-CITE-
26 USC Subchapter P - Capital Gains and Losses 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
-HEAD-
SUBCHAPTER P - CAPITAL GAINS AND LOSSES
-MISC1-
Part
I. Treatment of capital gains.
II. Treatment of capital losses.
III. General rules for determining capital gains and
losses.
IV. Special rules for determining capital gains and
losses.
V. Special rules for bonds and other debt instruments.
VI. Treatment of certain passive foreign investment
companies.
AMENDMENTS
1986 - Pub. L. 99-514, title XII, Sec. 1235(g), Oct. 22, 1986,
100 Stat. 2576, added item for part VI.
1984 - Pub. L. 98-369, div. A, title I, Sec. 42(b)(1), July 18,
1984, 98 Stat. 557, added item for part V.
-SECREF-
SUBCHAPTER REFERRED TO IN OTHER SECTIONS
This subchapter is referred to in sections 832, 834, 1011, 1012
of this title.
-End-
-CITE-
26 USC PART I - TREATMENT OF CAPITAL GAINS 01/19/04
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TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART I - TREATMENT OF CAPITAL GAINS
-HEAD-
PART I - TREATMENT OF CAPITAL GAINS
-MISC1-
Sec.
1201. Alternative tax for corporations.
1202. Partial exclusion for gain from certain small business
stock.
AMENDMENTS
2000 - Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec. 117(b)(3)],
Dec. 21, 2000, 114 Stat. 2763, 2763A-604, substituted "Partial" for
"50-percent" in item 1202.
1993 - Pub. L. 103-66, title XIII, Sec. 13113(d)(6), Aug. 10,
1993, 107 Stat. 430, added item 1202.
1986 - Pub. L. 99-514, title III, Sec. 301(b)(13), Oct. 22, 1986,
100 Stat. 2218, struck out item 1202 "Deduction for capital gains".
1978 - Pub. L. 95-600, title IV, Sec. 401(b)(6), Nov. 6, 1978, 92
Stat. 2867, substituted "Alternative tax for corporations" for
"Alternative tax" in item 1201.
-End-
-CITE-
26 USC Sec. 1201 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART I - TREATMENT OF CAPITAL GAINS
-HEAD-
Sec. 1201. Alternative tax for corporations
-STATUTE-
(a) General rule
If for any taxable year a corporation has a net capital gain and
any rate of tax imposed by section 11, 511, or 831(a) or (b)
(whichever is applicable) exceeds 35 percent (determined without
regard to the last 2 sentences of section 11(b)(1)), then, in lieu
of any such tax, there is hereby imposed a tax (if such tax is less
than the tax imposed by such sections) which shall consist of the
sum of -
(1) a tax computed on the taxable income reduced by the amount
of the net capital gain, at the rates and in the manner as if
this subsection had not been enacted, plus
(2) a tax of 35 percent of the net capital gain (or, if less,
taxable income).
(b) Cross references
For computation of the alternative tax -
(1) in the case of life insurance companies, see section
801(a)(2),
(2) in the case of regulated investment companies and their
shareholders, see section 852(b)(3)(A) and (D), and
(3) in the case of real estate investment trusts, see
section 857(b)(3)(A).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 320; Mar. 13, 1956, ch. 83, Sec.
5(7), 70 Stat. 49; Pub. L. 86-69, Sec. 3(f)(2), June 25, 1959, 73
Stat. 140; Pub. L. 87-834, Sec. 8(g)(3), Oct. 16, 1962, 76 Stat.
999; Pub. L. 91-172, title V, Sec. 511(b), Dec. 30, 1969, 83 Stat.
635; Pub. L. 94-455, title XIX, Sec. 1901(a)(135), (b)(33)(L), Oct.
4, 1976, 90 Stat. 1786, 1801; Pub. L. 95-600, title IV, Secs.
401(a), 403(a), (b), Nov. 6, 1978, 92 Stat. 2866, 2868; Pub. L.
96-222, title I, Sec. 104(a)(2)(B), (3)(A), Apr. 1, 1980, 94 Stat.
214, 215; Pub. L. 98-369, div. A, title II, Sec. 211(b)(16), July
18, 1984, 98 Stat. 756; Pub. L. 99-514, title III, Sec. 311(a),
title X, Sec. 1024(c)(14), Oct. 22, 1986, 100 Stat. 2219, 2408;
Pub. L. 100-647, title I, Sec. 1003(c)(1), title II, Sec. 2004(l),
Nov. 10, 1988, 102 Stat. 3384, 3606; Pub. L. 103-66, title XIII,
Sec. 13221(c)(2), Aug. 10, 1993, 107 Stat. 477; Pub. L. 104-188,
title I, Sec. 1703(f), Aug. 20, 1996, 110 Stat. 1876; Pub. L.
105-34, title III, Sec. 314(a), Aug. 5, 1997, 111 Stat. 842.)
-MISC1-
AMENDMENTS
1997 - Subsec. (a)(2). Pub. L. 105-34 inserted "(or, if less,
taxable income)" after "capital gain".
1996 - Subsec. (a). Pub. L. 104-188 substituted "last 2
sentences" for "last sentence".
1993 - Subsec. (a). Pub. L. 103-66 substituted "35 percent" for
"34 percent" in introductory provisions and in par. (2).
1988 - Subsec. (a). Pub. L. 100-647, Sec. 2004(l), substituted
"section 11(b)(1)" for "section 11(b)".
Pub. L. 100-647, Sec. 1003(c)(1), substituted "section 831(a) or
(b)" for "section 831(a)".
1986 - Subsec. (a). Pub. L. 99-514, Sec. 1024(c)(14), which
directed the amendment of subsec. (a) by substituting "831(a) or
(b)" for "821(a) or (c) and 831(a)" could not be executed in view
of amendment by section 311(a) of Pub. L. 99-514.
Pub. L. 99-514, Sec. 311(a), amended subsec. (a) generally. Prior
to amendment, subsec. (a), corporations, read as follows: "If for
any taxable year a corporation has a net capital gain, then, in
lieu of the tax imposed by sections 11, 511, 821(a) or (c) and
831(a), there is hereby imposed a tax (if such tax is less than the
tax imposed by such sections) which shall consist of the sum of -
"(1) a tax computed on the taxable income reduced by the amount
of the net capital gain, at the rates and in the manner as if
this subsection had not been enacted, plus
"(2) a tax of 28 percent of the net capital gain."
Subsec. (b). Pub. L. 99-514, Sec. 311(a), amended subsec. (b)
generally, substituting a comma for the semicolon at end of par.
(1) and after "852(b)(3)(A) and (D)" in par. (2).
Subsec. (c). Pub. L. 99-514, Sec. 311(a), in amending section
generally, struck out subsec. (c), transitional rule, which read as
follows: "If for any taxable year ending after December 31, 1978,
and beginning before January 1, 1980, a corporation has a net
capital gain, then subsection (a) shall be applied by substituting
for the language of paragraph (2) the following:
"(2)(A) a tax of 28 percent of the lesser of -
"(i) the net capital gain for the taxable year, or
"(ii) the net capital gain taking into account only gain or
loss properly taken into account for the portion of the taxable
year after December 31, 1978, plus
"(B) a tax of 30 percent of the excess of -
"(i) the net capital gains for the taxable year, over
"(ii) the amount of net capital gain taken into account under
subparagraph (A)."
1984 - Subsec. (b)(1). Pub. L. 98-369 substituted "section
801(a)(2)" for "section 802(a)(2)".
1980 - Subsec. (b). Pub. L. 96-222, Sec. 104(a)(2)(B)(i),
substituted in subsec. (b), as subsec. (b) was in effect for
taxable years beginning before Jan. 1, 1979, and prior to its
repeal by Pub. L. 95-600 (see 1978 Amendment note below), "the
excess of the net capital gain over the deduction under section
1202" for "50 percent of the net capital gain".
Subsec. (c). Pub. L. 96-222, Sec. 104(a)(3)(A), substituted in
heading "Transitional rule" for "Taxable years which include
January 1, 1979", in provisions preceding par. (2) "If for any
taxable year ending after December 31, 1978, and beginning before
January 1, 1980" for "If for any taxable year beginning before
January 1, 1979, and ending after December 31, 1978", and in par.
(2)(A)(ii) "gain or loss properly taken into account for the
portion of the taxable year" for "sales and exchanges".
Pub. L. 96-222, Sec. 104(a)(2)(B)(ii), substituted in subsec.
(c), as subsec. (c) was in effect for taxable years beginning
before Jan. 1, 1979, and prior to its repeal by Pub. L. 95-600 (see
1978 Amendment note below), "the excess of the net capital gain
over the deduction under section 1202" for "50 percent of the net
capital gain", redesignated cls. (A) and (B) as pars. (1) and (2),
respectively, and in par. (2) as so redesignated, substituted
"determined by multiplying the sum referred to in subsection
(b)(2)(A) by a fraction" for "equal to 50 percent of the sum
referred to in subsection (b)(2)(A)" and added subpars. (A) and
(B).
1978 - Pub. L. 95-600, Sec. 401(a)(3), inserted "for
corporations" after "tax" in section catchline.
Subsec. (a)(2). Pub. L. 95-600, Sec. 403(a), substituted "28
percent" for "30 percent".
Subsec. (b). Pub. L. 95-600, Sec. 401(a)(1), (2), redesignated
subsec. (d) as (b). Former subsec. (b), relating to imposition of
the alternative tax on other taxpayers, was struck out. See 1980
Amendment note above.
Subsec. (c). Pub. L. 95-600, Secs. 401(a)(1), 403(b), added
subsec. (c). Former subsec. (c), which related to computation of
the alternative tax where the capital gain exceeds $50,000, was
struck out. See 1980 Amendment note above.
Subsec. (d). Pub. L. 95-600, Sec. 401(a)(2), redesignated subsec.
(d) as (b).
1976 - Subsec. (a). Pub. L. 94-455, Sec. 1901(a)(135)(A),
substituted "net capital gain" for "net section 1201 gain" in three
places, incorporated existing text in provisions designated par.
(1), struck out prior par. (1) provision adding to the tax in the
case of a taxable year beginning before Jan. 1, 1975 -
(A) a tax of 25 percent of the lesser of -
(i) the amount of the subsec. (d) gain, or
(ii) the amount of the net section 1201 gain, and
(B) a tax of 30 percent (28 percent in the case of a taxable
year beginning after Dec. 31, 1969, and before Jan. 1, 1971) of
the excess (if any) of the net section 1201 gain over the subsec.
(d) gain, and struck out from par. (2) introductory text "in the
case of a taxable year beginning after December 31, 1974,".
Subsec. (b). Pub. L. 94-455, Sec. 1901(b)(33)(L), substituted
"net capital gain" for "net section 1201 gain" in introductory text
and in par. (1).
Subsec. (b)(2)(A). Pub. L. 94-455, Sec. 1901(a)(135)(C)(ii),
substituted "the sum of the long-term capital gains for the taxable
year, but not to exceed $50,000 ($25,000 in the case of a married
individual filing a separate return)" for "the amount of the
subsection (d) gain".
Subsec. (b)(2)(B). Pub. L. 94-455, Sec. 1901(b)(33)(L),
substituted "net capital gain" for "net section 1201 gain".
Subsec. (b)(3). Pub. L. 94-455, Sec. 1901(a)(135)(C)(iii),
(b)(33)(L), substituted "the sum referred to in subparagraph (A)"
for "the amount of the subsection (d) gain" and "net capital gain"
for "net section 1201 gain".
Subsec. (c). Pub. L. 94-455, Sec. 1901(a)(135)(B), substituted in
heading "where capital gain exceeds $50,000" for "on capital gain
in excess of subsection (d) gain", struck out par. (1) designation,
substituted "net capital gain" for "net section 1201 gain" and "50
percent of the sum referred to in subsection (b)(2)(A)" for "50
percent of the subsection (d) gain", and struck out par. (2)
limitation that the tax computed for purposes of subsec. (b) shall
not exceed an amount equal to the following percentage of the
excess of the net section 1201 gain over the subsec. (d) gain:
(A) 29 1/2 percent, in the case of a taxable year beginning
after Dec. 31, 1969, and before Jan. 1, 1971, or
(B) 32 1/2 percent, in the case of a taxable year beginning
after Dec. 31, 1971, and before Jan. 1, 1972.
Subsecs. (d), (e). Pub. L. 94-455, Sec. 1901(a)(135)(C)(i),
redesignated subsec. (e) as (d) and struck out existing subsec. (d)
defining "subsection (d) gain".
1969 - Subsec. (a). Pub. L. 91-172 substituted reference to net
section 1201 gain for reference to the excess of the net long-term
capital gain of a corporation over the net short-term capital loss,
substituted "a tax computed on the taxable income reduced by the
amount of the net section 1201 gain" for "a partial tax computed on
the taxable income reduced by the taxable income reduced by the
amount of such excess," struck out reference to tax of an amount
equal to 25 percent of excess or in the case of a taxable year
beginning before Apr. 1, 1954 an amount equal to 26 percent of such
excess without regard to section 21 of this title, and inserted, in
the case of a taxable year beginning Jan. 1, 1975, a tax of 25
percent of the lesser of the amount of the subsec. (d) gain, or the
amount of the net section 1201 gain, and a tax of 30 percent (28
percent in the case of a taxable year beginning after Dec. 31, 1969
and before Jan. 1, 1971) of the excess (if any) of the net section
1201 gain over the subsec. (d) gain, and in case of a taxable year
beginning after Dec. 31, 1974, a tax of 30 percent of the net
section 1201 gain.
Subsec. (b). Pub. L. 91-172 substituted reference to net section
1201 gain for reference to the excess of the net long-term capital
gain over the net short-term capital loss, substituted "a tax
computed on the taxable income reduced by an amount equal to 50
percent of the net section 1201 gain" for "a partial tax computed
on the taxable income reduced by an amount equal to 50 percent of
such excess," struck out reference to tax of an amount equal to 25
percent of the excess of the net long-term capital gain over the
net short-term capital loss, and inserted reference to a tax of 25
percent of the lesser of the amount of the subsec. (d) gain, or the
amount of the net section 1201 gain, and if the amount of the net
section 1201 gain exceeds the amount of the subsec. (d) gain, a tax
computed as provided in subsec. (c) on such excess.
Subsec. (c). Pub. L. 91-172 added subsec. (c). Former subsec. (c)
redesignated (e)(1).
Subsec (d). Pub. L. 91-172 added subsec. (d).
Subsec. (e). Pub. L. 91-172 redesignated former subsec. (c) as
par. (1) and added pars. (2) and (3).
1962 - Subsec. (a). Pub. L. 87-834 substituted "section 821(a) or
(c)" for section 821(a)(1) or (b)".
1959 - Subsec. (a). Pub. L. 86-69 struck out reference to section
802(a).
Subsec. (c). Pub. L. 86-69 added subsec. (c).
1956 - Subsec. (a). Act Mar. 13, 1956, inserted reference to
section 802(a).
EFFECTIVE DATE OF 1997 AMENDMENT
Section 314(b) of Pub. L. 105-34 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years ending after December 31, 1997."
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 effective as if included in the
provision of the Revenue Reconciliation Act of 1993, Pub. L.
103-66, Secs. 13001-13444, to which such amendment relates, see
section 1703(o) of Pub. L. 104-188, set out as a note under section
39 of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable to taxable years beginning
on or after Jan. 1, 1993, see section 13221(d) of Pub. L. 103-66,
set out as a note under section 11 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1003(c)(1) 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(l) 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 1986 AMENDMENT
Section 311(c) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1003(c)(2), Nov. 10, 1988, 102 Stat. 3384, provided
that: "The amendments made by subsections (a) and (b) [amending
this section and sections 593, 631, 852, and 1445 of this title]
shall apply to taxable years beginning after December 31, 1986;
except that the amendment made by subsection (b)(4) [amending
section 1445 of this title] shall apply to payments made after
December 31, 1986."
Amendment by section 1024 of Pub. L. 99-514 applicable to taxable
years beginning after Dec. 31, 1986, see section 1024(e) of Pub. L.
99-514, set out as a note under section 831 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by 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.
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by section 104(a)(3)(A) of 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.
Section 104(b)(1) of Pub. L. 96-222 provided that: "The
amendments made by subsection (a)(2)(B) [amending this section]
shall apply to taxable years beginning in 1978."
EFFECTIVE DATE OF 1978 AMENDMENT
Section 401(c) of Pub. L. 95-600 provided that: "The amendments
made by this section [amending this section and sections 3, 5, 871,
911, and 1304 of this title] shall apply to taxable years beginning
after December 31, 1978."
Section 403(d)(1) of Pub. L. 95-600 provided that: "The
amendments made by subsections (a) and (b) [amending this section]
shall apply to taxable years ending after December 31, 1978."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 applicable with respect to taxable
years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L.
94-455, set out as a note under section 2 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Section 511(d) of Pub. L. 91-172 provided that: "The amendments
made by this section [amending this section and sections 802, 852,
857, and 1378 of this title] shall apply to taxable years beginning
after December 31, 1969."
EFFECTIVE DATE OF 1962 AMENDMENT
Amendment by Pub. L. 87-834 applicable with respect to taxable
years beginning after Dec. 31, 1962, see section 8(h) of Pub. L.
87-834, set out as a note under section 501 of this title.
EFFECTIVE DATE OF 1959 AMENDMENT
Amendment by Pub. L. 86-69 applicable only with respect to
taxable years beginning after Dec. 31, 1957, see section 4 of Pub.
L. 86-69, set out as a note under section 381 of this title.
EFFECTIVE DATE OF 1956 AMENDMENT
Amendment by act Mar. 13, 1956, applicable only to taxable years
beginning after Dec. 31, 1954, see section 6 of act Mar. 13, 1956,
set out as a note under section 316 of this title.
TRANSITIONAL RULES
Section 311(d)(1) of Pub. L. 99-514 provided that:
"(1) Taxable years which begin in 1986 and end in 1987. - In the
case of any taxable year which begins before January 1, 1987, and
ends on or after such date, paragraph (2) of section 1201(a) of the
Internal Revenue Code of 1954 [now 1986], as in effect on the date
before the date of enactment of this Act [Oct. 22, 1986], shall be
applied as if it read as follows:
" '(2) the sum of -
" '(A) 28 percent of the lesser of -
" '(i) the net capital gain determined by taking into
account only gain or loss which is properly taken into
account for the portion of the taxable year before January 1,
1987, or
" '(ii) the net capital gain for the taxable year, and
" '(B) 34 percent of the excess (if any) of -
" '(i) the net capital gain for the taxable year, over
" '(ii) the amount of the net capital gain taken into
account under subparagraph (A).' "
RATE ON NET CAPITAL GAIN FOR PORTION OF 1981; 20-PERCENT MAXIMUM
Pub. L. 97-34, title I, Sec. 102, Aug. 13, 1981, 95 Stat. 186, as
amended by Pub. L. 97-448, title I, Sec. 101(aa), Jan. 12, 1983, 96
Stat. 2366; Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095,
provided that:
"(a) In General. - If for any taxable year ending after June 9,
1981, and beginning before January 1, 1982, a taxpayer other than a
corporation has qualified net capital gain, then the tax imposed
under section 1 of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954] for such taxable year shall be equal to the lesser of
-
"(1) the tax imposed under such section determined without
regard to this subsection, or
"(2) the sum of -
"(A) the tax imposed under such section on the excess of -
"(i) the taxable income of the taxpayer, over
"(ii) 40 percent of the qualified net capital gain of the
taxpayer, and
"(B) 20 percent of the qualified net capital gain.
"(b) Application With Alternative Minimum Tax. -
"(1) In general. - If subsection (a) applies to any taxpayer
for any taxable year, then the amount determined under section
55(a)(1) of the Internal Revenue Code of 1986 for such taxable
year shall be equal to the lesser of -
"(A) the amount determined under such section 55(a)(1)
determined without regard to this subsection, or
"(B) the sum of -
"(i) the amount which would be determined under such
section 55(a)(1) if the alternative minimum taxable income
was the excess of -
"(I) the alternative minimum taxable income (within the
meaning of section 55(b)(1) of such Code) of the taxpayer,
over
"(II) the qualified net capital gain of the taxpayer, and
"(ii) 20 percent of the qualified net capital gain (or, if
lesser, the alternative minimum taxable income within the
meaning of section 55(b)(1) of such Code).
"(2) No credits allowable. - For purposes of section 55(c) of
such Code, no credit allowable under subpart A of part IV of
subchapter A of chapter 1 of such Code [section 31 et seq. of
this title] (other than section 33(a) of such Code) shall be
allowable against the amount described in paragraph (1)(B)(ii).
"(c) Qualified Net Capital Gain. -
"(1) In general. - For purposes of this section, the term
'qualified net capital gain' means the lesser of -
"(A) the net capital gain for the taxable year, or
"(B) the net capital gain for the taxable year taking into
account only gain or loss from sales or exchanges occurring
after June 9, 1981.
"(2) Net capital gain. - For purposes of this subsection, the
term 'net capital gain' has the meaning given such term by
section 1222(11) of the Internal Revenue Code of 1986.
"(d) Special Rule for Pass-Thru Entities. -
"(1) In general. - In applying subsections (a), (b), and (c)
with respect to any pass-thru entity, the determination of when a
sale or exchange has occurred shall be made at the entity level.
"(2) Pass-thru entity defined. - For purposes of paragraph (1),
the term 'pass-thru entity' means -
"(A) a regulated investment company,
"(B) a real estate investment trust,
"(C) an electing small business corporation,
"(D) a partnership,
"(E) an estate or trust, and
"(F) a common trust fund."
SPECIAL RULE FOR PASS-THROUGH ENTITIES
Section 104(a)(2)(C) of Pub. L. 96-222, as amended by Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(i) In general. - In applying sections 1201(c)(2)(A)(ii) and
1202(c)(1)(B) of the Internal Revenue Code of 1986 [formerly I.R.C.
1954] with respect to any pass-through entity, the determination of
the period for which gain or loss is properly taken into account
shall be made at the entity level.
"(ii) Pass-through entity defined. - For purposes of clause (i),
the term 'pass-through entity' means -
"(I) a regulated investment company,
"(II) a real estate investment trust,
"(III) an electing small business corporation,
"(IV) a partnership,
"(V) an estate or trust, and
"(VI) a common trust fund."
STUDY OF EFFECTS OF CHANGES IN THE TAX TREATMENT OF CAPITAL GAINS
ON STIMULATING INVESTMENT AND ECONOMIC GROWTH
Section 555 of Pub. L. 95-600 required the Secretary of the
Treasury to submit to specific committees of Congress a report, not
later than Sept. 30, 1981, respecting effects of changes in tax
treatment of capital gains on stimulating investment and economic
growth as a result of the enactment of title V of Pub. L. 95-600.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 12, 453A, 527, 594, 691,
801, 831, 852, 857, 882, 904, 1374, 1381, 6425, 6655, 7518 of this
title; title 46 App. section 1177.
-End-
-CITE-
26 USC Sec. 1202 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART I - TREATMENT OF CAPITAL GAINS
-HEAD-
Sec. 1202. Partial exclusion for gain from certain small business
stock
-STATUTE-
(a) Exclusion
(1) In general
In the case of a taxpayer other than a corporation, gross
income shall not include 50 percent of any gain from the sale or
exchange of qualified small business stock held for more than 5
years.
(2) Empowerment zone businesses
(A) In general
In the case of qualified small business stock acquired after
the date of the enactment of this paragraph in a corporation
which is a qualified business entity (as defined in section
1397C(b)) during substantially all of the taxpayer's holding
period for such stock, paragraph (1) shall be applied by
substituting "60 percent" for "50 percent".
(B) Certain rules to apply
Rules similar to the rules of paragraphs (5) and (7) of
section 1400B(b) shall apply for purposes of this paragraph.
(C) Gain after 2014 not qualified
Subparagraph (A) shall not apply to gain attributable to
periods after December 31, 2014.
(D) Treatment of DC zone
The District of Columbia Enterprise Zone shall not be treated
as an empowerment zone for purposes of this paragraph.
(b) Per-issuer limitation on taxpayer's eligible gain
(1) In general
If the taxpayer has eligible gain for the taxable year from 1
or more dispositions of stock issued by any corporation, the
aggregate amount of such gain from dispositions of stock issued
by such corporation which may be taken into account under
subsection (a) for the taxable year shall not exceed the greater
of -
(A) $10,000,000 reduced by the aggregate amount of eligible
gain taken into account by the taxpayer under subsection (a)
for prior taxable years and attributable to dispositions of
stock issued by such corporation, or
(B) 10 times the aggregate adjusted bases of qualified small
business stock issued by such corporation and disposed of by
the taxpayer during the taxable year.
For purposes of subparagraph (B), the adjusted basis of any stock
shall be determined without regard to any addition to basis after
the date on which such stock was originally issued.
(2) Eligible gain
For purposes of this subsection, the term "eligible gain" means
any gain from the sale or exchange of qualified small business
stock held for more than 5 years.
(3) Treatment of married individuals
(A) Separate returns
In the case of a separate return by a married individual,
paragraph (1)(A) shall be applied by substituting "$5,000,000"
for "$10,000,000".
(B) Allocation of exclusion
In the case of any joint return, the amount of gain taken
into account under subsection (a) shall be allocated equally
between the spouses for purposes of applying this subsection to
subsequent taxable years.
(C) Marital status
For purposes of this subsection, marital status shall be
determined under section 7703.
(c) Qualified small business stock
For purposes of this section -
(1) In general
Except as otherwise provided in this section, the term
"qualified small business stock" means any stock in a C
corporation which is originally issued after the date of the
enactment of the Revenue Reconciliation Act of 1993, if -
(A) as of the date of issuance, such corporation is a
qualified small business, and
(B) except as provided in subsections (f) and (h), such stock
is acquired by the taxpayer at its original issue (directly or
through an underwriter) -
(i) in exchange for money or other property (not including
stock), or
(ii) as compensation for services provided to such
corporation (other than services performed as an underwriter
of such stock).
(2) Active business requirement; etc.
(A) In general
Stock in a corporation shall not be treated as qualified
small business stock unless, during substantially all of the
taxpayer's holding period for such stock, such corporation
meets the active business requirements of subsection (e) and
such corporation is a C corporation.
(B) Special rule for certain small business investment
companies
(i) Waiver of active business requirement
Notwithstanding any provision of subsection (e), a
corporation shall be treated as meeting the active business
requirements of such subsection for any period during which
such corporation qualifies as a specialized small business
investment company.
(ii) Specialized small business investment company
For purposes of clause (i), the term "specialized small
business investment company" means any eligible corporation
(as defined in subsection (e)(4)) which is licensed to
operate under section 301(d) of the Small Business Investment
Act of 1958 (as in effect on May 13, 1993).
(3) Certain purchases by corporation of its own stock
(A) Redemptions from taxpayer or related person
Stock acquired by the taxpayer shall not be treated as
qualified small business stock if, at any time during the
4-year period beginning on the date 2 years before the issuance
of such stock, the corporation issuing such stock purchased
(directly or indirectly) any of its stock from the taxpayer or
from a person related (within the meaning of section 267(b) or
707(b)) to the taxpayer.
(B) Significant redemptions
Stock issued by a corporation shall not be treated as
qualified business stock if, during the 2-year period beginning
on the date 1 year before the issuance of such stock, such
corporation made 1 or more purchases of its stock with an
aggregate value (as of the time of the respective purchases)
exceeding 5 percent of the aggregate value of all of its stock
as of the beginning of such 2-year period.
(C) Treatment of certain transactions
If any transaction is treated under section 304(a) as a
distribution in redemption of the stock of any corporation, for
purposes of subparagraphs (A) and (B), such corporation shall
be treated as purchasing an amount of its stock equal to the
amount treated as such a distribution under section 304(a).
