-CITE-
26 USC Subchapter E - Accounting Periods and Methods of
Accounting 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
-HEAD-
SUBCHAPTER E - ACCOUNTING PERIODS AND METHODS OF ACCOUNTING
-MISC1-
Part
I. Accounting periods.
II. Methods of accounting.
III. Adjustments.
-SECREF-
SUBCHAPTER REFERRED TO IN OTHER SECTIONS
This subchapter is referred to in section 414 of this title.
-End-
-CITE-
26 USC PART I - ACCOUNTING PERIODS 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART I - ACCOUNTING PERIODS
-HEAD-
PART I - ACCOUNTING PERIODS
-MISC1-
Sec.
441. Period for computation of taxable income.
442. Change of annual accounting period.
443. Returns for a period of less than 12 months.
444. Election of taxable year other than required taxable
year.
AMENDMENTS
1987 - Pub. L. 100-203, title X, Sec. 10206(a)(2), Dec. 22, 1987,
101 Stat. 1330-398, added item 444.
-End-
-CITE-
26 USC Sec. 441 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART I - ACCOUNTING PERIODS
-HEAD-
Sec. 441. Period for computation of taxable income
-STATUTE-
(a) Computation of taxable income
Taxable income shall be computed on the basis of the taxpayer's
taxable year.
(b) Taxable year
For purposes of this subtitle, the term "taxable year" means -
(1) the taxpayer's annual accounting period, if it is a
calendar year or a fiscal year;
(2) the calendar year, if subsection (g) applies;
(3) the period for which the return is made, if a return is
made for a period of less than 12 months; or
(4) in the case of a FSC or DISC filing a return for a period
of at least 12 months, the period determined under subsection
(h).
(c) Annual accounting period
For purposes of this subtitle, the term "annual accounting
period" means the annual period on the basis of which the taxpayer
regularly computes his income in keeping his books.
(d) Calendar year
For purposes of this subtitle, the term "calendar year" means a
period of 12 months ending on December 31.
(e) Fiscal year
For purposes of this subtitle, the term "fiscal year" means a
period of 12 months ending on the last day of any month other than
December. In the case of any taxpayer who has made the election
provided by subsection (f) the term means the annual period
(varying from 52 to 53 weeks) so elected.
(f) Election of year consisting of 52-53 weeks
(1) General rule
A taxpayer who, in keeping his books, regularly computes his
income on the basis of an annual period which varies from 52 to
53 weeks and ends always on the same day of the week and ends
always -
(A) on whatever date such same day of the week last occurs in
a calendar month, or
(B) on whatever date such same day of the week falls which is
nearest to the last day of a calendar month,
may (in accordance with the regulations prescribed under
paragraph (3)) elect to compute his taxable income for purposes
of this subtitle on the basis of such annual period. This
paragraph shall apply to taxable years ending after the date of
the enactment of this title.
(2) Special rules for 52-53-week year
(A) Effective dates
In any case in which the effective date or the applicability
of any provision of this title is expressed in terms of taxable
years beginning, including, or ending with reference to a
specified date which is the first or last day of a month, a
taxable year described in paragraph (1) shall (except for
purposes of the computation under section 15) be treated -
(i) as beginning with the first day of the calendar month
beginning nearest to the first day of such taxable year, or
(ii) as ending with the last day of the calendar month
ending nearest to the last day of such taxable year,
as the case may be.
(B) Change in accounting period
In the case of a change from or to a taxable year described
in paragraph (1) -
(i) if such change results in a short period (within the
meaning of section 443) of 359 days or more, or of less than
7 days, section 443(b) (relating to alternative tax
computation) shall not apply;
(ii) if such change results in a short period of less than
7 days, such short period shall, for purposes of this
subtitle, be added to and deemed a part of the following
taxable year; and
(iii) if such change results in a short period to which
subsection (b) of section 443 applies, the taxable income for
such short period shall be placed on an annual basis for
purposes of such subsection by multiplying the gross income
for such short period (minus the deductions allowed by this
chapter for the short period, but only the adjusted amount of
the deductions for personal exemptions as described in
section 443(c)) by 365, by dividing the result by the number
of days in the short period, and the tax shall be the same
part of the tax computed on the annual basis as the number of
days in the short period is of 365 days.
(3) Special rule for partnerships, S corporations, and personal
service corporations
The Secretary may by regulation provide terms and conditions
for the application of this subsection to a partnership, S
corporation, or personal service corporation (within the meaning
of section 441(i)(2)).
(4) Regulations
The Secretary shall prescribe such regulations as he deems
necessary for the application of this subsection.
(g) No books kept; no accounting period
Except as provided in section 443 (relating to returns for
periods of less than 12 months), the taxpayer's taxable year shall
be the calendar year if -
(1) the taxpayer keeps no books;
(2) the taxpayer does not have an annual accounting period; or
(3) the taxpayer has an annual accounting period, but such
period does not qualify as a fiscal year.
(h) Taxable year of FSC's and DISC's
(1) In general
For purposes of this subtitle, the taxable year of any FSC or
DISC shall be the taxable year of that shareholder (or group of
shareholders with the same 12-month taxable year) who has the
highest percentage of voting power.
(2) Special rule where more than one shareholder (or group) has
highest percentage
If 2 or more shareholders (or groups) have the highest
percentage of voting power under paragraph (1), the taxable year
of the FSC or DISC shall be the same 12-month period as that of
any such shareholder (or group).
(3) Subsequent changes of ownership
The Secretary shall prescribe regulations under which
paragraphs (1) and (2) shall apply to a change of ownership of a
corporation after the taxable year of the corporation has been
determined under paragraph (1) or (2) only if such change is a
substantial change of ownership.
(4) Voting power determined
For purposes of this subsection, voting power shall be
determined on the basis of total combined voting power of all
classes of stock of the corporation entitled to vote.
(i) Taxable year of personal service corporations
(1) In general
For purposes of this subtitle, the taxable year of any personal
service corporation shall be the calendar year unless the
corporation establishes, to the satisfaction of the Secretary, a
business purpose for having a different period for its taxable
year. For purposes of this paragraph, any deferral of income to
shareholders shall not be treated as a business purpose.
(2) Personal service corporation
For purposes of this subsection, the term "personal service
corporation" has the meaning given such term by section
269A(b)(1), except that section 269A(b)(2) shall be applied -
(A) by substituting "any" for "more than 10 percent", and
(B) by substituting "any" for "50 percent or more in value"
in section 318(a)(2)(C).
A corporation shall not be treated as a personal service
corporation unless more than 10 percent of the stock (by value)
in such corporation is held by employee-owners (within the
meaning of section 269A(b)(2), as modified by the preceding
sentence). If a corporation is a member of an affiliated group
filing a consolidated return, all members of such group shall be
taken into account in determining whether such corporation is a
personal service corporation.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 148; Pub. L. 88-272, title II,
Sec. 235(c)(3), Feb. 26, 1964, 78 Stat. 127; Pub. L. 94-455, title
XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L.
95-30, title I, Sec. 102(b)(5), May 23, 1977, 91 Stat. 137; Pub. L.
98-369, div. A, title IV, Sec. 474(b)(2), title VIII, Sec. 803,
July 18, 1984, 98 Stat. 830, 1000; Pub. L. 99-514, title I, Sec.
104(b)(6), title VIII, Sec. 806(c)(1), (d), Oct. 22, 1986, 100
Stat. 2105, 2364; Pub. L. 100-647, title I, Sec. 1008(e)(4), Nov.
10, 1988, 102 Stat. 3440.)
-MISC1-
AMENDMENTS
1988 - Subsec. (i)(2). Pub. L. 100-647 inserted at end "A
corporation shall not be treated as a personal service corporation
unless more than 10 percent of the stock (by value) in such
corporation is held by employee-owners (within the meaning of
section 269A(b)(2), as modified by the preceding sentence). If a
corporation is a member of an affiliated group filing a
consolidated return, all members of such group shall be taken into
account in determining whether such corporation is a personal
service corporation."
1986 - Subsec. (f)(2)(B)(iii). Pub. L. 99-514, Sec. 104(b)(6),
struck out "and by adding the zero bracket amount," after "in the
short period,".
Subsec. (f)(3), (4). Pub. L. 99-514, Sec. 806(d), added par. (3)
and redesignated former par. (3) as (4).
Subsec. (i). Pub. L. 99-514, Sec. 806(c)(1), added subsec. (i).
1984 - Subsec. (b)(4). Pub. L. 98-369, Sec. 803(a), added par.
(4).
Subsec. (f)(2)(A). Pub. L. 98-369, Sec. 474(b)(2), substituted
"section 15" for "section 21" in provisions preceding cl. (i).
Subsec. (h). Pub. L. 98-369, Sec. 803(b), added subsec. (h).
1977 - Subsec. (f)(2)(B)(iii). Pub. L. 95-30 substituted
"multiplying the gross income for such short period (minus the
deductions allowed by this chapter for the short period, but only
the adjusted amount of the deductions for personal exemptions as
described in section 443(c)) by 365, by dividing the result by the
number of days in the short period, and by adding the zero bracket
amount" for "multiplying such income by 365 and dividing the result
by the number of days in the short period".
1976 - Subsec. (f)(3). Pub. L. 94-455 struck out "or his
delegate" after "Secretary".
1964 - Subsec. (f)(2)(A). Pub. L. 88-272 inserted ", including,"
before "or ending with reference to".
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 1986 AMENDMENT
Amendment by section 104(b)(6) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 151(a) of
Pub. L. 99-514, set out as a note under section 1 of this title.
Amendment by section 806(c)(1), (d) of Pub. L. 99-514 applicable
to taxable years beginning after Dec. 31, 1986, with special
provisions applicable to taxpayers who are required to change their
accounting periods, see section 806(e) of Pub. L. 99-514, set out
as a note under section 1378 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 474(b)(2) of Pub. L. 98-369 applicable to
taxable years beginning after Dec. 31, 1983, and to carrybacks from
such years, see section 475(a) of Pub. L. 98-369, set out as a note
under section 21 of this title.
Amendment by section 803 of Pub. L. 98-369 applicable to taxable
years beginning after Dec. 31, 1984, see section 805(a)(4) of Pub.
L. 98-369, as amended, set out as a note under section 245 of this
title.
EFFECTIVE DATE OF 1977 AMENDMENT
Amendment by Pub. L. 95-30 applicable to taxable years beginning
after Dec. 31, 1976, see section 106(a) of Pub. L. 95-30, set out
as a note under section 1 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable to taxable years ending
after Dec. 31, 1963, see section 235(d) of Pub. L. 88-272, set out
as a note under section 1551 of this title.
CONSTRUCTION OF SECTION 806 OF PUB. L. 99-514
Nothing in section 806 of Pub. L. 99-514 or in any legislative
history relating thereto to be construed as requiring the Secretary
of the Treasury or his delegate to permit an automatic change of a
taxable year, see section 1008(e)(9) of Pub. L. 100-647, set out as
a note under section 1378 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 267, 280H, 442, 444, 706
of this title.
-End-
-CITE-
26 USC Sec. 442 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART I - ACCOUNTING PERIODS
-HEAD-
Sec. 442. Change of annual accounting period
-STATUTE-
If a taxpayer changes his annual accounting period, the new
accounting period shall become the taxpayer's taxable year only if
the change is approved by the Secretary. For purposes of this
subtitle, if a taxpayer to whom section 441(g) applies adopts an
annual accounting period (as defined in section 441(c)) other than
a calendar year, the taxpayer shall be treated as having changed
his annual accounting period.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 149; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834.)
-MISC1-
AMENDMENTS
1976 - Pub. L. 94-455 struck out "or his delegate" after
"Secretary".
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 859, 1398, 6110 of this
title.
-End-
-CITE-
26 USC Sec. 443 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART I - ACCOUNTING PERIODS
-HEAD-
Sec. 443. Returns for a period of less than 12 months
-STATUTE-
(a) Returns for short period
A return for a period of less than 12 months (referred to in this
section as "short period") shall be made under any of the following
circumstances:
(1) Change of annual accounting period
When the taxpayer, with the approval of the Secretary, changes
his annual accounting period. In such a case, the return shall be
made for the short period beginning on the day after the close of
the former taxable year and ending at the close of the day before
the day designated as the first day of the new taxable year.
(2) Taxpayer not in existence for entire taxable year
When the taxpayer is in existence during only part of what
would otherwise be his taxable year.
(b) Computation of tax on change of annual accounting period
(1) General rule
If a return is made under paragraph (1) of subsection (a), the
taxable income for the short period shall be placed on an annual
basis by multiplying the modified taxable income for such short
period by 12, dividing the result by the number of months in the
short period. The tax shall be the same part of the tax computed
on the annual basis as the number of months in the short period
is of 12 months.
(2) Exception
(A) Computation based on 12-month period
If the taxpayer applies for the benefits of this paragraph
and establishes the amount of this taxable income for the
12-month period described in subparagraph (B), computed as if
that period were a taxable year and under the law applicable to
that year, then the tax for the short period, computed under
paragraph (1), shall be reduced to the greater of the
following:
(i) an amount which bears the same ratio to the tax
computed on the taxable income for the 12-month period as the
modified taxable income computed on the basis of the short
period bears to the modified taxable income for the 12-month
period; or
(ii) the tax computed on the modified taxable income for
the short period.
The taxpayer (other than a taxpayer to whom subparagraph
(B)(ii) applies) shall compute the tax and file his return
without the application of this paragraph.
(B) 12-month period
The 12-month period referred to in subparagraph (A) shall be
-
(i) the period of 12 months beginning on the first day of
the short period, or
(ii) the period of 12 months ending at the close of the
last day of the short period, if at the end of the 12 months
referred to in clause (i) the taxpayer is not in existence or
(if a corporation) has theretofore disposed of substantially
all of its assets.
(C) Application for benefits
Application for the benefits of this paragraph shall be made
in such manner and at such time as the regulations prescribed
under subparagraph (D) may require; except that the time so
prescribed shall not be later than the time (including
extensions) for filing the return for the first taxable year
which ends on or after the day which is 12 months after the
first day of the short period. Such application, in case the
return was filed without regard to this paragraph, shall be
considered a claim for credit or refund with respect to the
amount by which the tax is reduced under this paragraph.
(D) Regulations
The Secretary shall prescribe such regulations as he deems
necessary for the application of this paragraph.
(3) Modified taxable income defined
For purposes of this subsection the term "modified taxable
income" means, with respect to any period, the gross income for
such period minus the deductions allowed by this chapter for such
period (but, in the case of a short period, only the adjusted
amount of the deductions for personal exemptions).
(c) Adjustment in deduction for personal exemption
In the case of a taxpayer other than a corporation, if a return
is made for a short period by reason of subsection (a)(1) and if
the tax is not computed under subsection (b)(2), then the
exemptions allowed as a deduction under section 151 (and any
deduction in lieu thereof) shall be reduced to amounts which bear
the same ratio to the full exemptions as the number of months in
the short period bears to 12.
(d) Adjustment in computing minimum tax and tax preferences
If a return is made for a short period by reason of subsection
(a) -
(1) the alternative minimum taxable income for the short period
shall be placed on an annual basis by multiplying such amount by
12 and dividing the result by the number of months in the short
period, and
(2) the amount computed under paragraph (1) of section 55(a)
shall bear the same relation to the tax computed on the annual
basis as the number of months in the short period bears to 12.
(e) Cross references
For inapplicability of subsection (b) in computing -
(1) Accumulated earnings tax, see section 536.
(2) Personal holding company tax, see section 546.
(3) Undistributed foreign personal holding company income,
see section 557.
(4) The taxable income of a regulated investment company, see
section 852(b)(2)(E).
(5) The taxable income of a real estate investment trust, see
section 857(b)(2)(C).
For returns for a period of less than 12 months in the case of
a debtor's election to terminate a taxable year, see section
1398(d)(2)(E).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 149; Pub. L. 86-779, Sec. 10(i),
Sept. 14, 1960, 74 Stat. 1009; Pub. L. 91-172, title III, Sec.
301(b)(6), Dec. 30, 1969, 83 Stat. 585; Pub. L. 94-455, title III,
Sec. 301(e), title XII, Sec. 1204(c)(2), title XVI, Sec.
1607(b)(1)(C), title XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976, 90
Stat. 1553, 1697, 1757, 1834; Pub. L. 95-30, title I, Sec.
102(b)(6), May 23, 1977, 91 Stat. 137; Pub. L. 95-600, title IV,
Sec. 421(e)(2), title VII, Sec. 703(o)(1)-(3), Nov. 6, 1978, 92
Stat. 2876, 2943; Pub. L. 96-222, title I, Sec. 104(a)(4)(H)(iii),
Apr. 1, 1980, 94 Stat. 217; Pub. L. 96-589, Sec. 3(d), Dec. 24,
1980, 94 Stat. 3401; Pub. L. 97-448, title III, Sec. 304(a), Jan.
12, 1983, 96 Stat. 2398; Pub. L. 99-514, title I, Sec. 104(b)(7),
title VII, Sec. 701(e)(3), Oct. 22, 1986, 100 Stat. 2105, 2342.)
-MISC1-
AMENDMENTS
1986 - Subsec. (b)(1). Pub. L. 99-514, Sec. 104(b)(7)(A), struck
out ", and adding the zero bracket amount" after "by the number of
months in the short period".
Subsec. (b)(2)(A)(ii). Pub. L. 99-514, Sec. 104(b)(7)(B), amended
cl. (ii) generally. Prior to amendment, cl. (ii) read as follows:
"the tax computed on the sum of the modified taxable income for the
short period plus the zero bracket amount."
Subsec. (d). Pub. L. 99-514, Sec. 701(e)(3), substituted "and tax
preferences" for "for tax preferences" in heading and amended text
generally. Prior to amendment, subsec. (d) read as follows: "If a
return is made for a short period by reason of subsection (a), then
-
"(1) in the case of a taxpayer other than a corporation, the
alternative minimum taxable income for the short period shall be
placed on an annual basis by multiplying that amount by 12 and
dividing the result by the number of months in the short period,
and the amount computed under paragraph (1) of section 55(a)
shall be the same part of the tax computed on the annual basis as
the number of months in the short period is of 12 months; and
"(2) the $10,000 amount specified in section 56 (relating to
minimum tax for tax preferences), modified as provided by section
58, shall be reduced to the amount which bears the same ratio to
such specified amount as the number of days in the short period
bears to 365."
1983 - Subsec. (e). Pub. L. 97-448 substituted "section
1398(d)(2)(E)" for "section 1398(d)(3)(E)".
1980 - Subsec. (d)(2). Pub. L. 96-222 struck out "in the case of
a corporation," before "the $10,000 amount".
Subsec. (e). Pub. L. 96-589 inserted cross reference to section
1398(d)(3)(E) for returns for a period of less than 12 months in
the case of a debtor's election to terminate a taxable year.
1978 - Subsec. (b)(1). Pub. L. 95-600, Sec. 703(o)(2),
substituted "modified taxable income for such short period" for
"gross income for such short period (minus the deductions allowed
by this chapter for the short period, but only the adjusted amount
of the deductions for personal exemptions)".
Subsec. (b)(2). Pub. L. 95-600, Sec. 703(o)(1), substituted in
cl. (i) "modified taxable income" for "taxable income" in two
places and in cl. (ii) "the sum of the modified taxable income" for
"the taxable income" and "plus the zero bracket amount" for
"without placing the taxable income on an annual basis".
Subsec. (b)(3). Pub. L. 95-600, Sec. 703(o)(3), added par. (3).
Subsec. (d). Pub. L. 95-600, Sec. 421(e)(2), substituted
"Adjustment in computing minimum tax for tax preferences" for
"Adjustment in exclusion for computing minimum tax for tax
preferences" in heading, redesignated existing provisions as par.
(2) and as so redesignated applied par. (2) to corporations, and
added par. (1).
1977 - Subsec. (b)(1). Pub. L. 95-30 substituted "multiplying the
gross income for such short period (minus the deductions allowed by
this chapter for the short period, but only the adjusted amount of
the deductions for personal exemptions) by 12, dividing the result
by the number of months in the short period, and adding the zero
bracket amount" for "multiplying such income by 12, and dividing
the result by the number of months in the short period".
1976 - Subsec. (a)(1). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
Subsec. (a)(3). Pub. L. 94-455, Sec. 1204(c)(2), struck out par.
(3) which made termination of taxpayer's taxable year under section
6851 as one of the circumstances under which a tax return for a
period of less than 12 months shall be made.
Subsec. (b)(2)(D). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
Subsec. (d). Pub. L. 94-455, Sec. 301(e), substituted "$10,000"
for "$30,000".
Subsec. (e)(5). Pub. L. 94-455, Sec. 1607(b)(1)(C), substituted
"section 857(b)(2)(C)" for "section 857(b)(2)(D)".
1969 - Subsecs. (d), (e). Pub. L. 91-172 added subsec. (d) and
redesignated former subsec. (d) as (e).
1960 - Subsec. (d)(5). Pub. L. 86-779 added par. (5).
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 104(b)(7) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 151(a) of
Pub. L. 99-514, set out as a note under section 1 of this title.
Amendment by section 701(e)(3) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with certain
exceptions and qualifications, see section 701(f) of Pub. L.
99-514, set out as an Effective Date note under section 55 of this
title.
EFFECTIVE DATE OF 1983 AMENDMENT
Section 311(b)(1) of Pub. L. 97-448 provided that: "The amendment
made by subsection (a) of section 304 [amending this section] shall
take effect as if included in the amendments made by section 3 of
the Bankruptcy Tax Act of 1980 [section 3 of Pub. L. 96-589, which
amended this section and sections 6012 and 6103 of this title]."
EFFECTIVE DATE OF 1980 AMENDMENTS
Amendment by Pub. L. 96-589 applicable to bankruptcy cases
commencing more than 90 days after Dec. 24, 1980, see section 7(b)
of Pub. L. 96-589, set out as a note under section 108 of this
title.
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
Section 703(o)(4) of Pub. L. 95-600 provided that: "The
amendments made by this subsection [amending this section] shall
apply to taxable years beginning after December 31, 1976."
Amendment by section 421(e)(2) of Pub. L. 95-600 applicable to
taxable years beginning after Dec. 31, 1978, see section 421(g) of
Pub. L. 95-600, set out as a note under section 5 of this title.
EFFECTIVE DATE OF 1977 AMENDMENT
Amendment by Pub. L. 95-30 applicable to taxable years beginning
after Dec. 31, 1976, see section 106(a) of Pub. L. 95-30, set out
as a note under section 1 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 301(g)(1) of Pub. L. 94-455 provided that the amendment
made by section 301(e) of Pub. L. 94-455 is effective for items of
tax preferences for taxable years beginning after Dec. 31, 1975,
with certain exceptions.
Amendment by section 1204(c)(2) of Pub. L. 94-455 effective with
respect to action taken under section 6851, 6861, or 6862 of this
title where the notice and demand takes place after Feb. 28, 1977,
see section 1204(d) of Pub. L. 94-455, as amended, set out as a
note under section 6851 of this title.
For effective date of amendment by section 1607(b)(1)(C) of Pub.
L. 94-455, see section 1608(c) of Pub. L. 94-455, set out as a note
under section 857 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable to taxable years ending
after Dec. 31, 1969, see section 301(c) of Pub. L. 91-172, set out
as a note under section 5 of this title.
EFFECTIVE DATE OF 1960 AMENDMENT
Amendment by Pub. L. 86-779 applicable with respect to taxable
years of real estate investment trusts beginning after Dec. 31,
1960, see section 10(k) of Pub. L. 86-779, set out as an Effective
Date note under section 856 of this title.
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For applicability of amendment by section 701(e)(3) of Pub. L.
99-514 notwithstanding any treaty obligation of the United States
in effect on Oct. 22, 1986, see section 1012(aa)(2) of Pub. L.
100-647, set out as a note under section 861 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 3, 63, 441, 536, 546,
557, 811, 852, 857, 1362, 1398, 6013 of this title.
-End-
-CITE-
26 USC Sec. 444 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART I - ACCOUNTING PERIODS
-HEAD-
Sec. 444. Election of taxable year other than required taxable year
-STATUTE-
(a) General rule
Except as otherwise provided in this section, a partnership, S
corporation, or personal service corporation may elect to have a
taxable year other than the required taxable year.
(b) Limitations on taxable years which may be elected
(1) In general
Except as provided in paragraphs (2) and (3), an election may
be made under subsection (a) only if the deferral period of the
taxable year elected is not longer than 3 months.
(2) Changes in taxable year
Except as provided in paragraph (3), in the case of an entity
changing a taxable year, an election may be made under subsection
(a) only if the deferral period of the taxable year elected is
not longer than the shorter of -
(A) 3 months, or
(B) the deferral period of the taxable year which is being
changed.
(3) Special rule for entities retaining 1986 taxable years
In the case of an entity's 1st taxable year beginning after
December 31, 1986, an entity may elect a taxable year under
subsection (a) which is the same as the entity's last taxable
year beginning in 1986.
(4) Deferral period
For purposes of this subsection, except as provided in
regulations, the term "deferral period" means, with respect to
any taxable year of the entity, the months between -
(A) the beginning of such year, and
(B) the close of the 1st required taxable year ending within
such year.
(c) Effect of election
If an entity makes an election under subsection (a), then -
(1) in the case of a partnership or S corporation, such entity
shall make the payments required by section 7519, and
(2) in the case of a personal service corporation, such
corporation shall be subject to the deduction limitations of
section 280H.
(d) Elections
(1) Person making election
An election under subsection (a) shall be made by the
partnership, S corporation, or personal service corporation.
(2) Period of election
(A) In general
Any election under subsection (a) shall remain in effect
until the partnership, S corporation, or personal service
corporation changes its taxable year or otherwise terminates
such election. Any change to a required taxable year may be
made without the consent of the Secretary.
(B) No further election
If an election is terminated under subparagraph (A) or
paragraph (3)(A), the partnership, S corporation, or personal
service corporation may not make another election under
subsection (a).
(3) Tiered structures, etc.
(A) In general
Except as otherwise provided in this paragraph -
(i) no election may be under subsection (a) with respect to
any entity which is part of a tiered structure, and
(ii) an election under subsection (a) with respect to any
entity shall be terminated if such entity becomes part of a
tiered structure.
(B) Exceptions for structures consisting of certain entities
with same taxable year
Subparagraph (A) shall not apply to any tiered structure
which consists only of partnerships or S corporations (or both)
all of which have the same taxable year.
(e) Required taxable year
For purposes of this section, the term "required taxable year"
means the taxable year determined under section 706(b), 1378, or
441(i) without taking into account any taxable year which is
allowable by reason of business purposes. Solely for purposes of
the preceding sentence, sections 706(b), 1378, and 441(i) shall be
treated as in effect for taxable years beginning before January 1,
1987.
(f) Personal service corporation
For purposes of this section, the term "personal service
corporation" has the meaning given to such term by section
441(i)(2).
(g) Regulations
The Secretary shall prescribe such regulations as may be
necessary to carry out the provisions of this section, including
regulations to prevent the avoidance of subsection (b)(2)(B) or
(d)(2)(B) through the change in form of an entity.
-SOURCE-
(Added Pub. L. 100-203, title X, Sec. 10206(a)(1), Dec. 22, 1987,
101 Stat. 1330-397; amended Pub. L. 100-647, title II, Sec.
2004(e)(1), (2)(A), (12), (13), Nov. 10, 1988, 102 Stat. 3600,
3602.)
-MISC1-
AMENDMENTS
1988 - Subsec. (a). Pub. L. 100-647, Sec. 2004(e)(1)(A),
substituted "as otherwise provided in this section" for "as
provided in subsections (b) and (c)".
Subsec. (b)(4). Pub. L. 100-647, Sec. 2004(e)(13), inserted
"except as provided in regulations," before "the term".
Subsec. (d)(2)(A). Pub. L. 100-647, Sec. 2004(e)(12), inserted
"or otherwise terminates such election" after "its taxable year".
Subsec. (d)(2)(B). Pub. L. 100-647, Sec. 2004(e)(1)(C), inserted
"or paragraph (3)(A)" after "under subparagraph (A)".
Subsec. (d)(3). Pub. L. 100-647, Sec. 2004(e)(1)(B), amended par.
(3) generally. Prior to amendment, par. (3) read as follows: "No
election may be made under subsection (a) with respect to an entity
which is part of a tiered structure other than a tiered structure
comprised of 1 or more partnerships or S corporations all of which
have the same taxable year."
Subsecs. (f), (g). Pub. L. 100-647, Sec. 2004(e)(2)(A), added
subsec. (f) and redesignated former subsec. (f) as (g).
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by 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.
EFFECTIVE DATE
Section 10206(d) of Pub. L. 100-203, as amended by Pub. L.
100-647, title II, Sec. 2004(e)(11), Nov. 10, 1988, 102 Stat. 3602,
provided that:
"(1) In general. - Except as provided in this subsection, the
amendments made by this section [enacting this section and sections
280H and 7519 of this title] shall apply to taxable years beginning
after December 31, 1986.
"(2) Required payments. - The amendments made by subsection (b)
[enacting section 7519 of this title] shall apply to applicable
election years beginning after December 31, 1986.
"(3) Elections. - Any election under section 444 of the Internal
Revenue Code of 1986 (as added by subsection (a)) for an entity's
1st taxable year beginning after December 31, 1986, shall not be
required to be made before the 90th day after the date of the
enactment of this Act [Dec. 22, 1987].
"(4) Special rule for existing entities electing s corporation
status. - If a C corporation (within the meaning of section
1361(a)(2) of the Internal Revenue Code of 1986) with a taxable
year other than the calendar year -
"(A) made an election after September 18, 1986, and before
January 1, 1988, under section 1362 of such Code to be treated as
an S corporation, and
"(B) elected to have the calendar year as the taxable year of
the S corporation,
then section 444(b)(2)(B) of such Code shall be applied by taking
into account the deferral period of the last taxable year of the C
corporation rather than the deferral period of the taxable year
being changed. The preceding sentence shall apply only in the case
of an election under section 444 of such Code made for a taxable
year beginning before 1989."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 280H, 7519 of this title.
-End-
-CITE-
26 USC PART II - METHODS OF ACCOUNTING 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
-HEAD-
PART II - METHODS OF ACCOUNTING
-MISC1-
Subpart
A. Methods of accounting in general.
B. Taxable year for which items of gross income included.
C. Taxable year for which deductions taken.
D. Inventories.
-End-
-CITE-
26 USC Subpart A - Methods of Accounting in General 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart A - Methods of Accounting in General
-HEAD-
SUBPART A - METHODS OF ACCOUNTING IN GENERAL
-MISC1-
Sec.
446. General rule for methods of accounting.
447. Method of accounting for corporations engaged in
farming.
448. Limitation on use of cash method of accounting.
AMENDMENTS
1986 - Pub. L. 99-514, title VIII, Sec. 801(c), Oct. 22, 1986,
100 Stat. 2348, added item 448.
1976 - Pub. L. 94-455, title II, Sec. 207(c)(1)(B), Oct. 4, 1976,
90 Stat. 1541, added item 447.
-End-
-CITE-
26 USC Sec. 446 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart A - Methods of Accounting in General
-HEAD-
Sec. 446. General rule for methods of accounting
-STATUTE-
(a) General rule
Taxable income shall be computed under the method of accounting
on the basis of which the taxpayer regularly computes his income in
keeping his books.
(b) Exceptions
If no method of accounting has been regularly used by the
taxpayer, or if the method used does not clearly reflect income,
the computation of taxable income shall be made under such method
as, in the opinion of the Secretary, does clearly reflect income.
(c) Permissible methods
Subject to the provisions of subsections (a) and (b), a taxpayer
may compute taxable income under any of the following methods of
accounting -
(1) the cash receipts and disbursements method;
(2) an accrual method;
(3) any other method permitted by this chapter; or
(4) any combination of the foregoing methods permitted under
regulations prescribed by the Secretary.
(d) Taxpayer engaged in more than one business
A taxpayer engaged in more than one trade or business may, in
computing taxable income, use a different method of accounting for
each trade or business.
(e) Requirement respecting change of accounting method
Except as otherwise expressly provided in this chapter, a
taxpayer who changes the method of accounting on the basis of which
he regularly computes his income in keeping his books shall, before
computing his taxable income under the new method, secure the
consent of the Secretary.
(f) Failure to request change of method of accounting
If the taxpayer does not file with the Secretary a request to
change the method of accounting, the absence of the consent of the
Secretary to a change in the method of accounting shall not be
taken into account -
(1) to prevent the imposition of any penalty, or the addition
of any amount to tax, under this title, or
(2) to diminish the amount of such penalty or addition to tax.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 151; Pub. L. 94-455, title XIX,
Sec. 1906 (b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 98-369,
div. A, title I, Sec. 161(a), July 18, 1984, 98 Stat. 696.)
-MISC1-
AMENDMENTS
1984 - Subsec. (f). Pub. L. 98-369 added subsec. (f).
1976 - Subsecs. (b), (c), (e). Pub. L. 94-455 struck out "or his
delegate" after "Secretary".
EFFECTIVE DATE OF 1984 AMENDMENT
Section 161(b) of Pub. L. 98-369 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years beginning after the date of the enactment of this Act [July
18, 1984]."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 404A, 6110 of this title.
-End-
-CITE-
26 USC Sec. 447 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart A - Methods of Accounting in General
-HEAD-
Sec. 447. Method of accounting for corporations engaged in farming
-STATUTE-
(a) General rule
Except as otherwise provided by law, the taxable income from
farming of -
(1) a corporation engaged in the trade or business of farming,
or
(2) a partnership engaged in the trade or business of farming,
if a corporation is a partner in such partnership,
shall be computed on an accrual method of accounting. This section
shall not apply to the trade or business of operating a nursery or
sod farm or to the raising or harvesting of trees (other than fruit
and nut trees).
(b) Preproductive period expenses
For rules requiring capitalization of certain preproductive
period expenses, see section 263A.
(c) Exception for certain corporations
For purposes of subsection (a), a corporation shall be treated as
not being a corporation if it is -
(1) an S corporation, or
(2) a corporation the gross receipts of which meet the
requirements of subsection (d).
(d) Gross receipts requirements
(1) In general
A corporation meets the requirements of this subsection if, for
each prior taxable year beginning after December 31, 1975, such
corporation (and any predecessor corporation) did not have gross
receipts exceeding $1,000,000. For purposes of the preceding
sentence, all corporations which are members of the same
controlled group of corporations (within the meaning of section
1563(a)) shall be treated as 1 corporation.
(2) Special rules for family corporations
(A) In general
In the case of a family corporation, paragraph (1) shall be
applied -
(i) by substituting "December 31, 1985," for "December 31,
1975,"; and
(ii) by substituting "$25,000,000" for "$1,000,000".
(B) Gross receipts test
(i) Controlled groups
Notwithstanding the last sentence of paragraph (1), in the
case of a family corporation -
(I) except as provided by the Secretary, only the
applicable percentage of gross receipts of any other member
of any controlled group of corporations of which such
corporation is a member shall be taken into account, and
(II) under regulations, gross receipts of such
corporation or of another member of such group shall not be
taken into account by such corporation more than once.
(ii) Pass-thru entities
For purposes of paragraph (1), if a family corporation
holds directly or indirectly any interest in a partnership,
estate, trust or other pass-thru entity, such corporation
shall take into account its proportionate share of the gross
receipts of such entity.
(iii) Applicable percentage
For purposes of clause (i), the term "applicable
percentage" means the percentage equal to a fraction -
(I) the numerator of which is the fair market value of
the stock of another corporation held directly or
indirectly as of the close of the taxable year by the
family corporation, and
(II) the denominator of which is the fair market value of
all stock of such corporation as of such time.
For purposes of this clause, the term "stock" does not
include stock described in section 1563(c)(1).
(C) Family corporation
For purposes of this section, the term "family corporation"
means -
(i) any corporation if at least 50 percent of the total
combined voting power of all classes of stock entitled to
vote, and at least 50 percent of all other classes of stock
of the corporation, are owned by members of the same family,
and
(ii) any corporation described in subsection (h).
(e) Members of the same family
For purposes of subsection (d) -
(1) the members of the same family are an individual, such
individual's brothers and sisters, the brothers and sisters of
such individual's parents and grandparents, the ancestors and
lineal descendants or any of the foregoing, a spouse of any of
the foregoing, and the estate of any of the foregoing,
(2) stock owned, directly or indirectly, by or for a
partnership or trust shall be treated as owned proportionately by
its partners or beneficiaries, and
(3) if 50 percent or more in value of the stock in a
corporation (hereinafter in this paragraph referred to as "first
corporation") is owned, directly or through paragraph (2), by or
for members of the same family, such members shall be considered
as owning each class of stock in a second corporation (or a
wholly owned subsidiary of such second corporation) owned,
directly or indirectly, by or for the first corporation, in that
proportion which the value of the stock in the first corporation
which such members so own bears to the value of all the stock in
the first corporation.
For purposes of paragraph (1), individuals related by the half
blood or by legal adoption shall be treated as if they were related
by the whole blood.
(f) Coordination with section 481
In the case of any taxpayer required by this section to change
its method of accounting for any taxable year -
(1) such change shall be treated as having been made with the
consent of the Secretary,
(2) for purposes of section 481(a)(2), such change shall be
treated as a change not initiated by the taxpayer, and
(3) under regulations prescribed by the Secretary, the net
amount of adjustments required by section 481(a) to be taken into
account by the taxpayer in computing taxable income shall be
taken into account in each of the 10 taxable years (or the
remaining taxable years where there is a stated future life of
less than 10 taxable years) beginning with the year of change.
(g) Certain annual accrual accounting methods
(1) In general
Notwithstanding subsection (a) or section 263A, if -
(A) for its 10 taxable years ending with its first taxable
year beginning after December 31, 1975, a corporation or
qualified partnership used an annual accrual method of
accounting with respect to its trade or business of farming,
(B) such corporation or qualified partnership raises crops
which are harvested not less than 12 months after planting, and
(C) such corporation or qualified partnership has used such
method of accounting for all taxable years intervening between
its first taxable year beginning after December 31, 1975, and
the taxable year,
such corporation or qualified partnership may continue to employ
such method of accounting for the taxable year with respect to
its qualified farming trade or business.
(2) Annual accrual method of accounting defined
For purposes of paragraph (1), the term "annual accrual method
of accounting" means a method under which revenues, costs, and
expenses are computed on an accrual method of accounting and the
preproductive period expenses incurred during the taxable year
are charged to harvested crops or deducted in determining the
taxable income for such years.
(3) Certain nonrecognition transfers
For purposes of this subsection, if -
(A) a corporation acquired substantially all the assets of a
qualified farming trade or business from another corporation in
a transaction in which no gain or loss was recognized to the
transferor or transferee corporation, or
(B) a qualified partnership acquired substantially all the
assets of a qualified farming trade or business from one of its
partners in a transaction to which section 721 applies,
the transferee corporation or qualified partnership shall be
deemed to have computed its taxable income on an annual accrual
method of accounting during the period for which the transferor
corporation or partnership computed its taxable income from such
trade or business on an annual accrual method.
(4) Qualified partnership defined
For purposes of this subsection -
(A) Qualified partnership
The term "qualified partnership" means a partnership which is
engaged in a qualified farming trade or business and each of
the partners of which is a corporation other than -
(i) an S corporation, or
(ii) a personal holding company (within the meaning of
section 542(a)).
(B) Qualified farming trade or business
(i) In general
The term "qualified farming trade or business" means the
trade or business of farming -
(I) sugar cane,
(II) any plant with a preproductive period (as defined in
section 263A(e)(3)) of 2 years or less, and
(III) any other plant (other than any citrus or almond
tree) if an election by the corporation under this
subparagraph is in effect.
In the case of a partnership and for purposes of paragraph
(3)(A), subclauses (II) and (III) shall not apply.
(ii) Effect of election
For purposes of paragraphs (1) and (2) of section 263A(e),
any election under this subparagraph shall be treated as if
it were an election under subsection (d)(3) of section 263A.
(iii) Election
Unless the Secretary otherwise consents, an election under
this subparagraph may be made only for the corporation's 1st
taxable year which begins after December 31, 1986, and during
which the corporation engages in a farming business. Any such
election, once made, may be revoked only with the consent of
the Secretary.
(h) Exception for certain closely held corporations
(1) In general
A corporation is described in this subsection if, on October 4,
1976, and at all times thereafter -
(A) members of 2 families (within the meaning of subsection
(e)(1)) have owned (directly or through the application of
subsection (e)) at least 65 percent of the total combined
voting power of all classes of stock of such corporation
entitled to vote, and at least 65 percent of the total number
of shares of all other classes of stock of such corporation; or
(B)(i) members of 3 families (within the meaning of
subsection (e)(1)) have owned (directly or through the
application of subsection (e)) at least 50 percent of the total
combined voting power of all classes of stock of such
corporation entitled to vote, and at least 50 percent of the
total number of shares of all other classes of stock of such
corporation; and
(ii) substantially all of the stock of such corporation which
is not so owned (directly or through the application of
subsection (e)) by members of such 3 families is owned directly
-
(I) by employees of the corporation or members of their
families (within the meaning of section 267(c)(4)), or
(II) by a trust for the benefit of the employees of such
corporation which is described in section 401(a) and which is
exempt from taxation under section 501(a).
(2) Stock held by employees, etc.
For purposes of this subsection, stock which -
(A) is owned directly by employes (!1) of the corporation or
members of their families (within the meaning of section
267(c)(4)) or by a trust described in paragraph (1)(B)(ii)(II),
and
(B) was acquired on or after October 4, 1976, from the
corporation or from a member of a family which, on October 4,
1976, was described in subparagraph (A) or (B)(i) of paragraph
(1).
shall be treated as owned by a member of a family which, on
October 4, 1976, was described in subparagraph (A) or (B)(i) of
paragraph (1).
(3) Corporation must be engaged in farming
This subsection shall apply only in the case of a corporation
which was, on October 4, 1976, and at all times thereafter,
engaged in the trade or business of farming.
(i) Suspense account for family corporations
(1) In general
If any family corporation is required by this section to change
its method of accounting for any taxable year (hereinafter in
this subsection referred to as the "year of the change"),
notwithstanding subsection (f), such corporation shall establish
a suspense account under this subsection in lieu of taking into
account adjustments under section 481(a) with respect to amounts
included in the suspense account.
(2) Initial opening balance
The initial opening balance of the account described in
paragraph (1) shall be the lesser of -
(A) the net adjustments which would have been required to be
taken into account under section 481 but for this subsection,
or
(B) the amount of such net adjustments determined as of the
beginning of the taxable year preceding the year of change.
If the amount referred to in subparagraph (A) exceeds the amount
referred to in subparagraph (B), notwithstanding paragraph (1),
such excess shall be included in gross income in the year of the
change.
(3) Inclusion where corporation ceases to be a family corporation
(A) In general
If the corporation ceases to be a family corporation during
any taxable year, the amount in the suspense account (after
taking into account prior reductions) shall be included in
gross income for such taxable year.
(B) Special rule for certain transfers
For purposes of subparagraph (A), any transfer in a
corporation after December 15, 1987, shall be treated as a
transfer to a person whose ownership could not qualify such
corporation as a family corporation unless it is a transfer -
(i) to a member of the family of the transferor, or
(ii) in the case of a corporation described in subsection
(h), to a member of a family which on December 15, 1987, held
stock in such corporation which qualified the corporation
under subsection (h).
(4) Subchapter C transactions
The application of this subsection with respect to a taxpayer
which is a party to any transaction with respect to which there
is nonrecognition of gain or loss to any party by reason of
subchapter C shall be determined under regulations prescribed by
the Secretary.
(5) Termination
(A) In general
No suspense account may be established under this subsection
by any corporation required by this section to change its
method of accounting for any taxable year ending after June 8,
1997.
(B) Phaseout of existing suspense accounts
(i) In general
Each suspense account under this subsection shall be
reduced (but not below zero) for each taxable year beginning
after June 8, 1997, by an amount equal to the lesser of -
(I) the applicable portion of such account, or
(II) 50 percent of the taxable income of the corporation
for the taxable year, or, if the corporation has no taxable
income for such year, the amount of any net operating loss
(as defined in section 172(c)) for such taxable year.
For purposes of the preceding sentence, the amount of taxable
income and net operating loss shall be determined without
regard to this paragraph.
(ii) Coordination with other reductions
The amount of the applicable portion for any taxable year
shall be reduced (but not below zero) by the amount of any
reduction required for such taxable year under any other
provision of this subsection.
(iv) (!2) Inclusion in income
Any reduction in a suspense account under this paragraph
shall be included in gross income for the taxable year of the
reduction.
(C) Applicable portion
For purposes of subparagraph (B), the term "applicable
portion" means, for any taxable year, the amount which would
ratably reduce the amount in the account (after taking into
account prior reductions) to zero over the period consisting of
such taxable year and the remaining taxable years in such first
20 taxable years.
(D) Amounts after 20th year
Any amount in the account as of the close of the 20th year
referred to in subparagraph (C) shall be treated as the
applicable portion for each succeeding year thereafter to the
extent not reduced under this paragraph for any prior taxable
year after such 20th year.
-SOURCE-
(Added Pub. L. 94-455, title II, Sec. 207(c)(1)(A), Oct. 4, 1976,
90 Stat. 1538; amended Pub. L. 95-600, title III, Secs. 351(a),
353(a), title VII, Secs. 701(l)(1), 703(d), Nov. 6, 1978, 92 Stat.
2846, 2847, 2906, 2939; Pub. L. 97-248, title II, Sec. 230(a),
Sept. 3, 1982, 96 Stat. 495; Pub. L. 97-354, Sec. 5(a)(28), (29),
Oct. 19, 1982, 96 Stat. 1695; Pub. L. 99-514, title VIII, Sec.
