26 U.S.C. § 403 (2024) — Title 26: INTERNAL REVENUE CODE / Chapter 1 / Subchapter D / Section 403: Taxation of employee annuities
Taxation of employee annuities
Status: in_force

(a) Taxability of beneficiary under a qualified annuity plan

(1) Distributee taxable under section 72

If an annuity contract is purchased by an employer for an employee under a plan which meets the requirements of section 404(a)(2) (whether or not the employer deducts the amounts paid for the contract under such section), the amount actually distributed to any distributee under the contract shall be taxable to the distributee (in the year in which so distributed) under section 72 (relating to annuities).

(2) Special rule for health and long-term care insurance

To the extent provided in section 402(l), paragraph (1) shall not apply to the amount distributed under the contract which is otherwise includible in gross income under this subsection.

(3) Self-employed individuals

For purposes of this subsection, the term "employee" includes an individual who is an employee within the meaning of section 401(c)(1), and the employer of such individual is the person treated as his employer under section 401(c)(4).

(4) Rollover amounts

(A) General rule

If—

(i) any portion of the balance to the credit of an employee in an employee annuity described in paragraph (1) is paid to him in an eligible rollover distribution (within the meaning of section 402(c)(4)),

(ii) the employee transfers any portion of the property he receives in such distribution to an eligible retirement plan, and

(iii) in the case of a distribution of property other than money, the amount so transferred consists of the property distributed,

then such distribution (to the extent so transferred) shall not be includible in gross income for the taxable year in which paid.

(B) Certain rules made applicable

The rules of paragraphs (2) through (7) and (11) and (9) of section 402(c) and section 402(f) shall apply for purposes of subparagraph (A).

(5) Direct trustee-to-trustee transfer

Any amount transferred in a direct trustee-to-trustee transfer in accordance with section 401(a)(31) shall not be includible in gross income for the taxable year of such transfer.

(b) Taxability of beneficiary under annuity purchased by section 501(c)(3) organization or public school

(1) General rule

If—

(A) an annuity contract is purchased—

(i) for an employee by an employer described in section 501(c)(3) which is exempt from tax under section 501(a),

(ii) for an employee (other than an employee described in clause (i)), who performs services for an educational organization described in section 170(b)(1) (A)(ii), by an employer which is a State, a political subdivision of a State, or an agency or instrumentality of any one or more of the foregoing, or

(iii) for the minister described in section 414(e)(5)(A) by the minister or by an employer,

(B) such annuity contract is not subject to subsection (a),

(C) the employee's rights under the contract are nonforfeitable, except for failure to pay future premiums,

(D) except in the case of a contract purchased by a church, such contract is purchased under a plan which meets the nondiscrimination requirements of paragraph (12), and

(E) in the case of a contract purchased under a salary reduction agreement, the contract meets the requirements of section 401(a)(30),

then contributions and other additions by such employer for such annuity contract shall be excluded from the gross income of the employee for the taxable year to the extent that the aggregate of such contributions and additions (when expressed as an annual addition (within the meaning of section 415(c)(2))) does not exceed the applicable limit under section 415. The amount actually distributed to any distributee under such contract shall be taxable to the distributee (in the year in which so distributed) under section 72 (relating to annuities). For purposes of applying the rules of this subsection to contributions and other additions by an employer for a taxable year, amounts transferred to a contract described in this paragraph by reason of a rollover contribution described in paragraph (8) of this subsection or section 408(d)(3)(A)(ii) shall not be considered contributed by such employer.

(2) Special rule for health and long-term care insurance

To the extent provided in section 402(l), paragraph (1) shall not apply to the amount distributed under the contract which is otherwise includible in gross income under this subsection.

(3) Includible compensation

For purposes of this subsection, the term "includible compensation" means, in the case of any employee, the amount of compensation which is received from the employer described in paragraph (1)(A), and which is includible in gross income (computed without regard to section 911) for the most recent period (ending not later than the close of the taxable year) which under paragraph (4) may be counted as one year of service, and which precedes the taxable year by no more than five years. Such term does not include any amount contributed by the employer for any annuity contract to which this subsection applies. Such term includes—

(A) any elective deferral (as defined in section 402(g)(3)), and

(B) any amount which is contributed or deferred by the employer at the election of the employee and which is not includible in the gross income of the employee by reason of section 125, 132(f)(4), or 457.

(4) Years of service

In determining the number of years of service for purposes of this subsection, there shall be included—

(A) one year for each full year during which the individual was a full-time employee of the organization purchasing the annuity for him, and

(B) a fraction of a year (determined in accordance with regulations prescribed by the Secretary) for each full year during which such individual was a part-time employee of such organization and for each part of a year during which such individual was a full-time or part-time employee of such organization.

In no case shall the number of years of service be less than one.

(5) Application to more than one annuity contract

If for any taxable year of the employee this subsection applies to 2 or more annuity contracts purchased by the employer, such contracts shall be treated as one contract.

[(6) Repealed. Pub. L. 107–147, title IV, §411(p)(2), Mar. 9, 2002, 116 Stat. 50]

(7) Custodial accounts

(A) Amounts paid treated as contributions

For purposes of this title, amounts paid by an employer described in paragraph (1)(A) to a custodial account which satisfies the requirements of section 401(f)(2) shall be treated as amounts contributed by him for an annuity contract for his employee if the amounts are to be held in that custodial account and are invested in regulated investment company stock or a group trust intended to satisfy the requirements of Internal Revenue Service Revenue Ruling 81–100 (or any successor guidance), and under the custodial account—

(i) no such amounts may be paid or made available to any distributee (unless such amount is a distribution to which section 72(t)(2)(G) applies) before—

(I) the employee dies,

(II) the employee attains age 59½,

(III) the employee has a severance from employment,

(IV) the employee becomes disabled (within the meaning of section 72(m)(7)),

(V) subject to the provisions of paragraph (17), the employee encounters financial hardship, or

(VI) except as may be otherwise provided by regulations, with respect to amounts invested in a lifetime income investment (as defined in section 401(a)(38)(B)(ii)), the date that is 90 days prior to the date that such lifetime income investment may no longer be held as an investment option under the contract, and

(ii) in the case of amounts described in clause (i)(VI), such amounts will be distributed only in the form of a qualified distribution (as defined in section 401(a)(38)(B)(i)) or a qualified plan distribution annuity contract (as defined in section 401(a)(38)(B)(iv)).

(B) Account treated as plan

For purposes of this title, a custodial account which satisfies the requirements of section 401(f)(2) shall be treated as an organization described in section 401(a) solely for purposes of subchapter F and subtitle F with respect to amounts received by it (and income from investment thereof).

(C) Regulated investment company

For purposes of this paragraph, the term "regulated investment company" means a domestic corporation which is a regulated investment company within the meaning of section 851(a).

(D) Employee certification

In determining whether a distribution is upon the financial hardship of an employee, the administrator of the plan may rely on a written certification by the employee that the distribution is—

(i) on account of a financial need of a type which is deemed in regulations prescribed by the Secretary to be an immediate and heavy financial need, and

(ii) not in excess of the amount required to satisfy such financial need, and

that the employee has no alternative means reasonably available to satisfy such financial need. The Secretary may provide by regulations for exceptions to the rule of the preceding sentence in cases where the plan administrator has actual knowledge to the contrary of the employee's certification, and for procedures for addressing cases of employee misrepresentation.

(8) Rollover amounts

(A) General rule

If—

(i) any portion of the balance to the credit of an employee in an annuity contract described in paragraph (1) is paid to him in an eligible rollover distribution (within the meaning of section 402(c)(4)),

(ii) the employee transfers any portion of the property he receives in such distribution to an eligible retirement plan described in section 402(c)(8)(B), and

(iii) in the case of a distribution of property other than money, the property so transferred consists of the property distributed,

then such distribution (to the extent so transferred) shall not be includible in gross income for the taxable year in which paid.

(B) Certain rules made applicable

The rules of paragraphs (2) through (7), (9), and (11) of section 402(c) and section 402(f) shall apply for purposes of subparagraph (A), except that section 402(f) shall be applied to the payor in lieu of the plan administrator.

(9) Retirement income accounts provided by churches, etc.

(A) Amounts paid treated as contributions

For purposes of this title—

(i) a retirement income account shall be treated as an annuity contract described in this subsection, and

(ii) amounts paid by an employer described in paragraph (1)(A) to a retirement income account shall be treated as amounts contributed by the employer for an annuity contract for the employee on whose behalf such account is maintained.

(B) Retirement income account

For purposes of this paragraph, the term "retirement income account" means a defined contribution program established or maintained by a church, or a convention or association of churches, including an organization described in section 414(e)(3)(A), to provide benefits under section 403(b) for an employee described in paragraph (1) (including an employee described in section 414(e)(3)(B)) or his beneficiaries.

(10) Distribution requirements

Under regulations prescribed by the Secretary, this subsection shall not apply to any annuity contract (or to any custodial account described in paragraph (7) or retirement income account described in paragraph (9)) unless requirements similar to the requirements of sections 401(a)(9) and 401(a)(31) are met (and requirements similar to the incidental death benefit requirements of section 401(a) are met) with respect to such annuity contract (or custodial account or retirement income account). Any amount transferred in a direct trustee-to-trustee transfer in accordance with section 401(a)(31) shall not be includible in gross income for the taxable year of the transfer.

(11) Requirement that distributions not begin before age 59½, severance from employment, death, or disability

This subsection shall not apply to any annuity contract unless under such contract distributions attributable to contributions made pursuant to a salary reduction agreement (within the meaning of section 402(g)(3)(C)) may be paid only—

(A) when the employee attains age 59½, has a severance from employment, dies, or becomes disabled (within the meaning of section 72(m)(7)),

(B) subject to the provisions of paragraph (17), in the case of hardship,

(C) for distributions to which section 72(t)(2)(G) applies, or

(D) except as may be otherwise provided by regulations, with respect to amounts invested in a lifetime income investment (as defined in section 401(a)(38)(B)(ii))—

(i) on or after the date that is 90 days prior to the date that such lifetime income investment may no longer be held as an investment option under the contract, and

(ii) in the form of a qualified distribution (as defined in section 401(a)(38)(B)(i)) or a qualified plan distribution annuity contract (as defined in section 401(a)(38)(B)(iv)).

In determining whether a distribution is upon hardship of an employee, the administrator of the plan may rely on a written certification by the employee that the distribution is on account of a financial need of a type which is deemed in regulations prescribed by the Secretary to be an immediate and heavy financial need and is not in excess of the amount required to satisfy such financial need, and that the employee has no alternative means reasonably available to satisfy such financial need. The Secretary may provide by regulations for exceptions to the rule of the preceding sentence in cases where the plan administrator has actual knowledge to the contrary of the employee's certification, and for procedures for addressing cases of employee misrepresentation.

(12) Nondiscrimination requirements

(A) In general

For purposes of paragraph (1)(D), a plan meets the nondiscrimination requirements of this paragraph if—

(i) with respect to contributions not made pursuant to a salary reduction agreement, such plan meets the requirements of paragraphs (4), (5), (17), and (26) of section 401(a), section 401(m), and section 410(b) in the same manner as if such plan were described in section 401(a), and

(ii) all employees of the organization may elect to have the employer make contributions of more than $200 pursuant to a salary reduction agreement if any employee of the organization may elect to have the organization make contributions for such contracts pursuant to such agreement.

For purposes of clause (i), a contribution shall be treated as not made pursuant to a salary reduction agreement if under the agreement it is made pursuant to a 1-time irrevocable election made by the employee at the time of initial eligibility to participate in the agreement or is made pursuant to a similar arrangement involving a one-time irrevocable election specified in regulations. For purposes of clause (ii), there may be excluded any employee who is a participant in an eligible deferred compensation plan (within the meaning of section 457) or a qualified cash or deferred arrangement of the organization or another annuity contract described in this subsection. Any nonresident alien described in section 410(b)(3)(C) may also be excluded. Subject to the conditions applicable under section 410(b)(4) and section 202(c) of the Employee Retirement Income Security Act of 1974, there may be excluded for purposes of this subparagraph employees who are students performing services described in section 3121(b)(10) and employees who normally work less than 20 hours per week. The fact that the employer offers matching contributions on account of qualified student loan payments as described in section 401(m)(13) shall not be taken into account in determining whether the arrangement satisfies the requirements of clause (ii) (and any regulation thereunder). A plan shall not fail to satisfy clause (ii) solely by reason of offering a de minimis financial incentive (not derived from plan assets) to employees to elect to have the employer make contributions pursuant to a salary reduction agreement.

(B) Church

For purposes of paragraph (1)(D), the term "church" has the meaning given to such term by section 3121(w)(3)(A). Such term shall include any qualified church-controlled organization (as defined in section 3121(w)(3)(B)).

(C) State and local governmental plans

For purposes of paragraph (1)(D), the requirements of subparagraph (A)(i) (other than those relating to section 401(a)(17)) shall not apply to a governmental plan (within the meaning of section 414(d)) maintained by a State or local government or political subdivision thereof (or agency or instrumentality thereof).

(D) Rules relating to certain part-time employees

(i) 1 In general

In the case of employees who are eligible to participate in the agreement solely by reason of section 202(c)(1)(B) of the Employee Retirement Income Security Act of 1974—

(I) notwithstanding section 401(a)(4), an employer shall not be required to make nonelective or matching contributions on behalf of such employees even if such contributions are made on behalf of other employees eligible to participate in the plan, and

(II) the employer may elect to exclude such employees from the application of subsections (a)(4), (k)(3), (k)(12), (k)(13), and (m)(2) of section 401 and section 410(b).

(13) Trustee-to-trustee transfers to purchase permissive service credit

No amount shall be includible in gross income by reason of a direct trustee-to-trustee transfer to a defined benefit governmental plan (as defined in section 414(d)) if such transfer is—

(A) for the purchase of permissive service credit (as defined in section 415(n)(3)(A)) under such plan, or

(B) a repayment to which section 415 does not apply by reason of subsection (k)(3) thereof.

(14) Death benefits under USERRA-qualified active military service

This subsection shall not apply to an annuity contract unless such contract meets the requirements of section 401(a)(37).

(15) Multiple employer plans

(A) In general

Except in the case of a church plan, this subsection shall not be treated as failing to apply to an annuity contract solely by reason of such contract being purchased under a plan maintained by more than 1 employer.

(B) Treatment of employers failing to meet requirements of plan

(i) In general

In the case of a plan maintained by more than 1 employer, this subsection shall not be treated as failing to apply to an annuity contract held under such plan merely because of one or more employers failing to meet the requirements of this subsection if such plan satisfies rules similar to the rules of section 413(e)(2) with respect to any such employer failure.

(ii) Additional requirements in case of non-governmental plans

A plan shall not be treated as meeting the requirements of this subparagraph unless the plan satisfies rules similar to the rules of subparagraph (A) or (B) of section 413(e)(1), except in the case of a multiple employer plan maintained solely by any of the following: A State, a political subdivision of a State, or an agency or instrumentality of any one or more of the foregoing.

(16) Safe harbor deferral-only plans for employers with no retirement plan

(A) In general

A safe harbor deferral-only plan maintained by an eligible employer shall be treated as meeting the requirements of paragraph (12).

(B) Safe harbor deferral-only plan

For purposes of this paragraph, the term "safe harbor deferral-only plan" means any plan which meets—

(i) the automatic deferral requirements of subparagraph (C),

(ii) the contribution limitations of subparagraph (D), and

(iii) the requirements of subparagraph (E) of section 401(k)(13).

(C) Automatic deferral

(i) In general

The requirements of this subparagraph are met if, under the plan, each eligible employee is treated as having elected to have the employer make elective contributions in an amount equal to a qualified percentage of compensation.

(ii) Election out

The election treated as having been made under clause (i) shall cease to apply with respect to any eligible employee if such eligible employee makes an affirmative election—

(I) to not have such contributions made, or

(II) to make elective contributions at a level specified in such affirmative election.

(iii) Qualified percentage

For purposes of this subparagraph, the term "qualified percentage" means, with respect to any employee, any percentage determined under the plan if such percentage is applied uniformly and is not less than 3 or more than 15 percent.

(D) Contribution limitations

(i) In general

The requirements of this subparagraph are met if, under the plan—

(I) the only contributions which may be made are elective contributions of eligible employees, and

(II) the aggregate amount of such elective contributions which may be made with respect to any employee for any calendar year shall not exceed $6,000.

(ii) Cost-of-living adjustment

In the case of any calendar year beginning after December 31, 2024, the $6,000 amount under clause (i) shall be adjusted in the same manner as under section 402(g)(4), except that "2023" shall be substituted for "2005".

(iii) Catch-up contributions for individuals age 50 or over

In the case of an individual who has attained the age of 50 before the close of the taxable year, the limitation under clause (i)(II) shall be increased by the applicable amount determined under section 219(b)(5)(B)(ii) (after the application of section 219(b)(5)(C)(iii)).

(E) Eligible employer

For purposes of this paragraph—

(i) In general

The term "eligible employer" means any employer if the employer does not maintain a qualified plan with respect to which contributions are made, or benefits are accrued, for service in the year for which the determination is being made. If only individuals other than employees described in subparagraph (A) of section 410(b)(3) are eligible to participate in such arrangement, then the preceding sentence shall be applied without regard to any qualified plan in which only employees described in such subparagraph are eligible to participate.

(ii) Relief for acquisitions, etc.

Rules similar to the rules of section 408(p)(10) shall apply for purposes of clause (i).

(iii) Qualified plan

The term "qualified plan" means a plan, contract, pension, account, or trust described in subparagraph (A) or (B) of paragraph (5) of section 219(g) (determined without regard to the last sentence of such paragraph (5)).

(F) Eligible employee

For purposes of this paragraph, the term "eligible employee" means any employee of the employer other than an employee who is permitted to be excluded under paragraph (12)(A).

(17) Special rules relating to hardship withdrawals

For purposes of paragraphs (7) and (11)—

(A) Amounts which may be withdrawn

The following amounts may be distributed upon hardship of the employee:

(i) Contributions made pursuant to a salary reduction agreement (within the meaning of section 3121(a)(5)(D)).

(ii) Qualified nonelective contributions (as defined in section 401(m)(4)(C)).

(iii) Qualified matching contributions described in section 401(k)(3)(D)(ii)(I).

(iv) Earnings on any contributions described in clause (i), (ii), or (iii).

(B) No requirement to take available loan

A distribution shall not be treated as failing to be made upon the hardship of an employee solely because the employee does not take any available loan under the plan.

(c) Taxability of beneficiary under nonqualified annuities or under annuities purchased by exempt organizations

Premiums paid by an employer for an annuity contract which is not subject to subsection (a) shall be included in the gross income of the employee in accordance with section 83 (relating to property transferred in connection with performance of services), except that the value of such contract shall be substituted for the fair market value of the property for purposes of applying such section. The preceding sentence shall not apply to that portion of the premiums paid which is excluded from gross income under subsection (b). In the case of any portion of any contract which is attributable to premiums to which this subsection applies, the amount actually paid or made available under such contract to any beneficiary which is attributable to such premiums shall be taxable to the beneficiary (in the year in which so paid or made available) under section 72 (relating to annuities).

