26 U.S.C. § 40A (2024) — Title 26: INTERNAL REVENUE CODE / Chapter 1 / Section 40A: Biodiesel and renewable diesel used as fuel
Biodiesel and renewable diesel used as fuel
Status: in_force

(a) General rule

For purposes of section 38, the biodiesel fuels credit determined under this section for the taxable year is an amount equal to the sum of—

(1) the biodiesel mixture credit, plus

(2) the biodiesel credit, plus

(3) in the case of an eligible small agri-biodiesel producer, the small agri-biodiesel producer credit.

(b) Definition of biodiesel mixture credit, biodiesel credit, and small agri-biodiesel producer credit

For purposes of this section—

(1) Biodiesel mixture credit

(A) In general

The biodiesel mixture credit of any taxpayer for any taxable year is $1.00 for each gallon of biodiesel used by the taxpayer in the production of a qualified biodiesel mixture.

(B) Qualified biodiesel mixture

The term "qualified biodiesel mixture" means a mixture of biodiesel and diesel fuel (as defined in section 4083(a)(3)), determined without regard to any use of kerosene, which—

(i) is sold by the taxpayer producing such mixture to any person for use as a fuel, or

(ii) is used as a fuel by the taxpayer producing such mixture.

(C) Sale or use must be in trade or business, etc.

Biodiesel used in the production of a qualified biodiesel mixture shall be taken into account—

(i) only if the sale or use described in subparagraph (B) is in a trade or business of the taxpayer, and

(ii) for the taxable year in which such sale or use occurs.

(D) Casual off-farm production not eligible

No credit shall be allowed under this section with respect to any casual off-farm production of a qualified biodiesel mixture.

(2) Biodiesel credit

(A) In general

The biodiesel credit of any taxpayer for any taxable year is $1.00 for each gallon of biodiesel which is not in a mixture with diesel fuel and which during the taxable year—

(i) is used by the taxpayer as a fuel in a trade or business, or

(ii) is sold by the taxpayer at retail to a person and placed in the fuel tank of such person's vehicle.

(B) User credit not to apply to biodiesel sold at retail

No credit shall be allowed under subparagraph (A)(i) with respect to any biodiesel which was sold in a retail sale described in subparagraph (A)(ii).

(3) Certification for biodiesel

No credit shall be allowed under paragraph (1) or (2) of subsection (a) unless the taxpayer obtains a certification (in such form and manner as prescribed by the Secretary) from the producer or importer of the biodiesel which identifies the product produced and the percentage of biodiesel and agri-biodiesel in the product.

(4) Small agri-biodiesel producer credit

(A) In general

The small agri-biodiesel producer credit of any eligible small agri-biodiesel producer for any taxable year is 10 cents for each gallon of qualified agri-biodiesel production of such producer.

(B) Qualified agri-biodiesel production

For purposes of this paragraph, the term "qualified agri-biodiesel production" means any agri-biodiesel which is produced by an eligible small agri-biodiesel producer, and which during the taxable year—

(i) is sold by such producer to another person—

(I) for use by such other person in the production of a qualified biodiesel mixture in such other person's trade or business (other than casual off-farm production),

(II) for use by such other person as a fuel in a trade or business, or

(III) who sells such agri-biodiesel at retail to another person and places such agri-biodiesel in the fuel tank of such other person, or

(ii) is used or sold by such producer for any purpose described in clause (i).

(C) Limitation

The qualified agri-biodiesel production of any producer for any taxable year shall not exceed 15,000,000 gallons.

(c) Coordination with credit against excise tax

The amount of the credit determined under this section with respect to any biodiesel shall be properly reduced to take into account any benefit provided with respect to such biodiesel solely by reason of the application of section 6426 or 6427(e).

(d) Definitions and special rules

For purposes of this section—

(1) Biodiesel

The term "biodiesel" means the monoalkyl esters of long chain fatty acids derived from plant or animal matter which meet—

(A) the registration requirements for fuels and fuel additives established by the Environmental Protection Agency under section 211 of the Clean Air Act (42 U.S.C. 7545), and

(B) the requirements of the American Society of Testing and Materials D6751.

Such term shall not include any liquid with respect to which a credit may be determined under section 40 or 40B.

(2) Agri-biodiesel

The term "agri-biodiesel" means biodiesel derived solely from virgin oils, including esters derived from virgin vegetable oils from corn, soybeans, sunflower seeds, cottonseeds, canola, crambe, rapeseeds, safflowers, flaxseeds, rice bran, mustard seeds, and camelina, and from animal fats.

(3) Mixture or biodiesel not used as a fuel, etc.

(A) Mixtures

If—

(i) any credit was determined under this section with respect to biodiesel used in the production of any qualified biodiesel mixture, and

(ii) any person—

(I) separates the biodiesel from the mixture, or

(II) without separation, uses the mixture other than as a fuel,

then there is hereby imposed on such person a tax equal to the product of the rate applicable under subsection (b)(1)(A) and the number of gallons of such biodiesel in such mixture.

(B) Biodiesel

If—

(i) any credit was determined under this section with respect to the retail sale of any biodiesel, and

(ii) any person mixes such biodiesel or uses such biodiesel other than as a fuel,

then there is hereby imposed on such person a tax equal to the product of the rate applicable under subsection (b)(2)(A) and the number of gallons of such biodiesel.

(C) Producer credit

If—

(i) any credit was determined under subsection (a)(3), and

(ii) any person does not use such fuel for a purpose described in subsection (b)(4)(B),

then there is hereby imposed on such person a tax equal to 10 cents a gallon for each gallon of such agri-biodiesel.

(D) Applicable laws

All provisions of law, including penalties, shall, insofar as applicable and not inconsistent with this section, apply in respect of any tax imposed under subparagraph (A) or (B) as if such tax were imposed by section 4081 and not by this chapter.

(4) Pass-thru in the case of estates and trusts

Under regulations prescribed by the Secretary, rules similar to the rules of subsection (d) of section 52 shall apply.

(5) Limitation to biodiesel with connection to the United States

No credit shall be determined under this section with respect to any biodiesel which is produced outside the United States for use as a fuel outside the United States. For purposes of this paragraph, the term "United States" includes any possession of the United States.

(e) Definitions and special rules for small agri-biodiesel producer credit

For purposes of this section—

(1) Eligible small agri-biodiesel producer

The term "eligible small agri-biodiesel producer" means a person who, at all times during the taxable year, has a productive capacity for agri-biodiesel not in excess of 60,000,000 gallons.

(2) Aggregation rule

For purposes of the 15,000,000 gallon limitation under subsection (b)(4)(C) and the 60,000,000 gallon limitation under paragraph (1), all members of the same controlled group of corporations (within the meaning of section 267(f)) and all persons under common control (within the meaning of section 52(b) but determined by treating an interest of more than 50 percent as a controlling interest) shall be treated as 1 person.

(3) Partnership, S corporation, and other pass-thru entities

In the case of a partnership, trust, S corporation, or other pass-thru entity, the limitations contained in subsection (b)(4)(C) and paragraph (1) shall be applied at the entity level and at the partner or similar level.

(4) Allocation

For purposes of this subsection, in the case of a facility in which more than 1 person has an interest, productive capacity shall be allocated among such persons in such manner as the Secretary may prescribe.

(5) Regulations

The Secretary may prescribe such regulations as may be necessary—

(A) to prevent the credit provided for in subsection (a)(3) from directly or indirectly benefiting any person with a direct or indirect productive capacity of more than 60,000,000 gallons of agri-biodiesel during the taxable year, or

(B) to prevent any person from directly or indirectly benefiting with respect to more than 15,000,000 gallons during the taxable year.

(6) Allocation of small agri-biodiesel credit to patrons of cooperative

(A) Election to allocate

(i) In general

In the case of a cooperative organization described in section 1381(a), any portion of the credit determined under subsection (a)(3) for the taxable year may, at the election of the organization, be apportioned pro rata among patrons of the organization on the basis of the quantity or value of business done with or for such patrons for the taxable year.

(ii) Form and effect of election

An election under clause (i) 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. Such election shall not take effect unless the organization designates the apportionment as such in a written notice mailed to its patrons during the payment period described in section 1382(d).

(B) Treatment of organizations and patrons

(i) Organizations

The amount of the credit not apportioned to patrons pursuant to subparagraph (A) shall be included in the amount determined under subsection (a)(3) for the taxable year of the organization.

(ii) Patrons

The amount of the credit apportioned to patrons pursuant to subparagraph (A) shall be included in the amount determined under such subsection for the first taxable year of each patron ending on or after the last day of the payment period (as defined in section 1382(d)) for the taxable year of the organization or, if earlier, for the taxable year of each patron ending on or after the date on which the patron receives notice from the cooperative of the apportionment.

(iii) Special rules for decrease in credits for taxable year

If the amount of the credit of the organization determined under such subsection for a taxable year is less than the amount of such credit shown on the return of the organization for such year, an amount equal to the excess of—

(I) such reduction, over

(II) the amount not apportioned to such patrons under subparagraph (A) for the taxable year,

 shall be treated as an increase in tax imposed by this chapter on the organization. Such increase shall not be treated as tax imposed by this chapter for purposes of determining the amount of any credit under this chapter or for purposes of section 55.

(f) Renewable diesel

For purposes of this title—

(1) Treatment in the same manner as biodiesel

Except as provided in paragraph (2), renewable diesel shall be treated in the same manner as biodiesel.

(2) Exception

Subsection (b)(4) shall not apply with respect to renewable diesel.

(3) Renewable diesel defined

The term "renewable diesel" means liquid fuel derived from biomass which meets—

(A) the registration requirements for fuels and fuel additives established by the Environmental Protection Agency under section 211 of the Clean Air Act (42 U.S.C. 7545), and

(B) the requirements of the American Society of Testing and Materials D975 or D396, or other equivalent standard approved by the Secretary.

Such term shall not include any liquid with respect to which a credit may be determined under section 40. Such term does not include any fuel derived from coprocessing biomass with a feedstock which is not biomass. For purposes of this paragraph, the term "biomass" has the meaning given such term by section 45K(c)(3).

(g) Termination

This section shall not apply to any sale or use after December 31, 2024.

(Added Pub. L. 108–357, title III, §302(a), Oct. 22, 2004, 118 Stat. 1463; amended Pub. L. 109–58, title XIII, §§1344(a), 1345(a)–(d), 1346(a), (b)(1), Aug. 8, 2005, 119 Stat. 1052–1055; Pub. L. 109–135, title IV, §412(h), Dec. 21, 2005, 119 Stat. 2637; Pub. L. 110–234, title XV, §15321(f), May 22, 2008, 122 Stat. 1514; Pub. L. 110–246, §4(a), title XV, §15321(f), June 18, 2008, 122 Stat. 1664, 2276; Pub. L. 110–343, div. B, title II, §§202(a), (b)(1), (b)(3)–(f), 203(b), Oct. 3, 2008, 122 Stat. 3832, 3833; Pub. L. 111–312, title VII, §701(a), Dec. 17, 2010, 124 Stat. 3310; Pub. L. 112–240, title IV, §405(a), Jan. 2, 2013, 126 Stat. 2340; Pub. L. 113–295, div. A, title I, §153(a), Dec. 19, 2014, 128 Stat. 4021; Pub. L. 114–113, div. Q, title I, §185(a)(1), Dec. 18, 2015, 129 Stat. 3073; Pub. L. 115–123, div. D, title I, §40407(a)(1), Feb. 9, 2018, 132 Stat. 149; Pub. L. 116–94, div. Q, title I, §121(a)(1), Dec. 20, 2019, 133 Stat. 3230; Pub. L. 117–169, title I, §§13201(a), 13203(c), Aug. 16, 2022, 136 Stat. 1931, 1934.)

Editorial Notes

Codification

Pub. L. 110–234 and Pub. L. 110–246 made identical amendments to this section. The amendments by Pub. L. 110–234 were repealed by section 4(a) of Pub. L. 110–246.

Amendments

2022—Subsec. (d)(1). Pub. L. 117–169, §13203(c)(1), inserted "or 40B" after "determined under section 40" in concluding provisions.

Subsec. (f)(4). Pub. L. 117–169, §13203(c)(2), struck out par. (4) which defined renewable diesel to include certain aviation fuel.

Subsec. (g). Pub. L. 117–169, §13201(a), substituted "December 31, 2024" for "December 31, 2022".

2019—Subsec. (g). Pub. L. 116–94 substituted "December 31, 2022" for "December 31, 2017".

2018—Subsec. (g). Pub. L. 115–123 substituted "December 31, 2017" for "December 31, 2016".

2015—Subsec. (g). Pub. L. 114–113 substituted "December 31, 2016" for "December 31, 2014".

2014—Subsec. (g). Pub. L. 113–295 substituted "December 31, 2014" for "December 31, 2013".

2013—Subsec. (g). Pub. L. 112–240 substituted "December 31, 2013" for "December 31, 2011".

2010—Subsec. (g). Pub. L. 111–312 substituted "December 31, 2011" for "December 31, 2009".

2008—Subsec. (b)(1)(A), (2)(A). Pub. L. 110–343, §202(b)(1), substituted "$1.00" for "50 cents".

Subsec. (b)(3) to (5). Pub. L. 110–343, §202(b)(3)(A), redesignated pars. (4) and (5) as (3) and (4), respectively, and struck out heading and text of former par. (3). Text read as follows: "In the case of any biodiesel which is agri-biodiesel, paragraphs (1)(A) and (2)(A) shall be applied by substituting '$1.00' for '50 cents'."

Subsec. (d)(1). Pub. L. 110–246, §15321(f)(1), inserted concluding provisions.

Subsec. (d)(2). Pub. L. 110–343, §202(f), substituted "mustard seeds, and camelina" for "and mustard seeds".

Subsec. (d)(3)(C)(ii). Pub. L. 110–343, §202(b)(3)(D), substituted "subsection (b)(4)(B)" for "subsection (b)(5)(B)".

Subsec. (d)(5). Pub. L. 110–343, §203(b), added par. (5).

Subsec. (e)(2), (3). Pub. L. 110–343, §202(b)(3)(C), substituted "subsection (b)(4)(C)" for "subsection (b)(5)(C)".

Subsec. (f)(2). Pub. L. 110–343, §202(b)(3)(B), amended heading and text of par. (2) generally. Prior to amendment, text read as follows:

"(A) Rate of credit.—Subsections (b)(1)(A) and (b)(2)(A) shall be applied with respect to renewable diesel by substituting '$1.00' for '50 cents'.

"(B) Nonapplication of certain credits.—Subsections (b)(3) and (b)(5) shall not apply with respect to renewable diesel."

Subsec. (f)(3). Pub. L. 110–343, §202(d), in introductory provisions, struck out "(as defined in section 45K(c)(3))" after "derived from biomass" and, in concluding provisions, inserted at end "Such term does not include any fuel derived from coprocessing biomass with a feedstock which is not biomass. For purposes of this paragraph, the term 'biomass' has the meaning given such term by section 45K(c)(3)."

Pub. L. 110–343, §202(c)(1), (2), in introductory provisions, substituted "liquid fuel" for "diesel fuel" and struck out "using a thermal depolymerization process" before "which meets—".

Pub. L. 110–246, §15321(f)(2), inserted concluding provisions.

Subsec. (f)(3)(B). Pub. L. 110–343, §202(c)(3), inserted ", or other equivalent standard approved by the Secretary" before period at end.

Subsec. (f)(4). Pub. L. 110–343, §202(e), added par. (4).

Subsec. (g). Pub. L. 110–343, §202(a), substituted "December 31, 2009" for "December 31, 2008".

2005—Pub. L. 109–58, §1346(b)(1), inserted "and renewable diesel" after "Biodiesel" in section catchline.

Subsec. (a). Pub. L. 109–58, §1345(a), reenacted heading without change and amended text of subsec. (a) generally. Prior to amendment, text read as follows: "For purposes of section 38, the biodiesel fuels credit determined under this section for the taxable year is an amount equal to the sum of—

"(1) the biodiesel mixture credit, plus

"(2) the biodiesel credit."

Subsec. (b). Pub. L. 109–58, §1345(d)(2), substituted ", biodiesel credit, and small agri-biodiesel producer credit" for "and biodiesel credit" in heading.

Subsec. (b)(4). Pub. L. 109–58, §1345(d)(1), substituted "paragraph (1) or (2) of subsection (a)" for "this section".

Subsec. (b)(5). Pub. L. 109–58, §1345(b), added par. (5).

Subsec. (b)(5)(B). Pub. L. 109–135 struck out "(determined without regard to the last sentence of subsection (d)(2))" after "any agri-biodiesel" in introductory provisions.

Subsec. (d)(3)(C), (D). Pub. L. 109–58, §1345(d)(3), added subpar. (C) and redesignated former subpar. (C) as (D). The words following "subsection (b)(5)(B)," in subpar. (C) are shown as a flush provision notwithstanding directory language showing them as part of cl. (ii), to reflect the probable intent of Congress.

Subsec. (e). Pub. L. 109–58, §1345(c), added subsec. (e). The words following "subparagraph (A) for the taxable year," in subsec. (e)(6)(B)(iii) are shown as a flush provision notwithstanding directory language showing them as part of subcl. (II), to reflect the probable intent of Congress. Former subsec. (e) redesignated (f).

Pub. L. 109–58, §1344(a), substituted "2008" for "2006".

Subsec. (f). Pub. L. 109–58, §1346(a), added subsec. (f). Former subsec. (f) redesignated (g).

Pub. L. 109–58, §1345(c), redesignated subsec. (e) as (f).

Subsec. (g). Pub. L. 109–58, §1346(a), redesignated subsec. (f) as (g).

Statutory Notes and Related Subsidiaries

Effective Date of 2022 Amendment

Pub. L. 117–169, title I, §13201(f), Aug. 16, 2022, 136 Stat. 1932, provided that: "The amendments made by this section [amending this section and sections 6426 and 6427 of this title] shall apply to fuel sold or used after December 31, 2021."

Amendment by section 13203(c) of Pub. L. 117–169 applicable to fuel sold or used after Dec. 31, 2022, see section 13203(f) of Pub. L. 117–169, set out as an Effective Date note under section 40B of this title.

Effective Date of 2019 Amendment

Pub. L. 116–94, div. Q, title I, §121(a)(2), Dec. 20, 2019, 133 Stat. 3230, provided that: "The amendment made by this subsection [amending this section] shall apply to fuel sold or used after December 31, 2017."

Effective Date of 2018 Amendment

Pub. L. 115–123, div. D, title I, §40407(a)(2), Feb. 9, 2018, 132 Stat. 149, provided that: "The amendment made by this subsection [amending this section] shall apply to fuel sold or used after December 31, 2016."

Effective Date of 2015 Amendment

Pub. L. 114–113, div. Q, title I, §185(a)(2), Dec. 18, 2015, 129 Stat. 3073, provided that: "The amendment made by this subsection [amending this section] shall apply to fuel sold or used after December 31, 2014."

Effective Date of 2014 Amendment

Pub. L. 113–295, div. A, title I, §153(b), Dec. 19, 2014, 128 Stat. 4021, provided that: "The amendment made by this section [amending this section] shall apply to fuel sold or used after December 31, 2013."

Effective Date of 2013 Amendment

Pub. L. 112–240, title IV, §405(c), Jan. 2, 2013, 126 Stat. 2340, provided that: "The amendments made by this section [amending this section and sections 6426 and 6427 of this title] shall apply to fuel sold or used after December 31, 2011."