803(b)(7), Oct. 22, 1986, 100 Stat. 2356; Pub. L. 100-203, title X,
Sec. 10205(a)-(c), Dec. 22, 1987, 101 Stat. 1330-395 to 1330-397;
Pub. L. 100-647, title I, Sec. 1008(b)(5), (6), Nov. 10, 1988, 102
Stat. 3438; Pub. L. 101-508, title XI, Sec. 11702(b), Nov. 5, 1990,
104 Stat. 1388-514; Pub. L. 105-34, title X, Sec. 1081(a), Aug. 5,
1997, 111 Stat. 949.)
-MISC1-
AMENDMENTS
1997 - Subsec. (i)(3). Pub. L. 105-34 redesignated par. (5) as
(3) and struck out heading and text of former par. (3). Text read
as follows: "If -
"(A) the gross receipts of the corporation from the trade or
business of farming for the year of the change or any subsequent
taxable year, is less than
"(B) such gross receipts for the taxpayer's last taxable year
beginning before the year of the change (or for the most recent
taxable year for which a reduction in the suspense account was
made under this paragraph),
the amount in the suspense account (after taking into account prior
reductions) shall be reduced by the percentage by which the amount
described in subparagraph (A) is less than the amount described in
subparagraph (B)."
Subsec. (i)(4). Pub. L. 105-34 redesignated par. (6) as (4) and
struck out heading and text of former par. (4). Text read as
follows: "Any reduction in the suspense account under paragraph (3)
shall be included in gross income for the taxable year of the
reduction."
Subsec. (i)(5), (6). Pub. L. 105-34 added par. (5) and
redesignated former pars. (5) and (6) as (3) and (4), respectively.
1990 - Subsec. (g)(1)(A). Pub. L. 101-508, Sec. 11702(b)(2),
substituted "trade or business of farming" for "qualified farming
trade or business".
Subsec. (g)(4)(B). Pub. L. 101-508, Sec. 11702(b)(1), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: "The term 'qualified farming trade or business' means the
trade or business of farming sugar cane."
1988 - Subsec. (b). Pub. L. 100-647, Sec. 1008(b)(5), substituted
"period expenses" for "period of expenses" in heading and in text.
Subsec. (g)(1). Pub. L. 100-647, Sec. 1008(b)(6), substituted
"qualified farming trade or business" for "trade or business of
farming" in subpar. (A) and in concluding provisions.
1987 - Subsec. (c). Pub. L. 100-203, Sec. 10205(a), added subsec.
(c), substituting "certain corporations" for "small business and
family corporations" in heading and striking out former text which
read as follows: "For purposes of subsection (a), a corporation
shall be treated as not being a corporation if it is -
"(1) an S corporation,
"(2) a corporation of which at least 50 percent of the total
combined voting power of all classes of stock entitled to vote,
and at least 50 percent of the total number of shares of all
other classes of stock of the corporation, are owned by members
of the same family, or
"(3) a corporation the gross receipts of which meet the
requirements of subsection (e)."
Subsec. (d). Pub. L. 100-203, Sec. 10205(a), added subsec. (d).
Former subsec. (d) redesignated (e).
Subsec. (e). Pub. L. 100-203, Sec. 10205(c)(1), substituted
"subsection (d)" for "subsection (c)(2)".
Pub. L. 100-203, Sec. 10205(a), redesignated former subsec. (d)
as (e) and struck out former subsec. (e), "Corporation having gross
receipts of $1,000,000 or less", which read as follows: "A
corporation meets the requirements of this subsection if, for each
prior taxable year beginning after December 31, 1975, such
corporation (and any predecessor corporation) did not have gross
receipts exceeding $1,000,000. For purposes of the preceding
sentence, all corporations which are members of a controlled group
of corporations (within the meaning of section 1563(a)) shall be
treated as one corporation."
Subsec. (h)(1). Pub. L. 100-203, Sec. 10205(c)(2)(A), substituted
"A corporation is described in this subsection" for "This section
shall not apply to any corporation".
Subsec. (h)(1)(A), (B). Pub. L. 100-203, Sec. 10205(c)(2)(B),
(C), substituted "subsection (e)" for "subsection (d)" and
"subsection (e)(1)" for "subsection (d)(1)" wherever appearing.
Subsec. (i). Pub. L. 100-203, Sec. 10205(b), added subsec. (i).
1986 - Subsec. (a). Pub. L. 99-514, Sec. 803(b)(7)(B), which
directed that subsec. (a) be amended by striking out "and with the
capitalization of preproductive period of expenses described in
subsection (b)", was executed by striking out "and with the
capitalization of preproductive period expenses described in
subsection (b)" after "accrual method of accounting", as the
probable intent of Congress.
Subsec. (b). Pub. L. 99-514, Sec. 803(b)(7)(A), in amending
subsec. (b) generally, substituted in heading "period of expenses"
for "period expenses" and in text the cross reference to section
263A for former par. (1) defining "preproductive period expenses",
par. (2) relating to exceptions, and par. (3) defining
"preproductive period".
Subsec. (g)(1). Pub. L. 99-514, Sec. 803(b)(7)(C), substituted
"Notwithstanding subsection (a) or section 263A, if" for "If".
1982 - Subsec. (c)(1). Pub. L. 97-354, Sec. 5(a)(28), substituted
"an S corporation" for "an electing small business corporation
(within the meaning of section 1371(b))".
Subsec. (g)(1). Pub. L. 97-248, Sec. 230(a)(1), inserted "or
qualified partnership" after "corporation" wherever appearing.
Subsec. (g)(3). Pub. L. 97-248, Sec. 230(a)(2), designated
existing provisions from "a corporation acquired" through
"transferee corporation", as subpar. (A), inserted "qualified"
before "farming trade", and added subpar. (B).
Subsec. (g)(4). Pub. L. 97-354, Sec. 5(a)(29), substituted in
subpar. (A)(i) "an S corporation" for "an electing small business
corporation (within the meaning of section 1371(b))".
Pub. L. 97-248, Sec. 230(a)(3), added par. (4).
1978 - Subsec. (a). Pub. L. 95-600, Secs. 353(a), 703(d),
substituted in provisions following par. (2) "preproductive period
expenses" for "preproductive expenses" and "nursery or sod farm"
for "nursery".
Subsec. (f)(3). Pub. L. 95-600, Sec. 701(l)(1), struck out
"(except as otherwise provided in such regulations)" before "be
taken" and inserted "(or the remaining taxable years where there is
a stated future life of less than 10 taxable years)" after "10
taxable years".
Subsec. (g)(2). Pub. L. 95-600, Sec. 703(d), substituted
"preproductive period expenses" for "preproductive expenses".
Subsec. (h). Pub. L. 95-600, Sec. 351(a), added subsec. (h).
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1081(b) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years ending after June 8, 1997."
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub. L. 101-508 effective as if included in the
provision of the Technical and Miscellaneous Revenue Act of 1988,
Pub. L. 100-647, to which such amendment relates, see section
11702(j) of Pub. L. 101-508, set out as a note under section 59 of
this title.
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
Section 10205(d) of Pub. L. 100-203 provided that: "The
amendments made by this section [amending this section] shall apply
to taxable years beginning after December 31, 1987."
EFFECTIVE DATE OF 1986 AMENDMENT
If any interest costs incurred after Dec. 31, 1986, are
attributable to costs incurred before Jan. 1, 1987, the amendment
by Pub. L. 99-514 is applicable to such interest costs only to the
extent such interest costs are attributable to costs which were
required to be capitalized under section 263 of the Internal
Revenue Code of 1954 and which would have been taken into account
in applying section 189 of the Internal Revenue Code of 1954 (as in
effect before its repeal by section 803 of Pub. L. 99-514) or, if
applicable, section 266 of such Code, see section 7831(d)(2) of
Pub. L. 101-239, set out as an Effective Date note under section
263A of this title.
Amendment by Pub. L. 99-514 applicable to costs incurred after
Dec. 31, 1986, in taxable years ending after such date, except as
otherwise provided, see section 803(d) of Pub. L. 99-514, set out
as an Effective Date note under section 263A of this title.
EFFECTIVE DATE OF 1982 AMENDMENTS
Amendment by Pub. L. 97-354 applicable to taxable years beginning
after Dec. 31, 1982, see section 6(a) of Pub. L. 97-354, set out as
an Effective Date note under section 1361 of this title.
Section 230(b) of Pub. L. 97-248 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1981."
EFFECTIVE DATE OF 1978 AMENDMENT
Section 351(b) of Pub. L. 95-600 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1977."
Section 353(b) of Pub. L. 95-600 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1976."
Section 701(l)(4) of Pub. L. 95-600, as amended by Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendment made by paragraphs (1) [amending this section] and (3)
[amending section 464 of this title] shall take effect as if
included in section 447 or 464 (as the case may be) of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] at the time of the
enactment of such sections [Oct. 4, 1976]."
Amendment by section 703(d) of Pub. L. 95-600 effective on Oct.
4, 1976, see section 703(r) of Pub. L. 95-600, set out as a note
under section 46 of this title.
EFFECTIVE DATE
Section 207(c)(2) of Pub. L. 94-455, as amended by Pub. L. 95-30,
title IV, Sec. 404, May 23, 1977, 91 Stat. 155; Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(A) In general. - Except as provided in subparagraph (B), the
amendments made by paragraph (1) [enacting this section] shall
apply to taxable years beginning after December 31, 1976.
"(B) Special rule for certain corporations. - In the case of a
corporation engaged in the trade or business of farming and with
respect to which -
"(i) members of two families (within the meaning of paragraph
(1) of section 447(d) of the Internal Revenue Code of 1986
[formerly I.R.C. 1954], as added by paragraph (1)) owned, on
October 4, 1976 (directly or through the application of such
section 447(d)), at least 65 percent of the total combined voting
power of all classes of stock of such corporation entitled to
vote, and at least 65 percent of the total number of shares of
all other classes of stock of such corporation; or
"(ii) members of three families (within the meaning of
paragraph (1) of such section 447(d)) owned, on October 4, 1976
(directly or through the application of such section 447(d)), at
least 50 percent of the total combined voting power of all
classes of stock of such corporation entitled to vote, and at
least 50 percent of the total number of shares of all other
classes of stock of such corporation; and substantially all of
the stock of such corporation which was not so owned (directly or
through the application of such section 447(d)), by members of
such three families was owned, on October 4, 1976, directly -
"(I) by employees of the corporation or members of the
families (within the meaning of section 267(c)(4) of such Code)
of such employees, or
"(II) by a trust for the benefit of the employees of such
corporation which is described in section 401(a) of such Code
and which is exempt from taxation under section 501(a) of such
Code,
the amendments made by paragraph (1) shall apply to taxable years
beginning after December 31, 1977."
ACCOUNTING FOR GROWING CROPS
Section 352 of Pub. L. 95-600 provided that:
"(a) Application of Section. - This section shall apply to a
taxpayer who -
"(1) is a farmer, nurseryman, or florist,
"(2) is on an accrual method of accounting, and
"(3) is not required by section 447 of the Internal Revenue
Code of 1954 to capitalize preproductive period expenses.
"(b) Taxpayer May Not Be Required To Inventory Growing Crops. - A
taxpayer to whom this section applies may not be required to
inventory growing crops for any taxable year beginning after
December 31, 1977.
"(c) Taxpayer May Elect To Change To Cash Method. - A taxpayer to
whom this section applies may, for any taxable year beginning after
December 31, 1977 and before January 1, 1981, change to the cash
receipts and disbursements method of accounting with respect to any
trade or business in which the principal activity is growing crops.
"(d) Section 481 Of Code To Apply. - Any change in the way in
which a taxpayer accounts for the costs of growing crops resulting
from the application of subsection (b) or (c) -
"(1) shall not require the consent of the Secretary of the
Treasury or his delegate, and
"(2) shall be treated, for purposes of section 481 of the
Internal Revenue Code of 1954 as a change in the method of
accounting initiated by the taxpayer.
"(e) Growing Crops. - For purposes of this section, the term
'Growing crops' does not include trees grown for lumber, pulp, or
other nonlife purposes."
AUTOMATIC TEN-YEAR ADJUSTMENT FOR FARMING SYNDICATES CHANGING TO
ACCRUAL ACCOUNTING
Section 701(l)(2) of Pub. L. 95-600 provided that: "If -
"(A) a farming syndicate (within the meaning of section 464(c)
of the Internal Revenue Code of 1954) was in existence on
December 31, 1975, and
"(B) such syndicate elects an accrual method of accounting
(including the capitalization of preproductive period expenses
described in section 447(b) of such Code) for a taxable year
beginning before January 1, 1979,
then such election shall be treated as having been made with the
consent of the Secretary of the Treasury or his delegate and, under
regulations prescribed by the Secretary of the Treasury or his
delegate, the net amount of the adjustments required by section
481(a) of such Code to be taken into account by the taxpayer in
computing taxable income shall be taken into account in each of the
10 taxable years (or the remaining taxable years where there is a
stated future life of less than 10 taxable years) beginning with
the year of change."
ELECTION TO CHANGE FROM STATIC VALUE METHOD TO ACCRUAL METHOD OF
ACCOUNTING
Section 207(c)(3) of Pub. L. 94-455, as amended by Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(A) In general. - If -
"(i) a corporation has computed its taxable income on an
annual accrual method of accounting together with a static
value method of accounting for deferred costs of growing crops
for the 10 taxable years ending with its first taxable year
beginning after December 31, 1975,
"(ii) such corporation raises crops which are harvested not
less than 12 months after planting, and
"(iii) such corporation elects, within one year after the
date of the enactment of this Act [Oct. 4, 1976] and in such
manner as the Secretary of the Treasury or his delegate
prescribes, to change to the annual accrual method of
accounting (within the meaning of section 447(g)(2) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954]) for
taxable years beginning after December 31, 1976,
such change shall be treated as having been made with the consent
of the Secretary of the Treasury, and, under regulations
prescribed by the Secretary of the Treasury or his delegate, the
net amount of the adjustments required by section 481(a) of the
Internal Revenue Code of 1986 to be taken into account by the
taxpayer in computing taxable income shall (except as otherwise
provided in such regulations) be taken into account in each of
the 10 taxable years beginning with the year of change.
"(B) Coordination with section 447 of the code. - A corporation
which elects under subparagraph (A) to change to the annual
accrual method of accounting shall, for purposes of section
447(g) of the Internal Revenue Code of 1986, be deemed to be a
corporation which has computed its taxable income on an annual
accrual method of accounting for its 10 taxable years ending with
its first taxable year beginning after December 31, 1975.
"(C) Certain corporate reorganizations. - For purposes of this
paragraph, if a corporation acquired substantially all the assets
of a farming trade or business from another corporation in a
transaction in which no gain or loss was recognized to the
transferor or transferee corporation, the transferee corporation
shall be deemed to have computed its taxable income on an annual
accrual method of accounting together with a static value method
of accounting for deferred costs of growing crops during the
period for which the transferor corporation computed its taxable
income from such trade or business on such accrual and static
value method."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 263A, 354, 4972 of this
title.
-FOOTNOTE-
(!1) So in original.
(!2) So in original. Probably should be "(iii)".
-End-
-CITE-
26 USC Sec. 448 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart A - Methods of Accounting in General
-HEAD-
Sec. 448. Limitation on use of cash method of accounting
-STATUTE-
(a) General rule
Except as otherwise provided in this section, in the case of a -
(1) C corporation,
(2) partnership which has a C corporation as a partner, or
(3) tax shelter,
taxable income shall not be computed under the cash receipts and
disbursements method of accounting.
(b) Exceptions
(1) Farming business
Paragraphs (1) and (2) of subsection (a) shall not apply to any
farming business.
(2) Qualified personal service corporations
Paragraphs (1) and (2) of subsection (a) shall not apply to a
qualified personal service corporation, and such a corporation
shall be treated as an individual for purposes of determining
whether paragraph (2) of subsection (a) applies to any
partnership.
(3) Entities with gross receipts of not more than $5,000,000
Paragraphs (1) and (2) of subsection (a) shall not apply to any
corporation or partnership for any taxable year if, for all prior
taxable years beginning after December 31, 1985, such entity (or
any predecessor) met the $5,000,000 gross receipts test of
subsection (c).
(c) $5,000,000 gross receipts test
For purposes of this section -
(1) In general
A corporation or partnership meets the $5,000,000 gross
receipts test of this subsection for any prior taxable year if
the average annual gross receipts of such entity for the
3-taxable-year period ending with such prior taxable year does
not exceed $5,000,000.
(2) Aggregation rules
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 one person for purposes of paragraph (1).
(3) Special rules
For purposes of this subsection -
(A) Not in existence for entire 3-year period
If the entity was not in existence for the entire 3-year
period referred to in paragraph (1), such paragraph shall be
applied on the basis of the period during which such entity (or
trade or business) was in existence.
(B) Short taxable years
Gross receipts for any taxable year of less than 12 months
shall be annualized by multiplying the gross receipts for the
short period by 12 and dividing the result by the number of
months in the short period.
(C) Gross receipts
Gross receipts for any taxable year shall be reduced by
returns and allowances made during such year.
(D) Treatment of predecessors
Any reference in this subsection to an entity shall include a
reference to any predecessor of such entity.
(d) Definitions and special rules
For purposes of this section -
(1) Farming business
(A) In general
The term "farming business" means the trade or business of
farming (within the meaning of section 263A(e)(4)).
(B) Timber and ornamental trees
The term "farming business" includes the raising, harvesting,
or growing of trees to which section 263A(c)(5) applies.
(2) Qualified personal service corporation
The term "qualified personal service corporation" means any
corporation -
(A) substantially all of the activities of which involve the
performance of services in the fields of health, law,
engineering, architecture, accounting, actuarial science,
performing arts, or consulting, and
(B) substantially all of the stock of which (by value) is
held directly (or indirectly through 1 or more partnerships, S
corporations, or qualified personal service corporations not
described in paragraph (2) or (3) of subsection (a)) by -
(i) employees performing services for such corporation in
connection with the activities involving a field referred to
in subparagraph (A),
(ii) retired employees who had performed such services for
such corporation,
(iii) the estate of any individual described in clause (i)
or (ii), or
(iv) any other person who acquired such stock by reason of
the death of an individual described in clause (i) or (ii)
(but only for the 2-year period beginning on the date of the
death of such individual).
To the extent provided in regulations which shall be prescribed
by the Secretary, indirect holdings through a trust shall be
taken into account under subparagraph (B).
(3) Tax shelter defined
The term "tax shelter" has the meaning given such term by
section 461(i)(3) (determined after application of paragraph (4)
thereof). An S corporation shall not be treated as a tax shelter
for purposes of this section merely by reason of being required
to file a notice of exemption from registration with a State
agency described in section 461(i)(3)(A), but only if there is a
requirement applicable to all corporations offering securities
for sale in the State that to be exempt from such registration
the corporation must file such a notice.
(4) Special rules for application of paragraph (2)
For purposes of paragraph (2) -
(A) community property laws shall be disregarded,
(B) stock held by a plan described in section 401(a) which is
exempt from tax under section 501(a) shall be treated as held
by an employee described in paragraph (2)(B)(i), and
(C) at the election of the common parent of an affiliated
group (within the meaning of section 1504(a)), all members of
such group may be treated as 1 taxpayer for purposes of
paragraph (2)(B) if 90 percent or more of the activities of
such group involve the performance of services in the same
field described in paragraph (2)(A).
(5) Special rule for certain services
(A) In general
In the case of any person using an accrual method of
accounting with respect to amounts to be received for the
performance of services by such person, such person shall not
be required to accrue any portion of such amounts which (on the
basis of such person's experience) will not be collected if -
(i) such services are in fields referred to in paragraph
(2)(A), or
(ii) such person meets the gross receipts test of
subsection (c) for all prior taxable years.
(B) Exception
This paragraph shall not apply to any amount if interest is
required to be paid on such amount or there is any penalty for
failure to timely pay such amount.
(C) Regulations
The Secretary shall prescribe regulations to permit taxpayers
to determine amounts referred to in subparagraph (A) using
computations or formulas which, based on experience, accurately
reflect the amount of income that will not be collected by such
person. A taxpayer may adopt, or request consent of the
Secretary to change to, a computation or formula that clearly
reflects the taxpayer's experience. A request under the
preceding sentence shall be approved if such computation or
formula clearly reflects the taxpayer's experience.
(6) Treatment of certain trusts subject to tax on unrelated
business income
For purposes of this section, a trust subject to tax under
section 511(b) shall be treated as a C corporation with respect
to its activities constituting an unrelated trade or business.
(7) Coordination with section 481
In the case of any taxpayer required by this section to change
its method of accounting for any taxable year -
(A) such change shall be treated as initiated by the
taxpayer,
(B) such change shall be treated as made with the consent of
the Secretary, and
(C) the period for taking into account the adjustments under
section 481 by reason of such change -
(i) except as provided in clause (ii), shall not exceed 4
years, and
(ii) in the case of a hospital, shall be 10 years.
(8) Use of related parties, etc.
The Secretary shall prescribe such regulations as may be
necessary to prevent the use of related parties, pass-thru
entities, or intermediaries to avoid the application of this
section.
-SOURCE-
(Added Pub. L. 99-514, title VIII, Sec. 801(a), Oct. 22, 1986, 100
Stat. 2345; amended Pub. L. 100-647, title I, Sec. 1008(a)(1), (2),
(7)-(9), title VI, Sec. 6032(a), Nov. 10, 1988, 102 Stat. 3436,
3437, 3695; Pub. L. 107-147, title IV, Sec. 403(a), Mar. 9, 2002,
116 Stat. 40.)
-MISC1-
AMENDMENTS
2002 - Subsec. (d)(5). Pub. L. 107-147 amended heading and text
of par. (5) generally. Prior to amendment, text read as follows:
"In the case of any person using an accrual method of accounting
with respect to amounts to be received for the performance of
services by such person, such person shall not be required to
accrue any portion of such amounts which (on the basis of
experience) will not be collected. This paragraph shall not apply
to any amount if interest is required to be paid on such amount or
there is any penalty for failure to timely pay such amount."
1988 - Subsec. (c)(3)(D). Pub. L. 100-647, Sec. 1008(a)(9), added
subpar. (D).
Subsec. (d)(2). Pub. L. 100-647, Sec. 6032(a), inserted at end
"To the extent provided in regulations which shall be prescribed by
the Secretary, indirect holdings through a trust shall be taken
into account under subparagraph (B)."
Subsec. (d)(2)(B). Pub. L. 100-647, Sec. 1008(a)(1)(A),
substituted "(or indirectly through 1 or more partnerships, S
corporations, or qualified personal service corporations not
described in paragraph (2) or (3) of subsection (a))" for "or
indirectly".
Subsec. (d)(3). Pub. L. 100-647, Sec. 1008(a)(7), inserted
sentence at end relating to treatment of S corporation as tax
shelter.
Subsec. (d)(4)(C). Pub. L. 100-647, Sec. 1008(a)(8), substituted
"90 percent or more of" for "substantially all of".
Pub. L. 100-647, Sec. 1008(a)(2), substituted "such group" for
"all such members".
Subsec. (d)(8). Pub. L. 100-647, Sec. 1008(a)(1)(B), added par.
(8).
EFFECTIVE DATE OF 2002 AMENDMENT
Pub. L. 107-147, title IV, Sec. 403(b), Mar. 9, 2002, 116 Stat.
41, provided that:
"(1) In general. - The amendments made by this section [amending
this section] shall apply to taxable years ending after the date of
the enactment of this Act [Mar. 9, 2002].
"(2) Change in method of accounting. - In the case of any
taxpayer required by the amendments made by this section to change
its method of accounting for its first taxable year ending after
the date of the enactment of this Act -
"(A) such change shall be treated as initiated by the taxpayer,
"(B) such change shall be treated as made with the consent of
the Secretary of the Treasury, and
"(C) the net amount of the adjustments required to be taken
into account by the taxpayer under section 481 of the Internal
Revenue Code of 1986 shall be taken into account over a period of
4 years (or if less, the number of taxable years that the
taxpayer used the method permitted under section 448(d)(5) of
such Code as in effect before the date of the enactment of this
Act) beginning with such first taxable year."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1008(a)(1), (2), (7)-(9) 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.
Section 6032(b) of Pub. L. 100-647 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1986."
EFFECTIVE DATE
Section 801(d) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1008(a)(5), (6), Nov. 10, 1988, 102 Stat. 3437,
provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [enacting this section and amending
section 461 of this title] shall apply to taxable years beginning
after December 31, 1986.
"(2) Election to retain cash method for certain transactions. - A
taxpayer may elect not to have the amendments made by this section
apply to any loan or lease, or any transaction with a related party
(within the meaning of section 267(b) of the Internal Revenue Code
of 1954, as in effect before the enactment of this Act), entered
into on or before September 25, 1985. Any election under the
preceding sentence may be made separately with respect to each
transaction.
"(3) Certain contracts. - The amendments made by this section
shall not apply to -
"(A) contracts for the acquisition or transfer of real
property, and
"(B) contracts for services related to the acquisition or
development of real property,
but only if such contracts were entered into before September 25,
1985, and the sole element of the contract which has not been
performed as of September 25, 1985, is payment for such property or
services.
"(4) Treatment of affiliated group providing engineering
services. - Each member of an affiliated group of corporations
(within the meaning of section 1504(a) of the Internal Revenue Code
of 1986) shall be allowed to use the cash receipts and
disbursements method of accounting for any trade or business of
providing engineering services with respect to taxable years ending
after December 31, 1986, if the common parent of such group -
"(A) was incorporated in the State of Delaware in 1970,
"(B) was the successor to a corporation that was incorporated
in the State of Illinois in 1949, and
"(C) used a method of accounting for long-term contracts of
accounting [sic] for a substantial part of its income from the
performance of engineering services.
"(5) Special rule for paragraphs (2) and (3). - If any loan,
lease, contract, or evidence of any transaction to which paragraph
(2) or (3) applies is transferred after June 10, 1987, to a person
other than a related party (within the meaning of paragraph (2)),
paragraph (2) or (3) shall cease to apply on and after the date of
such transfer."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 11, 55, 172, 263A, 474,
5081, 5731, 5801, 6721 of this title.
-End-
-CITE-
26 USC Subpart B - Taxable Year for Which Items of Gross
Income Included 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart B - Taxable Year for Which Items of Gross Income Included
-HEAD-
SUBPART B - TAXABLE YEAR FOR WHICH ITEMS OF GROSS INCOME INCLUDED
-MISC1-
Sec.
451. General rule for taxable year of inclusion.
[452. Repealed.]
453. Installment method.
453A. Special rules for nondealers.
453B. Gain or loss on disposition of installment
obligations.(!1)
[453C. Repealed.]
454. Obligations issued at discount.
455. Prepaid subscription income.
456. Prepaid dues income of certain membership
organizations.
457. Deferred compensation plans of State and local
governments and tax-exempt organizations.
458. Magazines, paperbacks, and records returned after the
close of the taxable year.
460. Special rules for long-term contracts.
AMENDMENTS
1988 - Pub. L. 100-647, title V, Sec. 5076(b)(2), Nov. 10, 1988,
102 Stat. 3683, struck out "of real property" after "rules for
nondealers" in item 453A.
1987 - Pub. L. 100-203, title X, Sec. 10202(a)(2), (c)(2), Dec.
22, 1987, 101 Stat. 1330-388, 1330-392, substituted "Special rules
for nondealers of real property" for "Installment method for
dealers in personal property" in item 453A, and struck out item
453C "Certain indebtedness treated as payments on installment
obligations".
1986 - Pub. L. 99-514, title XI, Sec. 1107(b), (c), Oct. 22,
1986, 101 Stat. 2430, added item 457, applicable to taxable years
beginning after Dec. 31, 1988, with certain exceptions, and struck
out former item 457 "Deferred compensation plans with respect to
service for State and local governments".
Pub. L. 99-514, title VIII, Secs. 804(c), 811(b), Oct. 22, 1986,
100 Stat. 2361, 2368, added items 453C and 460.
1980 - Pub. L. 96-471, Sec. 2(d), Oct. 19, 1980, 94 Stat. 2254,
added items 453 to 453B and struck out former item 453 "Installment
method".
1978 - Pub. L. 95-600, title I, Sec. 131(b), title III, Sec.
372(b), Nov. 6, 1978, 92 Stat. 2782, 2862, added items 457 and 458.
1961 - Pub. L. 87-109, Sec. 1(b), July 26, 1961, 75 Stat. 224,
added item 456.
1958 - Pub. L. 85-866, title I, Sec. 28(b), Sept. 2, 1958, 72
Stat. 1626, added item 455, effective with respect to taxable years
beginning after Dec. 31, 1957. See section 28(c) of Pub. L. 85-866
set out as an Effective Date note under section 455 of this title.
1955 - Act June 15, 1955, ch. 143, Sec. 2(2), 69 Stat. 135,
struck out item 452 "Adjustment in case of position inconsistent
with prior income tax liability".
-FOOTNOTE-
(!1) So in original. Does not conform to section catchline.
-End-
-CITE-
26 USC Sec. 451 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart B - Taxable Year for Which Items of Gross Income Included
-HEAD-
Sec. 451. General rule for taxable year of inclusion
-STATUTE-
(a) General rule
The amount of any item of gross income shall be included in the
gross income for the taxable year in which received by the
taxpayer, unless, under the method of accounting used in computing
taxable income, such amount is to be properly accounted for as of a
different period.
(b) Special rule in case of death
In the case of the death of a taxpayer whose taxable income is
computed under an accrual method of accounting, any amount accrued
only by reason of the death of the taxpayer shall not be included
in computing taxable income for the period in which falls the date
of the taxpayer's death.
(c) Special rule for employee tips
For purposes of subsection (a), tips included in a written
statement furnished an employer by an employee pursuant to section
6053(a) shall be deemed to be received at the time the written
statement including such tips is furnished to the employer.
(d) Special rule for crop insurance proceeds or disaster payments
In the case of insurance proceeds received as a result of
destruction or damage to crops, a taxpayer reporting on the cash
receipts and disbursements method of accounting may elect to
include such proceeds in income for the taxable year following the
taxable year of destruction or damage, if he establishes that,
under his practice, income from such crops would have been reported
in a following taxable year. For purposes of the preceding
sentence, payments received under the Agricultural Act of 1949, as
amended, or title II of the Disaster Assistance Act of 1988, as a
result of (1) destruction or damage to crops caused by drought,
flood, or any other natural disaster, or (2) the inability to plant
crops because of such a natural disaster shall be treated as
insurance proceeds received as a result of destruction or damage to
crops. An election under this subsection for any taxable year shall
be made at such time and in such manner as the Secretary
prescribes.
(e) Special rule for proceeds from livestock sold on account of
drought, flood, or other weather-related conditions
(1) In general
In the case of income derived from the sale or exchange of
livestock in excess of the number the taxpayer would sell if he
followed his usual business practices, a taxpayer reporting on
the cash receipts and disbursements method of accounting may
elect to include such income for the taxable year following the
taxable year in which such sale or exchange occurs if he
establishes that, under his usual business practices, the sale or
exchange would not have occurred in the taxable year in which it
occurred if it were not for drought, flood, or other
weather-related conditions, and that such conditions had resulted
in the area being designated as eligible for assistance by the
Federal Government.
(2) Limitation
Paragraph (1) shall apply only to a taxpayer whose principal
trade or business is farming (within the meaning of section
6420(c)(3)).
(f) Special rule for utility services
(1) In general
In the case of a taxpayer the taxable income of which is
computed under an accrual method of accounting, any income
attributable to the sale or furnishing of utility services to
customers shall be included in gross income not later than the
taxable year in which such services are provided to such
customers.
(2) Definition and special rule
For purposes of this subsection -
(A) Utility services
The term "utility services" includes -
(i) the providing of electrical energy, water, or sewage
disposal,
(ii) the furnishing of gas or steam through a local
distribution system,
(iii) telephone or other communication services, and
(iv) the transporting of gas or steam by pipeline.
(B) Year in which services provided
The taxable year in which services are treated as provided to
customers shall not, in any manner, be determined by reference
to -
(i) the period in which the customers' meters are read, or
(ii) the period in which the taxpayer bills (or may bill)
the customers for such service.
(g) Treatment of interest on frozen deposits in certain financial
institutions
(1) In general
In the case of interest credited during any calendar year on a
frozen deposit in a qualified financial institution, the amount
of such interest includible in the gross income of a qualified
individual shall not exceed the sum of -
(A) the net amount withdrawn by such individual from such
deposit during such calendar year, and
(B) the amount of such deposit which is withdrawable as of
the close of the taxable year (determined without regard to any
penalty for premature withdrawals of a time deposit).
(2) Interest tested each year
Any interest not included in gross income by reason of
paragraph (1) shall be treated as credited in the next calendar
year.
(3) Deferral of interest deduction
No deduction shall be allowed to any qualified financial
institution for interest not includible in gross income under
paragraph (1) until such interest is includible in gross income.
(4) Frozen deposit
For purposes of this subsection, the term "frozen deposit"
means any deposit if, as of the close of the calendar year, any
portion of such deposit may not be withdrawn because of -
(A) the bankruptcy or insolvency of the qualified financial
institution (or threat thereof), or
(B) any requirement imposed by the State in which such
institution is located by reason of the bankruptcy or
insolvency (or threat thereof) of 1 or more financial
institutions in the State.
(5) Other definitions
For purposes of this subsection, the terms "qualified
individual", "qualified financial institution", and "deposit"
have the same respective meanings as when used in section 165(l).
(h) Special rule for cash options for receipt of qualified prizes
(1) In general
For purposes of this title, in the case of an individual on the
cash receipts and disbursements method of accounting, a qualified
prize option shall be disregarded in determining the taxable year
for which any portion of the qualified prize is properly
includible in gross income of the taxpayer.
(2) Qualified prize option; qualified prize
For purposes of this subsection -
(A) In general
The term "qualified prize option" means an option which -
(i) entitles an individual to receive a single cash payment
in lieu of receiving a qualified prize (or remaining portion
thereof), and
(ii) is exercisable not later than 60 days after such
individual becomes entitled to the qualified prize.
(B) Qualified prize
The term "qualified prize" means any prize or award which -
(i) is awarded as a part of a contest, lottery, jackpot,
game, or other similar arrangement,
(ii) does not relate to any past services performed by the
recipient and does not require the recipient to perform any
substantial future service, and
(iii) is payable over a period of at least 10 years.
(3) Partnership, etc.
The Secretary shall provide for the application of this
subsection in the case of a partnership or other pass-through
entity consisting entirely of individuals described in paragraph
(1).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 152; Pub. L. 89-97, title III,
Sec. 313(b), July 30, 1965, 79 Stat. 382; Pub. L. 91-172, title II,
Sec. 215(a), Dec. 30, 1969, 83 Stat. 573; Pub. L. 94-455, title
XIX, Sec. 1906(b)(13)(A), title XXI, Secs. 2102(a), (b), 2141(a),
Oct. 4, 1976, 90 Stat. 1834, 1900, 1933; Pub. L. 99-514, title
VIII, Sec. 821(a), title IX, Sec. 905(b), Oct. 22, 1986, 100 Stat.
2372, 2386; Pub. L. 100-647, title I, Sec. 1009(d)(3), title VI,
Secs. 6030(a), 6033(a), Nov. 10, 1988, 102 Stat. 3450, 3694, 3695;
Pub. L. 105-34, title IX, Sec. 913(a), Aug. 5, 1997, 111 Stat. 878;
Pub. L. 105-277, div. J, title V, Sec. 5301(a), Oct. 21, 1998, 112
Stat. 2681-918.)
-REFTEXT-
REFERENCES IN TEXT
The Agricultural Act of 1949, as amended, referred to in subsec.
(d), is act Oct. 31, 1949, ch. 792, 63 Stat. 1051, as amended,
which is classified principally to chapter 35A (Sec. 1421 et seq.)
of Title 7, Agriculture. For complete classification of this Act to
the Code, see Short Title note set out under section 1421 of Title
7 and Tables.
The Disaster Assistance Act of 1988, referred to in subsec. (d),
is Pub. L. 100-387, Aug. 11, 1988, 102 Stat. 924. Title II of the
Disaster Assistance Act of 1988 is set out as a note under section
1421 of Title 7. For complete classification of this Act to the
Code, see Tables.
-MISC1-
AMENDMENTS
1998 - Subsec. (h). Pub. L. 105-277 added subsec. (h).
1997 - Subsec. (e). Pub. L. 105-34 inserted ", flood, or other
weather-related conditions" after "drought" in heading and
substituted "drought, flood, or other weather-related conditions,
and that such conditions" for "drought conditions, and that these
drought conditions" in par. (1).
1988 - Subsec. (d). Pub. L. 100-647, Sec. 6033(a), inserted "or
title II of the Disaster Assistance Act of 1988," after "the
Agricultural Act of 1949, as amended,".
Subsec. (e)(1). Pub. L. 100-647, Sec. 6030(a), struck out "(other
than livestock described in section 1231(b)(3))" after "exchange of
livestock".
Subsecs. (f), (g). Pub. L. 100-647, Sec. 1009(d)(3), redesignated
subsec. (f), relating to treatment of interest on frozen deposits
in certain financial institutions, as (g).
1986 - Subsec. (f). Pub. L. 99-514, Sec. 905(b), added subsec.
(f) relating to treatment of interest on frozen deposits in certain
financial institutions.
Pub. L. 99-514, Sec. 821(a), added subsec. (f) relating to
special rule for utility services.
1976 - Subsec. (d). Pub. L. 94-455, Secs. 1906(b)(13)(A),
2102(a), (b), inserted reference to disaster payments in heading,
provided that payments received under the Agricultural Act of 1949,
as amended, be treated as insurance proceeds received as a result
of destruction or damage to crops if the payments are received as
the result of destruction or damage from drought, flood, or other
natural disaster, or as the result of inability to plant crops
because of drought, flood, or other natural disaster, and struck
out "or his delegate" after "Secretary".
Subsec. (e). Pub. L. 94-455, Sec. 2141(a), added subsec. (e).
1969 - Subsec. (d). Pub. L. 91-172 added subsec. (d).
1965 - Subsec. (c). Pub. L. 89-97 added subsec. (c).
EFFECTIVE DATE OF 1998 AMENDMENT
Pub. L. 105-277, div. J, title V, Sec. 5301(b), Oct. 21, 1998,
112 Stat. 2681-918, provided that:
"(1) In general. - The amendment made by this section [amending
this section] shall apply to any prize to which a person first
becomes entitled after the date of enactment of this Act [Oct. 21,
1998].
"(2) Transition rule. - The amendment made by this section shall
apply to any prize to which a person first becomes entitled on or
before the date of enactment of this Act, except that in
determining whether an option is a qualified prize option as
defined in section 451(h)(2)(A) of the Internal Revenue Code of
1986 (as added by such amendment) -
"(A) clause (ii) of such section 451(h)(2)(A) shall not apply,
and
"(B) such option shall be treated as a qualified prize option
if it is exercisable only during all or part of the 18-month
period beginning on July 1, 1999."
EFFECTIVE DATE OF 1997 AMENDMENT
Section 913(c) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section and section 1033 of
this title] shall apply to sales and exchanges after December 31,
1996."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1009(d)(3) 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.
Section 6030(b) of Pub. L. 100-647 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to sales
or exchanges occurring after December 31, 1987."
Section 6033(b) of Pub. L. 100-647, as amended by Pub. L.
101-239, title VII, Sec. 7816(g), Dec. 19, 1989, 103 Stat. 2421,
provided that: "The amendment made by subsection (a) [amending this
section] shall apply to payments received before, on, or after the
date of enactment of this Act [Nov. 10, 1988]."
EFFECTIVE DATE OF 1986 AMENDMENT
Section 821(b) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1008(h), Nov. 10, 1988, 102 Stat. 3444, provided
that:
"(1) In general. - The amendments made by this section [amending
this section] shall apply to taxable years beginning after December
31, 1986.
"(2) Change in method of accounting. - If a taxpayer is required
by the amendments made by this section to change its method of
accounting for any taxable year -
"(A) such change shall be treated as initiated by the taxpayer,
"(B) such change shall be treated as having been made with the
consent of the Secretary, and
"(C) the adjustments under section 481 of the Internal Revenue
Code of 1954 [now 1986] by reason of such change shall be taken
into account ratably over a period no longer than the first 4
taxable years beginning after December 31, 1986.
"(3) Special rule for certain cycle billing. - If a taxpayer for
any taxable year beginning before August 16, 1986, for purposes of
chapter 1 of the Internal Revenue Code of 1986 took into account
income from services described in section 451(f) of such Code (as
added by subsection (a)) on the basis of the period in which the
customers' meters were read, then such treatment for such year
shall be deemed to be proper. The preceding sentence shall also
apply to any taxable year beginning after August 16, 1986, and
before January 1, 1987, if the taxpayer treated such income in the
same manner for the taxable year preceding such taxable year."
Section 905(c) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1009(d)(2), Nov. 10, 1988, 102 Stat. 3450, provided
that:
"(1) In general. - The amendment made by subsection (a) [amending
section 165 of this title] shall apply to taxable years beginning
after December 31, 1981, and, except as provided in paragraph (2),
the amendment made by subsection (b) [amending this section] shall
apply to taxable years beginning after December 31, 1982.
"(2) Special rules for subsection (b). -
"(A) The amendment made by subsection (b) [amending this
section] shall apply to taxable years beginning after December
31, 1982, and before January 1, 1987, only if the qualified
individual elects to have such amendment apply for all such
taxable years.
"(B) In the case of interest attributable to the period
beginning January 1, 1983, and ending December 31, 1987, the
interest deduction of financial institutions shall be determined
without regard to paragraph (3) of section 451(f) of the Internal
Revenue Code of 1986 (as added by subsection (b))."
EFFECTIVE DATE OF 1976 AMENDMENT
Section 2102(c) of Pub. L. 94-455 provided that: "The amendments
made by this section [amending this section] shall apply to
payments received after December 31, 1973, in taxable years ending
after such date."
Section 2141(b) of Pub. L. 94-455 provided that: "The amendment
made by this section [amending this section] applies to taxable
years beginning after December 31, 1975."
EFFECTIVE DATE OF 1969 AMENDMENT
Section 215(b) of Pub. L. 91-172 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years ending after the date of the enactment of this Act
[Dec. 30, 1969]."
EFFECTIVE DATE OF 1965 AMENDMENT
Amendment by Pub. L. 89-97 applicable only with respect to tips
received by employees after 1965, see section 313(f) of Pub. L.
89-97, set out as an Effective Date note under section 6053 of this
title.
TAX TREATMENT OF INCENTIVE PAYMENT
Voluntary separation incentives paid to members of Armed Forces
under 10 U.S.C. 1175 as includable in gross income only for taxable
year in which incentive is paid, see section 662(b) of Pub. L.
102-190, set out as a note under section 1175 of Title 10, Armed
Forces.
OVERPAYMENTS OR UNDERPAYMENTS OF TAX ATTRIBUTABLE TO CERTAIN
AMENDMENTS BY PUB. L. 99-514 OR PUB. L. 100-647
For provisions relating to credit or refund of overpayments of
tax, and assessment of underpayments of tax, due to amendments by
section 905 of Pub. L. 99-514 or section 1009(d) of Pub. L.
100-647, see section 1009(d)(4) of Pub. L. 100-647, set out as a
note under section 165 of this title.
MODIFICATION OF REGULATIONS ON THE COMPLETED CONTRACT METHOD OF
ACCOUNTING
Pub. L. 97-248, title II, Sec. 229, Sept. 3, 1982, 96 Stat. 493,
as amended by Pub. L. 98-369, div. A, title VII, Sec. 712(m), July
18, 1984, 98 Stat. 955, provided that:
"(a) In General. - The Secretary of the Treasury shall modify the
income tax regulations relating to accounting for long-term
contracts to -
"(1) clarify the time at which a contract is to be considered
completed,
"(2) clarify when -
"(A) one agreement will be treated as more than one contract,
and
"(B) two or more agreements will be treated as one contract,
and
"(3) properly allocate all costs which directly benefit, or are
incurred by reason of, the extended period long-term contract
activities of the taxpayer.
"(b) Extended Period Long-Term Contracts Defined. - For purposes
of this section -
"(1) In general. - The term 'extended period long-term
contract' means any long-term contract which the taxpayer
estimates (at the time such contract is entered into) will not be
completed within the 2-year period beginning on the contract
commencement date of such contract.
"(2) Certain construction contracts. -
"(A) In general. - The term 'extended period long-term
contract' does not include any construction contract entered
into by a taxpayer -
"(i) who estimates (at the time such contract is entered
into) that such contract will be completed within the 3-year
period beginning on the contract commencement date of such
contract, or
"(ii) whose average annual gross receipts over the 3
taxable years preceding the taxable year in which such
contract is entered into do not exceed $25,000,000.
"(B) Determination of taxpayer's gross receipts. - For
purposes of subparagraph (A), the gross receipts of -
"(i) all trades or businesses (whether or not incorporated)
which are under common control with the taxpayer (within the
meaning of section 52(b)), and
"(ii) all members of any controlled group of corporations
of which the taxpayer is a member,
for the 3 taxable years of such persons preceding the taxable
year in which the contract described in subparagraph (A) is
entered into shall be included in the gross receipts of the
taxpayer for the period described in subparagraph (A). The
Secretary shall prescribe regulations which provide attribution
rules that take into account, in addition to the persons and
entities described in the preceding sentence, taxpayers who
engage in construction contracts through partnerships, joint
ventures, and corporations.
