b) occurs, and
(B) was includible in the gross income of the disqualified individual for taxable years in the base period.
(2) Base period
The term "base period" means the period consisting of the most recent 5 taxable years ending before the date on which the change in ownership or control described in paragraph (2)(A) of subsection (b) occurs (or such portion of such period during which the disqualified individual performed personal services for the corporation).
(3) Property transfers
Any transfer of property—
(A) shall be treated as a payment, and
(B) shall be taken into account as its fair market value.
(4) Present value
Present value shall be determined by using a discount rate equal to 120 percent of the applicable Federal rate (determined under section 1274(d)), compounded semiannually.
(5) Treatment of affiliated groups
Except as otherwise provided in regulations, all members of the same affiliated group (as defined in section 1504, determined without regard to section 1504(b)) shall be treated as 1 corporation for purposes of this section. Any person who is an officer of any member of such group shall be treated as an officer of such 1 corporation.
(e) Special rule for application to employers participating in the Troubled Assets Relief Program
(1) In general
In the case of the severance from employment of a covered executive of an applicable employer during the period during which the authorities under section 101(a) of the Emergency Economic Stabilization Act of 2008 are in effect (determined under section 120 of such Act), this section shall be applied to payments to such executive with the following modifications:
(A) Any reference to a disqualified individual (other than in subsection (c)) shall be treated as a reference to a covered executive.
(B) Any reference to a change described in subsection (b)(2)(A)(i) shall be treated as a reference to an applicable severance from employment of a covered executive, and any reference to a payment contingent on such a change shall be treated as a reference to any payment made during an applicable taxable year of the employer on account of such applicable severance from employment.
(C) Any reference to a corporation shall be treated as a reference to an applicable employer.
(D) The provisions of subsections (b)(2)(C), (b)(4), (b)(5), and (d)(5) shall not apply.
(2) Definitions and special rules
For purposes of this subsection:
(A) Definitions
Any term used in this subsection which is also used in section 162(m)(5) shall have the meaning given such term by such section.
(B) Applicable severance from employment
The term "applicable severance from employment" means any severance from employment of a covered executive—
(i) by reason of an involuntary termination of the executive by the employer, or
(ii) in connection with any bankruptcy, liquidation, or receivership of the employer.
(C) Coordination and other rules
(i) In general
If a payment which is treated as a parachute payment by reason of this subsection is also a parachute payment determined without regard to this subsection, this subsection shall not apply to such payment.
(ii) Regulatory authority
The Secretary may prescribe such guidance, rules, or regulations as are necessary—
(I) to carry out the purposes of this subsection and the Emergency Economic Stabilization Act of 2008, including the extent to which this subsection applies in the case of any acquisition, merger, or reorganization of an applicable employer,
(II) to apply this section and section 4999 in cases where one or more payments with respect to any individual are treated as parachute payments by reason of this subsection, and other payments with respect to such individual are treated as parachute payments under this section without regard to this subsection, and
(III) to prevent the avoidance of the application of this section through the mischaracterization of a severance from employment as other than an applicable severance from employment.
(f) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section (including regulations for the application of this section in the case of related corporations and in the case of personal service corporations).
(Added
Editorial Notes
References in Text
The Emergency Economic Stabilization Act of 2008, referred to in subsec. (e)(1), (2)(C)(ii)(I), is
Amendments
2008—Subsecs. (e), (f).
1996—Subsec. (b)(6)(D).
1988—Subsec. (b)(5)(A).
Subsec. (b)(5)(B).
Subsec. (d)(5).
1986—Subsec. (b)(2)(A).
Subsec. (b)(2)(B).
Subsec. (b)(4).
Subsec. (b)(5).
Subsec. (b)(6).
Subsec. (c).
Subsec. (d)(2).
Subsec. (d)(5).
Statutory Notes and Related Subsidiaries
Effective Date of 2008 Amendment
Effective Date of 1996 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by
Effective Date of 1985 Amendment
Amendment by
Effective Date
"(1)
"(2)
Plan Amendments Not Required Until January 1, 1998
For provisions directing that if any amendments made by subtitle D [§§1401–1465] of title I of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
§280H. Limitation on certain amounts paid to employee-owners by personal service corporations electing alternative taxable years
(a) General rule
If—
(1) an election by a personal service corporation under section 444 is in effect for a taxable year, and
(2) such corporation does not meet the minimum distribution requirements of subsection (c) for such taxable year,
then the deduction otherwise allowed under this chapter for applicable amounts paid or incurred by such corporation to employee-owners shall not exceed the maximum deductible amount. The preceding sentence shall not apply for purposes of subchapter G (relating to personal holding companies).