Effective Date of 2010 Amendment

Pub. L. 111–312, title VII, §701(d), Dec. 17, 2010, 124 Stat. 3310, provided that: "The amendments made by this section [amending this section and sections 6426 and 6427 of this title] shall apply to fuel sold or used after December 31, 2009."

Effective Date of 2008 Amendment

Pub. L. 110–343, div. B, title II, §202(g), Oct. 3, 2008, 122 Stat. 3833, provided that:

"(1) In general.—Except as otherwise provided in this subsection, the amendments made by this section [amending this section and sections 6426 and 6427 of this title] shall apply to fuel produced, and sold or used, after December 31, 2008.

"(2) Coproduction of renewable diesel with petroleum feedstock.—The amendment made by subsection (d) [amending this section] shall apply to fuel produced, and sold or used, after the date of the enactment of this Act [Oct. 3, 2008]."

Amendment by section 203(b) of Pub. L. 110–343 applicable to claims for credit or payment made on or after May 15, 2008, see section 203(d) of Pub. L. 110–343, set out as a note under section 40 of this title.

Amendment of this section and repeal of Pub. L. 110–234 by Pub. L. 110–246 effective May 22, 2008, the date of enactment of Pub. L. 110–234, except as otherwise provided, see section 4 of Pub. L. 110–246, set out as an Effective Date note under section 8701 of Title 7, Agriculture.

Amendment by section 15321(f) of Pub. L. 110–246 applicable to fuel produced after Dec. 31, 2008, see section 15321(g) of Pub. L. 110–246, set out as a note under section 40 of this title.

Effective Date of 2005 Amendment

Pub. L. 109–58, title XIII, §1344(b), Aug. 8, 2005, 119 Stat. 1052, provided that: "The amendments made by this section [amending this section and sections 6426 and 6427 of this title] shall take effect on the date of the enactment of this Act [Aug. 8, 2005]."

Pub. L. 109–58, title XIII, §1345(e), Aug. 8, 2005, 119 Stat. 1055, provided that: "The amendments made by this section [amending this section] shall apply to taxable years ending after the date of the enactment of this Act [Aug. 8, 2005]."

Pub. L. 109–58, title XIII, §1346(c), Aug. 8, 2005, 119 Stat. 1056, provided that: "The amendment made by subsection (a) [amending this section] shall apply with respect to fuel sold or used after December 31, 2005."

Effective Date

Section applicable to fuel produced, and sold or used, after Dec. 31, 2004, in taxable years ending after such date, see section 302(d) of Pub. L. 108–357, set out as an Effective Date of 2004 Amendment note under section 38 of this title.
26 U.S.C. § 4961 (2024) — Title 26: INTERNAL REVENUE CODE / Chapter 42 / Section 4961: Abatement of second tier taxes where there is correction
Abatement of second tier taxes where there is correction
Status: in_force

(a) General rule

If any taxable event is corrected during the correction period for such event, then any second tier tax imposed with respect to such event (including interest, additions to the tax, and additional amounts) shall not be assessed, and if assessed the assessment shall be abated, and if collected shall be credited or refunded as an overpayment.

(b) Supplemental proceeding

If the determination by a court that the taxpayer is liable for a second tier tax has become final, such court shall have jurisdiction to conduct any necessary supplemental proceeding to determine whether the taxable event was corrected during the correction period. Such a supplemental proceeding may be begun only during the period which ends on the 90th day after the last day of the correction period. Where such a supplemental proceeding has begun, the reference in the second sentence of section 6213(a) to a final decision of the Tax Court shall be treated as including a final decision in such supplemental proceeding.

(c) Suspension of period of collection for second tier tax

(1) Proceeding in District Court or United States Court of Federal Claims

If, not later than 90 days after the day on which the second tier tax is assessed, the first tier tax is paid in full and a claim for refund of the amount so paid is filed, no levy or proceeding in court for the collection of the second tier tax shall be made, begun, or prosecuted until a final resolution of a proceeding begun as provided in paragraph (2) (and of any supplemental proceeding with respect thereto under subsection (b)). Notwithstanding section 7421(a), the collection by levy or proceeding may be enjoined during the time such prohibition is in force by a proceeding in the proper court.

(2) Suit must be brought to determine liability

If, within 90 days after the day on which his claim for refund is denied, the person against whom the second tier tax was assessed fails to begin a proceeding described in section 7422 for the determination of his liability for such tax, paragraph (1) shall cease to apply with respect to such tax, effective on the day following the close of the 90-day period referred to in this paragraph.

(3) Suspension of running of period of limitations on collection

The running of the period of limitations provided in section 6502 on the collection by levy or by a proceeding in court with respect to any second tier tax described in paragraph (1) shall be suspended for the period during which the Secretary is prohibited from collecting by levy or a proceeding in court.

(4) Jeopardy collection

If the Secretary makes a finding that the collection of the second tier tax is in jeopardy, nothing in this subsection shall prevent the immediate collection of such tax.

(Added Pub. L. 96–596, §2(c)(1), Dec. 24, 1980, 94 Stat. 3472; amended Pub. L. 99–514, title XVIII, §1899A(50), Oct. 22, 1986, 100 Stat. 2961; Pub. L. 115–141, div. U, title IV, §401(a)(325)(C), Mar. 23, 2018, 132 Stat. 1200.)

Editorial Notes

Amendments

2018—Subsec. (c)(1). Pub. L. 115–141 substituted "United States Court of Federal Claims" for "United States Claims Court" in heading.

1986—Subsec. (c)(1). Pub. L. 99–514 substituted "United States Claims Court" for "Court of Claims" in heading.

Statutory Notes and Related Subsidiaries

Effective Date

Pub. L. 96–596, §2(d), Dec. 24, 1980, 94 Stat. 3474, as amended by Pub. L. 99–514, §2, Oct. 22, 1986, 100 Stat. 2095, provided that:

"(1) First tier taxes.—The amendments made by this section [enacting this section and section 4962 of this title and amending sections 4941 to 4945, 4951, 4952, 4971, 4975, 6213, 6214, 6503, and 7422 of this title] with respect to any first tier tax shall take effect as if included in the Internal Revenue Code of 1986 [formerly I.R.C. 1954] when such tax was first imposed.

"(2) Second tier taxes.—The amendments made by this section with respect to any second tier tax shall apply only with respect to taxes assessed after the date of the enactment of this Act [Dec. 24, 1980]. Nothing in the preceding sentence shall be construed to permit the assessment of a tax in a case to which, on the date of the enactment of this Act, the doctrine of res judicata applies.

"(3) First and second tier tax.—For purposes of this subsection, the terms 'first tier tax' and 'second tier tax' have the respective meanings given to such terms by section 4962 of the Internal Revenue Code of 1986."
26 U.S.C. § 1202 (2024) — Title 26: INTERNAL REVENUE CODE / Chapter 1 / Section 1202: Partial exclusion for gain from certain small business stock
Partial exclusion for gain from certain small business stock
Status: in_force

(a) Exclusion

(1) In general

In the case of a taxpayer other than a corporation, gross income shall not include 50 percent of any gain from the sale or exchange of qualified small business stock held for more than 5 years.

(2) Empowerment zone businesses

(A) In general

In the case of qualified small business stock acquired after the date of the enactment of this paragraph in a corporation which is a qualified business entity (as defined in section 1397C(b)) during substantially all of the taxpayer's holding period for such stock, paragraph (1) shall be applied by substituting "60 percent" for "50 percent".

(B) Certain rules to apply

Rules similar to the rules of paragraphs (5) and (7) of section 1400B(b) (as in effect before its repeal) shall apply for purposes of this paragraph.

(C) Gain after 2018 not qualified

Subparagraph (A) shall not apply to gain attributable to periods after December 31, 2018.

(D) Treatment of DC zone

The District of Columbia Enterprise Zone shall not be treated as an empowerment zone for purposes of this paragraph.

(3) Special rules for 2009 and certain periods in 2010

In the case of qualified small business stock acquired after the date of the enactment of this paragraph and on or before the date of the enactment of the Creating Small Business Jobs Act of 2010—

(A) paragraph (1) shall be applied by substituting "75 percent" for "50 percent", and

(B) paragraph (2) shall not apply.

In the case of any stock which would be described in the preceding sentence (but for this sentence), the acquisition date for purposes of this subsection shall be the first day on which such stock was held by the taxpayer determined after the application of section 1223.

(4) 100 percent exclusion for stock acquired during certain periods in 2010 and thereafter

In the case of qualified small business stock acquired after the date of the enactment of the Creating Small Business Jobs Act of 2010—

(A) paragraph (1) shall be applied by substituting "100 percent" for "50 percent",

(B) paragraph (2) shall not apply, and

(C) paragraph (7) of section 57(a) shall not apply.

In the case of any stock which would be described in the preceding sentence (but for this sentence), the acquisition date for purposes of this subsection shall be the first day on which such stock was held by the taxpayer determined after the application of section 1223.

(b) Per-issuer limitation on taxpayer's eligible gain

(1) In general

If the taxpayer has eligible gain for the taxable year from 1 or more dispositions of stock issued by any corporation, the aggregate amount of such gain from dispositions of stock issued by such corporation which may be taken into account under subsection (a) for the taxable year shall not exceed the greater of—

(A) $10,000,000 reduced by the aggregate amount of eligible gain taken into account by the taxpayer under subsection (a) for prior taxable years and attributable to dispositions of stock issued by such corporation, or

(B) 10 times the aggregate adjusted bases of qualified small business stock issued by such corporation and disposed of by the taxpayer during the taxable year.

For purposes of subparagraph (B), the adjusted basis of any stock shall be determined without regard to any addition to basis after the date on which such stock was originally issued.

(2) Eligible gain

For purposes of this subsection, the term "eligible gain" means any gain from the sale or exchange of qualified small business stock held for more than 5 years.

(3) Treatment of married individuals

(A) Separate returns

In the case of a separate return by a married individual, paragraph (1)(A) shall be applied by substituting "$5,000,000" for "$10,000,000".

(B) Allocation of exclusion

In the case of any joint return, the amount of gain taken into account under subsection (a) shall be allocated equally between the spouses for purposes of applying this subsection to subsequent taxable years.

(C) Marital status

For purposes of this subsection, marital status shall be determined under section 7703.

(c) Qualified small business stock

For purposes of this section—

(1) In general

Except as otherwise provided in this section, the term "qualified small business stock" means any stock in a C corporation which is originally issued after the date of the enactment of the Revenue Reconciliation Act of 1993, if—

(A) as of the date of issuance, such corporation is a qualified small business, and

(B) except as provided in subsections (f) and (h), such stock is acquired by the taxpayer at its original issue (directly or through an underwriter)—

(i) in exchange for money or other property (not including stock), or

(ii) as compensation for services provided to such corporation (other than services performed as an underwriter of such stock).

(2) Active business requirement; etc.

(A) In general

Stock in a corporation shall not be treated as qualified small business stock unless, during substantially all of the taxpayer's holding period for such stock, such corporation meets the active business requirements of subsection (e) and such corporation is a C corporation.

(B) Special rule for certain small business investment companies

(i) Waiver of active business requirement

Notwithstanding any provision of subsection (e), a corporation shall be treated as meeting the active business requirements of such subsection for any period during which such corporation qualifies as a specialized small business investment company.

(ii) Specialized small business investment company

For purposes of clause (i), the term "specialized small business investment company" means any eligible corporation (as defined in subsection (e)(4)) which is licensed to operate under section 301(d) of the Small Business Investment Act of 1958 (as in effect on May 13, 1993).

(3) Certain purchases by corporation of its own stock

(A) Redemptions from taxpayer or related person

Stock acquired by the taxpayer shall not be treated as qualified small business stock if, at any time during the 4-year period beginning on the date 2 years before the issuance of such stock, the corporation issuing such stock purchased (directly or indirectly) any of its stock from the taxpayer or from a person related (within the meaning of section 267(b) or 707(b)) to the taxpayer.

(B) Significant redemptions

Stock issued by a corporation shall not be treated as qualified business stock if, during the 2-year period beginning on the date 1 year before the issuance of such stock, such corporation made 1 or more purchases of its stock with an aggregate value (as of the time of the respective purchases) exceeding 5 percent of the aggregate value of all of its stock as of the beginning of such 2-year period.

(C) Treatment of certain transactions

If any transaction is treated under section 304(a) as a distribution in redemption of the stock of any corporation, for purposes of subparagraphs (A) and (B), such corporation shall be treated as purchasing an amount of its stock equal to the amount treated as such a distribution under section 304(a).

(d) Qualified small business

For purposes of this section—

(1) In general

The term "qualified small business" means any domestic corporation which is a C corporation if—

(A) the aggregate gross assets of such corporation (or any predecessor thereof) at all times on or after the date of the enactment of the Revenue Reconciliation Act of 1993 and before the issuance did not exceed $50,000,000,

(B) the aggregate gross assets of such corporation immediately after the issuance (determined by taking into account amounts received in the issuance) do not exceed $50,000,000, and

(C) such corporation agrees to submit such reports to the Secretary and to shareholders as the Secretary may require to carry out the purposes of this section.

(2) Aggregate gross assets

(A) In general

For purposes of paragraph (1), the term "aggregate gross assets" means the amount of cash and the aggregate adjusted bases of other property held by the corporation.

(B) Treatment of contributed property

For purposes of subparagraph (A), the adjusted basis of any property contributed to the corporation (or other property with a basis determined in whole or in part by reference to the adjusted basis of property so contributed) shall be determined as if the basis of the property contributed to the corporation (immediately after such contribution) were equal to its fair market value as of the time of such contribution.

(3) Aggregation rules

(A) In general

All corporations which are members of the same parent-subsidiary controlled group shall be treated as 1 corporation for purposes of this subsection.

(B) Parent-subsidiary controlled group

For purposes of subparagraph (A), the term "parent-subsidiary controlled group" means any controlled group of corporations as defined in section 1563(a)(1), except that—

(i) "more than 50 percent" shall be substituted for "at least 80 percent" each place it appears in section 1563(a)(1), and

(ii) section 1563(a)(4) shall not apply.

(e) Active business requirement

(1) In general

For purposes of subsection (c)(2), the requirements of this subsection are met by a corporation for any period if during such period—

(A) at least 80 percent (by value) of the assets of such corporation are used by such corporation in the active conduct of 1 or more qualified trades or businesses, and

(B) such corporation is an eligible corporation.

(2) Special rule for certain activities

For purposes of paragraph (1), if, in connection with any future qualified trade or business, a corporation is engaged in—

(A) start-up activities described in section 195(c)(1)(A),

(B) activities resulting in the payment or incurring of expenditures which may be treated as research and experimental expenditures under section 174, or

(C) activities with respect to in-house research expenses described in section 41(b)(4),

assets used in such activities shall be treated as used in the active conduct of a qualified trade or business. Any determination under this paragraph shall be made without regard to whether a corporation has any gross income from such activities at the time of the determination.

(3) Qualified trade or business

For purposes of this subsection, the term "qualified trade or business" means any trade or business other than—

(A) any trade or business involving the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of 1 or more of its employees,

(B) any banking, insurance, financing, leasing, investing, or similar business,

(C) any farming business (including the business of raising or harvesting trees),

(D) any business involving the production or extraction of products of a character with respect to which a deduction is allowable under section 613 or 613A, and

(E) any business of operating a hotel, motel, restaurant, or similar business.

(4) Eligible corporation

For purposes of this subsection, the term "eligible corporation" means any domestic corporation; except that such term shall not include—

(A) a DISC or former DISC,

(B) a regulated investment company, real estate investment trust, or REMIC, and

(C) a cooperative.

(5) Stock in other corporations

(A) Look-thru in case of subsidiaries

For purposes of this subsection, stock and debt in any subsidiary corporation shall be disregarded and the parent corporation shall be deemed to own its ratable share of the subsidiary's assets, and to conduct its ratable share of the subsidiary's activities.

(B) Portfolio stock or securities

A corporation shall be treated as failing to meet the requirements of paragraph (1) for any period during which more than 10 percent of the value of its assets (in excess of liabilities) consists of stock or securities in other corporations which are not subsidiaries of such corporation (other than assets described in paragraph (6)).

(C) Subsidiary

For purposes of this paragraph, a corporation shall be considered a subsidiary if the parent owns more than 50 percent of the combined voting power of all classes of stock entitled to vote, or more than 50 percent in value of all outstanding stock, of such corporation.

(6) Working capital

For purposes of paragraph (1)(A), any assets which—

(A) are held as a part of the reasonably required working capital needs of a qualified trade or business of the corporation, or

(B) are held for investment and are reasonably expected to be used within 2 years to finance research and experimentation in a qualified trade or business or increases in working capital needs of a qualified trade or business,

shall be treated as used in the active conduct of a qualified trade or business. For periods after the corporation has been in existence for at least 2 years, in no event may more than 50 percent of the assets of the corporation qualify as used in the active conduct of a qualified trade or business by reason of this paragraph.

(7) Maximum real estate holdings

A corporation shall not be treated as meeting the requirements of paragraph (1) for any period during which more than 10 percent of the total value of its assets consists of real property which is not used in the active conduct of a qualified trade or business. For purposes of the preceding sentence, the ownership of, dealing in, or renting of real property shall not be treated as the active conduct of a qualified trade or business.

(8) Computer software royalties

For purposes of paragraph (1), rights to computer software which produces active business computer software royalties (within the meaning of section 543(d)(1)) shall be treated as an asset used in the active conduct of a trade or business.

(f) Stock acquired on conversion of other stock

If any stock in a corporation is acquired solely through the conversion of other stock in such corporation which is qualified small business stock in the hands of the taxpayer—

(1) the stock so acquired shall be treated as qualified small business stock in the hands of the taxpayer, and

(2) the stock so acquired shall be treated as having been held during the period during which the converted stock was held.

(g) Treatment of pass-thru entities

(1) In general

If any amount included in gross income by reason of holding an interest in a pass-thru entity meets the requirements of paragraph (2)—

(A) such amount shall be treated as gain described in subsection (a), and

(B) for purposes of applying subsection (b), such amount shall be treated as gain from a disposition of stock in the corporation issuing the stock disposed of by the pass-thru entity and the taxpayer's proportionate share of the adjusted basis of the pass-thru entity in such stock shall be taken into account.

(2) Requirements

An amount meets the requirements of this paragraph if—

(A) such amount is attributable to gain on the sale or exchange by the pass-thru entity of stock which is qualified small business stock in the hands of such entity (determined by treating such entity as an individual) and which was held by such entity for more than 5 years, and

(B) such amount is includible in the gross income of the taxpayer by reason of the holding of an interest in such entity which was held by the taxpayer on the date on which such pass-thru entity acquired such stock and at all times thereafter before the disposition of such stock by such pass-thru entity.

(3) Limitation based on interest originally held by taxpayer

Paragraph (1) shall not apply to any amount to the extent such amount exceeds the amount to which paragraph (1) would have applied if such amount were determined by reference to the interest the taxpayer held in the pass-thru entity on the date the qualified small business stock was acquired.

(4) Pass-thru entity

For purposes of this subsection, the term "pass-thru entity" means—

(A) any partnership,

(B) any S corporation,

(C) any regulated investment company, and

(D) any common trust fund.

(h) Certain tax-free and other transfers

For purposes of this section—

(1) In general

In the case of a transfer described in paragraph (2), the transferee shall be treated as—

(A) having acquired such stock in the same manner as the transferor, and

(B) having held such stock during any continuous period immediately preceding the transfer during which it was held (or treated as held under this subsection) by the transferor.