"(C) Controlled group of corporations. - The term 'controlled
group of corporations' has the meaning given to such term by
section 1563(a), except that -
"(i) 'more than 50 percent' shall be substituted for 'at
least 80 percent' each place it appears in section
1563(a)(1), and
"(ii) the determination shall be made without regard to
subsections (a)(4) and (e)(3)(C) of section 1563.
"(3) Construction contract. - The term 'construction contract'
means any contract for the building, construction,
reconstruction, or rehabilitation of, or the installation of any
integral component to, improvements to real property.
"(4) Contract commencement date. - The term 'contract
commencement date' means, with respect to any contract, the first
date on which any costs (other than costs such as bidding
expenses or expenses incurred in connection with negotiating the
contract) allocable to such contract are incurred.
"(c) Effective Dates; Special Rules. -
"(1) In general. - The modifications to regulations which are
required to be made under paragraphs (1) and (2) of subsection
(a) shall apply with respect to taxable years ending after
December 31, 1982.
"(2) Cost allocation. -
"(A) In general. - Any modification to Income Tax Regulation
1.451-3 made under subsection (a)(3) which requires additional
costs to be allocated to a contract shall apply only to the
applicable percentage of such additional costs incurred in
taxable years beginning after December 31, 1982, with respect
to contracts entered into after such date.
"(B) Applicable percentage. - For purposes of subparagraph
(A), the applicable percentage shall be determined in
accordance with the following table:
"If the taxable year begins The applicable
in calendar year: percentage is:
1983 33 1/3
1984 66 2/3
1985 or thereafter 100.
"(3) Special rules. -
"(A) Time of completion. - Any contract of a taxpayer which
would (but for this paragraph) be treated as having been
completed prior to the first taxable year of such taxpayer
ending after December 31, 1982, solely by reason of any
modification to regulations made under subsection (a)(1), shall
be treated as having been completed on the first day of such
taxable year.
"(B) Aggregation and severance. - Any contract of a taxpayer
which would (but for this paragraph) be treated as having been
completed prior to the first taxable year of such taxpayer
ending after December 31, 1982 -
"(i) solely by reason of any modification to regulations
made under subsection (a)(2), or
"(ii) solely by reason of any modifications to regulations
made under both paragraphs (1) and (2) of subsection (a),
shall be treated as having been completed on the first day after
December 31, 1982, on which any contract which was severed from
such contract (by reason of the modifications made by subsection
(a)(2)) is completed (determined after the application of any
modifications to regulations made under subsection (a)(1)).
"(4) Underpayments of estimated tax for 1982. - To the extent
provided in regulations, no addition to tax shall be made under
section 6654 or 6655 of the Internal Revenue Code of 1954 for the
taxpayer's first taxable year ending after December 31, 1982, by
reason of a long-term contract, but only with respect to
installments required to be paid before April 13, 1983."
PRIVATE DEFERRED COMPENSATION PLANS; TAXABLE YEARS ENDING ON OR
AFTER FEBRUARY 1, 1978
Pub. L. 95-600, title I, Sec. 132, Nov. 6, 1978, 92 Stat. 2782,
as amended by Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat.
2095, provided that:
"(a) General Rule. - The taxable year of inclusion in gross
income of any amount covered by a private deferred compensation
plan shall be determined in accordance with the principles set
forth in regulations, rulings, and judicial decisions relating to
deferred compensation which were in effect on February 1, 1978.
"(b) Private Deferred Compensation Plan Defined. -
"(1) In general. - For purposes of this section, the term
'private deferred compensation plan' means a plan, agreement, or
arrangement -
"(A) where the person for whom the service is performed is
not a State (within the meaning of paragraph (1) of section
457(d) of the Internal Revenue Code of 1986 [formerly I.R.C.
1954]) and not an organization which is exempt from tax under
section 501 of such Code, and
"(B) under which the payment or otherwise making available of
compensation is deferred.
"(2) Certain plans excluded. - Paragraph (1) shall not apply to
-
"(A) a plan described in section 401(a) of the Internal
Revenue Code of 1986 which includes a trust, exempt from tax
under section 501(a) of such Code,
"(B) an annuity plan or contract described in section 403 of
such Code,
"(C) a qualified bond purchase plan described in section
405(a) of such Code,
"(D) that portion of any plan which consists of a transfer of
property described in section 83 (determined without regard to
subsection (e) thereof of such Code, and
"(E) that portion of any plan which consists of a trust to
which section 402(b) of such Code applies.
"(c) Effective Date. - This section shall apply to taxable years
ending on or after February 1, 1978."
YEAR OF INCLUSION FOR DISASTER OR DEFICIENCY PAYMENTS RECEIVED IN
1978; ELECTION
Pub. L. 95-258, Sec. 1, Apr. 7, 1978, 92 Stat. 195, provided
that:
"(a) In General. - In the case of a taxpayer reporting on the
cash receipts and disbursements method of accounting, if -
"(1)(A) the taxpayer receives in his first taxable year
beginning in 1978 payments under the Agricultural Act of 1949, as
amended, [see Short Title note set out under section 1421 of
Title 7, Agriculture], as a result of -
"(i) the destruction or damage to crops caused by drought,
flood, or any other natural disaster, or
"(ii) the inability to plant crops because of such a natural
disaster, and
"(B) the taxpayer establishes that, under his practice, income
from such crops could have been reported for his last taxable
year beginning in 1977, or
"(2)(A) the taxpayer receives in his first taxable year
beginning in 1978 deficiency (or 'target price') payments under
the Agricultural Act of 1949, as amended, for any 1977 crop, and
"(B) the fifth month of such crop's marketing year ends before
December 1, 1977,
then the taxpayer may elect to include such proceeds in income for
his last taxable year beginning in 1977.
"(b) Making and Effect of Election - An election under this
section for any taxable year shall be made at such time and in such
manner as the Secretary of the Treasury may by regulations
prescribe and shall apply with respect to all proceeds described in
subsection (a) which were received by the taxpayer."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 455, 456, 460, 3402 of
this title.
-End-
-CITE-
26 USC Sec. 452 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart B - Taxable Year for Which Items of Gross Income Included
-HEAD-
[Sec. 452. Repealed. June 15, 1955, ch. 143, Sec. 1(a), 69 Stat.
134]
-MISC1-
Section, act Aug. 16, 1954, ch. 736, 68A Stat. 152, related to
prepaid income.
EFFECTIVE DATE OF REPEAL
Repeal effective with respect to taxable years beginning after
Dec. 31, 1953, and ending after Aug. 16, 1954, see section 3 of act
June 15, 1955, set out as an Effective Date of 1955 Amendment note
under section 381 of this title.
SAVINGS PROVISION
For provisions concerning increase in tax in any taxable year
ending on or before June 15, 1955 by reason of enactment of act
June 15, 1955, see section 4 of act June 15, 1955, set out as a
note under section 381 of this title.
-End-
-CITE-
26 USC Sec. 453 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart B - Taxable Year for Which Items of Gross Income Included
-HEAD-
Sec. 453. Installment method
-STATUTE-
(a) General rule
Except as otherwise provided in this section, income from an
installment sale shall be taken into account for purposes of this
title under the installment method.
(b) Installment sale defined
For purposes of this section -
(1) In general
The term "installment sale" means a disposition of property
where at least 1 payment is to be received after the close of the
taxable year in which the disposition occurs.
(2) Exceptions
The term "installment sale" does not include -
(A) Dealer dispositions
Any dealer disposition (as defined in subsection (l)).
(B) Inventories of personal property
A disposition of personal property of a kind which is
required to be included in the inventory of the taxpayer if on
hand at the close of the taxable year.
(c) Installment method defined
For purposes of this section, the term "installment method" means
a method under which the income recognized for any taxable year
from a disposition is that proportion of the payments received in
that year which the gross profit (realized or to be realized when
payment is completed) bears to the total contract price.
(d) Election out
(1) In general
Subsection (a) shall not apply to any disposition if the
taxpayer elects to have subsection (a) not apply to such
disposition.
(2) Time and manner for making election
Except as otherwise provided by regulations, an election under
paragraph (1) with respect to a disposition may be made only on
or before the due date prescribed by law (including extensions)
for filing the taxpayer's return of the tax imposed by this
chapter for the taxable year in which the disposition occurs.
Such an election shall be made in the manner prescribed by
regulations.
(3) Election revocable only with consent
An election under paragraph (1) with respect to any disposition
may be revoked only with the consent of the Secretary.
(e) Second dispositions by related persons
(1) In general
If -
(A) any person disposes of property to a related person
(hereinafter in this subsection referred to as the "first
disposition"), and
(B) before the person making the first disposition receives
all payments with respect to such disposition, the related
person disposes of the property (hereinafter in this subsection
referred to as the "second disposition"),
then, for purposes of this section, the amount realized with
respect to such second disposition shall be treated as received
at the time of the second disposition by the person making the
first disposition.
(2) 2-Year cutoff for property other than marketable securities
(A) In general
Except in the case of marketable securities, paragraph (1)
shall apply only if the date of the second disposition is not
more than 2 years after the date of the first disposition.
(B) Substantial diminishing of risk of ownership
The running of the 2-year period set forth in subparagraph
(A) shall be suspended with respect to any property for any
period during which the related person's risk of loss with
respect to the property is substantially diminished by -
(i) the holding of a put with respect to such property (or
similar property),
(ii) the holding by another person of a right to acquire
the property, or
(iii) a short sale or any other transaction.
(3) Limitation on amount treated as received
The amount treated for any taxable year as received by the
person making the first disposition by reason of paragraph (1)
shall not exceed the excess of -
(A) the lesser of -
(i) the total amount realized with respect to any second
disposition of the property occurring before the close of the
taxable year, or
(ii) the total contract price for the first disposition,
over
(B) the sum of -
(i) the aggregate amount of payments received with respect
to the first disposition before the close of such year, plus
(ii) the aggregate amount treated as received with respect
to the first disposition for prior taxable years by reason of
this subsection.
(4) Fair market value where disposition is not sale or exchange
For purposes of this subsection, if the second disposition is
not a sale or exchange, an amount equal to the fair market value
of the property disposed of shall be substituted for the amount
realized.
(5) Later payments treated as receipt of tax paid amounts
If paragraph (1) applies for any taxable year, payments
received in subsequent taxable years by the person making the
first disposition shall not be treated as the receipt of payments
with respect to the first disposition to the extent that the
aggregate of such payments does not exceed the amount treated as
received by reason of paragraph (1).
(6) Exception for certain dispositions
For purposes of this subsection -
(A) Reacquisitions of stock by issuing corporation not treated
as first dispositions
Any sale or exchange of stock to the issuing corporation
shall not be treated as a first disposition.
(B) Involuntary conversions not treated as second dispositions
A compulsory or involuntary conversion (within the meaning of
section 1033) and any transfer thereafter shall not be treated
as a second disposition if the first disposition occurred
before the threat or imminence of the conversion.
(C) Dispositions after death
Any transfer after the earlier of -
(i) the death of the person making the first disposition,
or
(ii) the death of the person acquiring the property in the
first disposition,
and any transfer thereafter shall not be treated as a second
disposition.
(7) Exception where tax avoidance not a principal purpose
This subsection shall not apply to a second disposition (and
any transfer thereafter) if it is established to the satisfaction
of the Secretary that neither the first disposition nor the
second disposition had as one of its principal purposes the
avoidance of Federal income tax.
(8) Extension of statute of limitations
The period for assessing a deficiency with respect to a first
disposition (to the extent such deficiency is attributable to the
application of this subsection) shall not expire before the day
which is 2 years after the date on which the person making the
first disposition furnishes (in such manner as the Secretary may
by regulations prescribe) a notice that there was a second
disposition of the property to which this subsection may have
applied. Such deficiency may be assessed notwithstanding the
provisions of any law or rule of law which would otherwise
prevent such assessment.
(f) Definitions and special rules
For purposes of this section -
(1) Related person
Except for purposes of subsections (g) and (h), the term
"related person" means -
(A) a person whose stock would be attributed under section
318(a) (other than paragraph (4) thereof) to the person first
disposing of the property, or
(B) a person who bears a relationship described in section
267(b) to the person first disposing of the property.
(2) Marketable securities
The term "marketable securities" means any security for which,
as of the date of the disposition, there was a market on an
established securities market or otherwise.
(3) Payment
Except as provided in paragraph (4), the term "payment" does
not include the receipt of evidences of indebtedness of the
person acquiring the property (whether or not payment of such
indebtedness is guaranteed by another person).
(4) Purchaser evidences of indebtedness payable on demand or
readily tradable
Receipt of a bond or other evidence of indebtedness which -
(A) is payable on demand, or
(B) is issued by a corporation or a government or political
subdivision thereof and is readily tradable,
shall be treated as receipt of payment.
(5) Readily tradable defined
For purposes of paragraph (4), the term "readily tradable"
means a bond or other evidence of indebtedness which is issued -
(A) with interest coupons attached or in registered form
(other than one in registered form which the taxpayer
establishes will not be readily tradable in an established
securities market), or
(B) in any other form designed to render such bond or other
evidence of indebtedness readily tradable in an established
securities market.
(6) Like-kind exchanges
In the case of any exchange described in section 1031(b) -
(A) the total contract price shall be reduced to take into
account the amount of any property permitted to be received in
such exchange without recognition of gain,
(B) the gross profit from such exchange shall be reduced to
take into account any amount not recognized by reason of
section 1031(b), and
(C) the term "payment", when used in any provision of this
section other than subsection (b)(1), shall not include any
property permitted to be received in such exchange without
recognition of gain.
Similar rules shall apply in the case of an exchange which is
described in section 356(a) and is not treated as a dividend.
(7) Depreciable property
The term "depreciable property" means property of a character
which (in the hands of the transferee) is subject to the
allowance for depreciation provided in section 167.
(8) Payments to be received defined
The term "payments to be received" includes -
(A) the aggregate amount of all payments which are not
contingent as to amount, and
(B) the fair market value of any payments which are
contingent as to amount.
(g) Sale of depreciable property to controlled entity
(1) In general
In the case of an installment sale of depreciable property
between related persons -
(A) subsection (a) shall not apply,
(B) for purposes of this title -
(i) except as provided in clause (ii), all payments to be
received shall be treated as received in the year of the
disposition, and
(ii) in the case of any payments which are contingent as to
the amount but with respect to which the fair market value
may not be reasonably ascertained, the basis shall be
recovered ratably, and
(C) the purchaser may not increase the basis of any property
acquired in such sale by any amount before the time such amount
is includible in the gross income of the seller.
(2) Exception where tax avoidance not a principal purpose
Paragraph (1) shall not apply if it is established to the
satisfaction of the Secretary that the disposition did not have
as one of its principal purposes the avoidance of Federal income
tax.
(3) Related persons
For purposes of this subsection, the term "related persons" has
the meaning given to such term by section 1239(b), except that
such term shall include 2 or more partnerships having a
relationship to each other described in section 707(b)(1)(B).
(h) Use of installment method by shareholders in certain
liquidations
(1) Receipt of obligations not treated as receipt of payment
(A) In general
If, in a liquidation to which section 331 applies, the
shareholder receives (in exchange for the shareholder's stock)
an installment obligation acquired in respect of a sale or
exchange by the corporation during the 12-month period
beginning on the date a plan of complete liquidation is adopted
and the liquidation is completed during such 12-month period,
then, for purposes of this section, the receipt of payments
under such obligation (but not the receipt of such obligation)
by the shareholder shall be treated as the receipt of payment
for the stock.
(B) Obligations attributable to sale of inventory must result
from bulk sale
Subparagraph (A) shall not apply to an installment obligation
acquired in respect of a sale or exchange of -
(i) stock in trade of the corporation,
(ii) other property of a kind which would properly be
included in the inventory of the corporation if on hand at
the close of the taxable year, and
(iii) property held by the corporation primarily for sale
to customers in the ordinary course of its trade or business,
unless such sale or exchange is to 1 person in 1 transaction
and involves substantially all of such property attributable to
a trade or business of the corporation.
(C) Special rule where obligor and shareholder are related
persons
If the obligor of any installment obligation and the
shareholder are married to each other or are related persons
(within the meaning of section 1239(b)), to the extent such
installment obligation is attributable to the disposition by
the corporation of depreciable property -
(i) subparagraph (A) shall not apply to such obligation,
and
(ii) for purposes of this title, all payments to be
received by the shareholder shall be deemed received in the
year the shareholder receives the obligation.
(D) Coordination with subsection (e)(1)(A)
For purposes of subsection (e)(1)(A), disposition of property
by the corporation shall be treated also as disposition of such
property by the shareholder.
(E) Sales by liquidating subsidiaries
For purposes of subparagraph (A), in the case of a
controlling corporate shareholder (within the meaning of
section 368(c)) of a selling corporation, an obligation
acquired in respect of a sale or exchange by the selling
corporation shall be treated as so acquired by such controlling
corporate shareholder. The preceding sentence shall be applied
successively to each controlling corporate shareholder above
such controlling corporate shareholder.
(2) Distributions received in more than 1 taxable year of
shareholder
If -
(A) paragraph (1) applies with respect to any installment
obligation received by a shareholder from a corporation, and
(B) by reason of the liquidation such shareholder receives
property in more than 1 taxable year,
then, on completion of the liquidation, basis previously
allocated to property so received shall be reallocated for all
such taxable years so that the shareholder's basis in the stock
of the corporation is properly allocated among all property
received by such shareholder in such liquidation.
(i) Recognition of recapture income in year of disposition
(1) In general
In the case of any installment sale of property to which
subsection (a) applies -
(A) notwithstanding subsection (a), any recapture income
shall be recognized in the year of the disposition, and
(B) any gain in excess of the recapture income shall be taken
into account under the installment method.
(2) Recapture income
For purposes of paragraph (1), the term "recapture income"
means, with respect to any installment sale, the aggregate amount
which would be treated as ordinary income under (or so much of
section 751 as relates to section 1245 or 1250) for the taxable
year of the disposition if all payments to be received were
received in the taxable year of disposition.
(j) Regulations
(1) In general
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the provisions of this
section.
(2) Selling price not readily ascertainable
The regulations prescribed under paragraph (1) shall include
regulations providing for ratable basis recovery in transactions
where the gross profit or the total contract price (or both)
cannot be readily ascertained.
(k) Current inclusion in case of revolving credit plans, etc.
In the case of -
(1) any disposition of personal property under a revolving
credit plan, or
(2) any installment obligation arising out of a sale of -
(A) stock or securities which are traded on an established
securities market, or
(B) to the extent provided in regulations, property (other
than stock or securities) of a kind regularly traded on an
established market,
subsection (a) shall not apply, and, for purposes of this title,
all payments to be received shall be treated as received in the
year of disposition. The Secretary may provide for the application
of this subsection in whole or in part for transactions in which
the rules of this subsection otherwise would be avoided through the
use of related parties, pass-thru entities, or intermediaries.
(l) Dealer dispositions
For purposes of subsection (b)(2)(A) -
(1) In general
The term "dealer disposition" means any of the following
dispositions:
(A) Personal property
Any disposition of personal property by a person who
regularly sells or otherwise disposes of personal property of
the same type on the installment plan.
(B) Real property
Any disposition of real property which is held by the
taxpayer for sale to customers in the ordinary course of the
taxpayer's trade or business.
(2) Exceptions
The term "dealer disposition" does not include -
(A) Farm property
The disposition on the installment plan of any property used
or produced in the trade or business of farming (within the
meaning of section 2032A(e)(4) or (5)).
(B) Timeshares and residential lots
(i) In general
Any dispositions described in clause (ii) on the
installment plan if the taxpayer elects to have paragraph (3)
apply to any installment obligations which arise from such
dispositions. An election under this paragraph shall not
apply with respect to an installment obligation which is
guaranteed by any person other than an individual.
(ii) Dispositions to which subparagraph applies
A disposition is described in this clause if it is a
disposition in the ordinary course of the taxpayer's trade or
business to an individual of -
(I) a timeshare right to use or a timeshare ownership
interest in residential real property for not more than 6
weeks per year, or a right to use specified campgrounds for
recreational purposes, or
(II) any residential lot, but only if the taxpayer (or
any related person) is not to make any improvements with
respect to such lot.
For purposes of subclause (I), a timeshare right to use (or
timeshare ownership interest in) property held by the spouse,
children, grandchildren, or parents of an individual shall be
treated as held by such individual.
(C) Carrying charges or interest
Any carrying charges or interest with respect to a
disposition described in subparagraph (A) or (B) which are
added on the books of account of the seller to the established
cash selling price of the property shall be included in the
total contract price of the property and, if such charges or
interest are not so included, any payments received shall be
treated as applying first against such carrying charges or
interest.
(3) Payment of interest on timeshares and residential lots
(A) In general
In the case of any installment obligation to which paragraph
(2)(B) applies, the tax imposed by this chapter for any taxable
year for which payment is received on such obligation shall be
increased by the amount of interest determined in the manner
provided under subparagraph (B).
(B) Computation of interest
(i) In general
The amount of interest referred to in subparagraph (A) for
any taxable year shall be determined -
(I) on the amount of the tax for such taxable year which
is attributable to the payments received during such
taxable year on installment obligations to which this
subsection applies,
(II) for the period beginning on the date of sale, and
ending on the date such payment is received, and
(III) by using the applicable Federal rate under section
1274 (without regard to subsection (d)(2) thereof) in
effect at the time of the sale compounded semiannually.
(ii) Interest not taken into account
For purposes of clause (i), the portion of any tax
attributable to the receipt of any payment shall be
determined without regard to any interest imposed under
subparagraph (A).
(iii) Taxable year of sale
No interest shall be determined for any payment received in
the taxable year of the disposition from which the
installment obligation arises.
(C) Treatment as interest
Any amount payable under this paragraph shall be taken into
account in computing the amount of any deduction allowable to
the taxpayer for interest paid or accrued during such taxable
year.
-SOURCE-
(Added Pub. L. 96-471, Sec. 2(a), Oct. 19, 1980, 94 Stat. 2247;
amended Pub. L. 97-34, title II, Sec. 202(c), Aug. 13, 1981, 95
Stat. 221; Pub. L. 97-448, title III, Sec. 303, Jan. 12, 1983, 96
Stat. 2398; Pub. L. 98-369, div. A, title I, Sec. 112(a), title IV,
Sec. 421(b)(6)(B), (C), July 18, 1984, 98 Stat. 635, 794; Pub. L.
99-514, title VI, Secs. 631(e)(8), 642(a)(1)(D), (3), (b), title
VIII, Sec. 812(a), title XVIII, Sec. 1809(c), Oct. 22, 1986, 100
Stat. 2274, 2284, 2371, 2821; Pub. L. 100-203, title X, Sec.
10202(b), Dec. 22, 1987, 101 Stat. 1330-388; Pub. L. 100-647, title
I, Secs. 1006(e)(7), (i)(1), (2), 1008(g)(1), 1018(u)(25), (26),
title II, Sec. 2004(d)(1), (5), Nov. 10, 1988, 102 Stat. 3401,
3410, 3442, 3591, 3599; Pub. L. 106-170, title V, Sec. 536(a), Dec.
17, 1999, 113 Stat. 1936; Pub. L. 106-573, Sec. 2(a), Dec. 28,
2000, 114 Stat. 3061.)
-MISC1-
PRIOR PROVISIONS
A prior section 453, acts Aug. 16, 1954, ch. 736, 68A Stat. 154;
Sept. 2, 1958, Pub. L. 85-866, title I, Sec. 27(a), 72 Stat. 1624;
Oct. 16, 1962, Pub. L. 87-834, Sec. 13(f)(5), 76 Stat. 1035; Feb.
26, 1964, Pub. L. 88-272, title II, Secs. 222(a), 231(b)(5), 78
Stat. 75, 105; Aug. 22, 1964, Pub. L. 88-484, Sec. 1(b)(2), 78
Stat. 597; Aug. 31, 1964, Pub. L. 88-539, Sec. 3(a), (b), 78 Stat.
746; Sept. 12, 1966, Pub. L. 89-570, Sec. 1(b)(5), 80 Stat. 762;
Nov. 13, 1966, Pub. L. 89-809, title II, Sec. 202(c), 80 Stat.
1576; Dec. 30, 1969, Pub. L. 91-172, title II, Sec. 211(b)(5),
title III, Sec. 301(b)(7), title IV, Sec. 412(a), title IX, Sec.
916(a), 83 Stat. 570, 585, 608, 723; Oct. 4, 1976, Pub. L. 94-455,
title II, Sec. 205(c)(1)(E), title XIX, Secs. 1901(a)(66),
1906(b)(13)(A), 1951(b)(7)(A), 90 Stat. 1535, 1775, 1834, 1838;
Nov. 6, 1978, Pub. L. 95-600, title VII, Sec. 703(j)(3), 92 Stat.
2941; Apr. 1, 1980, Pub. L. 96-222, title I, Sec. 104(a)(4)(H)(iv),
94 Stat. 217; Apr. 2, 1980, Pub. L. 96-223, title IV, Sec.
403(b)(2)(B), 94 Stat. 305; Oct. 19, 1980, Pub. L. 96-471, Sec.
2(c)(4), 94 Stat. 2254, related to installment method in general,
installment method for dealers in personal property, and gain or
loss dispositions of installment obligations, prior to repeal by
Pub. L. 96-471, Sec. 2(a), Oct. 19, 1980, 94 Stat. 2247. See
sections 453A and 453B of this title.
AMENDMENTS
2000 - Subsecs. (a), (d)(1), (i)(1), (k). Pub. L. 106-573
repealed Pub. L. 106-170, Sec. 536(a). See 1999 Amendment notes
below.
1999 - Subsec. (a). Pub. L. 106-170, Sec. 536(a)(1), which
substituted "Use of installment method" for "General rule" in
subsec. heading, designated existing provisions as par. (1) and
inserted heading, and added heading and text of par. (2), text of
which read as follows: "(2) Accrual method taxpayer. - The
installment method shall not apply to income from an installment
sale if such income would be reported under an accrual method of
accounting without regard to this section. The preceding sentence
shall not apply to a disposition described in subparagraph (A) or
(B) of subsection (l)(2).", was repealed by Pub. L. 106-573, Sec.
2(a). See Effective Date and Construction of 2000 Amendment note
below.
Subsecs. (d)(1), (i)(1), (k). Pub. L. 106-170, Sec. 536(a)(2),
which substituted "(a)(1)" for "(a)" wherever appearing, was
repealed by Pub. L. 106-573. See Effective Date and Construction of
2000 Amendment note below.
1988 - Subsec. (f)(1). Pub. L. 100-647, Sec. 1018(u)(25),
substituted "subsections (g)" for "subsection (g)".
Subsec. (f)(8). Pub. L. 100-647, Sec. 1018(u)(26), substituted
"payments to be" for "payment to be".
Subsec. (g)(1). Pub. L. 100-647, Sec. 1006(i)(2)(B), struck out
"(within the meaning of section 1239(b))" after "between related
persons".
Pub. L. 100-647, Sec. 1006(i)(1), added subpars. (A) to (C) and
struck out former subpars. (A) and (B) which read as follows:
"(A) subsection (a) shall not apply, and
"(B) for purposes of this title -
"(i) except as provided in clause (ii), all payments to be
received shall be treated as received in the year of the
disposition, and
"(ii) in the case of any payments which are contingent as to
amount but with respect to which the fair market value may not be
reasonably ascertained -
"(I) the basis shall be recovered ratably, and
"(II) the purchaser may not increase the basis of any
property acquired in such sale by any amount before such time
as the seller includes such amount in income."
Subsec. (g)(3). Pub. L. 100-647, Sec. 1006(i)(2)(A), added par.
(3).
Subsec. (h)(1)(B). Pub. L. 100-647, Sec. 1006(e)(7)(A),
substituted "to 1 person in 1 transaction" for "to one person" in
concluding provisions.
Subsec. (h)(1)(E). Pub. L. 100-647, Sec. 1006(e)(7)(B),
substituted "section 368(c)" for "section 368(c)(1)".
Subsec. (j). Pub. L. 100-647, Sec. 1008(g)(1), redesignated
subsec. (j), relating to current inclusion in case of revolving
credit plans, etc., as (k).
Subsec. (k). Pub. L. 100-647, Sec. 2004(d)(5), struck out "and
section 453A" after "subsection (a)" in second sentence.
Pub. L. 100-647, Sec. 1008(g)(1), redesignated subsec. (j),
relating to current inclusion in case of revolving credit plans,
etc., as (k).
Subsec. (l)(1)(A). Pub. L. 100-647, Sec. 2004(d)(1), inserted "of
the same type" after "disposes of personal property".
1987 - Subsec. (b)(2)(A). Pub. L. 100-203, Sec. 10202(b)(1),
substituted "Dealer dispositions" for "Dealer disposition of
personal property" in heading and amended text generally. Prior to
amendment, text read as follows: "A disposition of personal
property on the installment plan by a person who regularly sells or
otherwise disposes of personal property on the installment plan."
Subsec. (l). Pub. L. 100-203, Sec. 10202(b)(2), added subsec.
(l).
1986 - Subsec. (f)(1). Pub. L. 99-514, Sec. 642(a)(3), amended
par. (1) generally. Prior to amendment, par. (1) read as follows:
"Except for purposes of subsections (g) and (h), the term 'related
person' means a person whose stock would be attributed under
section 318(a) (other than paragraph (4) thereof) to the person
first disposing of the property."
Subsec. (f)(8). Pub. L. 99-514, Sec. 642(b)(1), added par. (8).
Subsec. (g). Pub. L. 99-514, Sec. 642(a)(1)(D), substituted
"controlled entity" for "80-percent owned entity" in heading.
Subsec. (g)(1). Pub. L. 99-514, Sec. 642(b)(2), amended par. (1)
generally. Prior to amendment, par. (1) read as follows: "In the
case of an installment sale of depreciable property between related
persons within the meaning of section 1239(b), subsection (a) shall
not apply, and, for purposes of this title, all payments to be
received shall be deemed received in the year of the disposition."
Subsec. (h). Pub. L. 99-514, Sec. 631(e)(8)(C), substituted
"certain liquidations" for "section 337 liquidations" in heading.
Subsec. (h)(1)(A). Pub. L. 99-514, Sec. 631(e)(8)(A), amended
subpar. (A) generally. Prior to amendment, subpar. (A) read as
follows: "If, in connection with a liquidation to which section 337
applies, in a transaction to which section 331 applies the
shareholder receives (in exchange for the shareholder's stock) an
installment obligation acquired in respect of a sale or exchange by
the corporation during the 12-month period set forth in section
337(a), then, for purposes of this section, the receipt of payments
under such obligation (but not the receipt of such obligation) by
the shareholder shall be treated as the receipt of payment for the
stock."
Subsec. (h)(1)(B). Pub. L. 99-514, Sec. 631(e)(8)(A), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: "Subparagraph (A) shall not apply to an installment
obligation described in section 337(b)(1)(B) unless such obligation
is also described in section 337(b)(2)(B)."
Subsec. (h)(1)(E). Pub. L. 99-514, Sec. 631(e)(8)(B), substituted
"subsidiaries" for "subsidiary" in heading and amended text
generally. Prior to amendment, subpar. (E) read as follows: "For
purposes of subparagraph (A), in any case to which section
337(c)(3) applies, an obligation acquired in respect of a sale or
exchange by the selling corporation shall be treated as so acquired
by the corporation distributing the obligation to the shareholder."
Subsec. (i)(2). Pub. L. 99-514, Sec. 1809(c), substituted "(or so
much of section 751 as relates to section 1245 or 1250)" for
"section 1245 or 1250".
Subsec. (j). Pub. L. 99-514, Sec. 812(a), added subsec. (j)
relating to current inclusion in case of revolving credit plans,
etc.
1984 - Subsec. (g). Pub. L. 98-369, Sec. 421(b)(6)(C), struck out
"spouse or" after "property to" in heading.
Subsec. (h)(1)(C). Pub. L. 98-369, Sec. 421(b)(6)(B), inserted
"married to each other or are".
Subsec. (i). Pub. L. 98-369, Sec. 112(a), amended subsec. (i)
generally, substituting provisions relating to recognition of
recapture income in year of disposition for provisions relating to
application of subsec. (a) in the case of an installment sale of
section 179 property.
1983 - Subsec. (f)(6)(C). Pub. L. 97-448 inserted ", when used in
any provision of this section other than subsection (b)(1)," after
"the term 'payment' ".
1981 - Subsecs. (i), (j). Pub. L. 97-34 added subsec. (i) and
redesignated former subsec. (i) as (j).
EFFECTIVE DATE AND CONSTRUCTION OF 2000 AMENDMENT
Pub. L. 106-573, Sec. 2, Dec. 28, 2000, 114 Stat. 3061, provided
that:
"(a) In General. - Subsection (a) of section 536 of the Ticket to
Work and Work Incentives Improvement Act of 1999 (relating to
modification of installment method and repeal of installment method
for accrual method taxpayers) [Pub. L. 106-170, amending this
section] is repealed effective with respect to sales and other
dispositions occurring on or after the date of the enactment of
such Act [Dec. 17, 1999].
"(b) Applicability. - The Internal Revenue Code of 1986 shall be
applied and administered as if that subsection (and the amendments
made by that subsection) had not been enacted."
EFFECTIVE DATE OF 1999 AMENDMENT
Pub. L. 106-170, title V, Sec. 536(c), Dec. 17, 1999, 113 Stat.
1936, provided that: "The amendments made by this section [amending
this section and section 453A of this title] shall apply to sales
or other dispositions occurring on or after the date of the
enactment of this Act [Dec. 17, 1999]."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by sections 1006(e)(7), (i)(1), (2), 1008(g)(1), and
1018(u)(25), (26) 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.
Amendment by section 2004(d)(1), (5) 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.
EFFECTIVE DATE OF 1987 AMENDMENT
Section 10202(e) of Pub. L. 100-203, as amended by Pub. L.
100-647, title II, Sec. 2004(d)(3), (4), (6), Nov. 10, 1988, 102
Stat. 3599, 3600, provided that:
"(1) In general. - Except as provided in this subsection, the
amendments made by this section [amending this section and sections
56, 381, 453A, and 691 of this title and repealing section 453C of
this title] shall apply to dispositions in taxable years beginning
after December 31, 1987.
"(2) Special rules for dealers. -
"(A) In general. - In the case of dealer dispositions (within
the meaning of section 453(l)(1) of the Internal Revenue Code of
1986 as added by this section), the amendments made by
subsections (a) and (b) [amending this section and repealing
section 453C of this title] shall apply to installment
obligations arising from dispositions after December 31, 1987.
"(B) Special rules for obligations arising from dealer
dispositions after february 28, 1986, and before january 1, 1988.
-
"(i) In general. - In the case of an applicable installment
obligation arising from a disposition described in subclause
(I) or (II) of section 453C(e)(1)(A)(i) of the Internal Revenue
Code of 1986 (as in effect before the amendments made by this
section) before January 1, 1988, the amendments made by
subsections (a) and (b) shall apply to taxable years beginning
after December 31, 1987.
"(ii) Change in method of accounting. - In the case of any
taxpayer who is required by clause (i) to change its method of
accounting for any taxable year with respect to obligations
described in clause (i) -
"(I) such change shall be treated as initiated by the
taxpayer,
"(II) such change shall be treated as made with the consent
of the Secretary of the Treasury or his delegate, and
"(III) the net amount of adjustments required by section
481 of the Internal Revenue Code of 1986 shall be taken into
account over a period not longer than 4 taxable years.
"(C) Certain rules made applicable. - For purposes of this
paragraph, rules similar to the rules of paragraphs (4) and (5)
of section 812(c) of the Tax Reform Act of 1986 [Pub. L. 99-514,
set out as an Effective Date of 1986 Amendment note below] (as
added by the Technical and Miscellaneous Revenue Act of 1988
[Pub. L. 100-647]) shall apply.
"(3) Special rule for nondealers. -
"(A) Election. - A taxpayer may elect, at such time and in such
manner as the Secretary of the Treasury or his delegate may
prescribe, to have the amendments made by subsections (a) and (c)
[amending sections 381, 453A, and 691 of this title and repealing
section 453C of this title] apply to taxable years ending after
December 31, 1986, with respect to dispositions and pledges
occurring after August 16, 1986.
"(B) Pledging rules. - Except as provided in subparagraph (A) -
"(i) In general. - Section 453A(d) of the Internal Revenue
Code of 1986 shall apply to any installment obligation which is
pledged to secure any secured indebtedness (within the meaning
of section 453A(d)(4) of such Code) after December 17, 1987, in
taxable years ending after such date.
"(ii) Coordination with section 453c. - For purposes of
section 453C of such Code (as in effect before its repeal), the
face amount of any obligation to which section 453A(d) of such
Code applies shall be reduced by the amount treated as payments
on such obligation under section 453A(d) of such Code and the
amount of any indebtedness secured by it shall not be taken
into account.
"(C) Certain dispositions deemed made on 1st day of taxable
year. - If the taxpayer makes an election under subparagraph (A),
in the case of the taxpayer's 1st taxable year ending after
December 31, 1986 -
"(i) dispositions after August 16, 1986, and before the 1st
day of such taxable year shall be treated as made on such 1st
day, and
"(ii) subsections (b)(2)(B) and (c)(4) of section 453A of
such Code shall be applied separately with respect to such
dispositions by substituting for '$5,000,000' the amount which
bears the same ratio to $5,000,000 as the number of days after
August 16, 1986, and before such 1st day bears to 365.
"(4) Minimum tax. - The amendment made by subsection (d)
[amending section 56 of this title] shall apply to dispositions in
taxable years beginning after December 31, 1986.
"(5) Coordination with tax reform act of 1986. - The amendments
made by this section shall not apply to any installment obligation
or to any taxpayer during any period to the extent the amendments
made by section 811 of the Tax Reform Act of 1986 [section 811 of
Pub. L. 99-514, amending former section 453C of this title and
enacting provisions set out as a note under former section 453C of
this title] do not apply to such obligation or during such period."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 631(e)(8) of Pub. L. 99-514 applicable to
any distribution in complete liquidation, and any sale or exchange,
made by a corporation after July 31, 1986, unless such corporation
is completely liquidated before Jan. 1, 1987, any transaction
described in section 338 of this title for which the acquisition
date occurs after Dec. 31, 1986, and any distribution, not in
complete liquidation, made after Dec. 31, 1986, with exceptions and
special and transitional rules, see section 633 of Pub. L. 99-514,
set out as an Effective Date note under section 336 of this title.
Amendment by section 642(a)(1)(D), (3), (b) of Pub. L. 99-514
applicable to sales after Oct. 22, 1986, in taxable years ending
after such date, but not applicable to sales made after Aug. 14,
1986, which are made pursuant to a binding contract in effect on
Aug. 14, 1986, and at all times thereafter, see section 642(c) of
Pub. L. 99-514, set out as a note under section 1239 of this title.
Section 812(c) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1008(g)(3)-(6), Nov. 10, 1988, 102 Stat. 3443,
provided that:
"(1) In general. - Except as provided in paragraphs (2) and (3),
the amendment made by subsection (a) [amending this section] shall
apply to taxable years beginning after December 31, 1986.
"(2) Sales of stock, etc. - Section 453(k)(2) of the Internal
Revenue Code of 1986, as added by subsection (a), shall apply to
sales after December 31, 1986, in taxable years ending after such
date.
"(3) Change in method of accounting. - In the case of any
taxpayer who made sales under a revolving credit plan and was on
the installment method under section 453 or 453A of the Internal
Revenue Code of 1986 for such taxpayer's last taxable year
beginning before January 1, 1987, the amendments made by this
section [amending this section and section 453A of this title]
shall be treated as a change in method of accounting for its 1st
taxable year beginning after December 31, 1986, and -
"(A) such change shall be treated as initiated by the taxpayer,
"(B) such change shall be treated as having been made with the
consent of the Secretary,
"(C) the period for taking into account adjustments under
section 481 of such Code by reason of such change shall be equal
to 4 years, and
"(D) except as provided in paragraph (4), the amount taken into
account in each of such 4 years shall be the applicable
percentage (determined in accordance with the following table) of
the net adjustment:
The applicable
"In the case of the: percentage is:
1st taxable year 15
2nd taxable year 25
3rd taxable year 30
4th taxable year 30.
If the taxpayer's last taxable year beginning before January 1,
1987, was the taxpayer's 1st taxable year in which sales were made
under a revolving credit plan, all adjustments under section 481 of
such Code shall be taken into account in the taxpayer's 1st taxable
year beginning after December 31, 1986.
"(4) Acceleration of adjustments where contraction in amount of
installment obligations. -
"(A) In general. - If the percentage determined under
subparagraph (B) for any taxable year in the adjustment period
exceeds the percentage which would otherwise apply under
paragraph (3)(D) for such taxable year (determined after the
application of this paragraph for prior taxable years in the
adjustment period) -
"(i) the percentage determined under subparagraph (B) shall
be substituted for the applicable percentage which would
otherwise apply under paragraph (3)(D), and
"(ii) any increase in the applicable percentage by reason of
clause (i) shall be applied to reduce the applicable percentage
determined under paragraph (3)(D) for subsequent taxable years
in the adjustment period (beginning with the 1st of such
subsequent taxable years).
"(B) Determination of percentage. - For purposes of
subparagraph (A), the percentage determined under this
subparagraph for any taxable year in the adjustment period is the
excess (if any) of -
"(i) the percentage determined by dividing the aggregate
contraction in revolving installment obligations by the
aggregate face amount of such obligations outstanding as of the
close of the taxpayer's last taxable year beginning before
January 1, 1987, over
"(ii) the sum of the applicable percentages under paragraph
(3)(D) (as modified by this paragraph) for prior taxable years
in the adjustment period.
"(C) Aggregate contraction in revolving installment
obligations. - For purposes of subparagraph (B), the aggregate
contraction in revolving installment obligations is the amount by
which -
"(i) the aggregate face amount of the revolving installment
obligations outstanding as of the close of the taxpayer's last
taxable year beginning before January 1, 1987, exceeds
"(ii) the aggregate face amount of the revolving installment
obligations outstanding as of the close of the taxable year
involved.
"(D) Revolving installment obligations. - For purposes of this
paragraph, the term 'revolving installment obligations' means
installment obligations arising under a revolving credit plan.
"(E) Treatment of certain obligations disposed of on or before
october 26, 1987. - For purposes of subparagraphs (B)(i) and
(C)(i), in determining the aggregate face amount of revolving
installment obligations outstanding as of the close of the
taxpayer's last taxable year beginning before January 1, 1987,
there shall not be taken into account any obligation -
"(i) which was disposed of to an unrelated person on or
before October 26, 1987, or
"(ii) was disposed of to an unrelated person on or after such
date pursuant to a binding written contract in effect on
October 26, 1987, and at all times thereafter before such
disposition.
For purposes of the preceding sentence, the term 'unrelated
person' means any person who is not a related person (as defined
in section 453(g) of the Internal Revenue Code of 1986).
"(5) Limitation on losses from sales of obligations under
revolving credit plans. - If 1 or more obligations arising under a
revolving credit plan and taken into account under paragraph (3)
are disposed of during the adjustment period, then, notwithstanding
any other provision of law -
"(A) no losses from such dispositions shall be recognized, and
"(B) the aggregate amount of the adjustment for taxable years
in the adjustment period (in reverse order of time) shall be
reduced by the amount of such losses.
"(6) Adjustment period. - For purposes of paragraphs (4) and (5),
the adjustment period is the 4-year period under paragraph (3)."
Amendment by section 1809(c) 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
Section 112(b) of Pub. L. 98-369 provided that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [amending this
section] shall apply with respect to dispositions made after June
6, 1984.
"(2) Exception. - The amendments made by this section shall not
apply with respect to any disposition conducted pursuant to a
contract which was binding on March 22, 1984, and at all times
thereafter.
"(3) Special rule for certain dispositions before october 1,
1984. - The amendments made by this section shall not apply to any
disposition before October 1, 1984, of all or substantially all of
the personal property of a cable television business pursuant to a
written offer delivered by the seller on June 20, 1984, but only if
the last payment under the installment contract is due no later
than October 1, 1989."
Amendment by section 421(b)(6)(B), (C) of Pub. L. 98-369
applicable to transfers after July 18, 1984, in taxable years
ending after such date, subject to election to have amendment apply
to transfers after 1983 or to transfers pursuant to existing
decrees, see section 421(d) of Pub. L. 98-369, set out as an
Effective Date note under section 1041 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Section 311(a) of Pub. L. 97-448 provided that: "The amendments
made by sections 301, 302, and 303 [amending this section and
sections 453B and 1239 of this title] shall apply to dispositions
made after October 19, 1980, in taxable years ending after such
date."
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable to property placed in
service after Dec. 31, 1980, in taxable years ending after that
date, see section 209(a) of Pub. L. 97-34, set out as an Effective
Date note under section 168 of this title.
EFFECTIVE DATE; APPLICATION OF FORMER SECTION 453(B) TO CERTAIN
DISPOSITIONS
Section 6(a) of Pub. L. 96-471, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by sections 2 [enacting this
section and sections 453A and 453B of this title and amending
sections 311, 336, 337, 381, former section 453, and sections 453B,
481, 644, 691, and 1255 of this title] and 5 [amending section 1239
of this title] shall apply to dispositions made after the date of
the enactment of this Act [Oct. 19, 1980] in taxable years ending
after such date.
"(2) For section 453(e). - Section 453(e) of the Internal Revenue
Code of 1986 [formerly I.R.C. 1954] (as amended by section 2) shall
apply to first dispositions made after May 14, 1980.
"(3) For section 453(h). - Paragraphs (1) and (2) of section
453(h) of such Code (as amended by section 2) shall apply in the
case of distributions of installment obligations after March 31,
1980.