(Aug. 16, 1954, ch. 736, 68A Stat. 137; Pub. L. 85–866, title I, §23(a)–(c), Sept. 2, 1958, 72 Stat. 1620–1622; Pub. L. 87–370, §3(a), Oct. 4, 1961, 75 Stat. 801; Pub. L. 87–792, §4(d), Oct. 10, 1962, 76 Stat. 825; Pub. L. 88–272, title II, §232(e)(4)–(6), Feb. 26, 1964, 78 Stat. 111; Pub. L. 91–172, title III, §321(b)(2), title V, §515(a)(2), Dec. 30, 1969, 83 Stat. 591, 644; Pub. L. 93–406, title II, §§1022(e), 2002(g)(6), 2004(c)(4), 2005(b)(2), Sept. 2, 1974, 88 Stat. 940, 969, 986, 991; Pub. L. 94–267, §1(b), Apr. 15, 1976, 90 Stat. 366; Pub. L. 94–455, title XIV, §1402(b)(1)(D), (2), title XV, §1504(a), title XIX, §§1901(a)(58), (b)(8)(A), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1731, 1732, 1738, 1774, 1794, 1834; Pub. L. 95–458, §4(b), Oct. 14, 1978, 92 Stat. 1259; Pub. L. 95–600, title I, §§154(a), 156(a), (b), 157(g)(2), Nov. 6, 1978, 92 Stat. 2801, 2802, 2808; Pub. L. 96–222, title I, §101(a)(12), (13)(C), Apr. 1, 1980, 94 Stat. 204; Pub. L. 97–34, title III, §311(b)(3)(B), Aug. 13, 1981, 95 Stat. 280; Pub. L. 97–248, title II, §251(a), (b), (c)(3), Sept. 3, 1982, 96 Stat. 529–531; Pub. L. 97–448, title I, §103(c)(8)(B), Jan. 12, 1983, 96 Stat. 2377; Pub. L. 98–21, title I, §122(c)(4), Apr. 20, 1983, 97 Stat. 87; Pub. L. 98–369, div. A, title IV, §491(d)(12), title V, §§521(c), 522(a)(2), (3), (d)(9)–(11), title X, §1001(b)(4), (e), July 18, 1984, 98 Stat. 849, 867, 869–871, 1011, 1012; Pub. L. 99–514, title XI, §§1120(a), (b), 1122(b)(1)(B), (d), 1123(c), title XVIII, §1852(a)(3)(A), (B), (5)(B), (b)(10), Oct. 22, 1986, 100 Stat. 2463, 2466, 2469, 2474, 2865, 2867; Pub. L. 100–647, title I, §1011(c)(7)(B), (12), (m)(1), (2), title VI, §6052(a)(1), Nov. 10, 1988, 102 Stat. 3458, 3459, 3471, 3696; Pub. L. 101–508, title XI, §11701(k), Nov. 5, 1990, 104 Stat. 1388–513; Pub. L. 102–318, title V, §§521(b)(12), (13), 522(a)(3), (c)(2), (3), July 3, 1992, 106 Stat. 311, 314, 315; Pub. L. 104–188, title I, §§1450(c)(1), 1704(t)(69), Aug. 20, 1996, 110 Stat. 1815, 1891; Pub. L. 105–34, title XV, §§1504(a)(1), 1505(c), title XVI, §1601(d)(6)(B), Aug. 5, 1997, 111 Stat. 1063, 1064, 1090; Pub. L. 105–206, title VI, §6005(c)(2)(B), July 22, 1998, 112 Stat. 800; Pub. L. 106–554, §1(a)(7) [title III, §314(e)(1)], Dec. 21, 2000, 114 Stat. 2763, 2763A–643; Pub. L. 107–16, title VI, §§632(a)(2), 641(b)(1), (e)(7), 642(b)(1), 646(a)(2), 647(a), June 7, 2001, 115 Stat. 113, 120, 121, 126, 127; Pub. L. 107–147, title IV, §411(p)(1)–(3), Mar. 9, 2002, 116 Stat. 49, 50; Pub. L. 108–311, title IV, §§404(e), 408(a)(11), Oct. 4, 2004, 118 Stat. 1188, 1191; Pub. L. 109–135, title IV, §412(w), Dec. 21, 2005, 119 Stat. 2638; Pub. L. 109–280, title VIII, §§827(b)(2), (3), 829(a)(2), (3), 845(b)(1), (2), Aug. 17, 2006, 120 Stat. 1000, 1002, 1015; Pub. L. 110–245, title I, §104(c)(2), June 17, 2008, 122 Stat. 1627; Pub. L. 116–94, div. O, title I, §§109(c), 111(a), Dec. 20, 2019, 133 Stat. 3151, 3152; Pub. L. 117–328, div. T, title I, §§106(a), 110(e), 113(b), 121(b), 125(a)(2)(A), (B)(i), 128(a), (b), title III, §§312(b), 334(b)(2)–(4), title VI, §602(a), (b), Dec. 29, 2022, 136 Stat. 5286, 5293, 5295, 5310, 5314, 5315, 5330, 5347, 5370, 5391.)

Amendment of Section

Pub. L. 117–328, div. T, title III, §334(b)(2)–(4), (e), Dec. 29, 2022, 136 Stat. 5370, 5372, provided that, applicable to distributions made after the date which is 3 years after Dec. 29, 2022, this section is amended as follows:

(1) in subsection (a), by adding at the end the following new paragraph:

(6) Qualified long-term care distributions

"An annuity contract shall not fail to be subject to this subsection solely by reason of allowing distributions to which section 401(a)(39) applies."; and

(2) in subsection (b)—

(A) in paragraph (7)(A)(i), by striking "or" at the end of subclause (V), by striking "and" at the end of subclause (VI) and inserting "or", and by adding at the end the following new subclause:

"(VII) as provided for distributions to which section 401(a)(39) applies, and"; and

(B) in paragraph (11), by striking "or" at the end of subparagraph (C), by striking the period at the end of subparagraph (D) and inserting ", or", and by inserting after subparagraph (D) the following new subparagraph:

"(E) for distributions to which section 401(a)(39) applies."

See 2022 Amendment notes below.

Editorial Notes

References in Text

Section 202(c) of the Employee Retirement Income Security Act of 1974, referred to in subsec. (b)(12)(A), (D)(i), is classified to section 1052(c) of Title 29, Labor.

Amendments

2022—Subsec. (a)(6). Pub. L. 117–328, §334(b)(2), added par. (6).

Subsec. (b)(7). Pub. L. 117–328, §128(b), struck out "for regulated investment company stock" after "Custodial accounts" in heading.

Subsec. (b)(7)(A). Pub. L. 117–328, §128(a), in introductory provisions, substituted "if the amounts are to be held in that custodial account and are invested in regulated investment company stock or a group trust intended to satisfy the requirements of Internal Revenue Service Revenue Ruling 81–100 (or any successor guidance)" for "if the amounts are to be invested in regulated investment company stock to be held in that custodial account".

Subsec. (b)(7)(A)(i)(V). Pub. L. 117–328, §602(b)(1), substituted "subject to the provisions of paragraph (17)" for "in the case of contributions made pursuant to a salary reduction agreement (within the meaning of section 3121(a)(5)(D))".

Subsec. (b)(7)(A)(i)(VII). Pub. L. 117–328, §334(b)(3), added subcl. (VII).

Subsec. (b)(7)(D). Pub. L. 117–328, §312(b)(1), added subpar. (D).

Subsec. (b)(11). Pub. L. 117–328, §602(b)(2)(B), in concluding provisions, struck out "Such contract may not provide for the distribution of any income attributable to such contributions in the case of hardship." before "In determining".

Pub. L. 117–328, §312(b)(2), in concluding provisions, inserted at end "In determining whether a distribution is upon hardship of an employee, the administrator of the plan may rely on a written certification by the employee that the distribution is on account of a financial need of a type which is deemed in regulations prescribed by the Secretary to be an immediate and heavy financial need and is not in excess of the amount required to satisfy such financial need, and that the employee has no alternative means reasonably available to satisfy such financial need. The Secretary may provide by regulations for exceptions to the rule of the preceding sentence in cases where the plan administrator has actual knowledge to the contrary of the employee's certification, and for procedures for addressing cases of employee misrepresentation."

Subsec. (b)(11)(B). Pub. L. 117–328, §602(b)(2)(A), substituted "subject to the provisions of paragraph (17), in" for "in".

Subsec. (b)(11)(E). Pub. L. 117–328, §334(b)(4), added subpar. (E).

Subsec. (b)(12)(A). Pub. L. 117–328, §125(a)(2)(B)(i), which directed that the "last sentence" of subpar. (A) be amended by inserting "and section 202(c) of the Employee Retirement Income Security Act of 1974" after "under section 410(b)(4)", was executed by making the insertion after "under section 410(b)(4)" in what had been the last sentence of concluding provisions prior to amendments by Pub. L. 117–328, §§110(e), 113(b), to reflect the probable intent of Congress. See notes below.

Pub. L. 117–328, §113(b), in concluding provisions, inserted at end "A plan shall not fail to satisfy clause (ii) solely by reason of offering a de minimis financial incentive (not derived from plan assets) to employees to elect to have the employer make contributions pursuant to a salary reduction agreement."

Pub. L. 117–328, §110(e), in concluding provisions, inserted at end "The fact that the employer offers matching contributions on account of qualified student loan payments as described in section 401(m)(13) shall not be taken into account in determining whether the arrangement satisfies the requirements of clause (ii) (and any regulation thereunder)."

Subsec. (b)(12)(D). Pub. L. 117–328, §125(a)(2)(A), added subpar. (D).

Subsec. (b)(15). Pub. L. 117–328, §106(a), added par. (15).

Subsec. (b)(16). Pub. L. 117–328, §121(b), added par. (16).

Subsec. (b)(17). Pub. L. 117–328, §602(a), added par. (17).

2019—Subsec. (b)(7)(A). Pub. L. 116–94, §109(c)(2), substituted "if the amounts are to be invested in regulated investment company stock to be held in that custodial account, and under the custodial account—" for "if—" and cls. (i) and (ii) for former cls. (i) and (ii) which read as follows:

"(i) the amounts are to be invested in regulated investment company stock to be held in that custodial account, and

"(ii) under the custodial account no such amounts may be paid or made available to any distributee (unless such amount is a distribution to which section 72(t)(2)(G) applies) before the employee dies, attains age 59½, has a severance from employment, becomes disabled (within the meaning of section 72(m)(7)), or in the case of contributions made pursuant to a salary reduction agreement (within the meaning of section 3121(a)(5)(D)), encounters financial hardship."

Subsec. (b)(9)(B). Pub. L. 116–94, §111(a), inserted "(including an employee described in section 414(e)(3)(B))" after "employee described in paragraph (1)".

Subsec. (b)(11)(D). Pub. L. 116–94, §109(c)(1), added subpar. (D).

2008—Subsec. (b)(14). Pub. L. 110–245 added par. (14).

2006—Subsec. (a)(2). Pub. L. 109–280, §845(b)(1), added par. (2).

Subsec. (a)(4)(B). Pub. L. 109–280, §829(a)(2), inserted "and (11)" after "(7)".

Subsec. (b)(2). Pub. L. 109–280, §845(b)(2), added par. (2).

Subsec. (b)(7)(A)(ii). Pub. L. 109–280, §827(b)(2), inserted "(unless such amount is a distribution to which section 72(t)(2)(G) applies)" after "distributee".

Subsec. (b)(8)(B). Pub. L. 109–280, §829(a)(3), substituted ", (9), and (11)" for "and (9)".

Subsec. (b)(11)(C). Pub. L. 109–280, §827(b)(3), added subpar. (C).

2005—Subsec. (b)(9)(B). Pub. L. 109–135 inserted "or" before "a convention".

2004—Subsec. (a)(4)(B). Pub. L. 108–311, §404(e), reenacted heading without change and amended text generally. Prior to amendment, text read as follows: "Rules similar to the rules of paragraphs (2) through (7) of section 402(c) shall apply for purposes of subparagraph (A)."

Subsec. (b)(7)(A)(ii). Pub. L. 108–311, §408(a)(11), substituted "3121(a)(5)(D)" for "3121(a)(1)(D)".

2002—Subsec. (b)(1). Pub. L. 107–147, §411(p)(1), inserted concluding provisions and struck out former concluding provisions which read as follows: "then amounts contributed by such employer for such annuity contract on or after such rights become nonforfeitable shall be excluded from the gross income of the employee for the taxable year to the extent that the aggregate of such amounts does not exceed the applicable limit under section 415. The amount actually distributed to any distributee under such contract shall be taxable to the distributee (in the year in which so distributed) under section 72 (relating to annuities). For purposes of applying the rules of this subsection to amounts contributed by an employer for a taxable year, amounts transferred to a contract described in this paragraph by reason of a rollover contribution described in paragraph (8) of this subsection or section 408(d)(3)(A)(ii) shall not be considered contributed by such employer."

Subsec. (b)(3). Pub. L. 107–147, §411(p)(3), in first sentence, inserted ", and which precedes the taxable year by no more than five years" before period at end and, in second sentence, struck out "or any amount received by a former employee after the fifth taxable year following the taxable year in which such employee was terminated" after "this subsection applies".

Subsec. (b)(6). Pub. L. 107–147, §411(p)(2), struck out heading and text of par. (6). Text read as follows: "For purposes of this subsection and section 72(f) (relating to special rules for computing employees' contributions to annuity contracts), if rights of the employee under an annuity contract described in subparagraphs (A) and (B) of paragraph (1) change from forfeitable to nonforfeitable rights, then the amount (determined without regard to this subsection) includible in gross income by reason of such change shall be treated as an amount contributed by the employer for such annuity contract as of the time such rights become nonforfeitable."

2001—Subsec. (b)(1). Pub. L. 107–16, §642(b)(1), substituted "section 408(d)(3)(A)(ii)" for "section 408(d)(3)(A)(iii)" in concluding provisions.

Pub. L. 107–16, §632(a)(2)(A), substituted "the applicable limit under section 415" for "the exclusion allowance for such taxable year" in concluding provisions.

Subsec. (b)(2). Pub. L. 107–16, §632(a)(2)(B), struck out par. (2), which described exclusion allowance for purposes of subsec. (b) providing general criteria, determination under section 415 rules, number of years of service for duly ordained, commissioned, or licensed ministers or lay employees, and alternative exclusion allowance for such ministers or lay employees.

Subsec. (b)(3). Pub. L. 107–16, §632(a)(2)(C), inserted "or any amount received by a former employee after the fifth taxable year following the taxable year in which such employee was terminated" before period at end of second sentence.

Subsec. (b)(7)(A)(ii). Pub. L. 107–16, §646(a)(2)(A), substituted "has a severance from employment" for "separates from service".

Subsec. (b)(8)(A)(ii). Pub. L. 107–16, §641(b)(1), substituted "such distribution to an eligible retirement plan described in section 402(c)(8)(B), and" for "such distribution to an individual retirement plan or to an annuity contract described in paragraph (1), and".

Subsec. (b)(8)(B). Pub. L. 107–16, §641(e)(7), reenacted heading without change and amended text generally. Prior to amendment, text read as follows: "Rules similar to the rules of paragraphs (2) through (7) of section 402(c) (including paragraph (4)(C) thereof) shall apply for purposes of subparagraph (A)."

Subsec. (b)(11). Pub. L. 107–16, §646(a)(2)(B), substituted "severance from employment" for "separation from service" in heading.

Subsec. (b)(11)(A). Pub. L. 107–16, §646(a)(2)(A), substituted "has a severance from employment" for "separates from service".

Subsec. (b)(13). Pub. L. 107–16, §647(a), added par. (13).

2000—Subsec. (b)(3)(B). Pub. L. 106–554 substituted "section 125, 132(f)(4), or" for "section 125 or".

1998—Subsec. (b)(8)(B). Pub. L. 105–206 inserted "(including paragraph (4)(C) thereof)" after "section 402(c)".

1997—Subsec. (b)(1)(A)(iii). Pub. L. 105–34, §1601(d)(6)(B), added cl. (iii).

Subsec. (b)(3). Pub. L. 105–34, §1504(a)(1), inserted at end "Such term includes—" and subpars. (A) and (B).

Subsec. (b)(12)(C). Pub. L. 105–34, §1505(c), added subpar. (C).

1996—Subsec. (b)(1)(E). Pub. L. 104–188, §1450(c)(1), amended subpar. (E) generally. Prior to amendment, subpar. (E) read as follows: "in the case of a contract purchased under a plan which provides a salary reduction agreement, the plan meets the requirements of section 401(a)(30),".

Subsec. (b)(10). Pub. L. 104–188, §1704(t)(69), substituted "a direct" for "an direct" in last sentence.

1992—Subsec. (a)(4)(A)(i). Pub. L. 102–318, §521(b)(12)(A), inserted before comma at end "in an eligible rollover distribution (within the meaning of section 402(c)(4))".

Subsec. (a)(4)(B). Pub. L. 102–318, §521(b)(12)(B), amended subpar. (B) generally. Prior to amendment, subpar. (B) read as follows: "Rules similar to the rules of subparagraphs (B) through (G) of section 402(a)(5) and of paragraphs (6) and (7) of section 402(a) shall apply for purposes of subparagraph (A)."

Subsec. (a)(5). Pub. L. 102–318, §522(c)(2), added par. (5).

Subsec. (b)(8)(A)(i). Pub. L. 102–318, §521(b)(13)(A), inserted before comma at end "in an eligible rollover distribution (within the meaning of section 402(c)(4))".

Subsec. (b)(8)(B) to (D). Pub. L. 102–318, §521(b)(13)(B), added subpar. (B) and struck out former subpars. (B) to (D), which related to special rules for partial distributions, applicability of certain similar rules, and eligibility for rollover treatment of required distributions.

Subsec. (b)(10). Pub. L. 102–318, §522(a)(3), (c)(3), substituted "sections 401(a)(9) and 401(a)(31)" for "section 401(a)(9)" and inserted at end "Any amount transferred in an direct trustee-to-trustee transfer in accordance with section 401(a)(31) shall not be includible in gross income for the taxable year of the transfer."

1990—Subsec. (b)(12)(A). Pub. L. 101–508 inserted "involving a one-time irrevocable election" after "similar arrangement" in second sentence.

1988—Subsec. (b)(1)(D). Pub. L. 100–647, §1011(m)(1)(B), substituted "paragraph (12)" for "paragraph (10)".

Subsec. (b)(1)(E). Pub. L. 100–647, §1011(c)(7)(B), added subpar. (E).

Subsec. (b)(10). Pub. L. 100–647, §1011(m)(1)(A), redesignated par. (10), relating to nondiscrimination requirements, as (12).

Subsec. (b)(12). Pub. L. 100–647, §1011(m)(1)(A), redesignated par. (10), relating to nondiscrimination requirements, as (12).

Subsec. (b)(12)(A). Pub. L. 100–647, §1011(m)(2), inserted "(17)," after "paragraphs (4), (5)," and ", section 401(m)," after "of section 401(a)" in cl. (i).

Pub. L. 100–647, §1011(c)(12), inserted after cl. (ii) "For purposes of clause (i), a contribution shall be treated as not made pursuant to a salary reduction agreement if under the agreement it is made pursuant to a 1-time irrevocable election made by the employee at the time of initial eligibility to participate in the agreement or is made pursuant to a similar arrangement specified in regulations."

Pub. L. 100–647, §6052(a)(1), amended last sentence generally. Prior to amendment, last sentence read as follows: "For purposes of this subparagraph, students who normally work less than 20 hours per week may (subject to the conditions applicable under section 410(b)(4)) be excluded."

1986—Subsec. (a)(1). Pub. L. 99–514, §1122(d)(1), substituted "Distributee taxable under section 72" for "General rule" in heading and amended par. (1) generally. Prior to amendment, par. (1) read as follows: "Except as provided in paragraph (2), if an annuity contract is purchased by an employer for an employee under a plan which meets the requirements of section 404(a)(2) (whether or not the employer deducts the amounts paid for the contract under such section), the employee shall include in his gross income the amounts received under such contract for the year received as provided in section 72 (relating to annuities)."

Subsec. (a)(2). Pub. L. 99–514, §1122(b)(1)(B), struck out par. (2) which read as follows:

"(A) General rule

"If—

"(i) an annuity contract is purchased by an employer for an employee under a plan described in paragraph (1);

"(ii) such plan requires that refunds of contributions with respect to annuity contracts purchased under such plan be used to reduce subsequent premiums on the contracts under the plan; and

"(iii) a lump sum distribution (as defined in section 402(e)(4)(A)) is paid to the recipient,

so much of the total taxable amount (as defined in section 402(e)(4)(D)) of such distribution as is equal to the product of such total taxable amount multiplied by the fraction described in section 402(a)(2) shall be treated as a gain from the sale or exchange of a capital asset held for more than 6 months. For purposes of this paragraph, in the case of an individual who is an employee without regard to section 401(c)(1), determination of whether or not any distribution is a lump sum distribution shall be made without regard to the requirement that an election be made under subsection (e)(4)(B) of section 402, but no distribution to any taxpayer other than an individual, estate, or trust may be treated as a lump sum distribution under this paragraph.

"(B) Cross reference

"For imposition of separate tax on ordinary income portion of lump sum distribution, see section 402(e)."

Subsec. (a)(4)(B). Pub. L. 99–514, §1852(a)(5)(B)(i), substituted "through (G)" for "through (F)".

Subsec. (b)(1). Pub. L. 99–514, §1122(d)(2), amended second sentence generally. Prior to amendment, second sentence read as follows: "The employee shall include in his gross income the amounts received under such contract for the year received as provided in section 72 (relating to annuities)".

Subsec. (b)(1)(D). Pub. L. 99–514, §1120(a), added subpar. (D).

Subsec. (b)(7)(A)(ii). Pub. L. 99–514, §1123(c)(2), inserted "in the case of contributions made pursuant to a salary reduction agreement (within the meaning of section 3121(a)(1)(D))," after "section 72(m)(7)), or".