(d) Qualified small business
For purposes of this section -
(1) In general
The term "qualified small business" means any domestic
corporation which is a C corporation if -
(A) the aggregate gross assets of such corporation (or any
predecessor thereof) at all times on or after the date of the
enactment of the Revenue Reconciliation Act of 1993 and before
the issuance did not exceed $50,000,000,
(B) the aggregate gross assets of such corporation
immediately after the issuance (determined by taking into
account amounts received in the issuance) do not exceed
$50,000,000, and
(C) such corporation agrees to submit such reports to the
Secretary and to shareholders as the Secretary may require to
carry out the purposes of this section.
(2) Aggregate gross assets
(A) In general
For purposes of paragraph (1), the term "aggregate gross
assets" means the amount of cash and the aggregate adjusted
bases of other property held by the corporation.
(B) Treatment of contributed property
For purposes of subparagraph (A), the adjusted basis of any
property contributed to the corporation (or other property with
a basis determined in whole or in part by reference to the
adjusted basis of property so contributed) shall be determined
as if the basis of the property contributed to the corporation
(immediately after such contribution) were equal to its fair
market value as of the time of such contribution.
(3) Aggregation rules
(A) In general
All corporations which are members of the same
parent-subsidiary controlled group shall be treated as 1
corporation for purposes of this subsection.
(B) Parent-subsidiary controlled group
For purposes of subparagraph (A), the term "parent-subsidiary
controlled group" means any controlled group of corporations as
defined in section 1563(a)(1), except that -
(i) "more than 50 percent" shall be substituted for "at
least 80 percent" each place it appears in section
1563(a)(1), and
(ii) section 1563(a)(4) shall not apply.
(e) Active business requirement
(1) In general
For purposes of subsection (c)(2), the requirements of this
subsection are met by a corporation for any period if during such
period -
(A) at least 80 percent (by value) of the assets of such
corporation are used by such corporation in the active conduct
of 1 or more qualified trades or businesses, and
(B) such corporation is an eligible corporation.
(2) Special rule for certain activities
For purposes of paragraph (1), if, in connection with any
future qualified trade or business, a corporation is engaged in -
(A) start-up activities described in section 195(c)(1)(A),
(B) activities resulting in the payment or incurring of
expenditures which may be treated as research and experimental
expenditures under section 174, or
(C) activities with respect to in-house research expenses
described in section 41(b)(4),
assets used in such activities shall be treated as used in the
active conduct of a qualified trade or business. Any
determination under this paragraph shall be made without regard
to whether a corporation has any gross income from such
activities at the time of the determination.
(3) Qualified trade or business
For purposes of this subsection, the term "qualified trade or
business" means any trade or business other than -
(A) any trade or business involving the performance of
services in the fields of health, law, engineering,
architecture, accounting, actuarial science, performing arts,
consulting, athletics, financial services, brokerage services,
or any trade or business where the principal asset of such
trade or business is the reputation or skill of 1 or more of
its employees,
(B) any banking, insurance, financing, leasing, investing, or
similar business,
(C) any farming business (including the business of raising
or harvesting trees),
(D) any business involving the production or extraction of
products of a character with respect to which a deduction is
allowable under section 613 or 613A, and
(E) any business of operating a hotel, motel, restaurant, or
similar business.
(4) Eligible corporation
For purposes of this subsection, the term "eligible
corporation" means any domestic corporation; except that such
term shall not include -
(A) a DISC or former DISC,
(B) a corporation with respect to which an election under
section 936 is in effect or which has a direct or indirect
subsidiary with respect to which such an election is in effect,
(C) a regulated investment company, real estate investment
trust, REMIC, or FASIT, and
(D) a cooperative.
(5) Stock in other corporations
(A) Look-thru in case of subsidiaries
For purposes of this subsection, stock and debt in any
subsidiary corporation shall be disregarded and the parent
corporation shall be deemed to own its ratable share of the
subsidiary's assets, and to conduct its ratable share of the
subsidiary's activities.
(B) Portfolio stock or securities
A corporation shall be treated as failing to meet the
requirements of paragraph (1) for any period during which more
than 10 percent of the value of its assets (in excess of
liabilities) consists of stock or securities in other
corporations which are not subsidiaries of such corporation
(other than assets described in paragraph (6)).
(C) Subsidiary
For purposes of this paragraph, a corporation shall be
considered a subsidiary if the parent owns more than 50 percent
of the combined voting power of all classes of stock entitled
to vote, or more than 50 percent in value of all outstanding
stock, of such corporation.
(6) Working capital
For purposes of paragraph (1)(A), any assets which -
(A) are held as a part of the reasonably required working
capital needs of a qualified trade or business of the
corporation, or
(B) are held for investment and are reasonably expected to be
used within 2 years to finance research and experimentation in
a qualified trade or business or increases in working capital
needs of a qualified trade or business,
shall be treated as used in the active conduct of a qualified
trade or business. For periods after the corporation has been in
existence for at least 2 years, in no event may more than 50
percent of the assets of the corporation qualify as used in the
active conduct of a qualified trade or business by reason of this
paragraph.
(7) Maximum real estate holdings
A corporation shall not be treated as meeting the requirements
of paragraph (1) for any period during which more than 10 percent
of the total value of its assets consists of real property which
is not used in the active conduct of a qualified trade or
business. For purposes of the preceding sentence, the ownership
of, dealing in, or renting of real property shall not be treated
as the active conduct of a qualified trade or business.
(8) Computer software royalties
For purposes of paragraph (1), rights to computer software
which produces active business computer software royalties
(within the meaning of section 543(d)(1)) shall be treated as an
asset used in the active conduct of a trade or business.
(f) Stock acquired on conversion of other stock
If any stock in a corporation is acquired solely through the
conversion of other stock in such corporation which is qualified
small business stock in the hands of the taxpayer -
(1) the stock so acquired shall be treated as qualified small
business stock in the hands of the taxpayer, and
(2) the stock so acquired shall be treated as having been held
during the period during which the converted stock was held.
(g) Treatment of pass-thru entities
(1) In general
If any amount included in gross income by reason of holding an
interest in a pass-thru entity meets the requirements of
paragraph (2) -
(A) such amount shall be treated as gain described in
subsection (a), and
(B) for purposes of applying subsection (b), such amount
shall be treated as gain from a disposition of stock in the
corporation issuing the stock disposed of by the pass-thru
entity and the taxpayer's proportionate share of the adjusted
basis of the pass-thru entity in such stock shall be taken into
account.
(2) Requirements
An amount meets the requirements of this paragraph if -
(A) such amount is attributable to gain on the sale or
exchange by the pass-thru entity of stock which is qualified
small business stock in the hands of such entity (determined by
treating such entity as an individual) and which was held by
such entity for more than 5 years, and
(B) such amount is includible in the gross income of the
taxpayer by reason of the holding of an interest in such entity
which was held by the taxpayer on the date on which such
pass-thru entity acquired such stock and at all times
thereafter before the disposition of such stock by such
pass-thru entity.
(3) Limitation based on interest originally held by taxpayer
Paragraph (1) shall not apply to any amount to the extent such
amount exceeds the amount to which paragraph (1) would have
applied if such amount were determined by reference to the
interest the taxpayer held in the pass-thru entity on the date
the qualified small business stock was acquired.
(4) Pass-thru entity
For purposes of this subsection, the term "pass-thru entity"
means -
(A) any partnership,
(B) any S corporation,
(C) any regulated investment company, and
(D) any common trust fund.
(h) Certain tax-free and other transfers
For purposes of this section -
(1) In general
In the case of a transfer described in paragraph (2), the
transferee shall be treated as -
(A) having acquired such stock in the same manner as the
transferor, and
(B) having held such stock during any continuous period
immediately preceding the transfer during which it was held (or
treated as held under this subsection) by the transferor.
(2) Description of transfers
A transfer is described in this subsection if such transfer is
-
(A) by gift,
(B) at death, or
(C) from a partnership to a partner of stock with respect to
which requirements similar to the requirements of subsection
(g) are met at the time of the transfer (without regard to the
5-year holding period requirement).
(3) Certain rules made applicable
Rules similar to the rules of section 1244(d)(2) shall apply
for purposes of this section.
(4) Incorporations and reorganizations involving nonqualified
stock
(A) In general
In the case of a transaction described in section 351 or a
reorganization described in section 368, if qualified small
business stock is exchanged for other stock which would not
qualify as qualified small business stock but for this
subparagraph, such other stock shall be treated as qualified
small business stock acquired on the date on which the
exchanged stock was acquired.
(B) Limitation
This section shall apply to gain from the sale or exchange of
stock treated as qualified small business stock by reason of
subparagraph (A) only to the extent of the gain which would
have been recognized at the time of the transfer described in
subparagraph (A) if section 351 or 368 had not applied at such
time. The preceding sentence shall not apply if the stock which
is treated as qualified small business stock by reason of
subparagraph (A) is issued by a corporation which (as of the
time of the transfer described in subparagraph (A)) is a
qualified small business.
(C) Successive application
For purposes of this paragraph, stock treated as qualified
small business stock under subparagraph (A) shall be so treated
for subsequent transactions or reorganizations, except that the
limitation of subparagraph (B) shall be applied as of the time
of the first transfer to which such limitation applied
(determined after the application of the second sentence of
subparagraph (B)).
(D) Control test
In the case of a transaction described in section 351, this
paragraph shall apply only if, immediately after the
transaction, the corporation issuing the stock owns directly or
indirectly stock representing control (within the meaning of
section 368(c)) of the corporation whose stock was exchanged.
(i) Basis rules
For purposes of this section -
(1) Stock exchanged for property
In the case where the taxpayer transfers property (other than
money or stock) to a corporation in exchange for stock in such
corporation -
(A) such stock shall be treated as having been acquired by
the taxpayer on the date of such exchange, and
(B) the basis of such stock in the hands of the taxpayer
shall in no event be less than the fair market value of the
property exchanged.
(2) Treatment of contributions to capital
If the adjusted basis of any qualified small business stock is
adjusted by reason of any contribution to capital after the date
on which such stock was originally issued, in determining the
amount of the adjustment by reason of such contribution, the
basis of the contributed property shall in no event be treated as
less than its fair market value on the date of the contribution.
(j) Treatment of certain short positions
(1) In general
If the taxpayer has an offsetting short position with respect
to any qualified small business stock, subsection (a) shall not
apply to any gain from the sale or exchange of such stock unless
-
(A) such stock was held by the taxpayer for more than 5 years
as of the first day on which there was such a short position,
and
(B) the taxpayer elects to recognize gain as if such stock
were sold on such first day for its fair market value.
(2) Offsetting short position
For purposes of paragraph (1), the taxpayer shall be treated as
having an offsetting short position with respect to any qualified
small business stock if -
(A) the taxpayer has made a short sale of substantially
identical property,
(B) the taxpayer has acquired an option to sell substantially
identical property at a fixed price, or
(C) to the extent provided in regulations, the taxpayer has
entered into any other transaction which substantially reduces
the risk of loss from holding such qualified small business
stock.
For purposes of the preceding sentence, any reference to the
taxpayer shall be treated as including a reference to any person
who is related (within the meaning of section 267(b) or 707(b))
to the taxpayer.
(k) Regulations
The Secretary shall prescribe such regulations as may be
appropriate to carry out the purposes of this section, including
regulations to prevent the avoidance of the purposes of this
section through split-ups, shell corporations, partnerships, or
otherwise.
-SOURCE-
(Added Pub. L. 103-66, title XIII, Sec. 13113(a), Aug. 10, 1993,
107 Stat. 422; amended Pub. L. 104-188, title I, Sec. 1621(b)(7),
Aug. 20, 1996, 110 Stat. 1867; Pub. L. 106-554, Sec. 1(a)(7) [title
I, Sec. 117(a), (b)(2)], Dec. 21, 2000, 114 Stat. 2763, 2763A-604.)
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of this paragraph, referred to in
subsec. (a)(2)(A), is the date of enactment of Pub. L. 106-554,
which was approved Dec. 21, 2000.
The date of the enactment of the Revenue Reconciliation Act of
1993, referred to in subsecs. (c)(1) and (d)(1)(A), is the date of
enactment of Pub. L. 103-66, which was approved Aug. 10, 1993.
Section 301(d) of the Small Business Investment Act of 1958,
referred to in subsec. (c)(2)(B)(ii), was classified to section
681(d) of Title 15, Commerce and Trade, prior to repeal by Pub. L.
104-208, div. D, title II, Sec. 208(b)(3)(A), Sept. 30, 1996, 110
Stat. 3009-742.
-MISC1-
PRIOR PROVISIONS
A prior section 1202, acts Aug. 16, 1954, ch. 736, 68A Stat. 320;
Oct. 4, 1976, Pub. L. 94-455, title XIX, Sec. 1901(b)(33)(M), 90
Stat. 1802; Nov. 6, 1978, Pub. L. 95-600, title IV, Sec. 402(a), 92
Stat. 2867; Apr. 1, 1980, Pub. L. 96-222, title I, Sec.
104(a)(2)(A), 94 Stat. 214, authorized deduction for capital gains,
prior to repeal by Pub. L. 99-514, title III, Sec. 301(a), (c),
Oct. 22, 1986, 100 Stat. 2216, 2218, applicable to taxable years
beginning after Dec. 31, 1986.
AMENDMENTS
2000 - Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec. 117(b)(2)],
substituted "Partial" for "50-percent" in section catchline.
Subsec. (a). Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec.
117(a)], amended heading and text of subsec. (a) generally. Prior
to amendment, text read as follows: "In the case of a taxpayer
other than a corporation, gross income shall not include 50 percent
of any gain from the sale or exchange of qualified small business
stock held for more than 5 years."
1996 - Subsec. (e)(4)(C). Pub. L. 104-188 substituted "REMIC, or
FASIT" for "or REMIC".
EFFECTIVE DATE OF 2000 AMENDMENT
Amendment by Pub. L. 106-554 applicable to stock acquired after
Dec. 21, 2000, see section 1(a)(7) [title I, Sec. 117(c)] of Pub.
L. 106-554, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 effective Sept. 1, 1997, see section
1621(d) of Pub. L. 104-188, set out as a note under section 26 of
this title.
EFFECTIVE DATE
Section applicable to stock issued after Aug. 10, 1993, see
section 13113(e) of Pub. L. 103-66, set out as an Effective Date of
1993 Amendment note under section 53 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 1, 45D, 57, 172, 642,
643, 691, 871, 1044, 1045, 1223, 1397B, 1400B, 1400F, 6652 of this
title.
-End-
-CITE-
26 USC PART II - TREATMENT OF CAPITAL LOSSES 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART II - TREATMENT OF CAPITAL LOSSES
-HEAD-
PART II - TREATMENT OF CAPITAL LOSSES
-MISC1-
Sec.
1211. Limitation on capital losses.
1212. Capital loss carrybacks and carryovers.
AMENDMENTS
1969 - Pub. L. 91-172, title V, Sec. 512(f)(2), Dec. 30, 1969, 83
Stat. 641, substituted "carrybacks and carryovers" for "carryover"
in item 1212.
-End-
-CITE-
26 USC Sec. 1211 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART II - TREATMENT OF CAPITAL LOSSES
-HEAD-
Sec. 1211. Limitation on capital losses
-STATUTE-
(a) Corporations
In the case of a corporation, losses from sales or exchanges of
capital assets shall be allowed only to the extent of gains from
such sales or exchanges.
(b) Other taxpayers
In the case of a taxpayer other than a corporation, losses from
sales or exchanges of capital assets shall be allowed only to the
extent of the gains from such sales or exchanges, plus (if such
losses exceed such gains) the lower of -
(1) $3,000 ($1,500 in the case of a married individual filing a
separate return), or
(2) the excess of such losses over such gains.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 321; Pub. L. 91-172, title V,
Sec. 513(a), Dec. 30, 1969, 83 Stat. 642; Pub. L. 94-455, title V,
Sec. 501(b)(6), title XIV, Sec. 1401(a), (b), Oct. 4, 1976, 90
Stat. 1559, 1731; Pub. L. 95-30, title I, Sec. 102(b)(14), May 23,
1977, 91 Stat. 138; Pub. L. 99-514, title III, Sec. 301(b)(10),
Oct. 22, 1986, 100 Stat. 2217.)
-MISC1-
AMENDMENTS
1986 - Subsec. (b). Pub. L. 99-514 amended subsec. (b) generally,
substituting present provisions for provisions which had declared
in: par. (1), general rule for limitation on capital losses for
taxpayer other than corporation; in par. (2), meaning of term
"applicable amount"; and in par. (3), rule relating to computation
of taxable income.
1977 - Subsec. (b)(1)(A). Pub. L. 95-30 inserted "reduced (but
not below zero) by the zero bracket amount" after "taxable year".
1976 - Subsec. (b)(1)(B). Pub. L. 94-455, Sec. 1401(a),
substituted "the applicable amount" for "$1,000".
Subsec. (b)(2). Pub. L. 94-455, Sec. 1401(b), substituted
provision relating to "applicable amount" for prior provision
limiting amount of capital losses for married individuals and
reading "In the case of a husband or wife who files a separate
return, the amount specified in paragraph (1)(B) shall be $500 in
lieu of $1,000."
Subsec. (b)(3). Pub. L. 94-455, Sec. 501(b)(6), struck out last
sentence "If the taxpayer elects to pay the optional tax imposed by
section 3, 'taxable income' as used in this subsection shall read
as 'adjusted gross income'."
1969 - Subsec. (b). Pub. L. 91-172 provided for only 50 percent
of an individual's long-term capital losses to be offset against
his ordinary income up to the $1,000 limit although short-term
capital losses continue to be fully deductible within the $1,000
limit and the deduction of capital losses against ordinary income
for married persons filing separate returns to be limited to $500
for each spouse rather than the $1,000 formerly allowed.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, see section 301(c) of Pub. L. 99-514, set out
as a note under section 62 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
Amendment by section 501(b)(6) of Pub. L. 94-455 applicable to
taxable years beginning after Dec. 31, 1975, see section 508 of
Pub. L. 94-455, set out as a note under section 3 of this title.
Section 1401(c) of Pub. L. 94-455 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1976."
EFFECTIVE DATE OF 1969 AMENDMENT
Section 513(d) of Pub. L. 91-172 provided that: "The amendments
made by this section [amending this section and sections 1212 and
1222 of this title] shall apply to taxable years beginning after
December 31, 1969."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 32, 165, 221, 641, 691,
1212, 1222, 1231 of this title.
-End-
-CITE-
26 USC Sec. 1212 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART II - TREATMENT OF CAPITAL LOSSES
-HEAD-
Sec. 1212. Capital loss carrybacks and carryovers
-STATUTE-
(a) Corporations
(1) In general
If a corporation has a net capital loss for any taxable year
(hereinafter in this paragraph referred to as the "loss year"),
the amount thereof shall be -
(A) a capital loss carryback to each of the 3 taxable years
preceding the loss year, but only to the extent -
(i) such loss is not attributable to a foreign
expropriation capital loss, and
(ii) the carryback of such loss does not increase or
produce a net operating loss (as defined in section 172(c))
for the taxable year to which it is being carried back;
(B) except as provided in subparagraph (C), a capital loss
carryover to each of the 5 taxable years succeeding the loss
year; and
(C) a capital loss carryover -
(i) in the case of a regulated investment company (as
defined in section 851) to each of the 8 taxable years
succeeding the loss year, and
(ii) to the extent such loss is attributable to a foreign
expropriation capital loss, to each of the 10 taxable years
succeeding the loss year.
and shall be treated as a short-term capital loss in each such
taxable year. The entire amount of the net capital loss for any
taxable year shall be carried to the earliest of the taxable
years to which such loss may be carried, and the portion of such
loss which shall be carried to each of the other taxable years to
which such loss may be carried shall be the excess, if any, of
such loss over the total of the capital gain net income for each
of the prior taxable years to which such loss may be carried. For
purposes of the preceding sentence, the capital gain net income
for any such prior taxable year shall be computed without regard
to the net capital loss for the loss year or for any taxable year
thereafter. In the case of any net capital loss which cannot be
carried back in full to a preceding taxable year by reason of
clause (ii) of subparagraph (A), the capital gain net income for
such prior taxable year shall in no case be treated as greater
than the amount of such loss which can be carried back to such
preceding taxable year upon the application of such clause (ii).
(2) Definitions and special rules
(A) Foreign expropriation capital loss defined
For purposes of this subsection, the term "foreign
expropriation capital loss" means, for any taxable year, the
sum of the losses taken into account in computing the net
capital loss for such year which are -
(i) losses sustained directly by reason of the
expropriation, intervention, seizure, or similar taking of
property by the government of any foreign country, any
political subdivision thereof, or any agency or
instrumentality of the foregoing, or
(ii) losses (treated under section 165(g)(1) as losses from
the sale or exchange of capital assets) from securities which
become worthless by reason of the expropriation,
intervention, seizure, or similar taking of property by the
government of any foreign country, any political subdivision
thereof, or any agency or instrumentality of the foregoing.
(B) Portion of loss attributable to foreign expropriation
capital loss
For purposes of paragraph (1), the portion of any net capital
loss for any taxable year attributable to a foreign
expropriation capital loss is the amount of the foreign
expropriation capital loss for such year (but not in excess of
the net capital loss for such year).
(C) Priority of application
For purposes of paragraph (1), if a portion of a net capital
loss for any taxable year is attributable to a foreign
expropriation capital loss, such portion shall be considered to
be a separate net capital loss for such year to be applied
after the other portion of such net capital loss.
(3) Special rules on carrybacks
A net capital loss of a corporation shall not be carried back
under paragraph (1)(A) to a taxable year -
(A) for which it is a foreign personal holding company (as
defined in section 552);
(B) for which it is a regulated investment company (as
defined in section 851);
(C) for which it is a real estate investment trust (as
defined in section 856); or
(D) for which an election made by it under section 1247 is
applicable (relating to election by foreign investment
companies to distribute income currently).
(b) Other taxpayers
(1) In general
If a taxpayer other than a corporation has a net capital loss
for any taxable year -
(A) the excess of the net short-term capital loss over the
net long-term capital gain for such year shall be a short-term
capital loss in the succeeding taxable year, and
(B) the excess of the net long-term capital loss over the net
short-term capital gain for such year shall be a long-term
capital loss in the succeeding taxable year.
(2) Treatment of amounts allowed under section 1211(b)(1) or (2)
(A) In general
For purposes of determining the excess referred to in
subparagraph (A) or (B) of paragraph (1), there shall be
treated as a short-term capital gain in the taxable year an
amount equal to the lesser of -
(i) the amount allowed for the taxable year under paragraph
(1) or (2) of section 1211(b), or
(ii) the adjusted taxable income for such taxable year.
(B) Adjusted taxable income
For purposes of subparagraph (A), the term "adjusted taxable
income" means taxable income increased by the sum of -
(i) the amount allowed for the taxable year under paragraph
(1) or (2) of section 1211(b), and
(ii) the deduction allowed for such year under section 151
or any deduction in lieu thereof.
For purposes of the preceding sentence, any excess of the
deductions allowed for the taxable year over the gross income
for such year shall be taken into account as negative taxable
income.
(c) Carryback of losses from section 1256 contracts to offset prior
gains from such contracts
(1) In general
If a taxpayer (other than a corporation) has a net section 1256
contracts loss for the taxable year and elects to have this
subsection apply to such taxable year, the amount of such net
section 1256 contracts loss -
(A) shall be a carryback to each of the 3 taxable years
preceding the loss year, and
(B) to the extent that, after the application of paragraphs
(2) and (3), such loss is allowed as a carryback to any such
preceding taxable year -
(i) 40 percent of the amount so allowed shall be treated as
a short-term capital loss from section 1256 contracts, and
(ii) 60 percent of the amount so allowed shall be treated
as a long-term capital loss from section 1256 contracts.
(2) Amount carried to each taxable year
The entire amount of the net section 1256 contracts loss for
any taxable year shall be carried to the earliest of the taxable
years to which such loss may be carried back under paragraph (1).
The portion of such loss which shall be carried to each of the 2
other taxable years to which such loss may be carried back shall
be the excess (if any) of such loss over the portion of such loss
which, after the application of paragraph (3), was allowed as a
carryback for any prior taxable year.
(3) Amount which may be used in any prior taxable year
An amount shall be allowed as a carryback under paragraph (1)
to any prior taxable year only to the extent -
(A) such amount does not exceed the net section 1256 contract
gain for such year, and
(B) the allowance of such carryback does not increase or
produce a net operating loss (as defined in section 172(c)) for
such year.
(4) Net section 1256 contracts loss
For purposes of paragraph (1), the term "net section 1256
contracts loss" means the lesser of -
(A) the net capital loss for the taxable year determined by
taking into account only gains and losses from section 1256
contracts, or
(B) the sum of the amounts which, but for paragraph (6)(A),
would be treated as capital losses in the succeeding taxable
year under subparagraphs (A) and (B) of subsection (b)(1).
(5) Net section 1256 contract gain
For purposes of paragraph (1) -
(A) In general
The term "net section 1256 contract gain" means the lesser of
-
(i) the capital gain net income for the taxable year
determined by taking into account only gains and losses from
section 1256 contracts, or
(ii) the capital gain net income for the taxable year.
(B) Special rule
The net section 1256 contract gain for any taxable year
before the loss year shall be computed without regard to the
net section 1256 contracts loss for the loss year or for any
taxable year thereafter.
(6) Coordination with carryforward provisions of subsection
(b)(1)
(A) Carryforward amount reduced by amount used as carryback
For purposes of applying subsection (b)(1), if any portion of
the net section 1256 contracts loss for any taxable year is
allowed as a carryback under paragraph (1) to any preceding
taxable year -
(i) 40 percent of the amount allowed as a carryback shall
be treated as a short-term capital gain for the loss year,
and
(ii) 60 percent of the amount allowed as a carryback shall
be treated as a long-term capital gain for the loss year.
(B) Carryover loss retains character as attributable to section
1256 contract
Any amount carried forward as a short-term or long-term
capital loss to any taxable year under subsection (b)(1) (after
the application of subparagraph (A)) shall, to the extent
attributable to losses from section 1256 contracts, be treated
as loss from section 1256 contracts for such taxable year.
(7) Other definitions and special rules
For purposes of this subsection -
(A) Section 1256 contract
The term "section 1256 contract" means any section 1256
contract (as defined in section 1256(b)) to which section 1256
applies.
(B) Exclusion for estates and trusts
This subsection shall not apply to any estate or trust.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 321; Pub. L. 88-272, title II,
Sec. 230(a), Feb. 26, 1964, 78 Stat. 99; Pub. L. 88-571, Sec. 7(a),
Sept. 2, 1964, 78 Stat. 860; Pub. L. 91-172, title V, Secs. 512
(a), (b), (f)(1), 513(b), Dec. 30, 1969, 83 Stat. 638, 639, 641,
642; Pub. L. 94-455, title XIV, Sec. 1403 (a), title XIX, Sec.
1901(b)(33)(O), Oct. 4, 1976, 90 Stat. 1733, 1802; Pub. L. 95-600,
title VII, Sec. 703(k), Nov. 6, 1978, 92 Stat. 2942; Pub. L. 97-34,
title V, Sec. 504, Aug. 13, 1981, 95 Stat. 330; Pub. L. 97-354,
Sec. 5(a)(35), Oct. 19, 1982, 96 Stat. 1695; Pub. L. 97-448, title
I, Sec. 105(c)(7), Jan. 12, 1983, 96 Stat. 2387; Pub. L. 98-369,
div. A, title I, Sec. 102(e)(3), title X, Sec. 1002(a), July 18,
1984, 98 Stat. 624, 1012; Pub. L. 99-514, title III, Sec.