"(4) For section 453a. - Section 453A of the Internal Revenue
Code of 1986 (as amended by section 2) shall apply to taxable years
ending after the date of enactment of this Act [Oct. 19, 1980].
"(5) For section 453b(f). - Section 453B(f) of the Internal
Revenue Code of 1986 (as amended by section 2) shall apply to
installment obligations becoming unenforceable after the date of
the enactment of this Act [Oct. 19, 1980].
"(6) For section 2(c). - The amendments made by section 2(c)
[amending sections 336, 337, 453B, and former section 453 of this
title] shall take effect as if included in the amendments made by
section 403(b) of the Crude Oil Windfall Profit Tax Act of 1980
[see section 403(b)(3) of Pub. L. 96-223, set out as an Effective
Date of 1980 Amendments note under section 337 of this title].
"(7) Special rule for application of former section 453 to
certain dispositions. - In the case of any disposition made on or
before the date of the enactment of this Act [Oct. 19, 1980] in any
taxable year ending after such date, the provisions of section
453(b) of the Internal Revenue Code of 1986 [see subsec. (b) of
former section 453 of this title, set out below] as in effect
before such date, shall be applied with respect to such disposition
without regard to -
"(A) paragraph (2) of such section 453(b), and
"(B) any requirement that more than 1 payment be received."
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 [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 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.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 26, 163, 381, 453A, 453B,
469, 691, 774, 1259, 3406 of this title.
-End-
-CITE-
26 USC Sec. 453A 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart B - Taxable Year for Which Items of Gross Income Included
-HEAD-
Sec. 453A. Special rules for nondealers
-STATUTE-
(a) General rule
In the case of an installment obligation to which this section
applies -
(1) interest shall be paid on the deferred tax liability with
respect to such obligation in the manner provided under
subsection (c), and
(2) the pledging rules under subsection (d) shall apply.
(b) Installment obligations to which section applies
(1) In general
This section shall apply to any obligation which arises from
the disposition of any property under the installment method, but
only if the sales price of such property exceeds $150,000.
(2) Special rule for interest payments
For purposes of subsection (a)(1), this section shall apply to
an obligation described in paragraph (1) arising during a taxable
year only if -
(A) such obligation is outstanding as of the close of such
taxable year, and
(B) the face amount of all such obligations held by the
taxpayer which arose during, and are outstanding as of the
close of, such taxable year exceeds $5,000,000.
Except as provided in regulations, all persons treated as a
single employer under subsection (a) or (b) of section 52 shall
be treated as one person for purposes of this paragraph and
subsection (c)(4).
(3) Exception for personal use and farm property
An installment obligation shall not be treated as described in
paragraph (1) if it arises from the disposition -
(A) by an individual of personal use property (within the
meaning of section 1275(b)(3)), or
(B) of any property used or produced in the trade or business
of farming (within the meaning of section 2032A(e)(4) or (5)).
(4) Special rule for timeshares and residential lots
An installment obligation shall not be treated as described in
paragraph (1) if it arises from a disposition described in
section 453(l)(2)(B), but the provisions of section 453(l)(3)
(relating to interest payments on timeshares and residential
lots) shall apply to such obligation.
(5) Sales price
For purposes of paragraph (1), all sales or exchanges which are
part of the same transaction (or a series of related
transactions) shall be treated as 1 sale or exchange.
(c) Interest on deferred tax liability
(1) In general
If an obligation to which this section applies is outstanding
as of the close of any taxable year, the tax imposed by this
chapter for such taxable year shall be increased by the amount of
interest determined in the manner provided under paragraph (2).
(2) Computation of interest
For purposes of paragraph (1), the interest for any taxable
year shall be an amount equal to the product of -
(A) the applicable percentage of the deferred tax liability
with respect to such obligation, multiplied by
(B) the underpayment rate in effect under section 6621(a)(2)
for the month with or within which the taxable year ends.
(3) Deferred tax liability
For purposes of this section, the term "deferred tax liability"
means, with respect to any taxable year, the product of -
(A) the amount of gain with respect to an obligation which
has not been recognized as of the close of such taxable year,
multiplied by
(B) the maximum rate of tax in effect under section 1 or 11,
whichever is appropriate, for such taxable year.
For purposes of applying the preceding sentence with respect to
so much of the gain which, when recognized, will be treated as
long-term capital gain, the maximum rate on net capital gain
under section 1(h) or 1201 (whichever is appropriate) shall be
taken into account.
(4) Applicable percentage
For purposes of this subsection, the term "applicable
percentage" means, with respect to obligations arising in any
taxable year, the percentage determined by dividing -
(A) the portion of the aggregate face amount of such
obligations outstanding as of the close of such taxable year in
excess of $5,000,000, by
(B) the aggregate face amount of such obligations outstanding
as of the close of such taxable year.
(5) Treatment as interest
Any amount payable under this subsection shall be taken into
account in computing the amount of any deduction allowable to the
taxpayer for interest paid or accrued during the taxable year.
(6) Regulations
The Secretary shall prescribe such regulations as may be
necessary to carry out the provisions of this subsection
including regulations providing for the application of this
subsection in the case of contingent payments, short taxable
years, and pass-thru entities.
(d) Pledges, etc., of installment obligations
(1) In general
For purposes of section 453, if any indebtedness (hereinafter
in this subsection referred to as "secured indebtedness") is
secured by an installment obligation to which this section
applies, the net proceeds of the secured indebtedness shall be
treated as a payment received on such installment obligation as
of the later of -
(A) the time the indebtedness becomes secured indebtedness,
or
(B) the time the proceeds of such indebtedness are received
by the taxpayer.
(2) Limitation based on total contract price
The amount treated as received under paragraph (1) by reason of
any secured indebtedness shall not exceed the excess (if any) of
-
(A) the total contract price, over
(B) any portion of the total contract price received under
the contract before the later of the times referred to in
subparagraph (A) or (B) of paragraph (1) (including amounts
previously treated as received under paragraph (1) but not
including amounts not taken into account by reason of paragraph
(3)).
(3) Later payments treated as receipt of tax paid amounts
If any amount is treated as received under paragraph (1) with
respect to any installment obligation, subsequent payments
received on such obligation shall not be taken into account for
purposes of section 453 to the extent that the aggregate of such
subsequent payments does not exceed the aggregate amount treated
as received under paragraph (1).
(4) Secured indebtedness
For purposes of this subsection indebtedness is secured by an
installment obligation to the extent that payment of principal or
interest on such indebtedness is directly secured (under the
terms of the indebtedness or any underlying arrangements) by any
interest in such installment obligation. A payment shall be
treated as directly secured by an interest in an installment
obligation to the extent an arrangement allows the taxpayer to
satisfy all or a portion of the indebtedness with the installment
obligation.
(e) Regulations
The Secretary shall prescribe such regulations as may be
necessary to carry out the purposes of this section, including
regulations -
(1) disallowing the use of the installment method in whole or
in part for transactions in which the rules of this section
otherwise would be avoided through the use of related persons,
pass-thru entities, or intermediaries, and
(2) providing that the sale of an interest in a partnership or
other pass-thru entity will be treated as a sale of the
proportionate share of the assets of the partnership or other
entity.
-SOURCE-
(Added Pub. L. 96-471, Sec. 2(a), Oct. 19, 1980, 94 Stat. 2251;
amended Pub. L. 99-514, title VIII, Sec. 812(b), Oct. 22, 1986, 100
Stat. 2371; Pub. L. 100-203, title X, Sec. 10202(c)[(1)], Dec. 22,
1987, 101 Stat. 1330-390; Pub. L. 100-647, title I, Sec.
1008(g)(2), title II, Sec. 2004(d)(2), (7), (8), title V, Sec.
5076(a), (b)(1), Nov. 10, 1988, 102 Stat. 3442, 3599, 3600, 3682;
Pub. L. 101-239, title VII, Secs. 7812(c)(2), 7815(g),
7821(a)(1)-(3), (4)(B), Dec. 19, 1989, 103 Stat. 2412, 2420, 2423,
2424; Pub. L. 103-66, title XIII, Sec. 13201(b)(4), Aug. 10, 1993,
107 Stat. 459; Pub. L. 106-170, title V, Sec. 536(b), Dec. 17,
1999, 113 Stat. 1936.)
-MISC1-
PRIOR PROVISIONS
Provisions similar to those comprising this section were
contained in former section 453 of this title.
AMENDMENTS
1999 - Subsec. (d)(4). Pub. L. 106-170 inserted at end "A payment
shall be treated as directly secured by an interest in an
installment obligation to the extent an arrangement allows the
taxpayer to satisfy all or a portion of the indebtedness with the
installment obligation."
1993 - Subsec. (c)(3). Pub. L. 103-66 inserted at end "For
purposes of applying the preceding sentence with respect to so much
of the gain which, when recognized, will be treated as long-term
capital gain, the maximum rate on net capital gain under section
1(h) or 1201 (whichever is appropriate) shall be taken into
account."
1989 - Subsec. (b)(2)(B). Pub. L. 101-239, Sec. 7821(a)(1),
substituted "such obligations held by the taxpayer" for
"obligations of the taxpayer described in paragraph (1)".
Subsec. (b)(3). Pub. L. 101-239, Sec. 7815(g), substituted
"Exception for personal use and farm property" for "Exception for
farm property" in heading and amended text generally. Prior to
amendment, text read as follows: "An installment obligation shall
not be treated as described in paragraph (1) if it arises from the
disposition of any property used or produced in the trade or
business of farming (within the meaning of section 2032A(e)(4) or
(5)."
Pub. L. 101-239, Sec. 7812(c)(2), substituted "(5))." for "(5)."
Subsec. (c)(5), (6). Pub. L. 101-239, Sec. 7821(a)(4)(B), added
par. (5) and redesignated former par. (5) as (6).
Subsec. (d)(1)(B). Pub. L. 101-239, Sec. 7821(a)(3), substituted
"the time the proceeds" for "the proceeds".
Subsec. (d)(2)(B). Pub. L. 101-239, Sec. 7821(a)(2), substituted
"the later of the times referred to in subparagraph (A) or (B) of
paragraph (1)" for "such secured indebtedness was incurred".
1988 - Pub. L. 100-647, Sec. 5076(b)(1), struck out "of real
property" after "rules for nondealers" in section catchline.
Subsec. (b)(1). Pub. L. 100-647, Sec. 5076(a), amended par. (1)
generally. Prior to amendment, par. (1) read as follows: "This
section shall apply to any obligation which arises from the
disposition of real property under the installment method which is
property used in the taxpayer's trade or business or property held
for the production of rental income, but only if the sales price of
such property exceeds $150,000."
Subsec. (b)(2). Pub. L. 100-647, Sec. 2004(d)(7), inserted "and
subsection (c)(4)" after "of this paragraph" in last sentence.
Subsec. (b)(3). Pub. L. 100-647, Sec. 2004(d)(8), substituted
"farm property" for "personal use and farm property" in heading and
amended text generally. Prior to amendment, text read as follows:
"An installment obligation shall not be treated as described in
paragraph (1) if it arises from the disposition -
"(A) by an individual of personal use property (within the
meaning of section 1275(b)(3)), or
"(B) of any property used or produced in the trade or business
of farming (within the meaning of section 2032A(e)(4) or (5))."
Subsec. (c). Pub. L. 100-647, Sec. 1008(g)(2), substituted
"453(k)" for "453(j)" in subsec. (c) as in effect on date before
the date of enactment of Pub. L. 100-203 (Dec. 22, 1987).
Subsec. (e). Pub. L. 100-647, Sec. 2004(d)(2), added subsec. (e).
1987 - Pub. L. 100-203 substituted "Special rules for nondealers
of real property" for "Installment method for dealers in personal
property" in section catchline and amended text generally, revising
and restating as subsecs. (a) to (d) provisions of former subsecs.
(a) to (c).
1986 - Subsec. (a)(2). Pub. L. 99-514, Sec. 812(b)(1), struck out
last sentence which read as follows: "This paragraph shall not
apply with respect to sales of personal property under a revolving
credit type plan."
Subsec. (c). Pub. L. 99-514, Sec. 812(b)(2), added subsec. (c).
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-170 applicable to sales or other
dispositions occurring on or after Dec. 17, 1999, see section
536(c) of Pub. L. 106-170, set out as a note under section 453 of
this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable to taxable years beginning
after Dec. 31, 1992, see section 13201(c) of Pub. L. 103-66, set
out as a note under section 1 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by sections 7812(c)(2) and 7815(g) of Pub. L. 101-239
effective, except as otherwise provided, as if included in the
provision of the Technical and Miscellaneous Revenue Act of 1988,
Pub. L. 100-647, to which such amendment relates, see section 7817
of Pub. L. 101-239, set out as a note under section 1 of this
title.
Amendment by section 7821(a)(1)-(3), (4)(B) of Pub. L. 101-239
effective as if included in the provision of the Revenue Act of
1987, Pub. L. 100-203, title X, to which such amendment relates,
see section 7823 of Pub. L. 101-239, set out as a note under
section 26 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1008(g)(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.
Amendment by section 2004(d)(2), (7), (8) 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.
Section 5076(c) of Pub. L. 100-647 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section] shall apply
to sales after December 31, 1988.
"(2) Binding contract, etc. - The amendments made by this section
shall not apply to any sale on or before December 31, 1990, if -
"(A) such sale is pursuant to a written binding contract in
effect on October 21, 1988, and at all times thereafter before
such sale,
"(B) such sale is pursuant to a letter of intent in effect on
October 21, 1988, or
"(C) there is a board of directors or shareholder approval for
such sale on or before October 21, 1988."
EFFECTIVE DATE OF 1987 AMENDMENT
Amendment by Pub. L. 100-203 applicable to dispositions in
taxable years beginning after Dec. 31, 1987, with special rules for
non-dealers and coordination with Tax Reform Act of 1986, see
section 10202(e)(1), (3), (5) of Pub. L. 100-203, set out as a note
under section 453 of this title.
EFFECTIVE DATE
For effective date, see section 6(a)(4) of Pub. L. 96-471, set
out as a note under section 453 of this title.
CERTAIN REPLEDGES PERMITTED
Section 6031 of Pub. L. 100-647 provided that:
"(a) General Rule. - Section 453A(d) of the 1986 Code (relating
to pledges, etc., of installment obligations) shall not apply to
any pledge after December 17, 1987, of an installment obligation to
secure any indebtedness if such indebtedness is incurred to
refinance indebtedness which was outstanding on December 17, 1987,
and which was secured on such date and all times thereafter before
such refinancing by a pledge of such installment obligation.
"(b) Limitation. - Subsection (a) shall not apply to the extent
that the principal amount of the indebtedness resulting from the
refinancing exceeds the principal amount of the refinanced
indebtedness immediately before the refinancing.
"(c) Certain Refinancings Permitted. - For purposes of subsection
(a), if -
"(1) a refinancing is attributable to the calling of
indebtedness by the creditor, and
"(2) such refinancing is not with the creditor under the
refinanced indebtedness or a person related to such creditor,
such refinancing shall, to the extent the refinanced indebtedness
qualifies under subsections (a) and (b), be treated as a
continuation of such refinanced indebtedness."
AMENDMENT BY PUB. L. 99-514 TREATED AS CHANGE IN METHOD OF
ACCOUNTING
For provisions requiring change in accounting method in the case
of any taxpayer who made sales under revolving credit plan and was
on installment method under this section for such taxpayer's last
taxable year beginning before Jan. 1, 1987, see section 812(c)(2)
of Pub. L. 99-514, set out as an Effective Date of 1986 Amendment
note under section 453 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 26, 56, 774 of this
title.
-End-
-CITE-
26 USC Sec. 453B 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart B - Taxable Year for Which Items of Gross Income Included
-HEAD-
Sec. 453B. Gain or loss disposition of installment obligations
-STATUTE-
(a) General rule
If an installment obligation is satisfied at other than its face
value or distributed, transmitted, sold, or otherwise disposed of,
gain or loss shall result to the extent of the difference between
the basis of the obligation and -
(1) the amount realized, in the case of satisfaction at other
than face value or a sale or exchange, or
(2) the fair market value of the obligation at the time of
distribution, transmission, or disposition, in the case of the
distribution, transmission, or disposition otherwise than by sale
or exchange.
any gain or loss so resulting shall be considered as resulting from
the sale or exchange of the property in respect of which the
installment obligation was received.
(b) Basis of obligation
The basis of an installment obligation shall be the excess of the
face value of the obligation over an amount equal to the income
which would be returnable were the obligation satisfied in full.
(c) Special rule for transmission at death
Except as provided in section 691 (relating to recipients of
income in respect of decedents), this section shall not apply to
the transmission of installment obligations at death.
(d) Exception for distributions to which section 337(a) applies
Subsection (a) shall not apply to any distribution to which
section 337(a) applies.
(e) Life insurance companies
(1) In general
In the case of a disposition of an installment obligation by
any person other than a life insurance company (as defined in
section 816(a)) to such an insurance company or to a partnership
of which such an insurance company is a partner, no provision of
this subtitle providing for the nonrecognition of gain shall
apply with respect to any gain resulting under subsection (a). If
a corporation which is a life insurance company for the taxable
year was (for the preceding taxable year) a corporation which was
not a life insurance company, such corporation shall, for
purposes of this subsection and subsection (a), be treated as
having transferred to a life insurance company, on the last day
of the preceding taxable year, all installment obligations which
it held on such last day. A partnership of which a life insurance
company becomes a partner shall, for purposes of this subsection
and subsection (a), be treated as having transferred to a life
insurance company, on the last day of the preceding taxable year
of such partnership, all installment obligations which it holds
at the time such insurance company becomes a partner.
(2) Special rule where life insurance company elects to treat
income as not related to insurance business
Paragraph (1) shall not apply to any transfer or deemed
transfer of an installment obligation if the life insurance
company elects (at such time and in such manner as the Secretary
may by regulations prescribe) to determine its life insurance
company taxable income -
(A) by returning the income on such installment obligation
under the installment method prescribed in section 453, and
(B) as if such income were an item attributable to a
noninsurance business (as defined in section 806(b)(3)).
(f) Obligation becomes unenforceable
For purposes of this section, if any installment obligation is
canceled or otherwise becomes unenforceable -
(1) the obligation shall be treated as if it were disposed of
in a transaction other than a sale or exchange, and
(2) if the obligor and obligee are related persons (within the
meaning of section 453(f)(1)), the fair market value of the
obligation shall be treated as not less than its face amount.
(g) Transfers between spouses or incident to divorce
In the case of any transfer described in subsection (a) of
section 1041 (other than a transfer in trust) -
(1) subsection (a) of this section shall not apply, and
(2) the same tax treatment with respect to the transferred
installment obligation shall apply to the transferee as would
have applied to the transferor.
(h) Certain liquidating distributions by S corporations
If -
(1) an installment obligation is distributed by an S
corporation in a complete liquidation, and
(2) receipt of the obligation is not treated as payment for the
stock by reason of section 453(h)(1),
then, except for purposes of any tax imposed by subchapter S, no
gain or loss with respect to the distribution of the obligation
shall be recognized by the distributing corporation. Under
regulations prescribed by the Secretary, the character of the gain
or loss to the shareholder shall be determined in accordance with
the principles of section 1366(b).
-SOURCE-
(Added Pub. L. 96-471, Sec. 2(a), Oct. 19, 1980, 94 Stat. 2252;
amended Pub. L. 96-471, Sec. 2(c)(3), Oct. 19, 1980, 94 Stat. 2254;
Pub. L. 97-448, title III, Sec. 302, Jan. 12, 1983, 96 Stat. 2398;
Pub. L. 98-369, div. A, title I, Sec. 43(c)(2), title II, Sec.
211(b)(6), title IV, Secs. 421(b)(3), 492(b)(3), July 18, 1984, 98
Stat. 558, 754, 794, 854; Pub. L. 99-514, title VI, Sec. 631(e)(9),
title X, Sec. 1011(b)(1), title XVIII, Sec. 1842(c), Oct. 22, 1986,
100 Stat. 2274, 2389, 2853; Pub. L. 100-647, title I, Sec.
1006(e)(22), Nov. 10, 1988, 102 Stat. 3403; Pub. L. 101-508, title
XI, Sec. 11702(a)(2), Nov. 5, 1990, 104 Stat. 1388-514.)
-MISC1-
PRIOR PROVISIONS
Provisions similar to those comprising this section were
contained in former section 453 of this title.
AMENDMENTS
1990 - Subsec. (d). Pub. L. 101-508 substituted heading for one
which read: "Effect of distribution in liquidations to which
section 332 applies" and amended text generally. Prior to
amendment, text read as follows: "If -
"(1) an installment obligation is distributed in a liquidation
to which section 332 (relating to complete liquidations of
subsidiaries) applies, and
"(2) the basis of such obligation in the hands of the
distributee is determined under section 334(b)(1),
then no gain or loss with respect to the distribution of such
obligation shall be recognized by the distributing corporation."
1988 - Subsec. (h). Pub. L. 100-647 added subsec. (h).
1986 - Subsec. (d). Pub. L. 99-514, Sec. 631(e)(9), amended
subsec. (d) generally, substituting "liquidations to which section
332 applies" for "certain liquidations" in heading, striking out
par. (1) designation, redesignating subpars. (A) and (B) as pars.
(1) and (2), and striking out former par. (2) relating to
liquidations to which section 337 applies.
Subsec. (e)(2)(B). Pub. L. 99-514, Sec. 1011(b)(1), substituted
"section 806(b)(3)" for "section 806(c)(3)".
Subsec. (g). Pub. L. 99-514, Sec. 1842(c), inserted "(other than
a transfer in trust)".
1984 - Subsec. (d)(2). Pub. L. 98-369, Sec. 492(b)(3), struck out
"1251(c)," after "1250(a)," in provision following subpar. (B).
Pub. L. 98-369, Sec. 43(c)(2), substituted "1254(a), or 1276(a)"
for "or 1254(a)".
Subsec. (e)(1). Pub. L. 98-369, Sec. 211(b)(6)(A), substituted
"section 816(a)" for "section 801(a)".
Subsec. (e)(2). Pub. L. 98-369, Sec. 211(b)(6)(B), substituted
"as not related to insurance business" for "as investment income"
in heading, and in text substituted "as if such income were an item
attributable to a noninsurance business (as defined in section
806(c)(3))" for "if such income would not otherwise be returnable
as an item referred to in section 804(b) or as long-term capital
gain, as if the income on such obligations were income specified in
section 804(b)".
Subsec. (g). Pub. L. 98-369, Sec. 421(b)(3), added subsec. (g).
1983 - Subsec. (d)(2). Pub. L. 97-448 substituted "under
subsection (a)" for "under paragraph (1)" in second sentence.
1980 - Subsec. (d). Pub. L. 96-471, Sec. 2(c)(3), inserted last
sentence providing that in the case of any installment obligation
which would have met the requirements of subpars. (A) and (B) of
par. (2) but for sections 337(f), gain shall be recognized to such
corporation by reason of such distribution only to the extent gain
would have been recognized under sections 337(f) if such
corporation had sold or exchanged such installment obligation on
the date of such distribution.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub. L. 101-508 effective as if included in the
provision of the Technical and Miscellaneous Revenue Act of 1988,
Pub. L. 100-647, to which such amendment relates, see section
11702(j) of Pub. L. 101-508, set out as a note under section 59 of
this title.
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 1986 AMENDMENT
Amendment by section 631(e)(9) of Pub. L. 99-514 applicable to
any distribution in complete liquidation, and any sale or exchange,
made by a corporation after July 31, 1986, unless such corporation
is completely liquidated before Jan. 1, 1987, any transaction
described in section 338 of this title for which the acquisition
date occurs after Dec. 31, 1986, and any distribution, not in
complete liquidation, made after Dec. 31, 1986, with exceptions and
special and transitional rules, see section 633 of Pub. L. 99-514,
set out as an Effective Date note under section 336 of this title.
Section 1011(c)(1) of Pub. L. 99-514 provided that: "The
amendments made by this section [amending this section and sections
465, 801, 804 to 806, 813, and 815 of this title, enacting
provisions set out as a note under section 801 of this title, and
amending provisions set out as a note under section 806 of this
title] shall apply to taxable years beginning after December 31,
1986."
Amendment by section 1842(c) 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 43(c)(2) of Pub. L. 98-369 applicable to
taxable years ending after July 18, 1984, see section 44 of Pub. L.
98-369, set out as an Effective Date note under section 1271 of
this title.
Amendment by section 211(b)(6) of Pub. L. 98-369 applicable to
taxable years beginning after Dec. 31, 1983, see section 215 of
Pub. L. 98-369, set out as an Effective Date note under section 801
of this title.
Amendment by section 421(b)(3) of Pub. L. 98-369 applicable to
transfers after July 18, 1984, in taxable years ending after such
date, subject to election to have amendment apply to transfers
after 1983 or to transfers pursuant to existing decrees, see
section 421(d) of Pub. L. 98-369, set out as an Effective Date note
under section 1041 of this title.
Amendment by section 492(b)(3) of Pub. L. 98-369 applicable to
taxable years beginning after Dec. 31, 1983, see section 492(d) of
Pub. L. 98-369, set out as a note under section 170 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 applicable to dispositions made after
Oct. 19, 1980, in taxable years ending after such date, see section
311(a) of Pub. L. 97-448, set out as a note under section 453 of
this title.
EFFECTIVE DATE OF 1980 AMENDMENT
For effective date of amendment by Pub. L. 96-471, see section
6(a)(6) of Pub. L. 96-471, set out as an Effective Date note under
section 453 of this title.
EFFECTIVE DATE
For effective date, see section 6(a)(1), (5) of Pub. L. 96-471,
set out as a note under section 453 of this title.
REPEAL OF MODIFICATION OF INSTALLMENT METHOD
Pub. L. 106-573, Sec. 2, Dec. 28, 2000, 114 Stat. 3061, provided
that:
"(a) In General. - Subsection (a) of section 536 of the Ticket to
Work and Work Incentives Improvement Act of 1999 (relating to
modification of installment method and repeal of installment method
for accrual method taxpayers) [Pub. L. 106-170, amending this
section] is repealed effective with respect to sales and other
dispositions occurring on or after the date of the enactment of
such Act[Dec. 17, 1999].
"(b) Applicability. - The Internal Revenue Code of 1986 shall be
applied and administered as if that subsection (and the amendments
made by that subsection) had not been enacted."
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 [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 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.
TREATMENT OF ELECTIONS UNDER SECTION 453B(E)(2)
Section 217(b) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "If an
election is made under section 453B(e)(2) before January 1, 1984,
with respect to any installment obligation, any income from such
obligation shall be treated as attributable to a noninsurance
business (as defined in section 806(c)(3) of the Internal Revenue
Code of 1986 [formerly I.R.C. 1954])."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 691, 1278 of this title.
-End-
-CITE-
26 USC Sec. 453C 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart B - Taxable Year for Which Items of Gross Income Included
-HEAD-
[Sec. 453C. Repealed. Pub. L. 100-203, title X, Sec. 10202(a)(1),
Dec. 22, 1987, 101 Stat. 1330-388]
-MISC1-
Section, added Pub. L. 99-514, title VIII, Sec. 811(a), Oct. 22,
1986, 100 Stat. 2365; amended Pub. L. 100-647, title I, Sec.
1008(f)(1)-(5), Nov. 10, 1988, 102 Stat. 3441, 3442, related to
treatment of certain indebtedness as payment on installment
obligations.
EFFECTIVE DATE OF REPEAL
Repeal applicable to dispositions in taxable years beginning
after Dec. 31, 1987, with special rules for dealers and
non-dealers, and coordination with Tax Reform Act of 1986, see
section 10202(e)(1)-(3), (5) of Pub. L. 100-203, set out as a note
under section 453 of this title.
APPLICABILITY OF AMENDMENTS BY PUB. L. 100-203 AND PUB. L. 100-647
Pub. L. 100-647, title I, Sec. 1008(f)(9), Nov. 10, 1988, 102
Stat. 3442, provided that: "For purposes of applying the amendments
made by this subsection [amending this section and provisions set
out below] and the amendments made by section 10202 of the Revenue
Act of 1987 [Pub. L. 100-203, amending sections 56, 381, 453, 453A,
and 691 of this title and repealing this section], the provisions
of this subsection shall be treated as having been enacted
immediately before the enactment of the Revenue Act of 1987 [Dec.
22, 1987]."
EFFECTIVE DATE; ALLOCATION OF INDEBTEDNESS AS PAYMENT ON
INSTALLMENT OBLIGATION
Section 811(c) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1008(f)(6)-(8), Nov. 10, 1988, 102 Stat. 3442; Pub.
L. 105-34, title X, Sec. 1088(a), Aug. 5, 1997, 111 Stat. 959,
provided that:
"(1) In general. - Except as otherwise provided in this section,
the amendments made by this section [enacting this section] shall
apply to taxable years ending after December 31, 1986, with respect
to dispositions after February 28, 1986.
"[(2) Repealed. Pub. L. 105-34, title X, Sec. 1088(a), Aug. 5,
1997, 111 Stat. 959.]
"(3) Exception for certain obligations. - In applying the
amendments made by this section to any installment obligation of a
corporation incorporated on January 13, 1928, the following
indebtedness shall not be taken into account in determining the
allocable installment indebtedness of such corporation under
section 453C of the Internal Revenue Code of 1986 (as added by this
section):
"(A) 12 5/8 percent subordinated debentures with a total face
amount of $175,000,000 issued pursuant to a trust indenture dated
as of September 1, 1985.
"(B) A revolving credit term loan in the maximum amount of
$130,000,000 made pursuant to a revolving credit and security
agreement dated as of September 6, 1985, payable in various
stages with final payment due on August 31, 1992.
This paragraph shall also apply to indebtedness which replaces
indebtedness described in this paragraph if such indebtedness does
not exceed the amount and maturity of the indebtedness it replaces.
"(4) Special rule for residential condominium project. - For
purposes of applying the amendments made by this section, the term
applicable installment obligation (within the meaning of section
453C(e)(1) of the Internal Revenue Code of 1986) shall not include
any obligation arising in connection with sales from a residential
condominium project -
"(A) for which a contract to purchase land for the project was
entered into at least 5 years before the date of the enactment of
this Act,
"(B) with respect to which land for the project was purchased
before September 26, 1985,
"(C) with respect to which building permits for the project
were obtained, and construction commenced, before September 26,
1985,
"(D) in conjunction with which not less than 80 units of
low-income housing are deeded to a tax-exempt organization
designated by a local government, and
"(E) with respect to which at least $1,000,000 of expenses were
incurred before September 26, 1985.
"(5) Special rule for qualified buyout. - The amendments made by
this section shall apply for taxable years ending after December
31, 1991, to a corporation if -
"(A) such corporation was incorporated on May 25, 1984, for the
purpose of acquiring all of the stock of another corporation,
"(B) such acquisition took place on October 23, 1984,
"(C) in connection with such acquisition, the corporation
incurred indebtedness of approximately $151,000,000, and
"(D) substantially all of the stock of the corporation is owned
directly or indirectly by employees of the corporation the stock
of which was acquired on October 23, 1984.
"(6) Special rule for sales of real property by dealers. - In the
case of installment obligations arising from the sale of real
property in the ordinary course of the trade or business of the
taxpayer, any gain attributable to allocable installment
indebtedness allocated to any such installment obligations which
arise (or are deemed to arise) -
"(A) in the 1st taxable year of the taxpayer ending after
December 31, 1986, shall be taken into account ratably over the 3
taxable years beginning with such 1st taxable year, and
"(B) in the 2nd taxable year of the taxpayer ending after
December 31, 1986, shall be taken into account ratably over the 2
taxable years beginning with such 2nd taxable year.
"(7) Special rule for sales of personal property by dealers. - In
the case of installment obligations arising from the sale of
personal property in the ordinary course of the trade or business
of the taxpayer, solely for purposes of determining the time for
payment of tax and interest payable with respect to such tax -
"(A) any increase in tax imposed by chapter 1 of the Internal
Revenue Code of 1986 for the 1st taxable year of the taxpayer
ending after December 31, 1986, by reason of the amendments made
by this section shall be treated as imposed ratably over the 3
taxable years beginning with such 1st taxable year, and
"(B) any increase in tax imposed by such chapter 1 for the 2nd
taxable year of the taxpayer ending after December 31, 1986
(determined without regard to subparagraph (A)), by reason of the
amendments made by this section shall be treated as imposed
ratably over the 2 taxable years beginning with such 2nd taxable
year.
"(8) Treatment of certain installment obligations. -
Notwithstanding the amendments made by subtitle B of title III
[section 311 of Pub. L. 99-514, amending sections 593, 631, 852,
1201, and 1445 of this title and enacting provisions set out as
notes under sections 631 and 1201 of this title], gain with respect
to installment payments received pursuant to notes issued in
accordance with a note agreement dated as of August 29, 1980, where
-
"(A) such note agreement was executed pursuant to an agreement
of purchase and sale dated April 25, 1980,
"(B) more than 1/2 of the installment payments of the
aggregate principal of such notes have been received by August
29, 1986, and
"(C) the last installment payment of the principal of such
notes is due August 29, 1989,
shall be taxed at a rate of 28 percent.
"(9) Special rules. - For purposes of section 453C of the 1986
Code (as added by subsection (a)) -
"(A) Revolving credit plans, etc. - The term 'applicable
installment obligation' shall not include any obligation arising
out of any disposition or sale described in paragraph (1) or (2)
of section 453(k) of such Code (as added by section 812(a)).
"(B) Certain dispositions deemed made on first day of taxable
year. - In the case of a taxpayer's 1st taxable year ending after
December 31, 1986, dispositions after February 28, 1986, and
before the 1st day of such taxable year shall be treated as made
on such 1st day."
[Pub. L. 105-34, title X, Sec. 1088(b), Aug. 5, 1997, 111 Stat.
959, as amended by Pub. L. 105-206, title VI, Sec. 6010(q), July
22, 1998, 112 Stat. 817, provided that:
["(1) In general. - The amendment made by this section [amending
section 811(c) of Pub. L. 99-514, set out above] shall apply to
taxable years beginning more than 1 year after the date of the
enactment of this Act [Aug. 5, 1997].
["(2) Coordination with section 481. - In the case of any
taxpayer required by this section to change its method of
accounting for any taxable year -
["(A) such changes shall be treated as initiated by the
taxpayer,
["(B) such changes shall be treated as made with the consent of
the Secretary of the Treasury, and
["(C) the net amount of the adjustments required to be taken
into account under section 481(a) of the Internal Revenue Code of
1986 shall be taken into account ratably over the 4 taxable year
period beginning with the first taxable year beginning more than
1 year after the date of the enactment of this Act."]
-End-
-CITE-
26 USC Sec. 454 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart B - Taxable Year for Which Items of Gross Income Included
-HEAD-
Sec. 454. Obligations issued at discount
-STATUTE-
(a) Non-interest-bearing obligations issued at a discount
If, in the case of a taxpayer owning any non-interest-bearing
obligation issued at a discount and redeemable for fixed amounts
increasing at stated intervals or owning an obligation described in
paragraph (2) of subsection (c), the increase in the redemption
price of such obligation occurring in the taxable year does not
(under the method of accounting used in computing his taxable
income) constitute income to him in such year, such taxpayer may,
at his election made in his return for any taxable year, treat such
increase as income received in such taxable year. If any such
election is made with respect to any such obligation, it shall
apply also to all such obligations owned by the taxpayer at the
beginning of the first taxable year to which it applies and to all
such obligations thereafter acquired by him and shall be binding
for all subsequent taxable years, unless on application by the
taxpayer the Secretary permits him, subject to such conditions as
the Secretary deems necessary, to change to a different method. In
the case of any such obligations owned by the taxpayer at the
beginning of the first taxable year to which his election applies,
the increase in the redemption price of such obligations occurring
between the date of acquisition (or, in the case of an obligation
described in paragraph (2) of subsection (c), the date of
acquisition of the series E bond involved) and the first day of
such taxable year shall also be treated as income received in such
taxable year.
(b) Short-term obligations issued on discount basis
In the case of any obligation -
(1) of the United States; or
(2) of a State or a possession of the United States, or any
political subdivision of any of the foregoing, or of the District
of Columbia,
which is issued on a discount basis and payable without interest at
a fixed maturity date not exceeding 1 year from the date of issue,
the amount of discount at which such obligation is originally sold
shall not be considered to accrue until the date on which such
obligation is paid at maturity, sold, or otherwise disposed of.
(c) Matured United States savings bonds
In the case of a taxpayer who -
(1) holds a series E United States savings bond at the date of
maturity, and
(2) pursuant to regulations prescribed under chapter 31 of
title 31 (A) retains his investment in such series E bond in an
obligation of the United States, other than a current income
obligation, or (B) exchanges such series E bond for another
nontransferable obligation of the United States in an exchange
upon which gain or loss is not recognized because of section 1037
(or so much of section 1031 as relates to section 1037),
the increase in redemption value (to the extent not previously
includible in gross income) in excess of the amount paid for such
series E bond shall be includible in gross income in the taxable
year in which the obligation is finally redeemed or in the taxable
year of final maturity, whichever is earlier. This subsection shall
not apply to a corporation, and shall not apply in the case of any
taxable year for which the taxpayer's taxable income is computed
under an accrual method of accounting or for which an election made
by the taxpayer under subsection (a) applies.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 156; Pub. L. 86-346, title I,
Sec. 102, Sept. 22, 1959, 73 Stat. 621; Pub. L. 94-455, title XIX,
Secs. 1901(c)(2), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1803,
1834; Pub. L. 97-452, Sec. 2(c)(2), Jan. 12, 1983, 96 Stat. 2478.)
-MISC1-
AMENDMENTS
1983 - Subsec. (c)(2). Pub. L. 97-452 substituted "chapter 31 of
title 31" for "the Second Liberty Bond Act".
1976 - Subsec. (a). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary" in two places.
Subsec. (b)(2). Pub. L. 94-455, Sec. 1901(c)(2), struck out ", a
Territory," after "a State".
1959 - Subsec. (c)(2). Pub. L. 86-346 designated existing
provisions as cl. (A), inserted "of the United States" after "an
obligation" and struck out "the maturity value of" before "such
series E bond" and "which matures not more than 10 years from the
date of maturity of such series E bond" after "income obligation"
in such cl. (A), and added cl. (B).
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 852, 1037, 1283, 7871 of
this title.
-End-
-CITE-
26 USC Sec. 455 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart B - Taxable Year for Which Items of Gross Income Included
-HEAD-
Sec. 455. Prepaid subscription income
-STATUTE-
(a) Year in which included
Prepaid subscription income to which this section applies shall
be included in gross income for the taxable years during which the
liability described in subsection (d)(2) exists.
(b) Where taxpayer's liability ceases
In the case of any prepaid subscription income to which this
section applies -
(1) If the liability described in subsection (d)(2) ends, then
so much of such income as was not includible in gross income
under subsection (a) for preceding taxable years shall be
included in gross income for the taxable year in which the
liability ends.
(2) If the taxpayer dies or ceases to exist, then so much of
such income as was not includible in gross income under
subsection (a) for preceding taxable years shall be included in
gross income for the taxable year in which such death, or such
cessation of existence, occurs.
(c) Prepaid subscription income to which this section applies
(1) Election of benefits
This section shall apply to prepaid subscription income if and
only if the taxpayer makes an election under this section with
respect to the trade or business in connection with which such
income is received. The election shall be made in such manner as
the Secretary may by regulations prescribe. No election may be
made with respect to a trade or business if in computing taxable
income the cash receipts and disbursements method of accounting
is used with respect to such trade or business.
(2) Scope of election
An election made under this section shall apply to all prepaid
subscription income received in connection with the trade or
business with respect to which the taxpayer has made the
election; except that the taxpayer may, to the extent permitted
under regulations prescribed by the Secretary, include in gross
income for the taxable year of receipt the entire amount of any
prepaid subscription income if the liability from which it arose
is to end within 12 months after the date of receipt. An election
made under this section shall not apply to any prepaid
subscription income received before the first taxable year for
which the election is made.
(3) When election may be made
(A) With consent
A taxpayer may, with the consent of the Secretary, make an
election under this section at any time.
(B) Without consent
A taxpayer may, without the consent of the Secretary, make an
election under this section for his first taxable year in which
he receives prepaid subscription income in the trade or
business. Such election shall be made not later than the time
prescribed by law for filing the return for the taxable year
(including extensions thereof) with respect to which such
election is made.
(4) Period to which election applies
An election under this section shall be effective for the
taxable year with respect to which it is first made and for all
subsequent taxable years, unless the taxpayer secures the consent
of the Secretary to the revocation of such election. For purposes
of this title, the computation of taxable income under an
election made under this section shall be treated as a method of
accounting.
(d) Definitions
For purposes of this section -
(1) Prepaid subscription income
The term "prepaid subscription income" means any amount
(includible in gross income) which is received in connection
with, and is directly attributable to, a liability which extends
beyond the close of the taxable year in which such amount is
received, and which is income from a subscription to a newspaper,
magazine, or other periodical.
(2) Liability
The term "liability" means a liability to furnish or deliver a
newspaper, magazine, or other periodical.
(3) Receipt of prepaid subscription income
Prepaid subscription income shall be treated as received during
the taxable year for which it is includible in gross income under
section 451 (without regard to this section).
(e) Deferral of income under established accounting procedures
Notwithstanding the provisions of this section, any taxpayer who
has, for taxable years prior to the first taxable year to which
this section applies, reported his income under an established and
consistent method or practice of accounting for prepaid
subscription income (to which this section would apply if an
election were made) may continue to report his income for taxable
years to which this title applies in accordance with such method or
practice.
-SOURCE-
(Added Pub. L. 85-866, title I, Sec. 28(a), Sept. 2, 1958, 72 Stat.
1625; amended Pub. L. 94-455, title XIX, Secs. 1901(a)(67),
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1775, 1834.)
-MISC1-
AMENDMENTS
1976 - Subsec. (c). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary" wherever appearing.
Subsec. (c)(3)(B). Pub. L. 94-455, Sec. 1901(a)(67), substituted
"for his first taxable year in which he receives prepaid
subscription income in the trade or business" for "for his first
taxable year (i) which begins after December 31, 1957, and (ii) in
which he receives prepaid subscription income in the trade or
business".
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(67) 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.
EFFECTIVE DATE
Section 28(c) of Pub. L. 85-866 provided that: "The amendments
made by subsections (a) and (b) [enacting this section] shall apply
with respect to taxable years beginning after December 31, 1957."
-End-
-CITE-
26 USC Sec. 456 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart B - Taxable Year for Which Items of Gross Income Included
-HEAD-
Sec. 456. Prepaid dues income of certain membership organizations
-STATUTE-
(a) Year in which included
Prepaid dues income to which this section applies shall be
included in gross income for the taxable years during which the
liability described in subsection (e)(2) exists.
(b) Where taxpayer's liability ceases
In the case of any prepaid dues income to which this section
applies -
(1) If the liability described in subsection (e)(2) ends, then
so much of such income as was not includible in gross income
under subsection (a) for preceding taxable years shall be
included in gross income for the taxable year in which the
liability ends.
(2) If the taxpayer ceases to exist, then so much of such
income as was not includible in gross income under subsection (a)
for preceding taxable years shall be included in gross income for
the taxable year in which such cessation of existence occurs.
(c) Prepaid dues income to which this section applies
(1) Election of benefits
This section shall apply to prepaid dues income if and only if
the taxpayer makes an election under this section with respect to
the trade or business in connection with which such income is
received. The election shall be made in such manner as the
Secretary may by regulations prescribe. No election may be made
with respect to a trade or business if in computing taxable
income the cash receipts and disbursements method of accounting
is used with respect to such trade or business.
(2) Scope of election
An election made under this section shall apply to all prepaid
dues income received in connection with the trade or business
with respect to which the taxpayer has made the election; except
that the taxpayer may, to the extent permitted under regulations
prescribed by the Secretary, include in gross income for the
taxable year of receipt the entire amount of any prepaid dues
income if the liability from which it arose is to end within 12
months after the date of receipt. Except as provided in
subsection (d), and election made under this section shall not
apply to any prepaid dues income received before the first
taxable year for which the election is made.
(3) When election may be made
(A) With consent
A taxpayer may, with the consent of the Secretary, make an
election under this section at any time.
(B) Without consent
A taxpayer may, without the consent of the Secretary, make an
election under this section for its first taxable year in which
it receives prepaid dues income in the trade or business. Such
election shall be made not later than the time prescribed by
law for filing the return for the taxable year (including
extensions thereof) with respect to which such election is
made.
(4) Period to which election applies
An election under this section shall be effective for the
taxable year with respect to which it is first made and for all
subsequent taxable years, unless the taxpayer secures the consent
of the Secretary to the revocation of such election. For purposes
of this title, the computation of taxable income under an
election made under this section shall be treated as a method of
accounting.
(d) Transitional rule
(1) Amount includible in gross income for election years
If a taxpayer makes an election under this section with respect
to prepaid dues income, such taxpayer shall include in gross
income, for each taxable year to which such election applies, not
only that portion of prepaid dues income received in such year
otherwise includible in gross income for such year under this
section, but shall also include in gross income for such year an
additional amount equal to the amount of prepaid dues income
received in the 3 taxable years preceding the first taxable year
to which such election applies which would have been included in
gross income in the taxable year had the election been effective
3 years earlier.
(2) Deductions of amounts included in income more than once
A taxpayer who makes an election with respect to prepaid dues
income, and who includes in gross income for any taxable year to
which the election applies an additional amount computed under
paragraph (1), shall be permitted to deduct, for such taxable
year and for each of the 4 succeeding taxable years, an amount
equal to one-fifth of such additional amount, but only to the
extent that such additional amount was also included in the
taxpayer's gross income during any of the 3 taxable years
preceding the first taxable year to which such election applies.