(2) Description of transfers

A transfer is described in this subsection if such transfer is—

(A) by gift,

(B) at death, or

(C) from a partnership to a partner of stock with respect to which requirements similar to the requirements of subsection (g) are met at the time of the transfer (without regard to the 5-year holding period requirement).

(3) Certain rules made applicable

Rules similar to the rules of section 1244(d)(2) shall apply for purposes of this section.

(4) Incorporations and reorganizations involving nonqualified stock

(A) In general

In the case of a transaction described in section 351 or a reorganization described in section 368, if qualified small business stock is exchanged for other stock which would not qualify as qualified small business stock but for this subparagraph, such other stock shall be treated as qualified small business stock acquired on the date on which the exchanged stock was acquired.

(B) Limitation

This section shall apply to gain from the sale or exchange of stock treated as qualified small business stock by reason of subparagraph (A) only to the extent of the gain which would have been recognized at the time of the transfer described in subparagraph (A) if section 351 or 368 had not applied at such time. The preceding sentence shall not apply if the stock which is treated as qualified small business stock by reason of subparagraph (A) is issued by a corporation which (as of the time of the transfer described in subparagraph (A)) is a qualified small business.

(C) Successive application

For purposes of this paragraph, stock treated as qualified small business stock under subparagraph (A) shall be so treated for subsequent transactions or reorganizations, except that the limitation of subparagraph (B) shall be applied as of the time of the first transfer to which such limitation applied (determined after the application of the second sentence of subparagraph (B)).

(D) Control test

In the case of a transaction described in section 351, this paragraph shall apply only if, immediately after the transaction, the corporation issuing the stock owns directly or indirectly stock representing control (within the meaning of section 368(c)) of the corporation whose stock was exchanged.

(i) Basis rules

For purposes of this section—

(1) Stock exchanged for property

In the case where the taxpayer transfers property (other than money or stock) to a corporation in exchange for stock in such corporation—

(A) such stock shall be treated as having been acquired by the taxpayer on the date of such exchange, and

(B) the basis of such stock in the hands of the taxpayer shall in no event be less than the fair market value of the property exchanged.

(2) Treatment of contributions to capital

If the adjusted basis of any qualified small business stock is adjusted by reason of any contribution to capital after the date on which such stock was originally issued, in determining the amount of the adjustment by reason of such contribution, the basis of the contributed property shall in no event be treated as less than its fair market value on the date of the contribution.

(j) Treatment of certain short positions

(1) In general

If the taxpayer has an offsetting short position with respect to any qualified small business stock, subsection (a) shall not apply to any gain from the sale or exchange of such stock unless—

(A) such stock was held by the taxpayer for more than 5 years as of the first day on which there was such a short position, and

(B) the taxpayer elects to recognize gain as if such stock were sold on such first day for its fair market value.

(2) Offsetting short position

For purposes of paragraph (1), the taxpayer shall be treated as having an offsetting short position with respect to any qualified small business stock if—

(A) the taxpayer has made a short sale of substantially identical property,

(B) the taxpayer has acquired an option to sell substantially identical property at a fixed price, or

(C) to the extent provided in regulations, the taxpayer has entered into any other transaction which substantially reduces the risk of loss from holding such qualified small business stock.

For purposes of the preceding sentence, any reference to the taxpayer shall be treated as including a reference to any person who is related (within the meaning of section 267(b) or 707(b)) to the taxpayer.

(k) Regulations

The Secretary shall prescribe such regulations as may be appropriate to carry out the purposes of this section, including regulations to prevent the avoidance of the purposes of this section through split-ups, shell corporations, partnerships, or otherwise.

(Added Pub. L. 103–66, title XIII, §13113(a), Aug. 10, 1993, 107 Stat. 422; amended Pub. L. 104–188, title I, §1621(b)(7), Aug. 20, 1996, 110 Stat. 1867; Pub. L. 106–554, §1(a)(7) [title I, §117(a), (b)(2)], Dec. 21, 2000, 114 Stat. 2763, 2763A–604; Pub. L. 108–357, title VIII, §835(b)(9), Oct. 22, 2004, 118 Stat. 1594; Pub. L. 111–5, div. B, title I, §1241(a), Feb. 17, 2009, 123 Stat. 342; Pub. L. 111–240, title II, §2011(a), (b), Sept. 27, 2010, 124 Stat. 2554; Pub. L. 111–312, title VII, §§753(b), 760(a), Dec. 17, 2010, 124 Stat. 3321, 3323; Pub. L. 112–240, title III, §§324(a), (b), 327(b), Jan. 2, 2013, 126 Stat. 2333, 2334; Pub. L. 113–295, div. A, title I, §136(a), Dec. 19, 2014, 128 Stat. 4019; Pub. L. 114–113, div. Q, title I, §126(a), Dec. 18, 2015, 129 Stat. 3054; Pub. L. 115–141, div. U, title IV, §401(d)(1)(D)(xv), (4)(B)(v), Mar. 23, 2018, 132 Stat. 1208, 1209.)

Editorial Notes

References in Text

The date of the enactment of this paragraph, referred to in subsec. (a)(2)(A), is the date of enactment of Pub. L. 106–554, which was approved Dec. 21, 2000.

Section 1400B(b), referred to in subsec. (a)(2)(B), was repealed by Pub. L. 115–141, div. U, title IV, §401(d)(4)(A), Mar. 23, 2018, 132 Stat. 1209.

The date of the enactment of this paragraph, referred to in subsec. (a)(3), is the date of enactment of Pub. L. 111–5, which was approved Feb. 17, 2009.

The date of the enactment of the Creating Small Business Jobs Act of 2010, referred to in subsec. (a)(3), (4), is the date of enactment of Pub. L. 111–240, which was approved Sept. 27, 2010.

The date of the enactment of the Revenue Reconciliation Act of 1993, referred to in subsecs. (c)(1) and (d)(1)(A), is the date of enactment of Pub. L. 103–66, which was approved Aug. 10, 1993.

Section 301(d) of the Small Business Investment Act of 1958, referred to in subsec. (c)(2)(B)(ii), was classified to section 681(d) of Title 15, Commerce and Trade, prior to repeal by Pub. L. 104–208, div. D, title II, §208(b)(3)(A), Sept. 30, 1996, 110 Stat. 3009–742.

Prior Provisions

A prior section 1202, acts Aug. 16, 1954, ch. 736, 68A Stat. 320; Oct. 4, 1976, Pub. L. 94–455, title XIX, §1901(b)(33)(M), 90 Stat. 1802; Nov. 6, 1978, Pub. L. 95–600, title IV, §402(a), 92 Stat. 2867; Apr. 1, 1980, Pub. L. 96–222, title I, §104(a)(2)(A), 94 Stat. 214, authorized deduction for capital gains, prior to repeal by Pub. L. 99–514, title III, §301(a), (c), Oct. 22, 1986, 100 Stat. 2216, 2218, applicable to taxable years beginning after Dec. 31, 1986.

Amendments

2018—Subsec. (a)(2)(B). Pub. L. 115–141, §401(d)(4)(B)(v), inserted "(as in effect before its repeal)" after "1400B(b)".

Subsec. (e)(4)(B) to (D). Pub. L. 115–141, §401(d)(1)(D)(xv), redesignated subpars. (C) and (D) as (B) and (C), respectively, and struck out former subpar. (B) which read as follows: "a corporation with respect to which an election under section 936 is in effect or which has a direct or indirect subsidiary with respect to which such an election is in effect,".

2015—Subsec. (a)(4). Pub. L. 114–113 substituted "and thereafter" for ", 2011, 2012, 2013, and 2014" in heading and struck out "and before January 1, 2015" after "of the Creating Small Business Jobs Act of 2010" in introductory provisions.

2014—Subsec. (a)(4). Pub. L. 113–295 substituted "2013, and 2014" for "and 2013" in heading and "January 1, 2015" for "January 1, 2014" in introductory provisions.

2013—Subsec. (a)(2)(C). Pub. L. 112–240, §327(b), substituted "2018" for "2016" in heading and "December 31, 2018" for "December 31, 2016" in text.

Subsec. (a)(3). Pub. L. 112–240, §324(b)(1), inserted concluding provisions.

Subsec. (a)(4). Pub. L. 112–240, §324(b)(2), inserted concluding provisions.

Pub. L. 112–240, §324(a), substituted ", 2011, 2012, and 2013" for "and 2011" in heading and "January 1, 2014" for "January 1, 2012" in introductory provisions.

2010—Subsec. (a)(2)(C). Pub. L. 111–312, §753(b), substituted "2016" for "2014" in heading and "December 31, 2016" for "December 31, 2014" in text.

Subsec. (a)(3). Pub. L. 111–240, §2011(b), inserted "certain periods in" before "2010" in heading and substituted "on or before the date of the enactment of the Creating Small Business Jobs Act of 2010" for "before January 1, 2011" in text.

Subsec. (a)(4). Pub. L. 111–312, §760(a), inserted "and 2011" after "2010" in heading and substituted "January 1, 2012" for "January 1, 2011" in introductory provisions.

Pub. L. 111–240, §2011(a), added par. (4).

2009—Subsec. (a)(3). Pub. L. 111–5 added par. (3).

2004—Subsec. (e)(4)(C). Pub. L. 108–357 substituted "or REMIC" for "REMIC, or FASIT".

2000—Pub. L. 106–554, §1(a)(7) [title I, §117(b)(2)], substituted "Partial" for "50-percent" in section catchline.

Subsec. (a). Pub. L. 106–554, §1(a)(7) [title I, §117(a)], amended heading and text of subsec. (a) generally. Prior to amendment, text read as follows: "In the case of a taxpayer other than a corporation, gross income shall not include 50 percent of any gain from the sale or exchange of qualified small business stock held for more than 5 years."

1996—Subsec. (e)(4)(C). Pub. L. 104–188 substituted "REMIC, or FASIT" for "or REMIC".

Statutory Notes and Related Subsidiaries

Effective Date of 2015 Amendment

Pub. L. 114–113, div. Q, title I, §126(b), Dec. 18, 2015, 129 Stat. 3054, provided that: "The amendments made by this section [amending this section] shall apply to stock acquired after December 31, 2014."

Effective Date of 2014 Amendment

Pub. L. 113–295, div. A, title I, §136(b), Dec. 19, 2014, 128 Stat. 4019, provided that: "The amendments made by this section [amending this section] shall apply to stock acquired after December 31, 2013."

Effective Date of 2013 Amendment

Pub. L. 112–240, title III, §324(c), Jan. 2, 2013, 126 Stat. 2333, provided that:

"(1) In general.—The amendments made by subsection (a) [amending this section] shall apply to stock acquired after December 31, 2011.

"(2) Subsection (b)(1).—The amendment made by subsection (b)(1) [amending this section] shall take effect as if included in section 1241(a) of division B of the American Recovery and Reinvestment Act of 2009 [Pub. L. 111–5].

"(3) Subsection (b)(2).—The amendment made by subsection (b)(2) [amending this section] shall take effect as if included in section 2011(a) of the Creating Small Business Jobs Act of 2010 [title II of Pub. L. 111–240]."

Pub. L. 112–240, title III, §327(d), Jan. 2, 2013, 126 Stat. 2334, provided that: "The amendments made by this section [amending this section and section 1391 of this title] shall apply to periods after December 31, 2011."

Effective Date of 2010 Amendment

Pub. L. 111–312, title VII, §753(d), Dec. 17, 2010, 124 Stat. 3321, provided that: "The amendments made by this section [amending this section and section 1391 of this title] shall apply to periods after December 31, 2009."

Pub. L. 111–312, title VII, §760(b), Dec. 17, 2010, 124 Stat. 3323, provided that: "The amendments made by this section [amending this section] shall apply to stock acquired after December 31, 2010."

Pub. L. 111–240, title II, §2011(c), Sept. 27, 2010, 124 Stat. 2554, provided that: "The amendments made by this section [amending this section] shall apply to stock acquired after the date of the enactment of this Act [Sept. 27, 2010]."

Effective Date of 2009 Amendment

Pub. L. 111–5, div. B, title I, §1241(b), Feb. 17, 2009, 123 Stat. 342, provided that: "The amendment made by this section [amending this section] shall apply to stock acquired after the date of the enactment of this Act [Feb. 17, 2009]."

Effective Date of 2004 Amendment

Amendment by Pub. L. 108–357 effective Jan. 1, 2005, with exception for any FASIT in existence on Oct. 22, 2004, to the extent that regular interests issued by the FASIT before such date continue to remain outstanding in accordance with the original terms of issuance, see section 835(c) of Pub. L. 108–357, set out as a note under section 56 of this title.

Effective Date of 2000 Amendment

Amendment by Pub. L. 106–554 applicable to stock acquired after Dec. 21, 2000, see section 1(a)(7) [title I, §117(c)] of Pub. L. 106–554, set out as a note under section 1 of this title.

Effective Date of 1996 Amendment

Amendment by Pub. L. 104–188 effective Sept. 1, 1997, see section 1621(d) of Pub. L. 104–188, set out as a note under section 26 of this title.

Effective Date

Section applicable to stock issued after Aug. 10, 1993, see section 13113(e) of Pub. L. 103–66, set out as an Effective Date of 1993 Amendment note under section 53 of this title.

Savings Provision

Amendment by section 401(d)(4)(B)(v) of Pub. L. 115–141 not applicable to certain obligations issued, DC Zone assets acquired, or principal residences acquired before Jan. 1, 2012, see section 401(d)(4)(C) of Pub. L. 115–141, set out as a note under former section 1400 of this title.

For provisions that nothing in amendment by Pub. L. 115–141 be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to Mar. 23, 2018, for purposes of determining liability for tax for periods ending after Mar. 23, 2018, see section 401(e) of Pub. L. 115–141, set out as a note under section 23 of this title.

Special Rule for Pass-Through Entities

Pub. L. 96–222, title I, §104(a)(2)(C), Apr. 1, 1980, 94 Stat. 215, as amended by Pub. L. 99–514, §2, Oct. 22, 1986, 100 Stat. 2095, provided that:

"(i) In general.—In applying sections [former] 1201(c)(2)(A)(ii) and 1202(c)(1)(B) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] with respect to any pass-through entity, the determination of the period for which gain or loss is properly taken into account shall be made at the entity level.

"(ii) Pass-through entity defined.—For purposes of clause (i), the term 'pass-through entity' means—

"(I) a regulated investment company,

"(II) a real estate investment trust,

"(III) an electing small business corporation,

"(IV) a partnership,

"(V) an estate or trust, and

"(VI) a common trust fund."
26 U.S.C. § 45X (2024) — Title 26: INTERNAL REVENUE CODE / Chapter 1 / Section 45X: Advanced manufacturing production credit
Advanced manufacturing production credit
Status: in_force

(a) In general

(1) Allowance of credit

For purposes of section 38, the advanced manufacturing production credit for any taxable year is an amount equal to the sum of the credit amounts determined under subsection (b) with respect to each eligible component which is—

(A) produced by the taxpayer, and

(B) during the taxable year, sold by such taxpayer to an unrelated person.

(2) Production and sale must be in trade or business

Any eligible component produced and sold by the taxpayer shall be taken into account only if the production and sale described in paragraph (1) is in a trade or business of the taxpayer.

(3) Unrelated person

(A) In general

For purposes of this subsection, a taxpayer shall be treated as selling components to an unrelated person if such component is sold to such person by a person related to the taxpayer.

(B) Election

(i) In general

At the election of the taxpayer (in such form and manner as the Secretary may prescribe), a sale of components by such taxpayer to a related person shall be deemed to have been made to an unrelated person.

(ii) Requirement

As a condition of, and prior to, any election described in clause (i), the Secretary may require such information or registration as the Secretary deems necessary for purposes of preventing duplication, fraud, or any improper or excessive amount determined under paragraph (1).

(b) Credit amount

(1) In general

Subject to paragraph (3), the amount determined under this subsection with respect to any eligible component, including any eligible component it incorporates, shall be equal to—

(A) in the case of a thin film photovoltaic cell or a crystalline photovoltaic cell, an amount equal to the product of—

(i) 4 cents, multiplied by

(ii) the capacity of such cell (expressed on a per direct current watt basis),

(B) in the case of a photovoltaic wafer, $12 per square meter,

(C) in the case of solar grade polysilicon, $3 per kilogram,

(D) in the case of a polymeric backsheet, 40 cents per square meter,

(E) in the case of a solar module, an amount equal to the product of—

(i) 7 cents, multiplied by

(ii) the capacity of such module (expressed on a per direct current watt basis),

(F) in the case of a wind energy component—

(i) if such component is a related offshore wind vessel, an amount equal to 10 percent of the sales price of such vessel, and

(ii) if such component is not described in clause (i), an amount equal to the product of—

(I) the applicable amount with respect to such component (as determined under paragraph (2)(A)), multiplied by

(II) the total rated capacity (expressed on a per watt basis) of the completed wind turbine for which such component is designed,

(G) in the case of a torque tube, 87 cents per kilogram,

(H) in the case of a structural fastener, $2.28 per kilogram,

(I) in the case of an inverter, an amount equal to the product of—

(i) the applicable amount with respect to such inverter (as determined under paragraph (2)(B)), multiplied by

(ii) the capacity of such inverter (expressed on a per alternating current watt basis),

(J) in the case of electrode active materials, an amount equal to 10 percent of the costs incurred by the taxpayer with respect to production of such materials,

(K) in the case of a battery cell, an amount equal to the product of—

(i) $35, multiplied by

(ii) subject to paragraph (4), the capacity of such battery cell (expressed on a kilowatt-hour basis),

(L) in the case of a battery module, an amount equal to the product of—

(i) $10 (or, in the case of a battery module which does not use battery cells, $45), multiplied by

(ii) subject to paragraph (4), the capacity of such battery module (expressed on a kilowatt-hour basis), and

(M) in the case of any applicable critical mineral, an amount equal to 10 percent of the costs incurred by the taxpayer with respect to production of such mineral.

(2) Applicable amounts

(A) Wind energy components

For purposes of paragraph (1)(F)(ii), the applicable amount with respect to any wind energy component shall be—

(i) in the case of a blade, 2 cents,

(ii) in the case of a nacelle, 5 cents,

(iii) in the case of a tower, 3 cents, and

(iv) in the case of an offshore wind foundation—

(I) which uses a fixed platform, 2 cents, or

(II) which uses a floating platform, 4 cents.

(B) Inverters

For purposes of paragraph (1)(I), the applicable amount with respect to any inverter shall be—

(i) in the case of a central inverter, 0.25 cents,

(ii) in the case of a utility inverter, 1.5 cents,

(iii) in the case of a commercial inverter, 2 cents,

(iv) in the case of a residential inverter, 6.5 cents, and

(v) in the case of a microinverter or a distributed wind inverter, 11 cents.

(3) Phase out

(A) In general

Subject to subparagraph (C), in the case of any eligible component sold after December 31, 2029, the amount determined under this subsection with respect to such component shall be equal to the product of—

(i) the amount determined under paragraph (1) with respect to such component, as determined without regard to this paragraph, multiplied by

(ii) the phase out percentage under subparagraph (B).

(B) Phase out percentage

The phase out percentage under this subparagraph is equal to—

(i) in the case of an eligible component sold during calendar year 2030, 75 percent,

(ii) in the case of an eligible component sold during calendar year 2031, 50 percent,

(iii) in the case of an eligible component sold during calendar year 2032, 25 percent,

(iv) in the case of an eligible component sold after December 31, 2032, 0 percent.