301(b)(11), title XVIII, Sec. 1899A(67), Oct. 22, 1986, 100 Stat.
2218, 2962; Pub. L. 100-647, title I, Sec. 1003(a)(3), Nov. 10,
1988, 102 Stat. 3382.)
-MISC1-
AMENDMENTS
1988 - Subsec. (b)(2). Pub. L. 100-647 substituted "Treatment of
amounts allowed under section 1211(b)(1) or (2)" for "Special rule"
as heading and amended text generally. Prior to amendment, text
read as follows: "For purposes of determining the excess referred
to in subparagraph (A) or (B) of paragraph (1), an amount equal to
the amount allowed for the taxable year under paragraph (1) or (2)
of section 1211(b) shall be treated as a short-term capital gain in
such year."
1986 - Subsec. (b)(2). Pub. L. 99-514, Sec. 301(b)(11), amended
par. (2) generally. Prior to amendment, par. (2), special rules,
read as follows:
"(A) For purposes of determining the excess referred to in
paragraph (1)(A), an amount equal to the amount allowed for the
taxable year under section 1211(b)(1)(A), (B), or (C) shall be
treated as a short-term capital gain in such year.
"(B) For purposes of determining the excess referred to in
paragraph (1)(B), an amount equal to the sum of -
"(i) the amount allowed for the taxable year under section
1211(b)(1)(A), (B), or (C), and
"(ii) the excess of the amount described in clause (i) over the
net short-term capital loss (determined without regard to this
subsection) for such year,
shall be treated as a short-term capital gain in such year."
Subsec. (c)(6)(B), (7)(A). Pub. L. 99-514, Sec. 1899A(67),
amended directory language of Pub. L. 98-369, Sec. 102(e)(3)(C),
resulting in amendment of subsec. (c)(6)(B). See 1984 Amendment
note below.
1984 - Subsec. (b)(3). Pub. L. 98-369, Sec. 1002(a), struck out
par. (3) which read as follows: "In the case of any amount which,
under paragraph (1) and section 1211(b) (as in effect for taxable
years beginning before January 1, 1970), is treated as a capital
loss in the first taxable year beginning after December 31, 1969,
paragraph (1) and section 1211(b) (as in effect for taxable years
beginning before January 1, 1970) shall apply (and paragraph (1)
and section 1211(b) as in effect for taxable years beginning after
December 31, 1969, shall not apply) to the extent such amount
exceeds the total of any net capital gains (determined without
regard to this subsection) of taxable years beginning after
December 31, 1969."
Subsec. (c). Pub. L. 98-369, Sec. 102(e)(3)(A), (B), substituted
"net section 1256 contracts loss" for "net commodity futures loss"
and "section 1256 contracts" for "regulated futures contracts"
wherever appearing.
Subsec. (c)(3)(A), (5). Pub. L. 98-369, Sec. 102(e)(3)(D),
substituted "net section 1256 contract gain" for "net commodity
futures gain" wherever appearing.
Subsec. (c)(6)(B), (7)(A). Pub. L. 98-369, Sec. 102(e)(3)(C), as
amended by Pub. L. 99-514, Sec. 1899A(67), substituted "section
1256 contract" for "regulated futures contract" wherever appearing.
1983 - Subsec. (c)(4)(A). Pub. L. 97-448 struck out "and
positions to which section 1256 applies" after "losses from
regulated futures contracts".
1982 - Subsec. (a)(3), (4). Pub. L. 97-354 struck out par. (3)
relating to electing small business corporations, and redesignated
par. (4) as (3).
1981 - Subsec. (c). Pub. L. 97-34 added subsec. (c).
1978 - Subsec. (a)(1)(C)(ii). Pub. L. 95-600 substituted
"succeeding the loss year" for "exceeding the loss year".
1976 - Subsec. (a)(1). Pub. L. 94-455, Secs. 1403(a),
1901(b)(33)(O), in subpar. (B) inserted introductory text "except
as provided in subparagraph (C)," and struck out "(10) taxable
years to the extent such loss is attributable to a foreign
expropriation capital loss)" after "5 taxable years" and added
subpar. (C), and substituted "capital gain net income" for "net
capital gains", "net capital gain" and "net capital gain" in last
three sentences, respectively.
1969 - Pub. L. 91-172, Sec. 512(f)(1), substituted "carrybacks
and carryovers" for "carryover" in section catchline.
Subsec. (a)(1). Pub. L. 91-172, Sec. 512(a), provided for a
3-year capital loss carryback for corporations, not available for
foreign expropriation capital losses for which a special 10-year
carryforward is presently available, in addition to the 5-year
capital loss carryforward presently allowed corporations, to the
extent the carryback of such loss does not increase or produce a
net operating loss for the taxable year to which it is being
carried back.
Subsec. (a)(3), (4). Pub. L. 91-172, Sec. 512(b), added pars. (3)
and (4).
Subsec. (b). Pub. L. 91-172, Sec. 513(b), struck out reference to
Dec. 31, 1963, struck out determination of a short-term capital
gain as an amount equal to the excess allowed for the taxable year
under former section 1211(b) over the gains from sales or exchanges
of capital assets, struck out par. (2) treating as a short-term
capital loss in the first taxable year beginning after Dec. 31,
1963, any amount which is treated as a short-term capital loss in
such year under this subchapter as in effect immediately before the
enactment of the Revenue Act of 1964, added new par. (2) dealing
with special rules for determining the excesses referred to in par.
(1)(A) and par. (1)(B) and added par. (3).
1964 - Subsec. (a). Pub. L. 88-571 provided that if any portion
of a net capital loss is attributable to a foreign expropriation
capital loss, such portion shall be a short-term capital loss in
each of the 10 succeeding taxable years, defined foreign
expropriation capital loss, stated what portion of loss is
attributable to foreign expropriation capital loss and the priority
of application of the net capital loss, and struck out provisions
that net capital losses for taxable years beginning before Oct. 20,
1951, were to be determined under the applicable law relating to
the computation of capital gains and losses in effect before such
date.
Pub. L. 88-272 designated existing provisions as subsec. (a),
limited such subsection to corporations, and added subsec. (b).
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 301(b)(11) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 301(c) of
Pub. L. 99-514, set out as a note under section 62 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 102(e)(3) of Pub. L. 98-369 applicable to
positions established after July 18, 1984, in taxable years after
that date, except as otherwise provided, see section 102(f), (g) of
Pub. L. 98-369, set out as a note under section 1256 of this title.
Section 1002(b) of Pub. L. 98-369 provided that: "The repeal made
by subsection (a) [amending this section] shall apply to taxable
years beginning after December 31, 1986."
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the
Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE OF 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 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable to property acquired and
positions established by the taxpayer after June 23, 1981, in
taxable years ending after such date, and applicable when so
elected with respect to property held on June 23, 1981, see section
508 of Pub. L. 97-34, set out as an Effective Date note under
section 1092 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-600 effective 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 OF 1976 AMENDMENT
Section 1403(b) of Pub. L. 94-455, 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 loss years (within the meaning of section 1212(a)(1) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954]) ending on or
after January 1, 1970."
Amendment by section 1901(b)(33)(O) of Pub. L. 94-455 applicable
with respect to taxable years beginning after Dec. 31, 1976, see
section 1901(d) of Pub. L. 94-455, set out as a note under section
2 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Section 512(g) of Pub. L. 91-172 provided that: "The amendments
made by this section [amending this section and sections 246, 381,
481, 535, 1314, 6411, 6501, 6511, 6601, and 6611 of this title]
shall apply with respect to net capital losses sustained in taxable
years beginning after December 31, 1969."
Amendment by section 513(b) of Pub. L. 91-172 applicable to
taxable years beginning after Dec. 31, 1969, see section 513(d) of
Pub. L. 91-172, set out as a note under section 1211 of this title.
EFFECTIVE DATE OF 1964 AMENDMENTS
Section 7(b) of Pub. L. 88-571, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendment made by subsection (a) [amending this section] shall
apply with respect to net capital losses (to the extent
attributable to foreign expropriation capital losses, as defined in
section 1212(a)(2)(A) of the Internal Revenue Code of 1986
[formerly I.R.C. 1954]) sustained in taxable years ending after
December 31, 1958."
Section 230(c) of Pub. L. 88-272 provided that: "The amendments
made by this section [amending this section and section 1222 of
this title] shall apply to taxable years beginning after December
31, 1963."
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.
ELECTION NOT TO CARRYBACK CERTAIN NET CAPITAL LOSSES
Pub. L. 91-688, Sec. 3, Jan. 12, 1971, 84 Stat. 2073, as amended
by Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided
that:
"(a) For purposes of applying section 1212(a) of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] (as amended by section
512 of the Tax Reform Act of 1969) in the case of a corporation
which makes an election under subsection (b), any net capital loss
sustained in a taxable year beginning after December 31, 1969, may
not be carried back to any taxable year beginning before January 1,
1970, for which it was subject to taxation under section 802 of
such Code [section 802 of this title], if the carryback of such
loss would result in an increase in such corporation's income tax
liability for any such taxable year.
"(b) An election to have the provisions of subsection (a) apply
shall be made by a corporation -
"(1) in such form and manner as the Secretary of the Treasury
or his delegate may prescribe, and
"(2) not later than the time prescribed by law for filing a
claim for credit or refund of overpayment of income tax for the
first taxable year beginning after December 31, 1969, in which
such corporation sustains a net capital loss.
"(c) The Secretary of the Treasury or his delegate shall
prescribe such regulations as he determines necessary to carry out
the purposes of this section."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 1, 108, 165, 170, 246,
381, 383, 481, 514, 535, 613A, 642, 805, 822, 832, 871, 877, 904,
1022, 1222, 1247, 1314, 1341, 1351, 1398, 1503, 6411, 6655 of this
title.
-End-
-CITE-
26 USC PART III - GENERAL RULES FOR DETERMINING CAPITAL
GAINS AND LOSSES 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART III - GENERAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-HEAD-
PART III - GENERAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-MISC1-
Sec.
1221. Capital asset defined.
1222. Other items relating to capital gains and losses.(!1)
1223. Holding period of property.
-FOOTNOTE-
(!1) So in original. Does not conform to section catchline.
-End-
-CITE-
26 USC Sec. 1221 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART III - GENERAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-HEAD-
Sec. 1221. Capital asset defined
-STATUTE-
(a) In general
For purposes of this subtitle, the term "capital asset" means
property held by the taxpayer (whether or not connected with his
trade or business), but does not include -
(1) stock in trade of the taxpayer or other property of a kind
which would properly be included in the inventory of the taxpayer
if on hand at the close of the taxable year, or property held by
the taxpayer primarily for sale to customers in the ordinary
course of his trade or business;
(2) property, used in his trade or business, of a character
which is subject to the allowance for depreciation provided in
section 167, or real property used in his trade or business;
(3) a copyright, a literary, musical, or artistic composition,
a letter or memorandum, or similar property, held by -
(A) a taxpayer whose personal efforts created such property,
(B) in the case of a letter, memorandum, or similar property,
a taxpayer for whom such property was prepared or produced, or
(C) a taxpayer in whose hands the basis of such property is
determined, for purposes of determining gain from a sale or
exchange, in whole or part by reference to the basis of such
property in the hands of a taxpayer described in subparagraph
(A) or (B);
(4) accounts or notes receivable acquired in the ordinary
course of trade or business for services rendered or from the
sale of property described in paragraph (1);
(5) a publication of the United States Government (including
the Congressional Record) which is received from the United
States Government or any agency thereof, other than by purchase
at the price at which it is offered for sale to the public, and
which is held by -
(A) a taxpayer who so received such publication, or
(B) a taxpayer in whose hands the basis of such publication
is determined, for purposes of determining gain from a sale or
exchange, in whole or in part by reference to the basis of such
publication in the hands of a taxpayer described in
subparagraph (A);
(6) any commodities derivative financial instrument held by a
commodities derivatives dealer, unless -
(A) it is established to the satisfaction of the Secretary
that such instrument has no connection to the activities of
such dealer as a dealer, and
(B) such instrument is clearly identified in such dealer's
records as being described in subparagraph (A) before the close
of the day on which it was acquired, originated, or entered
into (or such other time as the Secretary may by regulations
prescribe);
(7) any hedging transaction which is clearly identified as such
before the close of the day on which it was acquired, originated,
or entered into (or such other time as the Secretary may by
regulations prescribe); or
(8) supplies of a type regularly used or consumed by the
taxpayer in the ordinary course of a trade or business of the
taxpayer.
(b) Definitions and special rules
(1) Commodities derivative financial instruments
For purposes of subsection (a)(6) -
(A) Commodities derivatives dealer
The term "commodities derivatives dealer" means a person
which (!1) regularly offers to enter into, assume, offset,
assign, or terminate positions in commodities derivative
financial instruments with customers in the ordinary course of
a trade or business.
(B) Commodities derivative financial instrument
(i) In general
The term "commodities derivative financial instrument"
means any contract or financial instrument with respect to
commodities (other than a share of stock in a corporation, a
beneficial interest in a partnership or trust, a note, bond,
debenture, or other evidence of indebtedness, or a section
1256 contract (as defined in section 1256(b))), the value or
settlement price of which is calculated by or determined by
reference to a specified index.
(ii) Specified index
The term "specified index" means any one or more or any
combination of -
(I) a fixed rate, price, or amount, or
(II) a variable rate, price, or amount,
which is based on any current, objectively determinable
financial or economic information with respect to commodities
which is not within the control of any of the parties to the
contract or instrument and is not unique to any of the
parties' circumstances.
(2) Hedging transaction
(A) In general
For purposes of this section, the term "hedging transaction"
means any transaction entered into by the taxpayer in the
normal course of the taxpayer's trade or business primarily -
(i) to manage risk of price changes or currency
fluctuations with respect to ordinary property which is held
or to be held by the taxpayer,
(ii) to manage risk of interest rate or price changes or
currency fluctuations with respect to borrowings made or to
be made, or ordinary obligations incurred or to be incurred,
by the taxpayer, or
(iii) to manage such other risks as the Secretary may
prescribe in regulations.
(B) Treatment of nonidentification or improper identification
of hedging transactions
Notwithstanding subsection (a)(7), the Secretary shall
prescribe regulations to properly characterize any income,
gain, expense, or loss arising from a transaction -
(i) which is a hedging transaction but which was not
identified as such in accordance with subsection (a)(7), or
(ii) which was so identified but is not a hedging
transaction.
(3) Regulations
The Secretary shall prescribe such regulations as are
appropriate to carry out the purposes of paragraph (6) and (7) of
subsection (a) in the case of transactions involving related
parties.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 321; Pub. L. 91-172, title V,
Sec. 514(a), Dec. 30, 1969, 83 Stat. 643; Pub. L. 94-455, title
XIX, Sec. 1901(c)(9), title XXI, Sec. 2132(a), Oct. 4, 1976, 90
Stat. 1803, 1925; Pub. L. 97-34, title V, Sec. 505(a), Aug. 13,
1981, 95 Stat. 331; Pub. L. 106-170, title V, Sec. 532(a), Dec. 17,
1999, 113 Stat. 1928; Pub. L. 107-16, title V, Sec. 542(e)(2)(A),
June 7, 2001, 115 Stat. 85; Pub. L. 107-147, title IV, Sec.
417(20), Mar. 9, 2002, 116 Stat. 57.)
-STATAMEND-
AMENDMENT OF SUBSECTION (A)(3)(C)
Pub. L. 107-16, title V, Sec. 542(e)(2)(A), (f)(1), title IX,
Sec. 901, June 7, 2001, 115 Stat. 85, 86, 150, provided that,
applicable to estates of decedents dying after Dec. 31, 2009,
subsection (a)(3)(C) of this section is temporarily amended by
inserting "(other than by reason of section 1022)" after "is
determined". See Effective and Termination Dates of 2001 Amendment
note below.
-MISC1-
AMENDMENTS
2002 - Subsec. (b)(1)(B)(i). Pub. L. 107-147 substituted
"1256(b)))" for "1256(b))".
1999 - Pub. L. 106-170 designated existing provisions as subsec.
(a), inserted heading, and added pars. (6) to (8) and subsec. (b).
1981 - Pars. (5), (6). Pub. L. 97-34 redesignated par. (6) as (5)
and struck out former par. (5), which excluded from definition of
"capital asset" an obligation of the United States or any of its
possessions, or of a State or any political subdivision thereof, or
of the District of Columbia, issued on or after March 1, 1941, on a
discount basis and payable without interest at a fixed maturity
date not exceeding one year from the date of issue, and is covered
by section 1232(a)(4)(B) of this title.
1976 - Par. (5). Pub. L. 94-455, Sec. 1901(c)(9), struck out "or
Territory," after "State".
Par. (6). Pub. L. 94-455, Sec. 2132(a), added par. (6).
1969 - Par. (3). Pub. L. 91-172 inserted reference to a letter or
memorandum, added subpar. (B) dealing with a letter or memorandum,
and redesignated former subpar. (B) as (C).
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Amendment by Pub. L. 107-16 applicable to estates of decedents
dying after Dec. 31, 2009, see section 542(f)(1) of Pub. L. 107-16,
set out as a note under section 121 of this title.
Amendment by Pub. L. 107-16 inapplicable to estates of decedents
dying, gifts made, or generation skipping transfers, after Dec. 31,
2010, and the Internal Revenue Code of 1986 to be applied and
administered to such estates, gifts, and transfers 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 1999 AMENDMENT
Amendment by Pub. L. 106-170 applicable to any instrument held,
acquired, or entered into, any transaction entered into, and
supplies held or acquired on or after Dec. 17, 1999, see section
532(d) of Pub. L. 106-170, set out as a note under section 170 of
this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable to property acquired and
positions established by the taxpayer after June 23, 1981, in
taxable years ending after such date, and applicable when so
elected with respect to property held on June 23, 1981, see section
508 of Pub. L. 97-34, set out as an Effective Date note under
section 1092 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 2132(b) of Pub. L. 94-455 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
sales, exchanges, and contributions made after the date of
enactment of this Act [Oct. 4, 1976]."
EFFECTIVE DATE OF 1969 AMENDMENT
Section 514(c) of Pub. L. 91-172 provided that: "The amendments
made by this section [amending this section and sections 341 and
1231 of this title] shall apply to sales and other dispositions
occurring after July 25, 1969."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 170, 198, 263A, 267, 367,
543, 707, 751, 775, 818, 856, 857, 864, 865, 954, 995, 1092, 1223,
1231, 1234, 1234B, 1248, 1256, 1362, 1397C, 4662, 7704 of this
title.
-FOOTNOTE-
(!1) So in original. Probably should be "who".
-End-
-CITE-
26 USC Sec. 1222 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART III - GENERAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-HEAD-
Sec. 1222. Other terms relating to capital gains and losses
-STATUTE-
For purposes of this subtitle -
(1) Short-term capital gain
The term "short-term capital gain" means gain from the sale or
exchange of a capital asset held for not more than 1 year, if and
to the extent such gain is taken into account in computing gross
income.
(2) Short-term capital loss
The term "short-term capital loss" means loss from the sale or
exchange of a capital asset held for not more than 1 year, if and
to the extent that such loss is taken into account in computing
taxable income.
(3) Long-term capital gain
The term "long-term capital gain" means gain from the sale or
exchange of a capital asset held for more than 1 year, if and to
the extent such gain is taken into account in computing gross
income.
(4) Long-term capital loss
The term "long-term capital loss" means loss from the sale or
exchange of a capital asset held for more than 1 year, if and to
the extent that such loss is taken into account in computing
taxable income.
(5) Net short-term capital gain
The term "net short-term capital gain" means the excess of
short-term capital gains for the taxable year over the short-term
capital losses for such year.
(6) Net short-term capital loss
The term "net short-term capital loss" means the excess of
short-term capital losses for the taxable year over the
short-term capital gains for such year.
(7) Net long-term capital gain
The term "net long-term capital gain" means the excess of
long-term capital gains for the taxable year over the long-term
capital losses for such year.
(8) Net long-term capital loss
The term "net long-term capital loss" means the excess of
long-term capital losses for the taxable year over the long-term
capital gains for such year.
(9) Capital gain net income
The term "capital gain net income" means the excess of the
gains from sales or exchanges of capital assets over the losses
from such sales or exchanges.
(10) Net capital loss
The term "net capital loss" means the excess of the losses from
sales or exchanges of capital assets over the sum allowed under
section 1211. In the case of a corporation, for the purpose of
determining losses under this paragraph, amounts which are
short-term capital losses under section 1212 shall be excluded.
(11) Net capital gain
The term "net capital gain" means the excess of the net
long-term capital gain for the taxable year over the net
short-term capital loss for such year.
For purposes of this subtitle, in the case of futures transactions
in any commodity subject to the rules of a board of trade or
commodity exchange, the length of the holding period taken into
account under this section or under any other section amended by
section 1402 of the Tax Reform Act of 1976 shall be determined
without regard to the amendments made by subsections (a) and (b) of
such section 1402.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 322; Pub. L. 88-272, title II,
Sec. 230(b), Feb. 26, 1964, 78 Stat. 100; Pub. L. 91-172, title V,
Secs. 511(a), 513(c), Dec. 30, 1969, 83 Stat. 635, 643; Pub. L.
94-455, title XIV, Sec. 1402(a)(1), (2), (d), title XIX, Sec.
1901(a)(136), Oct. 4, 1976, 90 Stat. 1731, 1733, 1787; Pub. L.
98-369, div. A, title X, Sec. 1001(a), (e), July 18, 1984, 98 Stat.
1011, 1012.)
-REFTEXT-
REFERENCES IN TEXT
The Tax Reform Act of 1976, referred to in last sentence, is Pub.
L. 94-455, Oct. 4, 1976, 90 Stat. 1520, as amended. For complete
classification of this Act and of section 1402 of such Act to the
Code, see Tables.
-MISC1-
AMENDMENTS
1984 - Pars. (1) to (4). Pub. L. 98-369 substituted "6 months"
for "1 year", applicable to property acquired after June 22, 1984,
and before Jan. 1, 1988. See Effective Date of 1984 Amendment note
below.
1976 - Pars. (1) to (4). Pub. L. 94-455, Sec. 1402(a)(2),
provided that "9 months" would be changed to "1 year".
Pub. L. 94-455, Sec. 1402(a)(1), provided that "6 months" would
be changed to "9 months" for taxable years beginning in 1977.
Par. (9). Pub. L. 94-455, Sec. 1901(a)(136)(A), substituted
"Capital gain net income" and "capital gain net income" for "Net
capital gain" and "net capital gain" in heading and text.
Par. (11). Pub. L. 94-455, Sec. 1901(a)(136)(B), substituted "Net
capital gain" and "net capital gain" for "Net section 1201 gain"
and "net section 1201 gain" in heading and text.
Pub. L. 94-455, Sec. 1402(d), inserted sentence at end relating
to length of holding period in case of futures transactions in
commodities.
1969 - Par. (9). Pub. L. 91-172, Sec. 513(c), substituted "The"
for "In the case of a corporation, the".
Par. (11). Pub. L. 91-172, Sec. 511(a), added par. (11).
1964 - Pars. (9), (10). Pub. L. 88-272 struck out provisions from
par. (9) relating to taxpayers other than corporations, and
inserted "In the case of a corporation" in par. (10).
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to property acquired after
June 22, 1984, and before Jan. 1, 1988, see section 1001(e) of Pub.
L. 98-369, set out as a note under section 166 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1402(a)(1) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning in 1977.
Section 1402(a)(2) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning after Dec. 31, 1977.
Amendment by section 1901(a)(136) of Pub. L. 94-455 applicable
with respect to taxable years beginning after Dec. 31, 1976, see
section 1901(d) of Pub. L. 94-455, set out as a note under section
2 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by section 513(c) of Pub. L. 91-172 applicable to
taxable years beginning after Dec. 31, 1969, see section 513(d) of
Pub. L. 91-172, set out as a note under section 1211 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable to taxable years beginning
after Dec. 31, 1963, see section 230(c) of Pub. L. 88-272, set out
as a note under section 1212 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 32, 265, 4981, 4982 of
this title.
-End-
-CITE-
26 USC Sec. 1223 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART III - GENERAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-HEAD-
Sec. 1223. Holding period of property
-STATUTE-
For purposes of this subtitle -
(1) In determining the period for which the taxpayer has held
property received in an exchange, there shall be included the
period for which he held the property exchanged if, under this
chapter, the property has, for the purpose of determining gain or
loss from a sale or exchange, the same basis in whole or in part
in his hands as the property exchanged, and, in the case of such
exchanges after March 1, 1954, the property exchanged at the time
of such exchange was a capital asset as defined in section 1221
or property described in section 1231. For purposes of this
paragraph -
(A) an involuntary conversion described in section 1033 shall
be considered an exchange of the property converted for the
property acquired, and
(B) a distribution to which section 355 (or so much of
section 356 as relates to section 355) applies shall be treated
as an exchange.
(2) In determining the period for which the taxpayer has held
property however acquired there shall be included the period for
which such property was held by any other person, if under this
chapter such property has, for the purpose of determining gain or
loss from a sale or exchange, the same basis in whole or in part
in his hands as it would have in the hands of such other person.
(3) In determining the period for which the taxpayer has held
stock or securities received upon a distribution where no gain
was recognized to the distributee under section 1081(c) (or under
section 112(g) of the Revenue Act of 1928, 45 Stat. 818, or the
Revenue Act of 1932, 48 Stat. 705), there shall be included the
period for which he held the stock or securities in the
distributing corporation before the receipt of the stock or
securities on such distribution.
(4) In determining the period for which the taxpayer has held
stock or securities the acquisition of which (or the contract or
option to acquire which) resulted in the nondeductibility (under
section 1091 relating to wash sales) of the loss from the sale or
other disposition of substantially identical stock or securities,
there shall be included the period for which he held the stock or
securities the loss from the sale or other disposition of which
was not deductible.
(5) In determining the period for which the taxpayer has held
stock or rights to acquire stock received on a distribution, if
the basis of such stock or rights is determined under section 307
(or under so much of section 1052(c) as refers to section
113(a)(23) of the Internal Revenue Code of 1939), there shall
(under regulations prescribed by the Secretary) be included the
period for which he held the stock in the distributing
corporation before the receipt of such stock or rights upon such
distribution.
(6) In determining the period for which the taxpayer has held
stock or securities acquired from a corporation by the exercise
of rights to acquire such stock or securities, there shall be
included only the period beginning with the date on which the
right to acquire was exercised.
(7) In determining the period for which the taxpayer has held a
residence, the acquisition of which resulted under section 1034
(as in effect on the day before the date of the enactment of the
Taxpayer Relief Act of 1997) in the nonrecognition of any part of
the gain realized on the sale or exchange of another residence,
there shall be included the period for which such other residence
had been held as of the date of such sale or exchange. For
purposes of this paragraph, the term "sale or exchange" includes
an involuntary conversion occurring after December 31, 1950, and
before January 1, 1954.
(8) In determining the period for which the taxpayer has held a
commodity acquired in satisfaction of a commodity futures
contract (other than a commodity futures contract to which
section 1256 applies) there shall be included the period for
which he held the commodity futures contract if such commodity
futures contract was a capital asset in his hands.
(9) Any reference in this section to a provision of this title
shall, where applicable, be deemed a reference to the
corresponding provision of the Internal Revenue Code of 1939, or
prior internal revenue laws.
(10) In determining the period for which the taxpayer has held
trust certificates of a trust to which subsection (d) of section
1246 applies, or the period for which the taxpayer has held stock
in a corporation to which subsection (d) of section 1246 applies,
there shall be included the period for which the trust or
corporation (as the case may be) held the stock of foreign
investment companies.