Subsec. (b)(7)(D). Pub. L. 99–514, §1852(a)(3)(B), struck out subpar. (D) "Distribution requirements" which read as follows: "For purposes of determining when the interest of an employee in a custodial account must be distributed, such account shall be treated in the same manner as an annuity contract."

Subsec. (b)(8)(C). Pub. L. 99–514, §1852(b)(10), inserted "and" before "(F)(i)".

Subsec. (b)(8)(D). Pub. L. 99–514, §1852(a)(5)(B)(ii), added subpar. (D).

Subsec. (b)(10). Pub. L. 99–514, §1120(b), added par. (10) relating to nondiscrimination requirements.

Pub. L. 99–514, §1852(a)(3)(A), added par. (10) relating to distribution requirements.

Subsec. (b)(11). Pub. L. 99–514, §1123(c)(1), added par. (11).

Subsec. (c). Pub. L. 99–514, §1122(d)(3), amended last sentence generally. Prior to amendment, last sentence read as follows: "The amount actually paid or made available to any beneficiary under such contract shall be taxable to him in the year in which so paid or made available under section 72 (relating to annuities)."

1984—Subsec. (a)(2)(A). Pub. L. 98–369, §1001(b)(4), substituted "6 months" for "1 year", applicable to property acquired after June 22, 1984, and before Jan. 1, 1988. See Effective Date of 1984 Amendment note below.

Subsec. (a)(4)(A)(i). Pub. L. 98–369, §522(a)(2), substituted "any portion of the balance to the credit of an employee in an employee annuity described in paragraph (1) is paid to him," for "the balance to the credit of an employee in an employee annuity described in paragraph (1) is paid to him in a qualifying rollover distribution."

Subsec. (a)(4)(B). Pub. L. 98–369, §522(d)(9), substituted "(B) through (F)" for "(B) through (E)".

Subsec. (b)(1). Pub. L. 98–369, §491(d)(12), struck out "or 409(b)(3)(C)" after "408(d)(3)(A)(iii)".

Subsec. (b)(7)(D). Pub. L. 98–369, §521(c), added subpar. (D).

Subsec. (b)(8)(A)(i). Pub. L. 98–369, §522(a)(3), substituted "any portion of the balance to the credit of an employee in an annuity contract described in paragraph (1) is paid to him" for "the balance to the credit of an employee is paid to him in a qualifying distribution".

Subsec. (b)(8)(B). Pub. L. 98–369, §522(d)(10), substituted provisions relating to special rules for partial distributions for provisions relating to definition of qualifying distributions.

Subsec. (b)(8)(C). Pub. L. 98–369, §522(d)(11), substituted "(F)(i)" for "(D)(v), and (E)(i)".

1983—Subsec. (b)(3). Pub. L. 98–21 substituted "section 911" for "sections 105(d) and 911".

Subsec. (b)(8)(C). Pub. L. 97–448 substituted "subparagraphs (B), (C), (D)(v), and (E)(i) of section 402(a)(5)" for "subparagraphs (B), (C), and (E)(i) of section 402(a)(5)".

1982—Subsec. (b)(2)(B). Pub. L. 97–248, §251(a)(1), (c)(3), substituted "home health service agencies, and certain churches, etc." for "and home health service agencies", and "(under section 415 without regard to section 415(c)(8))" for "(under section 415)".

Subsec. (b)(2)(C), (D). Pub. L. 97–248, §251(a)(2), added subpars. (C) and (D).

Subsec. (b)(9). Pub. L. 97–248, §251(b), added par. (9).

1981—Subsec. (b)(8)(B)(i). Pub. L. 97–34 inserted ", or 1 or more distributions of accumulated deductible employee contributions (within the meaning of section 72(o)(5))" after "subsection (a)".

1980—Subsec. (b). Pub. L. 96–222 substituted in par. (1) "409(b)(3)(C)" for "409(d)(3)(C)", and in par. (7)(A) "which satisfies" for "which satisfied".

1978—Subsec. (a)(4). Pub. L. 95–600, §157(g)(2), in subpar. (B) substituted "paragraphs (6) and (7)" for "paragraph (6)".

Pub. L. 95–458, among other changes, substituted provision permitting tax free treatment for any portion of a lump sum distribution from a qualified retirement plan which is deposited in an individual retirement account or another qualifying plan for provision which required transfer of all such property received.

Subsec. (a)(5). Pub. L. 95–458 struck out par. (5) which related to special rules concerning time of termination of a profit-sharing plan and the treatment of the sale of a corporate subsidiary or assets as payment or distribution on account of termination of a plan of which an annuity trust was a part.

Subsec. (b)(1). Pub. L. 95–600, §156(b), inserted provision relating to application of rules of this subsection to amounts contributed by an employer for a taxable year.

Subsec. (b)(7)(A). Pub. L. 95–600, §154(a), struck out "the amounts are paid to provide a retirement benefit for that employee and are to be invested in regulated investment company stock to be held in that custodial account" after "contract for his employee if", and added cls. (i) and (ii).

Subsec. (b)(8). Pub. L. 95–600, §156(a), added par. (8).

1976—Subsec. (a)(2)(A). Pub. L. 94–455, §1402(b)(2), provided that "9 months" would be changed to "1 year".

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

Subsec. (a)(4). Pub. L. 94–455, §1901(a)(58), reenacted provisions following subpar. (C) without substantive change.

Pub. L. 94–267, §1(b)(2), substituted "a payment" for "the lump-sum distribution".

Subsec. (a)(4)(A). Pub. L. 94–267, §1(b)(1), restructured provisions by adding cl. (i) and designating existing provision as cl. (ii).

Subsec. (a)(5). Pub. L. 94–455, §1906(b)(13)(A), struck out "or his delegate" after "Secretary" wherever appearing.

Pub. L. 94–267, §1(b)(3), added par. (5).

Subsec. (b)(1)(A)(ii). Pub. L. 94–455, §1901(b)(8)(A), substituted "educational organization described in section 170(b)(1)(A)(ii)" for "educational institution (as defined in section 151(e)(4))".

Subsec. (b)(4)(B). Pub. L. 94–455, §1906(b)(13)(A), struck out "or his delegate" after "Secretary".

Subsec. (b)(7)(C). Pub. L. 94–455, §1504(a), struck out ", and which issues only redeemable stock" after "regulated investment company within the meaning of section 851(a)".

1974—Subsec. (a)(2). Pub. L. 93–406, §2005(b)(2), substituted "a lump sum distribution (as defined in section 4002(e)(4)(A)) is paid to the recipient" for "the total amounts payable by reason of an employee's death or other separation from the service, or by reason of the death of an employee after the employee's separation from the service, are paid to the payee within one taxable year of the payee" as cl. (iii) of subpar. (A), substituted "so much of the total taxable amount (as defined in section 402(e)(4)(D)) of such distribution as is equal to the product of such total taxable amount multiplied by the fraction described in section 402(a)(2) shall be treated as a gain from the sale or exchange of a capital asset held for more than 6 months. For purposes of this paragraph, in the case of an individual who is an employee without regard to section 401(c)(1), determination of whether or not any distribution is a lump sum distribution shall be made without regard to the requirement that an election be made under subsection (e)(4)(B) of section 402, but no distribution to any taxpayer other than an individual, estate, or trust may be treated as a lump sum distribution under this paragraph" for "then the amount of such payments, to the extent exceeding the amount contributed by the employee (determined by applying section 72(f)), which employee contributions shall be reduced by any amounts theretofore paid to him which were not includible in gross income, shall be considered a gain from the sale or exchange of a capital asset held for more than 6 months. This subparagraph shall not apply to amounts paid to any payee to the extent such amounts are attributable to contributions made on behalf of the employee while he was an employee within the meaning of section 401(c)(1)" following cl. (iii) of subpar. (A), substituted provisions setting out a cross reference to section 402(e) for provisions defining "total amounts" as subpar. (B), and struck out subpar. (C) setting out limitations on capital gains treatment.

Subsec. (a)(4). Pub. L. 93–406, §2002(g)(6), added par. (4).

Subsec. (b)(2). Pub. L. 93–406, §2004(c)(4), designated existing provisions as subpar. (A) and added subpar. (B).

Subsec. (b)(7). Pub. L. 93–406, §1022(e), added par. (7).

1969—Subsec. (a)(2)(C). Pub. L. 91–172, §515(a)(2), added subpar. (C).

Subsec. (c). Pub. L. 91–172, §321(b)(2), consolidated provisions of subsec. (c) providing for taxability of beneficiary under a nonqualified annuity, the employees gross income to include amount contributed by employer for annuity contract in the year in which amount is contributed, the amount to be included as provided in section 72 of this title and of subsec. (d) providing for taxability of beneficiary under certain forfeitable contracts purchased by exempt organizations, including farmers' cooperatives, the gross income to include amount contributed by employer after Dec. 31, 1957, in the year of change from forfeitable to nonforfeitable rights, the new provisions including premiums paid by an employer in accordance with section 83, except that value of the contract shall be substituted for fair market value of the property for purposes of applying such section 83, such provision not to be applicable to that portion of premiums paid which is excluded from gross income under subsec. (b) of this section.

Subsec. (d). Pub. L. 91–172, §321(b)(2), struck out subsec. (d) providing for taxability of beneficiary under certain forfeitable contracts purchased by exempt organizations, including farmers' cooperatives, gross income of the employee to include (amount contributed by employer after Dec. 31, 1957), in year of change from forfeitable to nonforfeitable rights. See subsec. (c) of this section.

1964—Subsecs. (a)(1), (b)(1), (c). Pub. L. 88–272, §232(e)(4)–(6), struck out "except that section 72(e)(3) shall not apply" after "(relating to annuities)".

1962—Subsec. (a)(2)(A). Pub. L. 87–792, §4(d)(1), (2), substituted "described in paragraph (1)" for "which meets the requirements of section 401(a)(3), (4), (5), and (6)" in cl. (i), and inserted sentence at end thereof providing that this subparagraph shall not apply to amounts paid to any payee to the extent such amounts are attributable to contributions made on behalf of the employee while he was an employee within the meaning of section 401(c)(1).

Subsec. (a)(3). Pub. L. 87–792, §4(d)(3), added par. (3).

1961—Subsec. (b). Pub. L. 87–370, §3(a)(3), inserted "or public school" in heading.

Subsec. (b)(1)(A). Pub. L. 87–370, §3(a)(1), included annuity contracts purchased for an employee, other than one described in clause (i) of this subpar., who performs services for an educational institution, as defined in section 151(e)(4) of this title, by an employer which is a State, a political subdivision of a State, or an agency or instrumentality of either.

Subsec. (b)(3). Pub. L. 87–370, §(3)(a)(2), substituted "the employer described in paragraph (1)(A)" for "the employer described in section 501(c)(3) and exempt from tax under section 501(a)".

1958—Subsec. (a)(1). Pub. L. 85–866, §23(b), substituted "which meets the requirements of section 404(a)(2) (whether or not the employer deducts the amounts paid for the contract under such section)," for "with respect to which the employer's contribution is deductible under section 404(a)(2), or if an annuity contract is purchased for an employee by an employer described in section 501(c)(3) which is exempt from tax under section 501(a),".

Subsecs. (b) to (d). Pub. L. 85–866, §23(a), added subsec. (b), redesignated former subsec. (b) as (c), and added subsec. (d).

Statutory Notes and Related Subsidiaries

Effective Date of 2022 Amendment

Pub. L. 117–328, div. T, title I, §106(h)(1), Dec. 29, 2022, 136 Stat. 5289, provided that: "The amendments made by this section [amending this section, sections 6057 and 6058 of this title, and section 1002 of Title 29, Labor] shall apply to plan years beginning after December 31, 2022."

Amendment by section 110(e) of Pub. L. 117–328 applicable to contributions made for plan years beginning after Dec. 31, 2023, see section 110(h) of Pub. L. 117–328, set out as a note under section 401 of this title.

Amendment by section 113(b) of Pub. L. 117–328 applicable with respect to plan years beginning after Dec. 29, 2022, see section 113(e) of Pub. L. 117–328, set out as a note under section 401 of this title.

Amendment by section 121(b) of Pub. L. 117–328 applicable to plan years beginning after Dec. 31, 2023, see section 121(d) of Pub. L. 117–328, set out as a note under section 401 of this title.

Amendment by section 125(a)(2)(A), (B)(i) of Pub. L. 117–328 applicable to plan years beginning after Dec. 31, 2024, see section 125(f)(1) of Pub. L. 117–328, set out as a note under section 401 of this title.

Pub. L. 117–328, div. T, title I, §128(c), Dec. 29, 2022, 136 Stat. 5330, provided that: "The amendments made by this section [amending this section] shall apply to amounts invested after the date of the enactment of this Act [Dec. 29, 2022]."

Amendment by section 312(b) of Pub. L. 117–328 applicable to plan years beginning after Dec. 29, 2022, see section 312(d) of Pub. L. 117–328, set out as a note under section 401 of this title.

Amendment by section 334(b)(2)–(4) of Pub. L. 117–328 applicable to distributions made after the date which is 3 years after Dec. 29, 2022, see section 334(e) of Pub. L. 117–328, set out as a note under section 72 of this title.

Pub. L. 117–328, div. T, title VI, §602(c), Dec. 29, 2022, 136 Stat. 5391, provided that: "The amendments made by this section [amending this section] shall apply to plan years beginning after December 31, 2023."

Effective Date of 2019 Amendment

Amendment by section 109(c) of Pub. L. 116–94 applicable to plan years beginning after Dec. 31, 2019, see section 109(e) of Pub. L. 116–94, set out as a note under section 401 of this title.

Pub. L. 116–94, div. O, title I, §111(b), Dec. 20, 2019, 133 Stat. 3152, provided that: "The amendment made by this section [amending this section] shall apply to years beginning before, on, or after the date of the enactment of this Act [Dec. 20, 2019]."

Effective Date of 2008 Amendment

Amendment by Pub. L. 110–245 applicable with respect to deaths and disabilities occurring on or after Jan. 1, 2007, see section 104(d)(1) of Pub. L. 110–245, set out as a note under section 401 of this title.

Effective Date of 2006 Amendment

Amendment by section 827(b)(2), (3) of Pub. L. 109–280 applicable to distributions after Sept. 11, 2001, with waiver of limitations if refund or credit of overpayment of tax resulting from such amendment is prevented before the close of the 1-year period beginning on Aug. 17, 2006, see section 827(c) of Pub. L. 109–280, set out as a note under section 72 of this title.

Amendment by section 829(a)(2), (3) of Pub. L. 109–280 applicable to distributions after Dec. 31, 2006, see section 829(b) of Pub. L. 109–280, set out as a note under section 402 of this title.

Amendment by section 845(b)(1), (2) of Pub. L. 109–280 applicable to distributions in taxable years beginning after Dec. 31, 2006, see section 845(c) of Pub. L. 109–280, set out as a note under section 402 of this title.

Effective Date of 2004 Amendment

Amendment by section 404(e) of Pub. L. 108–311 effective as if included in the provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001, Pub. L. 107–16, to which such amendment relates, see section 404(f) of Pub. L. 108–311, set out as a note under section 45A of this title.

Effective Date of 2002 Amendment

Amendment by Pub. L. 107–147 effective as if included in the provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001, Pub. L. 107–16, to which such amendment relates, see section 411(x) of Pub. L. 107–147, set out as a note under section 25B of this title.

Effective Date of 2001 Amendment

Amendment by section 632(a)(2) of Pub. L. 107–16 applicable to years beginning after Dec. 31, 2001, see section 632(a)(4) of Pub. L. 107–16, set out as a note under section 72 of this title.

Amendment by section 641(b)(1), (e)(7) of Pub. L. 107–16 applicable to distributions after Dec. 31, 2001, see section 641(f)(1) of Pub. L. 107–16, set out as a note under section 402 of this title.

Amendment by section 642(b)(1) of Pub. L. 107–16 applicable to distributions after Dec. 31, 2001, see section 642(c) of Pub. L. 107–16, set out as a note under section 408 of this title.

Amendment by section 646(a)(2) of Pub. L. 107–16 applicable to distributions after Dec. 31, 2001, see section 646(b) of Pub. L. 107–16, set out as a note under section 401 of this title.

Pub. L. 107–16, title VI, §647(c), June 7, 2001, 115 Stat. 127, provided that: "The amendments made by this section [amending this section and section 457 of this title] shall apply to trustee-to-trustee transfers after December 31, 2001."

Effective Date of 2000 Amendment

Amendment by Pub. L. 106–554 effective as if included in the provisions of the Taxpayer Relief Act of 1997, Pub. L. 105–34, to which such amendment relates, see section 1(a)(7) [title III, §314(g)] of Pub. L. 106–554, set out as a note under section 56 of this title.

Effective Date of 1998 Amendment

Amendment by section 6005 of Pub. L. 105–206 applicable to distributions after Dec. 31, 1998, see section 6005(c)(2)(C) of Pub. L. 105–206, set out as a note under section 402 of this title.

Effective Date of 1997 Amendment

Pub. L. 105–34, title XV, §1504(a)(2), Aug. 5, 1997, 111 Stat. 1063, provided that: "The amendment made by this subsection [amending this section] shall apply to years beginning after December 31, 1997."

Amendment by section 1505(c) of Pub. L. 105–34 applicable to taxable years beginning on or after Aug. 5, 1997, with certain governmental plans treated as satisfying requirements for all taxable years beginning before Aug. 5, 1997, see section 1505(d) of Pub. L. 105–34, set out as a note under section 401 of this title.

Amendment by section 1601(d)(6)(B) of Pub. L. 105–34 effective as if included in the provisions of the Small Business Job Protection Act of 1996, Pub. L. 104–188, to which it relates, see section 1601(j) of Pub. L. 105–34, set out as a note under section 23 of this title.

Effective Date of 1996 Amendment

Pub. L. 104–188, title I, §1450(c)(2), Aug. 20, 1996, 110 Stat. 1815, provided that: "The amendment made by this subsection [amending this section] shall apply to years beginning after December 31, 1995, except a contract shall not be required to meet any change in any requirement by reason of such amendment before the 90th day after the date of the enactment of this Act [Aug. 20, 1996]."

Effective Date of 1992 Amendment

Amendment by section 521(b)(12), (13) of Pub. L. 102–318 applicable to distributions after Dec. 31, 1992, see section 521(e) of Pub. L. 102–318, set out as a note under section 402 of this title.

Amendment by section 522(a)(3), (c)(2), (3) of Pub. L. 102–318 applicable, except as otherwise provided, to distributions after Dec. 31, 1992, see section 522(d) of Pub. L. 102–318, set out as a note under section 401 of this title.

Effective Date of 1990 Amendment

Amendment by Pub. L. 101–508 effective, except as otherwise provided, as if included in the provision of the Revenue Reconciliation Act of 1989, Pub. L. 101–239, title VII, to which such amendment relates, see section 11701(n) of Pub. L. 101–508, set out as a note under section 42 of this title.

Effective Date of 1988 Amendment

Amendment by section 1011(c)(7)(B) of Pub. L. 100–647 applicable to plan years beginning after Dec. 31, 1987, with exception in case of a plan described in section 1105(c)(2) of Pub. L. 99–514, see section 1011(c)(7)(E) of Pub. L. 100–647, set out as a note under section 401 of this title.

Amendment by section 1011(c)(12), (m)(1), (2) 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 VI, §6052(a)(2), Nov. 10, 1988, 102 Stat. 3696, provided that: "The amendment made by paragraph (1) [amending this section] shall take effect as if included in the amendment made by section 1120(b) of the Reform Act [Pub. L. 99–514]."

Effective Date of 1986 Amendment

Pub. L. 99–514, title XI, §1120(c), Oct. 22, 1986, 100 Stat. 2464, as amended by Pub. L. 100–647, title I, §1011(m)(3), Nov. 10, 1988, 102 Stat. 3471, provided that:

"(1) In general.—Except as provided in paragraph (2), the amendments made by this section [amending this section] shall apply to years beginning after December 31, 1988.

"(2) Collective bargaining agreements.—In the case of a plan maintained pursuant to 1 or more collective bargaining agreements between employee representatives and 1 or more employers ratified before March 1, 1986, the amendments made by this section shall not apply to plan years beginning before the earlier of—

"(A) January 1, 1991, or

"(B) the later of—

"(i) January 1, 1989, or

"(ii) the date on which the last of such collective bargaining agreements terminates (determined without regard to any extension thereof after February 28, 1986)."

Amendment by section 1122(b)(1)(B), (d) of Pub. L. 99–514 applicable, except as otherwise provided, to amounts distributed after Dec. 31, 1986, in taxable years ending after such date, see section 1122(h) of Pub. L. 99–514, set out as a note under section 402 of this title.