(b) Carryover of nondeductible amounts
If any amount is not allowed as a deduction for a taxable year under subsection (a), such amount shall be treated as paid or incurred in the succeeding taxable year.
(c) Minimum distribution requirement
For purposes of this section—
(1) In general
A personal service corporation meets the minimum distribution requirements of this subsection if the applicable amounts paid or incurred during the deferral period of the taxable year (determined without regard to subsection (b)) equal or exceed the lesser of—
(A) the product of—
(i) the applicable amounts paid during the preceding taxable year, divided by the number of months in such taxable year, multiplied by
(ii) the number of months in the deferral period of the preceding taxable year, or
(B) the applicable percentage of the adjusted taxable income for the deferral period of the taxable year.
(2) Applicable percentage
The term "applicable percentage" means the percentage (not in excess of 95 percent) determined by dividing—
(A) the applicable amounts paid or incurred during the 3 taxable years immediately preceding the taxable year, by
(B) the adjusted taxable income of such corporation for such 3 taxable years.
(d) Maximum deductible amount
For purposes of this section, the term "maximum deductible amount" means the sum of—
(1) the applicable amounts paid during the deferral period, plus
(2) an amount equal to the product of—
(A) the amount determined under paragraph (1), divided by the number of months in the deferral period, multiplied by
(B) the number of months in the nondeferral period.
(e) Disallowance of net operating loss carrybacks
No net operating loss carryback shall be allowed to (or from) any taxable year of a personal service corporation to which an election under section 444 applies.
(f) Other definitions and special rules
For purposes of this section—
(1) Applicable amount
The term "applicable amount" means any amount paid to an employee-owner which is includible in the gross income of such employee, other than—
(A) any gain from the sale or exchange of property between the owner-employee and the corporation, or
(B) any dividend paid by the corporation.
(2) Employee-owner
The term "employee-owner" has the meaning given such term by section 269A(b)(2) (as modified by section 441(i)(2)).
(3) Nondeferral and deferral periods
(A) Deferral period
The term "deferral period" has the meaning given to such term by section 444(b)(4).
(B) Nondeferral period
The term "nondeferral period" means the portion of the taxable year of the personal service corporation which occurs after the portion of such year constituting the deferral period.
(4) Adjusted taxable income
The term "adjusted taxable income" means taxable income determined without regard to—
(A) any amount paid to an employee-owner which is includible in the gross income of such employee-owner, and
(B) any net operating loss carryover to the extent such carryover is attributable to amounts described in subparagraph (A).
(5) Personal service corporation
The term "personal service corporation" has the meaning given to such term by section 441(i)(2).
(Added
Editorial Notes
Amendments
1988—Subsecs. (c)(1)(A)(i), (d)(1).
Subsec. (f)(2).
Subsec. (f)(4).
Subsec. (f)(5).
Statutory Notes and Related Subsidiaries
Effective Date of 1988 Amendment
Amendment by
Effective Date
Section applicable to taxable years beginning after Dec. 31, 1986, see section 10206(d)(1) of
PART X—TERMINAL RAILROAD CORPORATIONS AND THEIR SHAREHOLDERS
Editorial Notes
Amendments
1962—
§281. Terminal railroad corporations and their shareholders
(a) Computation of taxable income of terminal railroad corporations
(1) In general
In computing the taxable income of a terminal railroad corporation—
(A) such corporation shall not be considered to have received or accrued—
(i) the portion of any liability of any railroad corporation, with respect to related terminal services provided by such corporation, which is discharged by crediting such liability with an amount of related terminal income, or
(ii) the portion of any charge which would be made by such corporation for related terminal services provided by it, but which is not made as a result of taking related terminal income into account in computing such charge; and
(B) no deduction otherwise allowable under this chapter shall be disallowed as a result of any discharge of liability described in subparagraph (A)(i) or as a result of any computation of charges in the manner described in subparagraph (A)(ii).