(11) In the case of a person acquiring property from a decedent
or to whom property passed from a decedent (within the meaning of
section 1014(b)), if -
(A) the basis of such property in the hands of such person is
determined under section 1014, and
(B) such property is sold or otherwise disposed of by such
person within 1 year after the decedent's death,
then such person shall be considered to have held such property
for more than 1 year.
(12) If -
(A) property is acquired by any person in a transfer to which
section 1040 applies,
(B) such property is sold or otherwise disposed of by such
person within 1 year after the decedent's death, and
(C) such sale or disposition is to a person who is a
qualified heir (as defined in section 2032A(e)(1)) with respect
to the decedent,
then the person making such sale or other disposition shall be
considered to have held such property for more than 1 year.
(13) In determining the period for which the taxpayer has held
qualified replacement property (within the meaning of section
1042(b)) the acquisition of which resulted under section 1042 in
the nonrecognition of any part of the gain realized on the sale
of qualified securities (within the meaning of section 1042(b)),
there shall be included the period for which such qualified
securities had been held by the taxpayer.
(14) In determining the period for which the taxpayer has held
property the acquisition of which resulted under section 1043 in
the nonrecognition of any part of the gain realized on the sale
of other property, there shall be included the period for which
such other property had been held as of the date of such sale.
(15) Except for purposes of sections 1202(a)(2), 1202(c)(2)(A),
1400B(b), and 1400F(b), in determining the period for which the
taxpayer has held property the acquisition of which resulted
under section 1045 or 1397B in the nonrecognition of any part of
the gain realized on the sale of other property, there shall be
included the period for which such other property has been held
as of the date of such sale.
(16) If the security to which a securities futures contract (as
defined in section 1234B) relates (other than a contract to which
section 1256 applies) is acquired in satisfaction of such
contract, in determining the period for which the taxpayer has
held such security, there shall be included the period for which
the taxpayer held such contract if such contract was a capital
asset in the hands of the taxpayer.
(17) Cross reference. -
For special holding period provision relating to certain
partnership distributions, see section 735(b).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 323; Pub. L. 87-834, Sec.
14(b)(3), Oct. 16, 1962, 76 Stat. 1041; Pub. L. 91-614, title I,
Sec. 101(g), Dec. 31, 1970, 84 Stat. 1838; Pub. L. 94-455, title
XIV, Sec. 1402(b)(1)(Q), (2), title XIX, Sec. 1906(b) (13)(A), Oct.
4, 1976, 90 Stat. 1732, 1834; Pub. L. 95-600, title VII, Sec.
702(c)(5), Nov. 6, 1978, 92 Stat. 2927; Pub. L. 96-223, title IV,
Sec. 401(a), Apr. 2, 1980, 94 Stat. 299; Pub. L. 97-448, title I,
Secs. 104(b)(3)(C), 105(c)(4), Jan. 12, 1983, 96 Stat. 2382, 2385;
Pub. L. 98-369, div. A, title I, Sec. 54(c), title V, Sec.
541(b)(1), title X, Sec. 1001(b)(14), (e), July 18, 1984, 98 Stat.
569, 890, 1011, 1012; Pub. L. 100-647, title I, Sec. 1006(e)(17),
Nov. 10, 1988, 102 Stat. 3403; Pub. L. 101-194, title V, Sec.
502(b)(1), Nov. 30, 1989, 103 Stat. 1754; Pub. L. 105-34, title
III, Secs. 312(d)(9), 313(b)(2), Aug. 5, 1997, 111 Stat. 840, 842;
Pub. L. 105-206, title V, Sec. 5001(a)(5), title VI, Sec.
6005(d)(4), July 22, 1998, 112 Stat. 788, 805; Pub. L. 106-554,
Sec. 1(a)(7) [title I, Sec. 116(b)(2), title IV, Sec. 401(h)(1)],
Dec. 21, 2000, 114 Stat. 2763, 2763A-603, 2763A-650.)
-REFTEXT-
REFERENCES IN TEXT
The Revenue Act of 1928, referred to in par. (3), is act May 29,
1928, ch. 852, 45 Stat. 791. Section 112(g) of such act appears at
45 Stat. 818.
The Revenue Act of 1932, referred to in par. (3), probably means
the Revenue Act of 1934, which is act May 10, 1934, ch. 277, 48
Stat. 680. Section 112(g) of such act appears at 48 Stat. 705.
Section 113(a)(23) of the Internal Revenue Code of 1939, referred
to in par. (5), was classified to section 113(a)(23) of former
Title 26, Internal Revenue Code. Section 113 was repealed by
section 7851(a)(1) of this title. For table of comparisons of the
1939 Code to the 1986 Code, see Table I preceding section 1 of this
title. See, also, section 7851(e) of this title for provision that
references in the 1986 Code to a provision of the 1939 Code, not
then applicable, shall be deemed a reference to the corresponding
provision of the 1986 Code, which is then applicable.
The date of the enactment of the Taxpayer Relief Act of 1997,
referred to in par. (7), is the date of enactment of Pub. L.
105-34, which was approved Aug. 5, 1997.
The Internal Revenue Code of 1939, referred to in par. (9), is
act Feb. 10, 1939, ch. 2, 53 Stat. 1, as amended. Prior to the
enactment of the Internal Revenue Code of 1986 [formerly I.R.C.
1954], the 1939 Code was classified to former Title 26, Internal
Revenue Code. For table of comparisons of the 1939 Code to the 1986
Code, see Table I preceding section 1 of this title.
-MISC1-
AMENDMENTS
2000 - Par. (15). Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec.
116(b)(2)], amended par. (15) generally. Prior to amendment, par.
(15) read as follows: "In determining the period for which the
taxpayer has held property the acquisition of which resulted under
section 1045 in the nonrecognition of any part of the gain realized
on the sale of other property, there shall be included the period
for which such other property has been held as of the date of such
sale."
Pars. (16), (17). Pub. L. 106-554, Sec. 1(a)(7) [title IV, Sec.
401(h)(1)], added par. (16) and redesignated former par. (16) as
(17).
1998 - Pars. (11), (12). Pub. L. 105-206, Sec. 6005(d)(4),
substituted "18 months" for "1 year" in subpar. (B) and concluding
provisions.
Pub. L. 105-206, Sec. 5001(a)(5), substituted "1 year" for "18
months" in subpar. (B) and concluding provisions.
1997 - Par. (7). Pub. L. 105-34, Sec. 312(d)(9), inserted "(as in
effect on the day before the date of the enactment of the Taxpayer
Relief Act of 1997)" after "section 1034".
Pars. (15), (16). Pub. L. 105-34, Sec. 313(b)(2), added par. (15)
and redesignated former par. (15) as (16).
1989 - Pars. (14), (15). Pub. L. 101-194 added par. (14) and
redesignated former par. (14) as (15).
1988 - Par. (14). Pub. L. 100-647 amended par. (14) generally,
substituting "reference" for "references" in heading, striking out
"(A)" before "For special holding", and striking out subpar. (B)
which related to distributions of appreciated property to
corporations.
1984 - Pars. (11), (12). Pub. L. 98-369, Sec. 1001(b)(14), (e),
substituted "6 months" for "1 year", applicable to property
acquired after June 22, 1984, and before Jan. 1, 1988. See
Effective Date of 1984 Amendment note below.
Par. (13). Pub. L. 98-369, Sec. 541(b)(1), added par. (13).
Former par. (13) redesignated (14).
Par. (14). Pub. L. 98-369, Sec. 541(b)(1), redesignated former
par. (13) as (14).
Pub. L. 98-369, Sec. 54(c), designated existing cross reference
as subpar. (A) and added subpar. (B).
1983 - Par. (8). Pub. L. 97-448, Sec. 105(c)(4), inserted "(other
than a commodity futures contract to which section 1256 applies)"
after "acquired in satisfaction of a commodity futures contract".
Pars. (12), (13). Pub. L. 97-448, Sec. 104(b)(3)(C), added par.
(12) and redesignated former par. (12) as (13).
1980 - Par. (11)(A). Pub. L. 96-223 repealed the amendment made
by Pub. L. 95-600. See 1978 Amendment note below.
1978 - Par. (11)(A). Pub. L. 95-600 inserted reference to
determination of basis of property under section 1023. See Repeals
note below.
1976 - Par. (5). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out
"or his delegate" after "Secretary".
Par. (11). Pub. L. 94-455, Sec. 1402(b)(2), provided that "9
months" would be changed to "1 year".
Pub. L. 94-455, Sec. 1402(b)(1)(Q), provided that "6 months"
would be changed to "9 months" for taxable years beginning in 1977.
1970 - Pars. (11), (12). Pub. L. 91-614 added par. (11) and
redesignated former par. (11) as (12).
1962 - Pars. (10), (11). Pub. L. 87-834 added par. (10) and
redesignated former par. (10) as (11).
EFFECTIVE DATE OF 2000 AMENDMENT
Amendment by section 1(a)(7) [title I, Sec. 116(b)(2)] of Pub. L.
106-554 applicable to qualified empowerment zone assets acquired
after Dec. 21, 2000, see section 1(a)(7) [title I, Sec. 116(c)] of
Pub. L. 106-554, set out as a note under section 1016 of this
title.
Amendment by section 1(a)(7) [title IV, Sec. 401(h)(1)] of Pub.
L. 106-554 effective Dec. 21, 2000, see section 1(a)(7) [title IV,
Sec. 401(j)] of Pub. L. 106-554, set out as a note under section
1032 of this title.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by section 5001(a)(5) of Pub. L. 105-206 effective Jan.
1, 1998, see section 5001(b)(2) of Pub. L. 105-206, set out as a
note under section 1 of this title.
Amendment by section 6005(d)(4) of Pub. L. 105-206 effective,
except as otherwise provided, as if included in the provisions of
the Taxpayer Relief Act of 1997, Pub. L. 105-34, to which such
amendment relates, see section 6024 of Pub. L. 105-206, set out as
a note under section 1 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by section 312(d)(9) of 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.
Amendment by section 313(b)(2) of Pub. L. 105-34 applicable to
sales after Aug. 5, 1997, see section 313(c) of Pub. L. 105-34, set
out as a note under section 1016 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-194 applicable to sales after Nov. 30,
1989, see section 502(c) of Pub. L. 101-194, set out as a note
under section 1016 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 1984 AMENDMENT
Amendment by section 541(b)(1) of Pub. L. 98-369 applicable to
sales of securities in taxable years beginning after July 18, 1984,
see section 541(c) of Pub. L. 98-369, set out as an Effective Date
note under section 1042 of this title.
Amendment by section 1001(b)(14) of Pub. L. 98-369 applicable to
property acquired after June 22, 1984, and before Jan. 1, 1988, see
section 1001(e) of Pub. L. 98-369, set out as a note under section
166 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the
Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE OF 1980 AMENDMENT AND REVIVAL OF PRIOR LAW
Amendment by Pub. L. 96-223 (repealing section 702(c)(5) of Pub.
L. 95-600 and the amendments made thereby, which had amended this
section) applicable in respect of decedents dying after Dec. 31,
1976, and except for certain elections, this title to be applied
and administered as if those repealed provisions had not been
enacted, see section 401(b), (e) of Pub. L. 96-223, set out as a
note under section 1023 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-600 to take effect as if included in the
amendments and additions made by, and the appropriate provisions of
Pub. L. 94-455, see section 702(c)(10) of Pub. L. 95-600, set out
as a note under section 1014 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1402(b)(1) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning in 1977.
Section 1402(b)(2) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning after Dec. 31, 1977.
EFFECTIVE DATE OF 1970 AMENDMENT
Amendment by Pub. L. 91-614 applicable with respect to decedents
dying after Dec. 31, 1970, see section 101(j) of Pub. L. 91-614,
set out as a note under section 2032 of this title.
EFFECTIVE DATE OF 1962 AMENDMENT
Amendment by Pub. L. 87-834 applicable with respect to taxable
years beginning after Dec. 31, 1962, see section 14(c) of Pub. L.
87-834, set out as an Effective Date note under section 1246 of
this title.
REPEALS
Pub. L. 95-600, Sec. 702(c)(5), cited as a credit to this
section, and the amendments made thereby, were repealed by Pub. L.
96-223, title IV, Sec. 401(a), 94 Stat. 299, resulting in the text
of this section reading as it read prior to enactment of section
702(c)(5). See Effective Date of 1980 Amendment and Revival of
Prior Law note set out above.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 121, 246, 735, 818, 1045,
1233, 1246, 1250, 1291, 1397B, 5881 of this title.
-End-
-CITE-
26 USC PART IV - SPECIAL RULES FOR DETERMINING CAPITAL
GAINS AND LOSSES 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART IV - SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-HEAD-
PART IV - SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-MISC1-
Sec.
1231. Property used in the trade or business and involuntary
conversions.
[1232 to 1232B. Repealed.]
1233. Gains and losses from short sales.
1234. Options to buy or sell.
1234A. Gains or losses from certain terminations.
1234B. Securities futures contracts.(!1)
1235. Sale or exchange of patents.
1236. Dealers in securities.
1237. Real property subdivided for sale.
[1238. Repealed.]
1239. Gain from sale of certain property between spouses or
between an individual and a controlled
corporation.(!1)
[1240. Repealed.]
1241. Cancellation of lease or distributor's agreement.
1242. Losses on small business investment company stock.
1243. Loss of small business investment company.
1244. Losses on small business stock.
1245. Gain from dispositions of certain depreciable
property.
1246. Gain on foreign investment company stock.
1247. Election by foreign investment companies to distribute
income currently.
1248. Gain from certain sales or exchanges of stock in
certain foreign corporations.
1249. Gain from certain sales or exchanges of patents, etc.,
to foreign corporations.
1250. Gain from dispositions of certain depreciable realty.
[1251. Repealed.]
1252. Gain from the disposition of farm land.(!1)
1253. Transfers of franchises, trademarks, and trade names.
1254. Gain from disposition of interest in oil, gas,
geothermal, or other mineral properties.
1255. Gain from disposition of section 126 property.
1256. Section 1256 contracts marked to market.
1257. Disposition of converted wetlands or highly erodible
croplands.
1258. Recharacterization of gain from certain financial
transactions.
1259. Constructive sales treatment for appreciated financial
positions.
1260. Gains from constructive ownership transactions.
AMENDMENTS
2000 - Pub. L. 106-554, Sec. 1(a)(7) [title IV, Sec. 401(h)(2)],
Dec. 21, 2000, 114 Stat. 2763, 2763A-650, which directed the
amendment of the table of sections of subpart IV of subchapter P of
chapter 1 by adding item 1234B, was executed by adding item 1234B
to the table of sections for this part which is part IV of
subchapter P of chapter 1 to reflect the probable intent of
Congress.
1999 - Pub. L. 106-170, title V, Sec. 534(b), Dec. 17, 1999, 113
Stat. 1934, added item 1260.
1997 - Pub. L. 105-34, title X, Sec. 1001(c), Aug. 5, 1997, 111
Stat. 907, added item 1259.
1993 - Pub. L. 103-66, title XIII, Sec. 13206(a)(2), Aug. 10,
1993, 107 Stat. 465, added item 1258.
1990 - Pub. L. 101-508, title XI, Sec. 11801(b)(10), Nov. 5,
1990, 104 Stat. 1388-522, struck out item 1238 "Amortization in
excess of depreciation".
1988 - Pub. L. 100-647, title I, Sec. 1018(u)(24), Nov. 10, 1988,
102 Stat. 3591, substituted "geothermal, or other mineral
properties" for "or geothermal property" in item 1254.
1986 - Pub. L. 99-514, title IV, Sec. 403(b), Oct. 22, 1986, 100
Stat. 2222, added item 1257.
1984 - Pub. L. 98-369, div. A, title I, Secs. 42(b)(2),
102(e)(6), title IV, Sec. 492(c), July 18, 1984, 98 Stat. 557, 624,
854, struck out items 1232 "Bonds and other evidence of
indebtedness", 1232A "Original issue discount", 1232B "Tax
treatment of stripped bonds", 1251 "Gain from disposition of
property used in farming where farm losses offset nonfarm income",
and substituted "Section 1256 contracts" for "Regulated futures
contracts" in item 1256.
1982 - Pub. L. 97-248, title II, Secs. 231(d), 232(c), Sept. 3,
1982, 96 Stat. 499, 501, added items 1232A and 1232B.
1981 - Pub. L. 97-34, title V, Secs. 503(b), 507(b), Aug. 13,
1981, 95 Stat. 330, 333, added items 1234A and 1256.
1978 - Pub. L. 95-618, title IV, Sec. 402(c)(4), Nov. 9, 1978, 92
Stat. 3202, substituted "oil, gas, or geothermal" for "oil or gas"
in item 1254.
Pub. L. 95-600, title V, Sec. 543(c)(2), Nov. 6, 1978, 92 Stat.
2890, added item 1255.
1976 - Pub. L. 94-455, title II, Sec. 205(d), title XIX, Sec.
1901(b)(34), Oct. 4, 1976, 90 Stat. 1535, 1802, added item 1254 and
struck out item 1240 "Taxability to employee of termination
payments".
1969 - Pub. L. 91-172, title II, Secs. 211(b)(7), 214(b), title
V, Sec. 516(c)(2)(C), Dec. 30, 1969, 83 Stat. 570, 573, 648, added
items 1251 to 1253.
1964 - Pub. L. 88-272, title II, Sec. 231(b)(7), Feb. 26, 1964,
78 Stat. 105, added item 1250.
1962 - Pub. L. 87-834, Secs. 13(a)(2), 14(a)(2), 15(b), 16(b),
Oct. 16, 1962, 76 Stat. 1033, 1040, 1044, 1045, added items
1245-1249.
1958 - Pub. L. 85-866, title I, Sec. 57(c)(3), title II, Sec.
202(c), Sept. 2, 1958, 72 Stat. 1646, 1678, added items 1242-1244.
-FOOTNOTE-
(!1) So in original. Does not conform to section catchline.
-End-
-CITE-
26 USC Sec. 1231 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART IV - SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-HEAD-
Sec. 1231. Property used in the trade or business and involuntary
conversions
-STATUTE-
(a) General rule
(1) Gains exceed losses
If -
(A) the section 1231 gains for any taxable year, exceed
(B) the section 1231 losses for such taxable year,
such gains and losses shall be treated as long-term capital gains
or long-term capital losses, as the case may be.
(2) Gains do not exceed losses
If -
(A) the section 1231 gains for any taxable year, do not
exceed
(B) the section 1231 losses for such taxable year,
such gains and losses shall not be treated as gains and losses
from sales or exchanges of capital assets.
(3) Section 1231 gains and losses
For purposes of this subsection -
(A) Section 1231 gain
The term "section 1231 gain" means -
(i) any recognized gain on the sale or exchange of property
used in the trade or business, and
(ii) any recognized gain from the compulsory or involuntary
conversion (as a result of destruction in whole or in part,
theft or seizure, or an exercise of the power of requisition
or condemnation or the threat or imminence thereof) into
other property or money of -
(I) property used in the trade or business, or
(II) any capital asset which is held for more than 1 year
and is held in connection with a trade or business or a
transaction entered into for profit.
(B) Section 1231 loss
The term "section 1231 loss" means any recognized loss from a
sale or exchange or conversion described in subparagraph (A).
(4) Special rules
For purposes of this subsection -
(A) In determining under this subsection whether gains exceed
losses -
(i) the section 1231 gains shall be included only if and to
the extent taken into account in computing gross income, and
(ii) the section 1231 losses shall be included only if and
to the extent taken into account in computing taxable income,
except that section 1211 shall not apply.
(B) Losses (including losses not compensated for by insurance
or otherwise) on the destruction, in whole or in part, theft or
seizure, or requisition or condemnation of -
(i) property used in the trade or business, or
(ii) capital assets which are held for more than 1 year and
are held in connection with a trade or business or a
transaction entered into for profit,
shall be treated as losses from a compulsory or involuntary
conversion.
(C) In the case of any involuntary conversion (subject to the
provisions of this subsection but for this sentence) arising
from fire, storm, shipwreck, or other casualty, or from theft,
of any -
(i) property used in the trade or business, or
(ii) any capital asset which is held for more than 1 year
and is held in connection with a trade or business or a
transaction entered into for profit,
this subsection shall not apply to such conversion (whether
resulting in gain or loss) if during the taxable year the
recognized losses from such conversions exceed the recognized
gains from such conversions.
(b) Definition of property used in the trade or business
For purposes of this section -
(1) General rule
The term "property used in the trade or business" means
property used in the trade or business, of a character which is
subject to the allowance for depreciation provided in section
167, held for more than 1 year, and real property used in the
trade or business, held for more than 1 year, which is not -
(A) property of a kind which would properly be includible in
the inventory of the taxpayer if on hand at the close of the
taxable year,
(B) property held by the taxpayer primarily for sale to
customers in the ordinary course of his trade or business,
(C) a copyright, a literary, musical, or artistic
composition, a letter or memorandum, or similar property, held
by a taxpayer described in paragraph (3) of section 1221(a), or
(D) a publication of the United States Government (including
the Congressional Record) which is received from the United
States Government, or any agency thereof, other than by
purchase at the price at which it is offered for sale to the
public, and which is held by a taxpayer described in paragraph
(5) of section 1221(a).
(2) Timber, coal, or domestic iron ore
Such term includes timber, coal, and iron ore with respect to
which section 631 applies.
(3) Livestock
Such term includes -
(A) cattle and horses, regardless of age, held by the
taxpayer for draft, breeding, dairy, or sporting purposes, and
held by him for 24 months or more from the date of acquisition,
and
(B) other livestock, regardless of age, held by the taxpayer
for draft, breeding, dairy, or sporting purposes, and held by
him for 12 months or more from the date of acquisition.
Such term does not include poultry.
(4) Unharvested crop
In the case of an unharvested crop on land used in the trade or
business and held for more than 1 year, if the crop and the land
are sold or exchanged (or compulsorily or involuntarily
converted) at the same time and to the same person, the crop
shall be considered as "property used in the trade or business."
(c) Recapture of net ordinary losses
(1) In general
The net section 1231 gain for any taxable year shall be treated
as ordinary income to the extent such gain does not exceed the
non-recaptured net section 1231 losses.
(2) Non-recaptured net section 1231 losses
For purposes of this subsection, the term "non-recaptured net
section 1231 losses" means the excess of -
(A) the aggregate amount of the net section 1231 losses for
the 5 most recent preceding taxable years beginning after
December 31, 1981, over
(B) the portion of such losses taken into account under
paragraph (1) for such preceding taxable years.
(3) Net section 1231 gain
For purposes of this subsection, the term "net section 1231
gain" means the excess of -
(A) the section 1231 gains, over
(B) the section 1231 losses.
(4) Net section 1231 loss
For purposes of this subsection, the term "net section 1231
loss" means the excess of -
(A) the section 1231 losses, over
(B) the section 1231 gains.
(5) Special rules
For purposes of determining the amount of the net section 1231
gain or loss for any taxable year, the rules of paragraph (4) of
subsection (a) shall apply.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 325; Pub. L. 85-866, title I,
Sec. 49(a), Sept. 2, 1958, 72 Stat. 1642; Pub. L. 88-272, title II,
Sec. 227(a)(2), Feb. 26, 1964, 78 Stat. 97; Pub. L. 91-172, title
II, Sec. 212(b)(1), title V, Secs. 514(b)(2), 516(b), Dec. 30,
1969, 83 Stat. 571, 643, 646; Pub. L. 94-455, title XIV, Sec.
1402(b)(1)(R), (2), Oct. 4, 1976, 90 Stat. 1732; Pub. L. 95-600,
title VII, Sec. 701(ee)(1), Nov. 6, 1978, 92 Stat. 2924; Pub. L.
97-34, title V, Sec. 505(c)(1), Aug. 13, 1981, 95 Stat. 332; Pub.
L. 98-369, div. A, title I, Sec. 176(a), title VII, Sec.
711(c)(2)(A)(iii), title X, Sec. 1001(b)(15), (e), July 18, 1984,
98 Stat. 709, 944, 1012; Pub. L. 106-170, title V, Sec.
532(c)(1)(G), Dec. 17, 1999, 113 Stat. 1930.)
-MISC1-
AMENDMENTS
1999 - Subsec. (b)(1)(C), (D). Pub. L. 106-170 substituted
"section 1221(a)" for "section 1221".
1984 - Subsec. (a). Pub. L. 98-369, Sec. 1001(b)(15), (e),
substituted "6 months" for "1 year" wherever appearing, applicable
to property acquired after June 22, 1984, and before Jan. 1, 1988.
See Effective Date of 1984 Amendment note below.
Pub. L. 98-369, Sec. 711(c)(2)(A)(iii), amended subsec. (a)
generally, substituting pars. (1) to (4), for "If, during the
taxable year, the recognized gains on sales or exchanges of
property used in the trade or business, plus the recognized gains
from the compulsory or involuntary conversion (as a result of
destruction in whole or in part, theft or seizure, or an exercise
of the power of requisition or condemnation or the threat or
imminence thereof) of property used in the trade or business and
capital assets held for more than 1 year into other property or
money, exceed the recognized losses from such sales, exchanges, and
conversions, such gains and losses shall be considered as gains and
losses from sales or exchanges of capital assets held for more than
1 year. If such gains do not exceed such losses, such gains and
losses shall not be considered as gains and losses from sales or
exchanges of capital assets. For purposes of this subsection -
"(1) in determining under this subsection whether gains exceed
losses, the gains described therein shall be included only if and
to the extent taken into account in computing gross income and
the losses described therein shall be included only if and to the
extent taken into account in computing taxable income, except
that section 1211 shall not apply; and
"(2) losses (including losses not compensated for by insurance
or otherwise) upon the destruction, in whole or in part, theft or
seizure, or requisition or condemnation of (A) property used in
the trade or business or (B) capital assets held for more than 1
year shall be considered losses from a compulsory or involuntary
conversion.
In the case of any involuntary conversion (subject to the
provisions of this subsection but for this sentence) arising from
fire, storm, shipwreck, or other casualty, or from theft, of any
property used in the trade or business or of any capital asset held
for more than 1 year, this subsection shall not apply to such
conversion (whether resulting in gain or loss) if during the
taxable year the recognized losses from such conversions exceed the
recognized gains from such conversions."
Subsec. (b)(1), (4). Pub. L. 98-369, Sec. 1001(b)(15), (e),
substituted "6 months" for "1 year", applicable to property
acquired after June 22, 1984, and before Jan. 1, 1988. See
Effective Date of 1984 Amendment note below.
Subsec. (c). Pub. L. 98-369, Sec. 176(a), added subsec. (c).
1981 - Subsec. (b)(1)(D). Pub. L. 97-34 substituted "paragraph
(5)" for "paragraph (6)".
1978 - Subsec. (b)(1)(D). Pub. L. 95-600 added subpar. (D).
1976 - Subsecs. (a), (b)(1), (4). Pub. L. 94-455, Sec.
1402(b)(2), provided that "9 months" would be changed to "1 year"
wherever appearing.
Pub. L. 94-455, Sec. 1402(b)(1)(R), provided that in subsecs.
(a), first and last sentences, (a)(2), and (b)(1), (4), "6 months"
would be changed to "9 months" for taxable years beginning in 1977.
1969 - Subsec. (a). Pub. L. 91-172, Sec. 516(b), provided that
casualty (or theft) losses with respect to depreciable property and
real estate used in trade or business and capital assets held for
the production of income as well as personal assets are to be
consolidated with casualty (or theft) gains with respect to this
type of property and if the casualty losses exceed the casualty
gains, the net loss is treated as an ordinary loss without regard
to whether there may be noncasualty gains under this section, but,
if the casualty gains exceed the casualty losses, the net gain is
treated as a gain under this section and must be consolidated with
other gains and losses under this section.
Subsec. (b)(1)(C). Pub. L. 91-172, Sec. 514(b)(2), inserted
reference to a letter or memorandum.