Amendment by section 1123(c) of Pub. L. 99–514 applicable to years beginning after Dec. 31, 1988, but only with respect to distributions from contracts described in subsec. (b) of this section which are attributable to assets other than assets held as of the close of the last year beginning before Jan. 1, 1989, with certain exceptions and transition rule, see section 1123(e) of Pub. L. 99–514, as amended, set out as a note under section 72 of this title.

Pub. L. 99–514, title XVIII, §1852(a)(3)(C), Oct. 22, 1986, 100 Stat. 2865, provided that: "The amendments made by this paragraph [amending this section] shall apply to benefits accruing after December 31, 1986, in taxable years ending after such date."

Amendment by section 1852(a)(5)(B), (b)(10) 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 of 1984 Amendment

Amendment by section 491(d)(12) of Pub. L. 98–369 applicable to obligations issued after Dec. 31, 1983, see section 491(f)(1) of Pub. L. 98–369, set out as a note under section 62 of this title.

Amendment by section 521(c) of Pub. L. 98–369 applicable to years beginning after Dec. 31, 1984, see section 521(e) of Pub. L. 98–369, set out as a note under section 401 of this title.

Amendment by section 522 of Pub. L. 98–369 applicable to distributions made after July 18, 1984, in taxable years ending after that date, see section 522(e) of Pub. L. 98–369, set out as a note under section 402 of this title.

Amendment by section 1001(b)(4) of 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. 98–21 applicable to taxable years beginning after Dec. 31, 1983, except that if an individual's annuity starting date was deferred under section 105(d)(6) of this title as in effect on the day before Apr. 20, 1983, such deferral shall end on the first day of such individual's first taxable year beginning after Dec. 31, 1983, see section 122(d) of Pub. L. 98–21, set out as a note under section 22 of this title.

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 1982 Amendment

Pub. L. 97–248, title II, §251(e), Sept. 3, 1982, 96 Stat. 531, as amended by Pub. L. 99–514, §2, Oct. 22, 1986, 100 Stat. 2095; Pub. L. 114–113, div. Q, title III, §336(b)(1), Dec. 18, 2015, 129 Stat. 3110, provided that:

"(1) In general.—Except as provided in this subsection, the amendments made by this section [amending this section and section 415 of this title, and enacting a provision set out as a note below] shall apply to taxable years beginning after December 31, 1981.

"(2) Retirement income accounts.—The amendments made by subsection (b) [amending this section] shall apply to taxable years beginning after December 31, 1974.

"(3) Section 415 amendments.—The amendments made by subsection (c) [amending section 415 of this title] shall apply to years beginning after December 31, 1981.

"(4) Correction period.—The amendment made by subsection (d) [enacting provisions set out below] shall take effect on July 1, 1982.

"(5) Special rule for existing defined benefit arrangements.—Any defined benefit arrangement which is established by a church or a convention or association of churches (including an organization described in section 414(e)(3)(B)(ii) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]) and which is in effect on the date of the enactment of this Act [Sept. 3, 1982] shall not be treated as failing to meet the requirements of section 403(b) of such Code merely because it is a defined benefit arrangement, and shall be subject to the applicable limitations of section 415(b) of such Code as if it were a defined benefit plan under section 401(a) of such Code (and not to the limitations of section 415(c) of such Code)..[sic]"

[Pub. L. 114–113, div. Q, title III, §336(b)(2), Dec. 18, 2015, 129 Stat. 3110, provided that: "The amendments made by this subsection [amending section 251(e)(5) of Pub. L. 97–248, set out above] shall apply to years beginning before, on, or after the date of the enactment of this Act [Dec. 18, 2015]."]

Effective Date of 1981 Amendment

Amendment by Pub. L. 97–34 applicable to taxable years beginning after Dec. 31, 1981, see section 311(i)(1) of Pub. L. 97–34, set out as a note under section 219 of this title.

Effective Date of 1980 Amendment

Amendment by Pub. L. 96–222 effective, except as otherwise provided, as if it had been included in the provisions of the Revenue Act of 1978, Pub. L. 95–600, to which such amendment relates, see section 201 of Pub. L. 96–222, set out as a note under section 32 of this title.

Effective Date of 1978 Amendment

Pub. L. 95–600, title I, §154(b), Nov. 6, 1978, 92 Stat. 2801, provided that: "The amendment made by this section [amending this section] shall apply to taxable years beginning after December 31, 1978."

Pub. L. 95–600, title I, §156(d), Nov. 6, 1978, 92 Stat. 2803, as amended by Pub. L. 96–222, title I, §101(a)(13)(A), Apr. 1, 1980, 94 Stat. 204, provided that: "The amendments made by this section [amending this section and sections 219, 220, 408, 409, 2039, and 4973] shall apply to distributions or transfers made after December 31, 1977, in taxable years beginning after such date."

Amendment by section 157(g)(2) of Pub. L. 95–600 applicable to lump-sum distributions completed after Dec. 31, 1978, in taxable years ending after such date, see section 157(g)(4) of Pub. L. 95–600, set out as a note under section 402 of this title.

Amendment by Pub. L. 95–458 applicable with respect to taxable years beginning after Dec. 31, 1974, see section 4(d) of Pub. L. 95–458, set out as a note under section 402 of this title.

Effective Date of 1976 Amendment

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.

Pub. L. 94–455, title XIV, §1504(b), Oct. 4, 1976, 90 Stat. 1738, provided that: "The amendment made by this section [amending this section] shall apply to taxable years beginning after December 31, 1975."

Amendment by section 1901(a)(58), (b)(8)(A) of Pub. L. 94–455 effective for taxable years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L. 94–455, set out as a note under section 2 of this title.

Amendment by Pub. L. 94–267 applicable with respect to payments made to an employee on or after July 4, 1974, see section 1(e) of Pub. L. 94–267, set out as a note under section 401 of this title.

Effective Date of 1974 Amendment

Pub. L. 93–406, title II, §1022(e), Sept. 2, 1974, 88 Stat. 940, provided that the amendment made by that section is effective Jan. 1, 1974.

Amendment by section 2002(g)(6) of Pub. L. 93–406 applicable on and after Sept. 2, 1974, with respect to contributions to an employees' trust described in section 401(a) which is exempt from tax under section 501(a) or an annuity plan described in section 403(a), see section 2002(i)(3) of Pub. L. 93–406, set out as a note under section 402 of this title.

Amendment by section 2004(c)(4) of Pub. L. 93–406 applicable to years beginning after Dec. 31, 1975, see section 2004(d) of Pub. L. 93–406, set out as an Effective Date; Transition Provisions note under section 415 of this title.

Amendment by section 2005(b)(2) of Pub. L. 93–406 applicable only with respect to distributions or payments made after Dec. 31, 1973, in taxable years beginning after Dec. 31, 1973, see section 2005(d) of Pub. L. 93–406, set out as a note under section 402 of this title.

Effective Date of 1969 Amendment

Amendment by section 321(b)(2) of Pub. L. 91–172 applicable with respect to contributions made and premiums paid after Aug. 1, 1969, see section 321(d) of Pub. L. 91–172, set out as an Effective Date note under section 83 of this title.

Amendment by section 515(a)(2) of Pub. L. 91–172 applicable to taxable years ending after Dec. 31, 1969, see section 515(d) of Pub. L. 91–172, set out as a note under section 402 of this title.

Effective Date of 1964 Amendment

Amendment by Pub. L. 88–272 applicable to taxable years beginning after Dec. 31, 1963, see section 232(g) of Pub. L. 88–272, set out as a note under section 5 of this title.

Effective Date of 1962 Amendment

Amendment by Pub. L. 87–792 applicable to taxable years beginning after Dec. 31, 1962, see section 8 of Pub. L. 87–792, set out as a note under section 22 of this title.

Effective Date of 1961 Amendment

Pub. L. 87–370, §3(b), Oct. 4, 1961, 75 Stat. 801, provided that: "The amendments made by subsection (a) [amending this section] shall apply with respect to taxable years beginning after December 31, 1957."

Effective Dates of 1958 Amendment

Pub. L. 85–866, §23(g), Sept. 2, 1958, 72 Stat. 1623, provided that: "The amendments made by subsections (a), (b), (c), and (d) [amending this section and section 101 of this title] shall apply with respect to taxable years beginning after December 31, 1957. The amendments made by subsection (e) [amending section 2039 of this title] shall apply with respect to estates of decedents dying after December 31, 1957. The amendments made by subsection (f) [amending section 2517 of this title] shall apply with respect to calendar years after 1957."

Regulations

Pub. L. 117–328, div. T, title I, §106(e), Dec. 29, 2022, 136 Stat. 5288, provided that: "The Secretary of the Treasury (or the Secretary's delegate) shall prescribe such regulations as may be necessary to clarify, in the case of plans to which section 403(b)(15) of the Internal Revenue Code of 1986 applies, the treatment of an employer departing such plan in connection with such employer's failure to meet multiple employer plan requirements."

Secretary of the Treasury or his delegate to issue before Feb. 1, 1988, final regulations to carry out amendments made by section 1120 of Pub. L. 99–514, see section 1141 of Pub. L. 99–514, set out as a note under section 401 of this title.

Rule of Construction

Pub. L. 117–328, div. T, title I, §106(h)(2), Dec. 29, 2022, 136 Stat. 5289, provided that: "Nothing in the amendments made by subsection (a) [amending this section] shall be construed as limiting the authority of the Secretary of the Treasury or the Secretary's delegate (determined without regard to such amendment) to provide for the proper treatment of a failure to meet any requirement applicable under the Internal Revenue Code of 1986 with respect to one employer (and its employees) in the case of a plan to which section 403(b)(15) of the Internal Revenue Code of 1986 applies."

No Inference With Respect to Church Plans

Pub. L. 117–328, div. T, title I, §106(g), Dec. 29, 2022, 136 Stat. 5288, provided that: "Regarding any application of section 403(b) of the Internal Revenue Code of 1986 to an annuity contract purchased under a church plan (as defined in section 414(e) of such Code) maintained by more than 1 employer, or to any application of rules similar to section 413(e) of such Code to such a plan, no inference shall be made from section 403(b)(15)(A) of such Code (as added by this Act [div. T of Pub. L. 117–328]) not applying to such plans."

Treatment of Custodial Accounts on Termination of Section 403(b) Plans

Pub. L. 116–94, div. O, title I, §110, Dec. 20, 2019, 133 Stat. 3152, provided that: "Not later than six months after the date of enactment of this Act [Dec. 20, 2019], the Secretary of the Treasury shall issue guidance to provide that, if an employer terminates the plan under which amounts are contributed to a custodial account under subparagraph (A) of section 403(b)(7), the plan administrator or custodian may distribute an individual custodial account in kind to a participant or beneficiary of the plan and the distributed custodial account shall be maintained by the custodian on a tax-deferred basis as a section 403(b)(7) custodial account, similar to the treatment of fully-paid individual annuity contracts under Revenue Ruling 2011–7, until amounts are actually paid to the participant or beneficiary. The guidance shall provide further (i) that the section 403(b)(7) status of the distributed custodial account is generally maintained if the custodial account thereafter adheres to the requirements of section 403(b) that are in effect at the time of the distribution of the account and (ii) that a custodial account would not be considered distributed to the participant or beneficiary if the employer has any material retained rights under the account (but the employer would not be treated as retaining material rights simply because the custodial account was originally opened under a group contract). Such guidance shall be retroactively effective for taxable years beginning after December 31, 2008."

Election To Modify Section 403(b) Exclusion Allowance To Conform to Section 415 Modification

Pub. L. 107–16, title VI, §632(b)(3), June 7, 2001, 115 Stat. 115, provided that: "In the case of taxable years beginning after December 31, 1999, and before January 1, 2002, a plan may disregard the requirement in the regulations regarding the exclusion allowance under section 403(b)(2) of the Internal Revenue Code of 1986 that contributions to a defined benefit pension plan be treated as previously excluded amounts for purposes of the exclusion allowance."

Modifications of Subsection (b) of This Section

Pub. L. 105–34, title XVI, §1601(d)(4), Aug. 5, 1997, 111 Stat. 1089, as amended by Pub. L. 105–206, title VI, §6016(a)(2), July 22, 1998, 112 Stat. 822, provided that:

"(A) Paragraphs (7)(A)(ii) and (11) of section 403(b) of the Internal Revenue Code of 1986 shall not apply with respect to a distribution from a contract described in section 1450(b)(1) of such Act [Pub. L. 104–188, set out below] to the extent that such distribution is not includible in income by reason of—

"(i) in the case of distributions before January 1, 1998, section 403(b)(8) or (b)(10) of such Code (determined after the application of section 1450(b)(2) of such Act [Pub. L. 104–188, set out below]), and

"(ii) in the case of distributions on and after such date, such section 403(b)(10).

"(B) This paragraph shall apply as if included in section 1450 of the Small Business Job Protection Act of 1996 [Pub. L. 104–188, set out below]."

Pub. L. 104–188, title I, §1450(a), (b), Aug. 20, 1996, 110 Stat. 1814, provided that:

"(a) Multiple Salary Reduction Agreements Permitted.—

"(1) General rule.—For purposes of section 403(b) of the Internal Revenue Code of 1986, the frequency that an employee is permitted to enter into a salary reduction agreement, the salary to which such an agreement may apply, and the ability to revoke such an agreement shall be determined under the rules applicable to cash or deferred elections under section 401(k) of such Code.

"(2) Constructive receipt.—[Amended section 402 of this title.]

"(3) Effective date.—This subsection shall apply to taxable years beginning after December 31, 1995.

"(b) Treatment of Indian Tribal Governments.—

"(1) In general.—In the case of any contract purchased in a plan year beginning before January 1, 1995, section 403(b) of the Internal Revenue Code of 1986 shall be applied as if any reference to an employer described in section 501(c)(3) of the Internal Revenue Code of 1986 which is exempt from tax under section 501 of such Code included a reference to an employer which is an Indian tribal government (as defined by section 7701(a)(40) of such Code), a subdivision of an Indian tribal government (determined in accordance with section 7871(d) of such Code), an agency or instrumentality of an Indian tribal government or subdivision thereof, or a corporation chartered under Federal, State, or tribal law which is owned in whole or in part by any of the foregoing.

"(2) Rollovers.—Solely for purposes of applying section 403(b)(8) of such Code to a contract to which paragraph (1) applies, a qualified cash or deferred arrangement under section 401(k) of such Code shall be treated as if it were a plan or contract described in clause (ii) of section 403(b)(8)(A) of such Code."

Sampling To Determine Whether Plan Meets Subsection (b)(12) Requirements

Pub. L. 100–647, title VI, §6052(b), Nov. 10, 1988, 102 Stat. 3696, provided that: "In the case of plan years beginning in 1989, 1990, or 1991, determinations as to whether a plan meets the requirements of section 403(b)(12) of the 1986 Code may be made on the basis of a statistically valid random sample. The preceding sentence shall apply only if—

"(1) the sampling is conducted by an independent person in a manner not inconsistent with regulations prescribed by the Secretary, and

"(2) the statistical method and sample size result in a 95 percent probability that the results will have a margin of error not greater than 3 percent."

Plan Amendments Not Required Until January 1, 1998

For provisions directing that if any amendments made by subtitle D [§§1401–1465] of title I of Pub. L. 104–188 require an amendment to any plan or annuity contract, such amendment shall not be required to be made before the first day of the first plan year beginning on or after Jan. 1, 1998, see section 1465 of Pub. L. 104–188, set out as a note under section 401 of this title.

Plan Amendments Not Required Until January 1, 1994

For provisions directing that if any amendments made by subtitle B [§§521–523] of title V of Pub. L. 102–318 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, 1994, see section 523 of Pub. L. 102–318, set out as a note under section 401 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.

Correction Period for Church Plans

Pub. L. 97–248, title II, §251(d), Sept. 3, 1982, 96 Stat. 531, as amended by Pub. L. 99–514, §2, Oct. 22, 1986, 100 Stat. 2095, provided that: "A church plan (within the meaning of section 414(e) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]) shall not be treated as not meeting the requirements of section 401 or 403 of such Code if—

"(1) by reason of any change in any law, regulation, ruling, or otherwise such plan is required to be amended to meet such requirements, and

"(2) such plan is so amended at the next earliest church convention or such other time as the Secretary of the Treasury or his delegate may prescribe."

Transitional Rule for Making Section 403(b)(8) Rollover in the Case of Payments During 1978

Pub. L. 96–222, title I, §101(a)(13)(B), Apr. 1, 1980, 94 Stat. 204, as amended by Pub. L. 99–514, §2, Oct. 22, 1986, 100 Stat. 2095, provided that: "In the case of any payment made during 1978 in a qualifying distribution described in section 403(b)(8) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954], the applicable period specified in section 402(a)(5)(C) of such Code shall not expire before the close of December 31, 1980."

Transitional Rule in Case of Rollover Contributions to Employee Trusts or Annuities

Applicable period specified in section 402(a)(5)(C) of this title shall not expire before close of Dec. 31, 1980 in case of any payment described in subsec. (a)(4)(A) of this section or section 402(a)(5)(A) of this title, see section 157(h)(3)(B) of Pub. L. 95–600, set out as a note under section 402 of this title.

1 So in original. No cl. (ii) has been enacted.
26 U.S.C. § 4982 (2024) — Title 26: INTERNAL REVENUE CODE / Chapter 44 / Section 4982: Excise tax on undistributed income of regulated investment companies
Excise tax on undistributed income of regulated investment companies
Status: in_force

(a) Imposition of tax

There is hereby imposed a tax on every regulated investment company for each calendar year equal to 4 percent of the excess (if any) of—

(1) the required distribution for such calendar year, over

(2) the distributed amount for such calendar year.

(b) Required distribution

For purposes of this section—

(1) In general

The term "required distribution" means, with respect to any calendar year, the sum of—

(A) 98 percent of the regulated investment company's ordinary income for such calendar year, plus

(B) 98.2 percent of the regulated investment company's capital gain net income for the 1-year period ending on October 31 of such calendar year.

(2) Increase by prior year shortfall

The amount determined under paragraph (1) for any calendar year shall be increased by the excess (if any) of—

(A) the grossed up required distribution for the preceding calendar year, over

(B) the distributed amount for such preceding calendar year.

(3) Grossed up required distribution

The grossed up required distribution for any calendar year is the required distribution for such year determined—

(A) with the application of paragraph (2) to such taxable year, and

(B) by substituting "100 percent" for each percentage set forth in paragraph (1).

(c) Distributed amount

For purposes of this section—

(1) In general

The term "distributed amount" means, with respect to any calendar year, the sum of—

(A) the deduction for dividends paid (as defined in section 561) during such calendar year, and

(B) any amount on which tax is imposed under subsection (b)(1) or (b)(3)(A) of section 852 for any taxable year ending in such calendar year.

(2) Increase by prior year overdistribution

The amount determined under paragraph (1) for any calendar year shall be increased by the excess (if any) of—

(A) the distributed amount for the preceding calendar year (determined with the application of this paragraph to such preceding calendar year), over

(B) the grossed up required distribution for such preceding calendar year.

(3) Determination of dividends paid

The amount of the dividends paid during any calendar year shall be determined without regard to—

(A) the provisions of section 855, and

(B) any exempt-interest dividend as defined in section 852(b)(5).

(4) Special rule for estimated tax payments

(A) In general

In the case of a regulated investment company which elects the application of this paragraph for any calendar year—

(i) the distributed amount with respect to such company for such calendar year shall be increased by the amount on which qualified estimated tax payments are made by such company during such calendar year, and

(ii) the distributed amount with respect to such company for the following calendar year shall be reduced by the amount of such increase.

(B) Qualified estimated tax payments

For purposes of this paragraph, the term "qualified estimated tax payments" means, with respect to any calendar year, payments of estimated tax of a tax described in paragraph (1)(B) for any taxable year which begins (but does not end) in such calendar year.

(d) Time for payment of tax

The tax imposed by this section for any calendar year shall be paid on or before March 15 of the following calendar year.

(e) Definitions and special rules

For purposes of this section—

(1) Ordinary income

The term "ordinary income" means the investment company taxable income (as defined in section 852(b)(2)) determined—

(A) without regard to subparagraphs (A) and (D) of section 852(b)(2),

(B) by not taking into account any gain or loss from the sale or exchange of a capital asset, and

(C) by treating the calendar year as the company's taxable year.

(2) Capital gain net income

(A) In general

Except as provided in subparagraph (B), the term "capital gain net income" has the meaning given such term by section 1222(9) (determined by treating the 1-year period ending on October 31 of any calendar year as the company's taxable year).