(C) Exception

For purposes of determining the amount under this subsection with respect to any applicable critical mineral, this paragraph shall not apply.

(4) Limitation on capacity of battery cells and battery modules

(A) In general

For purposes of subparagraph (K)(ii) or (L)(ii) of paragraph (1), the capacity determined under either subparagraph with respect to a battery cell or battery module shall not exceed a capacity-to-power ratio of 100:1.

(B) Capacity-to-power ratio

For purposes of this paragraph, the term "capacity-to-power ratio" means, with respect to a battery cell or battery module, the ratio of the capacity of such cell or module to the maximum discharge amount of such cell or module.

(c) Definitions

For purposes of this section—

(1) Eligible component

(A) In general

The term "eligible component" means—

(i) any solar energy component,

(ii) any wind energy component,

(iii) any inverter described in subparagraphs (B) through (G) of paragraph (2),

(iv) any qualifying battery component, and

(v) any applicable critical mineral.

(B) Application with other credits

The term "eligible component" shall not include any property which is produced at a facility if the basis of any property which is part of such facility is taken into account for purposes of the credit allowed under section 48C after the date of the enactment of this section.

(2) Inverters

(A) In general

The term "inverter" means an end product which is suitable to convert direct current electricity from 1 or more solar modules or certified distributed wind energy systems into alternating current electricity.

(B) Central inverter

The term "central inverter" means an inverter which is suitable for large utility-scale systems and has a capacity which is greater than 1,000 kilowatts (expressed on a per alternating current watt basis).

(C) Commercial inverter

The term "commercial inverter" means an inverter which—

(i) is suitable for commercial or utility-scale applications,

(ii) has a rated output of 208, 480, 600, or 800 volt three-phase power, and

(iii) has a capacity which is not less than 20 kilowatts and not greater than 125 kilowatts (expressed on a per alternating current watt basis).

(D) Distributed wind inverter

(i) In general

The term "distributed wind inverter" means an inverter which—

(I) is used in a residential or non-residential system which utilizes 1 or more certified distributed wind energy systems, and

(II) has a rated output of not greater than 150 kilowatts.

(ii) Certified distributed wind energy system

The term "certified distributed wind energy system" means a wind energy system which is certified by an accredited certification agency to meet Standard 9.1-2009 of the American Wind Energy Association (including any subsequent revisions to or modifications of such Standard which have been approved by the American National Standards Institute).

(E) Microinverter

The term "microinverter" means an inverter which—

(i) is suitable to connect with one solar module,

(ii) has a rated output of—

(I) 120 or 240 volt single-phase power, or

(II) 208 or 480 volt three-phase power, and

(iii) has a capacity which is not greater than 650 watts (expressed on a per alternating current watt basis).

(F) Residential inverter

The term "residential inverter" means an inverter which—

(i) is suitable for a residence,

(ii) has a rated output of 120 or 240 volt single-phase power, and

(iii) has a capacity which is not greater than 20 kilowatts (expressed on a per alternating current watt basis).

(G) Utility inverter

The term "utility inverter" means an inverter which—

(i) is suitable for commercial or utility-scale systems,

(ii) has a rated output of not less than 600 volt three-phase power, and

(iii) has a capacity which is greater than 125 kilowatts and not greater than 1000 kilowatts (expressed on a per alternating current watt basis) 1

(3) Solar energy component

(A) In general

The term "solar energy component" means any of the following:

(i) Solar modules.

(ii) Photovoltaic cells.

(iii) Photovoltaic wafers.

(iv) Solar grade polysilicon.

(v) Torque tubes or structural fasteners.

(vi) Polymeric backsheets.

(B) Associated definitions

(i) Photovoltaic cell

The term "photovoltaic cell" means the smallest semiconductor element of a solar module which performs the immediate conversion of light into electricity.

(ii) Photovoltaic wafer

The term "photovoltaic wafer" means a thin slice, sheet, or layer of semiconductor material of at least 240 square centimeters—

(I) produced by a single manufacturer either—

(aa) directly from molten or evaporated solar grade polysilicon or deposition of solar grade thin film semiconductor photon absorber layer, or

(bb) through formation of an ingot from molten polysilicon and subsequent slicing, and

(II) which comprises the substrate or absorber layer of one or more photovoltaic cells.

(iii) Polymeric backsheet

The term "polymeric backsheet" means a sheet on the back of a solar module which acts as an electric insulator and protects the inner components of such module from the surrounding environment.

(iv) Solar grade polysilicon

The term "solar grade polysilicon" means silicon which is—

(I) suitable for use in photovoltaic manufacturing, and

(II) purified to a minimum purity of 99.999999 percent silicon by mass.

(v) Solar module

The term "solar module" means the connection and lamination of photovoltaic cells into an environmentally protected final assembly which is—

(I) suitable to generate electricity when exposed to sunlight, and

(II) ready for installation without an additional manufacturing process.

(vi) Solar tracker

The term "solar tracker" means a mechanical system that moves solar modules according to the position of the sun and to increase energy output.

(vii) Solar tracker components

(I) Torque tube

The term "torque tube" means a structural steel support element (including longitudinal purlins) which—

(aa) is part of a solar tracker,

(bb) is of any cross-sectional shape,

(cc) may be assembled from individually manufactured segments,

(dd) spans longitudinally between foundation posts,

(ee) supports solar panels and is connected to a mounting attachment for solar panels (with or without separate module interface rails), and

(ff) is rotated by means of a drive system.

(II) Structural fastener

The term "structural fastener" means a component which is used—

(aa) to connect the mechanical and drive system components of a solar tracker to the foundation of such solar tracker,

(bb) to connect torque tubes to drive assemblies, or

(cc) to connect segments of torque tubes to one another.

(4) Wind energy component

(A) In general

The term "wind energy component" means any of the following:

(i) Blades.

(ii) Nacelles.

(iii) Towers.

(iv) Offshore wind foundations.

(v) Related offshore wind vessels.

(B) Associated definitions

(i) Blade

The term "blade" means an airfoil-shaped blade which is responsible for converting wind energy to low-speed rotational energy.

(ii) Offshore wind foundation

The term "offshore wind foundation" means the component (including transition piece) which secures an offshore wind tower and any above-water turbine components to the seafloor using—

(I) fixed platforms, such as offshore wind monopiles, jackets, or gravity-based foundations, or

(II) floating platforms and associated mooring systems.

(iii) Nacelle

The term "nacelle" means the assembly of the drivetrain and other tower-top components of a wind turbine (with the exception of the blades and the hub) within their cover housing.

(iv) Related offshore wind vessel

The term "related offshore wind vessel" means any vessel which is purpose-built or retrofitted for purposes of the development, transport, installation, operation, or maintenance of offshore wind energy components.

(v) Tower

The term "tower" means a tubular or lattice structure which supports the nacelle and rotor of a wind turbine.

(5) Qualifying battery component

(A) In general

The term "qualifying battery component" means any of the following:

(i) Electrode active materials.

(ii) Battery cells.

(iii) Battery modules.

(B) Associated definitions

(i) Electrode active material

The term "electrode active material" means cathode materials, anode materials, anode foils, and electrochemically active materials, including solvents, additives, and electrolyte salts that contribute to the electrochemical processes necessary for energy storage.

(ii) Battery cell

The term "battery cell" means an electrochemical cell—

(I) comprised of 1 or more positive electrodes and 1 or more negative electrodes,

(II) with an energy density of not less than 100 watt-hours per liter, and

(III) capable of storing at least 12 watt-hours of energy.

(iii) Battery module

The term "battery module" means a module—

(I)(aa) in the case of a module using battery cells, with 2 or more battery cells which are configured electrically, in series or parallel, to create voltage or current, as appropriate, to a specified end use, or

(bb) with no battery cells, and

(II) with an aggregate capacity of not less than 7 kilowatt-hours (or, in the case of a module for a hydrogen fuel cell vehicle, not less than 1 kilowatt-hour).

(6) Applicable critical minerals

The term "applicable critical mineral" means any of the following:

(A) Aluminum

Aluminum which is—

(i) converted from bauxite to a minimum purity of 99 percent alumina by mass, or

(ii) purified to a minimum purity of 99.9 percent aluminum by mass.

(B) Antimony

Antimony which is—

(i) converted to antimony trisulfide concentrate with a minimum purity of 90 percent antimony trisulfide by mass, or

(ii) purified to a minimum purity of 99.65 percent antimony by mass.

(C) Barite

Barite which is barium sulfate purified to a minimum purity of 80 percent barite by mass.

(D) Beryllium

Beryllium which is—

(i) converted to copper-beryllium master alloy, or

(ii) purified to a minimum purity of 99 percent beryllium by mass.

(E) Cerium

Cerium which is—

(i) converted to cerium oxide which is purified to a minimum purity of 99.9 percent cerium oxide by mass, or

(ii) purified to a minimum purity of 99 percent cerium by mass.

(F) Cesium

Cesium which is—

(i) converted to cesium formate or cesium carbonate, or

(ii) purified to a minimum purity of 99 percent cesium by mass.

(G) Chromium

Chromium which is—

(i) converted to ferrochromium consisting of not less than 60 percent chromium by mass, or

(ii) purified to a minimum purity of 99 percent chromium by mass.

(H) Cobalt

Cobalt which is—

(i) converted to cobalt sulfate, or

(ii) purified to a minimum purity of 99.6 percent cobalt by mass.

(I) Dysprosium

Dysprosium which is—

(i) converted to not less than 99 percent pure dysprosium iron alloy by mass, or

(ii) purified to a minimum purity of 99 percent dysprosium by mass.

(J) Europium

Europium which is—

(i) converted to europium oxide which is purified to a minimum purity of 99.9 percent europium oxide by mass, or

(ii) purified to a minimum purity of 99 percent by mass.

(K) Fluorspar

Fluorspar which is—

(i) converted to fluorspar which is purified to a minimum purity of 97 percent calcium fluoride by mass, or

(ii) purified to a minimum purity of 99 percent fluorspar by mass.

(L) Gadolinium

Gadolinium which is—

(i) converted to gadolinium oxide which is purified to a minimum purity of 99.9 percent gadolinium oxide by mass, or

(ii) purified to a minimum purity of 99 percent gadolinium by mass.

(M) Germanium

Germanium which is—

(i) converted to germanium tetrachloride, or

(ii) purified to a minimum purity of 99.99 percent germanium by mass.

(N) Graphite

Graphite which is purified to a minimum purity of 99.9 percent graphitic carbon by mass.

(O) Indium

Indium which is—

(i) converted to—

(I) indium tin oxide, or

(II) indium oxide which is purified to a minimum purity of 99.9 percent indium oxide by mass, or

(ii) purified to a minimum purity of 99 percent indium by mass.

(P) Lithium

Lithium which is—

(i) converted to lithium carbonate or lithium hydroxide, or

(ii) purified to a minimum purity of 99.9 percent lithium by mass.

(Q) Manganese

Manganese which is—

(i) converted to manganese sulphate, or

(ii) purified to a minimum purity of 99.7 percent manganese by mass.

(R) Neodymium

Neodymium which is—

(i) converted to neodymium-praseodymium oxide which is purified to a minimum purity of 99 percent neodymium-praseodymium oxide by mass,

(ii) converted to neodymium oxide which is purified to a minimum purity of 99.5 percent neodymium oxide by mass 2

(iii) purified to a minimum purity of 99.9 percent neodymium by mass.

(S) Nickel

Nickel which is—

(i) converted to nickel sulphate, or

(ii) purified to a minimum purity of 99 percent nickel by mass.

(T) Niobium

Niobium which is—

(i) converted to ferronibium, or

(ii) purified to a minimum purity of 99 percent niobium by mass.

(U) Tellurium

Tellurium which is—

(i) converted to cadmium telluride, or

(ii) purified to a minimum purity of 99 percent tellurium by mass.

(V) Tin

Tin which is purified to low alpha emitting tin which—

(i) has a purity of greater than 99.99 percent by mass, and

(ii) possesses an alpha emission rate of not greater than 0.01 counts per hour per centimeter square.

(W) Tungsten

Tungsten which is converted to ammonium paratungstate or ferrotungsten.

(X) Vanadium

Vanadium which is converted to ferrovanadium or vanadium pentoxide.

(Y) Yttrium

Yttrium which is—

(i) converted to yttrium oxide which is purified to a minimum purity of 99.999 percent yttrium oxide by mass, or

(ii) purified to a minimum purity of 99.9 percent yttrium by mass.

(Z) Other minerals

Any of the following minerals, provided that such mineral is purified to a minimum purity of 99 percent by mass:

(i) Arsenic.

(ii) Bismuth.

(iii) Erbium.

(iv) Gallium.

(v) Hafnium.

(vi) Holmium.

(vii) Iridium.

(viii) Lanthanum.

(ix) Lutetium.

(x) Magnesium.

(xi) Palladium.

(xii) Platinum.

(xiii) Praseodymium.

(xiv) Rhodium.

(xv) Rubidium.

(xvi) Ruthenium.

(xvii) Samarium.

(xviii) Scandium.

(xix) Tantalum.

(xx) Terbium.

(xxi) Thulium.

(xxii) Titanium.

(xxiii) Ytterbium.

(xxiv) Zinc.

(xxv) Zirconium.

(d) Special rules

In this section—

(1) Related persons

Persons shall be treated as related to each other if such persons would be treated as a single employer under the regulations prescribed under section 52(b).

(2) Only production in the United States taken into account

Sales shall be taken into account under this section only with respect to eligible components the production of which is within—

(A) the United States (within the meaning of section 638(1)), or

(B) a possession of the United States (within the meaning of section 638(2)).

(3) Pass-thru in the case of estates and trusts

Under regulations prescribed by the Secretary, rules similar to the rules of subsection (d) of section 52 shall apply.

(4) Sale of integrated components

For purposes of this section, a person shall be treated as having sold an eligible component to an unrelated person if such component is integrated, incorporated, or assembled into another eligible component which is sold to an unrelated person.

(Added Pub. L. 117–169, title I, §13502(a), Aug. 16, 2022, 136 Stat. 1971.)

Editorial Notes

References in Text

The date of the enactment of this section, referred to in subsec. (c)(1)(B), is the date of enactment of Pub. L. 117–169, which was approved Aug. 16, 2022.

Statutory Notes and Related Subsidiaries

Effective Date

Pub. L. 117–169, title I, §13502(c), Aug. 16, 2022, 136 Stat. 1981, provided that: "The amendments made by this section [enacting this section and amending section 38 of this title] shall apply to components produced and sold after December 31, 2022."

1 So in original. Probably should be followed by a period.

2 So in original. Probably should be followed by ", or".
26 U.S.C. § 584 (2024) — Title 26: INTERNAL REVENUE CODE / Chapter 1 / Section 584: Common trust funds
Common trust funds
Status: in_force

(a) Definitions

For purposes of this subtitle, the term "common trust fund" means a fund maintained by a bank—

(1) exclusively for the collective investment and reinvestment of moneys contributed thereto by the bank in its capacity—

(A) as a trustee, executor, administrator, or guardian, or

(B) as a custodian of accounts—

(i) which the Secretary determines are established pursuant to a State law which is substantially similar to the Uniform Gifts to Minors Act as published by the American Law Institute, and

(ii) with respect to which the bank establishes, to the satisfaction of the Secretary, that it has duties and responsibilities similar to duties and responsibilities of a trustee or guardian; and

(2) in conformity with the rules and regulations, prevailing from time to time, of the Board of Governors of the Federal Reserve System or the Comptroller of the Currency pertaining to the collective investment of trust funds by national banks.

For purposes of this subsection, two or more banks which are members of the same affiliated group (within the meaning of section 1504) shall be treated as one bank for the period of affiliation with respect to any fund of which any of the member banks is trustee or two or more of the member banks are cotrustees.

(b) Taxation of common trust funds

A common trust fund shall not be subject to taxation under this chapter and for purposes of this chapter shall not be considered a corporation.

(c) Income of participants in fund

Each participant in the common trust fund in computing its taxable income shall include, whether or not distributed and whether or not distributable—

(1) as part of its gains and losses from sales or exchanges of capital assets held for not more than 1 year, its proportionate share of the gains and losses of the common trust fund from sales or exchanges of capital assets held for not more than 1 year,

(2) as part of its gains and losses from sales or exchanges of capital assets held for more than 1 year, its proportionate share of the gains and losses of the common trust fund from sales or exchanges of capital assets held for more than 1 year, and

(3) its proportionate share of the ordinary taxable income or the ordinary net loss of the common trust fund, computed as provided in subsection (d).

The proportionate share of each participant in the amount of dividends received by the common trust fund and to which section 1(h)(11) applies shall be considered for purposes of such paragraph as having been received by such participant.

(d) Computation of common trust fund income

The taxable income of a common trust fund shall be computed in the same manner and on the same basis as in the case of an individual, except that—

(1) there shall be segregated the gains and losses from sales or exchanges of capital assets;

(2) after excluding all items of gain and loss from sales or exchanges of capital assets, there shall be computed—

(A) an ordinary taxable income which shall consist of the excess of the gross income over deductions; or

(B) an ordinary net loss which shall consist of the excess of the deductions over the gross income; and

(3) the deduction provided by section 170 (relating to charitable, etc., contributions and gifts) shall not be allowed.

(e) Admission and withdrawal

No gain or loss shall be realized by the common trust fund by the admission or withdrawal of a participant. The admission of a participant shall be treated with respect to the participant as the purchase of, or an exchange for, the participating interest. The withdrawal of any participating interest by a participant shall be treated as a sale or exchange of such interest by the participant.

(f) Different taxable years of common trust fund and participant

If the taxable year of the common trust fund is different from that of a participant, the inclusions with respect to the taxable income of the common trust fund, in computing the taxable income of the participant for its taxable year, shall be based upon the taxable income of the common trust fund for any taxable year of the common trust fund ending within or with the taxable year of the participant.

(g) Net operating loss deduction

The benefit of the deduction for net operating losses provided by section 172 shall not be allowed to a common trust fund, but shall be allowed to the participants in the common trust fund under regulations prescribed by the Secretary.

(h) Nonrecognition treatment for certain transfers to regulated investment companies

(1) In general

If—

(A) a common trust fund transfers substantially all of its assets to one or more regulated investment companies in exchange solely for stock in the company or companies to which such assets are so transferred, and

(B) such stock is distributed by such common trust fund to participants in such common trust fund in exchange solely for their interests in such common trust fund,

no gain or loss shall be recognized by such common trust fund by reason of such transfer or distribution, and no gain or loss shall be recognized by any participant in such common trust fund by reason of such exchange.

(2) Basis rules

(A) Regulated investment company

The basis of any asset received by a regulated investment company in a transfer referred to in paragraph (1)(A) shall be the same as it would be in the hands of the common trust fund.

(B) Participants

The basis of the stock which is received in an exchange referred to in paragraph (1)(B) shall be the same as that of the property exchanged. If stock in more than one regulated investment company is received in such exchange, the basis determined under the preceding sentence shall be allocated among the stock in each such company on the basis of respective fair market values.

(3) Treatment of assumptions of liability

(A) In general

In determining whether the transfer referred to in paragraph (1)(A) is in exchange solely for stock in one or more regulated investment companies, the assumption by any such company of a liability of the common trust fund shall be disregarded.