Subsec. (b)(3). Pub. L. 91-172, Sec. 212(b)(1), redesignated
existing provisions as subpar. (B) and added subpar. (A).
1964 - Subsec. (b)(2). Pub. L. 88-272 inserted reference to iron
ore in text, and to domestic iron ore in heading.
1958 - Subsec. (a). Pub. L. 85-866 inserted provision respecting
casualty losses sustained upon certain uninsured property.
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-170 applicable to any instrument held,
acquired, or entered into, any transaction entered into, and
supplies held or acquired on or after Dec. 17, 1999, see section
532(d) of Pub. L. 106-170, set out as a note under section 170 of
this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 176(b) of Pub. L. 98-369 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to net
section 1231 gains for taxable years beginning after December 31,
1984."
Amendment by section 711(c)(2)(A)(iii) of Pub. L. 98-369
applicable to taxable years beginning after Dec. 31, 1983, see
section 711(c)(2)(A)(v) of Pub. L. 98-369, set out as a note under
section 165 of this title.
Amendment by section 1001(b)(15) of Pub. L. 98-369 applicable to
property acquired after June 22, 1984, and before Jan. 1, 1988, see
section 1001(e) of Pub. L. 98-369, set out as a note under section
166 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable to property acquired and
positions established by the taxpayer after June 23, 1981, in
taxable years ending after such date, and applicable when so
elected with respect to property held on June 23, 1981, see section
508 of Pub. L. 97-34, set out as an Effective Date note under
section 1092 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 701(ee)(2) of Pub. L. 95-600 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
with respect to sales, exchanges, and contributions made after
October 4, 1976."
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1402(b)(1) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning in 1977.
Section 1402(b)(2) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning after Dec. 31, 1977.
EFFECTIVE DATE OF 1969 AMENDMENT
Section 212(b)(2) of Pub. L. 91-172 provided that: "The
amendments made by paragraph (1) [amending this section] shall
apply to livestock acquired after December 31, 1969."
Amendment by section 514(b)(2) of Pub. L. 91-172 applicable to
sales and other dispositions occurring after July 25, 1969, see
section 514(c) of Pub. L. 91-172, set out as a note under section
1221 of this title.
Amendment by section 516(b) of Pub. L. 91-172 applicable to
taxable years beginning after Dec. 31, 1969, see section 516(d)(2)
of Pub. L. 91-172, set out as a note under section 1001 of this
title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable with respect to amounts
received or accrued in taxable years beginning after Dec. 31, 1963,
attributable to iron ore mined in such years, see section 227(c) of
Pub. L. 88-272, set out as a note under section 272 of this title.
EFFECTIVE DATE OF 1958 AMENDMENT
Section 49(b) of Pub. L. 85-866 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1957."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 1, 64, 118, 170, 268,
272, 451, 543, 702, 724, 735, 751, 755, 818, 904, 1223, 1400B,
1400F, 1503, 7704 of this title.
-End-
-CITE-
26 USC Secs. 1232 to 1232B 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART IV - SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-HEAD-
[Secs. 1232 to 1232B. Repealed. Pub. L. 98-369, div. A, title I,
Sec. 42(a)(1), July 18, 1984, 98 Stat. 556]
-MISC1-
Section 1232, acts Aug. 16, 1954, ch. 736, 68A Stat. 326; Sept.
2, 1958, Pub. L. 85-866, title I, Secs. 50(a), 51, 72 Stat. 1642,
1643; June 25, 1959, Pub. L. 86-69, Sec. 3(e), 73 Stat. 140; Sept.
2, 1964, Pub. L. 88-563, Sec. 5, 78 Stat. 845; Dec. 30, 1969, Pub.
L. 91-172, title IV, Sec. 413(a), (b), 83 Stat. 609, 611; Oct. 4,
1976, Pub. L. 94-455, title XIV, Sec. 1402(b)(1)(S), (2), title
XIX, Secs. 1901(b)(3)(I), (14)(D), 1904(b)(10)(C), 90 Stat. 1732,
1793, 1796, 1817; Aug. 13, 1981, Pub. L. 97-34, title V, Sec.
505(b), 95 Stat. 331; Sept. 3, 1982, Pub. L. 97-248, title II,
Secs. 231(c), 232(b), title III, Sec. 310(b)(6), 96 Stat. 499, 501,
599; Jan. 12, 1983, Pub. L. 97-448, title III, Sec. 306(a)(9)(B),
(C)(i), (ii), 96 Stat. 2403, 2404; July 18, 1984, Pub. L. 98-369,
div. A, title X, Sec. 1001(b)(16), (d), (e), 98 Stat. 1012, related
to bonds and other evidences of indebtedness. See section 1271 et
seq. of this title.
Section 1232A, added Pub. L. 97-248, title II, Sec. 231(a), Sept.
3, 1982, 96 Stat. 496; amended Pub. L. 98-369, div. A, title II,
Sec. 211(b)(17), July 18, 1984, 98 Stat. 756, related to original
issue discount. See section 1271 et seq. of this title.
Section 1232B, added Pub. L. 97-248, title II, Sec. 232(a), Sept.
3, 1982, 96 Stat. 499, related to stripped bonds. See section 1286
of this title.
EFFECTIVE DATE OF REPEAL
Repeal 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.
-End-
-CITE-
26 USC Sec. 1233 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART IV - SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-HEAD-
Sec. 1233. Gains and losses from short sales
-STATUTE-
(a) Capital assets
For purposes of this subtitle, gain or loss from the short sale
of property shall be considered as gain or loss from the sale or
exchange of a capital asset to the extent that the property,
including a commodity future, used to close the short sale
constitutes a capital asset in the hands of the taxpayer.
(b) Short-term gains and holding periods
If gain or loss from a short sale is considered as gain or loss
from the sale or exchange of a capital asset under subsection (a)
and if on the date of such short sale substantially identical
property has been held by the taxpayer for not more than 1 year
(determined without regard to the effect, under paragraph (2) of
this subsection, of such short sale on the holding period), or if
substantially identical property is acquired by the taxpayer after
such short sale and on or before the date of the closing thereof -
(1) any gain on the closing of such short sale shall be
considered as a gain on the sale or exchange of a capital asset
held for not more than 1 year (notwithstanding the period of time
any property used to close such short sale has been held); and
(2) the holding period of such substantially identical property
shall be considered to begin (notwithstanding section 1223,
relating to the holding period of property) on the date of the
closing of the short sale, or on the date of a sale, gift, or
other disposition of such property, whichever date occurs first.
This paragraph shall apply to such substantially identical
property in the order of the dates of the acquisition of such
property, but only to so much of such property as does not exceed
the quantity sold short.
For purposes of this subsection, the acquisition of an option to
sell property at a fixed price shall be considered as a short sale,
and the exercise or failure to exercise such option shall be
considered as a closing of such short sale.
(c) Certain options to sell
Subsection (b) shall not include an option to sell property at a
fixed price acquired on the same day on which the property
identified as intended to be used in exercising such option is
acquired and which, if exercised, is exercised through the sale of
the property so identified. If the option is not exercised, the
cost of the option shall be added to the basis of the property with
which the option is identified. This subsection shall apply only to
options acquired after August 16, 1954.
(d) Long-term losses
If on the date of such short sale substantially identical
property has been held by the taxpayer for more than 1 year, any
loss on the closing of such short sale shall be considered as a
loss on the sale or exchange of a capital asset held for more than
1 year (notwithstanding the period of time any property used to
close such short sale has been held, and notwithstanding section
1234).
(e) Rules for application of section
(1) Subsection (b)(1) or (d) shall not apply to the gain or loss,
respectively, on any quantity of property used to close such short
sale which is in excess of the quantity of the substantially
identical property referred to in the applicable subsection.
(2) For purposes of subsections (b) and (d) -
(A) the term "property" includes only stocks and securities
(including stocks and securities dealt with on a "when issued"
basis), and commodity futures, which are capital assets in the
hands of the taxpayer, but does not include any position to which
section 1092(b) applies;
(B) in the case of futures transactions in any commodity on or
subject to the rules of a board of trade or commodity exchange, a
commodity future requiring delivery in 1 calendar month shall not
be considered as property substantially identical to another
commodity future requiring delivery in a different calendar
month;
(C) in the case of a short sale of property by an individual,
the term "taxpayer", in the application of this subsection and
subsections (b) and (d), shall be read as "taxpayer or his
spouse"; but an individual who is legally separated from the
taxpayer under a decree of divorce or of separate maintenance
shall not be considered as the spouse of the taxpayer;
(D) a securities futures contract (as defined in section 1234B)
to acquire substantially identical property shall be treated as
substantially identical property; and
(E) entering into a securities futures contract (as so defined)
to sell shall be considered to be a short sale, and the
settlement of such contract shall be considered to be the closing
of such short sale.
(3) Where the taxpayer enters into 2 commodity futures
transactions on the same day, one requiring delivery by him in one
market and the other requiring delivery to him of the same (or
substantially identical) commodity in the same calendar month in a
different market, and the taxpayer subsequently closes both such
transactions on the same day, subsections (b) and (d) shall have no
application to so much of the commodity involved in either such
transaction as does not exceed in quantity the commodity involved
in the other.
(4)(A) In the case of a taxpayer who is a dealer in securities
(within the meaning of section 1236) -
(i) if, on the date of a short sale of stock, substantially
identical property which is a capital asset in the hands of the
taxpayer has been held for not more than 1 year, and
(ii) if such short sale is closed more than 20 days after the
date on which it was made,
subsection (b)(2) shall apply in respect of the holding period of
such substantially identical property.
(B) For purposes of subparagraph (A) -
(i) the last sentence of subsection (b) applies; and
(ii) the term "stock" means any share or certificate of stock
in a corporation, any bond or other evidence of indebtedness
which is convertible into any such share or certificate, or any
evidence of an interest in, or right to subscribe to or purchase,
any of the foregoing.
(f) Arbitrage operations in securities
In the case of a short sale which had been entered into as an
arbitrage operation, to which sale the rule of subsection (b)(2)
would apply except as otherwise provided in this subsection -
(1) subsection (b)(2) shall apply first to substantially
identical assets acquired for arbitrage operations held at the
close of business on the day such sale is made, and only to the
extent that the quantity sold short exceeds the substantially
identical assets acquired for arbitrage operations held at the
close of business on the day such sale is made, shall the holding
period of any other such identical assets held by the taxpayer be
affected;
(2) in the event that assets acquired for arbitrage operations
are disposed of in such manner as to create a net short position
in assets acquired for arbitrage operations, such net short
position shall be deemed to constitute a short sale made on that
day;
(3) for the purpose of paragraphs (1) and (2) of this
subsection the taxpayer will be deemed as of the close of any
business day to hold property which he is or will be entitled to
receive or acquire by virtue of any other asset acquired for
arbitrage operations or by virtue of any contract he has entered
into in an arbitrage operation; and
(4) for the purpose of this subsection arbitrage operations are
transactions involving the purchase and sale of assets for the
purpose of profiting from a current difference between the price
of the asset purchased and the price of the asset sold, and in
which the asset purchased, if not identical to the asset sold, is
such that by virtue thereof the taxpayer is, or will be, entitled
to acquire assets identical to the assets sold. Such operations
must be clearly identified by the taxpayer in his records as
arbitrage operations on the day of the transaction or as soon
thereafter as may be practicable. Assets acquired for arbitrage
operations will include stocks and securities and the right to
acquire stocks and securities.
(g) Hedging transactions
This section shall not apply in the case of a hedging transaction
in commodity futures.
(h) Short sales of property which becomes substantially worthless
(1) In general
If -
(A) the taxpayer enters into a short sale of property, and
(B) such property becomes substantially worthless,
the taxpayer shall recognize gain in the same manner as if the
short sale were closed when the property becomes substantially
worthless. To the extent provided in regulations prescribed by
the Secretary, the preceding sentence also shall apply with
respect to any option with respect to property, any offsetting
notional principal contract with respect to property, any futures
or forward contract to deliver any property, and any other
similar transaction.
(2) Statute of limitations
If property becomes substantially worthless during a taxable
year and any short sale of such property remains open at the time
such property becomes substantially worthless, then -
(A) the statutory period for the assessment of any deficiency
attributable to any part of the gain on such transaction shall
not expire before the earlier of -
(i) the date which is 3 years after the date the Secretary
is notified by the taxpayer (in such manner as the Secretary
may by regulations prescribe) of the substantial
worthlessness of such property, or
(ii) the date which is 6 years after the date the return
for such taxable year is filed, and
(B) such deficiency may be assessed before the date
applicable under subparagraph (A) notwithstanding the
provisions of any other law or rule of law which would
otherwise prevent such assessment.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 327; Aug. 12, 1955, ch. 871,
Sec. 1, 69 Stat. 717; Pub. L. 85-866, title I, Sec. 52(a), (b),
Sept. 2, 1958, 72 Stat. 1643, 1644; Pub. L. 94-455, title XIV, Sec.
1402(b)(1)(T), (2), title XIX, Sec. 1901(a)(137), Oct. 4, 1976, 90
Stat. 1732, 1787; Pub. L. 97-34, title V, Sec. 501(c), Aug. 13,
1981, 95 Stat. 326; Pub. L. 98-369, div. A, title X, Sec.
1001(b)(17), (e), July 18, 1984, 98 Stat. 1012; Pub. L. 105-34,
title X, Sec. 1003(b)(1), Aug. 5, 1997, 111 Stat. 910; Pub. L.
106-554, Sec. 1(a)(7) [title IV, Sec. 401(f)], Dec. 21, 2000, 114
Stat. 2763, 2763A-649; Pub. L. 107-147, title IV, Sec.
412(d)(3)(A), Mar. 9, 2002, 116 Stat. 54.)
-MISC1-
AMENDMENTS
2002 - Subsec. (e)(2)(E). Pub. L. 107-147 added subpar. (E).
2000 - Subsec. (e)(2)(D). Pub. L. 106-554 added subpar. (D).
1997 - Subsec. (h). Pub. L. 105-34 added subsec. (h).
1984 - Subsecs. (b), (d), (e)(4)(A)(i). Pub. L. 98-369
substituted "6 months" for "1 year" wherever appearing, applicable
to property acquired after June 22, 1984, and before Jan. 1, 1988.
See Effective Date of 1984 Amendment note below.
1981 - Subsec. (e)(2)(A). Pub. L. 97-34 inserted ", but does not
include any position to which section 1092(b) applies" after
"taxpayer".
1976 - Subsec. (b). Pub. L. 94-455, Sec. 1402(b)(2), provided
that "9 months" would be changed to "1 year".
Pub. L. 94-455, Sec. 1402(b)(1)(T), (2), provided that "6 months"
would be changed to "9 months" for taxable years beginning in 1977.
Subsec. (c). Pub. L. 94-455, Sec. 1901(a)(137), substituted
"August 16, 1954" for "the date of enactment of this title".
Subsecs. (d), (e)(4)(A)(i). Pub. L. 94-455, Sec. 1402(b)(2),
provided that "9 months" would be changed to "1 year".
Pub. L. 94-455, Sec. 1402(b)(1)(T), provided that "6 months"
would be changed to "9 months" for taxable years beginning in 1977.
1958 - Subsec. (a). Pub. L. 85-866, Sec. 52(b), struck out ",
other than a hedging transaction in commodity futures," after "sale
of property".
Subsec. (e)(4). Pub. L. 85-866, Sec. 52(a), added par. (4).
Subsec. (g). Pub. L. 85-866, Sec. 52(b), added subsec. (g).
1955 - Subsec. (f). Act Aug. 12, 1955, added subsec. (f).
EFFECTIVE DATE OF 2002 AMENDMENT
Amendment by Pub. L. 107-147 effective as if included in the
provisions of the Community Renewal Tax Relief Act of 2000 [H.R.
5662, as enacted by Pub. L. 106-554], to which such amendment
relates, see section 412(e) of Pub. L. 107-147, set out as a note
under section 151 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1003(b)(2) of Pub. L. 105-34 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to property which becomes substantially worthless after the date of
the enactment of this Act [Aug. 5, 1997]."
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to property acquired after
June 22, 1984, and before Jan. 1, 1988, see section 1001(e) of Pub.
L. 98-369, set out as a note under section 166 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable to property acquired and
positions established by the taxpayer after June 23, 1981, in
taxable years ending after such date, and applicable when so
elected with respect to property held on June 23, 1981, see section
508 of Pub. L. 97-34, set out as an Effective Date note under
section 1092 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1402(b)(1) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning in 1977.
Section 1402(b)(2) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning after Dec. 31, 1977.
Amendment by section 1901(a)(137) of Pub. L. 94-455 applicable
with respect to taxable years beginning after Dec. 31, 1976, see
section 1901(d) of Pub. L. 94-455, set out as a note under section
2 of this title.
EFFECTIVE DATE OF 1958 AMENDMENT
Amendment by section 52(b) of Pub. L. 85-866 applicable to
taxable years beginning after Dec. 31, 1953, and ending after Aug.
16, 1954, see section 1(c)(1) of Pub. L. 85-866, set out as a note
under section 165 of this title.
Section 52(c) of Pub. L. 85-866 provided that: "The amendment
made by subsection (a) [amending this section] shall apply with
respect to short sales made after December 31, 1957."
EFFECTIVE DATE OF 1955 AMENDMENT
Section 2 of act Aug. 12, 1955, provided that: "The amendment
made by the first section of this Act [amending this section] shall
apply only with respect to taxable years ending after the date of
the enactment of this Act [Aug. 12, 1955] and only in the case of a
short sale of property made by the taxpayer after such date."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 1092, 1234, 1234B of this
title.
-End-
-CITE-
26 USC Sec. 1234 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART IV - SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-HEAD-
Sec. 1234. Options to buy or sell
-STATUTE-
(a) Treatment of gain or loss in the case of the purchaser
(1) General rule
Gain or loss attributable to the sale or exchange of, or loss
attributable to failure to exercise, an option to buy or sell
property shall be considered gain or loss from the sale or
exchange of property which has the same character as the property
to which the option relates has in the hands of the taxpayer (or
would have in the hands of the taxpayer if acquired by him).
(2) Special rule for loss attributable to failure to exercise
option
For purposes of paragraph (1), if loss is attributable to
failure to exercise an option, the option shall be deemed to have
been sold or exchanged on the day it expired.
(3) Nonapplication of subsection
This subsection shall not apply to -
(A) an option which constitutes property described in
paragraph (1) of section 1221(a);
(B) in the case of gain attributable to the sale or exchange
of an option, any income derived in connection with such option
which, without regard to this subsection, is treated as other
than gain from the sale or exchange of a capital asset; and
(C) a loss attributable to failure to exercise an option
described in section 1233(c).
(b) Treatment of grantor of option in the case of stock,
securities, or commodities
(1) General rule
In the case of the grantor of the option, gain or loss from any
closing transaction with respect to, and gain on lapse of, an
option in property shall be treated as a gain or loss from the
sale or exchange of a capital asset held not more than 1 year.
(2) Definitions
For purposes of this subsection -
(A) Closing transaction
The term "closing transaction" means any termination of the
taxpayer's obligation under an option in property other than
through the exercise or lapse of the option.
(B) Property
The term "property" means stocks and securities (including
stocks and securities dealt with on a "when issued" basis),
commodities, and commodity futures.
(3) Nonapplication of subsection
This subsection shall not apply to any option granted in the
ordinary course of the taxpayer's trade or business of granting
options.
(c) Treatment of options on section 1256 contracts and cash
settlement options
(1) Section 1256 contracts
Gain or loss shall be recognized on the exercise of an option
on a section 1256 contract (within the meaning of section
1256(b)).
(2) Treatment of cash settlement options
(A) In general
For purposes of subsections (a) and (b), a cash settlement
option shall be treated as an option to buy or sell property.
(B) Cash settlement option
For purposes of subparagraph (A), the term "cash settlement
option" means any option which on exercise settles in (or could
be settled in) cash or property other than the underlying
property.
-SOURCE-
(Aug. 16, 1954, ch. 376, 68A Stat. 329; Pub. L. 85-866, title I,
Sec. 53, Sept. 2, 1958, 72 Stat. 1644; Pub. L. 89-809, title II,
Sec. 210(a), Nov. 13, 1966, 80 Stat. 1580; Pub. L. 94-455, title
XIV, Sec. 1402(b)(1)(U), (2), title XXI, Sec. 2136(a), Oct. 4,
1976, 90 Stat. 1732, 1929; Pub. L. 98-369, div. A, title I, Sec.
105(a), title X, Sec. 1001(b)(18), (e), July 18, 1984, 98 Stat.
629, 1012; Pub. L. 106-170, title V, Sec. 532(c)(1)(H), Dec. 17,
1999, 113 Stat. 1930.)
-MISC1-
AMENDMENTS
1999 - Subsec. (a)(3)(A). Pub. L. 106-170 substituted "section
1221(a)" for "section 1221".
1984 - Subsec. (b)(1). Pub. L. 98-369, Sec. 1001(b)(18), (e),
substituted "6 months" for "1 year", applicable to property
acquired after June 22, 1984, and before Jan. 1, 1988. See
Effective Date of 1984 Amendment note below.
Subsec. (c). Pub. L. 98-369, Sec. 105(a), added subsec. (c).
1976 - Subsec. (a). Pub. L. 94-455, Sec. 2136(a), inserted in
heading "in the case of the purchaser"; designated existing
provisions as par. "(1) General rule" and substituted "an option"
and "the option" for "a privilege or option" and "the option or
privilege"; redesignated existing subsec. (b) as par. (2) and
substituted "an option" and "the option" for "a privilege or
option" and "the privilege or option"; and redesignated existing
subsec. (d)(1) to (3) as par. (3)(A) to (C) and substituted in
heading and introductory text "Nonapplication" and "subsection" for
"Non-application" and "section", in par. (3)(A) "an option" for "a
privilege or option", in par. (3)(B) "an option", "such option" and
"subsection" for "a privilege or option", "such privilege or
option" and "section" and in par. (3)(C) substituted a period for
"; or".
Subsec. (b). Pub. L. 94-455, Sec. 2136(a), added subsec. (b),
incorporating provisions of a prior subsec. (c) providing for a
special rule for grantors of straddles, par. (1) relating to "gain
on lapse" and reading "In the case of gain on lapse of an option
granted by the taxpayer as part of a straddle, the gain shall be
deemed to be gain from the sale or exchange of a capital asset held
for not more than 6 months on the day that the option expired.";
par. (2) relating to "exception" and reading "This subsection shall
not apply to any person who holds securities for sale to customers
in the ordinary course of his trade or business.", now covered in
subsec. (b)(3); and par. (3) relating to definitions of "straddle"
and "security".
Subsec. (b)(1). Pub. L. 94-455, Sec. 1402(b)(2), provided that "9
months" would be changed to "1 year".
Pub. L. 94-455, Sec. 1402(b)(1)(U), provided that "6 months"
would be changed to "9 months" for taxable years beginning in 1977.
Subsec. (c). Pub. L. 94-455, Sec. 2136(a), struck out provision
respecting special rule for grantors of straddles, the paragraphs
relating to: (1) gain on lapse; (2) exception, now covered in
subsec. (b)(3); and (3) definitions of "straddle" and "security",
such provision now covered generally by subsec. (b) of this
section.
Subsec. (d). Pub. L. 94-455, Sec. 2136(a), struck out provision
respecting non-application of section, pars. (1) to (3) now covered
in subsec. (a)(3)(A) to (C) of this section, and par. (4) providing
for such non-application to gain attributable to the sale or
exchange of a privilege or option acquired by the taxpayer before
Mar. 1, 1954, if in the hands of the taxpayer such privilege or
option was a capital asset.
1966 - Subsecs. (c), (d). Pub. L. 89-809 added subsec. (c) and
redesignated former subsec. (c) as (d).
1958 - Pub. L. 85-866 amended section generally and among other
changes provided in subsec. (a) that gain or loss resulting from
option to buy or sell property is to be considered gain or loss
arising from property which has the same character as the property
underlying the option, incorporated existing provisions in subsecs.
(b) and (c)(3), and inserted provisions set out in subsec. (c)(1),
(2), (4).
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-170 applicable to any instrument held,
acquired, or entered into, any transaction entered into, and
supplies held or acquired on or after Dec. 17, 1999, see section
532(d) of Pub. L. 106-170, set out as a note under section 170 of
this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 105(b) of Pub. L. 98-369 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
options purchased or granted after October 31, 1983, in taxable
years ending after such date."
Amendment by section 1001(b)(18) of Pub. L. 98-369 applicable to
property acquired after June 22, 1984, and before Jan. 1, 1988, see
section 1001(e) of Pub. L. 98-369, set out as a note under section
166 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1402(b)(1) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning in 1977.
Section 1402(b)(2) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning after Dec. 31, 1977.
Section 2136(b) of Pub. L. 94-455 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
options granted after September 1, 1976."
EFFECTIVE DATE OF 1966 AMENDMENT
Section 210(b) of Pub. L. 89-809 provided that: "The amendments
made by subsection (a) [amending this section] shall apply to
straddle transactions entered into after January 25, 1965, in
taxable years ending after such date."
EFFECTIVE DATE OF 1958 AMENDMENT
Amendment by Pub. L. 85-866 applicable to taxable years beginning
after Dec. 31, 1953, and ending after Aug. 16, 1954, see section
1(c)(1) of Pub. L. 85-866, set out as a note under section 165 of
this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 1233 of this title.
-End-
-CITE-
26 USC Sec. 1234A 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART IV - SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-HEAD-
Sec. 1234A. Gains or losses from certain terminations
-STATUTE-
Gain or loss attributable to the cancellation, lapse, expiration,
or other termination of -
(1) a right or obligation (other than a securities futures
contract, as defined in section 1234B) with respect to property
which is (or on acquisition would be) a capital asset in the
hands of the taxpayer, or
(2) a section 1256 contract (as defined in section 1256) not
described in paragraph (1) which is a capital asset in the hands
of the taxpayer,
shall be treated as gain or loss from the sale of a capital asset.
The preceding sentence shall not apply to the retirement of any
debt instrument (whether or not through a trust or other
participation arrangement).
-SOURCE-
(Added Pub. L. 97-34, title V, Sec. 507(a), Aug. 13, 1981, 95 Stat.
333; amended Pub. L. 97-448, title I, Sec. 105(e), Jan. 12, 1983,
96 Stat. 2387; Pub. L. 98-369, div. A, title I, Sec. 102(e)(4),
(9), July 18, 1984, 98 Stat. 624, 625; Pub. L. 105-34, title X,
Sec. 1003(a)(1), Aug. 5, 1997, 111 Stat. 909; Pub. L. 106-554, Sec.
1(a)(7) [title IV, Sec. 401(b)], Dec. 21, 2000, 114 Stat. 2763,
2763A-648; Pub. L. 107-147, title IV, Sec. 412(d)(1)(A), Mar. 9,
2002, 116 Stat. 53.)
-MISC1-
AMENDMENTS
2002 - Pars. (1) to (3). Pub. L. 107-147 inserted "or" at end of
par. (1), struck out "or" at end of par. (2), and struck out par.
(3) which read as follows: "a securities futures contract (as so
defined) which is a capital asset in the hands of the taxpayer,".
2000 - Par. (1). Pub. L. 106-554, Sec. 1(a)(7) [title IV, Sec.
401(b)(1)], inserted "(other than a securities futures contract, as
defined in section 1234B)" after "right or obligation".
Par. (3). Pub. L. 106-554, Sec. 1(a)(7) [title IV, Sec.
401(b)(2)-(4)], added par. (3).
1997 - Par. (1). Pub. L. 105-34 substituted "property" for
"personal property (as defined in section 1092(d)(1))".