(B) Reduction by net ordinary loss for calendar year

The amount determined under subparagraph (A) shall be reduced (but not below the net capital gain) by the amount of the company's net ordinary loss for the calendar year.

(C) Definitions

For purposes of this paragraph—

(i) Net capital gain

The term "net capital gain" has the meaning given such term by section 1222(11) (determined by treating the 1-year period ending on October 31 of the calendar year as the company's taxable year).

(ii) Net ordinary loss

The net ordinary loss for the calendar year is the amount which would be the net operating loss of the company for the calendar year if the amount of such loss were determined in the same manner as ordinary income is determined under paragraph (1).

(3) Treatment of deficiency distributions

In the case of any deficiency dividend (as defined in section 860(f))—

(A) such dividend shall be taken into account when paid without regard to section 860, and

(B) any income giving rise to the adjustment shall be treated as arising when the dividend is paid.

(4) Election to use taxable year in certain cases

(A) In general

If—

(i) the taxable year of the regulated investment company ends with the month of November or December, and

(ii) such company makes an election under this paragraph,

subsection (b)(1)(B) and paragraph (2) of this subsection shall be applied by taking into account the company's taxable year in lieu of the 1-year period ending on October 31 of the calendar year.

(B) Election revocable only with consent

An election under this paragraph, once made, may be revoked only with the consent of the Secretary.

(5) Treatment of specified gains and losses after October 31 of calendar year

(A) In general

Any specified gain or specified loss which (but for this paragraph) would be properly taken into account for the portion of the calendar year after October 31 shall be treated as arising on January 1 of the following calendar year.

(B) Specified gains and losses

For purposes of this paragraph—

(i) Specified gain

The term "specified gain" means ordinary gain from the sale, exchange, or other disposition of property (including the termination of a position with respect to such property). Such term shall include any foreign currency gain attributable to a section 988 transaction (within the meaning of section 988) and any amount includible in gross income under section 1296(a)(1).

(ii) Specified loss

The term "specified loss" means ordinary loss from the sale, exchange, or other disposition of property (including the termination of a position with respect to such property). Such term shall include any foreign currency loss attributable to a section 988 transaction (within the meaning of section 988) and any amount allowable as a deduction under section 1296(a)(2).

(C) Special rule for companies electing to use the taxable year

In the case of any company making an election under paragraph (4), subparagraph (A) shall be applied by substituting the last day of the company's taxable year for October 31.

(6) Treatment of mark to market gain

(A) In general

For purposes of determining a regulated investment company's ordinary income, notwithstanding paragraph (1)(C), each specified mark to market provision shall be applied as if such company's taxable year ended on October 31. In the case of a company making an election under paragraph (4), the preceding sentence shall be applied by substituting the last day of the company's taxable year for October 31.

(B) Specified mark to market provision

For purposes of this paragraph, the term "specified mark to market provision" means sections 1256 and 1296 and any other provision of this title (or regulations thereunder) which treats property as disposed of on the last day of the taxable year or which determines income by reference to the value of an item on the last day of the taxable year.

(7) Elective deferral of certain ordinary losses

Except as provided in regulations prescribed by the Secretary, in the case of a regulated investment company which has a taxable year other than the calendar year—

(A) such company may elect to determine its ordinary income and net ordinary loss (as defined in paragraph (2)(C)(ii)) for the calendar year without regard to any portion of any net ordinary loss (determined without regard to specified gains and losses taken into account under paragraph (5)) which is attributable to the portion of such calendar year which is after the beginning of the taxable year which begins in such calendar year, and

(B) any amount of net ordinary loss not taken into account for a calendar year by reason of subparagraph (A) shall be treated as arising on the 1st day of the following calendar year.

(f) Exception for certain regulated investment companies

This section shall not apply to any regulated investment company for any calendar year if at all times during such calendar year each shareholder in such company was—

(1) a trust described in section 401(a) and exempt from tax under section 501(a),

(2) a segregated asset account of a life insurance company held in connection with variable contracts (as defined in section 817(d)),

(3) any other tax-exempt entity whose ownership of beneficial interests in the company would not preclude the application of section 817(h)(4), or

(4) another regulated investment company described in this subsection.

For purposes of the preceding sentence, any shares attributable to an investment in the regulated investment company (not exceeding $250,000) made in connection with the organization of such company shall not be taken into account.

(Added Pub. L. 99–514, title VI, §651(a), Oct. 22, 1986, 100 Stat. 2294; amended Pub. L. 100–203, title X, §10104(b)(1), Dec. 22, 1987, 101 Stat. 1330–387; Pub. L. 100–647, title I, §1006(l)(2), (5), (6), Nov. 10, 1988, 102 Stat. 3413, 3414; Pub. L. 101–239, title VII, §7204(a)(1), Dec. 19, 1989, 103 Stat. 2334; Pub. L. 105–34, title XI, §1122(c)(1), Aug. 5, 1997, 111 Stat. 976; Pub. L. 111–325, title IV, §§401(a), 402(a), 403(a), 404(a), Dec. 22, 2010, 124 Stat. 3552–3554; Pub. L. 113–295, div. A, title II, §§205(d), 220(s), Dec. 19, 2014, 128 Stat. 4026, 4036.)

Editorial Notes

Amendments

2014—Subsec. (e)(6)(B). Pub. L. 113–295, §205(d)(1), inserted "or which determines income by reference to the value of an item on the last day of the taxable year" before period at end.

Subsec. (e)(7)(A). Pub. L. 113–295, §205(d)(2), substituted "such company may elect to determine its ordinary income and net ordinary loss (as defined in paragraph (2)(C)(ii)) for the calendar year without regard to any portion of any net ordinary loss" for "such company may elect to determine its ordinary income for the calendar year without regard to any net ordinary loss".

Subsec. (f)(2). Pub. L. 113–295, §220(s), inserted comma at end.

2010—Subsec. (b)(1)(B). Pub. L. 111–325, §404(a), substituted "98.2 percent" for "98 percent".

Subsec. (c)(4). Pub. L. 111–325, §403(a), added par. (4).

Subsec. (e)(5) to (7). Pub. L. 111–325, §402(a), added pars. (5) to (7) and struck out former pars. (5) and (6) which related to treatment of foreign currency gains and losses after October 31 of calendar year and treatment of gain recognized under section 1296, respectively.

Subsec. (f). Pub. L. 111–325, §401(a)(1), struck out "either" before dash at end of introductory provisions.

Subsec. (f)(3), (4). Pub. L. 111–325, §401(a)(2)–(4), added pars. (3) and (4).

1997—Subsec. (e)(6). Pub. L. 105–34 added par. (6).

1989—Subsec. (b)(1)(A). Pub. L. 101–239 substituted "98 percent" for "97 percent".

1988—Subsec. (e)(2). Pub. L. 100–647, §1006(l)(2), amended par. (2) generally. Prior to amendment, par. (2) read as follows: "The term 'capital gain net income' has the meaning given to such term by section 1222(9) (determined by treating the 1-year period ending on October 31 of any calendar year as the company's taxable year)."

Subsec. (e)(5). Pub. L. 100–647, §1006(l)(5), added par. (5).

Subsec. (f). Pub. L. 100–647, §1006(l)(6), added subsec. (f).

1987—Subsec. (b)(1)(B). Pub. L. 100–203 substituted "98 percent" for "90 percent".

Statutory Notes and Related Subsidiaries

Effective Date of 2014 Amendment

Amendment by section 205(d) of Pub. L. 113–295 effective as if included in the provision of the Regulated Investment Company Modernization Act of 2010, Pub. L. 111–325, to which such amendment relates, with savings provision in certain cases of an election by a regulated investment company under section 852(b)(8) of this title, see section 205(f) of Pub. L. 113–295, set out as a note under section 852 of this title.

Effective Date of 2010 Amendment

Pub. L. 111–325, title IV, §401(b), Dec. 22, 2010, 124 Stat. 3552, provided that: "The amendment made by this section [amending this section] shall apply to calendar years beginning after the date of the enactment of this Act [Dec. 22, 2010]."

Pub. L. 111–325, title IV, §402(b), Dec. 22, 2010, 124 Stat. 3553, provided that: "The amendments made by this section [amending this section] shall apply to calendar years beginning after the date of the enactment of this Act [Dec. 22, 2010]."

Pub. L. 111–325, title IV, §403(b), Dec. 22, 2010, 124 Stat. 3554, provided that: "The amendment made by this section [amending this section] shall apply to calendar years beginning after the date of the enactment of this Act [Dec. 22, 2010]."

Pub. L. 111–325, title IV, §404(b), Dec. 22, 2010, 124 Stat. 3554, provided that: "The amendments made by this section [amending this section] shall apply to calendar years beginning after the date of the enactment of this Act [Dec. 22, 2010]."

Effective Date of 1997 Amendment

Amendment by Pub. L. 105–34 applicable to taxable years of United States persons beginning after Dec. 31, 1997, and to taxable years of foreign corporations ending with or within such taxable years of United States persons, see section 1124 of Pub. L. 105–34, set out as a note under section 532 of this title.

Effective Date of 1989 Amendment

Pub. L. 101–239, title VII, §7204(a)(2), Dec. 19, 1989, 103 Stat. 2334, provided that: "The amendment made by paragraph (1) [amending this section] shall apply to calendar years ending after July 10, 1989."

Effective Date of 1988 Amendment

Amendment by 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.

Effective Date of 1987 Amendment

Pub. L. 100–203, title X, §10104(b)(2), Dec. 22, 1987, 101 Stat. 1330–387, provided that: "The amendment made by paragraph (1) [amending this section] shall take effect as if included in the amendments made by section 651 of the Tax Reform Act of 1986 [section 651 of Pub. L. 99–514, see Effective Date note below]."

Effective Date

Pub. L. 99–514, title VI, §651(d), Oct. 22, 1986, 100 Stat. 2297, provided that: "The amendments made by this section [enacting this section and amending sections 852 and 855 of this title] shall apply to calendar years beginning after December 31, 1986."
26 U.S.C. § 4272 (2024) — Title 26: INTERNAL REVENUE CODE / Chapter 33 / Subchapter C / Section 4272: Definition of taxable transportation, etc.
Definition of taxable transportation, etc.
Status: in_force

(a) In general

For purposes of this part, except as provided in subsection (b), the term "taxable transportation" means transportation by air which begins and ends in the United States.

(b) Exceptions

For purposes of this part, the term "taxable transportation" does not include—

(1) that portion of any transportation which meets the requirements of paragraphs (1), (2), (3), and (4) of section 4262(b), or

(2) under regulations prescribed by the Secretary, transportation of property in the course of exportation (including shipment to a possession of the United States) by continuous movement, and in due course so exported.

(c) Excess baggage of passengers

For purposes of this part, the term "property" does not include excess baggage accompanying a passenger traveling on an aircraft operated on an established line.

(d) Transportation

For purposes of this part, the term "transportation" includes layover or waiting time and movement of the aircraft in deadhead service.

(Added Pub. L. 91–258, title II, §204, May 21, 1970, 84 Stat. 240; amended Pub. L. 94–455, title XIX, §1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834.)

Editorial Notes

Prior Provisions

Prior sections 4272 and 4273 were repealed by Pub. L. 85–475, §4(a), June 30, 1958, 72 Stat. 260. For effective date of repeal, see section 4(c) of Pub. L. 85–475, set out as an Effective Date of 1958 Amendment note under section 6415 of this title.

Section 4272, act Aug. 16, 1954, ch. 736, 68A Stat. 507, 508, related to exemptions from tax for the transportation of property.

Section 4273, act Aug. 16, 1954, ch. 736, 68A Stat. 507, 508, related to registration in connection with the tax for the transportation of property.

Amendments

1976—Subsec. (b)(2). Pub. L. 94–455 struck out "or his delegate" after "Secretary".
26 U.S.C. § 5369 (2024) — Title 26: INTERNAL REVENUE CODE / Chapter 51 / Section 5369: Inventories
Inventories
Status: in_force

Each proprietor of premises subject to the provisions of this subchapter shall take and report such inventories as the Secretary may by regulations prescribe.

(Added Pub. L. 85–859, title II, §201, Sept. 2, 1958, 72 Stat. 1381; amended Pub. L. 94–455, title XIX, §1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834.)

Editorial Notes

Prior Provisions

A prior section 5369, act Aug. 16, 1954, ch. 736, 68A Stat. 666, consisted of provisions similar to those comprising this section, prior to the general revision of this chapter by Pub. L. 85–859.

Amendments

1976—Pub. L. 94–455 struck out "or his delegate" after "Secretary".
26 U.S.C. § 5881 (2024) — Title 26: INTERNAL REVENUE CODE / Chapter 54 / Section 5881: Greenmail
Greenmail
Status: in_force

(a) Imposition of tax

There is hereby imposed on any person who receives greenmail a tax equal to 50 percent of gain or other income of such person by reason of such receipt.

(b) Greenmail

For purposes of this section, the term "greenmail" means any consideration transferred by a corporation (or any person acting in concert with such corporation) to directly or indirectly acquire stock of such corporation from any shareholder if—

(1) such shareholder held such stock (as determined under section 1223) for less than 2 years before entering into the agreement to make the transfer,

(2) at some time during the 2-year period ending on the date of such acquisition—

(A) such shareholder,

(B) any person acting in concert with such shareholder, or

(C) any person who is related to such shareholder or person described in subparagraph (B),

made or threatened to make a public tender offer for stock of such corporation, and

(3) such acquisition is pursuant to an offer which was not made on the same terms to all shareholders.

For purposes of the preceding sentence, payments made in connection with, or in transactions related to, an acquisition shall be treated as paid in such acquisition.

(c) Other definitions

For purposes of this section—

(1) Public tender offer

The term "public tender offer" means any offer to purchase or otherwise acquire stock or assets in a corporation if such offer was or would be required to be filed or registered with any Federal or State agency regulating securities.

(2) Related person

A person is related to another person if the relationship between such persons would result in the disallowance of losses under section 267 or 707(b).

(d) Tax applies whether or not amount recognized

The tax imposed by this section shall apply whether or not the gain or other income referred to in subsection (a) is recognized.

(e) Administrative provisions

For purposes of the deficiency procedures of subtitle F, any tax imposed by this section shall be treated as a tax imposed by subtitle A.

(Added Pub. L. 100–203, title X, §10228(a), Dec. 22, 1987, 101 Stat. 1330–417; amended Pub. L. 100–647, title II, §2004(o)(1)(A), (B)(i), (C), (2), Nov. 10, 1988, 102 Stat. 3608.)

Editorial Notes

Amendments

1988—Subsec. (a). Pub. L. 100–647, §2004(o)(1)(A), substituted "gain or other income of such person by reason of such receipt" for "gain realized by such person on such receipt".

Subsec. (b). Pub. L. 100–647, §2004(o)(1)(B)(i), substituted "a corporation (or any person acting in concert with such corporation) to directly or indirectly acquire stock of such corporation" for "a corporation to directly or indirectly acquire its stock".

Subsec. (d). Pub. L. 100–647, §2004(o)(1)(C), substituted "amount" for "gain" in heading and inserted "or other income" after "the gain" in text.

Subsec. (e). Pub. L. 100–647, §2004(o)(2), added subsec. (e).

Statutory Notes and Related Subsidiaries

Effective Date of 1988 Amendment

Amendment by section 2004(o)(1)(A), (C), (2) of Pub. L. 100–647 effective, except as otherwise provided, as if included in the provisions of the Revenue Act of 1987, Pub. L. 100–203, title X, to which such amendment relates, see section 2004(u) of Pub. L. 100–647, set out as a note under section 56 of this title.

Pub. L. 100–647, title II, §2004(o)(1)(B)(ii), Nov. 10, 1988, 102 Stat. 3608, provided that: "The amendment made by clause (i) [amending this section] shall apply to transactions occurring on or after March 31, 1988."

Effective Date

Pub. L. 100–203, title X, §10228(d), Dec. 22, 1987, 101 Stat. 1330–418, provided that: "The amendments made by this section [enacting this chapter and amending section 275 of this title] shall apply to consideration received after the date of the enactment of this Act [Dec. 22, 1987] in taxable years ending after such date; except that such amendments shall not apply in the case of any acquisition pursuant to a written binding contract in effect on December 15, 1987, and at all times thereafter before the acquisition."
26 U.S.C. § 25C (2024) — Title 26: INTERNAL REVENUE CODE / Chapter 1 / Section 25C: Energy efficient home improvement credit
Energy efficient home improvement credit
Status: in_force

(a) Allowance of credit

In the case of an individual, there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to 30 percent of the sum of—

(1) the amount paid or incurred by the taxpayer for qualified energy efficiency improvements installed during such taxable year,

(2) the amount of the residential energy property expenditures paid or incurred by the taxpayer during such taxable year, and

(3) the amount paid or incurred by the taxpayer during the taxable year for home energy audits.

(b) Limitations

(1) In general

The credit allowed under this section with respect to any taxpayer for any taxable year shall not exceed $1,200.

(2) Energy property

The credit allowed under this section by reason of subsection (a)(2) with respect to any taxpayer for any taxable year shall not exceed, with respect to any item of qualified energy property, $600.

(3) Windows

The credit allowed under this section by reason of subsection (a)(1) with respect to any taxpayer for any taxable year shall not exceed, in the aggregate with respect to all exterior windows and skylights, $600.

(4) Doors

The credit allowed under this section by reason of subsection (a)(1) with respect to any taxpayer for any taxable year shall not exceed—

(A) $250 in the case of any exterior door, and

(B) $500 in the aggregate with respect to all exterior doors.

(5) Heat pump and heat pump water heaters; biomass stoves and boilers

Notwithstanding paragraphs (1) and (2), the credit allowed under this section by reason of subsection (a)(2) with respect to any taxpayer for any taxable year shall not, in the aggregate, exceed $2,000 with respect to amounts paid or incurred for property described in clauses (i) and (ii) of subsection (d)(2)(A) and in subsection (d)(2)(B).

(6) Home energy audits

(A) Dollar limitation

The amount of the credit allowed under this section by reason of subsection (a)(3) shall not exceed $150.

(B) Substantiation requirement

No credit shall be allowed under this section by reason of subsection (a)(3) unless the taxpayer includes with the taxpayer's return of tax such information or documentation as the Secretary may require.

(c) Qualified energy efficiency improvements

For purposes of this section—

(1) In general

The term "qualified energy efficiency improvements" means any energy efficient building envelope component, if—

(A) such component is installed in or on a dwelling unit located in the United States and owned and used by the taxpayer as the taxpayer's principal residence (within the meaning of section 121),

(B) the original use of such component commences with the taxpayer, and

(C) such component reasonably can be expected to remain in use for at least 5 years.

(2) Energy efficient building envelope component

The term "energy efficient building envelope component" means a building envelope component which meets—

(A) in the case of an exterior window or skylight, Energy Star most efficient certification requirements,

(B) in the case of an exterior door, applicable Energy Star requirements, and

(C) in the case of any other component, the prescriptive criteria for such component established by the most recent International Energy Conservation Code standard in effect as of the beginning of the calendar year which is 2 years prior to the calendar year in which such component is placed in service.

(3) Building envelope component

The term "building envelope component" means—

(A) any insulation material or system, including air sealing material or system, which is specifically and primarily designed to reduce the heat loss or gain of a dwelling unit when installed in or on such dwelling unit,

(B) exterior windows (including skylights), and

(C) exterior doors.

(4) Manufactured homes included

The term "dwelling unit" includes a manufactured home which conforms to Federal Manufactured Home Construction and Safety Standards (part 3280 of title 24, Code of Federal Regulations).

(d) Residential energy property expenditures

For purposes of this section—

(1) In general

The term "residential energy property expenditures" means expenditures made by the taxpayer for qualified energy property which is—

(A) installed on or in connection with a dwelling unit located in the United States and used as a residence by the taxpayer, and

(B) originally placed in service by the taxpayer.

Such term includes expenditures for labor costs properly allocable to the onsite preparation, assembly, or original installation of the property.

(2) Qualified energy property

The term "qualified energy property" means any of the following:

(A) Any of the following which meet or exceed the highest efficiency tier (not including any advanced tier) established by the Consortium for Energy Efficiency which is in effect as of the beginning of the calendar year in which the property is placed in service:

(i) An electric or natural gas heat pump water heater.

(ii) An electric or natural gas heat pump.

(iii) A central air conditioner.

(iv) A natural gas, propane, or oil water heater.

(v) A natural gas, propane, or oil furnace or hot water boiler.