(B) Special rule where assumed liabilities exceed basis

(i) In general

If, in any transfer referred to in paragraph (1)(A), the assumed liabilities exceed the aggregate adjusted bases (in the hands of the common trust fund) of the assets transferred to the regulated investment company or companies—

(I) notwithstanding paragraph (1), gain shall be recognized to the common trust fund on such transfer in an amount equal to such excess,

(II) the basis of the assets received by the regulated investment company or companies in such transfer shall be increased by the amount so recognized, and

(III) any adjustment to the basis of a participant's interest in the common trust fund as a result of the gain so recognized shall be treated as occurring immediately before the exchange referred to in paragraph (1)(B).

 If the transfer referred to in paragraph (1)(A) is to two or more regulated investment companies, the basis increase under subclause (II) shall be allocated among such companies on the basis of the respective fair market values of the assets received by each of such companies.

(ii) Assumed liabilities

For purposes of clause (i), the term "assumed liabilities" means any liability of the common trust fund assumed by any regulated investment company in connection with the transfer referred to in paragraph (1)(A).

(C) Assumption

For purposes of this paragraph, in determining the amount of any liability assumed, the rules of section 357(d) shall apply.

(4) Common trust fund must meet diversification rules

This subsection shall not apply to any common trust fund which would not meet the requirements of section 368(a)(2)(F)(ii) if it were a corporation. For purposes of the preceding sentence, Government securities shall not be treated as securities of an issuer in applying the 25-percent and 50-percent test and such securities shall not be excluded for purposes of determining total assets under clause (iv) of section 368(a)(2)(F).

(i) Taxable year of common trust fund

For purposes of this subtitle, the taxable year of any common trust fund shall be the calendar year.

(Aug. 16, 1954, ch. 736, 68A Stat. 203; Pub. L. 87–722, §4, Sept. 28, 1962, 76 Stat. 670; Pub. L. 88–272, title II, §201(d)(5), Feb. 26, 1964, 78 Stat. 32; Pub. L. 94–414, §1, Sept. 17, 1976, 90 Stat. 1273; Pub. L. 94–455, title XIV, §1402(b)(1)(H), (2), title XIX, §§1901(b)(1)(G), 1906(b)(13)(A), title XXI, §§2131(d), 2138, Oct. 4, 1976, 90 Stat. 1732, 1790, 1834, 1924, 1932; Pub. L. 95–30, title I, §101(d)(7), May 23, 1977, 91 Stat. 133; Pub. L. 96–223, title IV, §404(b)(3), Apr. 2, 1980, 94 Stat. 306; Pub. L. 97–34, title III, §301(b)(3), (6)(A), Aug. 13, 1981, 95 Stat. 270; Pub. L. 97–448, title I, §103(a)(2), Jan. 12, 1983, 96 Stat. 2375; Pub. L. 98–369, div. A, title X, §1001(b)(7), (e), July 18, 1984, 98 Stat. 1011, 1012; Pub. L. 99–514, title VI, §612(b)(2), Oct. 22, 1986, 100 Stat. 2250; Pub. L. 100–647, title I, §1008(e)(5)(A), Nov. 10, 1988, 102 Stat. 3440; Pub. L. 104–188, title I, §1805(a), Aug. 20, 1996, 110 Stat. 1894; Pub. L. 106–36, title III, §3001(c)(1), June 25, 1999, 113 Stat. 183; Pub. L. 108–27, title III, §302(e)(7), May 28, 2003, 117 Stat. 764.)

Editorial Notes

Amendments

2003—Subsec. (c). Pub. L. 108–27 inserted concluding provisions.

1999—Subsec. (h)(3)(A). Pub. L. 106–36, §3001(c)(1)(A), struck out ", and the fact that any property transferred by the common trust fund is subject to a liability," before "shall be disregarded".

Subsec. (h)(3)(B)(ii). Pub. L. 106–36, §3001(c)(1)(B), added cl. (ii) and struck out heading and text of former cl. (ii). Text read as follows: "For purposes of clause (i), the term 'assumed liabilities' means the aggregate of—

"(I) any liability of the common trust fund assumed by any regulated investment company in connection with the transfer referred to in paragraph (1)(A), and

"(II) any liability to which property so transferred is subject."

Subsec. (h)(3)(C). Pub. L. 106–36, §3001(c)(1)(B), added subpar. (C).

1996—Subsecs. (h), (i). Pub. L. 104–188 added subsec. (h) and redesignated former subsec. (h) as (i).

1988—Subsec. (h). Pub. L. 100–647 added subsec. (h).

1986—Subsec. (c). Pub. L. 99–514, §612(b)(2)(B), substituted "1 year" for "6 months" wherever appearing in pars. (1) and (2).

Pub. L. 99–514, §612(b)(2)(A), amended subsec. (c) generally, restating subpars. (A) to (C) of former par. (1) as pars. (1) to (3) and striking out former par. (2) which read as follows: "The proportionate share of each participant in the amount of dividends or interest received by the common trust fund and to which section 116 or 128 applies shall be considered for purposes of such section as having been received by such participant."

1984—Subsec. (c)(1)(A), (B). Pub. L. 98–369 substituted "6 months" for "1 year", wherever appearing, applicable to property acquired after June 22, 1984, and before Jan. 1, 1988. See Effective Date of 1984 Amendment note below.

1983—Subsec. (c)(2). Pub. L. 97–448 reenacted par. (2) without change.

1981—Subsec. (c)(2). Pub. L. 97–34, §301(b)(6)(A), inserted reference to "interest" in heading and text, which continued the amendment made by Pub. L. 96–223.

Pub. L. 97–34, §301(b)(3), inserted "or 128" after "section 116".

1980—Subsec. (c)(2). Pub. L. 96–223 inserted "or interest" after "dividends" in heading and text.

1977—Subsec. (d)(4). Pub. L. 95–30 struck out par. (4) relating to standard deduction.

1976—Subsec. (a). Pub. L. 94–414 inserted provision relating to treatment of two or more bank members of same affiliated group.

Subsec. (a)(1). Pub. L. 94–455, §2138, designated existing provisions relating to trustee, executor, administrator and guardian as subpar. (A) and added subpar. (B).

Subsec. (c)(1)(A), (B). Pub. L. 94–455, §1402(b)(2), provided that "9 months" would be changed to "1 year" wherever appearing.

Pub. L. 94–455, §1402(b)(1)(H), provided that "6 months" would be changed to "9 months" for taxable years beginning in 1977.

Subsec. (c)(2). Pub. L. 94–455, §1901(b)(1)(G), struck out provisions relating to partially tax exempt interest and election of a common trust fund to amortize premiums on bonds and other obligations.

Subsec. (e). Pub. L. 94–455, §2131(d), inserted "The admission of a participant shall be treated with respect to the participant as the purchase of, or exchange for, the participating interest".

Subsec. (g). Pub. L. 94–455, §1906(b)(13)(A), struck out "or his delegate" after "Secretary".

1964—Subsec. (c)(2). Pub. L. 88–272 struck out "section 34 or" before "section 116 applies".

1962—Subsec. (a)(2). Pub. L. 87–722 inserted "or the Comptroller of the Currency" after "the Board of Governors of the Federal Reserve System".

Statutory Notes and Related Subsidiaries

Effective Date of 2003 Amendment

Amendment by Pub. L. 108–27 applicable, except as otherwise provided, to taxable years beginning after Dec. 31, 2002, see section 302(f) of Pub. L. 108–27, set out as an Effective and Termination Dates of 2003 Amendment note under section 1 of this title.

Effective Date of 1999 Amendment

Amendment by Pub. L. 106–36 applicable to transfers after Oct. 18, 1998, see section 3001(e) of Pub. L. 106–36, set out as a note under section 351 of this title.

Effective Date of 1996 Amendment

Pub. L. 104–188, title I, §1805(b), Aug. 20, 1996, 110 Stat. 1895, provided that: "The amendment made by subsection (a) [amending this section] shall apply to transfers after December 31, 1995."

Effective Date of 1988 Amendment

Pub. L. 100–647, title I, §1008(e)(5)(B), Nov. 10, 1988, 102 Stat. 3440, provided that: "The amendment made by subparagraph (A) [amending this section] shall take effect as if included in the amendments made by section 806 of the Reform Act [Pub. L. 99–514], except that section 806(e)(1) [set out as a note under section 1378 of this title] shall be applied by substituting 'December 31, 1987' for 'December 31, 1986'. For purposes of section 806(e)(2) of the Reform Act [set out as a note under section 1378 of this title]—

"(i) a participant in a common trust fund shall be treated in the same manner as a partner, and

"(ii) subparagraph (C) thereof shall be applied by substituting 'December 31, 1987' for 'December 31, 1986' and as if it did not contain the election to include all income in the short taxable year."

Effective Date of 1986 Amendment

Pub. L. 99–514, title VI, §612(b)(2)(B), Oct. 22, 1986, 100 Stat. 2250, provided that: "If the amendments made by section 1001 of the Tax Reform Act of 1984 [Pub. L. 98–369, amending this section and sections 166, 341, 402, 403, 423, 582, 631, 642, 702, 818, 852, 856, 857, 1222, 1223, 1231, 1232, 1233, 1234, 1235, 1246, 1247, and 1248 of this title] cease to apply [see Effective Date of 1984 Amendment note below], effective with respect to property to which such amendments do not apply, subsection (c) of section 584 is amended by striking out '6 months' each place it appears and inserting in lieu thereof '1 year'."

Amendment by section 612(b)(2) of Pub. L. 99–514 applicable to taxable years beginning after Dec. 31, 1986, see section 612(c) of Pub. L. 99–514, set out as a note under section 301 of this title.

Effective Date of 1984 Amendment

Amendment by Pub. L. 98–369 applicable to property acquired after June 22, 1984, and before Jan. 1, 1988, see section 1001(e) of Pub. L. 98–369, set out as a note under section 166 of this title.

Effective Date of 1983 Amendment

Amendment by Pub. L. 97–448 effective, except as otherwise provided, as if it had been included in the provision of the Economic Recovery Tax Act of 1981, Pub. L. 97–34, to which such amendment relates, see section 109 of Pub. L. 97–448, set out as a note under section 1 of this title.

Effective Date of 1981 Amendment

Amendment by section 301(b)(3) of Pub. L. 97–34 applicable to taxable years ending after Sept. 30, 1981, and amendment by section 301(b)(6)(A) of Pub. L. 97–34 applicable to taxable years beginning after Dec. 31, 1981, see section 301(d) of Pub. L. 97–34, set out as a note under section 265 of this title.

Effective and Termination Dates of 1980 Amendment

Amendment by Pub. L. 96–223 applicable with respect to taxable years beginning after Dec. 31, 1980, and before Jan. 1, 1982, see section 404(c) of Pub. L. 96–223, set out as a note under section 265 of this title.

Effective Date of 1977 Amendment

Amendment by Pub. L. 95–30 applicable to taxable years beginning after Dec. 31, 1976, see section 106(a) of Pub. L. 95–30, set out as a note under section 1 of this title.

Effective Date of 1976 Amendment

Pub. L. 94–455, title XXI, §2131(f)(6), Oct. 4, 1976, 90 Stat. 1925, provided that: "The amendments made by subsections (d) and (e) [amending this section and section 683 of this title] shall take effect on April 8, 1976, in taxable years ending on or after such date."

Pub. L. 94–455, title XIV, §1402(b)(1), Oct. 4, 1976, 90 Stat. 1731, provided that the amendment made by that section is effective with respect to taxable years beginning in 1977.

Pub. L. 94–455, title XIV, §1402(b)(2), Oct. 4, 1976, 90 Stat. 1732, provided that the amendment made by that section is effective with respect to taxable years beginning after Dec. 31, 1977.

Amendment by section 1901(b)(1)(G) of Pub. L. 94–455 applicable with respect to taxable years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L. 94–455, set out as an Effective Date of 1976 Amendment note under section 2 of this title.

Pub. L. 94–414, §2, Sept. 17, 1976, 90 Stat. 1273, provided that: "The amendment made by the first section of this Act [amending this section] shall apply to taxable years beginning after December 31, 1975."

Effective Date of 1964 Amendment

Amendment by Pub. L. 88–272 applicable with respect to dividends received after Dec. 31, 1964, in taxable years ending after such date, see section 201(e) of Pub. L. 88–272, set out as a note under section 22 of this title.
26 U.S.C. § 6412 (2024) — Title 26: INTERNAL REVENUE CODE / Chapter 65 / Section 6412: Floor stocks refunds
Floor stocks refunds
Status: in_force

(a) In general

(1) Tires and taxable fuel

Where before October 1, 2028, any article subject to the tax imposed by section 4071 or 4081 has been sold by the manufacturer, producer, or importer and on such date is held by a dealer and has not been used and is intended for sale, there shall be credited or refunded (without interest) to the manufacturer, producer, or importer an amount equal to the difference between the tax paid by such manufacturer, producer, or importer on his sale of the article and the amount of tax made applicable to such article on and after October 1, 2028, if claim for such credit or refund is filed with the Secretary on or before March 31, 2029, based upon a request submitted to the manufacturer, producer, or importer before January 1, 2029, by the dealer who held the article in respect of which the credit or refund is claimed, and, on or before March 31, 2029, reimbursement has been made to such dealer by such manufacturer, producer, or importer for the tax reduction on such article or written consent has been obtained from such dealer to allowance of such credit or refund. No credit or refund shall be allowable under this paragraph with respect to taxable fuel in retail stocks held at the place where intended to be sold at retail, nor with respect to taxable fuel held for sale by a producer or importer of taxable fuel.

(2) Definitions

For purposes of this section—

(A) The term "dealer" includes a wholesaler, jobber, distributor, or retailer.

(B) An article shall be considered as "held by a dealer" if title thereto has passed to such dealer (whether or not delivery to him has been made), and if for purposes of consumption title to such article or possession thereof has not at any time been transferred to any person other than a dealer.

(b) Limitation on eligibility for credit or refund

No manufacturer, producer, or importer shall be entitled to credit or refund under subsection (a) unless he has in his possession such evidence of the inventories with respect to which the credit or refund is claimed as may be required by regulations prescribed under this section.

(c) Other laws applicable

All provisions of law, including penalties, applicable in respect of the taxes imposed by sections 4071 and 4081 shall, insofar as applicable and not inconsistent with subsections (a) and (b) of this section, apply in respect of the credits and refunds provided for in subsection (a) to the same extent as if such credits or refunds constituted overpayments of such taxes.

(Aug. 16, 1954, ch. 736, 68A Stat. 795; Mar. 30, 1955, ch. 18, §3(b)(4), 69 Stat. 15; Mar. 29, 1956, ch. 115, §3(b)(4), 70 Stat. 67; May 29, 1956, ch. 342, §19, 70 Stat. 221; June 29, 1956, ch. 462, title II, §208(a), 70 Stat. 392; Pub. L. 85–12, §3(b)(4), Mar. 29, 1957, 71 Stat. 10; Pub. L. 85–475, §3(b)(4), June 30, 1958, 72 Stat. 260; Pub. L. 85–859, title I, §162(a), Sept. 2, 1958, 72 Stat. 1306; Pub. L. 86–75, §3(b)(3), June 30, 1959, 73 Stat. 158; Pub. L. 86–342, title II, §201(c)(4), Sept. 21, 1959, 73 Stat. 614; Pub. L. 86–564, title II, §202(b)(3), June 30, 1960, 74 Stat. 291; Pub. L. 86–592, §2, July 6, 1960, 74 Stat. 330; Pub. L. 87–15, §2(b), Mar. 31, 1961, 75 Stat. 40; Pub. L. 87–61, title II, §206 (c), (d), June 29, 1961, 75 Stat. 127; Pub. L. 87–72, §3(b)(3), June 30, 1961, 75 Stat. 193; Pub. L. 87–456, title III, §302(d), May 24, 1962, 76 Stat. 77; Pub. L. 87–508, §3(b)(3), June 28, 1962, 76 Stat. 114; Pub. L. 87–535, §18(b), July 13, 1962, 76 Stat. 166; Pub. L. 88–52, §3(b)(1)(C), June 29, 1963, 77 Stat. 72; Pub. L. 88–348, §2(b)(1)(C), June 30, 1964, 78 Stat. 237; Pub. L. 89–44, title II, §209(a), (d), June 21, 1965, 79 Stat. 141, 144; Pub. L. 89–368, title II, §201(b), Mar. 15, 1966, 80 Stat. 66; Pub. L. 90–285, §1(a)(2), Apr. 12, 1968, 82 Stat. 92; Pub. L. 90–364, title I, §105(a)(2), June 28, 1968, 82 Stat. 265; Pub. L. 91–172, title VII, §702(a)(2), Dec. 30, 1969, 83 Stat. 660; Pub. L. 91–605, title III, §303(b), Dec. 31, 1970, 84 Stat. 1744; Pub. L. 91–614, title II, §201(a)(2), Dec. 31, 1970, 84 Stat. 1843; Pub. L. 92–178, title IV, §401(g)(5), Dec. 10, 1971, 85 Stat. 533; Pub. L. 94–280, title III, §303(b), May 5, 1976, 90 Stat. 457; Pub. L. 94–455, title XIX, §1906(a)(22), (b)(13)(A), Oct. 4, 1976, 90 Stat. 1826, 1834; Pub. L. 95–599, title V, §502(c), Nov. 6, 1978, 92 Stat. 2757; Pub. L. 95–618, title II, §231(f)(1), Nov. 9, 1978, 92 Stat. 3189; Pub. L. 97–424, title V, §516(a)(5), Jan. 6, 1983, 96 Stat. 2183; Pub. L. 98–369, div. A, title VII, §735(c)(12), July 18, 1984, 98 Stat. 983; Pub. L. 100–17, title V, §502(d)(1), Apr. 2, 1987, 101 Stat. 257; Pub. L. 101–508, title XI, §11211(f)(1), Nov. 5, 1990, 104 Stat. 1388–427; Pub. L. 102–240, title VIII, §8002(c)(1), Dec. 18, 1991, 105 Stat. 2203; Pub. L. 103–66, title XIII, §13242(d)(16), Aug. 10, 1993, 107 Stat. 524; Pub. L. 105–178, title IX, §9002(a)(2)(A), June 9, 1998, 112 Stat. 499; Pub. L. 109–59, title XI, §11101(a)(3), Aug. 10, 2005, 119 Stat. 1944; Pub. L. 112–30, title I, §142(c), Sept. 16, 2011, 125 Stat. 356; Pub. L. 112–102, title IV, §402(c), Mar. 30, 2012, 126 Stat. 282; Pub. L. 112–140, title IV, §402(b), June 29, 2012, 126 Stat. 402; Pub. L. 112–141, div. D, title I, §40102(c), July 6, 2012, 126 Stat. 845; Pub. L. 114–94, div. C, title XXXI, §31102(c), Dec. 4, 2015, 129 Stat. 1727; Pub. L. 117–58, div. H, title I, §80102(c), Nov. 15, 2021, 135 Stat. 1327.)

Editorial Notes

Amendments

2021—Subsec. (a)(1). Pub. L. 117–58 substituted "October 1, 2028" for "October 1, 2022" in two places and "March 31, 2029" for "March 31, 2023" in two places and substituted "January 1, 2029" for "January 1, 2023".

2015—Subsec. (a)(1). Pub. L. 114–94 substituted "October 1, 2022" for "October 1, 2016" in two places and "March 31, 2023" for "March 31, 2017" in two places and substituted "January 1, 2023" for "January 1, 2017".