(2) Limitation
In the case of any taxable year ending after the date of the enactment of this section, paragraph (1) shall not apply to the extent that it would (but for this paragraph) operate to create (or increase) a net operating loss for the terminal railroad corporation for the taxable year.
(b) Computation of taxable income of shareholders
Subject to the limitation in subsection (a)(2), in computing the taxable income of any shareholder of a terminal railroad corporation, no amount shall be considered to have been received or accrued or paid or incurred by such shareholder as a result of any discharge of liability described in subsection (a)(1)(A)(i) or as a result of any computation of charges in the manner described in subsection (a)(1)(A)(ii).
(c) Agreement required
In the case of any taxable year, subsections (a) and (b) shall apply with respect to any discharge of liability described in subsection (a)(1)(A)(i), and to any computation of charges in the manner described in subsection (a)(1)(A)(ii), only if such discharge or computation (as the case may be) was provided for in a written agreement, to which all of the shareholders of the terminal railroad corporation were parties, entered into before the beginning of such taxable year.
(d) Definitions
For purposes of this section—
(1) Terminal railroad corporation
The term "terminal railroad corporation" means a domestic railroad corporation which is not a member, other than as a common parent corporation, of an affiliated group (as defined in section 1504) and—
(A) all of the shareholders of which are rail carriers subject to part A of subtitle IV of title 49;
(B) the primary business of which is the providing of railroad terminal and switching facilities and services to rail carriers subject to part A of subtitle IV of title 49 and to the shippers and passengers of such railroad corporations;
(C) a substantial part of the services of which for the taxable year is rendered to one or more of its shareholders; and
(D) each shareholder of which computes its taxable income on the basis of a taxable year beginning or ending on the same day that the taxable year of the terminal railroad corporation begins or ends.
(2) Related terminal income
The term "related terminal income" means the income (determined in accordance with regulations prescribed by the Secretary) of a terminal railroad corporation derived—
(A) from services or facilities of a character ordinarily and regularly provided by terminal railroad corporations for railroad corporations or for the employees, passengers, or shippers of railroad corporations;
(B) from the use by persons other than railroad corporations of portions of a facility, or a service, which is used primarily for railroad purposes;
(C) from any railroad corporation for services or facilities provided by such terminal railroad corporation in connection with railroad operations; and
(D) from the United States in payment for facilities or services in connection with mail handling.
For purposes of subparagraph (B), a substantial addition, constructed after the date of the enactment of this section, to a facility shall be treated as a separate facility.
(3) Related terminal services
The term "related terminal services" includes only services, and the use of facilities, taken into account in computing related terminal income.
(e) Regulations
The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this section.
(Added
Editorial Notes
References in Text
The date of the enactment of this section, referred to in subsecs. (a)(2), (d)(2), refers to the date of enactment of
Amendments
1995—Subsec. (d)(1)(A), (B).
1978—Subsec. (d)(1)(A).
Subsec. (d)(1)(B).
1976—Subsec. (d)(1)(A).
Subsecs. (e), (f).
Statutory Notes and Related Subsidiaries
Effective Date of 1995 Amendment
Amendment by
Effective Date of 1976 Amendment
Amendment by section 1901(a)(40) of
Effective Date
Internal Revenue Code of 1939; Inclusion of Terminal Railroad Corporations and Their Shareholders Provision
PART XI—SPECIAL RULES RELATING TO CORPORATE PREFERENCE ITEMS
Editorial Notes
Amendments
1982—
§291. Special rules relating to corporate preference items
(a) Reduction in certain preference items, etc.
For purposes of this subtitle, in the case of a corporation—
(1) Section 1250 capital gain treatment
In the case of section 1250 property which is disposed of during the taxable year, 20 percent of the excess (if any) of—
(A) the amount which would be treated as ordinary income if such property was section 1245 property, over
(B) the amount treated as ordinary income under section 1250 (determined without regard to this paragraph),
shall be treated as gain which is ordinary income under section 1250 and shall be recognized notwithstanding any other provision of this title. Under regulations prescribed by the Secretary, the provisions of this paragraph shall not apply to the disposition of any property to the extent section 1250(a) does not apply to such disposition by reason of section 1250(d).