(B) A biomass stove or boiler which—

(i) uses the burning of biomass fuel to heat a dwelling unit located in the United States and used as a residence by the taxpayer, or to heat water for use in such a dwelling unit, and

(ii) has a thermal efficiency rating of at least 75 percent (measured by the higher heating value of the fuel).

(C) Any oil furnace or hot water boiler which—

(i) is placed in service after December 31, 2022, and before January 1, 2027, and—

(I) meets or exceeds 2021 Energy Star efficiency criteria, and

(II) is rated by the manufacturer for use with fuel blends at least 20 percent of the volume of which consists of an eligible fuel, or

(ii) is placed in service after December 31, 2026, and—

(I) achieves an annual fuel utilization efficiency rate of not less than 90, and

(II) is rated by the manufacturer for use with fuel blends at least 50 percent of the volume of which consists of an eligible fuel.

(D) Any improvement to, or replacement of, a panelboard, sub-panelboard, branch circuits, or feeders which—

(i) is installed in a manner consistent with the National Electric Code,

(ii) has a load capacity of not less than 200 amps,

(iii) is installed in conjunction with—

(I) any qualified energy efficiency improvements, or

(II) any qualified energy property described in subparagraphs (A) through (C) for which a credit is allowed under this section for expenditures with respect to such property, and

(iv) enables the installation and use of any property described in subclause (I) or (II) of clause (iii).

(3) Eligible fuel

For purposes of paragraph (2), the term "eligible fuel" means—

(A) biodiesel and renewable diesel (within the meaning of section 40A),

(B) second generation biofuel (within the meaning of section 40), and

(C) transportation fuel (as defined in section 45Z(d)(5)).

(e) Home energy audits

For purposes of this section, the term "home energy audit" means an inspection and written report with respect to a dwelling unit located in the United States and owned or used by the taxpayer as the taxpayer's principal residence (within the meaning of section 121) which—

(1) identifies the most significant and cost-effective energy efficiency improvements with respect to such dwelling unit, including an estimate of the energy and cost savings with respect to each such improvement, and

(2) is conducted and prepared by a home energy auditor that meets the certification or other requirements specified by the Secretary in regulations or other guidance (as prescribed by the Secretary not later than 365 days after the date of the enactment of this subsection).

(f) Special rules

For purposes of this section—

(1) Application of rules

Rules similar to the rules under paragraphs (4), (5), (6), (7), and (8) of section 25D(e) shall apply.

(2) Joint ownership of energy items

(A) In general

Any expenditure otherwise qualifying as an expenditure under this section shall not be treated as failing to so qualify merely because such expenditure was made with respect to two or more dwelling units.

(B) Limits applied separately

In the case of any expenditure described in subparagraph (A), the amount of the credit allowable under subsection (a) shall (subject to paragraph (1)) be computed separately with respect to the amount of the expenditure made for each dwelling unit.

(3) Property financed by subsidized energy financing

For purposes of determining the amount of expenditures made by any individual with respect to any property, there shall not be taken into account expenditures which are made from subsidized energy financing (as defined in section 48(a)(4)(C)).

(g) Basis adjustments

For purposes of this subtitle, if a credit is allowed under this section for any expenditure with respect to any property, the increase in the basis of such property which would (but for this subsection) result from such expenditure shall be reduced by the amount of the credit so allowed.

(h) Product identification number requirement

(1) In general

No credit shall be allowed under subsection (a) with respect to any item of specified property placed in service after December 31, 2024, unless—

(A) such item is produced by a qualified manufacturer, and

(B) the taxpayer includes the qualified product identification number of such item on the return of tax for the taxable year.

(2) Qualified product identification number

For purposes of this section, the term "qualified product identification number" means, with respect to any item of specified property, the product identification number assigned to such item by the qualified manufacturer pursuant to the methodology referred to in paragraph (3).

(3) Qualified manufacturer

For purposes of this section, the term "qualified manufacturer" means any manufacturer of specified property which enters into an agreement with the Secretary which provides that such manufacturer will—

(A) assign a product identification number to each item of specified property produced by such manufacturer utilizing a methodology that will ensure that such number (including any alphanumeric) is unique to each such item (by utilizing numbers or letters which are unique to such manufacturer or by such other method as the Secretary may provide),

(B) label such item with such number in such manner as the Secretary may provide, and

(C) make periodic written reports to the Secretary (at such times and in such manner as the Secretary may provide) of the product identification numbers so assigned and including such information as the Secretary may require with respect to the item of specified property to which such number was so assigned.

(4) Specified property

For purposes of this subsection, the term "specified property" means any qualified energy property and any property described in subparagraph (B) or (C) of subsection (c)(3).

(i) Termination

This section shall not apply with respect to any property placed in service—

(1) after December 31, 2007, and before January 1, 2009, or

(2) after December 31, 2032.

(Added Pub. L. 109–58, title XIII, §1333(a), Aug. 8, 2005, 119 Stat. 1026; amended Pub. L. 109–135, title IV, §412(b), Dec. 21, 2005, 119 Stat. 2636; Pub. L. 110–172, §11(a)(2), Dec. 29, 2007, 121 Stat. 2484; Pub. L. 110–343, div. B, title III, §302(a)–(e), Oct. 3, 2008, 122 Stat. 3844, 3845; Pub. L. 111–5, div. B, title I, §§1103(b)(2)(A), 1121(a)–(e), Feb. 17, 2009, 123 Stat. 320, 322–324; Pub. L. 111–312, title VII, §710(a), (b), Dec. 17, 2010, 124 Stat. 3314; Pub. L. 112–240, title IV, §401(a), Jan. 2, 2013, 126 Stat. 2337; Pub. L. 113–295, div. A, title I, §151(a), Dec. 19, 2014, 128 Stat. 4021; Pub. L. 114–113, div. Q, title I, §181(a), (b), Dec. 18, 2015, 129 Stat. 3072; Pub. L. 115–123, div. D, title I, §40401(a), Feb. 9, 2018, 132 Stat. 148; Pub. L. 115–141, div. U, title IV, §401(a)(4)–(6), Mar. 23, 2018, 132 Stat. 1184; Pub. L. 116–94, div. Q, title I, §123(a), (b), Dec. 20, 2019, 133 Stat. 3231; Pub. L. 116–260, div. EE, title I, §§141(a), 148(b)(3), Dec. 27, 2020, 134 Stat. 3054, 3055; Pub. L. 117–169, title I, §§13301(a)–(f)(3)(A), (g)(1), (h)(1), 13704(b)(1), Aug. 16, 2022, 136 Stat. 1941–1946, 2002.)

Editorial Notes

References in Text

The date of the enactment of this subsection, referred to in subsec. (e)(2), is the date of enactment of Pub. L. 117–169, which was approved Aug. 16, 2022.

Amendments

2022—Pub. L. 117–169, §13301(h)(1), substituted "Energy efficient home improvement credit" for "Nonbusiness energy property" in section catchline.

Subsec. (a). Pub. L. 117–169, §13301(b), amended subsec. (a) generally. Prior to amendment, text read as follows: "In the case of an individual, there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the sum of—

"(1) 10 percent of the amount paid or incurred by the taxpayer for qualified energy efficiency improvements installed during such taxable year, and

"(2) the amount of the residential energy property expenditures paid or incurred by the taxpayer during such taxable year."

Subsec. (a)(3). Pub. L. 117–169, §13301(f)(1), added par. (3).

Subsec. (b). Pub. L. 117–169, §13301(c), amended subsec. (b) generally. Prior to amendment, text read as follows:

"(1) Lifetime limitation.—The credit allowed under this section with respect to any taxpayer for any taxable year shall not exceed the excess (if any) of $500 over the aggregate credits allowed under this section with respect to such taxpayer for all prior taxable years ending after December 31, 2005.

"(2) Windows.—In the case of amounts paid or incurred for components described in subsection (c)(3)(B) by any taxpayer for any taxable year, the credit allowed under this section with respect to such amounts for such year shall not exceed the excess (if any) of $200 over the aggregate credits allowed under this section with respect to such amounts for all prior taxable years ending after December 31, 2005.

"(3) Limitation on residential energy property expenditures.—The amount of the credit allowed under this section by reason of subsection (a)(2) shall not exceed—

"(A) $50 for any advanced main air circulating fan,

"(B) $150 for any qualified natural gas, propane, or oil furnace or hot water boiler, and

"(C) $300 for any item of energy-efficient building property."

Subsec. (b)(6). Pub. L. 117–169, §13301(f)(2), added par. (6).

Subsec. (c)(2). Pub. L. 117–169, §13301(d)(1), substituted "meets—" and subpars. (A) to (C) for "meets—" and former subpars. (A) to (C) which read as follows:

"(A) applicable Energy Star program requirements, in the case of a roof or roof products,

"(B) version 6.0 Energy Star program requirements, in the case of an exterior window, a skylight, or an exterior door, and

"(C) the prescriptive criteria for such component established by the 2009 International Energy Conservation Code, as such Code (including supplements) is in effect on the date of the enactment of the American Recovery and Reinvestment Tax Act of 2009, in the case of any other component."

Subsec. (c)(3)(A). Pub. L. 117–169, §13301(d)(3), inserted ", including air sealing material or system," after "material or system".

Subsec. (c)(3)(D). Pub. L. 117–169, §13301(d)(2), struck out subpar. (D) which read as follows: "any metal roof or asphalt roof installed on a dwelling unit, but only if such roof has appropriate pigmented coatings or cooling granules which are specifically and primarily designed to reduce the heat gain of such dwelling unit."

Subsec. (d). Pub. L. 117–169, §13301(e), amended subsec. (d) generally. Prior to amendment, subsec. (d) related to residential energy property expenditures and defined the terms "residential energy property expenditures", "qualified energy property" and applicable standards, "energy-efficient building property", "qualified natural gas, propane, or oil furnace or hot water boiler", and "advanced main air circulating fan".

Subsec. (d)(3)(C). Pub. L. 117–169, §13704(b)(1), added subpar. (C).

Subsecs. (e) to (g). Pub. L. 117–169, §13301(f)(3)(A), added subsec. (e) and redesignated former subsecs. (e) and (f) as (f) and (g), respectively. Former subsec. (g) redesignated (h).

Subsec. (g)(2). Pub. L. 117–169, §13301(a), substituted "December 31, 2032" for "December 31, 2021".

Subsec. (h). Pub. L. 117–169, §13301(g)(1), added subsec. (h). Former subsec. (h) redesignated (i).

Pub. L. 117–169, §13301(f)(3)(A), redesignated subsec. (g) as (h).

Subsec. (i). Pub. L. 117–169, §13301(g)(1), redesignated subsec. (h) as (i).

2020—Subsec. (d)(3)(E). Pub. L. 116–260, §148(b)(3)(A), struck out subpar. (E) which read as follows: "a stove which uses the burning of biomass fuel to heat a dwelling unit located in the United States and used as a residence by the taxpayer, or to heat water for use in such a dwelling unit, and which has a thermal efficiency rating of at least 75 percent."

Subsec. (d)(6). Pub. L. 116–260, §148(b)(3)(B), struck out par. (6). Text read as follows: "The term 'biomass fuel' means any plant-derived fuel available on a renewable or recurring basis, including agricultural crops and trees, wood and wood waste and residues (including wood pellets), plants (including aquatic plants), grasses, residues, and fibers."

Subsec. (g)(2). Pub. L. 116–260, §141(a), substituted "December 31, 2021" for "December 31, 2020".

2019—Subsec. (d)(3)(A). Pub. L. 116–94, §123(b)(1), substituted "a Uniform Energy Factor of at least 2.2" for "an energy factor of at least 2.0".

Subsec. (d)(3)(D). Pub. L. 116–94, §123(b)(2), substituted "a Uniform Energy Factor" for "an energy factor".

Subsec. (g)(2). Pub. L. 116–94, §123(a), substituted "December 31, 2020" for "December 31, 2017".

2018—Subsec. (b)(2). Pub. L. 115–141, §401(a)(4), substituted "subsection (c)(3)(B)" for "subsection (c)(2)(B)".

Subsec. (d)(3)(B). Pub. L. 115–141, §401(a)(5)(A), substituted comma for period at end.

Subsec. (d)(3)(D). Pub. L. 115–141, §401(a)(5)(B), substituted ", and" for period at end.

Subsec. (g)(2). Pub. L. 115–141, §401(a)(6), substituted "2017." for "2017.."

Pub. L. 115–123 substituted "December 31, 2017" for "December 31, 2016".

2015—Subsec. (c)(1). Pub. L. 114–113, §181(b)(1), struck out "which meets the prescriptive criteria for such component established by the 2009 International Energy Conservation Code, as such Code (including supplements) is in effect on the date of the enactment of the American Recovery and Reinvestment Tax Act of 2009 (or, in the case of an exterior window, a skylight, an exterior door, a metal roof with appropriate pigmented coatings, or an asphalt roof with appropriate cooling granules, which meet the Energy Star program requirements)" after "envelope component" in introductory provisions.

Subsec. (c)(2) to (4). Pub. L. 114–113, §181(b)(2), added par. (2) and redesignated former pars. (2) and (3) as (3) and (4), respectively.

Subsec. (g)(2). Pub. L. 114–113, §181(a), substituted "December 31, 2016" for "December 31, 2014".

2014—Subsec. (g)(2). Pub. L. 113–295 substituted "December 31, 2014" for "December 31, 2013".

2013—Subsec. (g)(2). Pub. L. 112–240 substituted "December 31, 2013" for "December 31, 2011".

2010—Subsecs. (a), (b). Pub. L. 111–312, §710(b)(1), amended subsecs. (a) and (b) generally. Prior to amendment, subsecs. (a) and (b) read as follows:

"(a) Allowance of credit.—In the case of an individual, there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to 30 percent of the sum of—

"(1) the amount paid or incurred by the taxpayer during such taxable year for qualified energy efficiency improvements, and

"(2) the amount of the residential energy property expenditures paid or incurred by the taxpayer during such taxable year.

"(b) Limitation.—The aggregate amount of the credits allowed under this section for taxable years beginning in 2009 and 2010 with respect to any taxpayer shall not exceed $1,500."

Subsec. (c)(1). Pub. L. 111–312, §710(b)(2)(D)(ii), inserted "an exterior window, a skylight, an exterior door," after "in the case of" in introductory provisions.

Pub. L. 111–312, §710(b)(2)(A), in introductory provisions, substituted "2009 International Energy Conservation Code, as such Code (including supplements) is in effect on the date of the enactment of the American Recovery and Reinvestment Tax Act of 2009" for "2000 International Energy Conservation Code, as such Code (including supplements) is in effect on the date of the enactment of this section".

Subsec. (c)(2)(A). Pub. L. 111–312, §710(b)(2)(E), struck out "and meets the prescriptive criteria for such material or system established by the 2009 International Energy Conservation Code, as such Code (including supplements) is in effect on the date of the enactment of the American Recovery and Reinvestment Tax Act of 2009" after "on such dwelling unit".

Subsec. (c)(4). Pub. L. 111–312, §710(b)(2)(D)(i), struck out par. (4). Text read as follows: "Such term shall not include any component described in subparagraph (B) or (C) of paragraph (2) unless such component is equal to or below a U factor of 0.30 and SHGC of 0.30."

Subsec. (d)(2)(A)(ii). Pub. L. 111–312, §710(b)(2)(C)(ii), amended cl. (ii) generally. Prior to amendment, cl. (ii) read as follows: "any qualified natural gas furnace, qualified propane furnace, qualified oil furnace, qualified natural gas hot water boiler, qualified propane hot water boiler, or qualified oil hot water boiler, or".

Subsec. (d)(3)(E). Pub. L. 111–312, §710(b)(2)(B), struck out ", as measured using a lower heating value" after "75 percent".

Subsec. (d)(4). Pub. L. 111–312, §710(b)(2)(C)(i), amended par. (4) generally. Prior to amendment, par. (4) defined the terms "qualified natural gas furnace", "qualified natural gas hot water boiler", "qualified propane furnace", "qualified propane hot water boiler", "qualified oil furnace", and "qualified oil hot water boiler".

Subsec. (e)(3). Pub. L. 111–312, §710(b)(3), added par. (3).

Subsec. (g)(2). Pub. L. 111–312, §710(a), substituted "2011" for "2010".

2009—Subsecs. (a), (b). Pub. L. 111–5, §1121(a), added subsecs. (a) and (b) and struck out former subsecs. (a) and (b) which related to credit equal to the sum of 10 percent of the amount paid for qualified energy efficiency improvements and the amount of energy property expenditures and provided limits on credits and expenditures.

Subsec. (c)(2)(A). Pub. L. 111–5, §1121(d)(2), inserted "and meets the prescriptive criteria for such material or system established by the 2009 International Energy Conservation Code, as such Code (including supplements) is in effect on the date of the enactment of the American Recovery and Reinvestment Tax Act of 2009" after "such dwelling unit".

Subsec. (c)(4). Pub. L. 111–5, §1121(d)(1), added par. (4).

Subsec. (d)(2)(A)(ii). Pub. L. 111–5, §1121(c)(2), amended cl. (ii) generally. Prior to amendment, cl. (ii) read as follows: "a qualified natural gas, propane, or oil furnace or hot water boiler, or".

Subsec. (d)(3)(B). Pub. L. 111–5, §1121(b)(1), amended subpar. (B) generally. Prior to amendment, subpar. (B) read as follows: "an electric heat pump which has a heating seasonal performance factor (HSPF) of at least 9, a seasonal energy efficiency ratio (SEER) of at least 15, and an energy efficiency ratio (EER) of at least 13,".

Subsec. (d)(3)(C). Pub. L. 111–5, §1121(b)(2), substituted "2009" for "2006".

Subsec. (d)(3)(D). Pub. L. 111–5, §1121(b)(3), amended subpar. (D) generally. Prior to amendment, subpar. (D) read as follows: "a natural gas, propane, or oil water heater which has an energy factor of at least 0.80 or a thermal efficiency of at least 90 percent, and".

Subsec. (d)(3)(E). Pub. L. 111–5, §1121(b)(4), inserted ", as measured using a lower heating value" after "75 percent".

Subsec. (d)(4). Pub. L. 111–5, §1121(c)(1), amended par. (4) generally. Prior to amendment, text read as follows: "The term 'qualified natural gas, propane, or oil furnace or hot water boiler' means a natural gas, propane, or oil furnace or hot water boiler which achieves an annual fuel utilization efficiency rate of not less than 95."

Subsec. (e)(1). Pub. L. 111–5, §1103(b)(2)(A), substituted "and (8)" for "(8), and (9)".

Subsec. (g)(2). Pub. L. 111–5, §1121(e), substituted "December 31, 2010" for "December 31, 2009".

2008—Subsec. (c)(1). Pub. L. 110–343, §302(e)(1), in introductory provisions, inserted ", or an asphalt roof with appropriate cooling granules," before "which meet the Energy Star program requirements".

Subsec. (c)(2)(D). Pub. L. 110–343, §302(e)(2), inserted "or asphalt roof" after "metal roof" and "or cooling granules" after "pigmented coatings".

Subsec. (d)(2)(C). Pub. L. 110–343, §302(d)(2), amended heading and text of subpar. (C) generally. Prior to amendment, subpar. (C) related to requirements for standards for central air conditioners, electric heat pumps, and geothermal heat pumps.

Subsec. (d)(3)(C), (D). Pub. L. 110–343, §302(d)(1), redesignated subpars. (D) and (E) as (C) and (D), respectively, and struck out former subpar. (C) which read as follows: "a geothermal heat pump which—

"(i) in the case of a closed loop product, has an energy efficiency ratio (EER) of at least 14.1 and a heating coefficient of performance (COP) of at least 3.3,

"(ii) in the case of an open loop product, has an energy efficiency ratio (EER) of at least 16.2 and a heating coefficient of performance (COP) of at least 3.6, and

"(iii) in the case of a direct expansion (DX) product, has an energy efficiency ratio (EER) of at least 15 and a heating coefficient of performance (COP) of at least 3.5,".

Subsec. (d)(3)(E). Pub. L. 110–343, §302(d)(1), redesignated subpar. (F) as (E). Former subpar. (E) redesignated (D).

Pub. L. 110–343, §302(c), inserted "or a thermal efficiency of at least 90 percent" after "0.80".

Subsec. (d)(3)(F). Pub. L. 110–343, §302(d)(1), redesignated subpar. (F) as (E).

Pub. L. 110–343, §302(b)(1), added subpar. (F).

Subsec. (d)(6). Pub. L. 110–343, §302(b)(2), added par. (6).

Subsec. (g). Pub. L. 110–343, §302(a), substituted "placed in service—" for "placed in service after December 31, 2007" and added pars. (1) and (2).