1984 - Pub. L. 98-369, Sec. 102(e)(9), inserted at end "The
preceding sentence shall not apply to the retirement of any debt
instrument (whether or not through a trust or other participation
arrangement)."
Par. (2). Pub. L. 98-369, Sec. 102(e)(4), substituted "a section
1256 contract" for "a regulated futures contract".
1983 - Pub. L. 97-448 inserted reference to a regulated futures
contract (as defined in section 1256) not described in paragraph
(1) which is a capital asset in the hands of the taxpayer.
EFFECTIVE DATE OF 2002 AMENDMENT
Amendment by Pub. L. 107-147 effective as if included in the
provisions of the Community Renewal Tax Relief Act of 2000 [H.R.
5662, as enacted by Pub. L. 106-554], to which such amendment
relates, see section 412(e) of Pub. L. 107-147, set out as a note
under section 151 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1003(a)(2) of Pub. L. 105-34 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to terminations more than 30 days after the date of the enactment
of this Act [Aug. 5, 1997]."
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 102(e)(4) of Pub. L. 98-369 applicable to
positions established after July 18, 1984, in taxable years ending
after that date, except as otherwise provided, and amendment by
section 102(e)(9) of Pub. L. 98-369, applicable as if included in
the amendment made by section 507(a) of Pub. L. 97-34, as amended
by section 105(e) of Pub. L. 97-448, see section 102(f), (g) of
Pub. L. 98-369, set out as a note under section 1256 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the
Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE
Section applicable to property acquired and positions established
by the taxpayer after June 23, 1981, in taxable years ending after
such date, and applicable when so elected with respect to property
held on June 23, 1981, see section 508 of Pub. L. 97-34, set out as
a note under section 1092 of this title.
-End-
-CITE-
26 USC Sec. 1234B 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART IV - SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-HEAD-
Sec. 1234B. Gains or losses from securities futures contracts
-STATUTE-
(a) Treatment of gain or loss
(1) In general
Gain or loss attributable to the sale, exchange, or termination
of a securities futures contract shall be considered gain or loss
from the sale or exchange of property which has the same
character as the property to which the contract relates has in
the hands of the taxpayer (or would have in the hands of the
taxpayer if acquired by the taxpayer).
(2) Nonapplication of subsection
This subsection shall not apply to -
(A) a contract which constitutes property described in
paragraph (1) or (7) of section 1221(a), and
(B) any income derived in connection with a contract which,
without regard to this subsection, is treated as other than
gain from the sale or exchange of a capital asset.
(b) Short-term gains and losses
Except as provided in the regulations under section 1092(b) or
this section, or in section 1233, if gain or loss on the sale,
exchange, or termination of a securities futures contract to sell
property is considered as gain or loss from the sale or exchange of
a capital asset, such gain or loss shall be treated as short-term
capital gain or loss.
(c) Securities futures contract
For purposes of this section, the term "securities futures
contract" means any security future (as defined in section
3(a)(55)(A) of the Securities Exchange Act of 1934, as in effect on
the date of the enactment of this section).
(d) Contracts not treated as commodity futures contracts
For purposes of this title, a securities futures contract shall
not be treated as a commodity futures contract.
(e) Regulations
The Secretary shall prescribe such regulations as may be
appropriate to provide for the proper treatment of securities
futures contracts under this title.
(f) Cross reference
For special rules relating to dealer securities futures
contracts, see section 1256.
-SOURCE-
(Added Pub. L. 106-554, Sec. 1(a)(7) [title IV, Sec. 401(a)], Dec.
21, 2000, 114 Stat. 2763, 2763A-648; amended Pub. L. 107-147, title
IV, Sec. 412(d)(1)(B), (3)(B), Mar. 9, 2002, 116 Stat. 53, 54.)
-REFTEXT-
REFERENCES IN TEXT
Section 3(a)(55)(A) of the Securities Exchange Act of 1934,
referred to in subsec. (c), is classified to section 78c(a)(55)(A)
of Title 15, Commerce and Trade.
The date of the enactment of this section, referred to in subsec.
(c), is the date of enactment of Pub. L. 106-554, which was
approved Dec. 21, 2000.
-COD-
CODIFICATION
Pub. L. 106-554, Sec. 1(a)(7) [title IV, Sec. 401(a)], which
directed amendment of subpart IV of subchapter P of chapter 1 by
adding this section after section 1234A, was executed by adding
this section after 1234A of this part which is part IV of
subchapter P of chapter 1, to reflect the probable intent of
Congress.
-MISC1-
AMENDMENTS
2002 - Subsec. (a)(1). Pub. L. 107-147, Sec. 412(d)(1)(B)(i),
substituted "sale, exchange, or termination of a securities futures
contract" for "sale or exchange of a securities futures contract".
Subsec. (b). Pub. L. 107-147, Sec. 412(d)(1)(B)(i), (3)(B),
inserted "or in section 1233," after "or this section," and
substituted "sale, exchange, or termination of a securities futures
contract" for "sale or exchange of a securities futures contract".
Subsec. (f). Pub. L. 107-147, Sec. 412(d)(1)(B)(ii), added
subsec. (f).
EFFECTIVE DATE OF 2002 AMENDMENT
Amendment by Pub. L. 107-147 effective as if included in the
provisions of the Community Renewal Tax Relief Act of 2000 [H.R.
5662, as enacted by Pub. L. 106-554], to which such amendment
relates, see section 412(e) of Pub. L. 107-147, set out as a note
under section 151 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 1032, 1091, 1092, 1223,
1233, 1234A, 1275 of this title.
-End-
-CITE-
26 USC Sec. 1235 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART IV - SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-HEAD-
Sec. 1235. Sale or exchange of patents
-STATUTE-
(a) General
A transfer (other than by gift, inheritance, or devise) of
property consisting of all substantial rights to a patent, or an
undivided interest therein which includes a part of all such
rights, by any holder shall be considered the sale or exchange of a
capital asset held for more than 1 year, regardless of whether or
not payments in consideration of such transfer are -
(1) payable periodically over a period generally coterminous
with the transferee's use of the patent, or
(2) contingent on the productivity, use, or disposition of the
property transferred.
(b) "Holder" defined
For purposes of this section, the term "holder" means -
(1) any individual whose efforts created such property, or
(2) any other individual who has acquired his interest in such
property in exchange for consideration in money or money's worth
paid to such creator prior to actual reduction to practice of the
invention covered by the patent, if such individual is neither -
(A) the employer of such creator, nor
(B) related to such creator (within the meaning of subsection
(d)).
(c) Effective date
This section shall be applicable with regard to any amounts
received, or payments made, pursuant to a transfer described in
subsection (a) in any taxable year to which this subtitle applies,
regardless of the taxable year in which such transfer occurred.
(d) Related persons
Subsection (a) shall not apply to any transfer, directly or
indirectly, between persons specified within any one of the
paragraphs of section 267(b) or persons described in section
707(b); except that, in applying section 267(b) and (c) and section
707(b) for purposes of this section -
(1) the phrase "25 percent or more" shall be substituted for
the phrase "more than 50 percent" each place it appears in
section 267(b) or 707(b), and
(2) paragraph (4) of section 267(c) shall be treated as
providing that the family of an individual shall include only his
spouse, ancestors, and lineal descendants.
(e) Cross reference
For special rule relating to nonresident aliens, see section
871(a).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 329; Pub. L. 85-866, title I,
Sec. 54(a), Sept. 2, 1958, 72 Stat. 1644; Pub. L. 94-455, title
XIV, Sec. 1402(b)(1)(V), (2), Oct. 4, 1976, 90 Stat. 1732; Pub. L.
98-369, div. A, title I, Sec. 174(b)(5)(C), title X, Sec.
1001(b)(19), (e), July 18, 1984, 98 Stat. 707, 1012; Pub. L.
105-206, title V, Sec. 5001(a)(5), title VI, Sec. 6005(d)(4), July
22, 1998, 112 Stat. 788, 805.)
-MISC1-
AMENDMENTS
1998 - Subsec. (a). Pub. L. 105-206, Sec. 6005(d)(4), substituted
"18 months" for "1 year" in introductory provisions.
Pub. L. 105-206, Sec. 5001(a)(5), substituted "1 year" for "18
months" in introductory provisions.
1984 - Subsec. (a). Pub. L. 98-369, Sec. 1001(b)(19), (e),
substituted "6 months" for "1 year", applicable to property
acquired after June 22, 1984, and before Jan. 1, 1988. See
Effective Date of 1984 Amendment note below.
Subsec. (d). Pub. L. 98-369, Sec. 174(b)(5)(C), substituted
"section 267(b) or persons described in section 707(b)" for
"section 267(b)" and "section 267(b) and (c) and section 707(b)"
for "section 267(b) and (c)" in introductory provisions, and
substituted "section 267(b) or 707(b)" for "section 267(b)" in par.
(1).
1976 - Subsec. (a). Pub. L. 94-455, Sec. 1402(b)(2), provided
that "9 months" would be changed to "1 year".
Pub. L. 94-455, Sec. 1402(b)(1)(V), provided that "6 months"
would be changed to "9 months" for taxable years beginning in 1977.
1958 - Subsec. (d). Pub. L. 85-866 substituted provisions set out
as subsec. (d) for provisions reading "Subsection (a) shall not
apply to any sale or exchange between an individual and any other
related person (as defined in section 267(b)), except brothers and
sisters, whether by the whole or half blood."
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by section 5001 of Pub. L. 105-206 effective Jan. 1,
1998, see section 5001(b)(2) of Pub. L. 105-206, set out as a note
under section 1 of this title.
Amendment by section 6000(d)(4) of Pub. L. 105-206 effective,
except as otherwise provided, as if included in the provisions of
the Taxpayer Relief Act of 1997, Pub. L. 105-34, to which such
amendment relates, see section 6024 of Pub. L. 105-206, set out as
a note under section 1 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 174(b)(5)(C) of Pub. L. 98-369 applicable to
transactions after Dec. 31, 1983, in taxable years ending after
that date, see section 174(c)(2)(A) of Pub. L. 98-369, set out as a
note under section 267 of this title.
Amendment by section 1001(b)(19) of Pub. L. 98-369 applicable to
property acquired after June 22, 1984, and before Jan. 1, 1988, see
section 1001(e) of Pub. L. 98-369, set out as a note under section
166 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1402(b)(1) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning in 1977.
Section 1402(b)(2) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning after Dec. 31, 1977.
EFFECTIVE DATE OF 1958 AMENDMENT
Section 54(b) of Pub. L. 85-866 provided that: "The amendment
made by subsection (a) [amending this section] shall apply with
respect to taxable years ending after the date of the enactment of
this Act [Sept. 2, 1958], but only with respect to transfers after
such date."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 483, 871, 1274, 1441 of
this title.
-End-
-CITE-
26 USC Sec. 1236 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART IV - SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-HEAD-
Sec. 1236. Dealers in securities
-STATUTE-
(a) Capital gains
Gain by a dealer in securities from the sale or exchange of any
security shall in no event be considered as gain from the sale or
exchange of a capital asset unless -
(1) the security was, before the close of the day on which it
was acquired (or such earlier time as the Secretary may prescribe
by regulations), clearly identified in the dealer's records as a
security held for investment; and
(2) the security was not, at any time after the close of such
day (or such earlier time), held by such dealer primarily for
sale to customers in the ordinary course of his trade or
business.
(b) Ordinary losses
Loss by a dealer in securities from the sale or exchange of any
security shall, except as otherwise provided in section 582(c),
(relating to bond, etc., losses of banks), in no event be
considered as ordinary loss if at any time after November 19, 1951,
the security was clearly identified in the dealer's records as a
security held for investment.
(c) Definition of security
For purposes of this section, the term "security" means any share
of stock in any corporation, certificate of stock or interest in
any corporation, note, bond, debenture, or evidence of
indebtedness, or any evidence of an interest in or right to
subscribe to or purchase any of the foregoing.
(d) Special rule for floor specialists
(1) In general
In the case of a floor specialist (but only with respect to
acquisitions, in connection with his duties on an exchange, of
stock in which the specialist is registered with the exchange),
subsection (a) shall be applied -
(A) by inserting "the 7th business day following" before "the
day" the first place it appears in paragraph (1) and by
inserting "7th business" before "day" in paragraph (2), and
(B) by striking the parenthetical phrase in paragraph (1).
(2) Floor specialist
The term "floor specialist" means a person who is -
(A) a member of a national securities exchange,
(B) is registered as a specialist with the exchange, and
(C) meets the requirements for specialists established by the
Securities and Exchange Commission.
(e) Special rule for options
For purposes of subsection (a), any security acquired by a dealer
pursuant to an option held by such dealer may be treated as held
for investment only if the dealer, before the close of the day on
which the option was acquired, clearly identified the option on his
records as held for investment. For purposes of the preceding
sentence, the term "option" includes the right to subscribe to or
purchase any security.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 330; Pub. L. 94-455, title XIX,
Sec. 1901(b)(3)(E), Oct. 4, 1976, 90 Stat. 1793; Pub. L. 97-34,
title V, Sec. 506, Aug. 13, 1981, 95 Stat. 332; Pub. L. 97-448,
title I, Sec. 105(d)(1), Jan. 12, 1983, 96 Stat. 2387; Pub. L.
98-369, div. A, title I, Sec. 107(b), July 18, 1984, 98 Stat. 630.)
-MISC1-
AMENDMENTS
1984 - Subsec. (a)(1). Pub. L. 98-369, Sec. 107(b)(1),
substituted "the security was, before the close of the day on which
it was acquired (or such earlier time as the Secretary may
prescribe by regulations), clearly identified in the dealer's
records as a security held for investment; and" for "the security
was, before the close of the day on which it was acquired (before
the close of the following day in the case of an acquisition before
January 1, 1982), clearly identified in the dealer's records as a
security held for investment or if acquired before October 20,
1951, was so identified before November 20, 1951; and".
Subsec. (a)(2). Pub. L. 98-369, Sec. 107(b)(2), inserted "(or
such earlier time)" after "such day".
1983 - Subsec. (e). Pub. L. 97-448 added subsec. (e).
1981 - Subsec. (a). Pub. L. 97-34, Sec. 506(a), substituted
"before the close of the day on which it was acquired (before the
close of the following day in the case of an acquisition before
January 1, 1982)" for "before the expiration of the 30th day after
the date of its acquisition" in par. (1) and "close of such day"
for "expiration of such 30th day" in par. (2).
Subsec. (d). Pub. L. 97-34, Sec. 506(b), added subsec. (d).
1976 - Subsec. (b). Pub. L. 94-455 substituted "ordinary loss"
for "loss from the sale or exchange of property which is not a
capital asset".
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to positions entered into
after July 18, 1984, in taxable years ending after that date, see
section 107(e) of Pub. L. 98-369, set out as a note under section
1092 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Section 105(d)(2) of Pub. L. 97-448 provided that: "The amendment
made by paragraph (1) [amending this section] shall apply to
securities acquired after September 22, 1982, in taxable years
ending after such date."
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable to property acquired by the
taxpayer after Aug. 13, 1981, in taxable years ending after such
date, and applicable when so elected with respect to property held
on June 23, 1981, see section 508 of Pub. L. 97-34, set out as an
Effective Date note under section 1092 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 applicable with respect to taxable
years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L.
94-455, set out as a note under section 2 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 475, 512, 1058, 1233 of
this title.
-End-
-CITE-
26 USC Sec. 1237 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART IV - SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-HEAD-
Sec. 1237. Real property subdivided for sale
-STATUTE-
(a) General
Any lot or parcel which is part of a tract of real property in
the hands of a taxpayer other than a C corporation shall not be
deemed to be held primarily for sale to customers in the ordinary
course of trade or business at the time of sale solely because of
the taxpayer having subdivided such tract for purposes of sale or
because of any activity incident to such subdivision or sale, if -
(1) such tract, or any lot or parcel thereof, had not
previously been held by such taxpayer primarily for sale to
customers in the ordinary course of trade or business (unless
such tract at such previous time would have been covered by this
section) and, in the same taxable year in which the sale occurs,
such taxpayer does not so hold any other real property; and
(2) no substantial improvement that substantially enhances the
value of the lot or parcel sold is made by the taxpayer on such
tract while held by the taxpayer or is made pursuant to a
contract of sale entered into between the taxpayer and the buyer.
For purposes of this paragraph, an improvement shall be deemed to
be made by the taxpayer if such improvement was made by -
(A) the taxpayer or members of his family (as defined in
section 267(c)(4)), by a corporation controlled by the
taxpayer, an S corporation which included the taxpayer as a
shareholder, or by a partnership which included the taxpayer as
a partner; or
(B) a lessee, but only if the improvement constitutes income
to the taxpayer; or
(C) Federal, State, or local government, or political
subdivision thereof, but only if the improvement constitutes an
addition to basis for the taxpayer; and
(3) such lot or parcel, except in the case of real property
acquired by inheritance or devise, is held by the taxpayer for a
period of 5 years.
(b) Special rules for application of section
(1) Gains
If more than 5 lots or parcels contained in the same tract of
real property are sold or exchanged, gain from any sale or
exchange (which occurs in or after the taxable year in which the
sixth lot or parcel is sold or exchanged) of any lot or parcel
which comes within the provisions of paragraphs (1), (2) and (3)
of subsection (a) of this section shall be deemed to be gain from
the sale of property held primarily for sale to customers in the
ordinary course of the trade or business to the extent of 5
percent of the selling price.
(2) Expenditures of sale
For the purpose of computing gain under paragraph (1) of this
subsection, expenditures incurred in connection with the sale or
exchange of any lot or parcel shall neither be allowed as a
deduction in computing taxable income, nor treated as reducing
the amount realized on such sale or exchange; but so much of such
expenditures as does not exceed the portion of gain deemed under
paragraph (1) of this subsection to be gain from the sale of
property held primarily for sale to customers in the ordinary
course of trade or business shall be so allowed as a deduction,
and the remainder, if any, shall be treated as reducing the
amount realized on such sale or exchange.
(3) Necessary improvements
No improvement shall be deemed a substantial improvement for
purposes of subsection (a) if the lot or parcel is held by the
taxpayer for a period of 10 years and if -
(A) such improvement is the building or installation of
water, sewer, or drainage facilities or roads (if such
improvement would except for this paragraph constitute a
substantial improvement);
(B) it is shown to the satisfaction of the Secretary that the
lot or parcel, the value of which was substantially enhanced by
such improvement, would not have been marketable at the
prevailing local price for similar building sites without such
improvement; and
(C) the taxpayer elects, in accordance with regulations
prescribed by the Secretary, to make no adjustment to basis of
the lot or parcel, or of any other property owned by the
taxpayer, on account of the expenditures for such improvements.
Such election shall not make any item deductible which would
not otherwise be deductible.
(c) Tract defined
For purposes of this section, the term "tract of real property"
means a single piece of real property, except that 2 or more pieces
of real property shall be considered a tract if at any time they
were contiguous in the hands of the taxpayer or if they would be
contiguous except for the interposition of a road, street,
railroad, stream, or similar property. If, following the sale or
exchange of any lot or parcel from a tract of real property, no
further sales or exchanges of any other lots or parcels from the
remainder of such tract are made for a period of 5 years, such
remainder shall be deemed a tract.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 330; Apr. 27, 1956, ch. 214,
Secs. 1, 2, 70 Stat. 118; Pub. L. 85-866, title I, Sec. 55, Sept.
2, 1958, 72 Stat. 1645; Pub. L. 91-686, Sec. 2(a), Jan. 12, 1971,
84 Stat. 2071; Pub. L. 94-455, title XIX, Secs. 1901(a)(138),
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1787, 1834; Pub. L. 104-188,
title I, Sec. 1314, Aug. 20, 1996, 110 Stat. 1785.)
-MISC1-
AMENDMENTS
1996 - Subsec. (a). Pub. L. 104-188, Sec. 1314(a), substituted
"other than a C corporation" for "other than a corporation" in
introductory provisions.
Subsec. (a)(2)(A). Pub. L. 104-188, Sec. 1314(b), inserted "an S
corporation which included the taxpayer as a shareholder," after
"controlled by the taxpayer,".
1976 - Subsec. (b)(3)(B), (C). Pub. L. 94-455, Sec.
1906(b)(13)(A), struck out "or his delegate" after "Secretary".
Subsec. (d). Pub. L. 94-455, Sec. 1901(a)(138), struck out
effective date provision making the section applicable only with
respect to sales of property occurring after Dec. 31, 1953, except
that for purposes of subsec. (c) defining tract of real property
and for determining the number of sales under subsec. (b)(1) of
this section, all sales of lots and parcels from any tract of real
property during the period of 5 years before Dec. 31, 1953, shall
be taken into account, except as provided in subsec. (c).
1971 - Subsec. (a). Pub. L. 91-686, Sec. 2(a)(1), substituted
"other than a corporation" for "(including corporations only if no
shareholder directly or indirectly holds real property for sale to
customers in the ordinary course of trade or business and only in
the case of property described in the last sentence of subsection
(b)(3))".
Subsec. (b). Pub. L. 91-686, Sec. 2(a)(2), struck out sentence
which made subpars. (B) and (C) inapplicable in the case of
property acquired through the foreclosure of a lien thereon which
secured the payment of an indebtedness to the taxpayer or (in the
case of a corporation) to a creditor who has transferred the
foreclosure bid to the taxpayer in exchange for all of its stock
and other consideration and in the case of property adjacent to
such property if 80 percent of the real property owned by the
taxpayer was property described in the first part of the sentence.
1958 - Subsec. (a)(1). Pub. L. 85-866 substituted "and, in the
same taxable year" for "or, in the same taxable year".
1956 - Subsec. (a). Act Apr. 27, 1956, Sec. 1, substituted
"(including corporations only if no shareholder directly or
indirectly holds real property for sale to customers in the
ordinary course of trade or business and only in the case of
property described in the last sentence of subsection (b)(3))" for
"other than a corporation".
Subsec. (b)(3). Act Apr. 27, 1956, Sec. 2, substituted "water,
sewer, or drainage facilities" for "water or sewer facilities" in
subpar. (A), and inserted provision at end that requirements of
subpars. (B) and (C) do not apply to certain specified property.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 applicable to taxable years
beginning after Dec. 31, 1996, see section 1317(a) of Pub. L.
104-188, set out as a note under section 641 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(138) of Pub. L. 94-455 applicable
with respect to taxable years beginning after Dec. 31, 1976, see
section 1901(d) of Pub. L. 94-455, set out as a note under section
2 of this title.
EFFECTIVE DATE OF 1971 AMENDMENT
Section 2(b) of Pub. L. 91-686 provided that: "The amendments
made by subsection (a) [amending this section] shall be effective
for taxable years beginning after the date of enactment of this Act
[Jan. 12, 1971]."
EFFECTIVE DATE OF 1958 AMENDMENT
Amendment by Pub. L. 85-866 applicable to taxable years beginning
after Dec. 31, 1953, and ending after Aug. 16, 1954, see section
1(c)(1) of Pub. L. 85-866, set out as a note under section 165 of
this title.
EFFECTIVE DATE OF 1956 AMENDMENT
Section 3 of act Apr. 27, 1956, provided that: "This Act
[amending this section] shall apply to all taxable years beginning
after Dec. 31, 1954."
SALES OR EXCHANGES BY CORPORATIONS OF REAL PROPERTY HELD MORE THAN
25 YEARS
Section 1 of Pub. L. 91-686, as amended by Pub. L. 99-514, Sec.
2, Oct. 22, 1986, 100 Stat. 2095, provided: "That (a) for purposes
of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] any lot
or parcel of real property sold or exchanged by a corporation which
would, but for this Act, be treated as property held primarily for
sale to customers in the ordinary course of trade or business shall
not, except to the extent provided in (b), be so treated if -
"(1) no shareholder of the corporation directly or indirectly
holds real property primarily for sale to customers in the
ordinary course of trade or business; and
"(2)(A) such lot or parcel is a part of real property (i) held
for more than twenty-five years at the time of sale or exchange,
and (ii) acquired before January 1, 1934, by the corporation as a
result of the foreclosure of a lien (or liens) thereon which
secured the payment of indebtedness held by one or more creditors
who transferred one or more foreclosure bids to the corporation
in exchange for all its stock (with or without other
consideration), or
"(B)(i) such lot or parcel is a part of additional real
property acquired before January 1, 1957, by the corporation in
the near vicinity of any real property to which subparagraph (A)
applies, or
"(ii) such lot or parcel is wholly or to some extent a part of
any minor acquisition made after December 31, 1956, by the
corporation to adjust boundaries, to fill gaps in previously
acquired property, to facilitate the installation of streets,
utilities, and other public facilities, or to facilitate the sale
of adjacent property, or
"(iii) such lot or parcel is wholly or to some extent a part of
a reacquisition by the corporation after December 31, 1956, of
property previously owned by the corporation;
but only if at least 80 percent (as measured by area) of the real
property sold or exchanged by the corporation within the taxable
year is property described in subparagraph (A); and
"(3) there were no acquisitions of real property by the
corporation after December 31, 1956, other than -
"(A) acquisitions described in paragraph (2)(B)(ii) and
reacquisitions described in paragraph (2)(B)(iii), or
"(B) acquisitions of real property used in a trade or
business of the corporation or held for investment by the
corporation; and
"(4) the corporation did not after December 31, 1957, sell or
exchange (except in condemnation or under threat of condemnation)
any residential lot or parcel on which, at the time of the sale
or exchange, there existed any substantial improvements (other
than improvements in existence at the time the land was acquired
by the corporation) except subdivision, clearing, grubbing, and
grading, building or installation of water, sewer, and drainage
facilities, construction of roads, streets, and sidewalks, and
installation of utilities."
In any case in which a corporation referred to in paragraphs (1),
(2), (3), and (4) is a member of an affiliated group as defined in
section 1504(a) of the Internal Revenue Code of 1986, such
affiliated group shall, for purposes of such paragraphs, be treated
as a single corporation.
"(b)(1) Gain from any sale or exchange described in subsection
(a) shall be deemed, for purposes of such Code, to be gain from the
sale of property held primarily for sale to customers in the
ordinary course of trade or business to the extent of 5 percent of
the selling price.
"(2) For the purpose of computing gain under paragraph (1),
expenditures incurred in connection with the sale or exchange of
any lot or parcel shall neither be allowed as a deduction in
computing taxable income, nor treated as reducing the amount
realized on such sale or exchange; but so much of such expenditures
as does not exceed the portion of gain deemed under paragraph (1)
to be gain from the sale of property held primarily for sale to
customers in the ordinary course of trade or business shall be so
allowed as a deduction, and the remainder, if any, shall be treated
as reducing the amount realized on such sale or exchange.
"(c) The provisions of subsections (a) and (b) shall apply to
taxable years beginning after December 31, 1957, and before January
1, 1984."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 162 of this title.
-End-
-CITE-
26 USC Sec. 1238 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART IV - SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-HEAD-
[Sec. 1238. Repealed. Pub. L. 101-508, title XI, Sec. 11801(a)(35),
Nov. 5, 1990, 104 Stat. 1388-521]
-MISC1-
Section, acts Aug. 16, 1954, ch. 736, 68A Stat. 332; Oct. 4,
1976, Pub. L. 94-455, title XIX, Secs. 1901(b)(3)(K),
1951(c)(2)(A), 90 Stat. 1793, 1840, related to amortization in
excess of depreciation.
SAVINGS PROVISION
For provisions that nothing in repeal 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.
-End-
-CITE-
26 USC Sec. 1239 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART IV - SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-HEAD-
Sec. 1239. Gain from sale of depreciable property between certain
related taxpayers
-STATUTE-
(a) Treatment of gain as ordinary income
In the case of a sale or exchange of property, directly or
indirectly, between related persons, any gain recognized to the
transferor shall be treated as ordinary income if such property is,
in the hands of the transferee, of a character which is subject to
the allowance for depreciation provided in section 167.