2012—Subsec. (a)(1). Pub. L. 112–141 substituted in two places "October 1, 2016" for "July 1, 2012" and "March 31, 2017" for "December 31, 2012" and substituted "January 1, 2017" for "October 1, 2012".

Pub. L. 112–140, §§1(c), 402(b), temporarily substituted in two places "July 7, 2012" for "July 1, 2012" and "January 6, 2013" for "December 31, 2012" and temporarily substituted "October 7, 2012" for "October 1, 2012". See Effective and Termination Dates of 2012 Amendment note below.

Pub. L. 112–102 substituted in two places "July 1, 2012" for "April 1, 2012" and "December 31, 2012" for "September 30, 2012" and substituted "October 1, 2012" for "July 1, 2012".

2011—Subsec. (a)(1). Pub. L. 112–30 substituted in two places "April 1, 2012" for "October 1, 2011" and "September 30, 2012" for "March 31, 2012" and substituted "July 1, 2012" for "January 1, 2012".

2005—Subsec. (a)(1). Pub. L. 109–59 substituted "2011" for "2005" and "2012" for "2006" wherever appearing.

1998—Subsec. (a)(1). Pub. L. 105–178 substituted "2005" for "1999" and "2006" for "2000" wherever appearing.

1993—Subsec. (a)(1). Pub. L. 103–66 substituted "taxable fuel" for "gasoline" wherever appearing in heading and text.

1991—Subsec. (a)(1). Pub. L. 102–240 substituted "1999" for "1995" and "2000" for "1996" wherever appearing.

1990—Subsec. (a)(1). Pub. L. 101–508 substituted "1995" for "1993" and "1996" for "1994" wherever appearing.

1987—Subsec. (a)(1). Pub. L. 100–17 substituted "1993" for "1988" and "1994" for "1989" wherever appearing.

1984—Subsec. (a)(1). Pub. L. 98–369, §735(c)(12)(A), (B), substituted "Tires and gasoline" for "Trucks, tires, tubes, tread rubber, and gasoline" in heading, and in text substituted "Where before October 1, 1988, any article subject to the tax imposed by section 4071 or 4081 has been sold by the manufacturer, producer, or importer and on such date is held by a dealer and has not been used and is intended for sale," for "Where before October 1, 1988, any article subject to the tax imposed by section 4061(a)(1), 4071((a)(1), (3) or (4), or 4081 has been sold by the manufacturer, producer, or importer and on such date is held by a dealer and has not been used and is intended for sale (or, in the case of tread rubber, is intended for sale or is held for use),", and struck out provision that no credit or refund shall be allowable under this paragraph with respect to inner tubes for bicycle tires (as defined in section 4221(e)(4)(B)).

Subsec. (a)(2)(A). Pub. L. 98–369, §735(c)(12)(C), substituted "The term 'dealer' includes a wholesaler, jobber, distributor, or retailer" for "The term 'dealer' includes a wholesaler, jobber, distributor, or retailer, or, in the case of tread rubber subject to tax under section 4071(a)(4), includes any person (other than the manufacturer, producer, or importer thereof) who holds such tread rubber for sale or use".

Subsec. (c). Pub. L. 98–369, §735(c)(12)(D), substituted "4071" for "4061, 4071,".

1983—Subsec. (a)(1). Pub. L. 97–424, §516(a)(5), substituted "1989" for "1985" and "1988" for "1984" wherever appearing.

1978—Subsec. (a)(1). Pub. L. 95–618 struck out "and buses" after "Trucks" in heading.

Pub. L. 95–599 substituted "1984" for "1979" and "1985" for "1980" wherever appearing.

1976—Subsec. (a)(1). Pub. L. 94–455, §1906(a)(22), (b)(13)(A), redesignated par. (2) as (1) and struck out "or his delegate" after "Secretary". Prior par. (1) had been repealed by Pub. L. 92–178, title IV, §401(g)(5), Dec. 10, 1971, 85 Stat. 533.

Subsec. (a)(2). Pub. L. 94–455, §1906(a)(22), redesignated par. (4) as (2). Former par. (2) redesignated (1).

Pub. L. 94–280 substituted "1979" for "1977" in two places and "1980" for "1978" in three places, respectively.

Subsec. (a)(4). Pub. L. 94–455, §1906(a)(22), redesignated par. (4) as (2).

1971—Subsec. (a)(1). Pub. L. 92–178 struck out par. (1) which related to general rule for floor stocks refunds on passenger automobiles, etc.

1970—Subsec. (a)(1). Pub. L. 91–614 substituted "January 1 of 1973, 1974, 1978, 1979, 1980, 1981, or 1982" for "January 1, 1971, January 1, 1972, January 1, 1973, or January 1, 1974".

Subsec. (a)(2). Pub. L. 91–605 substituted in two places "1977" for "1972" and "March 31, 1978" for "February 10, 1973", and substituted "January 1, 1978" for "January 1, 1973".

1969—Subsec. (a)(1). Pub. L. 91–172 struck out reference to Jan. 1, 1970, and inserted reference to Jan. 1, 1974.

1968—Subsec. (a)(1). Pub. L. 90–364 substituted "January 1, 1970, January 1, 1971, January 1, 1972, or January 1, 1973," for "May 1, 1968, or January 1, 1969,".

Pub. L. 90–285 substituted "May 1, 1968" for "April 1, 1968".

1966—Subsec. (a)(1). Pub. L. 89–368 substituted "January 1, 1966, April 1, 1968, or January 1, 1969," for "January 1, 1966, 1967, 1968, or 1969,".

1965—Subsec. (a)(1). Pub. L. 89–44, §209(a), made floor stock refunds available with respect to passenger cars in dealers' inventories on the various reduction dates for the passenger car tax and required claims for credit or refund to be filed on or before the 10th day of the 8th calendar month beginning after the date of the tax reduction.

Subsec. (e). Pub. L. 89–44, §209(d), repealed subsec. (e) which related to cross reference.

1964—Subsec. (a)(1). Pub. L. 88–348 substituted "July 1, 1965" for "July 1, 1964" in two places, "October 1, 1965" for "October 1, 1964", and "November 10, 1965" for "November 10, 1964" in two places.

1963—Subsec. (a)(1). Pub. L. 88–52 substituted "July 1, 1964" for "July 1, 1963", in two places, "October 1, 1964" for "October 1, 1963", and "November 10, 1964" for "November 10, 1963" in two places.

1962—Subsec. (a)(1). Pub. L. 87–508 substituted "July 1, 1963" for "July 1, 1962" in two places, "October 1, 1963" for "October 1, 1962", and "November 10, 1963" for "November 10, 1962" in two places.

Subsec. (d). Pub. L. 87–456 repealed subsec. (d) which related to floor stock refunds with respect to any sugar or articles composed in chief value of sugar.

Pub. L. 87–535 substituted "June 30, 1967" for "December 31, 1962" after "paid and which, on", and "September 30, 1967" for "March 31, 1963" after "delegate on or before".

1961—Subsec. (a)(1). Pub. L. 87–72 substituted "July 1, 1962" for "July 1, 1961" in two places, "October 1, 1962" for "October 1, 1961", and "November 10, 1962" for "November 10, 1961" in two places.

Subsec. (a)(2). Pub. L. 87–61, §206(c), inserted tubes in heading, authorized credit or refund for articles subject to the tax imposed by section 4071(a)(3), prohibited credit or refund with respect to inner tubes for bicycle tires, and substituted "October 1, 1972" for "July 1, 1972" in two places, "February 10, 1973" for "November 10, 1972" in two places, and "January 1, 1973" for "October 1, 1972".

Subsec. (a)(3). Pub. L. 87–61, §206(d), repealed par. (3) which related to 1961 floor stocks refund on gasoline.

Subsec. (d). Pub. L. 87–15 substituted "December 31, 1962" for "September 30, 1961" after "paid and which, on", and "March 31, 1963" for "September 30, 1961" after "delegate on or before".

1960—Subsec. (a)(1). Pub. L. 86–564 substituted "July 1, 1961" for "July 1, 1960" in two places, "October 1, 1961" for "October 1, 1960", and "November 10, 1961" for "November 10, 1960" in two places.

Subsec. (d). Pub. L. 86–592 substituted "September 30, 1961" for "June 30, 1961" after "and which, on".

1959—Subsec. (a)(1). Pub. L. 86–75 substituted "July 1, 1960" for "July 1, 1959" in two places, "October 1, 1960" for "October 1, 1959" and "November 10, 1960" for "November 10, 1959" in two places.

Subsec. (a)(3), (4). Pub. L. 86–342 added par. (3) and redesignated former par. (3) as (4).

1958—Subsec. (a)(1). Pub. L. 85–475 substituted "July 1, 1959" for "July 1, 1958" in two places, "October 1, 1959" for "October 1, 1958", and "November 10, 1959" for "November 10, 1958" in two places.

Subsec. (d). Pub. L. 85–859 required filing of claims for refund on or before Sept. 30, 1961.

1957—Subsec. (a)(1). Pub. L. 85–12, substituted "July 1, 1958" for "April 1, 1957" in two places, "October 1, 1958" for "July 1, 1957", and "November 10, 1958" for "August 10, 1957" in two places.

1956—Subsec. (a). Act June 29, 1956, in par. (1), substituted "April 1, 1957" for "April 1, 1956" in two places, "section 4061(a)(2)" for "section 4061 (a) or (b)", and inserted provisions requiring claims for refund to be made on or before August 10, 1957, inserted provisions relating to trucks and buses, tires, tread rubber, and gasoline as par. (2), defined "dealer" in the case of tread rubber subject to tax under section 4071(a)(4) of this title in par. (3), and struck out pars. (4) and (5). Former par. (4), which related to reimbursement of dealers, was covered generally by pars. (1) and (2). Former par. (5) was covered by subsec. (b).

Act Mar. 29, 1956, substituted "April 1, 1957" for "April 1, 1956" in two places, and "July 1, 1957" for "July 1, 1956".

Subsec. (b). Act June 29, 1956, redesignated par. (5) of subsec. (a) as subsec. (b) and substituted "manufacturer, producer, or importer" for "person", and struck out provisions that required claims for credit or refund to be filed before July 1, 1956. Former subsec. (b) was covered by par. (2) of subsec. (a).

Act Mar. 29, 1956, substituted "April 1, 1957" for "April 1, 1956" in three places, and "July 1, 1957" for "July 1, 1956".

Subsec. (c). Act June 29, 1956, included taxes imposed by section 4071 of this title.

Subsec. (d). Act May 29, 1956, substituted "1961" for "1957".

1955—Subsecs. (a), (b). Act Mar. 30, 1955, substituted "April 1, 1956" for "April 1, 1955" and "July 1, 1956" for "July 1, 1955" wherever appearing.

Statutory Notes and Related Subsidiaries

Effective Date of 2021 Amendment

Amendment by Pub. L. 117–58 effective Oct. 1, 2021, see section 80102(f) of Pub. L. 117–58, set out as a note under section 4041 of this title.

Effective Date of 2015 Amendment

Amendment by Pub. L. 114–94 effective Oct. 1, 2016, see section 31102(f) of Pub. L. 114–94, set out as a note under section 4041 of this title.

Effective and Termination Dates of 2012 Amendment

Amendment by Pub. L. 112–141 effective July 1, 2012, see section 40102(f) of Pub. L. 112–141, set out as a note under section 4041 of this title.

Amendment by Pub. L. 112–140 to cease to be effective on July 6, 2012, with text as amended by Pub. L. 112–140 to revert back to read as it did on the day before June 29, 2012, and amendments by Pub. L. 112–141 to be executed as if Pub. L. 112–140 had not been enacted, see section 1(c) of Pub. L. 112–140, set out as a note under section 101 of Title 23, Highways.

Amendment by Pub. L. 112–140 effective July 1, 2012, see section 402(f)(1) of Pub. L. 112–140, set out as a note under section 4041 of this title.

Amendment by Pub. L. 112–102 effective Apr. 1, 2012, see section 402(f) of Pub. L. 112–102, set out as a note under section 4041 of this title.

Effective Date of 2011 Amendment

Amendment by Pub. L. 112–30 effective Oct. 1, 2011, see section 142(f) of Pub. L. 112–30, set out as a note under section 4041 of this title.

Effective Date of 1993 Amendment

Amendment by Pub. L. 103–66 effective Jan. 1, 1994, see section 13242(e) of Pub. L. 103–66, set out as a note under section 4041 of this title.

Effective Date of 1984 Amendment

Amendment by Pub. L. 98–369 effective, except as otherwise provided, as if included in the provisions of the Highway Revenue Act of 1982, title V of Pub. L. 97–424, to which such amendment relates, see section 736 of Pub. L. 98–369, set out as a note under section 4051 of this title.

Effective Date of 1978 Amendment

Amendment by Pub. L. 95–618 applicable with respect to articles sold after Nov. 9, 1978, see section 231(g) of Pub. L. 95–618, set out as a note under section 4222 of this title.

Effective Date of 1971 Amendment

Amendment by Pub. L. 92–178 applicable with respect to articles sold on or after the day after Dec. 10, 1971, see section 401(h)(1) of Pub. L. 92–178, set out as a note under section 4071 of this title.

Effective Date of 1968 Amendments

Pub. L. 90–364, title I, §105(c), June 28, 1968, 82 Stat. 266, provided that: "The amendments made by this section [amending this section and sections 4061 and 4251 of this title] shall take effect as of April 30, 1968."

Pub. L. 90–285, §1(b), Apr. 12, 1968, 82 Stat. 92, provided that: "The amendments made by subsection (a) [amending this section and sections 4061 and 4251 of this title] shall take effect as of March 31, 1968."

Effective Date of 1965 Amendment

Amendment by Pub. L. 89–44 effective June 22, 1965, see section 701(a) of Pub. L. 89–44, set out as a note under section 4161 of this title.

Effective Date of 1962 Amendments

Amendment by Pub. L. 87–535 effective Jan. 1, 1962, see section 19(a) of Pub. L. 87–535, July 13, 1962, 76 Stat. 167.

Amendment by Pub. L. 87–456 effective with respect to articles entered, or withdrawn from warehouse, for consumption on or after Aug. 31, 1963, see section 501(a) of Pub. L. 87–456, title V, May 24, 1962, 76 Stat. 78.

Effective Date of 1961 Amendment

Amendment by Pub. L. 87–61 effective June 29, 1961, see section 208 of Pub. L. 87–61, set out as a note under section 4041 of this title.

Effective Date of 1958 Amendment

Amendment by Pub. L. 85–859 effective on first day of first calendar quarter which begins more than 60 days after Sept. 2, 1958, see section 1(c) of Pub. L. 85–859, Sept. 2, 1958, 72 Stat. 1275.

Effective Date of 1956 Amendments

Amendment by act June 29, 1956, effective June 29, 1956, see section 211 of act June 29, 1956, set out as a note under section 4041 of this title.

Amendment by act May 29, 1956, effective as of Jan. 1, 1956, see section 22 of act May 29, 1956, ch. 342, 70 Stat. 221.

Floor Stock Refunds

Pub. L. 89–44, title II, §209(b), June 21, 1965, 79 Stat. 142, provided that where any article subject to taxes under section 4111, 4121, 4141, 4151, 4161, 4191 or 4451 of this title before June 21, 1965, or subject to taxes under section 4061(b), 4091(1), or 4131 of this title before Jan. 1, 1966, had been sold by the manufacturer, importer or producer and on such date held by the dealer and not used, there was to be credited or refunded to the manufacturer, importer or producer an amount equal to the difference between the tax paid by him on his sale of the article and the amount of tax made applicable to the article on such date where certain conditions were satisfactorily met.

Extension of Time for Filing Claims for Floor Stocks Refunds

Pub. L. 91–642, §1, Dec. 31, 1970, 84 Stat. 1880, provided that if a claim for credit or refund was filed by a manufacturer, importer or producer on or before the 90th day after Dec. 31, 1970, such filing was deemed to have satisfied the requirements of section 209(b)(1)(A) of Pub. L. 89–44 for filing on or before Feb. 10, 1966, or Aug. 10, 1966.

Refunds Respecting Consumer Purchases

Pub. L. 89–44, title II, §209(c), June 21, 1965, 79 Stat. 143, provided that if after May 14, 1965, but before June 21, 1965, a new automotive item subject to the tax imposed by section 4061(a)(2) of this title, or a new self-contained air-conditioning unit subject to the tax imposed by section 4111 of this title, had been sold to an ultimate purchaser, there was to be credited or refunded to the manufacturer, producer, or importer an amount equal to the difference between the tax paid by the manufacturer, producer, or importer on his sale of the article and the tax made applicable to the article on such date if certain conditions were met.
26 U.S.C. § 805 (2024) — Title 26: INTERNAL REVENUE CODE / Chapter 1 / Subchapter L / Section 805: General deductions
General deductions
Status: in_force

(a) General rule

For purposes of this part, there shall be allowed the following deductions:

(1) Death benefits, etc.

All claims and benefits accrued, and all losses incurred (whether or not ascertained), during the taxable year on insurance and annuity contracts.

(2) Increases in certain reserves

The net increase in reserves which is required by section 807(b) to be taken into account under this paragraph.

(3) Policyholder dividends

The deduction for policyholder dividends (determined under section 808(c)).

(4) Dividends received by company

(A) In general

The deductions provided by sections 243 and 245 (as modified by subparagraph (B))—

(i) for 100 percent dividends received, and

(ii) for the life insurance company's share of the dividends (other than 100 percent dividends) received.

(B) Application of section 246(b)

In applying section 246(b) (relating to limitation on aggregate amount of deductions for dividends received) for purposes of subparagraph (A), the limit on the aggregate amount of the deductions allowed by sections 243(a)(1) and 245 shall be the percentage determined under section 246(b)(3) of the life insurance company taxable income (and such limitation shall be applied as provided in section 246(b)(3)), computed without regard to—

(i) the deduction allowed under section 172,

(ii) the deductions allowed by sections 243(a)(1) and 245, and

(iii) any capital loss carryback to the taxable year under section 1212(a)(1),

but such limit shall not apply for any taxable year for which there is a loss from operations.

(C) 100 percent dividend

For purposes of subparagraph (A)—

(i) In general

Except as provided in clause (ii), the term "100 percent dividend" means any dividend if the percentage used for purposes of determining the deduction allowable under section 243 or 245(b) is 100 percent.

(ii) Treatment of dividends from noninsurance companies

The term "100 percent dividend" does not include any distribution by a corporation which is not an insurance company to the extent such distribution is out of tax-exempt interest, or out of the increase for the taxable year in policy cash values (within the meaning of subparagraph (F)) of life insurance policies and annuity and endowment contracts to which section 264(f) applies, or out of dividends which are not 100 percent dividends (determined with the application of this clause as if it applies to distributions by all corporations including insurance companies).

(D) Special rules for certain dividends from insurance companies

(i) In general

In the case of any 100 percent dividend paid to any life insurance company out of the earnings and profits for any taxable year beginning after December 31, 1983, of another life insurance company if—

(I) the paying company's share determined under section 812 for such taxable year, exceeds

(II) the receiving company's share determined under section 812 for its taxable year in which the dividend is received or accrued,

 the deduction allowed under section 243 or 245(b) (as the case may be) shall be reduced as provided in clause (ii).

(ii) Amount of reduction

The reduction under this clause for a dividend is an amount equal to—

(I) the portion of such dividend attributable to prorated amounts, multiplied by

(II) the percentage obtained by subtracting the share described in subclause (II) of clause (i) from the share described in subclause (I) of such clause.