(e) Definitions
For purposes of this section -
(1) Prepaid dues income
The term "prepaid dues income" means any amount (includible in
gross income) which is received by a membership organization in
connection with, and is directly attributable to, a liability to
render services or make available membership privileges over a
period of time which extends beyond the close of the taxable year
in which such amount is received.
(2) Liability
The term "liability" means a liability to render services or
make available membership privileges over a period of time which
does not exceed 36 months, which liability shall be deemed to
exist ratably over the period of time that such services are
required to be rendered, or that such membership privileges are
required to be made available.
(3) Membership organization
The term "membership organization" means a corporation,
association, federation, or other organization -
(A) organized without capital stock of any kind, and
(B) no part of the net earnings of which is distributable to
any member.
(4) Receipt of prepaid dues income
Prepaid dues income shall be treated as received during the
taxable year for which it is includible in gross income under
section 451 (without regard to this section).
-SOURCE-
(Added Pub. L. 87-109, Sec. 1(a), July 26, 1961, 75 Stat. 222;
amended Pub. L. 94-455, title XIX, Secs. 1901(a)(68),
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1775, 1834.)
-MISC1-
AMENDMENTS
1976 - Subsec. (c). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary" wherever appearing.
Subsec. (c)(3)(B). Pub. L. 94-455, Sec. 1901(a)(68), substituted
"for its first taxable year" for "for its first taxable year (i)
which begins after December 31, 1960, and (ii)".
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(68) 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.
EFFECTIVE DATE
Section 2 of Pub. L. 87-109 provided that: "The amendments made
by this Act [enacting this section] shall apply with respect to
taxable years beginning after December 31, 1960."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 277 of this title.
-End-
-CITE-
26 USC Sec. 457 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart B - Taxable Year for Which Items of Gross Income Included
-HEAD-
Sec. 457. Deferred compensation plans of State and local
governments and tax-exempt organizations
-STATUTE-
(a) Year of inclusion in gross income
(1) In general
Any amount of compensation deferred under an eligible deferred
compensation plan, and any income attributable to the amounts so
deferred, shall be includible in gross income only for the
taxable year in which such compensation or other income -
(A) is paid to the participant or other beneficiary, in the
case of a plan of an eligible employer described in subsection
(e)(1)(A), and
(B) is paid or otherwise made available to the participant or
other beneficiary, in the case of a plan of an eligible
employer described in subsection (e)(1)(B).
(2) Special rule for rollover amounts
To the extent provided in section 72(t)(9), section 72(t) shall
apply to any amount includible in gross income under this
subsection.
(b) Eligible deferred compensation plan defined
For purposes of this section, the term "eligible deferred
compensation plan" means a plan established and maintained by an
eligible employer -
(1) in which only individuals who perform service for the
employer may be participants,
(2) which provides that (except as provided in paragraph (3))
the maximum amount which may be deferred under the plan for the
taxable year (other than rollover amounts) shall not exceed the
lesser of -
(A) the applicable dollar amount, or
(B) 100 percent of the participant's includible compensation,
(3) which may provide that, for 1 or more of the participant's
last 3 taxable years ending before he attains normal retirement
age under the plan, the ceiling set forth in paragraph (2) shall
be the lesser of -
(A) twice the dollar amount in effect under subsection
(b)(2)(A), or
(B) the sum of -
(i) the plan ceiling established for purposes of paragraph
(2) for the taxable year (determined without regard to this
paragraph), plus
(ii) so much of the plan ceiling established for purposes
of paragraph (2) for taxable years before the taxable year as
has not previously been used under paragraph (2) or this
paragraph,
(4) which provides that compensation will be deferred for any
calendar month only if an agreement providing for such deferral
has been entered into before the beginning of such month,
(5) which meets the distribution requirements of subsection
(d), and
(6) except as provided in subsection (g), which provides that -
(A) all amounts of compensation deferred under the plan,
(B) all property and rights purchased with such amounts, and
(C) all income attributable to such amounts, property, or
rights,
shall remain (until made available to the participant or other
beneficiary) solely the property and rights of the employer
(without being restricted to the provision of benefits under the
plan), subject only to the claims of the employer's general
creditors.
A plan which is established and maintained by an employer which is
described in subsection (e)(1)(A) and which is administered in a
manner which is inconsistent with the requirements of any of the
preceding paragraphs shall be treated as not meeting the
requirements of such paragraph as of the 1st plan year beginning
more than 180 days after the date of notification by the Secretary
of the inconsistency unless the employer corrects the inconsistency
before the 1st day of such plan year.
(c) Limitation
The maximum amount of the compensation of any one individual
which may be deferred under subsection (a) during any taxable year
shall not exceed the amount in effect under subsection (b)(2)(A)
(as modified by any adjustment provided under subsection (b)(3)).
(d) Distribution requirements
(1) In general
For purposes of subsection (b)(5), a plan meets the
distribution requirements of this subsection if -
(A) under the plan amounts will not be made available to
participants or beneficiaries earlier than -
(i) the calendar year in which the participant attains age
70 1/2 ,
(ii) when the participant has a severance from employment
with the employer, or
(iii) when the participant is faced with an unforeseeable
emergency (determined in the manner prescribed by the
Secretary in regulations),
(B) the plan meets the minimum distribution requirements of
paragraph (2), and
(C) in the case of a plan maintained by an employer described
in subsection (e)(1)(A), the plan meets requirements similar to
the requirements of section 401(a)(31).
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 transfer.
(2) Minimum distribution requirements
A plan meets the minimum distribution requirements of this
paragraph if such plan meets the requirements of section
401(a)(9).
(3) Special rule for government plan
An eligible deferred compensation plan of an employer described
in subsection (e)(1)(A) shall not be treated as failing to meet
the requirements of this subsection solely by reason of making a
distribution described in subsection (e)(9)(A).
(e) Other definitions and special rules
For purposes of this section -
(1) Eligible employer
The term "eligible employer" means -
(A) a State, political subdivision of a State, and any agency
or instrumentality of a State or political subdivision of a
State, and
(B) any other organization (other than a governmental unit)
exempt from tax under this subtitle.
(2) Performance of service
The performance of service includes performance of service as
an independent contractor and the person (or governmental unit)
for whom such services are performed shall be treated as the
employer.
(3) Participant
The term "participant" means an individual who is eligible to
defer compensation under the plan.
(4) Beneficiary
The term "beneficiary" means a beneficiary of the participant,
his estate, or any other person whose interest in the plan is
derived from the participant.
(5) Includible compensation
The term "includible compensation" has the meaning given to the
term "participant's compensation" by section 415(c)(3).
(6) Compensation taken into account at present value
Compensation shall be taken into account at its present value.
(7) Community property laws
The amount of includible compensation shall be determined
without regard to any community property laws.
(8) Income attributable
Gains from the disposition of property shall be treated as
income attributable to such property.
(9) Benefits of tax exempt organization plans not treated as made
available by reason of certain elections, etc.
In the case of an eligible deferred compensation plan of an
employer described in subsection (e)(1)(B) -
(A) Total amount payable is dollar limit or less
The total amount payable to a participant under the plan
shall not be treated as made available merely because the
participant may elect to receive such amount (or the plan may
distribute such amount without the participant's consent) if -
(i) the portion of such amount which is not attributable to
rollover contributions (as defined in section 411(a)(11)(D))
does not exceed the dollar limit under section 411(a)(11)(A),
and
(ii) such amount may be distributed only if -
(I) no amount has been deferred under the plan with
respect to such participant during the 2-year period ending
on the date of the distribution, and
(II) there has been no prior distribution under the plan
to such participant to which this subparagraph applied.
A plan shall not be treated as failing to meet the distribution
requirements of subsection (d) by reason of a distribution to
which this subparagraph applies.
(B) Election to defer commencement of distributions
The total amount payable to a participant under the plan
shall not be treated as made available merely because the
participant may elect to defer commencement of distributions
under the plan if -
(i) such election is made after amounts may be available
under the plan in accordance with subsection (d)(1)(A) and
before commencement of such distributions, and
(ii) the participant may make only 1 such election.
(10) Transfers between plans
A participant shall not be required to include in gross income
any portion of the entire amount payable to such participant
solely by reason of the transfer of such portion from 1 eligible
deferred compensation plan to another eligible deferred
compensation plan.
(11) Certain plans excluded
(A) In general
The following plans shall be treated as not providing for the
deferral of compensation:
(i) Any bona fide vacation leave, sick leave, compensatory
time, severance pay, disability pay, or death benefit plan.
(ii) Any plan paying solely length of service awards to
bona fide volunteers (or their beneficiaries) on account of
qualified services performed by such volunteers.
(B) Special rules applicable to length of service award plans
(i) Bona fide volunteer
An individual shall be treated as a bona fide volunteer for
purposes of subparagraph (A)(ii) if the only compensation
received by such individual for performing qualified services
is in the form of -
(I) reimbursement for (or a reasonable allowance for)
reasonable expenses incurred in the performance of such
services, or
(II) reasonable benefits (including length of service
awards), and nominal fees for such services, customarily
paid by eligible employers in connection with the
performance of such services by volunteers.
(ii) Limitation on accruals
A plan shall not be treated as described in subparagraph
(A)(ii) if the aggregate amount of length of service awards
accruing with respect to any year of service for any bona
fide volunteer exceeds $3,000.
(C) Qualified services
For purposes of this paragraph, the term "qualified services"
means fire fighting and prevention services, emergency medical
services, and ambulance services.
(12) Exception for nonelective deferred compensation of
nonemployees
(A) In general
This section shall not apply to nonelective deferred
compensation attributable to services not performed as an
employee.
(B) Nonelective deferred compensation
For purposes of subparagraph (A), deferred compensation shall
be treated as nonelective only if all individuals (other than
those who have not satisfied any applicable initial service
requirement) with the same relationship to the payor are
covered under the same plan with no individual variations or
options under the plan.
(13) Special rule for churches
The term "eligible employer" shall not include a church (as
defined in section 3121(w)(3)(A)) or qualified church-controlled
organization (as defined in section 3121(w)(3)(B)).
(14) Treatment of qualified governmental excess benefit
arrangements
Subsections (b)(2) and (c)(1) shall not apply to any qualified
governmental excess benefit arrangement (as defined in section
415(m)(3)), and benefits provided under such an arrangement shall
not be taken into account in determining whether any other plan
is an eligible deferred compensation plan.
(15) Applicable dollar amount
(A) In general
The applicable dollar amount shall be the amount determined
in accordance with the following table:
For taxable years The applicable
beginning in dollar amount:
calendar year:
2002 $11,000
2003 $12,000
2004 $13,000
2005 $14,000
2006 or thereafter $15,000.
(B) Cost-of-living adjustments
In the case of taxable years beginning after December 31,
2006, the Secretary shall adjust the $15,000 amount under
subparagraph (A) at the same time and in the same manner as
under section 415(d), except that the base period shall be the
calendar quarter beginning July 1, 2005, and any increase under
this paragraph which is not a multiple of $500 shall be rounded
to the next lowest multiple of $500.
(16) Rollover amounts
(A) General rule
In the case of an eligible deferred compensation plan
established and maintained by an employer described in
subsection (e)(1)(A), if -
(i) any portion of the balance to the credit of an employee
in such plan is paid to such employee in an eligible rollover
distribution (within the meaning of section 402(c)(4)),
(ii) the employee transfers any portion of the property
such employee 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 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 (9) of section
402(c) and section 402(f) shall apply for purposes of
subparagraph (A).
(C) Reporting
Rollovers under this paragraph shall be reported to the
Secretary in the same manner as rollovers from qualified
retirement plans (as defined in section 4974(c)).
(17) 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.
(18) Coordination with catch-up contributions for individuals age
50 or older
In the case of an individual who is an eligible participant (as
defined by section 414(v)) and who is a participant in an
eligible deferred compensation plan of an employer described in
paragraph (1)(A), subsections (b)(3) and (c) shall be applied by
substituting for the amount otherwise determined under the
applicable subsection the greater of -
(A) the sum of -
(i) the plan ceiling established for purposes of subsection
(b)(2) (without regard to subsection (b)(3)), plus
(ii) the applicable dollar amount for the taxable year
determined under section 414(v)(2)(B)(i), or
(B) the amount determined under the applicable subsection
(without regard to this paragraph).
(f) Tax treatment of participants where plan or arrangement of
employer is not eligible
(1) In general
In the case of a plan of an eligible employer providing for a
deferral of compensation, if such plan is not an eligible
deferred compensation plan, then -
(A) the compensation shall be included in the gross income of
the participant or beneficiary for the 1st taxable year in
which there is no substantial risk of forfeiture of the rights
to such compensation, and
(B) the tax treatment of any amount made available under the
plan to a participant or beneficiary shall be determined under
section 72 (relating to annuities, etc.).
(2) Exceptions
Paragraph (1) shall not apply to -
(A) a plan described in section 401(a) which includes a trust
exempt from tax under section 501(a),
(B) an annuity plan or contract described in section 403,
(C) that portion of any plan which consists of a transfer of
property described in section 83,
(D) that portion of any plan which consists of a trust to
which section 402(b) applies, and
(E) a qualified governmental excess benefit arrangement
described in section 415(m).
(3) Definitions
For purposes of this subsection -
(A) Plan includes arrangements, etc.
The term "plan" includes any agreement or arrangement.
(B) Substantial risk of forfeiture
The rights of a person to compensation are subject to a
substantial risk of forfeiture if such person's rights to such
compensation are conditioned upon the future performance of
substantial services by any individual.
(g) Governmental plans must maintain set-asides for exclusive
benefit of participants
(1) In general
A plan maintained by an eligible employer described in
subsection (e)(1)(A) shall not be treated as an eligible deferred
compensation plan unless all assets and income of the plan
described in subsection (b)(6) are held in trust for the
exclusive benefit of participants and their beneficiaries.
(2) Taxability of trusts and participants
For purposes of this title -
(A) a trust described in paragraph (1) shall be treated as an
organization exempt from taxation under section 501(a), and
(B) notwithstanding any other provision of this title,
amounts in the trust shall be includible in the gross income of
participants and beneficiaries only to the extent, and at the
time, provided in this section.
(3) Custodial accounts and contracts
For purposes of this subsection, custodial accounts and
contracts described in section 401(f) shall be treated as trusts
under rules similar to the rules under section 401(f).
-SOURCE-
(Added Pub. L. 95-600, title I, Sec. 131(a), Nov. 6, 1978, 92 Stat.
2779; amended Pub. L. 96-222, title I, Sec. 101(a)(4), Apr. 1,
1980, 94 Stat. 196; Pub. L. 98-369, div. A, title IV, Sec.
491(d)(33), July 18, 1984, 98 Stat. 851; Pub. L. 99-514, title XI,
Sec. 1107(a), Oct. 22, 1986, 100 Stat. 2426; Pub. L. 100-647, title
I, Sec. 1011(e)(1), (2), (9), (10), title VI, Secs. 6064(a)-(c),
6071(c), Nov. 10, 1988, 102 Stat. 3460, 3461, 3700, 3701, 3705;
Pub. L. 101-239, title VII, Secs. 7811(g)(4), (5), 7816(j), Dec.
19, 1989, 103 Stat. 2409, 2421; Pub. L. 102-318, title V, Sec.
521(b)(26), July 3, 1992, 106 Stat. 312; Pub. L. 104-188, title I,
Secs. 1421(b)(3)(C), 1444(b)(2), (3), 1447(a), (b), 1448(a), (b),
1458(a), Aug. 20, 1996, 110 Stat. 1796, 1810, 1812, 1813, 1819;
Pub. L. 105-34, title X, Sec. 1071(a)(2), Aug. 5, 1997, 111 Stat.
948; Pub. L. 107-16, title VI, Secs. 611(d)(3)(B), (e), 615(a),
632(c)(1), 641(a)(1)(A)-(C), 646(a)(3), 647(b), 648(b), 649(a),
(b), June 7, 2001, 115 Stat. 98, 102, 115, 118, 119, 126-128; Pub.
L. 107-147, title IV, Sec. 411(o)(9), (p)(5), Mar. 9, 2002, 116
Stat. 49, 51.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-MISC1-
AMENDMENTS
2002 - Subsec. (e)(5). Pub. L. 107-147, Sec. 411(p)(5), reenacted
heading without change and amended text generally. Prior to
amendment, text read as follows: "The term 'includible
compensation' means compensation for service performed for the
employer which (taking into account the provisions of this section
and other provisions of this chapter) is currently includible in
gross income."
Subsec. (e)(18). Pub. L. 107-147, Sec. 411(o)(9), added par.
(18).
2001 - Subsec. (a). Pub. L. 107-16, Secs. 649(b)(1), 901,
temporarily reenacted heading without change and amended text of
subsec. (a) generally. Prior to amendment, text read as follows:
"In the case of a participant in an eligible deferred compensation
plan, any amount of compensation deferred under the plan, and any
income attributable to the amounts so deferred, shall be includible
in gross income only for the taxable year in which such
compensation or other income is paid or otherwise made available to
the participant or other beneficiary." See Effective and
Termination Dates of 2001 Amendment note below.
Subsec. (b)(2). Pub. L. 107-16, Secs. 641(a)(1)(B), 901,
temporarily inserted "(other than rollover amounts)" after "taxable
year" in introductory provisions. See Effective and Termination
Dates of 2001 Amendment note below.
Subsec. (b)(2)(A). Pub. L. 107-16, Secs. 611(e)(1)(A), 901,
temporarily substituted "the applicable dollar amount" for
"$7,500". See Effective and Termination Dates of 2001 Amendment
note below.
Subsec. (b)(2)(B). Pub. L. 107-16, Secs. 632(c)(1), 901,
temporarily substituted "100 percent" for "33 1/3 percent". See
Effective and Termination Dates of 2001 Amendment note below.
Subsec. (b)(3)(A). Pub. L. 107-16, Secs. 611(e)(1)(B), 901,
temporarily substituted "twice the dollar amount in effect under
subsection (b)(2)(A)" for "$15,000". See Effective and Termination
Dates of 2001 Amendment note below.
Subsec. (c). Pub. L. 107-16, Secs. 615(a), 901, temporarily
amended heading and text of subsec. (c) generally, substituting
present provisions for provisions which stated that the maximum
amount of compensation that an individual could defer under subsec.
(a) during any taxable year could not exceed the applicable dollar
amount, as modified by any adjustment provided under subsec.
(b)(3), and provided for coordination with certain other deferrals.
See Effective and Termination Dates of 2001 Amendment note below.
Subsec. (c)(1). Pub. L. 107-16, Secs. 611(e)(1)(A), 901,
temporarily substituted "the applicable dollar amount" for
"$7,500". See Effective and Termination Dates of 2001 Amendment
note below.
Subsec. (c)(2). Pub. L. 107-16, Secs. 611(d)(3)(B), 901,
temporarily substituted "402(g)(7)(A)(iii)" for "402(g)(8)(A)(iii)"
in concluding provisions. See Effective and Termination Dates of
2001 Amendment note below.
Subsec. (d)(1). Pub. L. 107-16, Secs. 641(a)(1)(C), 901,
temporarily added subpar. (C) and concluding provisions. See
Effective and Termination Dates of 2001 Amendment note below.
Subsec. (d)(1)(A)(ii). Pub. L. 107-16, Secs. 646(a)(3), 901,
temporarily substituted "has a severance from employment" for "is
separated from service". See Effective and Termination Dates of
2001 Amendment note below.
Subsec. (d)(2). Pub. L. 107-16, Secs. 649(a), 901, temporarily
reenacted heading without change and amended text of par. (2)
generally, substituting present provisions for provisions which
stated that a plan would meet the minimum distribution requirements
of this par. if plan met the requirements of section 401(a)(9), if
plan met additional distribution requirements in the case of a
deceased participant, and if any distribution payable over a period
of more than 1 year would only be made in substantially
nonincreasing amounts. See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (d)(3). Pub. L. 107-16, Secs. 649(b)(2)(B), 901,
temporarily added par. (3). See Effective and Termination Dates of
2001 Amendment note below.
Subsec. (e)(9). Pub. L. 107-16, Secs. 649(b)(2)(A), 901, in
heading temporarily substituted "Benefits of tax exempt
organization plans not treated as made available by reason of
certain elections, etc." for "Benefits not treated as made
available by reason of certain elections, etc." and temporarily
inserted introductory provisions. See Effective and Termination
Dates of 2001 Amendment note below.
Subsec. (e)(9)(A)(i). Pub. L. 107-16, Secs. 648(b), 901,
temporarily substituted "the portion of such amount which is not
attributable to rollover contributions (as defined in section
411(a)(11)(D))" for "such amount". See Effective and Termination
Dates of 2001 Amendment note below.
Subsec. (e)(15). Pub. L. 107-16, Secs. 611(e)(2), 901,
temporarily amended heading and text of par. (15) generally. Prior
to amendment, text read as follows: "The Secretary shall adjust the
$7,500 amount specified in subsections (b)(2) and (c)(1) at the
same time and in the same manner as under section 415(d), except
that the base period shall be the calendar quarter ending September
30, 1994, and any increase under this paragraph which is not a
multiple of $500 shall be rounded to the next lowest multiple of
$500." See Effective and Termination Dates of 2001 Amendment note
below.
Subsec. (e)(16). Pub. L. 107-16, Secs. 641(a)(1)(A), 901,
temporarily added par. (16). See Effective and Termination Dates of
2001 Amendment note below.
Subsec. (e)(17). Pub. L. 107-16, Secs. 647(b), 901, temporarily
added par. (17). See Effective and Termination Dates of 2001
Amendment note below.
1997 - Subsec. (e)(9)(A). Pub. L. 105-34 substituted "dollar
limit" for "$3,500" in heading and "the dollar limit under section
411(a)(11)(A)" for "$3,500" in cl. (i).
1996 - Subsec. (b)(6). Pub. L. 104-188, Sec. 1448(b), inserted
"except as provided in subsection (g)," before "which provides
that" in introductory provisions.
Subsec. (c)(2)(B)(i). Pub. L. 104-188, Sec. 1421(b)(3)(C),
substituted "section 402(h)(1)(B) or (k)" for "section
402(h)(1)(B)".
Subsec. (e)(9). Pub. L. 104-188, Sec. 1447(a), amended par. (9)
generally. Prior to amendment, par. (9) read as follows: "Benefits
not treated as made available by reason of certain elections. - If
-
"(A) the total amount payable to a participant under the plan
does not exceed $3,500, and
"(B) no additional amounts may be deferred under the plan with
respect to the participant,
the amount payable to the participant under the plan shall not be
treated as made available merely because such participant may elect
to receive a lump sum payable after separation from service and
within 60 days of the election."
Subsec. (e)(11). Pub. L. 104-188, Sec. 1458(a), amended par. (11)
generally. Prior to amendment, par. (11) read as follows: "Certain
plans excepted. - Any bona fide vacation leave, sick leave,
compensatory time, severance pay, disability pay, or death benefit
plan shall be treated as a plan not providing for the deferral of
compensation."
Subsec. (e)(14). Pub. L. 104-188, Sec. 1444(b)(2), added par.
(14).
Subsec. (e)(15). Pub. L. 104-188, Sec. 1447(b), added par. (15).
Subsec. (f)(2)(E). Pub. L. 104-188, Sec. 1444(b)(3), added
subpar. (E).
Subsec. (g). Pub. L. 104-188, Sec. 1448(a), added subsec. (g).
1992 - Subsec. (c)(2)(B)(i). Pub. L. 102-318 substituted
"402(e)(3)" for "402(a)(8)".
1989 - Subsec. (d)(1)(A)(iii). Pub. L. 101-239, Sec. 7811(g)(4),
substituted ", and" for period at end.
Subsec. (d)(2)(B)(i)(I). Pub. L. 101-239, Sec. 7811(g)(5),
inserted "and" at end.
Subsec. (e)(13). Pub. L. 101-239, Sec. 7816(j), substituted
"Special rule for churches" for "Exception for church plans" in
heading and amended text generally. Prior to amendment, text read
as follows: "The term 'eligible deferred compensation plan' shall
not include a plan maintained by a church for church employees. For
purposes of this paragraph, the term 'church' has the meaning given
such term by section 3121(w)(3)(A), including a qualified
church-controlled organization (as defined in section
3121(w)(3)(B))."
1988 - Subsec. (c)(2). Pub. L. 100-647, Sec. 1011(e)(1), struck
out "and paragraphs (2) and (3) of subsection (b)" after "of this
subsection".
Pub. L. 100-647, Sec. 6071(c), substituted "rural cooperative
plan" for "rural electric cooperative plan" in last sentence.
Subsec. (d)(1)(A). Pub. L. 100-647, Sec. 1011(e)(2), amended
subpar. (A) generally. Prior to amendment, subpar. (A) read as
follows: "the plan provides that amounts payable under the plan
will be made available to participants or other beneficiaries not
earlier than when the participant is separated from service with
the employer or is faced with an unforeseeable emergency
(determined in the manner prescribed by the Secretary by
regulation), and".
Subsec. (d)(2)(B)(i)(I). Pub. L. 100-647, Sec. 1011(e)(10),
amended subcl. (I) generally. Prior to amendment, subcl. (I) read
as follows: "at least 2/3 of the total amount payable with
respect to the participant will be paid during the life expectancy
of such participant (determined as of the commencement of the
distribution), and".
Subsec. (d)(10). Pub. L. 100-647, Sec. 6064(a)(2), amended
subsec. (d), as in effect on the day before the date of enactment
of Pub. L. 99-514 (Oct. 22, 1986), by adding par. (10) reading as
follows: "Certain plans excepted. - Any bona fide vacation leave,
sick leave, compensatory time, severance pay, disability pay, or
death benefit plan shall be treated as a plan not providing for the
deferral of compensation."
Subsec. (d)(11). Pub. L. 100-647, Sec. 6064(b)(2), amended
subsec. (d), as in effect on the day before the date of enactment
of Pub. L. 99-514 (Oct. 22, 1986), by adding par. (11) reading as
follows: "Exception for nonelective deferred compensation of
nonemployees. -
"(A) In general. - This section shall not apply to nonelective
deferred compensation attributable to services not performed as
an employee.
"(B) Nonelective deferred compensation. - For purposes of
subparagraph (a), deferred compensation shall be treated as
nonelective only if all individuals (other than those who have
not satisfied any applicable initial service requirement) with
the same relationship to the payor are covered under the same
plan with no individual variations or options under the plan."
Subsec. (e)(9). Pub. L. 100-647, Sec. 1011(e)(9), inserted "after
separation from service and" after "lump sum payable" in concluding
provisions.
Subsec. (e)(11). Pub. L. 100-647, Sec. 6064(a)(1), added par.
(11).
Subsec. (e)(12). Pub. L. 100-647, Sec. 6064(b)(1), added par.
(12).
Subsec. (e)(13). Pub. L. 100-647, Sec. 6064(c), added par. (13).
1986 - Pub. L. 99-514 amended section generally, substituting
"Deferred compensation plans of State and local governments and
tax-exempt organizations" for "Deferred compensation plans with
respect to service for State and local governments" as section
catchline and revising and restating as subsecs. (a) to (c), (e),
and (f) provisions formerly contained in subsecs. (a) to (e) and
adding provisions comprising subsec. (d).
1984 - Subsec. (e)(2). Pub. L. 98-369, Sec. 491(d)(33), struck
out subpar. (C) which provided that par. (1) of this subsection not
apply to a qualified bond purchase plan described in section
405(a), and redesignated subpars. (D) and (E) as (C) and (D),
respectively.
1980 - Subsec. (d)(9)(B). Pub. L. 96-222 in cl. (i) struck out
"described in section 501(c)(12)" after "any organization" and
substituted "electric service on a mutual or cooperative basis" for
"electric service" and in cl. (ii) substituted "paragraph (4) or
(6) of section 501(a)" for "section 501(c)(6)" and "at least 80
percent of the members" for "all the members".
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 AND TERMINATION DATES OF 2001 AMENDMENT
Amendment by section 611(d)(3)(B), (e) of Pub. L. 107-16
applicable to years beginning after Dec. 31, 2001, see section
611(i)(1) of Pub. L. 107-16, set out as a note under section 415 of
this title.
Pub. L. 107-16, title VI, Sec. 615(b), June 7, 2001, 115 Stat.
102, provided that: "The amendment made by subsection (a) [amending
this section] shall apply to years beginning after December 31,
2001."
Pub. L. 107-16, title VI, Sec. 632(c)(2), June 7, 2001, 115 Stat.
115, provided that: "The amendment made by this subsection
[amending this section] shall apply to years beginning after
December 31, 2001."
Amendment by section 641(a)(1)(A)-(C) 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 646(a)(3) 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.
Amendment by section 647(b) of Pub. L. 107-16 applicable to
trustee-to-trustee transfers after Dec. 31, 2001, see section
647(c) of Pub. L. 107-16, set out as a note under section 403 of
this title.
Amendment by section 648(b) of Pub. L. 107-16 applicable to
distributions after Dec. 31, 2001, see section 648(c) of Pub. L.
107-16, set out as a note under section 411 of this title.
Pub. L. 107-16, title VI, Sec. 649(c), June 7, 2001, 115 Stat.
128, provided that: "The amendments made by subsections (a) and (b)
[amending this section] shall apply to distributions after December
31, 2001."
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to plan years beginning
after Aug. 5, 1997, see section 1071(c) of Pub. L. 105-34, set out
as a note under section 411 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1421(b)(3)(C) of Pub. L. 104-188 applicable
to taxable years beginning after Dec. 31, 1996, see section 1421(e)
of Pub. L. 104-188, set out as a note under section 72 of this
title.
Amendment by section 1444(b)(2), (3) of Pub. L. 104-188
applicable to years beginning after Dec. 31, 1994, see section
1444(e) of Pub. L. 104-188, set out as a note under section 415 of
this title.
Section 1447(c) of Pub. L. 104-188 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1996."
Section 1448(c) of Pub. L. 104-188 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section] shall apply
to assets and income described in section 457(b)(6) of the Internal
Revenue Code of 1986 held by a plan on and after the date of the
enactment of this Act [Aug. 20, 1996].
"(2) Transition rule. - In the case of a plan in existence on the
date of the enactment of this Act, a trust need not be established
by reason of the amendments made by this section before January 1,
1999."
Section 1458(c)(1) of Pub. L. 104-188 provided that: "The
amendment made by subsection (a) [amending this section] shall
apply to accruals of length of service awards after December 31,
1996."
EFFECTIVE DATE OF 1992 AMENDMENT
Amendment by 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.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 effective, except as otherwise
provided, as if included in the provision of the Technical and
Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such
amendment relates, see section 7817 of Pub. L. 101-239, set out as
a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1011(e)(9) of Pub. L. 100-647 provided that the amendment
made by that section is effective for years beginning after Dec.
31, 1988.
Amendment by section 1011(e)(1), (2), (10) 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.
Section 6064(d) of Pub. L. 100-647 provided that:
"(1) In general. - The amendments made by this section [amending
this section] shall apply to taxable years beginning after December
31, 1987.
"(2) Exception for certain collectively bargained plans. -
"(A) In general. - Section 457 of the 1986 Code (as in effect
before and after the amendments made by section 1107 of the
Reform Act [Pub. L. 99-514]) shall not apply to nonelective
deferred compensation provided under a plan in existence on
December 31, 1987, and maintained pursuant to a collective
bargaining agreement.
"(B) Nonelective plan. - For purposes of this paragraph, a
nonelective plan is a plan which covers a broad group of
employees and under which the covered employees earn nonelective
deferred compensation under a definite, fixed and uniform benefit
formula.
"(C) Termination. - This paragraph shall cease to apply to a
plan as of the effective date of the first material modification
of the plan agreed to after December 31, 1987.
"(3) Treatment of certain nonelective deferred compensation. -
Section 457 of the 1986 Code shall not apply to amounts deferred
under a nonelective deferred compensation plan maintained by an
eligible employer described in section 457(e)(1)(A) of the 1986
Code (as in effect after the Reform Act [Pub. L. 99-514]) -
"(A) if such amounts were deferred from periods before July 14,
1988, or
"(B) if -
"(i) such amounts are deferred from periods on or after such
date pursuant to an agreement which -
"(I) was in writing on such date, and
"(II) on such date provides for a deferral for each taxable
year covered by the agreement of a fixed amount or of an
amount determined pursuant to a fixed formula, and
"(ii) the individual with respect to whom the deferral is
made was covered under such agreement on such date.
Subparagraph (B) shall not apply to any taxable year ending after
the date on which any modification of the amount or formula
described in subparagraph (B)(i)(II) agreed to in writing before
January 1, 1989, is effective. The preceding sentence shall not
apply to a modification agreed to in writing before January 1,
1989, which does not increase any benefit of a participant. Amounts
described in the first sentence of this paragraph shall be taken
into account for purposes of applying section 457 of the 1986 Code
to other amounts deferred under any eligible deferred compensation
plan.
"(4) Study. - The Secretary of the Treasury or his delegate shall
conduct a study on the tax treatment of deferred compensation paid
by State and local governments and tax-exempt organizations
(including deferred compensation paid to independent contractors).
Not later than January 1, 1990, the Secretary shall submit to the
Committee on Ways and Means of the House of Representatives and the
Committee on Finance of the Senate a report on the study conducted
under this paragraph together with such recommendations as he may
deem advisable."
[The due date for the report on the study referred to in section
6064(d)(4) of Pub. L. 100-647, set out above, extended to Jan. 1,
1992, by Pub. L. 101-508, title XI, Sec. 11831(b), Nov. 5, 1990,
104 Stat. 1388-559.]
Amendment by section 6071(c) of Pub. L. 100-647 applicable to
taxable years beginning after Nov. 10, 1988, see section 6071(d) of
Pub. L. 100-647, set out as a note under section 401 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1107(c) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1011(e)(6), (7), Nov. 10, 1988, 102 Stat. 3461,
provided that:
"(1) In general. - Except as provided in this subsection, the
amendments made by this section [amending this section] shall apply
to taxable years beginning after December 31, 1988.
"(2) Transfers and cash-outs. - Paragraphs (9) and (10) of
section 457(e) of the Internal Revenue Code of 1986 (as amended by
this section) shall apply to taxable years beginning after December
31, 1986.
"(3) Application to tax-exempt organizations. -
"(A) In general. - Except as provided in subparagraph (B), the
application of section 457 of the Internal Revenue Code of 1986
by reason of the amendments made by this section to deferred
compensation plans established and maintained by organizations
exempt from tax shall apply to taxable years beginning after
December 31, 1986.
"(B) Existing deferrals and arrangements. - Section 457 of such
Code shall not apply to amounts deferred under a plan described
in subparagraph (A) which -
"(i) were deferred from taxable years beginning before
January 1, 1987, or
"(ii) are deferred from taxable years beginning after
December 31, 1986, pursuant to an agreement which -
"(I) was in writing on August 16, 1986,
"(II) on such date provides for a deferral for each taxable
year covered by the agreement of a fixed amount or of an
amount determined pursuant to a fixed formula.
Clause (ii) shall not apply to any taxable year ending after the
date on which any modification to the amount or formula described
in subclause (II) is effective. Amounts described in the first
sentence shall be taken into account for applying section 457 to
other amounts deferred under any deferred compensation plan. This
subparagraph shall only apply to individuals who were covered
under the plan and agreement on August 16, 1986.
"(4) Deferred compensation plans for state judges. - The
amendments made by this section shall not apply to any qualified
State judicial plan (as defined in section 131(c)(3)(B) of the
Revenue Act of 1978 [set out as a note below] as amended by section
252 of the Tax Equity and Fiscal Responsibility Act of 1982).
"(5) Special rule for certain deferred compensation plans. - The
amendments made by this section shall not apply -
"(A) to employees on August 16, 1986, of a nonprofit
corporation organized under the laws of the State of Alabama
maintaining a deferred compensation plan with respect to which
the Internal Revenue Service issued a ruling dated March 17,
1976, that the plan would not affect the tax-exempt status of the
corporation, or
"(B) to to [sic] individuals eligible to participate on August
16, 1986, in a deferred compensation plan with respect to which a
letter dated November 6, 1975, submitted the original plan to the
Internal Revenue Service, an amendment was submitted on November
19, 1975, and the Internal Revenue Service responded with a
letter dated December 24, 1975,
but only with respect to deferrals under such plan."
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by 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.
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
Section 131(c)(1) of Pub. L. 95-600 provided that: "The
amendments made by this section [enacting this section] shall apply
to taxable years beginning after December 31, 1978."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1998
For provisions directing that if any amendments made by subtitle
D [Secs. 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 [Secs. 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 [Secs. 1100-1147 and 1171-1177] or
title XVIII [Secs. 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.
TRANSITIONAL RULES
Section 131(c)(2) of Pub. L. 95-600, as amended by Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(A) In general. - In the case of any taxable year beginning
after December 31, 1978, and before January 1, 1982 -
"(i) any amount of compensation deferred under a plan of a
State providing for a deferral of compensation (other than a plan
described in section 457(e)(2) of the Internal Revenue Code of
1986 [formerly I.R.C. 1954]), and any income attributable to the
amounts so deferred, shall be includible in gross income only for
the taxable year in which such compensation or other income is
paid or otherwise made available to the participant or other
beneficiary, but
"(ii) the maximum amount of the compensation of any one
individual which may be excluded from gross income by reason of
clause (i) and by reason of section 457(a) of such Code during
any such taxable year shall not exceed the lesser of -
"(I) $7,500, or
"(II) 33 1/3 percent of the participant's includible
compensation.
"(B) Application of catch-up provisions in certain cases. - If,
in the case of any participant for any taxable year, all of the
plans are eligible State deferred compensation plans, then clause
(ii) of subparagraph (A) of this paragraph shall be applied with
the modification provided by paragraph (3) of section 457(b) of
such Code.
"(C) Applications of certain coordination provisions. - In
applying clause (ii) of subparagraph (A) of this paragraph and
section 403(b)(2)(A)(ii) of such Code, rules similar to the rules
of section 457(c)(2) of such Code shall apply.
"(D) Meaning of terms. - Except as otherwise provided in this
paragraph, terms used in this paragraph shall have the same meaning
as when used in section 457 of such Code."
DEFERRED COMPENSATION PLANS FOR STATE JUDGES
Section 131(c)(3) of Pub. L. 95-600, as added by Pub. L. 97-248,
title II, Sec. 252, Sept. 3, 1982, 96 Stat. 532, and amended by
Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided
that:
"(A) In general. - The amendments made by this section [enacting
this section and provisions set out as notes under this section]
shall not apply to any qualified State judicial plan.
"(B) Qualified state judicial plan. - For purposes of
subparagraph (A), the term 'qualified State judicial plan' means
any retirement plan of a State for the exclusive benefit of judges
or their beneficiaries if -
"(i) such plan has been continuously in existence since
December 31, 1978,
"(ii) under such plan, all judges eligible to benefit under the
plan -
"(I) are required to participate, and
"(II) are required to contribute the same fixed percentage of
their basic or regular rate of compensation as judge,
"(iii) under such plan, no judge has an option as to
contributions or benefits the exercise of which would affect the
amount of includible compensation,
"(iv) the retirement payments of a judge under the plan are a
percentage of the compensation of judges of that State holding
similar positions, and
"(v) the plan during any year does not pay benefits with
respect to any participant which exceed the limitations of
section 415(b) of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954]."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 25B, 72, 219, 401, 402,
403, 408, 411, 414, 415, 818, 3121, 3401, 3405, 4973, 4974, 6051 of
this title; title 4 section 114; title 11 section 101; title 12
section 1821; title 29 section 1053; title 42 section 409.
-End-
-CITE-
26 USC Sec. 458 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart B - Taxable Year for Which Items of Gross Income Included
-HEAD-
Sec. 458. Magazines, paperbacks, and records returned after the
close of the taxable year
-STATUTE-
(a) Exclusion from gross income
A taxpayer who is on an accrual method of accounting may elect
not to include in the gross income for the taxable year the income
attributable to the qualified sale of any magazine, paperback, or
record which is returned to the taxpayer before the close of the
merchandise return period.
(b) Definitions and special rules
For purposes of this section -
(1) Magazine
The term "magazine" includes any other periodical.
(2) Paperback
The term "paperback" means any book which has a flexible outer
cover and the pages of which are affixed directly to such outer
cover. Such term does not include a magazine.
(3) Record
The term "record" means a disc, tape, or similar object on
which musical, spoken, or other sounds are recorded.
(4) Separate application with respect to magazines, paperbacks,
and records
If a taxpayer makes qualified sales of more than one category
of merchandise in connection with the same trade or business,
this section shall be applied as if the qualified sales of each
such category were made in connection with a separate trade or
business. For purposes of the preceding sentence, magazines,
paperbacks, and records shall each be treated as a separate
category of merchandise.
(5) Qualified sale
A sale of a magazine, paperback, or record is a qualified sale
if -
(A) at the time of sale, the taxpayer has a legal obligation
to adjust the sales price of such magazine, paperback, or
record if it is not resold, and
(B) the sales price of such magazine, paperback, or record is
adjusted by the taxpayer because of a failure to resell it.
(6) Amount excluded
The amount excluded under this section with respect to any
qualified sale shall be the lesser of -
(A) the amount covered by the legal obligation described in
paragraph (5)(A), or
(B) the amount of the adjustment agreed to by the taxpayer
before the close of the merchandise return period.
(7) Merchandise return period
(A) Except as provided in subparagraph (B), the term
"merchandise return period" means, with respect to any taxable
year -
(i) in the case of magazines, the period of 2 months and 15
days first occurring after the close of taxable year, or
(ii) in the case of paperbacks and records, the period of 4
months and 15 days first occurring after the close of the
taxable year.
(B) The taxpayer may select a shorter period than the
applicable period set forth in subparagraph (A).
(C) Any change in the merchandise return period shall be
treated as a change in the method of accounting.
(8) Certain evidence may be substituted for physical return of
merchandise
Under regulations prescribed by the Secretary, the taxpayer may
substitute, for the physical return of magazines, paperbacks, or
records required by subsection (a), certification or other
evidence that the magazine, paperback, or record has not been
resold and will not be resold if such evidence -
(A) is in the possession of the taxpayer at the close of the
merchandise return period, and
(B) is satisfactory to the Secretary.
(9) Repurchased (!1) by the taxpayer not treated as resale
A repurchase by the taxpayer shall be treated as an adjustment
of the sales price rather than as a resale.
(c) Qualified sales to which section applies
(1) Election of benefits
This section shall apply to qualified sales of magazines,
paperbacks, or records, as the case may be, if and only if the
taxpayer makes an election under this section with respect to the
trade or business in connection with which such sales are made.
An election under this section may be made without the consent of
the Secretary. The election shall be made in such manner as the
Secretary may by regulations prescribed (!2) and shall be made
for any taxable year not later than the time prescribed by law
for filing the return for such taxable year (including extensions
thereof).
(2) Scope of election
An election made under this section shall apply to all
qualified sales of magazines, paperbacks, or records, as the case
may be, made in connection with the trade or business with
respect to which the taxpayer has made the election.
(3) Period to which election applies
An election under this section shall be effective for the
taxable year for which it is made and for all subsequent taxable
years, unless the taxpayer secures the consent of the Secretary
to the revocation of such election.
(4) Treatment as method of accounting
Except to the extent inconsistent with the provisions of this
section, for purposes of this subtitle, the computation of
taxable income under an election made under this section shall be
treated as a method of accounting.
(d) 5-year spread of transitional adjustments for magazines
In applying section 481(c) with respect to any election under
this section which applies to magazines, the period for taking into
account any decrease in taxable income resulting from the
application of section 481(a)(2) shall be the taxable year for
which the election is made and the 4 succeeding taxable years.
(e) Suspense account for paperbacks and records
(1) In general
In the case of any election under this section which applies to
paperbacks or records, in lieu of applying section 481, the
taxpayer shall establish a suspense account for the trade or
business for the taxable year for which the election is made.
(2) Initial opening balance
The opening balance of the account described in paragraph (1)
for the first taxable year to which the election applies shall be
the largest dollar amount of returned merchandise which would
have been taken into account under this section for any of the 3
immediately preceding taxable years if this section had applied
to such preceding 3 taxable years. This paragraph and paragraph
(3) shall be applied by taking into account only amounts
attributable to the trade or business for which such account is
established.
(3) Adjustments in suspense account
At the close of each taxable year the suspense account shall be
-
(A) reduced the excess (if any) of -
(i) the opening balance of the suspense account for the
taxable year, over
(ii) the amount excluded from gross income for the taxable
year under subsection (a), or
(B) increased (but not in excess of the initial opening
balance) by the excess (if any) of -
(i) the amount excluded from gross income for the taxable
year under subsection (a), over
(ii) the opening balance of the account for the taxable
year.
(4) Gross income adjustments
(A) Reductions excluded from gross income
In the case of any reduction under paragraph (3)(A) in the
account for the taxable year, an amount equal to such reduction
shall be excluded from gross income for such taxable year.
(B) Increases added to gross income
In the case of any increase under paragraph (3)(B) in the
account for the taxable year, an amount equal to such increase
shall be included in gross income for such taxable year.
If the initial opening balance exceeds the dollar amount of
returned merchandise which would have been taken into account
under subsection (a) for the taxable year preceding the first
taxable year for which the election is effective if this section
had applied to such preceding taxable year, then an amount equal
to the amount of such excess shall be included in gross income
for such first taxable year.