(b) Related persons
For purposes of subsection (a), the term "related persons" means
-
(1) a person and all entities which are controlled entities
with respect to such person,
(2) a taxpayer and any trust in which such taxpayer (or his
spouse) is a beneficiary, unless such beneficiary's interest in
the trust is a remote contingent interest (within the meaning of
section 318(a)(3)(B)(i)), and
(3) except in the case of a sale or exchange in satisfaction of
a pecuniary bequest, an executor of an estate and a beneficiary
of such estate.
(c) Controlled entity defined
(1) General rule
For purposes of this section, the term "controlled entity"
means, with respect to any person -
(A) a corporation more than 50 percent of the value of the
outstanding stock of which is owned (directly or indirectly) by
or for such person,
(B) a partnership more than 50 percent of the capital
interest or profits interest in which is owned (directly or
indirectly) by or for such person, and
(C) any entity which is a related person to such person under
paragraph (3), (10), (11), or (12) of section 267(b).
(2) Constructive ownership
For purposes of this section, ownership shall be determined in
accordance with rules similar to the rules under section 267(c)
(other than paragraph (3) thereof).
(d) Employer and related employee association
For purposes of subsection (a), the term "related person" also
includes -
(1) an employer and any person related to the employer (within
the meaning of subsection (b)), and
(2) a welfare benefit fund (within the meaning of section
419(e)) which is controlled directly or indirectly by persons
referred to in paragraph (1).
(e) Patent applications treated as depreciable property
For purposes of this section, a patent application shall be
treated as property which, in the hands of the transferee, is of a
character which is subject to the allowance for depreciation
provided in section 167.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 332; Pub. L. 85-866, title I,
Sec. 56, Sept. 2, 1958, 72 Stat. 1645; Pub. L. 94-455, title XXI,
Sec. 2129(a), Oct. 4, 1976, 90 Stat. 1922; Pub. L. 95-600, title
VII, Sec. 701(v)(1), Nov. 6, 1978, 92 Stat. 2920; Pub. L. 96-471,
Sec. 5, Oct. 19, 1980, 94 Stat. 2255; Pub. L. 97-448, title III,
Sec. 301, Jan. 12, 1983, 96 Stat. 2397; Pub. L. 98-369, div. A,
title I, Sec. 175(a), (b), title IV, Sec. 421(b)(6)(A), title V,
Sec. 557(a), July 18, 1984, 98 Stat. 708, 794, 898; Pub. L. 99-514,
title VI, Sec. 642(a)(1)(A)-(C), Oct. 22, 1986, 100 Stat. 2283,
2284; Pub. L. 105-34, title XIII, Sec. 1308(b), Aug. 5, 1997, 111
Stat. 1041.)
-MISC1-
AMENDMENTS
1997 - Subsec. (b)(3). Pub. L. 105-34 added par. (3).
1986 - Subsec. (b)(1). Pub. L. 99-514, Sec. 642(a)(1)(A),
substituted "controlled entities" for "80-percent owned entities".
Subsec. (c). Pub. L. 99-514, Sec. 642(a)(1)(B), (C), in heading,
substituted "Controlled entity" for "80-percent owned entity", in
par. (1), in introductory provisions, substituted "controlled
entity" for "80-percent owned entity", in subpar. (A), substituted
"more than 50 percent of the value" for "80 percent or more in
value", in subpar. (B), substituted "more than 50 percent" for "80
percent or more", and added subpar. (C), and amended par. (2)
generally. Prior to amendment, par. (2) read as follows: "For
purposes of subparagraphs (A) and (B) of paragraph (1), the
principles of section 318 shall apply, except that -
"(A) the members of an individual's family shall consist only
of such individual and such individual's spouse,
"(B) paragraph (2)(C) of section 318(a) shall be applied
without regard to the 50-percent limitation contained therein,
and
"(C) paragraph (3) of section 318(a) shall not apply."
1984 - Subsec. (b). Pub. L. 98-369, Sec. 421(b)(6), redesignated
pars. (2) and (3) as (1) and (2), respectively. Former par. (1),
defining a husband and wife as "related persons", was struck out.
Pub. L. 98-369, Sec. 175(b), amended subsec. (b) generally,
adding par. (3).
Subsec. (d). Pub. L. 98-369, Sec. 557(a), added subsec. (d).
Subsec. (e). Pub. L. 98-369, Sec. 175(a), added subsec. (e).
1983 - Subsec. (b). Pub. L. 97-448, Sec. 301(a), substituted
provisions that "related persons" means (1) a husband and wife, and
(2) a person and all entities which are 80-percent owned entities
with respect to such person, for provisions which provided that
"related persons" meant (1) the taxpayer and the taxpayer's spouse,
(2) the taxpayer and an 80-percent owned entity, or (3) two
80-percent owned entities.
Subsec. (c)(1). Pub. L. 97-448, Sec. 301(b), inserted ", with
respect to any person" after "means" in introductory provisions and
substituted "such person" for "the taxpayer" in subpars. (A) and
(B).
Subsec. (c)(2). Pub. L. 97-448, Sec. 301(b), struck out "and" at
end of subpar. (A), substituted "paragraph (2)(C)" for "paragraphs
(2)(C) and (3)(C)" in subpar. (B), and added subpar. (C).
1980 - Subsec. (b)(1). Pub. L. 96-471 substituted "the taxpayer
and the taxpayer's spouse" for "a husband and wife".
Subsec. (b)(2). Pub. L. 96-471 substituted "the taxpayer and an
80-percent owned entity, or" for "an individual and a corporation
80 percent or more in value of the outstanding stock of which is
owned, directly or indirectly, by or for such individual, or".
Subsec. (b)(3). Pub. L. 96-471 substituted "two 80-percent owned
entities" for "two or more corporations 80 percent or more in value
of the outstanding stock of each of which is owned, directly or
indirectly, by or for the same individual".
Subsec. (c). Pub. L. 96-471 substituted provisions defining an
"80-percent owned entity" for provisions relating to constructive
ownership of stock.
1978 - Subsec. (a). Pub. L. 95-600 substituted "of a character
which is subject to the allowance for depreciation provided in
section 167" for "subject to the allowance for depreciation
provided in section 167".
1976 - Pub. L. 94-455 substituted "sale of depreciable property
between certain related taxpayers" for "sale of certain property
between spouses or between an individual and a controlled
corporation" in section catchline.
Subsec. (a). Pub. L. 94-455 substituted provisions for
transactions between related persons for such transactions (1)
between a husband and wife; or (2) between an individual and a
corporation more than 80 percent in value of the outstanding stock
of which is owned by such individual, his spouse, and his minor
children and minor grandchildren and "any gain recognized to the
transferee shall be treated as ordinary income if such property is,
in the hands of the transferee, subject to the allowance for
depreciation provided in section 167" for "any gain recognized to
the transferor from the sale or exchange of such property shall be
considered as gain from the sale or exchange of property which is
neither a capital asset nor property described in section 1231".
Subsec. (b). Pub. L. 94-455 substituted definition of "related
persons" for prior provision making section applicable only to
sales or exchanges of depreciable property.
Subsec. (c). Pub. L. 94-455 substituted provision respecting
constructive ownership of stock for prior provision making section
inapplicable with respect to sales or exchanges made on or before
May 3, 1951.
1958 - Subsec. (c). Pub. L. 85-866 added subsec. (c).
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to taxable years beginning
after Aug. 5, 1997, see section 1308(c) of Pub. L. 105-34, set out
as a note under section 267 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 642(c) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1006(i)(3), Nov. 10, 1988, 102 Stat. 3411, provided
that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and sections
453 and 707 of this title] shall apply to sales after the date of
the enactment of this Act [Oct. 22, 1986], in taxable years ending
after such date.
"(2) Transitional rule for binding contracts. - The amendments
made by this section shall not apply to sales made after August 14,
1986, which are made pursuant to a binding contract in effect on
August 14, 1986, and at all times thereafter."
EFFECTIVE DATE OF 1984 AMENDMENT
Section 175(c) of Pub. L. 98-369 provided that: "The amendments
made by this section [amending this section] shall apply to sales
or exchanges after March 1, 1984, in taxable years ending after
such date."
Amendment by section 421(b)(6) 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.
Section 557(b) of Pub. L. 98-369 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to sales
or exchanges after the date of the enactment of this Act [July 18,
1984] in taxable years ending after such date."
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 1978 AMENDMENT
Section 701(v)(2) 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 paragraph (1) [amending this section] shall apply
as if included in the amendment made to section 1239 of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] by section
2129(a) of the Tax Reform Act of 1976 [section 2129(a) of Pub. L.
94-455]."
EFFECTIVE DATE OF 1976 AMENDMENT
Section 2129(b) of Pub. L. 94-455 provided that: "The amendment
made by this section [amending this section] shall apply to sales
or exchanges after the date of the enactment of this Act [Oct. 4,
1976]. For purposes of the preceding sentence, a sale or exchange
is considered to have occurred on or before such date of enactment
if such sale or exchange is made pursuant to a binding contract
entered into on or before that date."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 453 of this title.
-End-
-CITE-
26 USC Sec. 1240 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART IV - SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-HEAD-
[Sec. 1240. Repealed. Pub. L. 94-455, title XIX, Sec. 1901(a)(139),
Oct. 4, 1976, 90 Stat. 1787]
-MISC1-
Section, act Aug. 16, 1954, ch. 736, 68A Stat. 332, related to
taxability to employee of termination payments.
EFFECTIVE DATE OF REPEAL
Repeal applicable with respect to taxable years beginning after
Dec. 31, 1976, see section 1901(d) of Pub. L. 94-455, set out as an
Effective Date of 1976 Amendment note under section 2 of this
title.
-End-
-CITE-
26 USC Sec. 1241 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART IV - SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-HEAD-
Sec. 1241. Cancellation of lease or distributor's agreement
-STATUTE-
Amounts received by a lessee for the cancellation of a lease, or
by a distributor of goods for the cancellation of a distributor's
agreement (if the distributor has a substantial capital investment
in the distributorship), shall be considered as amounts received in
exchange for such lease or agreement.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 333.)
-End-
-CITE-
26 USC Sec. 1242 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART IV - SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-HEAD-
Sec. 1242. Losses on small business investment company stock
-STATUTE-
If -
(1) a loss is on stock in a small business investment company
operating under the Small Business Investment Act of 1958, and
(2) such loss would (but for this section) be a loss from the
sale or exchange of a capital asset,
then such loss shall be treated as an ordinary loss. For purposes
of section 172 (relating to the net operating loss deduction) any
amount of loss treated by reason of this section as an ordinary
loss shall be treated as attributable to a trade or business of the
taxpayer.
-SOURCE-
(Added Pub. L. 85-866, title I, Sec. 57(a), Sept. 2, 1958, 72 Stat.
1645; amended Pub. L. 94-455, title XIX, Sec. 1901(b)(3)(F), Oct.
4, 1976, 90 Stat. 1793.)
-REFTEXT-
REFERENCES IN TEXT
The Small Business Investment Act of 1958, referred to in cl.
(1), is Pub. L. 85-699, Aug. 21, 1958, 72 Stat. 689, as amended,
which is classified principally to chapter 14B (Sec. 661 et seq.)
of Title 15, Commerce and Trade. For complete classification of
this Act to the Code, see Short Title note set out under section
661 of Title 15 and Tables.
-MISC1-
AMENDMENTS
1976 - Pub. L. 94-455 substituted "an ordinary loss" for "a loss
from the sale or exchange of property which is not a capital
asset", each time appearing.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 applicable with respect to taxable
years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L.
94-455, set out as a note under section 2 of this title.
EFFECTIVE DATE
Section applicable with respect to taxable years beginning after
Sept. 2, 1958, see section 57(d) of Pub. L. 85-866, set out as an
Effective Date of 1958 Amendment note under section 243 of this
title.
-End-
-CITE-
26 USC Sec. 1243 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART IV - SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-HEAD-
Sec. 1243. Loss of small business investment company
-STATUTE-
In the case of a small business investment company operating
under the Small Business Investment Act of 1958, if -
(1) a loss is on stock received pursuant to the conversion
privilege of convertible debentures acquired pursuant to section
304 of the Small Business Investment Act of 1958, and
(2) such loss would (but for this section) be a loss from the
sale or exchange of a capital asset,
then such loss shall be treated as an ordinary loss.
-SOURCE-
(Added Pub. L. 85-866, title I, Sec. 57(a), Sept. 2, 1958, 72 Stat.
1645; amended Pub. L. 91-172, title IV, Sec. 433(b), Dec. 30, 1969,
83 Stat. 624; Pub. L. 94-455, title XIX, Sec. 1901(b)(3)(F), Oct.
4, 1976, 90 Stat. 1793.)
-REFTEXT-
REFERENCES IN TEXT
The Small Business Investment Act of 1958, referred to in text,
is Pub. L. 85-699, Aug. 21, 1958, 72 Stat. 689, as amended, which
is classified principally to chapter 14B (Sec. 661 et seq.) of
Title 15, Commerce and Trade. Section 304 of the Small Business
Investment Act of 1958, is classified to section 684 of Title 15.
For complete classification of this Act to the Code, see Short
Title note set out under section 661 of Title 15 and Tables.
-MISC1-
AMENDMENTS
1976 - Pub. L. 94-455 substituted "an ordinary loss" for "a loss
from the sale or exchange of property which is not a capital
asset".
1969 - Par. (1). Pub. L. 91-172 substituted "stock received
pursuant to the conversion privilege of convertible debentures" for
"convertible debentures (including stock received pursuant to the
conversion privilege)".
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 applicable with respect to taxable
years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L.
94-455, set out as a note under section 2 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable to taxable years beginning
after July 11, 1969, see section 433(d) of Pub. L. 91-172, set out
as a note under section 582 of this title.
EFFECTIVE DATE
Section applicable with respect to taxable years beginning after
Sept. 2, 1958, see section 57(d) of Pub. L. 85-866, set out as an
Effective Date of 1958 Amendment note under section 243 of this
title.
-End-
-CITE-
26 USC Sec. 1244 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART IV - SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-HEAD-
Sec. 1244. Losses on small business stock
-STATUTE-
(a) General rule
In the case of an individual, a loss on section 1244 stock issued
to such individual or to a partnership which would (but for this
section) be treated as a loss from the sale or exchange of a
capital asset shall, to the extent provided in this section, be
treated as an ordinary loss.
(b) Maximum amount for any taxable year
For any taxable year the aggregate amount treated by the taxpayer
by reason of this section as an ordinary loss shall not exceed -
(1) $50,000, or
(2) $100,000, in the case of a husband and wife filing a joint
return for such year under section 6013.
(c) Section 1244 stock defined
(1) In general
For purposes of this section, the term "section 1244 stock"
means stock in a domestic corporation if -
(A) at the time such stock is issued, such corporation was a
small business corporation,
(B) such stock was issued by such corporation for money or
other property (other than stock and securities), and
(C) such corporation, during the period of its 5 most recent
taxable years ending before the date the loss on such stock was
sustained, derived more than 50 percent of its aggregate gross
receipts from sources other than royalties, rents, dividends,
interests, annuities, and sales or exchanges of stocks or
securities.
(2) Rules for application of paragraph (1)(C)
(A) Period taken into account with respect to new corporations
For purposes of paragraph (1)(C), if the corporation has not
been in existence for 5 taxable years ending before the date
the loss on the stock was sustained, there shall be substituted
for such 5-year period -
(i) the period of the corporation's taxable years ending
before such date, or
(ii) if the corporation has not been in existence for 1
taxable year ending before such date, the period such
corporation has been in existence before such date.
(B) Gross receipts from sales of securities
For purposes of paragraph (1)(C), gross receipts from the
sales or exchanges of stock or securities shall be taken into
account only to the extent of gains therefrom.
(C) Nonapplication where deductions exceed gross income
Paragraph (1)(C) shall not apply with respect to any
corporation if, for the period taken into account for purposes
of paragraph (1)(C), the amount of the deductions allowed by
this chapter (other than by sections 172, 243, 244, and 245)
exceeds the amount of gross income.
(3) Small business corporation defined
(A) In general
For purposes of this section, a corporation shall be treated
as a small business corporation if the aggregate amount of
money and other property received by the corporation for stock,
as a contribution to capital, and as paid-in surplus, does not
exceed $1,000,000. The determination under the preceding
sentence shall be made as of the time of the issuance of the
stock in question but shall include amounts received for such
stock and for all stock theretofore issued.
(B) Amount taken into account with respect to property
For purposes of subparagraph (A), the amount taken into
account with respect to any property other than money shall be
the amount equal to the adjusted basis to the corporation of
such property for determining gain, reduced by any liability to
which the property was subject or which was assumed by the
corporation. The determination under the preceding sentence
shall be made as of the time the property was received by the
corporation.
(d) Special rules
(1) Limitations on amount of ordinary loss
(A) Contributions of property having basis in excess of value
If -
(i) section 1244 stock was issued in exchange for property,
(ii) the basis of such stock in the hands of the taxpayer
is determined by reference to the basis in his hands of such
property, and
(iii) the adjusted basis (for determining loss) of such
property immediately before the exchange exceeded its fair
market value at such time,
then in computing the amount of the loss on such stock for
purposes of this section the basis of such stock shall be
reduced by an amount equal to the excess described in clause
(iii).
(B) Increases in basis
In computing the amount of the loss on stock for purposes of
this section, any increase in the basis of such stock (through
contributions to the capital of the corporation, or otherwise)
shall be treated as allocable to stock which is not section
1244 stock.
(2) Recapitalizations, changes in name, etc.
To the extent provided in regulations prescribed by the
Secretary, stock in a corporation, the basis of which (in the
hands of a taxpayer) is determined in whole or in part by
reference to the basis in his hands of stock in such corporation
which meets the requirements of subsection (c)(1) (other than
subparagraph (C) thereof), or which is received in a
reorganization described in section 368(a)(1)(F) in exchange for
stock which meets such requirements, shall be treated as meeting
such requirements. For purposes of paragraphs (1)(C) and (3)(A)
of subsection (c), a successor corporation in a reorganization
described in section 368(a)(1)(F) shall be treated as the same
corporation as its predecessor.
(3) Relationship to net operating loss deduction
For purposes of section 172 (relating to the net operating loss
deduction), any amount of loss treated by reason of this section
as an ordinary loss shall be treated as attributable to a trade
or business of the taxpayer.
(4) Individual defined
For purposes of this section, the term "individual" does not
include a trust or estate.
(e) Regulations
The Secretary shall prescribe such regulations as may be
necessary to carry out the purposes of this section.
-SOURCE-
(Added Pub. L. 85-866, title II, Sec. 202(b), Sept. 2, 1958, 72
Stat. 1676; amended Pub. L. 94-455, title XIX, Secs. 1901(b)(1)(W),
(3)(G), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1792, 1793, 1834;
Pub. L. 95-600, title III, Sec. 345(a)-(d), Nov. 6, 1978, 92 Stat.
2844, 2845; Pub. L. 98-369, div. A, title IV, Sec. 481(a), July 18,
1984, 98 Stat. 847.)
-MISC1-
AMENDMENTS
1984 - Subsecs. (c)(1), (d)(2). Pub. L. 98-369 substituted "stock
in a" for "common stock in a".
1978 - Subsec. (b). Pub. L. 95-600, Sec. 345(b), substituted in
par. (1) "$50,000" for "$25,000" and in par. (2) "$100,000" for
"$50,000".
Subsec. (c). Pub. L. 95-600, Sec. 345(a), (c), among other
changes, substituted provisions permitting a corporation to issue
common stock under the provisions of this section without a written
plan for provisions requiring that a written plan to issue section
1244 stock must be adopted by the issuing corporation and increased
the amount of section 1244 stock that a qualified small business
corporation may issue from $500,000 to $1,000,000.
Subsec. (d)(2). Pub. L. 95-600, Sec. 345(d), substituted
"subparagraph (C)" for "subparagraph (E)" and "paragraphs (1)(C)
and (3)(A)" for "paragraphs (1)(E) and (2)(A)".
1976 - Subsecs. (a), (b). Pub. L. 94-455, Sec. 1901(b)(3)(G),
substituted "an ordinary loss" for "a loss from the sale or
exchange of an asset which is not a capital asset".
Subsec. (c)(1)(E). Pub. L. 94-455, Sec. 1901(b)(1)(W), struck out
reference to section 242 of this title.
Subsec. (d)(2). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out
"or his delegate" after "Secretary".
Subsec. (d)(3). Pub. L. 94-455, Sec. 1901(b)(3)(G), substituted
"an ordinary loss" for "a loss from the sale or exchange of an
asset which is not a capital asset".
EFFECTIVE DATE OF 1984 AMENDMENT
Section 481(b) of Pub. L. 98-369 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to stock
issued after the date of the enactment of this Act [July 18, 1984]
in taxable years ending after such date."
EFFECTIVE DATE OF 1978 AMENDMENT
Section 345(e) of Pub. L. 95-600, as amended by Pub. L. 96-222,
title I, Sec. 103(a)(9), Apr. 1, 1980, 94 Stat. 212, provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section] shall apply
to stock issued after November 6, 1978.
"(2) Subsection (b). - The amendments made by subsection (b)
[amending this section] shall apply to taxable years beginning
after December 31, 1978.
"(3) Transitional rule for subsection (b). - In the case of a
taxable year which includes November 6, 1978, the amendments made
by subsection (b) [amending this section] shall apply with respect
to stock issued after such date."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(b)(1)(W), (3)(G) 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.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 1202, 1274 of this title.
-End-
-CITE-
26 USC Sec. 1245 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART IV - SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-HEAD-
Sec. 1245. Gain from dispositions of certain depreciable property
-STATUTE-
(a) General rule
(1) Ordinary income
Except as otherwise provided in this section, if section 1245
property is disposed of the amount by which the lower of -
(A) the recomputed basis of the property, or
(B)(i) in the case of a sale, exchange, or involuntary
conversion, the amount realized, or
(ii) in the case of any other disposition, the fair market
value of such property,
exceeds the adjusted basis of such property shall be treated as
ordinary income. Such gain shall be recognized notwithstanding
any other provision of this subtitle.
(2) Recomputed basis
For purposes of this section -
(A) In general
The term "recomputed basis" means, with respect to any
property, its adjusted basis recomputed by adding thereto all
adjustments reflected in such adjusted basis on account of
deductions (whether in respect of the same or other property)
allowed or allowable to the taxpayer or to any other person for
depreciation or amortization.
(B) Taxpayer may establish amount allowed
For purposes of subparagraph (A), if the taxpayer can
establish by adequate records or other sufficient evidence that
the amount allowed for depreciation or amortization for any
period was less than the amount allowable, the amount added for
such period shall be the amount allowed.
(C) Certain deductions treated as amortization
Any deduction allowable under section 179, 179A, 190, or 193
shall be treated as if it were a deduction allowable for
amortization.
(3) Section 1245 property
For purposes of this section, the term "section 1245 property"
means any property which is or has been property of a character
subject to the allowance for depreciation provided in section 167
and is either -
(A) personal property,
(B) other property (not including a building or its
structural components) but only if such other property is
tangible and has an adjusted basis in which there are reflected
adjustments described in paragraph (2) for a period in which
such property (or other property) -
(i) was used as an integral part of manufacturing,
production, or extraction or of furnishing transportation,
communications, electrical energy, gas, water, or sewage
disposal services,
(ii) constituted a research facility used in connection
with any of the activities referred to in clause (i), or
(iii) constituted a facility used in connection with any of
the activities referred to in clause (i) for the bulk storage
of fungible commodities (including commodities in a liquid or
gaseous state),
(C) so much of any real property (other than any property
described in subparagraph (B)) which has an adjusted basis in
which there are reflected adjustments for amortization under
section 169, 179, 179A, 185,(!1) 188 (as in effect before its
repeal by the Revenue Reconciliation Act of 1990), 190, 193, or
194,(!2)
(D) a single purpose agricultural or horticultural structure
(as defined in section 168(i)(13)),
(E) a storage facility (not including a building or its
structural components) used in connection with the distribution
of petroleum or any primary product of petroleum, or
(F) any railroad grading or tunnel bore (as defined in
section 168(e)(4)).
(4) Special rule for player contracts
(A) In general
For purposes of this section, if a franchise to conduct any
sports enterprise is sold or exchanged, and if, in connection
with such sale or exchange, there is a transfer of any player
contracts, the recomputed basis of such player contracts in the
hands of the transferor shall be the adjusted basis of such
contracts increased by the greater of -
(i) the previously unrecaptured depreciation with respect
to player contracts acquired by the transferor at the time of
acquisition of such franchise, or
(ii) the previously unrecaptured depreciation with respect
to the player contracts involved in such transfer.
(B) Previously unrecaptured depreciation with respect to
initial contracts
For purposes of subparagraph (A)(i), the term "previously
unrecaptured depreciation" means the excess (if any) of -
(i) the sum of the deduction allowed or allowable to the
taxpayer transferor for the depreciation attributable to
periods after December 31, 1975, of any player contracts
acquired by him at the time of acquisition of such franchise,
plus the deduction allowed or allowable for losses incurred
after December 31, 1975, with respect to such player
contracts acquired at the time of such acquisition, over
(ii) the aggregate of the amounts described in clause (i)
treated as ordinary income by reason of this section with
respect to prior dispositions of such player contracts
acquired upon acquisition of the franchise.
(C) Previously unrecaptured depreciation with respect to
contracts transferred
For purposes of subparagraph (A)(ii), the term "previously
unrecaptured depreciation" means the amount of any deduction
allowed or allowable to the taxpayer transferor for the
depreciation of any contracts involved in such transfer.
(D) Player contract
For purposes of this paragraph, the term "player contract"
means any contract for the services of an athlete which, in the
hands of the taxpayer, is of a character subject to the
allowance for depreciation provided in section 167.
(b) Exceptions and limitations
(1) Gifts
Subsection (a) shall not apply to a disposition by gift.
(2) Transfers at death
Except as provided in section 691 (relating to income in
respect of a decedent), subsection (a) shall not apply to a
transfer at death.
(3) Certain tax-free transactions
If the basis of property in the hands of a transferee is
determined by reference to its basis in the hands of the
transferor by reason of the application of section 332, 351, 361,
721, or 731, then the amount of gain taken into account by the
transferor under subsection (a)(1) shall not exceed the amount of
gain recognized to the transferor on the transfer of such
property (determined without regard to this section). Except as
provided in paragraph (7), this paragraph shall not apply to a
disposition to an organization (other than a cooperative
described in section 521) which is exempt from the tax imposed by
this chapter.
(4) Like kind exchanges; involuntary conversions, etc.
If property is disposed of and gain (determined without regard
to this section) is not recognized in whole or in part under
section 1031 or 1033, then the amount of gain taken into account
by the transferor under subsection (a)(1) shall not exceed the
sum of -
(A) the amount of gain recognized on such disposition
(determined without regard to this section), plus
(B) the fair market value of property acquired which is not
section 1245 property and which is not taken into account under
subparagraph (A).
(5) Section 1081 transactions
Under regulations prescribed by the Secretary, rules consistent
with paragraphs (3) and (4) of this subsection shall apply in the
case of transactions described in section 1081 (relating to
exchanges in obedience to SEC orders).
(6) Property distributed by a partnership to a partner
(A) In general
For purposes of this section, the basis of section 1245
property distributed by a partnership to a partner shall be
deemed to be determined by reference to the adjusted basis of
such property to the partnership.
(B) Adjustments added back
In the case of any property described in subparagraph (A),
for purposes of computing the recomputed basis of such property
the amount of the adjustments added back for periods before the
distribution by the partnership shall be -
(i) the amount of the gain to which subsection (a) would
have applied if such property had been sold by the
partnership immediately before the distribution at its fair
market value at such time, reduced by
(ii) the amount of such gain to which section 751(b)
applied.