(iii) Prorated amounts

For purposes of this subparagraph, the term "prorated amounts" means tax-exempt interest, the increase for the taxable year in policy cash values (within the meaning of subparagraph (F)) of life insurance policies and annuity and endowment contracts to which section 264(f) applies, and dividends other than 100 percent dividends.

(iv) Portion of dividend attributable to prorated amounts

For purposes of this subparagraph, in determining the portion of any dividend attributable to prorated amounts—

(I) any dividend by the paying corporation shall be treated as paid first out of earnings and profits for taxable years beginning after December 31, 1983, attributable to prorated amounts (to the extent thereof), and

(II) by determining the portion of earnings and profits so attributable without any reduction for the tax imposed by this chapter.

(v) Subparagraph to apply to dividends from other insurance companies

Rules similar to the rules of this subsection shall apply in the case of 100 percent dividends paid by an insurance company which is not a life insurance company.

(E) Certain dividends received by foreign corporations

Subparagraph (A)(i) (and not subparagraph (A)(ii)) shall apply to any dividend received by a foreign corporation from a domestic corporation which would be a 100 percent dividend if section 1504(b)(3) did not apply for purposes of applying section 243(b)(2).

(F) Increase in policy cash values

For purposes of subparagraphs (C) and (D)—

(i) In general

The increase in the policy cash value for any taxable year with respect to policy or contract is the amount of the increase in the adjusted cash value during such taxable year determined without regard to—

(I) gross premiums paid during such taxable year, and

(II) distributions (other than amounts includible in the policyholder's gross income) during such taxable year to which section 72(e) applies.

(ii) Adjusted cash value

For purposes of clause (i), the term "adjusted cash value" means the cash surrender value of the policy or contract increased by the sum of—

(I) commissions payable with respect to such policy or contract for the taxable year, and

(II) asset management fees, surrender charges, mortality and expense charges, and any other fees or charges specified in regulations prescribed by the Secretary which are imposed (or which would be imposed were the policy or contract canceled) with respect to such policy or contract for the taxable year.

[(5) Repealed. Pub. L. 115–97, title I, §13511(b)(5), Dec. 22, 2017, 131 Stat. 2142]

(6) Assumption by another person of liabilities under insurance, etc., contracts

The consideration (other than consideration arising out of indemnity reinsurance) in respect of the assumption by another person of liabilities under insurance and annuity contracts.

(7) Reimbursable dividends

The amount of policyholder dividends which—

(A) are paid or accrued by another insurance company in respect of policies the taxpayer has reinsured, and

(B) are reimbursable by the taxpayer under the terms of the reinsurance contract.

(8) Other deductions

Subject to the modifications provided by subsection (b), all other deductions allowed under this subtitle for purposes of computing taxable income.

Except as provided in paragraph (3), no amount shall be allowed as a deduction under this part in respect of policyholder dividends.

(b) Modifications

The modifications referred to in subsection (a)(8) are as follows:

(1) Interest

In applying section 163 (relating to deduction for interest), no deduction shall be allowed for interest in respect of items described in section 807(c).

(2) Charitable, etc., contributions and gifts

In applying section 170—

(A) the limit on the total deductions under such section provided by section 170(b)(2) shall be 10 percent of the life insurance company taxable income computed without regard to—

(i) the deduction provided by section 170,

(ii) the deductions provided by paragraphs (3) and (4) of subsection (a),

(iii) any net operating loss carryback to the taxable year under section 172, and

(iv) any capital loss carryback to the taxable year under section 1212(a)(1), and

(B) under regulations prescribed by the Secretary, a rule similar to the rule contained in section 170(d)(2)(B) (relating to special rule for net operating loss carryovers) shall be applied.

(3) Amortizable bond premium

(A) In general

Section 171 shall not apply.

(B) Cross reference

For rules relating to amortizable bond premium, see section 811(b).

(4) Dividends received deduction

Except as provided in subsection (a)(4), the deductions for dividends received provided by sections 243 and 245 shall not be allowed.

(Added Pub. L. 98–369, div. A, title II, §211(a), July 18, 1984, 98 Stat. 722; amended Pub. L. 99–514, title VI, §611(a)(5), title VIII, §805(c)(6), title X, §1011(b)(4), title XVIII, §1821(p), Oct. 22, 1986, 100 Stat. 2249, 2362, 2389, 2842; Pub. L. 100–203, title X, §10221(c)(2), Dec. 22, 1987, 101 Stat. 1330–409; Pub. L. 104–188, title I, §1702(h)(3), Aug. 20, 1996, 110 Stat. 1873; Pub. L. 105–34, title X, §1084(b)(1), Aug. 5, 1997, 111 Stat. 954; Pub. L. 113–295, div. A, title II, §221(a)(41)(G), (I), Dec. 19, 2014, 128 Stat. 4044; Pub. L. 115–97, title I, §§13511(a), (b)(4)–(6), 13512(b)(5), (6), Dec. 22, 2017, 131 Stat. 2142, 2143.)

Editorial Notes

Codification

Another section 1084(b) of Pub. L. 105–34 amended sections 101 and 264 of this title.

Prior Provisions

A prior section 805, added Pub. L. 86–69, §2(a), June 25, 1959, 73 Stat. 118; amended Pub. L. 87–792, §7(g), Oct. 10, 1962, 76 Stat. 829; Pub. L. 88–571, §5(a), Sept. 2, 1964, 78 Stat. 860; Pub. L. 91–172, title IX, §907(a)(1), Dec. 30, 1969, 83 Stat. 715; Pub. L. 93–406, title II, §§1016(a)(6), 2002(g)(9), 2004(c)(3), Sept. 2, 1974, 88 Stat. 929, 970, 986; Pub. L. 94–267, §(1)(c)(4), Apr. 15, 1976, 90 Stat. 367; Pub. L. 94–455, title XIX, §1901(a)(97), Oct. 4, 1976, 90 Stat. 1780; Pub. L. 95–600, title I, §§141(f)(9), 155(a), Nov. 6, 1978, 92 Stat. 2795, 2801; Pub. L. 97–248, title II, §§257(a), 260(b), 261, 264(a)–(c)(1), Sept. 3, 1982, 96 Stat. 537, 540, 543, 544, related to policy and other contract liability requirements, prior to general revision of this part by Pub. L. 98–369, §211(a).

Another prior section 805, acts Aug. 16, 1954, ch. 736, 68A Stat. 258; Mar. 13, 1956, ch. 83, §2, 70 Stat. 43, authorized a special interest deduction, prior to the general revision of this part by Pub. L. 86–69, §2(a).

Amendments

2017—Subsec. (a)(4)(B)(i). Pub. L. 115–97, §13512(b)(5), redesignated cl. (ii) as (i) and struck out former cl. (i) which read as follows: "the small life insurance company deduction,".

Subsec. (a)(4)(B)(ii). Pub. L. 115–97, §13512(b)(5), redesignated cl. (iii) as (ii). Former cl. (ii) redesignated (i).

Pub. L. 115–97, §13511(b)(4), amended cl. (ii) generally. Prior to amendment, cl. (ii) read as follows: "the operations loss deduction provided by section 810,".

Subsec. (a)(4)(B)(iii), (iv). Pub. L. 115–97, §13512(b)(5), redesignated cls. (iii) and (iv) as (ii) and (iii), respectively.

Subsec. (a)(5). Pub. L. 115–97, §13511(b)(5), struck out par. (5) which provided for the operations loss deduction determined under section 810.

Subsec. (b)(2)(A)(iii). Pub. L. 115–97, §13512(b)(6), redesignated cl. (iv) as (iii) and struck out former cl. (iii) which read as follows: "the small life insurance company deduction,".

Subsec. (b)(2)(A)(iv). Pub. L. 115–97, §13512(b)(6), redesignated cl. (v) as (iv). Former cl. (iv) redesignated (iii).

Pub. L. 115–97, §13511(b)(6), amended cl. (iv) generally. Prior to amendment, cl. (iv) read as follows: "any operations loss carryback to the taxable year under section 810, and".

Subsec. (b)(2)(A)(v). Pub. L. 115–97, §13512(b)(6), redesignated cl. (v) as (iv).

Subsec. (b)(4), (5). Pub. L. 115–97, §13511(a), redesignated par. (5) as (4) and struck out former par. (4) which did not allow the net operating loss deduction provided in section 172, except as provided by section 844.

2014—Subsec. (a)(4)(A). Pub. L. 113–295, §221(a)(41)(G), struck out ", 244," after "sections 243" in introductory provisions.

Subsec. (a)(4)(B). Pub. L. 113–295, §221(a)(41)(I), struck out ", 244(a)," after "sections 243(a)(1)" in introductory provisions and in cl. (iii).

Subsec. (a)(4)(C)(i), (D)(i). Pub. L. 113–295, §221(a)(41)(G), struck out ", 244," after "section 243".

Subsec. (b)(5). Pub. L. 113–295, §221(a)(41)(G), struck out ", 244," after "sections 243".

1997—Subsec. (a)(4)(C)(ii). Pub. L. 105–34, §1084(b)(1)(A), inserted ", or out of the increase for the taxable year in policy cash values (within the meaning of subparagraph (F)) of life insurance policies and annuity and endowment contracts to which section 264(f) applies," after "tax-exempt interest".

Subsec. (a)(4)(D)(iii). Pub. L. 105–34, §1084(b)(1)(B), substituted ", the increase for the taxable year in policy cash values (within the meaning of subparagraph (F)) of life insurance policies and annuity and endowment contracts to which section 264(f) applies, and" for "and".

Subsec. (a)(4)(F). Pub. L. 105–34, §1084(b)(1)(C), added subpar. (F).

1996—Subsec. (a)(4)(E). Pub. L. 104–188 substituted "243(b)(2)" for "243(b)(5)".

1987—Subsec. (a)(4)(B). Pub. L. 100–203 substituted "shall be the percentage determined under section 246(b)(3) of the life insurance company taxable income (and such limitation shall be applied as provided in section 246(b)(3))" for "shall be 80 percent of the life insurance company taxable income".

1986—Subsec. (a)(4)(B). Pub. L. 99–514, §611(a)(5), substituted "80 percent" for "85 percent" in introductory provisions.

Subsec. (a)(4)(B)(i). Pub. L. 99–514, §1011(b)(4), struck out "the special life insurance company deduction and" before "the small life".

Subsec. (a)(4)(C) to (E). Pub. L. 99–514, §1821(p), added subpars. (C) and (D), redesignated former subpar. (D) as (E), and struck out former subpar. (C) which read as follows: "For purposes of subparagraph (A), the term '100 percent dividend' means any dividend if the percentage used for purposes of determining the deduction allowable under section 243 or 244 is 100 percent. Such term does not include any dividend to the extent it is a distribution out of tax-exempt interest or out of dividends which are not 100 percent dividends (determined with the application of this sentence)."

Subsec. (b)(2). Pub. L. 99–514, §805(c)(6), redesignated par. (3) as (2). Former par. (2), which provided that section 166(c) (relating to reserve for bad debts) shall not apply, was struck out.

Subsec. (b)(2)(A)(iii). Pub. L. 99–514, §1011(b)(4), which directed that subsec. (b)(3)(A)(iii) be amended by striking out "the special life insurance company deduction and" before "the small life", was executed to subsec. (b)(2)(A)(iii) to reflect the probable intent of Congress and the redesignation of subsec. (b)(3) as (b)(2) by Pub. L. 99–514, §805(c)(6).

Subsec. (b)(3) to (6). Pub. L. 99–514, §805(c)(6), redesignated pars. (3) to (6) as (2) to (5), respectively.

Statutory Notes and Related Subsidiaries

Effective Date of 2017 Amendment

Amendment by section 13511(a), (b)(4)–(6) of Pub. L. 115–97 applicable to losses arising in taxable years beginning after Dec. 31, 2017, see section 13511(c) of Pub. L. 115–97, set out as a note under section 381 of this title.

Amendment by section 13512(b)(5), (6) of Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, see section 13512(c) of Pub. L. 115–97, set out as a note under section 453B of this title.

Effective Date of 2014 Amendment

Amendment by Pub. L. 113–295 not applicable to preferred stock issued before Oct. 1, 1942 (determined in the same manner as under section 247 of this title as in effect before its repeal by Pub. L. 113–295), see section 221(a)(41)(K) of Pub. L. 113–295, set out as a note under section 172 of this title.

Except as otherwise provided in section 221(a) of Pub. L. 113–295, amendment by Pub. L. 113–295 effective Dec. 19, 2014, subject to a savings provision, see section 221(b) of Pub. L. 113–295, set out as a note under section 1 of this title.

Effective Date of 1997 Amendment

Amendment by Pub. L. 105–34 applicable to contracts issued after June 8, 1997, in taxable years ending after such date, with special provisions relating to changes in contracts to be treated as new contracts, see section 1084(d) of Pub. L. 105–34, set out as a note under section 101 of this title.

Effective Date of 1996 Amendment

Amendment by Pub. L. 104–188 effective, except as otherwise expressly provided, as if included in the provision of the Revenue Reconciliation Act of 1990, Pub. L. 101–508, title XI, to which such amendment relates, see section 1702(i) of Pub. L. 104–188, set out as a note under section 38 of this title.

Effective Date of 1987 Amendment

Amendment by Pub. L. 100–203 applicable to taxable years beginning after Dec. 31, 1987, see section 10221(e)(2) of Pub. L. 100–203, as amended, set out as a note under section 243 of this title.

Effective Date of 1986 Amendment

Amendment by section 611(a)(5) of Pub. L. 99–514 applicable to dividends received or accrued after Dec. 31, 1986, in taxable years ending after such date, see section 611(b)(1) of Pub. L. 99–514, set out as a note under section 246 of this title.

Amendment by section 805(c)(6) of Pub. L. 99–514 applicable to taxable years beginning after Dec. 31, 1986, with certain changes required in method of accounting, see section 805(d) of Pub. L. 99–514, set out as a note under section 166 of this title.

Amendment by section 1011(b)(4) of Pub. L. 99–514 applicable to taxable years beginning after Dec. 31, 1986, see section 1011(c)(1) of Pub. L. 99–514, set out as a note under section 453B of this title.

Amendment by section 1821(p) of Pub. L. 99–514 effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98–369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99–514, set out as a note under section 48 of this title.

Effective Date

Section applicable to taxable years beginning after Dec. 31, 1983, see section 215 of Pub. L. 98–369, set out as a note under section 801 of this title.

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 Pub. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99–514, as amended, set out as a note under section 401 of this title.
26 U.S.C. § 149 (2024) — Title 26: INTERNAL REVENUE CODE / Chapter 1 / Section 149: Bonds must be registered to be tax exempt; other requirements
Bonds must be registered to be tax exempt; other requirements
Status: in_force

(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 (16 U.S.C. 839d) as in effect on the date of the enactment of the Tax Reform Act of 1984, or

(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 (16 U.S.C. 839d), as in effect on July 18, 1984;

(ii) such bond is issued pursuant to section 608(a)(6)(A) of Public Law 97–468, as in effect on the date of the enactment of the Tax Reform Act of 1986; or

(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 Pub. L. 99–514, title XIII, §1301(b), Oct. 22, 1986, 100 Stat. 2646; amended Pub. L. 100–647, title I, §1013(a)(20)–(22), title V, §5051(a), Nov. 10, 1988, 102 Stat. 3542, 3676; Pub. L. 101–239, title VII, §7651(a), Dec. 19, 1989, 103 Stat. 2383; Pub. L. 104–188, title I, §1704(b)(1), Aug. 20, 1996, 110 Stat. 1878; Pub. L. 109–222, title V, §508(a), (b), (d)(1), (2), May 17, 2006, 120 Stat. 361, 362; Pub. L. 110–289, div. C, title I, §3023(a), (b), July 30, 2008, 122 Stat. 2894, 2895; Pub. L. 111–147, title V, §502(a)(2)(A), Mar. 18, 2010, 124 Stat. 107; Pub. L. 115–97, title I, §13532(a), (b)(1), Dec. 22, 2017, 131 Stat. 2154; Pub. L. 115–141, div. U, title IV, §401(a)(2)(A), Mar. 23, 2018, 132 Stat. 1184.)

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, Pub. L. 96–501, Dec. 5, 1980, 94 Stat 2697, which is classified principally to chapter 12H (§839 et seq.) of Title 16, Conservation. For complete classification of this Act to the Code, see Short Title note set out under section 839 of Title 16 and Tables.

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 Pub. L. 98–369, div. A, which was approved July 18, 1984.

The date of the enactment of this clause, referred to in subsec. (b)(3)(A)(iv), is the date of enactment of Pub. L. 110–289, which was approved July 30, 2008.

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 1473i(b) of Title 42, The Public Health and Welfare.

Section 608(a)(6)(A) of Pub. L. 97–468, referred to in subsec. (c)(2)(C)(ii), is classified to section 1207(a)(6)(A) of Title 45, Railroads.

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 Pub. L. 99–514, which was approved Oct. 22, 1986.

Amendments

2018—Subsec. (b)(3)(A)(i). Pub. L. 115–141 substituted "Department of Veterans Affairs" for "Veterans' Administration".

2017—Subsec. (d)(1). Pub. L. 115–97, §13532(a), substituted "to advance refund another bond." for "as part of an issue described in paragraph (2), (3), or (4)."

Subsec. (d)(2) to (7). Pub. L. 115–97, §13532(b)(1), redesignated pars. (5) and (7) as (2) and (3), respectively, and struck out former pars. (2), (3), (4), and (6) which described issuing of certain private activity bonds, other refunding bonds, and bonds involved in abusive transactions and provided special rules for refunding occurring and for bonds issued before 1986.

2010—Subsec. (a)(2). Pub. L. 111–147 inserted "or" at end of subpar. (A), substituted period for ", or" in subpar. (B), and struck out subpar. (C) which read as follows: "is described in section 163(f)(2)(B)."

2008—Subsec. (b)(3)(A)(iv). Pub. L. 110–289, §3023(a), added cl. (iv).

Subsec. (b)(3)(E). Pub. L. 110–289, §3023(b), added subpar. (E).

2006—Subsec. (f)(1). Pub. L. 109–222, §508(d)(1), substituted "paragraphs (2), (3), (4), and (5)" for "paragraphs (2) and (3)".

Subsec. (f)(2)(A). Pub. L. 109–222, §508(a), amended subpar. (A) generally. Prior to amendment, text read as follows: "The requirements of this paragraph are met with respect to an issue if the issuer reasonably expects that as of the close of the 3-year period beginning on the date of issuance of the issue, at least 95 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."

Subsec. (f)(4) to (6). Pub. L. 109–222, §508(b), added pars. (4) and (5) and redesignated former par. (4) as (6). Former par. (5) redesignated (7).

Subsec. (f)(7). Pub. L. 109–222, §508(b), redesignated par. (5) as (7).

Subsec. (f)(7)(B). Pub. L. 109–222, §508(d)(2), substituted "paragraph (6)(A)" for "paragraph (4)(A)".

1996—Subsec. (g)(3)(B)(iii). Pub. L. 104–188 amended cl. (iii) generally. Prior to amendment, cl. (iii) read as follows: "Investment earnings held pending reinvestment.—Investment earnings held for not more than 30 days pending reinvestment shall be treated as invested in bonds described in clause (i)."

1989—Subsec. (g). Pub. L. 101–239 added subsec. (g).

1988—Subsec. (b)(3)(A)(iii). Pub. L. 100–647, §1013(a)(20), struck out "with respect to any bond issued before July 1, 1989" after "1984".