(5) Subchapter C transactions
The application of this subsection with respect to a taxpayer
which is a party to any transaction with respect to which there
is nonrecognition of gain or loss to any party to the transaction
by reason of subchapter C shall be determined under regulations
prescribed by the Secretary.
-SOURCE-
(Added Pub. L. 95-600, title III, Sec. 372(a), Nov. 6, 1978, 92
Stat. 2860.)
-MISC1-
EFFECTIVE DATE
Section 372(c) of Pub. L. 95-600 provided that: "The amendments
made by this section [enacting this section] shall apply to taxable
years beginning after September 30, 1979."
-FOOTNOTE-
(!1) So in original. Probably should be "Repurchase".
(!2) So in original. Probably should be "prescribe".
-End-
-CITE-
26 USC Sec. 460 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart B - Taxable Year for Which Items of Gross Income Included
-HEAD-
Sec. 460. Special rules for long-term contracts
-STATUTE-
(a) Requirement that percentage of completion method be used
In the case of any long-term contract, the taxable income from
such contract shall be determined under the percentage of
completion method (as modified by subsection (b)).
(b) Percentage of completion method
(1) Requirements of percentage of completion method
Except as provided in paragraph (3), in the case of any
long-term contract with respect to which the percentage of
completion method is used -
(A) the percentage of completion shall be determined by
comparing costs allocated to the contract under subsection (c)
and incurred before the close of the taxable year with the
estimated total contract costs, and
(B) upon completion of the contract (or, with respect to any
amount properly taken into account after completion of the
contract, when such amount is so properly taken into account),
the taxpayer shall pay (or shall be entitled to receive)
interest computed under the look-back method of paragraph (2).
In the case of any long-term contract with respect to which the
percentage of completion method is used, except for purposes of
applying the look-back method of paragraph (2), any income under
the contract (to the extent not previously includible in gross
income) shall be included in gross income for the taxable year
following the taxable year in which the contract was completed.
For purposes of subtitle F (other than sections 6654 and 6655),
any interest required to be paid by the taxpayer under
subparagraph (B) shall be treated as an increase in the tax
imposed by this chapter for the taxable year in which the
contract is completed (or, in the case of interest payable with
respect to any amount properly taken into account after
completion of the contract, for the taxable year in which the
amount is so properly taken into account).
(2) Look-back method
The interest computed under the look-back method of this
paragraph shall be determined by -
(A) first (!1) allocating income under the contract among
taxable years before the year in which the contract is
completed on the basis of the actual contract price and costs
instead of the estimated contract price and costs,
(B) second, determining (solely for purposes of computing
such interest) the overpayment or underpayment of tax for each
taxable year referred to in subparagraph (A) which would result
solely from the application of subparagraph (A), and
(C) then using the adjusted overpayment rate (as defined in
paragraph (7)), compounded daily, on the overpayment or
underpayment determined under subparagraph (B).
For purposes of the preceding sentence, any amount properly taken
into account after completion of the contract shall be taken into
account by discounting (using the Federal mid-term rate
determined under section 1274(d) as of the time such amount was
properly taken into account) such amount to its value as of the
completion of the contract. The taxpayer may elect with respect
to any contract to have the preceding sentence not apply to such
contract.
(3) Special rules
(A) Simplified method of cost allocation
In the case of any long-term contract, the Secretary may
prescribe a simplified procedure for allocation of costs to
such contract in lieu of the method of allocation under
subsection (c).
(B) Look-back method not to apply to certain contracts
Paragraph (1)(B) shall not apply to any contract -
(i) the gross price of which (as of the completion of the
contract) does not exceed the lesser of -
(I) $1,000,000, or
(II) 1 percent of the average annual gross receipts of
the taxpayer for the 3 taxable years preceding the taxable
year in which the contract was completed, and
(ii) which is completed within 2 years of the contract
commencement date.
For purposes of this subparagraph, rules similar to the rules
of subsections (e)(2) and (f)(3) shall apply.
(4) Simplified look-back method for pass-thru entities
(A) In general
In the case of a pass-thru entity -
(i) the look-back method of paragraph (2) shall be applied
at the entity level,
(ii) in determining overpayments and underpayments for
purposes of applying paragraph (2)(B) -
(I) any increase in the income under the contract for any
taxable year by reason of the allocation under paragraph
(2)(A) shall be treated as giving rise to an underpayment
determined by applying the highest rate for such year to
such increase, and
(II) any decrease in such income for any taxable year by
reason of such allocation shall be treated as giving rise
to an overpayment determined by applying the highest rate
for such year to such decrease, and
(iii) any interest required to be paid by the taxpayer
under paragraph (2) shall be paid by such entity (and any
interest entitled to be received by the taxpayer under
paragraph (2) shall be paid to such entity).
(B) Exceptions
(i) Closely held pass-thru entities
This paragraph shall not apply to any closely held
pass-thru entity.
(ii) Foreign contracts
This paragraph shall not apply to any contract unless
substantially all of the income from such contract is from
sources in the United States.
(C) Other definitions
For purposes of this paragraph -
(i) Highest rate
The term "highest rate" means -
(I) the highest rate of tax specified in section 11, or
(II) if at all times during the year involved more than
50 percent of the interests in the entity are held by
individuals directly or through 1 or more other pass-thru
entities, the highest rate of tax specified in section 1.
(ii) Pass-thru entity
The term "pass-thru entity" means any -
(I) partnership,
(II) S corporation, or
(III) trust.
(iii) Closely held pass-thru entity
The term "closely held pass-thru entity" means any
pass-thru entity if, at any time during any taxable year for
which there is income under the contract, 50 percent or more
(by value) of the beneficial interests in such entity are
held (directly or indirectly) by or for 5 or fewer persons.
For purposes of the preceding sentence, rules similar to the
constructive ownership rules of section 1563(e) shall apply.
(5) Election to use 10-percent method
(A) General rule
In the case of any long-term contract with respect to which
an election under this paragraph is in effect, the 10-percent
method shall apply in determining the taxable income from such
contract.
(B) 10-percent method
For purposes of this paragraph -
(i) In general
The 10-percent method is the percentage of completion
method, modified so that any item which would otherwise be
taken into account in computing taxable income with respect
to a contract for any taxable year before the 10-percent year
is taken into account in the 10-percent year.
(ii) 10-percent year
The term "10-percent year" means the 1st taxable year as of
the close of which at least 10 percent of the estimated total
contract costs have been incurred.
(C) Election
An election under this paragraph shall apply to all long-term
contracts of the taxpayer which are entered into during the
taxable year in which the election is made or any subsequent
taxable year.
(D) Coordination with other provisions
(i) Simplified method of cost allocation
This paragraph shall not apply to any taxpayer which uses a
simplified procedure for allocation of costs under paragraph
(3)(A).
(ii) Look-back method
The 10-percent method shall be taken into account for
purposes of applying the look-back method of paragraph (2) to
any taxpayer making an election under this paragraph.
(6) Election to have look-back method not apply in de minimis
cases
(A) Amounts taken into account after completion of contract
Paragraph (1)(B) shall not apply with respect to any taxable
year (beginning after the taxable year in which the contract is
completed) if -
(i) the cumulative taxable income (or loss) under the
contract as of the close of such taxable year, is within
(ii) 10 percent of the cumulative look-back taxable income
(or loss) under the contract as of the close of the most
recent taxable year to which paragraph (1)(B) applied (or
would have applied but for subparagraph (B)).
(B) De minimis discrepancies
Paragraph (1)(B) shall not apply in any case to which it
would otherwise apply if -
(i) the cumulative taxable income (or loss) under the
contract as of the close of each prior contract year, is
within
(ii) 10 percent of the cumulative look-back income (or
loss) under the contract as of the close of such prior
contract year.
(C) Definitions
For purposes of this paragraph -
(i) Contract year
The term "contract year" means any taxable year for which
income is taken into account under the contract.
(ii) Look-back income or loss
The look-back income (or loss) is the amount which would be
the taxable income (or loss) under the contract if the
allocation method set forth in paragraph (2)(A) were used in
determining taxable income.
(iii) Discounting not applicable
The amounts taken into account after the completion of the
contract shall be determined without regard to any
discounting under the 2nd sentence of paragraph (2).
(D) Contracts to which paragraph applies
This paragraph shall only apply if the taxpayer makes an
election under this subparagraph. Unless revoked with the
consent of the Secretary, such an election shall apply to all
long-term contracts completed during the taxable year for which
election is made or during any subsequent taxable year.
(7) Adjusted overpayment rate
(A) In general
The adjusted overpayment rate for any interest accrual period
is the overpayment rate in effect under section 6621 for the
calendar quarter in which such interest accrual period begins.
(B) Interest accrual period
For purposes of subparagraph (A), the term "interest accrual
period" means the period -
(i) beginning on the day after the return due date for any
taxable year of the taxpayer, and
(ii) ending on the return due date for the following
taxable year.
For purposes of the preceding sentence, the term "return due
date" means the date prescribed for filing the return of the
tax imposed by this chapter (determined without regard to
extensions).
(c) Allocation of costs to contract
(1) Direct and certain indirect costs
In the case of a long-term contract, all costs (including
research and experimental costs) which directly benefit, or are
incurred by reason of, the long-term contract activities of the
taxpayer shall be allocated to such contract in the same manner
as costs are allocated to extended period long-term contracts
under section 451 and the regulations thereunder.
(2) Costs identified under cost-plus and certain Federal
contracts
In the case of a cost-plus long-term contract or a Federal
long-term contract, any cost not allocated to such contract under
paragraph (1) shall be allocated to such contract if such cost is
identified by the taxpayer (or a related person), pursuant to the
contract or Federal, State, or local law or regulation, as being
attributable to such contract.
(3) Allocation of production period interest to contract
(A) In general
Except as provided in subparagraphs (B) and (C), in the case
of a long-term contract, interest costs shall be allocated to
the contract in the same manner as interest costs are allocated
to property produced by the taxpayer under section 263A(f).
(B) Production period
In applying section 263A(f) for purposes of subparagraph (A),
the production period shall be the period -
(i) beginning on the later of -
(I) the contract commencement date, or
(II) in the case of a taxpayer who uses an accrual method
with respect to long-term contracts, the date by which at
least 5 percent of the total estimated costs (including
design and planning costs) under the contract have been
incurred, and
(ii) ending on the contract completion date.
(C) Application of de minimis rule
In applying section 263A(f) for purposes of subparagraph (A),
paragraph (1)(B)(iii) of such section shall be applied on a
contract-by-contract basis; except that, in the case of a
taxpayer described in subparagraph (B)(i)(II) of this
paragraph, paragraph (1)(B)(iii) of section 263A(f) shall be
applied on a property-by-property basis.
(4) Certain costs not included
This subsection shall not apply to any -
(A) independent research and development expenses,
(B) expenses for unsuccessful bids and proposals, and
(C) marketing, selling, and advertising expenses.
(5) Independent research and development expenses
For purposes of paragraph (4), the term "independent research
and development expenses" means any expenses incurred in the
performance of research or development, except that such term
shall not include -
(A) any expenses which are directly attributable to a
long-term contract in existence when such expenses are
incurred, or
(B) any expenses under an agreement to perform research or
development.
(d) Federal long-term contract
For purposes of this section -
(1) In general
The term "Federal long-term contract" means any long-term
contract -
(A) to which the United States (or any agency or
instrumentality thereof) is a party, or
(B) which is a subcontract under a contract described in
subparagraph (A).
(2) Special rules for certain taxable entities
For purposes of paragraph (1), the rules of section
168(h)(2)(D) (relating to certain taxable entities not treated as
instrumentalities) shall apply.
(e) Exception for certain construction contracts
(1) In general
Subsections (a), (b), and (c)(1) and (2) shall not apply to -
(A) any home construction contract, or
(B) any other construction contract entered into by a
taxpayer -
(i) who estimates (at the time such contract is entered
into) that such contract will be completed within the 2-year
period beginning on the contract commencement date of such
contract, and
(ii) whose average annual gross receipts for the 3 taxable
years preceding the taxable year in which such contract is
entered into do not exceed $10,000,000.
In the case of a home construction contract with respect to which
the requirements of clauses (i) and (ii) of subparagraph (B) are
not met, section 263A shall apply notwithstanding subsection
(c)(4) thereof.
(2) Determination of taxpayer's gross receipts
For purposes of paragraph (1), the gross receipts of -
(A) all trades or businesses (whether or not incorporated)
which are under common control with the taxpayer (within the
meaning of section 52(b)),
(B) all members of any controlled group of corporations of
which the taxpayer is a member, and
(C) any predecessor of the taxpayer or a person described in
subparagraph (A) or (B),
for the 3 taxable years of such persons preceding the taxable
year in which the contract described in paragraph (1) is entered
into shall be included in the gross receipts of the taxpayer for
the period described in paragraph (1)(B). The Secretary shall
prescribe regulations which provide attribution rules that take
into account, in addition to the persons and entities described
in the preceding sentence, taxpayers who engage in construction
contracts through partnerships, joint ventures, and corporations.
(3) Controlled group of corporations
For purposes of this subsection, the term "controlled group of
corporations" has the meaning given to such term by section
1563(a), except that -
(A) "more than 50 percent" shall be substituted for "at least
80 percent" each place it appears in section 1563(a)(1), and
(B) the determination shall be made without regard to
subsections (a)(4) and (e)(3)(C) of section 1563.
(4) Construction contract
For purposes of this subsection, the term "construction
contract" means any contract for the building, construction,
reconstruction, or rehabilitation of, or the installation of any
integral component to, or improvements of, real property.
(5) Special rule for residential construction contracts which are
not home construction contracts
In the case of any residential construction contract which is
not a home construction contract, subsection (a) (as in effect on
the day before the date of the enactment of the Revenue
Reconciliation Act of 1989) shall apply except that such
subsection shall be applied -
(A) by substituting "70 percent" for "90 percent" each place
it appears, and
(B) by substituting "30 percent" for "10 percent".
(6) Definitions relating to residential construction contracts
For purposes of this subsection -
(A) Home construction contract
The term "home construction contract" means any construction
contract if 80 percent or more of the estimated total contract
costs (as of the close of the taxable year in which the
contract was entered into) are reasonably expected to be
attributable to activities referred to in paragraph (4) with
respect to -
(i) dwelling units (as defined in section 168(e)(2)(A)(ii))
contained in buildings containing 4 or fewer dwelling units
(as so defined), and
(ii) improvements to real property directly related to such
dwelling units and located on the site of such dwelling
units.
For purposes of clause (i), each townhouse or rowhouse shall be
treated as a separate building.
(B) Residential construction contract
The term "residential construction contract" means any
contract which would be described in subparagraph (A) if clause
(i) of such subparagraph reads as follows:
"(i) dwelling units (as defined in section
168(e)(2)(A)(ii)), and".
(f) Long-term contract
For purposes of this section -
(1) In general
The term "long-term contract" means any contract for the
manufacture, building, installation, or construction of property
if such contract is not completed within the taxable year in
which such contract is entered into.
(2) Special rule for manufacturing contracts
A contract for the manufacture of property shall not be treated
as a long-term contract unless such contract involves the
manufacture of -
(A) any unique item of a type which is not normally included
in the finished goods inventory of the taxpayer, or
(B) any item which normally requires more than 12 calendar
months to complete (without regard to the period of the
contract).
(3) Aggregation, etc.
For purposes of this subsection, under regulations prescribed
by the Secretary -
(A) 2 or more contracts which are interdependent (by reason
of pricing or otherwise) may be treated as 1 contract, and
(B) a contract which is properly treated as an aggregation of
separate contracts may be so treated.
(g) Contract commencement date
For purposes of this section, the term "contract commencement
date" means, with respect to any contract, the first date on which
any costs (other than bidding expenses or expenses incurred in
connection with negotiating the contract) allocable to such
contract are incurred.
(h) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this section,
including regulations to prevent the use of related parties,
pass-thru entities, intermediaries, options, or other similar
arrangements to avoid the application of this section.
-SOURCE-
(Added Pub. L. 99-514, title VIII, Sec. 804(a), Oct. 22, 1986, 100
Stat. 2358; amended Pub. L. 100-203, title X, Sec. 10203(a), Dec.
22, 1987, 101 Stat. 1330-394; Pub. L. 100-647, title I, Sec.
1008(c)(1), (2), (4), title V, Sec. 5041(a)-(b)(3), (c), (d), Nov.
10, 1988, 102 Stat. 3438, 3439, 3673, 3674; Pub. L. 101-239, title
VII, Secs. 7621(a)-(c), 7811(e), 7815(e)(1), Dec. 19, 1989, 103
Stat. 2375, 2376, 2408, 2419; Pub. L. 101-508, title XI, Sec.
11812(b)(8), Nov. 5, 1990, 104 Stat. 1388-535; (As amended Pub. L.
104-188, title I, Secs. 1702(h)(15), 1704(t)(28), Aug. 20, 1996,
110 Stat. 1874, 1888; Pub. L. 105-34, title XII, Sec. 1211(a), (b),
Aug. 5, 1997, 111 Stat. 998, 999.)
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of the Revenue Reconciliation Act of
1989, referred to in subsec. (e)(5), is the date of enactment of
title VII of Pub. L. 101-239, which was approved Dec. 19, 1989.
-MISC1-
AMENDMENTS
1997 - Subsec. (b)(2)(C). Pub. L. 105-34, Sec. 1211(b)(1),
substituted "the adjusted overpayment rate (as defined in paragraph
(7))" for "the overpayment rate established by section 6621".
Subsec. (b)(6). Pub. L. 105-34, Sec. 1211(a), added par. (6).
Subsec. (b)(7). Pub. L. 105-34, Sec. 1211(b)(2), added par. (7).
1996 - Subsec. (b)(1). Pub. L. 104-188, Sec. 1704(t)(28), which
directed that par. (1) be amended by substituting "the look-back
method of paragraph (2)" for "the look-back method of paragraph
(3)", could not be executed, because that phrase does not appear in
text. See 1989 Amendment note below.
Subsec. (e)(6)(B). Pub. L. 104-188, Sec. 1702(h)(15), substituted
"section 168(e)(2)(A)(ii)" for "section 167(k)".
1990 - Subsec. (e)(6)(A)(i). Pub. L. 101-508 substituted "section
168(e)(2)(A)(ii)" for "section 167(k)".
1989 - Subsec. (a). Pub. L. 101-239, Sec. 7621(a), substituted
"Requirement that percentage of completion method be used" for
"Percentage of completion-capitalized cost method" in heading and
amended text generally. Prior to amendment, text read as follows:
"(1) In general. - In the case of any long-term contract -
"(A) 90 percent of the items with respect to such contract
shall be taken into account under the percentage of completion
method (as modified by subsection (b)), and
"(B) 10 percent of the items with respect to such contract
shall be taken into account under the taxpayer's normal method of
accounting.
"(2) 90 percent look-back method to apply. - Upon completion of
any long-term contract (or, with respect to any amount properly
taken into account after completion of the contract, when such
amount is so properly taken into account), the taxpayer shall pay
(or shall be entitled to receive) interest determined by applying
the look-back method of subsection (b)(3) to 90 percent of the
items with respect to the contract."
Subsec. (a)(2). Pub. L. 101-239, Sec. 7811(e)(1), inserted "(or,
with respect to any amount properly taken into account after
completion of the contract, when such amount is so properly taken
into account)" after "any long-term contract".
Subsec. (b)(1). Pub. L. 101-239, Sec. 7621(c)(2)(A), substituted
"paragraph (3)" for "paragraph (4)".
Pub. L. 101-239, Sec. 7621(c)(2)(B), which directed the amendment
of par. (1) by substituting "paragraph (2)" for "paragraph (3)",
was executed by making the substitution in subpar. (B) and
concluding provisions to reflect the probable intent of Congress.
Pub. L. 101-239, Sec. 7621(c)(1), redesignated par. (2) as (1)
and struck out former par. (1) which read as follows: "Subsection
(a) not to apply where percentage of completion method used. -
Subsection (a) shall not apply to any long-term contract with
respect to which amounts includible in gross income are determined
under the percentage of completion method."
Subsec. (b)(2). Pub. L. 101-239, Sec. 7621(c)(1), redesignated
par. (3) as (2). Former par. (2) redesignated (1).
Pub. L. 101-239, Sec. 7811(e)(4), (6), inserted two sentences at
end.
Subsec. (b)(2)(B). Pub. L. 101-239, Sec. 7811(e)(2), substituted
"any amount properly taken into account" for "any amount received
or accrued" and "is so properly taken into account" for "is so
received or accrued".
Subsec. (b)(3). Pub. L. 101-239, Sec. 7621(c)(1), redesignated
par. (4) as (3). Former par. (3) redesignated (2).
Pub. L. 101-239, Sec. 7811(e)(3), in concluding provisions,
substituted "any amount properly taken into account" for "any
amount received or accrued" and "such amount was properly taken
into account" for "such amount was received or accrued".
Subsec. (b)(3)(B). Pub. L. 101-239, Sec. 7621(c)(3), substituted
"Paragraph (1)(B)" for "Paragraph (2)(B) and subsection (a)(2)" in
introductory provisions.
Subsec. (b)(4). Pub. L. 101-239, Sec. 7621(c)(1), redesignated
par. (5) as (4). Former par. (4) redesignated (3).
Subsec. (b)(4)(A)(i). Pub. L. 101-239, Sec. 7621(c)(4)(A),
substituted "paragraph (2)" for "paragraph (3)".
Subsec. (b)(4)(A)(ii). Pub. L. 101-239, Sec. 7621(c)(4)(B),
substituted "paragraph (2)(B)" for "paragraph (3)(B)" in
introductory provisions.
Subsec. (b)(4)(A)(ii)(I). Pub. L. 101-239, Sec. 7621(c)(4)(C),
substituted "paragraph (2)(A)" for "paragraph (3)(A)".
Subsec. (b)(4)(A)(iii). Pub. L. 101-239, Sec. 7621(c)(4)(A),
substituted "paragraph (2)" for "paragraph (3)" in two places.
Subsec. (b)(5). Pub. L. 101-239, Sec. 7621(b), added par. (5).
Pub. L. 101-239, Sec. 7621(c)(1), redesignated former par. (5) as
(4).
Subsec. (e)(2)(C). Pub. L. 101-239, Sec. 7811(e)(5), added
subpar. (C).
Subsec. (e)(5). Pub. L. 101-239, Sec. 7621(c)(5), inserted
introductory provisions and struck out former introductory
provisions which read as follows: "In the case of any residential
construction contract which is not a home construction contract,
subsection (a) shall be applied - ".
Subsec. (e)(6)(A). Pub. L. 101-239, Sec. 7815(e)(1)(A),
substituted "activities referred to in paragraph (4) with respect
to" for "the building, construction, reconstruction, or
rehabilitation of".
Subsec. (e)(6)(A)(i). Pub. L. 101-239, Sec. 7815(e)(1)(B), added
cl. (i) and struck out former cl. (i) which read as follows:
"dwelling units contained in buildings containing 4 or fewer
dwelling units, and".
1988 - Subsec. (a)(1)(A). Pub. L. 100-647, Sec. 5041(a)(1),
substituted "90" for "70".
Subsec. (a)(1)(B). Pub. L. 100-647, Sec. 5041(a)(2), substituted
"10" for "30".
Subsec. (a)(2). Pub. L. 100-647, Sec. 5041(a)(1), substituted
"90" for "70" in heading and in text.
Subsec. (b)(2). Pub. L. 100-647, Sec. 1008(c)(2)(B), substituted
"Except as provided in paragraph (4), in" for "In".
Subsec. (b)(2)(B). Pub. L. 100-647, Sec. 1008(c)(4)(B), inserted
"(or, with respect to any amount received or accrued after
completion of the contract, when such amount is so received or
accrued)" after "contract".
Subsec. (b)(3). Pub. L. 100-647, Sec. 1008(c)(4)(A), inserted at
end "For purposes of the preceding sentence, any amount received or
accrued after completion of the contract shall be taken into
account by discounting (using the Federal mid-term rate determined
under section 1274(d) as of the time such amount was received or
accrued) such amount to its value as of the completion of the
contract. The taxpayer may elect with respect to any contract to
have the preceding sentence not apply to such contract."
Pub. L. 100-647, Sec. 1008(c)(1)(A), substituted "paragraph" for
"subparagraph".
Subsec. (b)(3)(B). Pub. L. 100-647, Sec. 1008(c)(1)(B),
substituted "subparagraph (A)" for "paragraph (1)" in two places.
Subsec. (b)(3)(C). Pub. L. 100-647, Sec. 1008(c)(1)(C),
substituted "subparagraph (B)" for "paragraph (1)".
Subsec. (b)(4). Pub. L. 100-647, Sec. 1008(c)(2)(A), added par.
(4).
Subsec. (b)(5). Pub. L. 100-647, Sec. 5041(d), added par. (5).
Subsec. (e)(1). Pub. L. 100-647, Sec. 5041(b)(1), amended par.
(1) generally. Prior to amendment, par. (1) read as follows:
"Subsections (a), (b), and (c)(1) and (2) shall not apply to any
construction contract entered into by a taxpayer -
"(A) who estimates (at the time such contract is entered into)
that such contract will be completed within the 2-year period
beginning on the contract commencement date of such contract, and
"(B) whose average annual gross receipts for the 3 taxable
years preceding the taxable year in which such contract is
entered into do not exceed $10,000,000."
Subsec. (e)(5). Pub. L. 100-647, Sec. 5041(b)(2), added par. (5).
Subsec. (e)(6). Pub. L. 100-647, Sec. 5041(b)(3), added par. (6).
Subsec. (h). Pub. L. 100-647, Sec. 5041(c), added subsec. (h).
1987 - Subsec. (a). Pub. L. 100-203 substituted "70 percent" for
"40 percent" in par. (1)(A) and in heading and text of par. (2),
and "30 percent" for "60 percent" in par. (1)(B).
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1211(c) of Pub. L. 105-34 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section] shall apply
to contracts completed in taxable years ending after the date of
the enactment of this Act [Aug. 5, 1997].
"(2) Subsection (b). - The amendments made by subsection (b)
[amending this section] shall apply for purposes of section 167(g)
of the Internal Revenue Code of 1986 to property placed in service
after September 13, 1995."
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1702(h)(15) of Pub. L. 104-188 effective,
except as otherwise expressly provided, as if included in the
provision of the Revenue Reconciliation Act of 1990, Pub. L.
101-508, title XI, to which such amendment relates, see section
1702(i) of Pub. L. 104-188, set out as a note under section 38 of
this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub. L. 101-508 applicable to property placed in
service after Nov. 5, 1990, but not applicable to any property to
which section 168 of this title does not apply by reason of subsec.
(f)(5) of section 168, and not applicable to rehabilitation
expenditures described in section 252(f)(5) of Pub. L. 99-514, see
section 11812(c) of Pub. L. 101-508, set out as a note under
section 42 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Section 7621(d) of Pub. L. 101-239 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section] shall apply
to contracts entered into on or after July 11, 1989.
"(2) Binding bids. - The amendments made by this section shall
not apply to any contract resulting from the acceptance of a bid
made before July 11, 1989. The preceding sentence shall apply only
if the bid could not have been revoked or altered at any time on or
after July 11, 1989.
"(3) Special rule for certain ship contracts. - The amendments
made by this section shall not apply in the case of a qualified
ship contract (as defined in section 10203(b)(2)(B) of the Revenue
Act of 1987 [Pub. L. 100-203, set out below])."
Amendment by sections 7811(e) and 7815(e)(1) of Pub. L. 101-239
effective, except as otherwise provided, as if included in the
provision of the Technical and Miscellaneous Revenue Act of 1988,
Pub. L. 100-647, to which such amendment relates, see section 7817
of Pub. L. 101-239, set out as a note under section 1 of this
title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1008(c)(1), (2), (4) 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.
Section 5041(e) of Pub. L. 100-647, as amended by Pub. L.
101-239, title VII, Sec. 7815(e)(3), Dec. 19, 1989, 103 Stat. 2419,
provided that:
"(1) Subsections (a), (b), and (c). -
"(A) In general. - Except as otherwise provided in this
paragraph, the amendments made by subsections (a), (b), and (c)
[amending this section and section 56 of this title] shall apply
to contracts entered into on or after June 21, 1988.
"(B) Binding bids. - The amendments made by subsections (a),
(b), and (c) shall not apply to any contract resulting from the
acceptance of a bid made before June 21, 1988. The preceding
sentence shall apply only if the bid could not have been revoked
or altered at any time on or after June 21, 1988.
"(C) Special rule for certain ship contracts. - The amendments
made by subsections (a) and (b) [amending this section and
section 56 of this title] shall not apply in the case of a
qualified ship contract (as defined in section 10203(b)(2)(B) of
the Revenue Act of 1987 [Pub. L. 100-203, set out below]).
"(2) Subsection (d). - The amendment made by subsection (d)
[amending this section] shall apply as if included in the
amendments made by section 804 of the Reform Act [Pub. L. 99-514];
except that such amendment shall not apply to any contract
completed in a taxable year ending before the date of the enactment
of this Act [Nov. 10, 1988], if the due date (determined with
regard to extensions) for the return for such year is before such
date of enactment."
EFFECTIVE DATE OF 1987 AMENDMENT
Section 10203(b) of Pub. L. 100-203 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section] shall apply
to contracts entered into after October 13, 1987.
"(2) Special rule for certain ship contracts. -
"(A) In general. - The amendments made by this section shall
not apply in the case of a qualified ship contract.
"(B) Qualified ship contract. - For purposes of subparagraph
(A), the term 'qualified ship contract' means any contract for
the construction in the United States of not more than 5 ships if
-
"(i) such ships will not be constructed (directly or
indirectly) for the Federal Government, and
"(ii) the taxpayer reasonably expects to complete such
contract within 5 years of the contract commencement date (as
defined in section 460(g) of the Internal Revenue Code of
1986)."
EFFECTIVE DATE OF 1986 AMENDMENT
Section 804(d) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1008(c)(3), Nov. 10, 1988, 102 Stat. 3439, provided
that:
"(1) In general. - The amendments made by this section [enacting
this section] shall apply to any contract entered into after
February 28, 1986.
"(2) Clarification of treatment of independent research and
development expenses. -
"(A) In general. - For periods before, on, or after the date of
enactment of this Act [Oct. 22, 1986] -
"(i) any independent research and development expenses taken
into account in determining the total contract price shall not
be severable from the contract, and
"(ii) any independent research and development expenses shall
not be treated as amounts chargeable to capital account.
"(B) Independent research and development expenses. - For
purposes of subparagraph (A), the term 'independent research and
development expenses' has the meaning given to such term by
section 460(c)(5) of the Internal Revenue Code of 1986, as added
by this section."
REGULATIONS
Section 804(b) of Pub. L. 99-514 provided that: "The Secretary of
the Treasury or his delegate shall modify the income tax
regulations relating to accounting for long-term contracts to carry
out the provisions of section 460 of the Internal Revenue Code of
1986 (as added by subsection (a))."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 29 of this title.
AMORTIZATION OF PAST SERVICE PENSION COSTS
Allocable costs (within the meaning of subsec. (c) of this
section) with respect to any property to include contributions paid
to or under a pension or annuity plan whether or not such
contributions represent past service costs, see section 10204 of
Pub. L. 100-203, set out as a note under section 263A of this
title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 56, 167 of this title.
-FOOTNOTE-
(!1) So in original. Probably should be followed by a comma.
-End-
-CITE-
26 USC Subpart C - Taxable Year for Which Deductions
Taken 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart C - Taxable Year for Which Deductions Taken
-HEAD-
SUBPART C - TAXABLE YEAR FOR WHICH DEDUCTIONS TAKEN
-MISC1-
Sec.
461. General rule for taxable year of deduction.
[462, 463. Repealed.]
464. Limitations on deductions for certain farming
expenses.(!1)
465. Deductions limited to amount at risk.
[466. Repealed.]
467. Certain payments for the use of property or services.
468. Special rules for mining and solid waste reclamation
and closing costs.
468A. Special rules for nuclear decommissioning costs.
468B. Special rules for designated settlement funds.
469. Passive activity losses and credits limited.
AMENDMENTS
1987 - Pub. L. 100-203, title X, Sec. 10201(b)(7), Dec. 22, 1987,
101 Stat. 1330-387, struck out item 463 "Accrual of vacation pay".
1986 - Pub. L. 99-514, title IV, Sec. 404(b)(2), title V, Sec.
501(b), title VIII, Sec. 823(b)(2), title XVIII, Secs.
1807(a)(7)(B), 1899A(71), Oct. 22, 1986, 100 Stat. 2224, 2241,
2374, 2815, 2963, substituted "for certain farming expenses" for
"in case of farming syndicates" in item 464, struck out item 466
"Qualified discount coupons redeemed after close of taxable year",
inserted "the" before "use" in item 467, and added items 468B and
469.
1984 - Pub. L. 98-369, div. A, title I, Secs. 91(b)(2), (c)(2),
92(b), July 18, 1984, 98 Stat. 604, 606, 612, added items 467, 468,
and 468A.
1978 - Pub. L. 95-600, title II, Sec. 201(c)(2), title III, Sec.
373(b), Nov. 6, 1978, 92 Stat. 2816, 2865, struck out "in case of
certain activities" after "amount at risk" in item 465 and added
item 466.
1976 - Pub. L. 94-455, title II, Secs. 204(b), 207(a)(2), Oct. 4,
1976, 90 Stat. 1532, 1537, added items 464 and 465.
1975 - Pub. L. 93-625, Sec. 4(b), Jan. 3, 1975, 88 Stat. 2111,
added item 463.
1955 - Act June 15, 1955, ch. 143, Sec. 2(3), 69 Stat. 135,
struck out item 462 "Reserves for estimated expenses, etc."
-FOOTNOTE-
(!1) So in original. Does not conform to section catchline.
-End-
-CITE-
26 USC Sec. 461 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart C - Taxable Year for Which Deductions Taken
-HEAD-
Sec. 461. General rule for taxable year of deduction
-STATUTE-
(a) General rule
The amount of any deduction or credit allowed by this subtitle
shall be taken for the taxable year which is the proper taxable
year under the method of accounting used in computing taxable
income.
(b) Special rule in case of death
In the case of the death of a taxpayer whose taxable income is
computed under an accrual method of accounting, any amount accrued
as a deduction or credit only by reason of the death of the
taxpayer shall not be allowed in computing taxable income for the
period in which falls the date of the taxpayer's death.
(c) Accrual of real property taxes
(1) In general
If the taxable income is computed under an accrual method of
accounting, then, at the election of the taxpayer, any real
property tax which is related to a definite period of time shall
be accrued ratably over that period.
(2) When election may be made
(A) Without consent
A taxpayer may, without the consent of the Secretary, make an
election under this subsection for his first taxable year in
which he incurs real property taxes. Such an election shall be
made not later than the time prescribed by law for filing the
return for such year (including extensions thereof).
(B) With consent
A taxpayer may, with the consent of the Secretary, make an
election under this subsection at any time.
(d) Limitation on acceleration of accrual of taxes
(1) General rule
In the case of a taxpayer whose taxable income is computed
under an accrual method of accounting, to the extent that the
time for accruing taxes is earlier than it would be but for any
action of any taxing jurisdiction taken after December 31, 1960,
then, under regulations prescribed by the Secretary, such taxes
shall be treated as accruing at the time they would have accrued
but for such action by such taxing jurisdiction.
(2) Limitation
Under regulations prescribed by the Secretary, paragraph (1)
shall be inapplicable to any item of tax to the extent that its
application would (but for this paragraph) prevent all persons
(including successors in interest) from ever taking such item
into account.
(e) Dividends or interest paid on certain deposits or withdrawable
accounts
Except as provided in regulations prescribed by the Secretary,
amounts paid to, or credited to the accounts of, depositors or
holders of accounts as dividends or interest on their deposits or
withdrawable accounts (if such amounts paid or credited are
withdrawable on demand subject only to customary notice to
withdraw) by a mutual savings bank not having capital stock
represented by shares, a domestic building and loan association, or
a cooperative bank shall not be allowed as a deduction for the
taxable year to the extent such amounts are paid or credited for
periods representing more than 12 months. Any such amount not
allowed as a deduction as the result of the application of the
preceding sentence shall be allowed as a deduction for such other
taxable year as the Secretary determines to be consistent with the
preceding sentence.
(f) Contested liabilities
If -
(1) the taxpayer contests an asserted liability,
(2) the taxpayer transfers money or other property to provide
for the satisfaction of the asserted liability,
(3) the contest with respect to the asserted liability exists
after the time of the transfer, and
(4) but for the fact that the asserted liability is contested,
a deduction would be allowed for the taxable year of the transfer
(or for an earlier taxable year) determined after application of
subsection (h),
then the deduction shall be allowed for the taxable year of the
transfer. This subsection shall not apply in respect of the
deduction for income, war profits, and excess profits taxes imposed
by the authority of any foreign country or possession of the United
States.
(g) Prepaid interest
(1) In general
If the taxable income of the taxpayer is computed under the
cash receipts and disbursements method of accounting, interest
paid by the taxpayer which, under regulations prescribed by the
Secretary, is properly allocable to any period -
(A) with respect to which the interest represents a charge
for the use or forbearance of money, and
(B) which is after the close of the taxable year in which
paid,
shall be charged to capital account and shall be treated as paid
in the period to which so allocable.
(2) Exception
This subsection shall not apply to points paid in respect of
any indebtedness incurred in connection with the purchase or
improvement of, and secured by, the principal residence of the
taxpayer to the extent that, under regulations prescribed by the
Secretary, such payment of points is an established business
practice in the area in which such indebtedness is incurred, and
the amount of such payment does not exceed the amount generally
charged in such area.
(h) Certain liabilities not incurred before economic performance
(1) In general
For purposes of this title, in determining whether an amount
has been incurred with respect to any item during any taxable
year, the all events test shall not be treated as met any earlier
than when economic performance with respect to such item occurs.
(2) Time when economic performance occurs
Except as provided in regulations prescribed by the Secretary,
the time when economic performance occurs shall be determined
under the following principles:
(A) Services and property provided to the taxpayer
If the liability of the taxpayer arises out of -
(i) the providing of services to the taxpayer by another
person, economic performance occurs as such person provides
such services,
(ii) the providing of property to the taxpayer by another
person, economic performance occurs as the person provides
such property, or
(iii) the use of property by the taxpayer, economic
performance occurs as the taxpayer uses such property.
(B) Services and property provided by the taxpayer
If the liability of the taxpayer requires the taxpayer to
provide property or services, economic performance occurs as
the taxpayer provides such property or services.
(C) Workers compensation and tort liabilities of the taxpayer
If the liability of the taxpayer requires a payment to
another person and -
(i) arises under any workers compensation act, or
(ii) arises out of any tort,
economic performance occurs as the payments to such person are
made. Subparagraphs (A) and (B) shall not apply to any
liability described in the preceding sentence.
(D) Other items
In the case of any other liability of the taxpayer, economic
performance occurs at the time determined under regulations
prescribed by the Secretary.
(3) Exception for certain recurring items
(A) In general
Notwithstanding paragraph (1) an item shall be treated as
incurred during any taxable year if -
(i) the all events test with respect to such item is met
during such taxable year (determined without regard to
paragraph (1)),
(ii) economic performance with respect to such item occurs
within the shorter of -
(I) a reasonable period after the close of such taxable
year, or
(II) 8 1/2 months after the close of such taxable year,
(iii) such item is recurring in nature and the taxpayer
consistently treats items of such kind as incurred in the
taxable year in which the requirements of clause (i) are met,
and
(iv) either -
(I) such item is not a material item, or
(II) the accrual of such item in the taxable year in
which the requirements of clause (i) are met results in a
more proper match against income than accruing such item in
the taxable year in which economic performance occurs.
(B) Financial statements considered under subparagraph (A)(iv)
In making a determination under subparagraph (A)(iv), the
treatment of such item on financial statements shall be taken
into account.
(C) Paragraph not to apply to workers compensation and tort
liabilities
This paragraph shall not apply to any item described in
subparagraph (C) of paragraph (2).
(4) All events test
For purposes of this subsection, the all events test is met
with respect to any item if all events have occurred which
determine the fact of liability and the amount of such liability
can be determined with reasonable accuracy.
(5) Subsection not to apply to certain items
This subsection shall not apply to any item for which a
deduction is allowable under a provision of this title which
specifically provides for a deduction for a reserve for estimated
expenses.
(i) Special rules for tax shelters
(1) Recurring item exception not to apply
In the case of a tax shelter, economic performance shall be
determined without regard to paragraph (3) of subsection (h).
(2) Special rule for spudding of oil or gas wells
(A) In general
In the case of a tax shelter, economic performance with
respect to amounts paid during the taxable year for drilling an
oil or gas well shall be treated as having occurred within a
taxable year if drilling of the well commences before the close
of the 90th day after the close of the taxable year.
(B) Deduction limited to cash basis
(i) Tax shelter partnerships
In the case of a tax shelter which is a partnership, in
applying section 704(d) to a deduction or loss for any
taxable year attributable to an item which is deductible by
reason of subparagraph (A), the term "cash basis" shall be
substituted for the term "adjusted basis".
(ii) Other tax shelters
Under regulations prescribed by the Secretary, in the case
of a tax shelter other than a partnership, the aggregate
amount of the deductions allowable by reason of subparagraph
(A) for any taxable year shall be limited in a manner similar
to the limitation under clause (i).
(C) Cash basis defined
For purposes of subparagraph (B), a partner's cash basis in a
partnership shall be equal to the adjusted basis of such
partner's interest in the partnership, determined without
regard to -
(i) any liability of the partnership, and
(ii) any amount borrowed by the partner with respect to
such partnership which -
(I) was arranged by the partnership or by any person who
participated in the organization, sale, or management of
the partnership (or any person related to such person
within the meaning of section 465(b)(3)(C)), or
(II) was secured by any asset of the partnership.
(3) Tax shelter defined
For purposes of this subsection, the term "tax shelter" means -
(A) any enterprise (other than a C corporation) if at any
time interests in such enterprise have been offered for sale in
any offering required to be registered with any Federal or
State agency having the authority to regulate the offering of
securities for sale,
(B) any syndicate (within the meaning of section
1256(e)(3)(B)), and
(C) any tax shelter (as defined in section
6662(d)(2)(C)(iii)).
(4) Special rules for farming
In the case of the trade or business of farming (as defined in
section 464(e)), in determining whether an entity is a tax
shelter, the definition of farming syndicate in section 464(c)
shall be substituted for subparagraphs (A) and (B) of paragraph
(3).
(5) Economic performance
For purposes of this subsection, the term "economic
performance" has the meaning given such term by subsection (h).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 157; Pub. L. 86-781, Sec. 6(a),
Sept. 14, 1960, 74 Stat. 1020; Pub. L. 87-876, Sec. 3(a), Oct. 24,
1962, 76 Stat. 1199; Pub. L. 88-272, title II, Sec. 223(a)(1), Feb.
26, 1964, 78 Stat. 76; Pub. L. 94-455, title II, Sec. 208(a), title
XIX, Secs. 1901(a)(69), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat.
1541, 1775, 1834; Pub. L. 98-369, div. A, title I, Sec. 91(a), (e),
July 18, 1984,98 Stat. 598, 607; Pub. L. 99-514, title VIII, Secs.
801(b), 805(c)(5), 823(b)(1), title XVIII, Sec. 1807(a)(1), (2),
Oct. 22, 1986, 100 Stat. 2347, 2362, 2374, 2811; Pub. L. 100-203,
title X, Sec. 10201(b)(5), Dec. 22, 1987, 101 Stat. 1330-387; Pub.
L. 100-647, title I, Secs. 1008(a)(3), 1018(u)(5), Nov. 10, 1988,
102 Stat. 3436, 3590; Pub. L. 101-239, title VII, Sec. 7721(c)(10),
Dec. 19, 1989, 103 Stat. 2400; Pub. L. 101-508, title XI, Sec.
11704(a)(5), Nov. 5, 1990, 104 Stat. 1388-518; Pub. L. 104-188,
title I, Sec. 1704(t)(24), (78), Aug. 20, 1996, 110 Stat. 1888,
1891.)
-MISC1-
AMENDMENTS
1996 - Subsec. (i)(3)(C). Pub. L. 104-188, Sec. 1704(t)(78),
substituted "section 6662(d)(2)(C)(iii)" for "section
6662(d)(2)(C)(ii)".
Pub. L. 104-188, Sec. 1704(t)(24), amended directory language of
Pub. L. 101-239. See 1989 Amendment note below.
1990 - Subsec. (i)(3)(C). Pub. L. 101-508 amended subpar. (C)
generally. Prior to amendment, subpar. (C) read as follows: "any
tax shelter (within the meaning of section 6662(d)(2)(C)(ii))."
1989 - Subsec. (i)(3)(C). Pub. L. 101-239, as amended by Pub. L.
104-188, Sec. 1704(t)(24), substituted "section 6662(d)(2)(C)(ii)"
for "section 6661(b)(2)(C)(ii)".
1988 - Subsec. (h)(5)(B), (C). Pub. L. 100-647, Sec. 1018(u)(5),
amended Pub. L. 99-514, Sec. 823(b)(1). See 1986 Amendment note
below.
Subsec. (i)(2). Pub. L. 100-647, Sec. 1008(a)(3), amended par.
(2) generally. Prior to amendment, par. (2) read as follows: "In
the case of a tax shelter, economic performance with respect to the
act of drilling an oil or gas well shall be treated as having
occurred within a taxable year if drilling of the well commences
before the close of the 90th day after the close of the taxable
year."
1987 - Subsec. (h)(5). Pub. L. 100-203 substituted "items" for
"cases to which other provisions of this title specifically apply"
in heading and amended text generally. Prior to amendment, text
read as follows: "This subsection shall not apply to any item to
which any of the following provisions apply:
"(A) Section 463 (relating to vacation pay).