(2) Reduction in percentage depletion
In the case of iron ore and coal (including lignite), the amount allowable as a deduction under section 613 with respect to any property (as defined in section 614) shall be reduced by 20 percent of the amount of the excess (if any) of—
(A) the amount of the deduction allowable under section 613 for the taxable year (determined without regard to this paragraph), over
(B) the adjusted basis of the property at the close of the taxable year (determined without regard to the depletion deduction for the taxable year).
(3) Certain financial institution preference items
The amount allowable as a deduction under this chapter (determined without regard to this section) with respect to any financial institution preference item shall be reduced by 20 percent.
(4) Amortization of pollution control facilities
If an election is made under section 169 with respect to any certified pollution control facility, the amortizable basis of such facility for purposes of such section shall be reduced by 20 percent.
(b) Special rules for treatment of intangible drilling costs and mineral exploration and development costs
For purposes of this subtitle, in the case of a corporation—
(1) In general
The amount allowable as a deduction for any taxable year (determined without regard to this section)—
(A) under section 263(c) in the case of an integrated oil company, or
(B) under section 616(a) or 617(a),
shall be reduced by 30 percent.
(2) Amortization of amounts not allowable as deductions under paragraph (1)
The amount not allowable as a deduction under section 263(c), 616(a), or 617(a) (as the case may be) for any taxable year by reason of paragraph (1) shall be allowable as a deduction ratably over the 60-month period beginning with the month in which the costs are paid or incurred.
(3) Dispositions
For purposes of section 1254, any deduction under paragraph (2) shall be treated as a deduction allowable under section 263(c), 616(a), or 617(a) (whichever is appropriate).
(4) Integrated oil company defined
For purposes of this subsection, the term "integrated oil company" means, with respect to any taxable year, any producer of crude oil to whom subsection (c) of section 613A does not apply by reason of paragraph (2) or (4) of section 613A(d).
(5) Coordination with cost depletion
The portion of the adjusted basis of any property which is attributable to amounts to which paragraph (1) applied shall not be taken into account for purposes of determining depletion under section 611.
(c) Special rules relating to pollution control facilities
For purposes of this subtitle—
(1) Accelerated cost recovery deduction
Section 168 shall apply with respect to that portion of the basis of any property not taken into account under section 169 by reason of subsection (a)(4).
(2) 1250 Recapture
Subsection (a)(1) shall not apply to any section 1250 property which is part of a certified pollution control facility (within the meaning of section 169(d)(1)) with respect to which an election under section 169 was made.
(d) Special rule for real estate investment trusts
In the case of a real estate investment trust (as defined in section 856), the difference between the amounts described in subparagraphs (A) and (B) of subsection (a)(1) shall be reduced to the extent that a capital gain dividend (as defined in section 857(b)(3)(C),1 applied without regard to this section) is treated as paid out of such difference. Any capital gain dividend treated as having been paid out of such difference to a shareholder which is an applicable corporation retains its character in the hands of the shareholder as gain from the disposition of section 1250 property for purposes of applying subsection (a)(1) to such shareholder.
(e) Definitions
For purposes of this section—
(1) Financial institution preference item
The term "financial institution preference item" includes the following:
[(A) Repealed. Pub. L. 101–508, title XI, §11801(c)(12)(B), Nov. 5, 1990, 104 Stat. 1388–527 ]
(B) Interest on debt to carry tax-exempt obligations acquired after December 31, 1982, and before August 8, 1986
(i) In general
In the case of a financial institution which is a bank (as defined in section 585(a)(2)), the amount of interest on indebtedness incurred or continued to purchase or carry obligations acquired after December 31, 1982, and before August 8, 1986, the interest on which is exempt from taxes for the taxable year, to the extent that a deduction would (but for this paragraph or section 265(b)) be allowable with respect to such interest for such taxable year.
(ii) Determination of interest allocable to indebtedness on tax-exempt obligations
Unless the taxpayer (under regulations prescribed by the Secretary) establishes otherwise, the amount determined under clause (i) shall be an amount which bears the same ratio to the aggregate amount allowable (determined without regard to this section and section 265(b)) to the taxpayer as a deduction for interest for the taxable year as—
(I) the taxpayer's average adjusted basis (within the meaning of section 1016) of obligations described in clause (i), bears to
(II) such average adjusted basis for all assets of the taxpayer.