Subsec. (b)(4)(A). Pub. L. 100–647, §1013(a)(21), substituted "and a qualified student loan bond" for "a qualified student loan bond, and a qualified redevelopment bond".

Subsec. (e)(3). Pub. L. 100–647, §1013(a)(22), substituted "the failure to file in a timely fashion is not due to willful neglect" for "there is reasonable cause for the failure to file such statement in a timely fashion".

Subsec. (f). Pub. L. 100–647, §5051(a), added subsec. (f).

Statutory Notes and Related Subsidiaries

Effective Date of 2017 Amendment

Amendment by Pub. L. 115–97 applicable to advance refunding bonds issued after Dec. 31, 2017, see section 13532(c) of Pub. L. 115–97, set out as a note under section 148 of this title.

Effective Date of 2010 Amendment

Pub. L. 111–147, title V, §502(f), Mar. 18, 2010, 124 Stat. 108, provided that: "The amendments made by this section [amending this section, sections 163, 165, 871, 881, 1287, and 4701 of this title, and section 3121 of Title 31, Money and Finance] shall apply to obligations issued after the date which is 2 years after the date of the enactment of this Act [Mar. 18, 2010]."

Effective Date of 2008 Amendment

Pub. L. 110–289, div. C, title I, §3023(c), July 30, 2008, 122 Stat. 2895, provided that: "The amendments made by this section [amending this section] shall apply to guarantees made after the date of the enactment of this Act [July 30, 2008]."

Effective Date of 2006 Amendment

Amendment by Pub. L. 109–222 applicable to bonds issued after May 17, 2006, see section 508(e) of Pub. L. 109–222, set out as a note under section 148 of this title.

Effective Date of 1996 Amendment

Pub. L. 104–188, title I, §1704(b)(2), Aug. 20, 1996, 110 Stat. 1878, provided that: "The amendment made by paragraph (1) [amending this section] shall take effect as if included in the amendments made by section 7651 of the Omnibus Budget Reconciliation Act of 1989 [Pub. L. 101–239]."

Effective Date of 1989 Amendment

Pub. L. 101–239, title VII, §7651(b), Dec. 19, 1989, 103 Stat. 2385, provided that:

"(1) In general.—Except as otherwise provided in this subsection, the amendment made by subsection (a) [amending this section] shall apply to bonds issued after September 14, 1989.

"(2) Bonds sold before september 15, 1989.—The amendment made by subsection (a) shall not apply to any bond sold before September 15, 1989, and issued before October 15, 1989.

"(3) Bonds with respect to which preliminary offering materials mailed.—The amendment made by subsection (a) shall not apply to any issue issued after the date of the enactment of this Act [Dec. 19, 1989] if the preliminary offering materials with respect to such issue were mailed (or otherwise delivered) to members of the underwriting syndicate before September 15, 1989.

"(4) Certain other bonds.—In the case of a bond issued before January 1, 1991, with respect to which official action was taken (or a series of official actions were taken), or other comparable preliminary approval was given, before November 18, 1989, demonstrating an intent to issue such bonds in a maximum specified amount for such issue or with a maximum specified amount of net proceeds of such issue, the issuer may elect to apply section 149(g)(2) of the Internal Revenue Code of 1986 (as added by this section) by substituting '15 percent' for '10 percent' in subparagraph (A) and '50 percent' for '60 percent' in subparagraph (C).

"(5) Bonds issued to finance self-insurance funds.—The amendment made by subsection (a) shall not apply to any bonds issued before July 1, 1990, to finance a self-insurance fund if official action was taken (or a series of official actions were taken), or other comparable preliminary approval was given, before September 15, 1989, demonstrating an intent to issue such bonds in a maximum specified amount for such issue or with a maximum specified amount of net proceeds of such issue."

Effective Date of 1988 Amendment

Amendment by section 1013(a)(20)–(22) of Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title.

Pub. L. 100–647, title V, §5051(b), Nov. 10, 1988, 102 Stat. 3677, provided that:

"(1) In general.—The amendment made by subsection (a) [amending this section] shall apply to bonds issued after October 21, 1988.

"(2) Special rule for refunding bonds.—In the case of a bond issued to refund a bond issued before October 22, 1988—

"(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 Pub. L. 99–514, as amended, set out as an Effective Date; Transitional Rules note under section 141 of this title.

Transfer of Functions

Federal Savings and Loan Insurance Corporation abolished and its functions transferred, see sections 401 to 406 of Pub. L. 101–73 set out as a note under section 1437 of Title 12, Banks and Banking.
26 U.S.C. § 59A (2024) — Title 26: INTERNAL REVENUE CODE / Chapter 1 / Section 59A: Tax on base erosion payments of taxpayers with substantial gross receipts
Tax on base erosion payments of taxpayers with substantial gross receipts
Status: in_force

(a) Imposition of tax

There is hereby imposed on each applicable taxpayer for any taxable year a tax equal to the base erosion minimum tax amount for the taxable year. Such tax shall be in addition to any other tax imposed by this subtitle.

(b) Base erosion minimum tax amount

For purposes of this section—

(1) In general

Except as provided in paragraphs (2) and (3), the term "base erosion minimum tax amount" means, with respect to any applicable taxpayer for any taxable year, the excess (if any) of—

(A) an amount equal to 10 percent (5 percent in the case of taxable years beginning in calendar year 2018) of the modified taxable income of such taxpayer for the taxable year, over

(B) an amount equal to the regular tax liability (as defined in section 26(b)) of the taxpayer for the taxable year, reduced (but not below zero) by the excess (if any) of—

(i) the credits allowed under this chapter against such regular tax liability, over

(ii) the sum of— 

(I) the credit allowed under section 38 for the taxable year which is properly allocable to the research credit determined under section 41(a), plus

(II) the portion of the applicable section 38 credits not in excess of 80 percent of the lesser of the amount of such credits or the base erosion minimum tax amount (determined without regard to this subclause).

(2) Modifications for taxable years beginning after 2025

In the case of any taxable year beginning after December 31, 2025, paragraph (1) shall be applied—

(A) by substituting "12.5 percent" for "10 percent" in subparagraph (A) thereof, and

(B) by reducing (but not below zero) the regular tax liability (as defined in section 26(b)) for purposes of subparagraph (B) thereof by the aggregate amount of the credits allowed under this chapter against such regular tax liability rather than the excess described in such subparagraph.

(3) Increased rate for certain banks and securities dealers

(A) In general

In the case of a taxpayer described in subparagraph (B) who is an applicable taxpayer for any taxable year, the percentage otherwise in effect under paragraphs (1)(A) and (2)(A) shall each be increased by one percentage point.

(B) Taxpayer described

A taxpayer is described in this subparagraph if such taxpayer is a member of an affiliated group (as defined in section 1504(a)(1)) which includes—

(i) a bank (as defined in section 581), or

(ii) a registered securities dealer under section 15(a) of the Securities Exchange Act of 1934.

(4) Applicable section 38 credits

For purposes of paragraph (1)(B)(ii)(II), the term "applicable section 38 credits" means the credit allowed under section 38 for the taxable year which is properly allocable to—

(A) the low-income housing credit determined under section 42(a),

(B) the renewable electricity production credit determined under section 45(a), and

(C) the investment credit determined under section 46, but only to the extent properly allocable to the energy credit determined under section 48.

(c) Modified taxable income

For purposes of this section—

(1) In general

The term "modified taxable income" means the taxable income of the taxpayer computed under this chapter for the taxable year, determined without regard to—

(A) any base erosion tax benefit with respect to any base erosion payment, or

(B) the base erosion percentage of any net operating loss deduction allowed under section 172 for the taxable year.

(2) Base erosion tax benefit

(A) In general

The term "base erosion tax benefit" means—

(i) any deduction described in subsection (d)(1) which is allowed under this chapter for the taxable year with respect to any base erosion payment,

(ii) in the case of a base erosion payment described in subsection (d)(2), any deduction allowed under this chapter for the taxable year for depreciation (or amortization in lieu of depreciation) with respect to the property acquired with such payment,

(iii) in the case of a base erosion payment described in subsection (d)(3)—

(I) any reduction under section 803(a)(1)(B) in the gross amount of premiums and other consideration on insurance and annuity contracts for premiums and other consideration arising out of indemnity insurance, and

(II) any deduction under section 832(b)(4)(A) from the amount of gross premiums written on insurance contracts during the taxable year for premiums paid for reinsurance, and

(iv) in the case of a base erosion payment described in subsection (d)(4), any reduction in gross receipts with respect to such payment in computing gross income of the taxpayer for the taxable year for purposes of this chapter.

(B) Tax benefits disregarded if tax withheld on base erosion payment

(i) In general

Except as provided in clause (ii), any base erosion tax benefit attributable to any base erosion payment—

(I) on which tax is imposed by section 871 or 881, and

(II) with respect to which tax has been deducted and withheld under section 1441 or 1442,

 shall not be taken into account in computing modified taxable income under paragraph (1)(A) or the base erosion percentage under paragraph (4).

(ii) Exception

The amount not taken into account in computing modified taxable income by reason of clause (i) shall be reduced under rules similar to the rules under section 163(j)(5)(B) (as in effect before the date of the enactment of the Tax Cuts and Jobs Act).

(3) Special rules for determining interest for which deduction allowed

For purposes of applying paragraph (1), in the case of a taxpayer to which section 163(j) applies for the taxable year, the reduction in the amount of interest for which a deduction is allowed by reason of such subsection shall be treated as allocable first to interest paid or accrued to persons who are not related parties with respect to the taxpayer and then to such related parties.

(4) Base erosion percentage

For purposes of paragraph (1)(B)—

(A) In general

The term "base erosion percentage" means, for any taxable year, the percentage determined by dividing—

(i) the aggregate amount of base erosion tax benefits of the taxpayer for the taxable year, by

(ii) the sum of—

(I) the aggregate amount of the deductions (including deductions described in clauses (i) and (ii) of paragraph (2)(A)) allowable to the taxpayer under this chapter for the taxable year, plus

(II) the base erosion tax benefits described in clauses (iii) and (iv) of paragraph (2)(A) allowable to the taxpayer for the taxable year.

(B) Certain items not taken into account

The amount under subparagraph (A)(ii) shall be determined by not taking into account—

(i) any deduction allowed under section 172, 245A, or 250 for the taxable year,

(ii) any deduction for amounts paid or accrued for services to which the exception under subsection (d)(5) applies, and

(iii) any deduction for qualified derivative payments which are not treated as a base erosion payment by reason of subsection (h).

(d) Base erosion payment

For purposes of this section—

(1) In general

The term "base erosion payment" means any amount paid or accrued by the taxpayer to a foreign person which is a related party of the taxpayer and with respect to which a deduction is allowable under this chapter.

(2) Purchase of depreciable property

Such term shall also include any amount paid or accrued by the taxpayer to a foreign person which is a related party of the taxpayer in connection with the acquisition by the taxpayer from such person of property of a character subject to the allowance for depreciation (or amortization in lieu of depreciation).

(3) Reinsurance payments

Such term shall also include any premium or other consideration paid or accrued by the taxpayer to a foreign person which is a related party of the taxpayer for any reinsurance payments which are taken into account under sections 803(a)(1)(B) or 832(b)(4)(A).

(4) Certain payments to expatriated entities

(A) In general

Such term shall also include any amount paid or accrued by the taxpayer with respect to a person described in subparagraph (B) which results in a reduction of the gross receipts of the taxpayer.

(B) Person described

A person is described in this subparagraph if such person is a—

(i) surrogate foreign corporation which is a related party of the taxpayer, but only if such person first became a surrogate foreign corporation after November 9, 2017, or

(ii) foreign person which is a member of the same expanded affiliated group as the surrogate foreign corporation.

(C) Definitions

For purposes of this paragraph—

(i) Surrogate foreign corporation

The term "surrogate foreign corporation" has the meaning given such term by section 7874(a)(2)(B) but does not include a foreign corporation treated as a domestic corporation under section 7874(b).

(ii) Expanded affiliated group

The term "expanded affiliated group" has the meaning given such term by section 7874(c)(1).

(5) Exception for certain amounts with respect to services

Paragraph (1) shall not apply to any amount paid or accrued by a taxpayer for services if—

(A) such services are services which meet the requirements for eligibility for use of the services cost method under section 482 (determined without regard to the requirement that the services not contribute significantly to fundamental risks of business success or failure), and

(B) such amount constitutes the total services cost with no markup component.

(e) Applicable taxpayer

For purposes of this section—

(1) In general

The term "applicable taxpayer" means, with respect to any taxable year, a taxpayer—

(A) which is a corporation other than a regulated investment company, a real estate investment trust, or an S corporation,

(B) the average annual gross receipts of which for the 3-taxable-year period ending with the preceding taxable year are at least $500,000,000, and

(C) the base erosion percentage (as determined under subsection (c)(4)) of which for the taxable year is 3 percent (2 percent in the case of a taxpayer described in subsection (b)(3)(B)) or higher.

(2) Gross receipts

(A) Special rule for foreign persons

In the case of a foreign person the gross receipts of which are taken into account for purposes of paragraph (1)(B), only gross receipts which are taken into account in determining income which is effectively connected with the conduct of a trade or business within the United States shall be taken into account. In the case of a taxpayer which is a foreign person, the preceding sentence shall not apply to the gross receipts of any United States person which are aggregated with the taxpayer's gross receipts by reason of paragraph (3).

(B) Other rules made applicable

Rules similar to the rules of subparagraphs (B), (C), and (D) of section 448(c)(3) shall apply in determining gross receipts for purposes of this section.

(3) Aggregation rules

All persons treated as a single employer under subsection (a) of section 52 shall be treated as 1 person for purposes of this subsection and subsection (c)(4), except that in applying section 1563 for purposes of section 52, the exception for foreign corporations under section 1563(b)(2)(C) shall be disregarded.

(f) Foreign person

For purposes of this section, the term "foreign person" has the meaning given such term by section 6038A(c)(3).

(g) Related party

For purposes of this section—

(1) In general

The term "related party" means, with respect to any applicable taxpayer—

(A) any 25-percent owner of the taxpayer,

(B) any person who is related (within the meaning of section 267(b) or 707(b)(1)) to the taxpayer or any 25-percent owner of the taxpayer, and

(C) any other person who is related (within the meaning of section 482) to the taxpayer.

(2) 25-percent owner

The term "25-percent owner" means, with respect to any corporation, any person who owns at least 25 percent of—

(A) the total voting power of all classes of stock of a corporation entitled to vote, or

(B) the total value of all classes of stock of such corporation.

(3) Section 318 to apply

Section 318 shall apply for purposes of paragraphs (1) and (2), except that—

(A) "10 percent" shall be substituted for "50 percent" in section 318(a)(2)(C), and

(B) subparagraphs (A), (B), and (C) of section 318(a)(3) shall not be applied so as to consider a United States person as owning stock which is owned by a person who is not a United States person.

(h) Exception for certain payments made in the ordinary course of trade or business

For purposes of this section—

(1) In general

Except as provided in paragraph (3), any qualified derivative payment shall not be treated as a base erosion payment.

(2) Qualified derivative payment

(A) In general

The term "qualified derivative payment" means any payment made by a taxpayer pursuant to a derivative with respect to which the taxpayer—

(i) recognizes gain or loss as if such derivative were sold for its fair market value on the last business day of the taxable year (and such additional times as required by this title or the taxpayer's method of accounting),

(ii) treats any gain or loss so recognized as ordinary, and

(iii) treats the character of all items of income, deduction, gain, or loss with respect to a payment pursuant to the derivative as ordinary.

(B) Reporting requirement

No payments shall be treated as qualified derivative payments under subparagraph (A) for any taxable year unless the taxpayer includes in the information required to be reported under section 6038B(b)(2) with respect to such taxable year such information as is necessary to identify the payments to be so treated and such other information as the Secretary determines necessary to carry out the provisions of this subsection.

(3) Exceptions for payments otherwise treated as base erosion payments

This subsection shall not apply to any qualified derivative payment if—

(A) the payment would be treated as a base erosion payment if it were not made pursuant to a derivative, including any interest, royalty, or service payment, or

(B) in the case of a contract which has derivative and nonderivative components, the payment is properly allocable to the nonderivative component.

(4) Derivative defined

For purposes of this subsection—

(A) In general

The term "derivative" means any contract (including any option, forward contract, futures contract, short position, swap, or similar contract) the value of which, or any payment or other transfer with respect to which, is (directly or indirectly) determined by reference to one or more of the following:

(i) Any share of stock in a corporation.

(ii) Any evidence of indebtedness.

(iii) Any commodity which is actively traded.

(iv) Any currency.

(v) Any rate, price, amount, index, formula, or algorithm.

Such term shall not include any item described in clauses (i) through (v).

(B) Treatment of American depository receipts and similar instruments

Except as otherwise provided by the Secretary, for purposes of this part, American depository receipts (and similar instruments) with respect to shares of stock in foreign corporations shall be treated as shares of stock in such foreign corporations.

(C) Exception for certain contracts

Such term shall not include any insurance, annuity, or endowment contract issued by an insurance company to which subchapter L applies (or issued by any foreign corporation to which such subchapter would apply if such foreign corporation were a domestic corporation).

(i) 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—

(1) providing for such adjustments to the application of this section as are necessary to prevent the avoidance of the purposes of this section, including through—

(A) the use of unrelated persons, conduit transactions, or other intermediaries, or

(B) transactions or arrangements designed, in whole or in part—

(i) to characterize payments otherwise subject to this section as payments not subject to this section, or

(ii) to substitute payments not subject to this section for payments otherwise subject to this section and

(2) for the application of subsection (g), including rules to prevent the avoidance of the exceptions under subsection (g)(3).

(Added Pub. L. 115–97, title I, §14401(a), Dec. 22, 2017, 131 Stat. 2226.)

Editorial Notes

References in Text

Section 15(a) of the Securities Exchange Act of 1934, referred to in subsec. (b)(3)(B)(ii), is classified to section 78o(a) of Title 15, Commerce and Trade.

The date of the enactment of the Tax Cuts and Jobs Act, referred to in subsec. (c)(2)(B)(ii), probably means the date of enactment of title I of Pub. L. 115–97, which was approved Dec. 22, 2017. Prior versions of the bill that was enacted into law as Pub. L. 115–97 included such Short Title, but it was not enacted as part of title I of Pub. L. 115–97.

Prior Provisions

A prior section 59A, added Pub. L. 99–499, title V, §516(a), Oct. 17, 1986, 100 Stat. 1770; amended Pub. L. 100–647, title II, §2001(c)(1), (3)(B), Nov. 10, 1988, 102 Stat. 3594; Pub. L. 101–508, title XI, §§11231(a)(1)(A), 11531(b)(3), 11801(c)(2)(E), Nov. 5, 1990, 104 Stat. 1388–444, 1388–490, 1388–523; Pub. L. 102–486, title XIX, §1915(c)(4), Oct. 24, 1992, 106 Stat. 3024, related to environmental tax, prior to repeal by Pub. L. 113–295, div. A, title II, §221(a)(12)(A), Dec. 19, 2014, 128 Stat. 4038.

Statutory Notes and Related Subsidiaries

Effective Date

Section applicable to base erosion payments (as defined in subsec. (d) of this section) paid or accrued in taxable years beginning after Dec. 31, 2017, see section 14401(e) of Pub. L. 115–97, set out as an Effective Date of 2017 Amendment note under section 26 of this title.