"(B) Any other provisions of this title which specifically
provides for a deduction for a reserve for estimated expenses."
1986 - Subsec. (h)(5)(A). Pub. L. 99-514, Sec. 805(c)(5),
redesignated subpar. (B) as (A) and struck out former subpar. (A)
which referred to subsec. (c) or (f) of section 166.
Subsec. (h)(5)(B). Pub. L. 99-514, Sec. 823(b)(1), as amended by
Pub. L. 100-647, Sec. 1018(u)(5), redesignated subpar. (C) as (B)
and struck out former subpar. (B) which read as follows: "Section
466 (relating to discount coupons)."
Pub. L. 99-514, Sec. 805(c)(5), redesignated subpar. (C) as (B).
Former subpar. (B) redesignated (A).
Subsec. (h)(5)(C). Pub. L. 99-514, Sec. 823(b)(1), as amended by
Pub. L. 100-647, Sec. 1018(u)(5), redesignated subpar. (C) as (B).
Pub. L. 99-514, Sec. 805(c)(5), redesignated subpar. (D) as (C).
Former subpar. (C) redesignated (B).
Subsec. (h)(5)(D). Pub. L. 99-514, Sec. 805(c)(5), redesignated
subpar. (D) as (C).
Subsec. (i). Pub. L. 99-514, Sec. 801(b)(1), substituted "Special
rules for tax shelters" for "Tax shelters may not deduct items
earlier than when economic performance occurs" in heading.
Subsec. (i)(1). Pub. L. 99-514, Sec. 801(b)(1), substituted
"Recurring item exception not to apply" for "In general" in heading
and amended par. (1) generally. Prior to amendment, par. (1) read
as follows: "In the case of a tax shelter computing taxable income
under the cash receipts and disbursements method of accounting,
such tax shelter shall not be allowed a deduction under this
chapter with respect to any item any earlier than the time when
such item would be treated as incurred under subsection (h)
(determined without regard to paragraph (3) thereof)."
Subsec. (i)(2). Pub. L. 99-514, Sec. 801(b)(1), amended par. (2)
generally, substituting provisions relating to special rule for
spudding of oil or gas wells for former provisions consisting of
subpars. (A) to (D) which related to deduction of items when
economic performance occurs on or before 90th day after close of
the taxable year to the extent of cash basis.
Pub. L. 99-514, Sec. 1807(a)(1), substituted "on or before the
90th day" for "within 90 days" in heading and substituted "before
the close of the 90th day after the close of the taxable year" for
"within 90 days after the close of the taxable year" in subpar.
(A).
Subsec. (i)(4). Pub. L. 99-514, Sec. 801(b)(2), amended par. (4)
generally. Prior to amendment, par. (4) read as follows: "In the
case of the trade or business of farming (as defined in section
464(e)) -
"(A) any tax shelter described in paragraph (3)(C) shall be
treated as a farming syndicate for purposes of section 464;
except that this subparagraph shall not apply for purposes of
determining the income of an individual meeting the requirements
of section 464(c)(2),
"(B) section 464 shall be applied before this subsection, and
"(C) in determining whether an entity is a tax shelter, the
definition of farming syndicate in section 464(c) shall be
substituted for subparagraphs (A) and (B) of paragraph (3)."
Subsec. (i)(4)(A). Pub. L. 99-514, Sec. 1807(a)(2), amended
subpar. (A) generally. Prior to amendment, subpar. (A) read as
follows: "section 464 shall be applied to any tax shelter described
in paragraph (3)(C),".
1984 - Subsec. (f)(4). Pub. L. 98-369, Sec. 91(e), inserted
"determined after application of subsection (h)".
Subsecs. (h), (i). Pub. L. 98-369, Sec. 91(a), added subsecs. (h)
and (i).
1976 - Subsec. (c)(2), (3). Pub. L. 94-455, Secs. 1901(a)(69)(A),
(B), 1906(b)(13)(A), redesignated par. (3) as (2), substituted "in
which he" for "which begins after December 31, 1953, and ends after
the date of the enactment of this title in which the taxpayer", and
struck out "or his delegate" after "Secretary" wherever appearing.
Former par. (2), which related to special limitations on the
applicability of par. (1), was struck out.
Subsecs. (d), (e). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary" wherever appearing.
Subsec. (g). Pub. L. 94-455, Sec. 208(a), added subsec. (g).
1964 - Subsec. (f). Pub. L. 88-272 added subsec. (f).
1962 - Subsec. (e). Pub. L. 87-876 added subsec. (e).
1960 - Subsec. (d). Pub. L. 86-781 added subsec. (d).
EFFECTIVE DATE OF 1989 AMENDMENT
Section 7721(d) of Pub. L. 101-239 provided that: "The amendments
made by this section [enacting sections 6662 to 6665 of this title,
amending this section and sections 1274, 5684, 5761, 6013, 6222,
6601, 6621, 6653, 6672, and 7519 of this title, and repealing
sections 6659, 6659A, 6660, 6661, and former section 6662 of this
title] shall apply to returns the due date for which (determined
without regard to extensions) is after December 31, 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
Amendment by Pub. L. 100-203 applicable to taxable years
beginning after Dec. 31, 1987, see section 10201(c)(1) of Pub. L.
100-203, set out as a note under section 404 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 801(b) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with certain
exceptions and qualifications, see section 801(d) of Pub. L.
99-514, set out as an Effective Date note under section 448 of this
title.
Amendment by section 805(c)(5) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with certain changes
required in method of accounting, see section 805(d) of Pub. L.
99-514, set out as a note under section 166 of this title.
Amendment by section 823 of Pub. L. 99-514 applicable to taxable
years beginning after Dec. 31, 1986, with changes required in the
method of accounting, see section 823(c) of Pub. L. 99-514, set out
as an Effective Date of Repeal note under section 466 of this
title.
Amendment by section 1807(a)(1), (2) 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
Section 91(g)-(i) of Pub. L. 98-369, as amended by Pub. L.
99-514, Sec. 2, title XVIII, Sec. 1807(a)(3)(B), (4)(F), (5), (6),
Oct. 22, 1986, 100 Stat. 2095, 2811, 2813, 2814, provided that:
"(g) Effective Dates. -
"(1) In general. - Except as provided in this subsection and
subsections (h) and (i), the amendments made by this section
[enacting sections 88, 468, and 468A of this title and amending
this section and section 172 of this title] shall apply to
amounts with respect to which a deduction would be allowable
under chapter 1 of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954] (determined without regard to such amendments) after
-
"(A) in the case of amounts to which section 461(h) of such
Code (as added by such amendments) applies, the date of the
enactment of this Act [July 18, 1984], and
"(B) in the case of amounts to which section 461(i) of such
Code (as so added) applies, after March 31, 1984.
"(2) Taxpayer may elect earlier application. -
"(A) In general. - In the case of amounts described in
paragraph (1)(A), a taxpayer may elect to have the amendments
made by this section apply to amounts which -
"(i) are incurred on or before the date of the enactment of
this Act [July 18, 1984] (determined without regard to such
amendments), and
"(ii) are incurred after the date of the enactment of this
Act (determined with regard to such amendments).
The Secretary of the Treasury or his delegate may by regulations
provide that (in lieu of an election under the preceding
sentence) a taxpayer may (subject to such conditions as such
regulations may provide) elect to have subsection (h) of section
461 of such Code apply to the taxpayer's entire taxable year in
which occurs July 19, 1984.
"(B) Election treated as change in the method of accounting.
- For purposes of section 481 of the Internal Revenue Code of
1986, if an election is made under subparagraph (A) with
respect to any amount, the application of the amendments made
by this section shall be treated as a change in method of
accounting -
"(i) initiated by the taxpayer,
"(ii) made with the consent of the Secretary of the
Treasury, and
"(iii) with respect to which section 481 of such Code shall
be applied by substituting a 3-year adjustment period for a
10-year adjustment period.
"(3) Section 461(h) to apply in certain cases. -
Notwithstanding paragraph (1), section 461(h) of the Internal
Revenue Code of 1986 (as added by this section) shall be treated
as being in effect to the extent necessary to carry out any
amendments made by this section which take effect before section
461(h).
"(4) Effective date for treatment of mining and solid waste
reclamation and closing costs. - Except as otherwise provided in
subsection (h), the amendments made by subsection (b) [enacting
section 468 of this title] shall take effect on the date of the
enactment of this Act [July 18, 1984] with respect to taxable
years ending after such date.
"(5) Rules for nuclear decommissioning costs. - The amendments
made by subsections (c) and (f) [enacting sections 88 and 468A of
this title] shall take effect on the date of the enactment of
this Act [July 18, 1984] with respect to taxable years ending
after such date.
"(6) Modification of net operating loss carryback period. - The
amendments made by subsection (d) [amending section 172 of this
title] shall apply to losses for taxable years beginning after
December 31, 1983.
"(h) Exception for Certain Existing Activities and Contracts. -
If -
"(1) Existing accounting practices. - If, on March 1, 1984, any
taxpayer was regularly computing his deduction for mining
reclamation activities under a current cost method of accounting
(as determined by the Secretary of the Treasury or his delegate),
the liability for reclamation activities -
"(A) for land disturbed before the date of the enactment of
this Act [July 18, 1984], or
"(B) to which paragraph (2) applies,
shall be treated as having been incurred when the land was
disturbed.
"(2) Fixed price supply contract. -
"(A) In general. - In the case of any fixed price supply
contract entered into before March 1, 1984, the amendments made
by subsection (b) [enacting section 468 of this title] shall
not apply to any minerals extracted from such property which
are sold pursuant to such contract.
"(B) No extension or renegotiation. - Subparagraph (A) shall
not apply -
"(i) to any extension of any contract beyond the period
such contract was in effect on March 1, 1984, or
"(ii) to any renegotiation of, or other change in, the
terms and conditions of such contract in effect on March 1,
1984.
"(i) Transitional Rule for Accrued Vacation Pay. -
"(1) In general. - In the case of any taxpayer -
"(A) with respect to whom a deduction was allowable (other
than under section 463 of the Internal Revenue Code of 1986)
for vested accrued vacation pay for the last taxable year
ending before the date of the enactment of this Act [July 18,
1984], and
"(B) who elects the application of section 463 of such Code
for the first taxable year ending after the date of the
enactment of this Act,
then, for purposes of section 463(b) of such Code, the opening
balance of the taxpayer with respect to any vested accrued
vacation pay shall be determined under section 463(b)(1) of such
Code.
"(2) Vested accrued vacation pay. - For purposes of this
subsection, the term 'vested accrued vacation pay' means any
amount allowable under section 162(a) of such Code with respect
to vacation pay of employees of the taxpayer (determined without
regard to section 463 of such Code)."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(69) 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.
Section 208(b) of Pub. L. 94-455 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendment made by subsection (a) [amending this section] shall
apply to amounts paid after December 31, 1975, in taxable years
ending after such date.
"(2) Certain amounts paid before 1977. - The amendment made by
subsection (a) [amending this section] shall not apply to amounts
paid before January 1, 1977, pursuant to a binding contract or
written loan commitment which existed on September 16, 1975 (and
at all times thereafter), and which required prepayment of such
amounts by the taxpayer."
EFFECTIVE DATE OF 1964 AMENDMENT
Section 223(b) of Pub. L. 88-272 provided that: "Except as
provided in subsections (c) and (d) [set out below] -
"(1) the amendment made by subsection (a)(1) [amending this
section] shall apply to taxable years beginning after December
31, 1953, and ending after August 16, 1954, and
"(2) the amendment made by subsection (a)(2) [amending section
43 of the Internal Revenue Code of 1939] shall apply to taxable
years to which the Internal Revenue Code of 1939 applies."
EFFECTIVE DATE OF 1962 AMENDMENT
Section 3(b) of Pub. L. 87-876 provided that: "The amendment made
by subsection (a) [amending this section] shall apply only with
respect to taxable years ending after December 31, 1962."
EFFECTIVE DATE OF 1960 AMENDMENT
Section 6(b) of Pub. L. 86-781 provided that: "The amendment made
by subsection (a) [amending this section] shall apply to taxable
years ending after December 31, 1960."
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 [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 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.
TRANSITIONAL RULE FOR CERTAIN AMOUNTS
Section 1807(a)(8) of Pub. L. 99-514 provided that: "For purposes
of section 461(h) of the Internal Revenue Code of 1954 [now 1986],
economic performance shall be treated as occurring on the date of a
payment to an insurance company if -
"(A) such payment was made before November 23, 1985, for
indemnification against a tort liability relating to personal
injury or death caused by inhalation or ingestion of dust from
asbestos-containing insulation products,
"(B) such insurance company is unrelated to taxpayer,
"(C) such payment is not refundable, and
"(D) the taxpayer is not engaged in the mining of asbestos nor
is any member of any affiliated group which includes the taxpayer
so engaged."
TRANSITION RULE
Section 1807(c) of Pub. L. 99-514 provided that: "A taxpayer
shall be allowed to use the cash receipts and disbursements method
of accounting for taxable years ending after January 1, 1982, if
such taxpayer -
"(1) is a partnership which was founded in 1936,
"(2) has over 1,000 professional employees,
"(3) used a long-term contract method of accounting for a
substantial part of its income from the performance of
architectural and engineering services, and
"(4) is headquartered in Chicago, Illinois."
ELECTION AS TO TRANSFERS IN TAXABLE YEARS BEGINNING BEFORE JAN. 1,
1964
Section 223(c) of Pub. L. 88-272 provided that:
"(1) The amendments made by subsection (a) [amending this section
and section 43 of the Internal Revenue Code of 1939] shall not
apply to any transfer of money or other property described in
subsection (a) made in a taxable year beginning before January 1,
1964, if the taxpayer elects, in the manner provided by regulations
prescribed by the Secretary of the Treasury or his delegate, to
have this paragraph apply. Such an election -
"(A) must be made within one year after the date of the
enactment of this Act [Feb. 26, 1964],
"(B) may not be revoked after the expiration of such one-year
period, and
"(C) shall apply to all transfers described in the first
sentence of this paragraph (other than transfers described in
paragraph (2)).
In the case of any transfer to which this paragraph applies, the
deduction shall be allowed only for the taxable year in which the
contest with respect to such transfer is settled.
"(2) Paragraph (1) shall not apply to any transfer if the
assessment of any deficiency which would result from the
application of the election in respect of such transfer is, on the
date of the election under paragraph (1), prevented by the
operation of any law or rule of law.
"(3) If the taxpayer makes an election under paragraph (1), and
if, on the date of such election, the assessment of any deficiency
which results from the application of the election in respect of
any transfer is not prevented by the operation of any law or rule
of law, the period within which assessment of such deficiency may
be made shall not expire earlier than 2 years after the date of the
enactment of this Act [Feb. 26, 1964]."
CERTAIN OTHER TRANSFERS IN TAXABLE YEARS BEGINNING BEFORE JAN. 1,
1964
Section 223(d) of Pub. L. 88-272 provided that: "The amendments
made by subsection (a) [amending this section and section 43 of the
Internal Revenue Code of 1939] shall not apply to any transfer of
money or other property described in subsection (a) made in a
taxable year beginning before January 1, 1964, if -
"(1) no deduction has been allowed in respect of such transfer
for any taxable year before the taxable year in which the contest
with respect to such transfer is settled, and
"(2) refund or credit of any overpayment which would result
from the application of such amendments to such transfer is
prevented by the operation of any law or rule of law.
In the case of any transfer to which this subsection applies, the
deduction shall be allowed for the taxable year in which the
contest with respect to such transfer is settled."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 164, 167, 172, 448, 468A,
468B, 5891 of this title.
-End-
-CITE-
26 USC Sec. 462 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart C - Taxable Year for Which Deductions Taken
-HEAD-
[Sec. 462. Repealed. June 15, 1955, ch. 143, Sec. 1(b), 69 Stat.
134]
-MISC1-
Section, act Aug. 16, 1954, ch. 736 68A Stat. 158, related to
reserves for estimated expenses.
EFFECTIVE DATE OF REPEAL
Repeal effective with respect to taxable years beginning after
Dec. 31, 1953, and ending after Aug. 16, 1954, see section 3 of Act
June 15, 1955, set out as an Effective Date of 1955 Amendment note
under section 381 of this title.
SAVINGS PROVISION
For provisions concerning increase in tax in any taxable year
ending on or before June 15, 1955 by reason of enactment of act
June 15, 1955, see section 4 of act June 15, 1955, set out as a
note under section 381 of this title.
-End-
-CITE-
26 USC Sec. 463 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart C - Taxable Year for Which Deductions Taken
-HEAD-
[Sec. 463. Repealed. Pub. L. 100-203, title X, Sec. 10201(a), Dec.
22, 1987, 101 Stat. 1330-387]
-MISC1-
Section, added Pub. L. 93-625, Sec. 4(a), Jan. 3, 1974, 88 Stat.
2109; amended Pub. L. 94-455, title XIX, Sec. 1906(b)(13)(A), Oct.
4, 1976, 90 Stat. 1834; Pub. L. 98-369, div. A, title V, Sec.
561(a), July 18, 1984, 98 Stat. 901; Pub. L. 99-514, title XI, Sec.
1165(a), Oct. 22, 1986, 100 Stat. 2511, related to deduction
allowable for accrual basis taxpayers under section 162(a) of this
title with respect to vacation pay.
EFFECTIVE DATE OF REPEAL
Repeal applicable to taxable years beginning after Dec. 31, 1987,
see section 10201(c)(1) of Pub. L. 100-203, set out as an Effective
Date of 1987 Amendment note under section 404 of this title.
CHANGE IN METHOD OF ACCOUNTING REQUIRED BY PUB. L. 100-203
Pub. L. 100-203, title X, Sec. 10201(c)(2), Dec. 22, 1987, 101
Stat. 1330-388, provided that: "In the case of any taxpayer who
elected to have section 463 of the Internal Revenue Code of 1986
apply for such taxpayer's last taxable year beginning before
January 1, 1988, and who is required to change his method of
accounting by reason of the amendments made by this section
[amending sections 404, 419, and 461 of this title, repealing
sections 81 and 463 of this title, and enacting provisions set out
as a note under section 404 of this title] -
"(A) such change shall be treated as initiated by the taxpayer,
"(B) such change shall be treated as having been made with the
consent of the Secretary, and
"(C) the net amount of adjustments required by section 481 of
such Code to be taken into account by the taxpayer -
"(i) shall be reduced by the balance in the suspense account
under section 463(c) of such Code as of the close of such last
taxable year, and
"(ii) shall be taken into account over the 4-taxable year
period beginning with the taxable year following such last
taxable year as follows:
The percentage
taken
"In the case of the: into account is:
1st year 25
2nd year 5
3rd year 35
4th year 35.
Notwithstanding subparagraph (C)(ii), if the period the
adjustments are required to be taken into account under section
481 of such Code is less than 4 years, such adjustments shall be
taken into account ratably over such shorter period."
-End-
-CITE-
26 USC Sec. 464 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart C - Taxable Year for Which Deductions Taken
-HEAD-
Sec. 464. Limitations on deductions for certain farming
-STATUTE-
(a) General rule
In the case of any farming syndicate (as defined in subsection
(c)), a deduction (otherwise allowable under this chapter) for
amounts paid for feed, seed, fertilizer, or other similar farm
supplies shall only be allowed for the taxable year in which such
feed, seed, fertilizer, or other supplies are actually used or
consumed, or, if later, for the taxable year for which allowable as
a deduction (determined without regard to this section).
(b) Certain poultry expenses
In the case of any farming syndicate (as defined in subsection
(c)) -
(1) the cost of poultry (including egg-laying hens and baby
chicks) purchased for use in a trade or business (or both for use
in a trade or business and for sale) shall be capitalized and
deducted ratably over the lesser of 12 months or their useful
life in the trade or business, and
(2) the cost of poultry purchased for sale shall be deducted
for the taxable year in which the poultry is sold or otherwise
disposed of.
(c) Farming syndicate defined
(1) In general
For purposes of this section, the term "farming syndicate"
means -
(A) a partnership or any other enterprise other than a
corporation which is not an S corporation engaged in the trade
or business of farming, if at any time interests in such
partnership or enterprise have been offered for sale in any
offering required to be registered with any Federal or State
agency having authority to regulate the offering of securities
for sale, or
(B) a partnership or any other enterprise other than a
corporation which is not an S corporation engaged in the trade
or business of farming, if more than 35 percent of the losses
during any period are allocable to limited partners or limited
entrepreneurs.
(2) Holdings attributable to active management
For purposes of paragraph (1)(B), the following shall be
treated as an interest which is not held by a limited partner or
a limited entrepreneur:
(A) in the case of any individual who has actively
participated (for a period of not less than 5 years) in the
management of any trade or business of farming, any interest in
a partnership or other enterprise which is attributable to such
active participation,
(B) in the case of any individual whose principal residence
is on a farm, any partnership or other enterprise engaged in
the trade or business of farming such farm,
(C) in the case of any individual who is actively
participating in the management of any trade or business of
farming or who is an individual who is described in
subparagraph (A) or (B), any participation in the further
processing of livestock which was raised in such trade or
business (or in the trade or business referred to in
subparagraph (A) or (B)),
(D) in the case of an individual whose principal business
activity involves active participation in the management of a
trade or business of farming, any interest in any other trade
or business of farming, and,
(E) any interest held by a member of the family (or a spouse
of any such member) or a grandparent of an individual described
in subparagraph (A), (B), (C), or (D) if the interest in the
partnership or the enterprise is attributable to the active
participation of the individual described in subparagraph (A),
(B), (C), or (D).
For purposes of subparagraph (A), where one farm is substituted
for or added to another farm, both farms shall be treated as one
farm. For purposes of subparagraph (E), the term "family" has the
meaning given to such term by section 267(c)(4).
(d) Exception
Subsection (a) shall not apply to any amount paid for supplies
which are on hand at the close of the taxable year on account of
fire, storm, or other casualty, or on account of disease or
drought.
(e) Definitions
For purposes of this section -
(1) Farming
The term "farming" means the cultivation of land or the raising
or harvesting of any agricultural or horticultural commodity
including the raising, shearing, feeding, caring for, training,
and management of animals. For purposes of the preceding
sentence, trees (other than trees bearing fruit or nuts) shall
not be treated as an agricultural or horticultural commodity.
(2) Limited entrepreneur
The term "limited entrepreneur" means a person who -
(A) has an interest in an enterprise other than as a limited
partner, and
(B) does not actively participate in the management of such
enterprise.
(f) Subsections (a) and (b) to apply to certain persons prepaying
50 percent or more of certain farming expenses
(1) In general
In the case of a taxpayer to whom this subsection applies,
subsections (a) and (b) shall apply to the excess prepaid farm
supplies of such taxpayer in the same manner as if such taxpayer
were a farming syndicate.
(2) Taxpayer to whom subsection applies
This subsection applies to any taxpayer for any taxable year if
such taxpayer -
(A) does not use an accrual method of accounting,
(B) has excess prepaid farm supplies for the taxable year,
and
(C) is not a qualified farm-related taxpayer.
(3) Qualified farm-related taxpayer
(A) In general
For purposes of this subsection, the term "qualified
farm-related taxpayer" means any farm-related taxpayer if -
(i)(I) the aggregate prepaid farm supplies for the 3
taxable years preceding the taxable year are less than 50
percent of,
(II) the aggregate deductible farming expenses (other than
prepaid farm supplies) for such 3 taxable years, or
(ii) the taxpayer has excess prepaid farm supplies for the
taxable year by reason of any change in business operation
directly attributable to extraordinary circumstances.
(B) Farm-related taxpayer
For purposes of this paragraph, the term "farm-related
taxpayer" means any taxpayer -
(i) whose principal residence (within the meaning of
section 121) is on a farm,
(ii) who has a principal occupation of farming, or
(iii) who is a member of the family (within the meaning of
subsection (c)(2)(E)) of a taxpayer described in clause (i)
or (ii).
(4) Definitions
For purposes of this subsection -
(A) Excess prepaid farm supplies
The term "excess prepaid farm supplies" means the prepaid
farm supplies for the taxable year to the extent the amount of
such supplies exceeds 50 percent of the deductible farming
expenses for the taxable year (other than prepaid farm
supplies).
(B) Prepaid farm supplies
The term "prepaid farm supplies" means any amounts which are
described in subsection (a) or (b) and would be allowable for a
subsequent taxable year under the rules of subsections (a) and
(b).
(C) Deductible farming expenses
The term "deductible farming expenses" means any amount
allowable as a deduction under this chapter (including any
amount allowable as a deduction for depreciation or
amortization) which is properly allocable to the trade or
business of farming.
(g) Termination
Except as provided in subsection (f), subsections (a) and (b)
shall not apply to any taxable year beginning after December 31,
1986.
-SOURCE-
(Added Pub. L. 94-455, title II, Sec. 207(a)(1), Oct. 4, 1976, 90
Stat. 1536; amended Pub. L. 95-600, title VII, Sec. 701(l)(3), Nov.
6, 1978, 92 Stat. 2907; Pub. L. 97-354, Sec. 5(a)(30), Oct. 19,
1982, 96 Stat. 1695; Pub. L. 99-514, title IV, Sec. 404(a), (b)(1),
title VIII, Sec. 803(b)(8), Oct. 22, 1986, 100 Stat. 2223, 2224,
2356; Pub. L. 100-647, title I, Sec. 1008(a)(4), Nov. 10, 1988, 102
Stat. 3437; Pub. L. 105-34, title III, Sec. 312(d)(1), Aug. 5,
1997, 111 Stat. 839.)
-MISC1-
AMENDMENTS
1997 - Subsec. (f)(3)(B)(i). Pub. L. 105-34 substituted "section
121" for "section 1034".
1988 - Subsec. (g). Pub. L. 100-647 added subsec. (g).
1986 - Pub. L. 99-514, Sec. 404(b)(1), substituted "for certain
farming" for "in case of farming syndicates" in section catchline.
Subsec. (d). Pub. L. 99-514, Sec. 803(b)(8), substituted
"Exception" for "Exceptions" as heading and amended text generally.
Prior to amendment, text read as follows: "Subsection (a) shall not
apply to -
"(1) any amount paid for supplies which are on hand at the
close of the taxable year on account of fire, storm, flood, or
other casualty or on account of disease or drought, or
"(2) any amount required to be charged to capital account under
section 278."
Subsec. (f). Pub. L. 99-514, Sec. 404(a), added subsec. (f).
1982 - Subsec. (c)(1)(A), (B). Pub. L. 97-354 substituted "an S
corporation" for "an electing small business corporation (as
defined in section 1371(b))".
1978 - Subsec. (c)(2). Pub. L. 95-600 substituted in subpar. (E)
"(or a spouse of any such member)" for "(within the meaning of
section 267(c)(4))" and provided that for purposes of subpar. (E)
the term "family" has the meaning given to such term by section
267(c)(4).
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to sales and exchanges
after May 6, 1997, with certain exceptions, see section 312(d) of
Pub. L. 105-34, set out as a note under section 121 of this title.
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 1986 AMENDMENT
If any interest costs incurred after Dec. 31, 1986, are
attributable to costs incurred before Jan. 1, 1987, the amendment
by section 803(b)(8) of Pub. L. 99-514 is applicable to such
interest costs only to the extent such interest costs are
attributable to costs which were required to be capitalized under
section 263 of the Internal Revenue Code of 1954 and which would
have been taken into account in applying section 189 of the
Internal Revenue Code of 1954 (as in effect before its repeal by
section 803 of Pub. L. 99-514) or, if applicable, section 266 of
such Code, see section 7831(d)(2) of Pub. L. 101-239, set out as an
Effective Date note under section 263A of this title.
Section 404(c) of Pub. L. 99-514 provided that: "The amendments
made by this section [amending this section] shall apply to amounts
paid or incurred after March 1, 1986, in taxable years beginning
after such date."
Amendment by section 803(b)(8) of Pub. L. 99-514 applicable to
costs incurred after Dec. 31, 1986, in taxable years ending after
such date, except as otherwise provided, see section 803(d) of Pub.
L. 99-514, set out as an Effective Date note under section 263A of
this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-354 applicable to taxable years beginning
after Dec. 31, 1982, see section 6(a) of Pub. L. 97-354, set out as
an Effective Date note under section 1361 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-600 effective as if included in this
section or section 447 of this title at the time of their
enactment, Oct. 4, 1976, see section 701(l)(4) of Pub. L. 95-600,
set out as a note under section 447 of this title.
EFFECTIVE DATE
Section 207(a)(3) of Pub. L. 94-455 provided that:
"(A) In general. - Except as provided in subparagraph (B), the
amendments made by this subsection [enacting this section] shall
apply to taxable years beginning after December 31, 1975.
"(B) Transitional rule. - In the case of a farming syndicate in
existence on December 31, 1975, and for which there was no change
of membership throughout its taxable year beginning in 1976, the
amendments made by this subsection shall apply to taxable years
beginning after December 31, 1976."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 58, 461, 465, 1256, 1258
of this title.
-End-
-CITE-
26 USC Sec. 465 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart C - Taxable Year for Which Deductions Taken
-HEAD-
Sec. 465. Deductions limited to amount at risk
-STATUTE-
(a) Limitation to amount at risk
(1) In general
In the case of -
(A) an individual, and
(B) a C corporation with respect to which the stock ownership
requirement of paragraph (2) of section 542(a) is met,
engaged in an activity to which this section applies, any loss
from such activity for the taxable year shall be allowed only to
the extent of the aggregate amount with respect to which the
taxpayer is at risk (within the meaning of subsection (b)) for
such activity at the close of the taxable year.
(2) Deduction in succeeding year
Any loss from an activity to which this section applies not
allowed under this section for the taxable year shall be treated
as a deduction allocable to such activity in the first succeeding
taxable year.
(3) Special rules for applying paragraph (1)(B)
For purposes of paragraph (1)(B) -
(A) section 544(a)(2) shall be applied as if such section did
not contain the phrase "or by or for his partner"; and
(B) sections 544(a)(4)(A) and 544(b)(1) shall be applied by
substituting "the corporation meet the stock ownership
requirements of section 542(a)(2)" for "the corporation a
personal holding company".
(b) Amounts considered at risk
(1) In general
For purposes of this section, a taxpayer shall be considered at
risk for an activity with respect to amounts including -
(A) the amount of money and the adjusted basis of other
property contributed by the taxpayer to the activity, and
(B) amounts borrowed with respect to such activity (as
determined under paragraph (2)).
(2) Borrowed amounts
For purposes of this section, a taxpayer shall be considered at
risk with respect to amounts borrowed for use in an activity to
the extent that he -
(A) is personally liable for the repayment of such amounts,
or
(B) has pledged property, other than property used in such
activity, as security for such borrowed amount (to the extent
of the net fair market value of the taxpayer's interest in such
property).
No property shall be taken into account as security if such
property is directly or indirectly financed by indebtedness which
is secured by property described in paragraph (1).
(3) Certain borrowed amounts excluded
(A) In general
Except to the extent provided in regulations, for purposes of
paragraph (1)(B), amounts borrowed shall not be considered to
be at risk with respect to an activity if such amounts are
borrowed from any person who has an interest in such activity
or from a related person to a person (other than the taxpayer)
having such an interest.
(B) Exceptions
(i) Interest as creditor
Subparagraph (A) shall not apply to an interest as a
creditor in the activity.
(ii) Interest as shareholder with respect to amounts borrowed
by corporation
In the case of amounts borrowed by a corporation from a
shareholder, subparagraph (A) shall not apply to an interest
as a shareholder.
(C) Related person
For purposes of this subsection, a person (hereinafter in
this paragraph referred to as the "related person") is related
to any person if -
(i) the related person bears a relationship to such person
specified in section 267(b) or section 707(b)(1), or
(ii) the related person and such person are engaged in
trades or business under common control (within the meaning
of subsections (a) and (b) of section 52).
For purposes of clause (i), in applying section 267(b) or
707(b)(1), "10 percent" shall be substituted for "50 percent".
(4) Exception
Notwithstanding any other provision of this section, a taxpayer
shall not be considered at risk with respect to amounts protected
against loss through nonrecourse financing, guarantees, stop loss
agreements, or other similar arrangements.
(5) Amounts at risk in subsequent years
If in any taxable year the taxpayer has a loss from an activity
to which subsection (a) applies, the amount with respect to which
a taxpayer is considered to be at risk (within the meaning of
subsection (b)) in subsequent taxable years with respect to that
activity shall be reduced by that portion of the loss which
(after the application of subsection (a)) is allowable as a
deduction.
(6) Qualified nonrecourse financing treated as amount at risk
For purposes of this section -
(A) In general
Notwithstanding any other provision of this subsection, in
the case of an activity of holding real property, a taxpayer
shall be considered at risk with respect to the taxpayer's
share of any qualified nonrecourse financing which is secured
by real property used in such activity.
(B) Qualified nonrecourse financing
For purposes of this paragraph, the term "qualified
nonrecourse financing" means any financing -
(i) which is borrowed by the taxpayer with respect to the
activity of holding real property,
(ii) which is borrowed by the taxpayer from a qualified
person or represents a loan from any Federal, State, or local
government or instrumentality thereof, or is guaranteed by
any Federal, State, or local government,
(iii) except to the extent provided in regulations, with
respect to which no person is personally liable for
repayment, and
(iv) which is not convertible debt.
(C) Special rule for partnerships
In the case of a partnership, a partner's share of any
qualified nonrecourse financing of such partnership shall be
determined on the basis of the partner's share of liabilities
of such partnership incurred in connection with such financing
(within the meaning of section 752).
(D) Qualified person defined
For purposes of this paragraph -
(i) In general
The term "qualified person" has the meaning given such term
by section 49(a)(1)(D)(iv).
(ii) Certain commercially reasonable financing from related
persons
For purposes of clause (i), section 49(a)(1)(D)(iv) shall
be applied without regard to subclause (I) thereof (relating
to financing from related persons) if the financing from the
related person is commercially reasonable and on
substantially the same terms as loans involving unrelated
persons.
(E) Activity of holding real property
For purposes of this paragraph -
(i) Incidental personal property and services
The activity of holding real property includes the holding
of personal property and the providing of services which are
incidental to making real property available as living
accommodations.
(ii) Mineral property
The activity of holding real property shall not include the
holding of mineral property.
(c) Activities to which section applies
(1) Types of activities
This section applies to any taxpayer engaged in the activity of
-
(A) holding, producing, or distributing motion picture films
or video tapes,
(B) farming (as defined in section 464(e)),
(C) leasing any section 1245 property (as defined in section
1245(a)(3)),
(D) exploring for, or exploiting, oil and gas resources as a
trade or business or for the production of income, or
(E) exploring for, or exploiting, geothermal deposits (as
defined in section 613(e)(2)).
(2) Separate activities
For purposes of this section -
(A) In general
Except as provided in subparagraph (B), a taxpayer's activity
with respect to each -
(i) film or video tape,
(ii) section 1245 property which is leased or held for
leasing,
(iii) farm,
(iv) oil and gas property (as defined under section 614),
or
(v) geothermal property (as defined under section 614),
shall be treated as a separate activity.
(B) Aggregation rules
(i) Special rule for leases of section 1245 property by
partnerships or S corporations
In the case of any partnership or S corporation, all
activities with respect to section 1245 properties which -
(I) are leased or held for lease, and
(II) are placed in service in any taxable year of the
partnership or S corporation,
shall be treated as a single activity.
(ii) Other aggregation rules
Rules similar to the rules of subparagraphs (B) and (C) of
paragraph (3) shall apply for purposes of this paragraph.
(3) Extension to other activities
(A) In general
In the case of taxable years beginning after December 31,
1978, this section also applies to each activity -
(i) engaged in by the taxpayer in carrying on a trade or
business or for the production of income, and
(ii) which is not described in paragraph (1).
(B) Aggregation of activities where taxpayer actively
participates in management of trade or business
Except as provided in subparagraph (C), for purposes of this
section, activities described in subparagraph (A) which
constitute a trade or business shall be treated as one activity
if -
(i) the taxpayer actively participates in the management of
such trade or business, or
(ii) such trade or business is carried on by a partnership
or an S corporation and 65 percent or more of the losses for
the taxable year is allocable to persons who actively
participate in the management of the trade or business.
(C) Aggregation or separation of activities under regulations
The Secretary shall prescribe regulations under which
activities described in subparagraph (A) shall be aggregated or
treated as separate activities.
(D) Application of subsection (b)(3)
In the case of an activity described in subparagraph (A),
subsection (b)(3) shall apply only to the extent provided in
regulations prescribed by the Secretary.
(4) Exclusion for certain equipment leasing by closely-held
corporations
(A) In general
In the case of a corporation described in subsection
(a)(1)(B) actively engaged in equipment leasing -
(i) the activity of equipment leasing shall be treated as a
separate activity, and
(ii) subsection (a) shall not apply to losses from such
activity.
(B) 50-percent gross receipts test
For purposes of subparagraph (A), a corporation shall not be
considered to be actively engaged in equipment leasing unless
50 percent or more of the gross receipts of the corporation for
the taxable year is attributable, under regulations prescribed
by the Secretary, to equipment leasing.
(C) Component members of controlled group treated as a single
corporation
For purposes of subparagraph (A), the component members of a
controlled group of corporations shall be treated as a single
corporation.
(5) Waiver of controlled group rule where there is substantial
leasing activity
(A) In general
In the case of the component members of a qualified leasing
group, paragraph (4) shall be applied -
(i) by substituting "80 percent" for "50 percent" in
subparagraph (B) thereof, and
(ii) as if paragraph (4) did not include subparagraph (C)
thereof.
(B) Qualified leasing group
For purposes of this paragraph, the term "qualified leasing
group" means a controlled group of corporations which, for the
taxable year and each of the 2 immediately preceding taxable
years, satisfied each of the following 3 requirements:
(i) At least 3 employees
During the entire year, the group had at least 3 full-time
employees substantially all of the services of whom were
services directly related to the equipment leasing activity
of the qualified leasing members.
(ii) At least 5 separate leasing transactions
During the year, the qualified leasing members in the
aggregate entered into at least 5 separate equipment leasing
transactions.
(iii) At least $1,000,000 equipment leasing receipts
During the year, the qualified leasing members in the
aggregate had at least $1,000,000 in gross receipts from
equipment leasing.
The term "qualified leasing group" does not include any
controlled group of corporations to which, without regard to
this paragraph, paragraph (4) applies.
(C) Qualified leasing member
For purposes of this paragraph, a corporation shall be
treated as a qualified leasing member for the taxable year only
if for each of the taxable years referred to in subparagraph
(B) -
(i) it is a component member of the controlled group of
corporations, and
(ii) it meets the requirements of paragraph (4)(B) (as
modified by subparagraph (A)(i) of this paragraph).
(6) Definitions relating to paragraphs (4) and (5)
For purposes of paragraphs (4) and (5) -
(A) Equipment leasing
The term "equipment leasing" means -
(i) the leasing of equipment which is section 1245
property, and
(ii) the purchasing, servicing, and selling of such
equipment.
(B) Leasing of master sound recordings, etc., excluded
The term "equipment leasing" does not include the leasing of
master sound recordings, and other similar contractual
arrangements with respect to tangible or intangible assets
associated with literary, artistic, or musical properties.
(C) Controlled group of corporations; component member
The terms "controlled group of corporations" and "component
members" have the same meanings as when used in section 1563.
The determination of the taxable years taken into account with
respect to any controlled group of corporations shall be made
in a manner consistent with the manner set forth in section
1563.
(7) Exclusion of active businesses of qualified C corporations
(A) In general
In the case of a taxpayer which is a qualified C corporation
-
(i) each qualifying business carried on by such taxpayer
shall be treated as a separate activity, and
(ii) subsection (a) shall not apply to losses from such
business.
(B) Qualified C corporation
For purposes of subparagraph (A), the term "qualified C
corporation" means any corporation described in subparagraph
(B) of subsection (a)(1) which is not -
(i) a personal holding company (as defined in section
542(a)),
(ii) a foreign personal holding company (as defined in
section 552(a)), or
(iii) a personal service corporation (as defined in section
269A(b) but determined by substituting "5 percent" for "10
percent" in section 269A(b)(2)).
(C) Qualifying business
For purposes of this paragraph, the term "qualifying
business" means any active business if -
(i) during the entire 12-month period ending on the last
day of the taxable year, such corporation had at least 1
full-time employee substantially all the services of whom
were in the active management of such business,
(ii) during the entire 12-month period ending on the last
day of the taxable year, such corporation had at least 3
full-time, nonowner employees substantially all of the
services of whom were services directly related to such
business,
(iii) the amount of the deductions attributable to such
business which are allowable to the taxpayer solely by reason
of sections 162 and 404 for the taxable year exceeds 15
percent of the gross income from such business for such year,
and
(iv) such business is not an excluded business.
(D) Special rules for application of subparagraph (C)
(i) Partnerships in which taxpayer is a qualified corporate
partner
In the case of an active business of a partnership, if -
(I) the taxpayer is a qualified corporate partner in the
partnership, and
(II) during the entire 12-month period ending on the last
day of the partnership's taxable year, there was at least 1
full-time employee of the partnership (or of a qualified
corporate partner) substantially all the services of whom
were in the active management of such business,
then the taxpayer's proportionate share (determined on the
basis of its profits interest) of the activities of the
partnership in such business shall be treated as activities
of the taxpayer (and clause (i) of subparagraph (C) shall not
apply in determining whether such business is a qualifying
business of the taxpayer).
(ii) Qualified corporate partner
For purposes of clause (i), the term "qualified corporate
partner" means any corporation if -
(I) such corporation is a general partner in the
partnership,
(II) such corporation has an interest of 10 percent or
more in the profits and losses of the partnership, and
(III) such corporation has contributed property to the
partnership in an amount not less than the lesser of
$500,000 or 10 percent of the net worth of the corporation.
For purposes of subclause (III), any contribution of property
other than money shall be taken into account at its fair
market value.
(iii) Deduction for owner employee compensation not taken
into account
For purposes of clause (iii) of subparagraph (C), there
shall not be taken into account any deduction in respect of
compensation for personal services rendered by any employee
(other than a non-owner employee) of the taxpayer or any
member of such employee's family (within the meaning of
section 318(a)(1)).
(iv) Special rule for banks
For purposes of clause (iii) of subparagraph (C), in the
case of a bank (as defined in section 581) or a financial
institution to which section 591 applies -
(I) gross income shall be determined without regard to
the exclusion of interest from gross income under section
103, and
(II) in addition to the deductions described in such
clause, there shall also be taken into account the amount
of the deductions which are allowable for amounts paid or
credited to the accounts of depositors or holders of
accounts as dividends or interest on their deposits or
withdrawable accounts under section 163 or 591.
(v) Special rule for life insurance companies
(I) In general
Clause (iii) of subparagraph (C) shall not apply to any
insurance business of a qualified life insurance company.
(II) Insurance business
For purposes of subclause (I), the term "insurance
business" means any business which is not a noninsurance
business (within the meaning of section 806(b)(3)).
(III) Qualified life insurance company
For purposes of subclause (I), the term "qualified life
insurance company" means any company which would be a life
insurance company as defined in section 816 if unearned
premiums were not taken into account under subsections
(a)(2) and (c)(2) of section 816.
(E) Definitions
For purposes of this paragraph -
(i) Non-owner employee
The term "non-owner employee" means any employee who does
not own, at any time during the taxable year, more than 5
percent in value of the outstanding stock of the taxpayer.
For purposes of the preceding sentence, section 318 shall
apply, except that "5 percent" shall be substituted for "50
percent" in section 318(a)(2)(C).
(ii) Excluded business
The term "excluded business" means -
(I) equipment leasing (as defined in paragraph (6)), and
(II) any business involving the use, exploitation, sale,
lease, or other disposition of master sound recordings,
motion picture films, video tapes, or tangible or
intangible assets associated with literary, artistic,
musical, or similar properties.
(iii) Special rules relating to communications industry, etc.
(I) Business not excluded where taxpayer not completely at
risk
A business involving the use, exploitation, sale, lease,
or other disposition of property described in subclause
(II) of clause (ii) shall not constitute an excluded
business by reason of such subclause if the taxpayer is at
risk with respect to all amounts paid or incurred (or
chargeable to capital account) in such business.
(II) Certain licensed businesses not excluded
For purposes of subclause (II) of clause (ii), the
provision of radio, television, cable television, or
similar services pursuant to a license or franchise granted
by the Federal Communications Commission or any other
Federal, State, or local authority shall not constitute an
excluded business by reason of such subclause.
(F) Affiliated group treated as 1 taxpayer
For purposes of this paragraph -
(i) In general
Except as provided in subparagraph (G), the component
members of an affiliated group of corporations shall be
treated as a single taxpayer.
(ii) Affiliated group of corporations
The term "affiliated group of corporations" means an
affiliated group (as defined in section 1504(a)) which files
or is required to file consolidated income tax returns.
(iii) Component member
The term "component member" means an includible corporation
(as defined in section 1504) which is a member of the
affiliated group.
(G) Loss of 1 member of affiliated group may not offset income
of personal holding company or personal service corporation
Nothing in this paragraph shall permit any loss of a member
of an affiliated group to be used as an offset against the
income of any other member of such group which is a personal
holding company (as defined in section 542(a)) or a personal
service corporation (as defined in section 269A(b) but
determined by substituting "5 percent" for "10 percent" in
section 269A(b)(2)).
(d) Definition of loss
For purposes of this section, the term "loss" means the excess of
the deductions allowable under this chapter for the taxable year
(determined without regard to the first sentence of subsection (a))
and allocable to an activity to which this section applies over the
income received or accrued by the taxpayer during the taxable year
from such activity (determined without regard to subsection
(e)(1)(A)).