2007—Subsec. (c)(3). Pub. L. 110–172 substituted "part 3280" for "section 3280".

2005—Subsec. (b)(2). Pub. L. 109–135 substituted "subsection (c)(2)(B)" for "subsection (c)(3)(B)".

Statutory Notes and Related Subsidiaries

Effective Date of 2022 Amendment

Pub. L. 117–169, title I, §13301(i), Aug. 16, 2022, 136 Stat. 1946, provided that:

"(1) In general.—Except as otherwise provided by this subsection, the amendments made by this section [amending this section and sections 1016 and 6213 of this title] shall apply to property placed in service after December 31, 2022.

"(2) Extension of credit.—The amendments made by subsection (a) [amending this section] shall apply to property placed in service after December 31, 2021.

"(3) Identification number requirement.—The amendments made by subsection (g) [amending this section and section 6213 of this title] shall apply to property placed in service after December 31, 2024."

Amendment by section 13704(b)(1) of Pub. L. 117–169 applicable to transportation fuel produced after Dec. 31, 2024, see section 13704(c) of Pub. L. 117–169, set out as an Effective Date note under section 45Z of this title.

Effective Date of 2020 Amendment

Pub. L. 116–260, div. EE, title I, §141(b), Dec. 27, 2020, 134 Stat. 3054, provided that: "The amendment made by this section [amending this section] shall apply to property placed in service after December 31, 2020."

Pub. L. 116–260, div. EE, title I, §148(c)(2), Dec. 27, 2020, 134 Stat. 3056, provided that: "The amendments made by subsection (b) [amending this section and section 25D of this title] shall apply to expenditures paid or incurred in taxable years beginning after December 31, 2020."

Effective Date of 2019 Amendment

Pub. L. 116–94, div. Q, title I, §123(c), Dec. 20, 2019, 133 Stat. 3231, provided that: "The amendments made by this section [amending this section] shall apply to property placed in service after December 31, 2017."

Effective Date of 2018 Amendment

Pub. L. 115–123, div. D, title I, §40401(b), Feb. 9, 2018, 132 Stat. 148, provided that: "The amendment made by this section [amending this section] shall apply to property placed in service after December 31, 2016."

Effective Date of 2015 Amendment

Pub. L. 114–113, div. Q, title I, §181(c), Dec. 18, 2015, 129 Stat. 3072, provided that:

"(1) Extension.—The amendment made by subsection (a) [amending this section] shall apply to property placed in service after December 31, 2014.

"(2) Modification.—The amendments made by subsection (b) [amending this section] shall apply to property placed in service after December 31, 2015."

Effective Date of 2014 Amendment

Pub. L. 113–295, div. A, title I, §151(b), Dec. 19, 2014, 128 Stat. 4021, provided that: "The amendment made by this section [amending this section] shall apply to property placed in service after December 31, 2013."

Effective Date of 2013 Amendment

Pub. L. 112–240, title IV, §401(b), Jan. 2, 2013, 126 Stat. 2337, provided that: "The amendment made by this section [amending this section] shall apply to property placed in service after December 31, 2011."

Effective Date of 2010 Amendment

Pub. L. 111–312, title VII, §710(c), Dec. 17, 2010, 124 Stat. 3315, provided that: "The amendments made by this section [amending this section] shall apply to property placed in service after December 31, 2010."

Effective Date of 2009 Amendment

Pub. L. 111–5, div. B, title I, §1103(c), Feb. 17, 2009, 123 Stat. 321, provided that:

"(1) In general.—Except as provided in paragraph (2), the amendment made by this section [amending this section and sections 25D and 48 to 48B of this title] shall apply to periods after December 31, 2008, under rules similar to the rules of section 48(m) of the Internal Revenue Code of 1986 (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990 [Nov. 5, 1990]).

"(2) Conforming amendments.—The amendments made by subparagraphs (A) and (B) of subsection (b)(2) [amending this section and section 25D of this title] shall apply to taxable years beginning after December 31, 2008."

Pub. L. 111–5, div. B, title I, §1121(f), Feb. 17, 2009, 123 Stat. 324, provided that:

"(1) In general.—Except as provided in paragraph (2), the amendments made by this section [amending this section] shall apply to taxable years beginning after December 31, 2008.

"(2) Efficiency standards.—The amendments made by paragraphs (1), (2), and (3) of subsection (b) and subsections (c) and (d) shall apply to property placed in service after the date of the enactment of this Act [Feb. 17, 2009]."

Effective Date of 2008 Amendment

Pub. L. 110–343, div. B, title III, §302(f), Oct. 3, 2008, 122 Stat. 3845, provided that:

"(1) In general.—Except as provided in paragraph (2), the amendments made [by] this section [amending this section] shall apply to expenditures made after December 31, 2008.

"(2) Modification of qualified energy efficiency improvements.—The amendments made by subsection (e) [amending this section] shall apply to property placed in service after the date of the enactment of this Act [Oct. 3, 2008]."

Effective Date

Pub. L. 109–58, title XIII, §1333(c), Aug. 8, 2005, 119 Stat. 1030, provided that: "The amendments made by this section [enacting this section and amending section 1016 of this title] shall apply to property placed in service after December 31, 2005."
26 U.S.C. § 30B (2024) — Title 26: INTERNAL REVENUE CODE / Chapter 1 / Section 30B: Alternative motor vehicle credit
Alternative motor vehicle credit
Status: in_force

(a) Allowance of credit

There shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the sum of—

(1) the new qualified fuel cell motor vehicle credit determined under subsection (b),

(2) the new advanced lean burn technology motor vehicle credit determined under subsection (c),

(3) the new qualified hybrid motor vehicle credit determined under subsection (d),

(4) the new qualified alternative fuel motor vehicle credit determined under subsection (e), and

(5) the plug-in conversion credit determined under subsection (i).

(b) New qualified fuel cell motor vehicle credit

(1) In general

For purposes of subsection (a), the new qualified fuel cell motor vehicle credit determined under this subsection with respect to a new qualified fuel cell motor vehicle placed in service by the taxpayer during the taxable year is—

(A) $8,000 ($4,000 in the case of a vehicle placed in service after December 31, 2009), if such vehicle has a gross vehicle weight rating of not more than 8,500 pounds,

(B) $10,000, if such vehicle has a gross vehicle weight rating of more than 8,500 pounds but not more than 14,000 pounds,

(C) $20,000, if such vehicle has a gross vehicle weight rating of more than 14,000 pounds but not more than 26,000 pounds, and

(D) $40,000, if such vehicle has a gross vehicle weight rating of more than 26,000 pounds.

(2) Increase for fuel efficiency

(A) In general

The amount determined under paragraph (1)(A) with respect to a new qualified fuel cell motor vehicle which is a passenger automobile or light truck shall be increased by—

(i) $1,000, if such vehicle achieves at least 150 percent but less than 175 percent of the 2002 model year city fuel economy,

(ii) $1,500, if such vehicle achieves at least 175 percent but less than 200 percent of the 2002 model year city fuel economy,

(iii) $2,000, if such vehicle achieves at least 200 percent but less than 225 percent of the 2002 model year city fuel economy,

(iv) $2,500, if such vehicle achieves at least 225 percent but less than 250 percent of the 2002 model year city fuel economy,

(v) $3,000, if such vehicle achieves at least 250 percent but less than 275 percent of the 2002 model year city fuel economy,

(vi) $3,500, if such vehicle achieves at least 275 percent but less than 300 percent of the 2002 model year city fuel economy, and

(vii) $4,000, if such vehicle achieves at least 300 percent of the 2002 model year city fuel economy.

(B) 2002 model year city fuel economy

For purposes of subparagraph (A), the 2002 model year city fuel economy with respect to a vehicle shall be determined in accordance with the following tables:

(i) In the case of a passenger automobile:

 

  If vehicle inertia weight class is:The 2002 model year city fuel economy is:

1,500 or 1,750 lbs 
45.2 mpg  

2,000 lbs 
39.6 mpg  

2,250 lbs 
35.2 mpg  

2,500 lbs 
31.7 mpg  

2,750 lbs 
28.8 mpg  

3,000 lbs 
26.4 mpg  

3,500 lbs 
22.6 mpg  

4,000 lbs 
19.8 mpg  

4,500 lbs 
17.6 mpg  

5,000 lbs 
15.9 mpg  

5,500 lbs 
14.4 mpg  

6,000 lbs 
13.2 mpg  

6,500 lbs 
12.2 mpg  

7,000 to 8,500 lbs 
11.3 mpg.

(ii) In the case of a light truck:

 

  If vehicle inertia weight class is:The 2002 model year city fuel economy is:

1,500 or 1,750 lbs 
39.4 mpg  

2,000 lbs 
35.2 mpg  

2,250 lbs 
31.8 mpg  

2,500 lbs 
29.0 mpg  

2,750 lbs 
26.8 mpg  

3,000 lbs 
24.9 mpg  

3,500 lbs 
21.8 mpg  

4,000 lbs 
19.4 mpg  

4,500 lbs 
17.6 mpg  

5,000 lbs 
16.1 mpg  

5,500 lbs 
14.8 mpg  

6,000 lbs 
13.7 mpg  

6,500 lbs 
12.8 mpg  

7,000 to 8,500 lbs 
12.1 mpg.

(C) Vehicle inertia weight class

For purposes of subparagraph (B), the term "vehicle inertia weight class" has the same meaning as when defined in regulations prescribed by the Administrator of the Environmental Protection Agency for purposes of the administration of title II of the Clean Air Act (42 U.S.C. 7521 et seq.).

(3) New qualified fuel cell motor vehicle

For purposes of this subsection, the term "new qualified fuel cell motor vehicle" means a motor vehicle—

(A) which is propelled by power derived from 1 or more cells which convert chemical energy directly into electricity by combining oxygen with hydrogen fuel which is stored on board the vehicle in any form and may or may not require reformation prior to use,

(B) which, in the case of a passenger automobile or light truck, has received on or after the date of the enactment of this section a certificate that such vehicle meets or exceeds the Bin 5 Tier II emission level established in regulations prescribed by the Administrator of the Environmental Protection Agency under section 202(i) of the Clean Air Act for that make and model year vehicle,

(C) the original use of which commences with the taxpayer,

(D) which is acquired for use or lease by the taxpayer and not for resale, and

(E) which is made by a manufacturer.

(c) New advanced lean burn technology motor vehicle credit

(1) In general

For purposes of subsection (a), the new advanced lean burn technology motor vehicle credit determined under this subsection for the taxable year is the credit amount determined under paragraph (2) with respect to a new advanced lean burn technology motor vehicle placed in service by the taxpayer during the taxable year.

(2) Credit amount

(A) Fuel economy

(i) In general

The credit amount determined under this paragraph shall be determined in accordance with the following table:

 

In the case of a vehicle which achieves
 a fuel economy (expressed as a

 percentage of the 2002 model year

 city fuel economy) of—
The credit amount is—

At least 125 percent but less than 150 percent 
$400  

At least 150 percent but less than 175 percent 
$800  

At least 175 percent but less than 200 percent 
$1,200  

At least 200 percent but less than 225 percent 
$1,600  

At least 225 percent but less than 250 percent 
$2,000  

At least 250 percent 
$2,400.  

(ii) 2002 model year city fuel economy

For purposes of clause (i), the 2002 model year city fuel economy with respect to a vehicle shall be determined on a gasoline gallon equivalent basis as determined by the Administrator of the Environmental Protection Agency using the tables provided in subsection (b)(2)(B) with respect to such vehicle.

(B) Conservation credit

The amount determined under subparagraph (A) with respect to a new advanced lean burn technology motor vehicle shall be increased by the conservation credit amount determined in accordance with the following table:

 

In the case of a vehicle which achieves
 a lifetime fuel savings (expressed in

 gallons of gasoline) of—
The conservation credit amount is—

At least 1,200 but less than 1,800 
$250  

At least 1,800 but less than 2,400 
$500  

At least 2,400 but less than 3,000 
$750  

At least 3,000 
$1,000.  

(3) New advanced lean burn technology motor vehicle

For purposes of this subsection, the term "new advanced lean burn technology motor vehicle" means a passenger automobile or a light truck—

(A) with an internal combustion engine which—

(i) is designed to operate primarily using more air than is necessary for complete combustion of the fuel,

(ii) incorporates direct injection,

(iii) achieves at least 125 percent of the 2002 model year city fuel economy,

(iv) for 2004 and later model vehicles, has received a certificate that such vehicle meets or exceeds—

(I) in the case of a vehicle having a gross vehicle weight rating of 6,000 pounds or less, the Bin 5 Tier II emission standard established in regulations prescribed by the Administrator of the Environmental Protection Agency under section 202(i) of the Clean Air Act for that make and model year vehicle, and

(II) in the case of a vehicle having a gross vehicle weight rating of more than 6,000 pounds but not more than 8,500 pounds, the Bin 8 Tier II emission standard which is so established,

(B) the original use of which commences with the taxpayer,

(C) which is acquired for use or lease by the taxpayer and not for resale, and

(D) which is made by a manufacturer.

(4) Lifetime fuel savings

For purposes of this subsection, the term "lifetime fuel savings" means, in the case of any new advanced lean burn technology motor vehicle, an amount equal to the excess (if any) of—

(A) 120,000 divided by the 2002 model year city fuel economy for the vehicle inertia weight class, over

(B) 120,000 divided by the city fuel economy for such vehicle.

(d) New qualified hybrid motor vehicle credit

(1) In general

For purposes of subsection (a), the new qualified hybrid motor vehicle credit determined under this subsection for the taxable year is the credit amount determined under paragraph (2) with respect to a new qualified hybrid motor vehicle placed in service by the taxpayer during the taxable year.

(2) Credit amount

(A) Credit amount for passenger automobiles and light trucks

In the case of a new qualified hybrid motor vehicle which is a passenger automobile or light truck and which has a gross vehicle weight rating of not more than 8,500 pounds, the amount determined under this paragraph is the sum of the amounts determined under clauses (i) and (ii).

(i) Fuel economy

The amount determined under this clause is the amount which would be determined under subsection (c)(2)(A) if such vehicle were a vehicle referred to in such subsection.

(ii) Conservation credit

The amount determined under this clause is the amount which would be determined under subsection (c)(2)(B) if such vehicle were a vehicle referred to in such subsection.

(B) Credit amount for other motor vehicles

(i) In general

In the case of any new qualified hybrid motor vehicle to which subparagraph (A) does not apply, the amount determined under this paragraph is the amount equal to the applicable percentage of the qualified incremental hybrid cost of the vehicle as certified under clause (v).

(ii) Applicable percentage

For purposes of clause (i), the applicable percentage is—

(I) 20 percent if the vehicle achieves an increase in city fuel economy relative to a comparable vehicle of at least 30 percent but less than 40 percent,

(II) 30 percent if the vehicle achieves such an increase of at least 40 percent but less than 50 percent, and

(III) 40 percent if the vehicle achieves such an increase of at least 50 percent.

(iii) Qualified incremental hybrid cost

For purposes of this subparagraph, the qualified incremental hybrid cost of any vehicle is equal to the amount of the excess of the manufacturer's suggested retail price for such vehicle over such price for a comparable vehicle, to the extent such amount does not exceed—

(I) $7,500, if such vehicle has a gross vehicle weight rating of not more than 14,000 pounds,

(II) $15,000, if such vehicle has a gross vehicle weight rating of more than 14,000 pounds but not more than 26,000 pounds, and

(III) $30,000, if such vehicle has a gross vehicle weight rating of more than 26,000 pounds.

(iv) Comparable vehicle

For purposes of this subparagraph, the term "comparable vehicle" means, with respect to any new qualified hybrid motor vehicle, any vehicle which is powered solely by a gasoline or diesel internal combustion engine and which is comparable in weight, size, and use to such vehicle.

(v) Certification

A certification described in clause (i) shall be made by the manufacturer and shall be determined in accordance with guidance prescribed by the Secretary. Such guidance shall specify procedures and methods for calculating fuel economy savings and incremental hybrid costs.

(3) New qualified hybrid motor vehicle

For purposes of this subsection—

(A) In general

The term "new qualified hybrid motor vehicle" means a motor vehicle—

(i) which draws propulsion energy from onboard sources of stored energy which are both—

(I) an internal combustion or heat engine using consumable fuel, and

(II) a rechargeable energy storage system,

(ii) which, in the case of a vehicle to which paragraph (2)(A) applies, has received a certificate of conformity under the Clean Air Act and meets or exceeds the equivalent qualifying California low emission vehicle standard under section 243(e)(2) of the Clean Air Act for that make and model year, and

(I) in the case of a vehicle having a gross vehicle weight rating of 6,000 pounds or less, the Bin 5 Tier II emission standard established in regulations prescribed by the Administrator of the Environmental Protection Agency under section 202(i) of the Clean Air Act for that make and model year vehicle, and

(II) in the case of a vehicle having a gross vehicle weight rating of more than 6,000 pounds but not more than 8,500 pounds, the Bin 8 Tier II emission standard which is so established,

(iii) which has a maximum available power of at least—

(I) 4 percent in the case of a vehicle to which paragraph (2)(A) applies,

(II) 10 percent in the case of a vehicle which has a gross vehicle weight rating of more than 8,500 pounds and not more than 14,000 pounds, and

(III) 15 percent in the case of a vehicle in excess of 14,000 pounds,

(iv) which, in the case of a vehicle to which paragraph (2)(B) applies, has an internal combustion or heat engine which has received a certificate of conformity under the Clean Air Act as meeting the emission standards set in the regulations prescribed by the Administrator of the Environmental Protection Agency for 2004 through 2007 model year diesel heavy duty engines or ottocycle heavy duty engines, as applicable,

(v) the original use of which commences with the taxpayer,

(vi) which is acquired for use or lease by the taxpayer and not for resale, and

(vii) which is made by a manufacturer.

Such term shall not include any vehicle which is not a passenger automobile or light truck if such vehicle has a gross vehicle weight rating of less than 8,500 pounds.

(B) Consumable fuel

For purposes of subparagraph (A)(i)(I), the term "consumable fuel" means any solid, liquid, or gaseous matter which releases energy when consumed by an auxiliary power unit.

(C) Maximum available power

(i) Certain passenger automobiles and light trucks

In the case of a vehicle to which paragraph (2)(A) applies, the term "maximum available power" means the maximum power available from the rechargeable energy storage system, during a standard 10 second pulse power or equivalent test, divided by such maximum power and the SAE net power of the heat engine.

(ii) Other motor vehicles

In the case of a vehicle to which paragraph (2)(B) applies, the term "maximum available power" means the maximum power available from the rechargeable energy storage system, during a standard 10 second pulse power or equivalent test, divided by the vehicle's total traction power. For purposes of the preceding sentence, the term "total traction power" means the sum of the peak power from the rechargeable energy storage system and the heat engine peak power of the vehicle, except that if such storage system is the sole means by which the vehicle can be driven, the total traction power is the peak power of such storage system.

(D) Exclusion of plug-in vehicles

Any vehicle with respect to which a credit is allowable under section 30D (determined without regard to subsection (c) thereof) shall not be taken into account under this section.

(e) New qualified alternative fuel motor vehicle credit

(1) Allowance of credit

Except as provided in paragraph (5), the new qualified alternative fuel motor vehicle credit determined under this subsection is an amount equal to the applicable percentage of the incremental cost of any new qualified alternative fuel motor vehicle placed in service by the taxpayer during the taxable year.

(2) Applicable percentage

For purposes of paragraph (1), the applicable percentage with respect to any new qualified alternative fuel motor vehicle is—

(A) 50 percent, plus

(B) 30 percent, if such vehicle—

(i) has received a certificate of conformity under the Clean Air Act and meets or exceeds the most stringent standard available for certification under the Clean Air Act for that make and model year vehicle (other than a zero emission standard), or

(ii) has received an order certifying the vehicle as meeting the same requirements as vehicles which may be sold or leased in California and meets or exceeds the most stringent standard available for certification under the State laws of California (enacted in accordance with a waiver granted under section 209(b) of the Clean Air Act) for that make and model year vehicle (other than a zero emission standard).

For purposes of the preceding sentence, in the case of any new qualified alternative fuel motor vehicle which weighs more than 14,000 pounds gross vehicle weight rating, the most stringent standard available shall be such standard available for certification on the date of the enactment of the Energy Tax Incentives Act of 2005.