(iii) Interest
For purposes of this subparagraph, the term "interest" includes amounts (whether or not designated as interest) paid in respect of deposits, investment certificates, or withdrawable or repurchasable shares.
(iv) Application of subparagraph to certain obligations issued after August 7, 1986
For application of this subparagraph to certain obligations issued after August 7, 1986, see section 265(b)(3). That portion of any obligation not taken into account under paragraph (2)(A) of section 265(b) by reason of paragraph (7) of such section shall be treated for purposes of this section as having been acquired on August 7, 1986.
(2) Section 1245 and 1250 property
The terms "section 1245 property" and "section 1250 property" have the meanings given such terms by sections 1245(a)(3) and 1250(c), respectively.
(Added
Editorial Notes
References in Text
Section 857(b)(3)(C), referred to in subsec. (d), was redesignated section 857(b)(3)(B) by
Amendments
2009—Subsec. (e)(1)(B)(iv).
2007—Subsec. (a)(4), (5).
"(A) '30 percent' for '32 percent' in paragraph (2), and
"(B) '15/23' for '16/23' in paragraph (3).
If all of the stock in the FSC is not held by 1 or more C corporations throughout the taxable year, under regulations, proper adjustments shall be made in the application of the preceding sentence to take into account stock held by persons other than C corporations."
Subsec. (c)(1).
1996—Subsec. (e)(1)(B)(i).
Subsec. (e)(1)(B)(iv), (v).
1990—Subsec. (e)(1)(A).
"(i) the amount which would, but for this section, be allowable as a deduction for the taxable year for a reasonable addition to a reserve for bad debts, over
"(ii) the amount which would have been allowable had such institution maintained its bad debt reserve for all taxable years on the basis of actual experience."
1988—Subsec. (b)(4).
Subsec. (e)(1)(B)(i).
Subsec. (e)(1)(B)(iv), (v).
1986—Subsec. (a).
Subsec. (a)(1)(A).
Subsec. (a)(2).
Subsec. (a)(4).
"(A) '30 percent' for '32 percent' in paragraph (2), and
"(B) '15/23' for '16/23' in paragraph (3)."
Subsec. (b)(1).
Subsec. (b)(2) to (6).
Subsec. (c)(1).
Subsec. (e)(1)(A).
Subsec. (e)(1)(B).
Subsec. (e)(1)(B)(i).
Subsec. (e)(1)(B)(ii).
Subsec. (e)(1)(B)(iv).
Subsec. (e)(2).
1984—Subsec. (a).
Subsec. (a)(1).
Subsec. (a)(1)(B).
Subsec. (a)(3).
Subsec. (a)(4).
"(4)
Subsec. (a)(5).
Subsec. (b)(1).
Subsec. (b)(2)(B)(ii).
Subsec. (b)(6).
Subsec. (e)(1)(B)(iii).
1983—Subsec. (a)(1).
1982—Subsec. (a).
Subsec. (b).
Subsec. (e)(2), (3).
Statutory Notes and Related Subsidiaries
Effective Date of 2009 Amendment
Amendment by
Effective Date of 1996 Amendment
Amendment by section 1602(b)(1) of
Amendment by section 1616(b)(5) of
Effective Date of 1988 Amendments
Amendment by
Amendment by
Effective Date of 1986 Amendment
Amendment by section 201(d)(5) of
Amendment by section 201(d)(5) of
Amendment by section 411(a), (b)(2)(C)(ii) of
Amendment by section 901(b)(4), (d)(4)(C) of
Amendment by section 902(c) of
Amendment by sections 1804(k)(3)(A), 1854(c)(1), and 1876(b)(1) of
Effective Date of 1984 Amendment
"(1)
"(2) 1250
"(3)
"(4)
Amendment by section 712 of
Effective Date of 1983 Amendment
Amendment by
Effective Date of 1982 Amendment
Amendment by
Effective Date
"(1)
"(2) 1250
"(3)
"(4)
"(5)
"(6)
Savings Provision
For provisions that nothing in amendment by
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of