(e) Recapture of losses where amount at risk is less than zero
(1) In general
If zero exceeds the amount for which the taxpayer is at risk in
any activity at the close of any taxable year -
(A) the taxpayer shall include in his gross income for such
taxable year (as income from such activity) an amount equal to
such excess, and
(B) an amount equal to the amount so included in gross income
shall be treated as a deduction allocable to such activity for
the first succeeding taxable year.
(2) Limitation
The excess referred to in paragraph (1) shall not exceed -
(A) the aggregate amount of the reductions required by
subsection (b)(5) with respect to the activity by reason of
losses for all prior taxable years beginning after December 31,
1978, reduced by
(B) the amounts previously included in gross income with
respect to such activity under this subsection.
-SOURCE-
(Added Pub. L. 94-455, title II, Sec. 204(a), Oct. 4, 1976, 90
Stat. 1531; amended Pub. L. 95-600, title II, Secs. 201(a), (c)(1),
202, 203, title VII, Sec. 701(k)(2), Nov. 6, 1978, 92 Stat. 2814,
2816, 2906; Pub. L. 95-618, title IV, Sec. 402(d), Nov. 9, 1978, 92
Stat. 3202; Pub. L. 96-222, title I, Sec. 102(a)(1)(A)-(D), Apr. 1,
1980, 94 Stat. 206; Pub. L. 97-354, Sec. 5(a)(31), Oct. 19, 1982,
96 Stat. 1695; Pub. L. 98-369, div. A, title IV, Sec. 432(a)-(c),
title VII, Sec. 721(x)(2), July 18, 1984, 98 Stat. 811-814, 971;
Pub. L. 99-514, title II, Sec. 201(d)(7)(A), title V, Sec. 503(a),
(b), title X, Sec. 1011(b)(1), Oct. 22, 1986, 100 Stat. 2141, 2243,
2389; Pub. L. 101-508, title XI, Secs. 11813(b)(15), 11815(b)(3),
Nov. 5, 1990, 104 Stat. 1388-555, 1388-558.)
-MISC1-
AMENDMENTS
1990 - Subsec. (b)(6)(D). Pub. L. 101-508, Sec. 11813(b)(15),
substituted "49(a)(1)(D)(iv)" for "46(c)(8)(D)(iv)" wherever
appearing.
Subsec. (c)(1)(E). Pub. L. 101-508, Sec. 11815(b)(3), substituted
"section 613(e)(2)" for "section 613(e)(3)".
1986 - Subsec. (b)(3)(C). Pub. L. 99-514, Sec. 201(d)(7)(A),
struck out "defined" after "person" in heading and amended text
generally. Prior to amendment, text read as follows: "For purposes
of subparagraph (A), the term 'related person' has the meaning
given such term by section 168(e)(4)."
Subsec. (b)(6). Pub. L. 99-514, Sec. 503(b), added par. (6).
Subsec. (c)(3)(D), (E). Pub. L. 99-514, Sec. 503(a), redesignated
subpar. (E) as (D) and struck out former subpar. (D) which read as
follows: "In the case of activities described in subparagraph (A),
the holding of real property (other than mineral property) shall be
treated as a separate activity, and subsection (a) shall not apply
to losses from such activity. For purposes of the preceding
sentence, personal property and services which are incidental to
making real property available as living accommodations shall be
treated as part of the activity of holding such real property."
Subsec. (c)(7)(D)(v)(II). Pub. L. 99-514, Sec. 1011(b)(1),
substituted "section 806(b)(3)" for "section 806(c)(3)".
1984 - Subsec. (a)(1)(B). Pub. L. 98-369, Sec. 721(x)(2),
substituted "a C corporation" for "a corporation".
Subsec. (b)(3). Pub. L. 98-369, Sec. 432(c), designated existing
provisions as subpar. (A), in subpar. (A) as so designated struck
out subpar. designations "(A)" and "(B)" and substituted provisions
that, except as provided by regulation, amounts borrowed shall not
be considered to be at risk if such amounts are borrowed from any
person who has an interest in the activity or from a related person
to a person (other than the taxpayer) having such an interest for
provision that such amounts would not be considered to be at risk
if borrowed from a person who had an interest (other than as a
creditor) in such activity or who had a relationship to the
taxpayer specified in section 267(b) of this title, and added
subpars. (B) and (C).
Subsec. (c)(2). Pub. L. 98-369, Sec. 432(b), designated existing
provisions as subpar. (A), in subpar. (A) as so designated,
redesignated former subpars. (A) to (E) as cls. (i) to (v),
respectively, struck out provision that a partner's interest in a
partnership or a shareholder's interest in an S corporation had to
be treated as a single activity to the extent that the partnership
or the S corporation was engaged in activities described in any
subparagraph of this paragraph, and added subpar. (B).
Subsec. (c)(7). Pub. L. 98-369, Sec. 432(a), added par. (7).
1982 - Subsec. (a)(1). Pub. L. 97-354, Sec. 5(a)(31)(A),
redesignated subpar. (C) as (B). Former subpar. (B), relating to an
electing small business corporation, was struck out.
Subsec. (a)(3). Pub. L. 97-354, Sec. 5(a)(31)(B), substituted
"paragraph (1)(B)" for "paragraph (1)(C)" in heading and text.
Subsec. (c)(2). Pub. L. 97-354, Sec. 5(a)(31)(C), substituted "an
S corporation" for "an electing small business corporation" the
first place appearing and "the S corporation" for "an electing
small business corporation" the second place appearing.
Subsec. (c)(3)(B)(ii). Pub. L. 97-354, Sec. 5(a)(31)(D),
substituted "an S corporation" for "electing small business
corporation (as defined in section 1371(b))".
Subsec. (c)(4)(A). Pub. L. 97-354, Sec. 5(a)(31)(E), substituted
"subsection (a)(1)(B)" for "subsection (a)(1)(C)".
1980 - Subsec. (a)(1)(C), (3). Pub. L. 96-222, Sec. 102(a)(1)(A),
struck out in par. (1)(C) "(determined by reference to the rules
contained in section 318 rather than under section 544)" after "of
section 542(a)" and added par. (3).
Subsec. (b)(5). Pub. L. 96-222, Sec. 102(a)(1)(D)(iii),
substituted "to which subsection (a) applies" for "to which this
section applies".
Subsec. (c)(3)(D). Pub. L. 96-222, Sec. 102(a)(1)(D)(ii), struck
out provisions relating to equipment leasing by closely-held
corporations.
Subsec. (c)(4) to (6). Pub. L. 96-222, Sec. 102(a)(1)(D)(i),
added pars. (4) to (6).
Subsec. (d). Pub. L. 96-222, Sec. 102(a)(1)(B), inserted
"(determined without regard to subsection (e)(1)(A)" after "from
such activity".
Subsec. (e)(2)(A). Pub. L. 96-222, Sec. 102(a)(1)(C), inserted
"by reason of losses" after "with respect to the activity".
1978 - Pub. L. 95-600, Sec. 201(c)(1), substituted "Deductions
limited to amount at risk" for "Deductions limited to amount at
risk in case of certain activities" in section catchline.
Subsec. (a). Pub. L. 95-600, Sec. 202, redesignated existing
provisions as par. (1), substituted provisions relating to
limitations with respect to an individual, an electing small
business corporation defined under section 1371(b) of this title,
and a corporation meeting the stock ownership requirements of
section 542(a)(2) of this title and the rules of section 318 of
this title, for provisions relating to limitations with respect to
a taxpayer other than a corporation which is neither an electing
small business corporation defined under section 1371(b) of this
title, nor a personal holding company defined under section 542 of
this title, and added par. (2).
Subsec. (c)(1)(E). Pub. L. 95-618, Sec. 402(d)(1), added subpar.
(E).
Subsec. (c)(2)(E). Pub. L. 95-618, Sec. 402(d)(2), added subpar.
(E).
Subsec. (c)(3). Pub. L. 95-600, Sec. 201(a), added par. (3).
Subsec. (d). Pub. L. 95-600, Sec. 701(k)(2), substituted
"(determined without regard to the first sentence of subsection
(a))" for "(determined without regard to this section)".
Subsec. (e). Pub. L. 95-600, Sec. 203, added subsec. (e).
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by section 11813(b)(15) of Pub. L. 101-508 applicable
to property placed in service after Dec. 31, 1990, but not
applicable to any transition property (as defined in section 49(e)
of this title), any property with respect to which qualified
progress expenditures were previously taken into account under
section 46(d) of this title, and any property described in section
46(b)(2)(C) of this title, as such sections were in effect on Nov.
4, 1990, see section 11813(c) of Pub. L. 101-508, set out as a note
under section 29 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 201(d)(7)(A) of Pub. L. 99-514 applicable to
property placed in service after Dec. 31, 1986, in taxable years
ending after such date, with exceptions, see sections 203 and 204
of Pub. L. 99-514, set out as a note under section 168 of this
title.
Amendment by section 201(d)(7)(A) of Pub. L. 99-514 not
applicable to any property placed in service before Jan. 1, 1994,
if such property placed in service as part of specified
rehabilitations, and not applicable to certain additional
rehabilitations, see section 251(d)(2), (3) of Pub. L. 99-514, set
out as a note under section 46 of this title.
Section 503(c) of Pub. L. 99-514 provided that:
"(1) In general. - Except as provided in this subsection, the
amendments made by this section [amending this section] shall apply
to losses incurred after December 31, 1986, with respect to
property placed in service by the taxpayer after December 31, 1986.
"(2) Special rule for losses of s corporation, partnership, or
pass-thru entity. - In the case of an interest in an S corporation,
a partnership, or other pass-thru entity acquired after December
31, 1986, the amendments made by this section shall apply to losses
after December 31, 1986, which are attributable to property placed
in service by the S corporation, partnership, or pass-thru entity
on, before, or after January 1, 1986.
"(3) Special rule for athletic stadium. - The amendments made by
this section shall not apply to any losses incurred by a taxpayer
with respect to the holding of a multi-use athletic stadium in
Pittsburgh, Pennsylvania, which the taxpayer acquired in a sale for
which a letter of understanding was entered into before April 16,
1986."
Amendment by section 1011(b)(1) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 1011(c)(1)
of Pub. L. 99-514, set out as a note under section 453B of this
title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 432(d) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by this section [amending this section] shall apply
to taxable years beginning after December 31, 1983; except that any
loss from an activity described in section 465(c)(7)(A) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as amended by
this section) which (but for the amendments made by this section)
would have been treated as a deduction for the taxpayer's first
taxable year beginning after December 31, 1983, under section
465(a)(2) of such Code shall be allowed as a deduction for such
first taxable year notwithstanding such amendments."
Amendment by section 721(x)(2) of Pub. L. 98-369 effective as if
included in the Subchapter S Revision Act of 1982, Pub. L. 97-354,
see section 721(y)(1) of Pub. L. 98-369, set out as a note under
section 1361 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-354 applicable to taxable years beginning
after Dec. 31, 1982, see section 6(a) of Pub. L. 97-354, set out as
an Effective Date note under section 1361 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 AMENDMENTS
Amendment by Pub. L. 95-618 applicable with respect to wells
commenced on or after Oct. 1, 1978, in taxable years ending on or
after such date, see section 402(e) of Pub. L. 95-618, set out as a
note under section 263 of this title.
Section 204(a) of Pub. L. 95-600 provided that: "The amendments
made by this subtitle [amending this section and section 704 of
this title and enacting provisions set out as notes under this
section and section 704 of this title] shall apply to taxable years
beginning after December 31, 1978."
Section 701(k)(3) of Pub. L. 95-600 provided that: "The
amendments made by this subsection [amending this section and
provisions set out below] shall take effect on October 4, 1976."
EFFECTIVE DATE AND TRANSITIONAL RULES
Section 204(c) of Pub. L. 94-455, as amended by Pub. L. 95-600,
title VII, Sec. 701(k)(1), Nov. 6, 1978, 92 Stat. 2906; Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - Except as provided in paragraphs (2) and
(3), the amendments made by this section [enacting this section]
shall apply to losses attributable to amounts paid or incurred in
taxable years beginning after December 31, 1975. For purposes of
this subsection, any amount allowed or allowable for depreciation
or amortization for any period shall be treated as an amount paid
or incurred in such period.
"(2) Special transitional rules for movies and video tapes. -
"(A) In general. - In the case of any activity described in
section 465(c)(1)(A) of the Internal Revenue Code of 1986
[formerly I.R.C. 1954], the amendments made by this section
shall not apply to -
"(i) deductions for depreciation or amortization with
respect to property the principal production of which began
before September 11, 1975, and for the purchase of which
there was on September 11, 1975, and at all times thereafter
a binding contract, and
"(ii) deductions attributable to producing or distributing
property the principal production of which began before
September 11, 1975.
"(B) Exception for certain agreements where principal
photography begin before 1976. - In the case of any activity
described in section 465(c)(1)(A) of the Internal Revenue Code
of 1986, the amendments made by this section shall not apply to
deductions attributable to the producing of a film the
principal photography of which began on or before December 31,
1975, if -
"(i) on September 10, 1975, there was an agreement with the
director or a principal motion picture star, or on or before
September 10, 1975, there had been expended (or committed to
the production) an amount not less than the lower of $100,000
or 10 percent of the estimated costs of producing the film,
and
"(ii) the production takes place in the United States.
Subparagraph (A) shall apply only to taxpayers who held their
interests on September 10, 1975. Subparagraph (B) shall apply
only to taxpayers who held their interests on December 31, 1975.
"(3) Special transitional rules for leasing activities. -
"(A) Rule for leases other than operating leases. - In the
case of any activity described in section 465(c)(1)(C) of the
Internal Revenue Code of 1986, the amendments made by this
section shall not apply with respect to -
"(i) leases entered into before January 1, 1976, and
"(ii) leases where the property was ordered by the lessor
or lessee before January 1, 1976.
"(B) Holding of interests for purposes of subparagraph (a). -
Subparagraph (A) shall apply only to taxpayers who held their
interests in the property on December 31, 1975.
"(C) Special rule for operating leases. - In the case of a
lease described in section 46(e)(3)(B) of the Internal Revenue
Code of 1986 -
"(i) subparagraph (A) shall be applied by substituting 'May
1, 1976' for 'January 1, 1976' each place it appears therein,
and
"(ii) subparagraph (B) shall be applied by substituting
'April 30, 1976' for 'December 31, 1975'."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 29 of this title.
TRANSITIONAL RULES FOR RECAPTURE PROVISIONS AND LEASING ACTIVITIES
Section 204(b) of Pub. L. 95-600, as amended by Pub. L. 96-222,
title I, Sec. 102(a)(1)(E), Apr. 1, 1980, 94 Stat. 208; Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) Recapture provisions. - If the amount for which the taxpayer
is at risk in any activity as of the close of the taxpayer's last
taxable year beginning before January 1, 1979, is less than zero,
section 465(e)(1) of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954] (as added by section 203 of this Act) shall be applied
with respect to such activity of the taxpayer by substituting such
negative amount for zero.
"(2) Special transitional rules for leasing activities. -
"(A) Rule for leases. - In the case of any activity described
in section 465(c)(1)(C) of such Code in which a corporation
described in section 465(a)(1)(C) of such Code is engaged, the
amendments made by this subtitle [amending sections 465 and 704
of this title and enacting provisions set out as notes under
sections 465 and 704 of this title] shall not apply with respect
to -
"(i) leases entered into before November 1, 1978, and
"(ii) leases where the property was ordered by the lessor or
lessee before November 1, 1978.
"(B) Holding of interests for purposes of subparagraph (a). -
Subparagraph (A) shall apply only to taxpayers who held their
interests in the property on October 31, 1978."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 49, 59, 162, 163, 168,
461, 467, 469, 773, 1256, 1366, 4162, 6111 of this title.
-End-
-CITE-
26 USC Sec. 466 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart C - Taxable Year for Which Deductions Taken
-HEAD-
[Sec. 466. Repealed. Pub. L. 99-514, title VIII, Sec. 823(a), Oct.
22, 1986, 100 Stat. 2373]
-MISC1-
Section, added Pub. L. 95-600, title III, Sec. 373(a), Nov. 6,
1978, 92 Stat. 2863; amended Pub. L. 96-222, title I, Sec.
103(a)(16), Apr. 1, 1980, 94 Stat. 214, related to qualified
discount coupons redeemed after close of taxable year.
EFFECTIVE DATE OF REPEAL
Section 823(c) of Pub. L. 99-514 provided:
"(1) In general. - The amendments made by this section [amending
section 461 of this title and repealing this section] shall apply
to taxable years beginning after December 31, 1986.
"(2) Change in method of accounting. - In the case of any
taxpayer who elected to have section 466 of the Internal Revenue
Code of 1954 [now 1986] apply for such taxpayer's last taxable year
beginning before January 1, 1987, and is required to change its
method of accounting by reason of the amendments made by this
section for any taxable year -
"(A) such change shall be treated as initiated by the taxpayer,
"(B) such change shall be treated as having been made with the
consent of the Secretary, and
"(C) the net amount of adjustments required by section 481 of
the Internal Revenue Code of 1986 to be taken into account by the
taxpayer shall -
"(i) be reduced by the balance in the suspense account under
section 466(e) of such Code as of the close of such last
taxable year, and
"(ii) be taken into account over a period not longer than 4
years."
-End-
-CITE-
26 USC Sec. 467 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart C - Taxable Year for Which Deductions Taken
-HEAD-
Sec. 467. Certain payments for the use of property or services
-STATUTE-
(a) Accrual method on present value basis
In the case of the lessor or lessee under any section 467 rental
agreement, there shall be taken into account for purposes of this
title for any taxable year the sum of -
(1) the amount of the rent which accrues during such taxable
year as determined under subsection (b), and
(2) interest for the year on the amounts which were taken into
account under this subsection for prior taxable years and which
are unpaid.
(b) Accrual of rental payments
(1) Allocation follows agreement
Except as provided in paragraph (2), the determination of the
amount of the rent under any section 467 rental agreement which
accrues during any taxable year shall be made -
(A) by allocating rents in accordance with the agreement, and
(B) by taking into account any rent to be paid after the
close of the period in an amount determined under regulations
which shall be based on present value concepts.
(2) Constant rental accrual in case of certain tax avoidance
transactions, etc.
In the case of any section 467 rental agreement to which this
paragraph applies, the portion of the rent which accrues during
any taxable year shall be that portion of the constant rental
amount with respect to such agreement which is allocable to such
taxable year.
(3) Agreements to which paragraph (2) applies
Paragraph (2) applies to any rental payment agreement if -
(A) such agreement is a disqualified leaseback or long-term
agreement, or
(B) such agreement does not provide for the allocation
referred to in paragraph (1)(A).
(4) Disqualified leaseback or long-term agreement
For purposes of this subsection, the term "disqualified
leaseback or long-term agreement" means any section 467 rental
agreement if -
(A) such agreement is part of a leaseback transaction or such
agreement is for a term in excess of 75 percent of the
statutory recovery period for the property, and
(B) a principal purpose for providing increasing rents under
the agreement is the avoidance of tax imposed by this subtitle.
(5) Exceptions to disqualification in certain cases
The Secretary shall prescribe regulations setting forth
circumstances under which agreements will not be treated as
disqualified leaseback or long-term agreements, including
circumstances relating to -
(A) changes in amounts paid determined by reference to price
indices,
(B) rents based on a fixed percentage of lessee receipts or
similar amounts,
(C) reasonable rent holidays, or
(D) changes in amounts paid to unrelated 3rd parties.
(c) Recapture of prior understated inclusions under leaseback or
long-term agreements
(1) In general
If -
(A) the lessor under any section 467 rental agreement
disposes of any property subject to such agreement during the
term of such agreement, and
(B) such agreement is a leaseback or long-term agreement to
which paragraph (2) of subsection (b) did not apply,
the recapture amount shall be treated as ordinary income. Such
gain shall be recognized notwithstanding any other provision of
this subtitle.
(2) Recapture amount
For purposes of paragraph (1), the term "recapture amount"
means the lesser of -
(A) the prior understated inclusions, or
(B) the excess of the amount realized (or in the case of a
disposition other than a sale, exchange, or involuntary
conversion, the fair market value of the property) over the
adjusted basis of such property.
The amount determined under subparagraph (B) shall be reduced by
the amount of any gain treated as ordinary income on the
disposition under any other provision of this subtitle.
(3) Prior understated inclusions
For purposes of this subsection, the term "prior understated
inclusion" means the excess (if any) of -
(A) the amount which would have been taken into account by
the lessor under subsection (a) for periods before the
disposition if subsection (b)(2) had applied to the agreement,
over
(B) the amount taken into account under subsection (a) by the
lessor for periods before the disposition.
(4) Leaseback or long-term agreement
For purposes of this subsection, the term "leaseback or
long-term agreement" means any agreement described in subsection
(b)(4)(A).
(5) Special rules
Under regulations prescribed by the Secretary -
(A) exceptions similar to the exceptions applicable under
section 1245 or 1250 (whichever is appropriate) shall apply for
purposes of this subsection,
(B) any transferee in a disposition excepted by reason of
subparagraph (A) who has a transferred basis in the property
shall be treated in the same manner as the transferor, and
(C) for purposes of sections 170(e) and 751(c), amounts
treated as ordinary income under this section shall be treated
in the same manner as amounts treated as ordinary income under
section 1245 or 1250.
(d) Section 467 rental agreements
(1) In general
Except as otherwise provided in this subsection, the term
"section 467 rental agreements" means any rental agreement for
the use of tangible property under which -
(A) there is at least one amount allocable to the use of
property during a calendar year which is to be paid after the
close of the calendar year following the calendar year in which
such use occurs, or
(B) there are increases in the amount to be paid as rent
under the agreement.
(2) Section not to apply to agreements involving payments of
$250,000 or less
This section shall not apply to any amount to be paid for the
use of property if the sum of the following amounts does not
exceed $250,000 -
(A) the aggregate amount of payments received as
consideration for such use of property, and
(B) the aggregate value of any other consideration to be
received for such use of property.
For purposes of the preceding sentence, rules similar to the
rules of clauses (ii) and (iii) of section 1274(c)(4)(C) shall
apply.
(e) Definitions
For purposes of this section -
(1) Constant rental amount
The term "constant rental amount" means, with respect to any
section 467 rental agreement, the amount which, if paid as of the
close of each lease period under the agreement, would result in
an aggregate present value equal to the present value of the
aggregate payments required under the agreement.
(2) Leaseback transaction
A transaction is a leaseback transaction if it involves a
leaseback to any person who had an interest in such property at
any time within 2 years before such leaseback (or to a related
person).
(3) Statutory recovery period
(A) In general
The statutory
In the case of: recovery period
is:
3-year property 3 years
5-year property 5 years
7-year property 7 years
10-year property 10 years
15-year and 20-year property 15 years
Residential rental property and nonresi-
dential real property 19 years
Any railroad grading or tunnel bore 50 years.
(B) Special rule for property not depreciable under section 168
In the case of property to which section 168 does not apply,
subparagraph (A) shall be applied as if section 168 applies to
such property.
(4) Discount and interest rate
For purposes of computing present value and interest under
subsection (a)(2), the rate used shall be equal to 110 percent of
the applicable Federal rate determined under section 1274(d)
(compounded semiannually) which is in effect at the time the
agreement is entered into with respect to debt instruments having
a maturity equal to the term of the agreement.
(5) Related person
The term "related person" has the meaning given to such term by
section 465(b)(3)(C).
(6) Certain options of lessee to renew not taken into account
Except as provided in regulations prescribed by the Secretary,
there shall not be taken into account in computing the term of
any agreement for purposes of this section any extension which is
solely at the option of the lessee.
(f) Comparable rules where agreement for decreasing payments
Under regulations prescribed by the Secretary, rules comparable
to the rules of this section shall also apply in the case of any
agreement where the amount paid under the agreement for the use of
property decreases during the term of the agreement.
(g) Comparable rules for services
Under regulations prescribed by the Secretary, rules comparable
to the rules of subsection (a)(2) shall also apply in the case of
payments for services which meet requirements comparable to the
requirements of subsection (d). The preceding sentence shall not
apply to any amount to which section 404 or 404A (or any other
provision specified in regulations) applies.
(h) Regulations
The Secretary shall prescribe such regulations as may be
appropriate to carry out the purposes of this section, including
regulations providing for the application of this section in the
case of contingent payments.
-SOURCE-
(Added Pub. L. 98-369, div. A, title I, Sec. 92(a), July 18, 1984,
98 Stat. 609; amended Pub. L. 99-514, title II, Sec. 201(d)(8),
title V, Sec. 511(d)(2)(A), title VI, Sec. 631(e)(10), title XVIII,
Secs. 1807(b), 1879(f)(1), Oct. 22, 1986, 100 Stat. 2141, 2248,
2274, 2816, 2906; Pub. L. 100-647, title I, Secs. 1002(i)(2)(H),
1005(c)(10), Nov. 10, 1988, 102 Stat. 3371, 3392; Pub. L. 108-27,
title III, Sec. 302(e)(4)(B)(ii), May 28, 2003, 117 Stat. 764.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 303 of Pub. L. 108-27,
see Effective and Termination Dates of 2003 Amendment note below.
-MISC1-
AMENDMENTS
2003 - Subsec. (c)(5)(C). Pub. L. 108-27, Secs. 302(e)(4)(B)(ii),
303, temporarily struck out ", 341(e)(12)," after "170(e)". See
Effective and Termination Dates of 2003 Amendment note below.
1988 - Subsec. (c)(5)(C). Pub. L. 100-647, Sec. 1005(c)(10), made
technical correction to directory language of Pub. L. 99-514, Sec.
511(d)(2)(A). See 1986 Amendment note below.
Subsec. (e)(3)(A). Pub. L. 100-647, Sec. 1002(i)(2)(H), at end of
table inserted item relating to any railroad grading or tunnel
bore.
1986 - Subsec. (b)(4)(A). Pub. L. 99-514, Sec. 1807(b)(2)(A),
substituted "statutory recovery period" for "statutory recover
period".
Subsec. (c)(4). Pub. L. 99-514, Sec. 1807(b)(2)(B), substituted
"subsection (b)(4)(A)" for "subsection (b)(3)(A)".
Subsec. (c)(5)(C). Pub. L. 99-514, Sec. 631(e)(10), struck out
"453B(d)(2)," after "341(e)(12),".
Pub. L. 99-514, Sec. 511(d)(2)(A), as amended by Pub. L. 100-647,
Sec. 1005(c)(10), struck out "163(d)," after "sections".
Subsec. (d)(2). Pub. L. 99-514, Sec. 1807(b)(2)(C), substituted
"section 1274(c)(4)(C)" for "section 1274(c)(2)(C)".
Subsec. (e)(3)(A). Pub. L. 99-514, Sec. 201(d)(8)(A), in amending
subpar. (A) generally, included in table 7-year property, 15-year
and 20-year property, and residential rental property and
nonresidential real property having recovery periods of 7, 15, and
19 years, respectively, and struck out from table low-income
housing, 15-year public utility property, and 19-year real property
having recovery periods of 15, 15, and 19 years, respectively.
Pub. L. 99-514, Sec. 1879(f)(1), substituted "19-year real
property" and "19 years" for "18-year real property" and "18
years", respectively.
Subsec. (e)(3)(B). Pub. L. 99-514, Sec. 201(d)(8)(A), in amending
subpar. (B) generally, substituted in heading "not depreciable
under section 168" for "which is not recovery property" and in text
"In the case of property to which section 168 does not apply,
subparagraph (A) shall be applied as if section 168 applies to such
property." for "In the case of any property, which is not recovery
property, subparagraph (A) shall be applied as if such property
were recovery property."
Subsec. (e)(5). Pub. L. 99-514, Sec. 201(d)(8)(B), substituted
"section 465(b)(3)(C)" for "section 168(e)(4)(D)".
Pub. L. 99-514, Sec. 1807(b)(2)(D), substituted "section
168(e)(4)(D)" for "section 168(d)(4)(D)".
Subsec. (g). Pub. L. 99-514, Sec. 1807(b)(1), inserted at end
"The preceding sentence shall not apply to any amount to which
section 404 or 404A (or any other provision specified in
regulations) applies."
EFFECTIVE AND TERMINATION DATES OF 2003 AMENDMENT
Amendment by Pub. L. 108-27 applicable, except as otherwise
provided, to taxable years beginning after Dec. 31, 2002, see
section 302(f) of Pub. L. 108-27, set out as a note under section 1
of this title.
Amendment by Pub. L. 108-27 inapplicable to taxable years
beginning after Dec. 31, 2008, and the Internal Revenue Code of
1986 to be applied and administered to such years as if such
amendment had never been enacted, see section 303 of Pub. L.
108-27, set out as a note under section 1 of this title.
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 1986 AMENDMENT
Amendment by section 201(d)(8) of Pub. L. 99-514 applicable to
property placed in service after Dec. 31, 1986, in taxable years
ending after such date, with exceptions, see sections 203 and 204
of Pub. L. 99-514, set out as a note under section 168 of this
title.
Amendment by section 201(d)(8) of Pub. L. 99-514 not applicable
to any property placed in service before Jan. 1, 1994, if such
property placed in service as part of specified rehabilitations,
and not applicable to certain additional rehabilitations, see
section 251(d)(2), (3) of Pub. L. 99-514, set out as a note under
section 46 of this title.
Amendment by section 511(d)(2)(A) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 511(e) of
Pub. L. 99-514, set out as a note under section 163 of this title.
Amendment by section 631(e)(10) of Pub. L. 99-514 applicable to
any distribution in complete liquidation, and any sale or exchange,
made by a corporation after July 31, 1986, unless such corporation
is completely liquidated before Jan. 1, 1987, any transaction
described in section 338 of this title for which the acquisition
date occurs after Dec. 31, 1986, and any distribution, not in
complete liquidation, made after Dec. 31, 1986, with exceptions and
special and transitional rules, see section 633 of Pub. L. 99-514,
set out as an Effective Date note under section 336 of this title.
Amendment by section 1807(b) 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.
Section 1879(f)(2) of Pub. L. 99-514 provided that: "The
amendments made by paragraph (1) [amending this section] shall take
effect as if included in the amendments made by section 103 of
Public Law 99-121."
EFFECTIVE DATE
Section 92(c) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [enacting this
section] shall apply with respect to agreements entered into after
June 8, 1984.
"(2) Exceptions. - The amendments made by this section shall not
apply -
"(A) to any agreement entered into pursuant to a written
agreement which was binding on June 8, 1984, and at all times
thereafter,
"(B) subject to the provisions of paragraph (3), to any
agreement to lease property if -
"(i) there was in effect a firm plan, evidenced by a board of
directors' resolution, memorandum of agreement, or letter of
intent on March 15, 1984, to enter into such an agreement, and
"(ii) construction of the property was commenced (but such
property was not placed in service) on or before March 15,
1984, and
"(C) to any agreement to lease property if -
"(i) the lessee of such property adopted a firm plan to lease
the property, evidenced by a resolution of the Finance
Committee of the Board of Directors of such lessee, on February
10, 1984,
"(ii) the sum of the present values of the rents payable by
the lessee under the lease at the inception thereof equals at
least $91,223,034, assuming for purposes of this clause -
"(I) the annual discount rate is 12.6 percent,
"(II) the initial payment of rent occurs 12 months after
the commencement of the lease, and
"(III) subsequent payments of rents occur on the
anniversary date of the initial payment, and
"(iii) during -
"(I) the first 5 years of the lease, at least 9 percent of
the rents payable by the lessee under the agreement are paid,
and
"(II) the second 5 years of the lease, at least 16.25
percent of the rents payable by the lessee under the
agreement are paid.
Paragraph (3)(B)(ii)(II) shall apply for purposes of clauses (ii)
and (iii) of subparagraph (C), as if, as of the beginning of the
last stage, the separate agreements were treated as 1 single
agreement relating to all property covered by the agreements,
including any property placed in service before the property to
which the agreement for the last stage relates. If the lessor
under the agreement described in subparagraph (C) leases the
property from another person, this exception shall also apply to
any agreement between the lessor and such person which is
integrally related to, and entered into at the same time as, such
agreement, and which calls for comparable payments of rent over
the primary term of the agreement.
"(3) Schedule of deemed rental payments. -
"(A) In general. - In any case to which paragraph (2)(B)
applies, for purposes of the Internal Revenue Code of 1986
[formerly I.R.C. 1954], the lessor shall be treated as having
received or accrued (and the lessee shall be treated as having
paid or incurred) rents equal to the greater of -
"(i) the amount of rents actually paid under the agreement
during the taxable year, or
"(ii) the amount of rents determined in accordance with the
schedule under subparagraph (B) for such taxable year.
"(B) Schedule. -
"(i) In general. - The schedule under this subparagraph is as
follows:
Cumulative
percentage
of total rent
"Portion of lease term: deemed paid:
1st 1/5 10
2nd 1/5 25
3rd 1/5 45
4th 1/5 70
Last 1/5 100.
"(ii) Operating rules. - For purposes of this schedule -
"(I) the rent allocable to each taxable year within any
portion of a lease term described in such schedule shall be a
level pro rata amount properly allocable to such taxable
year, and
"(II) any agreement relating to property which is to be
placed in service in 2 or more stages shall be treated as 2
or more separate agreements.
"(C) Paragraph not to apply. - This paragraph shall not apply
to any agreement if the sum of the present values of all payments
under the agreement is greater than the sum of the present value
of all the payments deemed to be paid or received under the
schedule under subparagraph (B). For purposes of computing any
present value under this subparagraph, the annual discount rate
shall be equal to 12 percent, compounded semiannually."
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 [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 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.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 857 of this title.
-End-
-CITE-
26 USC Sec. 468 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart C - Taxable Year for Which Deductions Taken
-HEAD-
Sec. 468. Special rules for mining and solid waste reclamation and
closing costs
-STATUTE-
(a) Establishment of reserves for reclamation and closing costs
(1) Allowance of deduction
If a taxpayer elects the application of this section with
respect to any mining or solid waste disposal property, the
amount of any deduction for qualified reclamation or closing
costs for any taxable year to which such election applies shall
be equal to the current reclamation or closing costs allocable to
-
(A) in the case of qualified reclamation costs, the portion
of the reserve property which was disturbed during such taxable
year, and
(B) in the case of qualified closing costs, the production
from the reserve property during such taxable year.
(2) Opening balance and adjustments to reserve
(A) Opening balance
The opening balance of any reserve for its first taxable year
shall be zero.
(B) Increase for interest
A reserve shall be increased each taxable year by an amount
equal to the amount of interest which would have been earned
during such taxable year on the opening balance of such reserve
for such taxable year if such interest were computed -
(i) at the Federal short-term rate or rates (determined
under section 1274) in effect, and
(ii) by compounding semiannually.
(C) Reserve to be charged for amounts paid
Any amount paid by the taxpayer during any taxable year for
qualified reclamation or closing costs allocable to portions of
the reserve property for which the election under paragraph (1)
was in effect shall be charged to the appropriate reserve as of
the close of the taxable year.
(D) Reserve increased by amount deducted
A reserve shall be increased each taxable year by the amount
allowable as a deduction under paragraph (1) for such taxable
year which is allocable to such reserve.
(3) Allowance of deduction for excess amounts paid
There shall be allowed as a deduction for any taxable year the
excess of -
(A) the amounts described in paragraph (2)(C) paid during
such taxable year, over
(B) the closing balance of the reserve for such taxable year
(determined without regard to paragraph (2)(C)).
(4) Limitation on balance as of the close of any taxable year
(A) Reclamation reserves
In the case of any reserve for qualified reclamation costs,
there shall be included in gross income for any taxable year an
amount equal to the excess of -
(i) the closing balance of the reserve for such taxable
year, over
(ii) the current reclamation costs of the taxpayer for all
portions of the reserve property disturbed during any taxable
year to which the election under paragraph (1) applies.
(B) Closing costs reserves
In the case of any reserve for qualified closing costs, there
shall be included in gross income for any taxable year an
amount equal to the excess of -
(i) the closing balance of the reserve for such taxable
year, over
(ii) the current closing cost of the taxpayer with respect
to the reserve property, determined as if all production with
respect to the reserve property for any taxable year to which
the election under paragraph (1) applies had occurred in such
taxable year.
(C) Order of application
This paragraph shall be applied after all adjustments to the
reserve have been made for the taxable year.
(5) Income inclusions on completion or disposition
Proper inclusion in income shall be made upon -
(A) the revocation of an election under paragraph (1), or
(B) completion of the closing, or disposition of any portion,
of a reserve property.
(b) Allocation for property where election not in effect for all
taxable years
If the election under subsection (a)(1) is not in effect for 1 or
more taxable years in which the reserved property is disturbed (or
production occurs), items with respect to the reserve property
shall be allocated to the reserve in such manner as the Secretary
may prescribe by regulations.
(c) Revocation of election; separate reserves
(1) Revocation of election
(A) In general
The taxpayer may revoke an election under subsection (a)(1)
with respect to any property. Such revocation, once made, shall
be irrevocable.
(B) Time and manner of revocation
Any revocation under subparagraph (A) shall be made at such
time and in such manner as the Secretary may prescribe.
(2) Separate reserves required
If a taxpayer makes an election under subsection (a)(1), the
taxpayer shall establish with respect to the property for which
the election was made -
(A) a separate reserve for qualified reclamation costs, and
(B) a separate reserve for qualified closing costs.
(d) Definitions and special rules relating to reclamation and
closing costs
For purposes of this section -
(1) Current reclamation and closing costs
(A) Current reclamation costs
The term "current reclamation costs" means the amount which
the taxpayer would be required to pay for qualified reclamation
costs if the reclamation activities were performed currently.
(B) Current closing costs
(i) In general
The term "current closing costs" means the amount which the
taxpayer would be required to pay for qualified closing costs
if the closing activities were performed currently.
(ii) Costs computed on unit-of-production or capacity method
Estimated closing costs shall -
(I) in the case of the closing of any mine site, be
computed on the unit-of-production method of accounting,
and
(II) in the case of the closing of any solid waste
disposal site, be computed on the unit-of-capacity method.
(2) Qualified reclamation or closing costs
The term "qualified reclamation or closing costs" means any of
the following expenses:
(A) Mining reclamation and closing costs
Any expenses incurred for any land reclamation or closing
activity which is conducted in accordance with a reclamation
plan (including an amendment or modification thereof) -
(i) which -
(I) is submitted pursuant to the provisions of section
511 or 528 of the Surface Mining Control and Reclamation
Act of 1977 (as in effect on January 1, 1984), and
(II) is part of a surface mining and reclamation permit
granted under the provisions of title V of such Act (as so
in effect), or
(ii) which is submitted pursuant to any other Federal or
State law which imposes surface mining reclamation and permit
requirements substantially similar to the requirements
imposed by title V of such Act (as so in effect).
(B) Solid waste disposal and closing costs
(i) In general
Any expenses incurred for any land reclamation or closing
activity in connection with any solid waste disposal site
which is conducted in accordance with any permit issued
pursuant to -
(I) any provision of the Solid Waste Disposal Act (as in
effect on January 1, 1984) requiring such activity, or
(II) any other Federal, State, or local law which imposes
requirements substantially similar to the requirements
imposed by the Solid Waste Disposal Act (as so in effect).
(ii) Exception for certain hazardous waste sites
Clause (i) shall not apply to that portion of any property
which is disturbed after the property is listed in the
national contingency plan established under section 105 of
the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980.
(3) Property
The term "property" has the meaning given such term by section
614.
(4) Reserve property
The term "reserve property" means any property with respect to
which a reserve is established under subsection (a)(1).
-SOURCE-
(Added Pub. L. 98-369, div. A, title I, Sec. 91(b)(1), July 18,
1984, 98 Stat. 601; amended Pub. L. 99-514, title XVIII, Secs.
1807(a)(3)(A), (C), 1899A(14), Oct. 22, 1986, 100 Stat. 2811, 2959;
Pub. L. 101-508, title XI, Sec. 11802(c), Nov. 5, 1990, 104 Stat.
1388-529.)
-REFTEXT-
REFERENCES IN TEXT
The Surface Mining Control and Reclamation Act of 1977, referred
to in subsec. (d)(2)(A), is Pub. L. 95-87, Aug. 3, 1977, 91 Stat.
445, as amended. Title V of that Act is classified generally to
subchapter V (Sec. 1251 et seq.) of chapter 25 of Title 30, Mineral
Lands and Mining. Sections 511 and 528 of that Act are classified
to sections 1261 and 1278, respectively, of Title 30. For complete
classification of this Act to the Code, see Short Title note set
out under section 1201 of Title 30 and Tables.
The Solid Waste Disposal Act, referred to in subsec.
(d)(2)(B)(i), is title II of Pub. L. 89-272, Oct. 20, 1965, 79
Stat. 997, as amended generally by Pub. L. 94-580, Sec. 2, Oct. 21,
1976, 90 Stat. 2795, which is classified generally to chapter 82
(Sec. 6901 et seq.) of Title 42, The Public Health and Welfare. For
complete classification of this Act to the Code, see Short Title
note set out under section 6901 of Title 42 and Tables.
Section 105 of the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, referred to in subsec.
(d)(2)(B)(ii), is classified to section 9605 of Title 42.
-MISC1-
AMENDMENTS
1990 - Subsec. (a)(2)(B). Pub. L. 101-508 amended subpar. (B)
generally, substituting present provisions for provisions providing
for increase for interest and a phase-in of interest rates for
taxable years ending before 1987.
1986 - Subsec. (a)(1). Pub. L. 99-514, Sec. 1807(a)(3)(C),
substituted "this section" for "this subsection".
Subsec. (a)(2)(D). Pub. L. 99-514, Sec. 1807(a)(3)(A), added
subpar. (D).
Subsec. (d)(2)(B)(ii). Pub. L. 99-514, Sec. 1899A(14),
substituted "Comprehensive Environmental Response, Compensation,
and Liability Act of 1980" for "Comprehensive Environmental,
Compensation, and Liability Act of 1980".
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1807(a)(3)(A), (C) of Pub. L. 99-514
effective, except as otherwise provided, as if included in the
provisions of the Tax Reform Act of 1984, Pub. L. 98-369, div. A,
to which such amendment relates, see section 1881 of Pub. L.
99-514, set out as a note under section 48 of this title.
EFFECTIVE DATE
Section effective July 18, 1984, with respect to taxable years
ending after such date, except as otherwise provided, see section
91(g)(4) of Pub. L. 98-369, as amended, set out as an Effective
Date of 1984 Amendment note under section 461 of this title.
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 29 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 [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 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.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 172, 198 of this title.
-End-
-CITE-
26 USC Sec. 468A 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart C - Taxable Year for Which Deductions Taken
-HEAD-
Sec. 468A. Special rules for nuclear decommissioning costs
-STATUTE-
(a) In general
If the taxpayer elects the application of this section, there
shall be allowed as a deduction for any taxable year the amount of
payments made by the taxpayer to a Nuclear Decommissioning Reserve
Fund (hereinafter referred to as the "Fund") during such taxable
year.
(b) Limitation on amounts paid into Fund
The amount which a taxpayer may pay into the Fund for any taxable
year shall not exceed the lesser of -
(1) the amount of nuclear decommissioning costs allocable to
the Fund which is included in the taxpayer's cost of service for
ratemaking purposes for such taxable year, or
(2) the ruling amount applicable to such taxable year.
(c) Income and deductions of the taxpayer
(1) Inclusion of amounts distributed
There shall be includible in the gross income of the taxpayer
for any taxable year -
(A) any amount distributed from the Fund during such taxable
year, other than any amount distributed to pay costs described
in subsection (e)(4)(B), and
(B) except to the extent provided in regulations, amounts
properly includible in gross income in the case of any deemed
distribution under subsection (e)(6), any termination under
subsection (e)(7), or the disposition of any interest in the
nuclear powerplant.
(2) Deduction when economic performance occurs
In addition to any deduction under subsection (a), there shall
be allowable as a deduction for any taxable year the amount of
the nuclear decommissioning costs with respect to which economic
performance (within the meaning of section 461(h)(2)) occurs
during such taxable year.
(d) Ruling amount
For purposes of this section -
(1) Request required
No deduction shall be allowed for any payment to the Fund
unless the taxpayer requests, and receives, from the Secretary a
schedule of ruling amounts.
(2) Ruling amount
The term "ruling amount" means, with respect to any taxable
year, the amount which the Secretary determines under paragraph
(1) to be necessary to -
(A) fund that portion of the nuclear decommissioning costs of
the taxpayer with respect to the nuclear powerplant which bears
the same ratio to the total nuclear decommissioning costs with
respect to such nuclear powerplant as the period for which the
Fund is in effect bears to the estimated useful life of such
nuclear powerplant, and
(B) prevent any excessive funding of such costs or the
funding of such costs at a rate more rapid than level funding,
taking into account such discount rates as the Secretary deems
appropriate.
(3) Review of amount
The Secretary shall at least once during the useful life of the
nuclear powerplant (or, more frequently, upon the request of the
taxpayer) review, and revise if necessary, the schedule of ruling
amounts determined under paragraph (1).
(e) Nuclear Decommissioning Reserve Fund
(1) In general
Each taxpayer who elects the application of this section shall
establish a Nuclear Decommissioning Reserve Fund with respect to
each nuclear powerplant to which such election applies.
(2) Taxation of Fund
(A) In general
There is hereby imposed on the gross income of the Fund for
any taxable year a tax at the rate set forth in subparagraph
(B), except that -
(i) there shall not be included in the gross income of the
Fund any payment to the Fund with respect to which a
deduction is allowable under subsection (a), and
|