(3) Incremental cost

For purposes of this subsection, the incremental cost of any new qualified alternative fuel motor vehicle is equal to the amount of the excess of the manufacturer's suggested retail price for such vehicle over such price for a gasoline or diesel fuel motor vehicle of the same model, to the extent such amount does not exceed—

(A) $5,000, if such vehicle has a gross vehicle weight rating of not more than 8,500 pounds,

(B) $10,000, if such vehicle has a gross vehicle weight rating of more than 8,500 pounds but not more than 14,000 pounds,

(C) $25,000, if such vehicle has a gross vehicle weight rating of more than 14,000 pounds but not more than 26,000 pounds, and

(D) $40,000, if such vehicle has a gross vehicle weight rating of more than 26,000 pounds.

(4) New qualified alternative fuel motor vehicle

For purposes of this subsection—

(A) In general

The term "new qualified alternative fuel motor vehicle" means any motor vehicle—

(i) which is only capable of operating on an alternative fuel,

(ii) the original use of which commences with the taxpayer,

(iii) which is acquired by the taxpayer for use or lease, but not for resale, and

(iv) which is made by a manufacturer.

(B) Alternative fuel

The term "alternative fuel" means compressed natural gas, liquefied natural gas, liquefied petroleum gas, hydrogen, and any liquid at least 85 percent of the volume of which consists of methanol.

(5) Credit for mixed-fuel vehicles

(A) In general

In the case of a mixed-fuel vehicle placed in service by the taxpayer during the taxable year, the credit determined under this subsection is an amount equal to—

(i) in the case of a 75/25 mixed-fuel vehicle, 70 percent of the credit which would have been allowed under this subsection if such vehicle was a qualified alternative fuel motor vehicle, and

(ii) in the case of a 90/10 mixed-fuel vehicle, 90 percent of the credit which would have been allowed under this subsection if such vehicle was a qualified alternative fuel motor vehicle.

(B) Mixed-fuel vehicle

For purposes of this subsection, the term "mixed-fuel vehicle" means any motor vehicle described in subparagraph (C) or (D) of paragraph (3), which—

(i) is certified by the manufacturer as being able to perform efficiently in normal operation on a combination of an alternative fuel and a petroleum-based fuel,

(ii) either—

(I) has received a certificate of conformity under the Clean Air Act, or

(II) has received an order certifying the vehicle as meeting the same requirements as vehicles which may be sold or leased in California and meets or exceeds the low emission vehicle standard under section 88.105–94 of title 40, Code of Federal Regulations, for that make and model year vehicle,

(iii) the original use of which commences with the taxpayer,

(iv) which is acquired by the taxpayer for use or lease, but not for resale, and

(v) which is made by a manufacturer.

(C) 75/25 mixed-fuel vehicle

For purposes of this subsection, the term "75/25 mixed-fuel vehicle" means a mixed-fuel vehicle which operates using at least 75 percent alternative fuel and not more than 25 percent petroleum-based fuel.

(D) 90/10 mixed-fuel vehicle

For purposes of this subsection, the term "90/10 mixed-fuel vehicle" means a mixed-fuel vehicle which operates using at least 90 percent alternative fuel and not more than 10 percent petroleum-based fuel.

(f) Limitation on number of new qualified hybrid and advanced lean-burn technology vehicles eligible for credit

(1) In general

In the case of a qualified vehicle sold during the phaseout period, only the applicable percentage of the credit otherwise allowable under subsection (c) or (d) shall be allowed.

(2) Phaseout period

For purposes of this subsection, the phaseout period is the period beginning with the second calendar quarter following the calendar quarter which includes the first date on which the number of qualified vehicles manufactured by the manufacturer of the vehicle referred to in paragraph (1) sold for use in the United States after December 31, 2005, is at least 60,000.

(3) Applicable percentage

For purposes of paragraph (1), the applicable percentage is—

(A) 50 percent for the first 2 calendar quarters of the phaseout period,

(B) 25 percent for the 3d and 4th calendar quarters of the phaseout period, and

(C) 0 percent for each calendar quarter thereafter.

(4) Controlled groups

(A) In general

For purposes of this subsection, all persons treated as a single employer under subsection (a) or (b) of section 52 or subsection (m) or (o) of section 414 shall be treated as a single manufacturer.

(B) Inclusion of foreign corporations

For purposes of subparagraph (A), in applying subsections (a) and (b) of section 52 to this section, section 1563 shall be applied without regard to subsection (b)(2)(C) thereof.

(5) Qualified vehicle

For purposes of this subsection, the term "qualified vehicle" means any new qualified hybrid motor vehicle (described in subsection (d)(2)(A)) and any new advanced lean burn technology motor vehicle.

(g) Application with other credits

(1) Business credit treated as part of general business credit

So much of the credit which would be allowed under subsection (a) for any taxable year (determined without regard to this subsection) that is attributable to property of a character subject to an allowance for depreciation shall be treated as a credit listed in section 38(b) for such taxable year (and not allowed under subsection (a)).

(2) Personal credit

For purposes of this title, the credit allowed under subsection (a) for any taxable year (determined after application of paragraph (1)) shall be treated as a credit allowable under subpart A for such taxable year.

(h) Other definitions and special rules

For purposes of this section—

(1) Motor vehicle

The term "motor vehicle" means any vehicle which is manufactured primarily for use on public streets, roads, and highways (not including a vehicle operated exclusively on a rail or rails) and which has at least 4 wheels.

(2) City fuel economy

The city fuel economy with respect to any vehicle shall be measured in a manner which is substantially similar to the manner city fuel economy is measured in accordance with procedures under part 600 of subchapter Q of chapter I of title 40, Code of Federal Regulations, as in effect on the date of the enactment of this section.

(3) Other terms

The terms "automobile", "passenger automobile", "medium duty passenger vehicle", "light truck", and "manufacturer" have the meanings given such terms in regulations prescribed by the Administrator of the Environmental Protection Agency for purposes of the administration of title II of the Clean Air Act (42 U.S.C. 7521 et seq.).

(4) Reduction in basis

For purposes of this subtitle, the basis of any property for which a credit is allowable under subsection (a) shall be reduced by the amount of such credit so allowed (determined without regard to subsection (g)).

(5) No double benefit

The amount of any deduction or other credit allowable under this chapter—

(A) for any incremental cost taken into account in computing the amount of the credit determined under subsection (e) shall be reduced by the amount of such credit attributable to such cost, and

(B) with respect to a vehicle described under subsection (b) or (c), shall be reduced by the amount of credit allowed under subsection (a) for such vehicle for the taxable year (determined without regard to subsection (g)).

(6) Property used by tax-exempt entity

In the case of a vehicle whose use is described in paragraph (3) or (4) of section 50(b) and which is not subject to a lease, the person who sold such vehicle to the person or entity using such vehicle shall be treated as the taxpayer that placed such vehicle in service, but only if such person clearly discloses to such person or entity in a document the amount of any credit allowable under subsection (a) with respect to such vehicle (determined without regard to subsection (g)). For purposes of subsection (g), property to which this paragraph applies shall be treated as of a character subject to an allowance for depreciation.

(7) Property used outside United States, etc., not qualified

No credit shall be allowable under subsection (a) with respect to any property referred to in section 50(b)(1) or with respect to the portion of the cost of any property taken into account under section 179.

(8) Recapture

The Secretary shall, by regulations, provide for recapturing the benefit of any credit allowable under subsection (a) with respect to any property which ceases to be property eligible for such credit (including recapture in the case of a lease period of less than the economic life of a vehicle).

(9) Election to not take credit

No credit shall be allowed under subsection (a) for any vehicle if the taxpayer elects to not have this section apply to such vehicle.

(10) Interaction with air quality and motor vehicle safety standards

Unless otherwise provided in this section, a motor vehicle shall not be considered eligible for a credit under this section unless such vehicle is in compliance with—

(A) the applicable provisions of the Clean Air Act for the applicable make and model year of the vehicle (or applicable air quality provisions of State law in the case of a State which has adopted such provision under a waiver under section 209(b) of the Clean Air Act), and

(B) the motor vehicle safety provisions of sections 30101 through 30169 of title 49, United States Code.

[(i) Repealed. Pub. L. 117–169, title I, §13401(i)(2)(B), Aug. 16, 2022, 136 Stat. 1961]

(j) Regulations

(1) In general

Except as provided in paragraph (2), the Secretary shall promulgate such regulations as necessary to carry out the provisions of this section.

(2) Coordination in prescription of certain regulations

The Secretary of the Treasury, in coordination with the Secretary of Transportation and the Administrator of the Environmental Protection Agency, shall prescribe such regulations as necessary to determine whether a motor vehicle meets the requirements to be eligible for a credit under this section.

(k) Termination

This section shall not apply to any property purchased after—

(1) in the case of a new qualified fuel cell motor vehicle (as described in subsection (b)), December 31, 2021,

(2) in the case of a new advanced lean burn technology motor vehicle (as described in subsection (c)) or a new qualified hybrid motor vehicle (as described in subsection (d)(2)(A)), December 31, 2010,

(3) in the case of a new qualified hybrid motor vehicle (as described in subsection (d)(2)(B)), December 31, 2009, and

(4) in the case of a new qualified alternative fuel vehicle (as described in subsection (e)), December 31, 2010.

(Added Pub. L. 109–58, title XIII, §1341(a), Aug. 8, 2005, 119 Stat. 1038; amended Pub. L. 109–135, title IV, §§402(j), 412(d), Dec. 21, 2005, 119 Stat. 2615, 2636; Pub. L. 110–343, div. B, title II, §205(b), Oct. 3, 2008, 122 Stat. 3838; Pub. L. 111–5, div. B, title I, §§1141(b)(1), 1142(b)(2), 1143(a)–(c), 1144(a), Feb. 17, 2009, 123 Stat. 328, 330–332; Pub. L. 111–148, title X, §10909(b)(2)(G), (c), Mar. 23, 2010, 124 Stat. 1023; Pub. L. 111–312, title I, §101(b)(1), Dec. 17, 2010, 124 Stat. 3298; Pub. L. 112–240, title I, §104(c)(2)(H), Jan. 2, 2013, 126 Stat. 2322; Pub. L. 113–295, div. A, title II, §§218(a), 220(a), Dec. 19, 2014, 128 Stat. 4035; Pub. L. 114–113, div. Q, title I, §193(a), Dec. 18, 2015, 129 Stat. 3075; Pub. L. 115–123, div. D, title I, §40403(a), Feb. 9, 2018, 132 Stat. 148; Pub. L. 116–94, div. Q, title I, §124(a), Dec. 20, 2019, 133 Stat. 3231; Pub. L. 116–260, div. EE, title I, §142(a), Dec. 27, 2020, 134 Stat. 3054; Pub. L. 117–169, title I, §13401(i)(2), Aug. 16, 2022, 136 Stat. 1961.)

Editorial Notes

References in Text

The Clean Air Act, referred to in text, is act July 14, 1955, ch. 360, 69 Stat. 322, which is classified generally to chapter 85 (§7401 et seq.) of Title 42, The Public Health and Welfare. Title II of the Act, known as the National Emissions Standards Act, is classified generally to subchapter II (§7521 et seq.) of chapter 85 of Title 42. Sections 202(i), 209(b), and 243(e)(2) of the Act are classified to sections 7521(i), 7543(b), and 7583(e)(2), respectively, of Title 42. For complete classification of this Act to the Code, see Short Title note set out under section 7401 of Title 42 and Tables.

The date of the enactment of this section, referred to in subsecs. (b)(3)(B) and (h)(2), is the date of enactment of Pub. L. 109–58, which was approved Aug. 8, 2005.

The date of the enactment of the Energy Tax Incentives Act of 2005, referred to in subsec. (e)(2), is the date of enactment of title XIII of Pub. L. 109–58, which was approved Aug. 8, 2005.

Amendments

2022—Subsec. (h)(8). Pub. L. 117–169, §13401(i)(2)(A), struck out ", except that no benefit shall be recaptured if such property ceases to be eligible for such credit by reason of conversion to a qualified plug-in electric drive motor vehicle" before period at end.

Subsec. (i). Pub. L. 117–169, §13401(i)(2)(B), struck out subsec. (i) which related to plug-in conversion credit.

2020—Subsec. (k)(1). Pub. L. 116–260 substituted "December 31, 2021" for "December 31, 2020".

2019—Subsec. (k)(1). Pub. L. 116–94 substituted "December 31, 2020" for "December 31, 2017".

2018—Subsec. (k)(1). Pub. L. 115–123 substituted "December 31, 2017" for "December 31, 2016".

2015—Subsec. (k)(1). Pub. L. 114–113 substituted "December 31, 2016" for "December 31, 2014".

2014—Subsec. (h)(5)(B). Pub. L. 113–295, §218(a), inserted "(determined without regard to subsection (g))" before period at end.

Subsec. (h)(8). Pub. L. 113–295, §220(a), substituted "vehicle), except that" for "vehicle)., except that".

2013—Subsec. (g)(2). Pub. L. 112–240 amended par. (2) generally. Prior to amendment, par. (2) related to personal credit with a limitation based on amount of tax.

2010—Subsec. (g)(2)(B)(ii). Pub. L. 111–148, §10909(b)(2)(G), (c), as amended by Pub. L. 111–312, temporarily struck out "23," before "25D,". See Effective and Termination Dates of 2010 Amendment note below.

2009—Subsec. (a)(5). Pub. L. 111–5, §1143(b), added par. (5).

Subsec. (d)(3)(D). Pub. L. 111–5, §1141(b)(1), substituted "subsection (c) thereof" for "subsection (d) thereof".

Subsec. (g)(2). Pub. L. 111–5, §1144(a), amended par. (2) generally. Prior to amendment, text read as follows: "The credit allowed under subsection (a) (after the application of paragraph (1)) for any taxable year shall not exceed the excess (if any) of—

"(A) the regular tax liability (as defined in section 26(b)) reduced by the sum of the credits allowable under subpart A and sections 27 and 30, over

"(B) the tentative minimum tax for the taxable year."

Subsec. (h)(1). Pub. L. 111–5, §1142(b)(2), amended par. (1) generally. Prior to amendment, text read as follows: "The term 'motor vehicle' has the meaning given such term by section 30(c)(2)."

Subsec. (h)(8). Pub. L. 111–5, §1143(c), inserted at end ", except that no benefit shall be recaptured if such property ceases to be eligible for such credit by reason of conversion to a qualified plug-in electric drive motor vehicle."

Subsecs. (i) to (k). Pub. L. 111–5, §1143(a), added subsec. (i) and redesignated former subsecs. (i) and (j) as (j) and (k), respectively.

2008—Subsec. (d)(3)(D). Pub. L. 110–343 added subpar. (D).

2005—Subsec. (g)(2)(A). Pub. L. 109–135, §412(d), substituted "regular tax liability (as defined in section 26(b))" for "regular tax".

Subsec. (h)(6). Pub. L. 109–135, §402(j), inserted at end "For purposes of subsection (g), property to which this paragraph applies shall be treated as of a character subject to an allowance for depreciation."

Statutory Notes and Related Subsidiaries

Effective Date of 2022 Amendment

Amendment by Pub. L. 117–169 applicable to vehicles placed in service after Dec. 31, 2022, see section 13401(k)(1) of Pub. L. 117–169, set out in an Effective Date of 2022 Amendment; Transition Rule note under section 30D of this title.

Effective Date of 2020 Amendment

Pub. L. 116–260, div. EE, title I, §142(b), Dec. 27, 2020, 134 Stat. 3054, provided that: "The amendment made by this section [amending this section] shall apply to property purchased after December 31, 2020."

Effective Date of 2019 Amendment

Pub. L. 116–94, div. Q, title I, §124(b), Dec. 20, 2019, 133 Stat. 3231, provided that: "The amendment made by this section [amending this section] shall apply to property purchased after December 31, 2017."

Effective Date of 2018 Amendment

Pub. L. 115–123, div. D, title I, §40403(b), Feb. 9, 2018, 132 Stat. 148, provided that: "The amendment made by this section [amending this section] shall apply to property purchased after December 31, 2016."

Effective Date of 2015 Amendment

Pub. L. 114–113, div. Q, title I, §193(b), Dec. 18, 2015, 129 Stat. 3076, provided that: "The amendment made by this section [amending this section] shall apply to property purchased after December 31, 2014."

Effective Date of 2014 Amendment

Pub. L. 113–295, div. A, title II, §218(c), Dec. 19, 2014, 128 Stat. 4035, provided that: "The amendments made by this section [amending this section and section 30C of this title] shall take effect as if included in the provision of the Energy Tax Incentives Act of 2005 [Pub. L. 109–58, title XIII] to which it relates."

Effective Date of 2013 Amendment

Amendment by Pub. L. 112–240 applicable to taxable years beginning after Dec. 31, 2011, see section 104(d) of Pub. L. 112–240, set out as a note under section 23 of this title.

Effective and Termination Dates of 2010 Amendment

Amendment by Pub. L. 111–148 terminated applicable to taxable years beginning after Dec. 31, 2011, and section is amended to read as if such amendment had never been enacted, see section 10909(c) of Pub. L. 111–148, set out as a note under section 1 of this title.

Amendment by Pub. L. 111–148 applicable to taxable years beginning after Dec. 31, 2009, see section 10909(d) of Pub. L. 111–148, set out as a note under section 1 of this title.

Effective Date of 2009 Amendment

Pub. L. 111–5, div. B, title I, §1141(c), Feb. 17, 2009, 123 Stat. 328, provided that: "The amendments made by this section [amending this section and sections 30D, 38, 1016, and 6501 of this title] shall apply to vehicles acquired after December 31, 2009."

Amendment by section 1142(b)(2) of Pub. L. 111–5 applicable to vehicles acquired after Feb. 17, 2009, see section 1142(c) of Pub. L. 111–5, set out as an Effective and Termination Dates of 2009 Amendment note under section 24 of this title.

Pub. L. 111–5, div. B, title I, §1143(d), Feb. 17, 2009, 123 Stat. 332, provided that: "The amendments made by this section [amending this section] shall apply to property placed in service after the date of the enactment of this Act [Feb. 17, 2009]."

Amendment by section 1144(a) of Pub. L. 111–5 applicable to taxable years beginning after Dec. 31, 2008, see section 1144(c) of Pub. L. 111–5, set out as an Effective and Termination Dates of 2009 Amendment note under section 24 of this title.

Effective Date of 2008 Amendment

Amendment by Pub. L. 110–343 applicable to taxable years beginning after Dec. 31, 2008, see section 205(e) of Pub. L. 110–343, set out as an Effective and Termination Dates of 2008 Amendment note under section 24 of this title.

Effective Date of 2005 Amendment

Amendment by section 402(j) of Pub. L. 109–135 effective as if included in the provision of the Energy Policy Act of 2005, Pub. L. 109–58, to which such amendment relates, see section 402(m)(1) of Pub. L. 109–135, set out as an Effective and Termination Dates of 2005 Amendments note under section 23 of this title.

Effective Date

Pub. L. 109–58, title XIII, §1341(c), Aug. 8, 2005, 119 Stat. 1049, provided that: "The amendments made by this section [enacting this section and amending sections 38, 55, 1016, and 6501 of this title] shall apply to property placed in service after December 31, 2005, in taxable years ending after such date."
26 U.S.C. § 6409 (2024) — Title 26: INTERNAL REVENUE CODE / Chapter 65 / Section 6409: Refunds disregarded in the administration of Federal programs and federally assisted programs
Refunds disregarded in the administration of Federal programs and federally assisted programs
Status: in_force

Notwithstanding any other provision of law, any refund (or advance payment with respect to a refundable credit) made to any individual under this title shall not be taken into account as income, and shall not be taken into account as resources for a period of 12 months from receipt, for purposes of determining the eligibility of such individual (or any other individual) for benefits or assistance (or the amount or extent of benefits or assistance) under any Federal program or under any State or local program financed in whole or in part with Federal funds.

(Added Pub. L. 111–312, title VII, §728(a), Dec. 17, 2010, 124 Stat. 3317; amended Pub. L. 112–240, title I, §103(d), Jan. 2, 2013, 126 Stat. 2320.)

Editorial Notes

Amendments

2013—Pub. L. 112–240 amended section generally. Prior to amendment, section related to refunds disregarded in the administration of Federal programs and federally assisted programs and provided that the provisions were inapplicable to any amount received after Dec. 31, 2012.

Statutory Notes and Related Subsidiaries

Effective Date of 2013 Amendment

Amendment by Pub. L. 112–240 applicable to amounts received after Dec. 31, 2012, see section 103(e)(2) of Pub. L. 112–240, set out as a note under section 24 of this title.

Effective Date

Pub. L. 111–312, title VII, §728(c), Dec. 17, 2010, 124 Stat. 3317, provided that: "The amendments made by this section [enacting this section] shall apply to amounts received after December 31, 2009."