(7) Transfers to tax-exempt organization where property will be
used in unrelated business
(A) In general
The second sentence of paragraph (3) shall not apply to a
disposition of section 1245 property to an organization
described in section 511(a)(2) or 511(b)(2) if, immediately
after such disposition, such organization uses such property in
an unrelated trade or business (as defined in section 513).
(B) Later change in use
If any property with respect to the disposition of which gain
is not recognized by reason of subparagraph (A) ceases to be
used in an unrelated trade or business of the organization
acquiring such property, such organization shall be treated for
purposes of this section as having disposed of such property on
the date of such cessation.
(8) Timber property
In determining, under subsection (a)(2), the recomputed basis
of property with respect to which a deduction under section 194
was allowed for any taxable year, the taxpayer shall not take
into account adjustments under section 194 to the extent such
adjustments are attributable to the amortizable basis of the
taxpayer acquired before the 10th taxable year preceding the
taxable year in which gain with respect to the property is
recognized.
(c) Adjustments to basis
The Secretary shall prescribe such regulations as he may deem
necessary to provide for adjustments to the basis of property to
reflect gain recognized under subsection (a).
(d) Application of section
This section shall apply notwithstanding any other provision of
this subtitle.
-SOURCE-
(Added Pub. L. 87-834, Sec. 13(a)(1), Oct. 16, 1962, 76 Stat. 1032;
amended Pub. L. 88-272, title II, Sec. 203(d), Feb. 26, 1964, 78
Stat. 35; Pub. L. 91-172, title II, Sec. 212(a)(1), (2), title VII,
Sec. 704(b)(4), Dec. 30, 1969, 83 Stat. 571, 670; Pub. L. 92-178,
title I, Sec. 104(a)(2), title III, Sec. 303(c)(1), (2), Dec. 10,
1971, 85 Stat. 501, 522; Pub. L. 94-81, Sec. 2(a), Aug. 9, 1975, 89
Stat. 417; Pub. L. 94-455, title II, Sec. 212(b)(1), title XIX,
Secs. 1901(a)(140), (b)(3)(K), (11)(D), 1906(b) (13)(A),
1951(c)(2)(C), title XXI, Secs. 2122(b)(3), 2124(a)(2), Oct. 4,
1976, 90 Stat. 1546, 1787, 1793, 1795, 1834, 1840, 1915, 1917; Pub.
L. 95-600, title VII, Sec. 701(f)(3)(A), (B), (w)(1), (2), Nov. 6,
1978, 92 Stat. 2901, 2920; Pub. L. 96-223, title II, Sec.
251(a)(2)(C), Apr. 2, 1980, 94 Stat. 287; Pub. L. 96-451, title
III, Sec. 301(c)(1), Oct. 14, 1980, 94 Stat. 1990; Pub. L. 97-34,
title II, Secs. 201(b), 202(b), 204(a)-(d), 212(d)(2)(F), Aug. 13,
1981, 95 Stat. 218, 220, 222, 223, 239; Pub. L. 97-448, title I,
Sec. 102(e)(2)(B), Jan. 12, 1983, 96 Stat. 2371; Pub. L. 98-369,
div. A, title I, Sec. 111(e)(5), (10), July 18, 1984, 98 Stat. 633;
Pub. L. 99-121, title I, Sec. 103(b)(1)(D), Oct. 11, 1985, 99 Stat.
509; Pub. L. 99-514, title II, Sec. 201(d)(11), Oct. 22, 1986, 100
Stat. 2141; Pub. L. 100-647, title I, Sec. 1002(i)(2)(I), Nov. 10,
1988, 102 Stat. 3371; Pub. L. 101-239, title VII, Sec.
7622(b)(2)[(d)(2)], Dec. 19, 1989, 103 Stat. 2378; Pub. L. 101-508,
title XI, Secs. 11704(a)(13), 11801(c)(6)(E), (8)(H), 11813(b)(21),
Nov. 5, 1990, 104 Stat. 1388-518, 1388-524, 1388-555; Pub. L.
103-66, title XIII, Sec. 13261(f)(4), (5), Aug. 10, 1993, 107 Stat.
539; Pub. L. 104-7, Sec. 2(b), Apr. 11, 1995, 109 Stat. 93; Pub. L.
104-188, title I, Sec. 1703(n)(6), Aug. 20, 1996, 110 Stat. 1877;
Pub. L. 105-34, title XVI, Sec. 1604(a)(3), Aug. 5, 1997, 111 Stat.
1097.)
-REFTEXT-
REFERENCES IN TEXT
Section 185 of this title, referred to in subsec. (a)(3)(C), was
repealed by Pub. L. 99-514, title II, Sec. 242(a), Oct. 22, 1986,
100 Stat. 2181.
The Revenue Reconciliation Act of 1990, referred to in subsec.
(a)(3)(C), is title XI of Pub. L. 101-508, Nov. 5, 1990, 104 Stat.
1388-400. Section 11801(a)(13) of the Act repealed section 188 of
this title. For complete classification of this Act to the Code,
see Short Title note set out under section 1 of this title and
Tables.
-MISC1-
AMENDMENTS
1997 - Subsec. (a)(2)(C), (3)(C). Pub. L. 105-34 inserted "179A,"
after "179,".
1996 - Subsec. (a)(3). Pub. L. 104-188 reenacted heading without
change and amended introductory provisions generally. Prior to
amendment, introductory provisions read as follows: "For purposes
of this section, the term 'section 1245 property' means any
property which is or has been property of a character subject to
the allowance for depreciation provided in section 167 (or subject
to the allowance of amortization provided in)) and is either - ".
1995 - Subsec. (b)(5). Pub. L. 104-7 struck out "1071 and" before
"1081 transactions" in heading and "section 1071 (relating to gain
from sale or exchange to effectuate policies of FCC) or" before
"section 1081" in text.
1993 - Subsec. (a)(2)(C). Pub. L. 103-66, Sec. 13261(f)(4),
substituted "or 193" for "193, or 1253(d)(2) or (3)".
Subsec. (a)(3). Pub. L. 103-66, Sec. 13261(f)(5), struck out
"section 185 or 1253(d)(2) or (3)" after "amortization provided in"
in introductory provisions.
1990 - Subsec. (a)(3). Pub. L. 101-508, Sec. 11704(a)(13),
substituted "or (3))" for "or (3)" in introductory provisions.
Subsec. (a)(3)(C). Pub. L. 101-508, Sec. 11801(c)(6)(E),
substituted "188 (as in effect before its repeal by the Revenue
Reconciliation Act of 1990)," for "188,".
Subsec. (a)(3)(D). Pub. L. 101-508, Sec. 11813(b)(21),
substituted "section 168(i)(13)" for "section 48(p)".
Subsec. (b)(3). Pub. L. 101-508, Sec. 11801(c)(8)(H), struck out
"371(a), 374(a)," after "332, 351, 361,".
1989 - Subsec. (a)(2)(C). Pub. L. 101-239, Sec.
7622(b)(2)(A)[(d)(2)(A)], substituted "193, or 1253(d)(2) or (3)"
for "or 193".
Subsec. (a)(3). Pub. L. 101-239, Sec. 7622(b)(2)(B)[(d)(2)(B)],
substituted "section 185 or 1253(d)(2) or (3)" for "section 185" in
introductory provisions.
1988 - Subsec. (a)(3)(F). Pub. L. 100-647 added subpar. (F).
1986 - Subsec. (a)(1). Pub. L. 99-514, Sec. 201(d)(11)(A), struck
out "during a taxable year beginning after December 31, 1962, or
section 1245 recovery property is disposed of after December 31,
1980," after "if section 1245 property is disposed of".
Subsec. (a)(2). Pub. L. 99-514, Sec. 201(d)(11)(B), amended par.
(2) generally, restating former subpars. (A) to (E) and concluding
provisions as subpars. (A) to (C).
Subsec. (a)(3). Pub. L. 99-514, Sec. 201(d)(11)(C), redesignated
subpars. (D), (E), and (F) as (C), (D), and (E), respectively, and
struck out former subpar. (C) which read as follows: "an elevator
or an escalator".
Subsec. (a)(5), (6). Pub. L. 99-514, Sec. 201(d)(11)(D), struck
out par. (5) which defined "section 1245 recovery property" and
par. (6) which provided special rule for qualified leased property.
1985 - Subsec. (a)(5)(A) to (C). Pub. L. 99-121 substituted
"19-year real property" for "18-year real property".
1984 - Subsec. (a)(5)(A) to (C). Pub. L. 98-369, Sec. 111(e)(5),
substituted "18-year real property and low-income housing" for
"15-year real property".
Subsec. (d)(5)(D). Pub. L. 98-369, Sec. 111(e)(10), substituted
"low-income housing (within the meaning of section 168(c)(2)(F))"
for "15-year real property which is described in clause (i), (ii),
(iii), or (iv) of section 1250(a)(1)(B)".
1983 - Subsec. (a)(3)(F). Pub. L. 97-448 inserted "(not including
a building or its structural components)" after "a storage
facility".
1981 - Subsec. (a)(1). Pub. L. 97-34, Sec. 204(a), inserted
reference to section 1245 recovery property disposed of after Dec.
31, 1980, in introductory provisions.
Subsec. (a)(2). Pub. L. 97-34, Secs. 202(b)(1)-(3), 204(b),
inserted reference to section 179 in subpar. (D), added subpar.
(E), and, in provisions following subpar. (E), and inserted
references to section 179 in three places. Pub. L. 97-34, Sec.
212(d)(2)(F), in provisions following subpar. (E), substituted "191
(as in effect before its repeal by the Economic Recovery Tax Act of
1981)" for "191" in two places.
Subsec. (a)(3)(D). Pub. L. 97-34, Sec. 202(b)(3), inserted
reference to section 179.
Subsec. (a)(3)(E), (F). Pub. L. 97-34, Sec. 201(b), added
subpars. (E) and (F).
Subsec. (a)(5). Pub. L. 97-34, Sec. 204(c), added par. (5).
Subsec. (a)(6). Pub. L. 97-34, Sec. 204(d), added par. (6).
1980 - Subsec. (a)(2). Pub. L. 96-451, Sec. 301(c)(1)(A), (B),
inserted references to section 194 in subpar. (D) and text
following subpar. (D).
Pub. L. 96-223, Sec. 251(a)(2)(C)(i)-(iii), inserted references
to section 193 in subpar. (D) and text following subpar. (D).
Subsec. (a)(3)(D). Pub. L. 96-451, Sec. 301(c)(1)(B), inserted
reference to section 194.
Pub. L. 96-223, Sec. 251(a)(2)(C)(i), inserted reference to
section 193.
Subsec. (b)(8). Pub. L. 96-451, Sec. 301(c)(1)(C), added par.
(8).
1978 - Subsec. (a)(2). Pub. L. 95-600, Sec. 701(f)(3)(A), struck
out from the listed sections in subpar. (D) reference to 191 and
inserted "(in the case of property described in paragraph (3)(C))"
before "191" in two places in next to last sentence.
Subsec. (a)(3)(D). Pub. L. 95-600, Sec. 701(f)(3)(B), struck out
reference to section 191.
Subsec. (a)(4)(B). Pub. L. 95-600, Sec. 701(w)(2), inserted
"attributable to periods after December 31, 1975," after "for the
depreciation", "incurred after December 31, 1975," after "allowable
for losses", and "described in clause (i)" after "of the amounts".
Subsec. (a)(4)(C). Pub. L. 95-600, Sec. 701(w)(1), struck out
provisions relating to the aggregate of the amounts treated as
ordinary income.
1976 - Subsec. (a)(1). Pub. L. 94-455, Sec. 1901(b)(3)(K),
substituted "ordinary income" for "gain from the sale or exchange
of property which is neither a capital asset nor property described
in section 1231".
Subsec. (a)(2)(D). Pub. L. 94-455, Secs. 2122(b)(3)(B),
2124(a)(2), inserted reference to sections 190 and 191.
Subsec. (a)(2) foll. (D). Pub. L. 94-455, Secs. 1901(b)(11)(D),
1951(c)(2)(C), 2122(b)(3)(A), (C), 2124(a)(2), in text following
subpar. (D): struck out reference to section 187 in two places;
inserted "(as in effect before its repeal by the Tax Reform Act of
1976)," after "section 168," in two places; inserted provision for
treatment for purposes of this section of any deduction allowable
under section 190 as if it were a deduction allowable for
amortization; and inserted reference to section 191 in two places,
respectively.
Subsec. (a)(3)(D). Pub. L. 94-455, Secs. 2122(b)(3)(A),
2124(a)(2), inserted reference to sections 190 and 191.
Subsec. (a)(4). Pub. L. 94-455, Sec. 212(b)(1), added par. (4).
Subsec. (b)(5). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out
"or his delegate" after "Secretary".
Subsec. (b)(7)(B). Pub. L. 94-455, Sec. 1901(a)(140), struck out
"such organization acquiring such property," before "such
organization".
Subsec. (c). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out "or
his delegate" after "Secretary".
1975 - Subsec. (b)(3), (7). Pub. L. 94-81, Sec. 2(a)(1), (2),
inserted reference to par. (7) in par. (3), and added par. (7).
1971 - Subsec. (a)(2). Pub. L. 92-178, Sec. 303(c)(1), inserted
reference to section 188 in two places in text following subpar.
(D).
Subsec. (a)(3)(B)(ii), (iii). Pub. L. 92-178, Sec. 104(a)(2),
substituted "research facility" for "research or storage facility"
in cl. (ii) and added cl. (iii).
Subsec. (a)(3)(D). Pub. L. 92-178, Sec. 303(c)(2), inserted
reference to section 188.
1969 - Subsec. (a)(2). Pub. L. 91-172, Secs. 212(a)(1),
704(b)(4)(A), (B), added subpar. (C) and inserted references to
sections 169, 185, and 187, and added subpar. (D).
Subsec. (a)(3). Pub. L. 91-172, Secs. 212(a)(2),
704(b)(4)(C)-(F), struck out "(other than livestock)" after "means
any property" and substituted "section 167 (or subject to the
allowance of amortization provided in section 185)" for "section
167" and added subpar. (D).
1964 - Subsec. (a)(2), (3)(C). Pub. L. 88-272 redefined
"recomputed basis" with respect to elevators or escalators in par.
(2), and inserted subpar. (C) in par. (3).
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 effective as if included in the
amendments made by section 1913 of the Energy Policy Act of 1992,
Pub. L. 102-486, see section 1604(a)(4) of Pub. L. 105-34, set out
as a note under section 263 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 effective as if included in the
provision of the Revenue Reconciliation Act of 1993, Pub. L.
103-66, Secs. 13001-13444, to which such amendment relates, see
section 1703(o) of Pub. L. 104-188, set out as a note under section
39 of this title.
EFFECTIVE DATE OF 1995 AMENDMENT
Amendment by Pub. L. 104-7 applicable to sales and exchanges on
or after January 17, 1995, and to sales and exchanges before such
date if FCC tax certificate with respect to such sale or exchange
was issued on or after such date, but not applicable with respect
to certain binding contracts, see section 2(d) of Pub. L. 104-7,
set out as an Effective Date of Repeal note under section 1071 of
this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable, except as otherwise
provided, with respect to property acquired after Aug. 10, 1993,
see section 13261(g) of Pub. L. 103-66, set out as an Effective
Date note under section 197 of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by section 11813(b)(21) 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 1989 AMENDMENT
Amendment by Pub. L. 101-239 applicable to transfers after Oct.
2, 1989, but not applicable to any transfer pursuant to a written
binding contract in effect on Oct. 2, 1989, and at all times
thereafter before the transfer, see section 7622(c)[(e)] of Pub. L.
101-239, set out as a note under section 167 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 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 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.
EFFECTIVE DATE OF 1985 AMENDMENT
Amendment by Pub. L. 99-121 applicable with respect to property
placed in service by the taxpayer after May 8, 1985, with specified
exceptions, see section 105(b) of Pub. L. 99-121, set out as a note
under section 168 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable with respect to property
placed in service by the taxpayer after Mar. 15, 1984, subject to
certain exceptions, see section 111(g) of Pub. L. 98-369, set out
as a note under section 168 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the
Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by sections 201(b), 202(b), and 204(a)-(d) of 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.
Amendment by section 212(d)(2)(F) of Pub. L. 97-34 applicable to
expenditures incurred after Dec. 31, 1981, in taxable years ending
after such date, see section 212(e) of Pub. L. 97-34, set out as a
note under section 46 of this title.
EFFECTIVE DATE OF 1980 AMENDMENTS
Amendment by Pub. L. 96-451 applicable with respect to additions
to capital account made after Dec. 31, 1979, see section 301(d) of
Pub. L. 96-451, set out as an Effective Date note under section 194
of this title.
Amendment by Pub. L. 96-223 applicable to taxable years beginning
after Dec. 31, 1979, see section 251(b) of Pub. L. 96-223, set out
as an Effective Date note under section 193 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by section 701(f)(3)(A), (B) of Pub. L. 95-600
effective as if included within the amendment of subsec. (a)(2),
(3)(D) by section 2124 of Pub. L. 94-455, see section 701(f)(8) of
Pub. L. 95-600, set out as an Effective and Termination Dates of
1978 Amendments note under section 167 of this title.
Section 701(w)(3) of Pub. L. 95-600 provided that: "The
amendments made by this subsection [amending this section] shall
apply to transfers of player contracts in connection with any sale
or exchange of a franchise after December 31, 1975."
EFFECTIVE DATE OF 1976 AMENDMENT
Section 212(b)(2) of Pub. L. 94-455 provided that: "The amendment
made by this subsection [amending this section] applies to
transfers of player contracts in connection with any sale or
exchange of a franchise after December 31, 1975."
Amendment by section 1901(a)(140), (b)(3)(K), (11)(D) of Pub. L.
94-455 effective for taxable years beginning after Dec. 31, 1976,
see section 1901(d) of Pub. L. 94-455, set out as a note under
section 2 of this title.
Amendment by section 1951(c)(2)(C) of Pub. L. 94-455 applicable
to taxable years beginning after Dec. 31, 1976, see section 1951(d)
of Pub. L. 94-455, set out as a note under section 72 of this
title.
Amendment by section 2122(b)(3) of Pub. L. 94-455 applicable to
taxable years beginning after Dec. 31, 1976, see section 2122(c) of
Pub. L. 94-455, as amended, set out as an Effective Date note under
section 190 of this title.
Amendment by section 2124(a)(2) of Pub. L. 94-455 applicable with
respect to additions to capital account made after June 14, 1976
and before June 15, 1981, see section 2124(a)(4) of Pub. L. 94-455,
set out as an Effective Date note under section 642 of this title.
EFFECTIVE DATE OF 1975 AMENDMENT
Amendment by Pub. L. 94-81 applicable to dispositions after Dec.
31, 1969, in taxable years ending after such date, with special
provision for an election in the case of dispositions occurring
before Aug. 9, 1975, see section 2(c) of Pub. L. 94-81, set out as
a note under section 1250 of this title.
EFFECTIVE DATE OF 1971 AMENDMENT
Amendment by section 104(a)(2) of Pub. L. 92-178 applicable to
property described in section 50 of this title relating to
restoration of credit, see section 104(h) of Pub. L. 92-178, set
out as a note under section 48 of this title.
Amendment by section 303(c)(1), (2) of Pub. L. 92-178 applicable
to taxable years ending after Dec. 31, 1971, see section 303(d) of
Pub. L. 92-178, set out as a note under section 642 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Section 212(a)(3) of Pub. L. 91-172 provided that: "The
amendments made by paragraphs (1) and (2) [amending this section]
shall apply with respect to taxable years beginning after December
31, 1969."
Amendment by section 704(b)(4) of Pub. L. 91-172 applicable to
taxable years ending after Dec. 31, 1968, see section 704(c) of
Pub. L. 91-172, set out as a note under section 169 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable with respect to
dispositions after Dec. 31, 1963, in taxable years ending after
such date, see section 203(f)(3) of Pub. L. 88-272, set out as a
note under section 48 of this title.
EFFECTIVE DATE
Section 13(g) of Pub. L. 87-834 provided that: "The amendments
made by this section [enacting this section and amending sections
167, 170, 301, 312, 341, 453, 613, and 751 of this title] (other
than the amendments made by subsection (c) [amending sections 167,
179, and 642 of this title]) shall apply to taxable years beginning
after December 31, 1962. The amendments made by subsection (c)
shall apply to taxable years beginning after December 31, 1961, and
ending after the date of the enactment of this Act [Oct. 16,
1962]."
SAVINGS PROVISION
For provisions that nothing in amendment by sections 11801 and
11813 of 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.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 50, 108, 168, 169, 170,
179, 179A, 198, 263A, 291, 453, 465, 467, 512, 613, 617, 751, 861,
1017, 1250, 1252, 1255, 1257, 1276, 1400B of this title.
-FOOTNOTE-
(!1) See References in Text note below.
(!2) Comma added editorially.
-End-
-CITE-
26 USC Sec. 1246 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART IV - SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-HEAD-
Sec. 1246. Gain on foreign investment company stock
-STATUTE-
(a) Treatment of gain as ordinary income
(1) General rule
In the case of a sale or exchange (or a distribution which,
under section 302 or 331, is treated as an exchange of stock)
after December 31, 1962, of stock in a foreign corporation which
was a foreign investment company (as defined in subsection (b))
at any time during the period during which the taxpayer held such
stock, any gain shall be treated as ordinary income, to the
extent of the taxpayer's ratable share of the earnings and
profits of such corporation accumulated for taxable years
beginning after December 31, 1962.
(2) Ratable share
For purposes of this section, the taxpayer's ratable share
shall be determined under regulations prescribed by the
Secretary, but shall include only his ratable share of the
accumulated earnings and profits of such corporation -
(A) for the period during which the taxpayer held such stock,
but
(B) excluding such earnings and profits attributable to -
(i) any amount previously included in the gross income of
such taxpayer under section 951 (but only to the extent the
inclusion of such amount did not result in an exclusion of
any other amount from gross income under section 959), or
(ii) any taxable year during which such corporation was not
a foreign investment company but only if -
(I) such corporation was not a foreign investment company
at any time before such taxable year, and
(II) such corporation was treated as a foreign investment
company solely by reason of subsection (b)(2).
(3) Taxpayer to establish earnings and profits
Unless the taxpayer establishes the amount of the accumulated
earnings and profits of the foreign investment company and the
ratable share thereof for the period during which the taxpayer
held such stock, all the gain from the sale or exchange of stock
in such company shall be considered as ordinary income.
(4) Holding period of stock must be more than 1 year
This section shall not apply with respect to the sale or
exchange of stock where the holding period of such stock as of
the date of such sale or exchange is 1 year or less.
(b) Definition of foreign investment company
For purposes of this section, the term "foreign investment
company" means any foreign corporation which, for any taxable year
beginning after December 31, 1962, is -
(1) registered under the Investment Company Act of 1940, as
amended (15 U.S.C. 80a-1 to 80b-2), either as a management
company or as a unit investment trust, or
(2) engaged (or holding itself out as being engaged) primarily
in the business of investing, reinvesting, or trading in -
(A) securities (as defined in section 2(a)(36) of the
Investment Company Act of 1940, as amended),
(B) commodities, or
(C) any interest (including a futures or forward contract or
option) in property described in subparagraph (A) or (B),
at a time when 50 percent or more of the total combined voting
power of all classes of stock entitled to vote, or the total
value of all classes of stock, was held directly (or indirectly
through applying paragraphs (2) and (3) of section 958(a) and
paragraph (4) of section 318(a)) by United States persons (as
defined in section 7701(a)(30)).
(c) Stock having transferred or substituted basis
To the extent provided in regulations prescribed by the
Secretary, stock in a foreign corporation, the basis of which (in
the hands of the taxpayer selling or exchanging such stock) is
determined by reference to the basis (in the hands of such taxpayer
or any other person) of stock in a foreign investment company,
shall be treated as stock of a foreign investment company and held
by the taxpayer throughout the holding period for such stock
(determined under section 1223).
(d) Rules relating to entities holding foreign investment company
stock
To the extent provided in regulations prescribed by the Secretary
-
(1) trust certificates of a trust to which section 677
(relating to income for benefit of grantor) applies, and
(2) stock of a domestic corporation,
shall be treated as stock of a foreign investment company and held
by the taxpayer throughout the holding period for such certificates
or stock (determined under section 1223) in the same proportion
that the investment in stock in a foreign investment company by the
trust or domestic corporation bears to the total assets of such
trust or corporation.
(e) Rules relating to stock acquired from a decedent
(1) Basis
In the case of stock of a foreign investment company acquired
by bequest, devise, or inheritance (or by the decedent's estate)
from a decedent dying after December 31, 1962, the basis
determined under section 1014 shall be reduced (but not below the
adjusted basis of such stock in the hands of the decedent
immediately before his death) by the amount of the decedent's
ratable share of the earnings and profits of such company
accumulated after December 31, 1962. Any stock so acquired shall
be treated as stock described in subsection (c).
(2) Deduction for estate tax
If stock to which subsection (a) applies is acquired from a
decedent, the taxpayer shall, under regulations prescribed by the
Secretary or his delegate, be allowed (for the taxable year of
the sale or exchange) a deduction from gross income equal to that
portion of the decedent's estate tax deemed paid which is
attributable to the excess of (A) the value at which such stock
was taken into account for purposes of determining the value of
the decedent's gross estate, over (B) the value at which it would
have been so taken into account if such value had been reduced by
the amount described in paragraph (1).
(f) Information with respect to certain foreign investment
companies
Every United States person who, on the last day of the taxable
year of a foreign investment company, owns 5 percent or more in
value of the stock of such company shall furnish with respect to
such company such information as the Secretary shall by regulations
prescribe.
(g) Coordination with section 1248
This section shall not apply to any gain to the extent such gain
is treated as ordinary income under section 1248 (determined
without regard to section 1248(g)(2)).
(h) Cross reference
For special rules relating to the earnings and profits of
foreign investment companies, see section 312(l).
-SOURCE-
(Added Pub. L. 87-834, Sec. 14(a)(1), Oct. 16, 1962, 76 Stat. 1036;
amended Pub. L. 94-455, title XIV, Sec. 1402(b)(1)(W), (2), title
XIX, Secs. 1901(a)(141), (b)(3)(I), (32)(B)(ii), 1906(b)(13)(A),
title XX, Sec. 2005(a)(5), Oct. 4, 1976, 90 Stat. 1732, 1787, 1793,
1800, 1834, 1877; Pub. L. 96-223, title IV, Sec. 401(a), Apr. 2,
1980, 94 Stat. 299; Pub. L. 97-34, title VIII, Sec. 832(a), Aug.
13, 1981, 95 Stat. 355; Pub. L. 98-369, div. A, title I, Sec.
134(a), title X, Sec. 1001(b)(20), (e), July 18, 1984, 98 Stat.
668, 1012; Pub. L. 99-514, title XII, Sec. 1235(b), Oct. 22, 1986,
100 Stat. 2574; Pub. L. 100-647, title I, Secs. 1012(p)(21),
1018(o)(2), Nov. 10, 1988, 102 Stat. 3519, 3585; Pub. L. 107-16,
title V, Sec. 542(e)(5)(A), June 7, 2001, 115 Stat. 85.)
-STATAMEND-
AMENDMENT OF SECTION
Pub. L. 107-16, title V, Sec. 542(e)(5)(A), (f)(1), title IX,
Sec. 901, June 7, 2001, 115 Stat. 85, 86, 150, provided that,
applicable to estates of decedents dying after Dec. 31, 2009, this
section is temporarily amended by striking out subsection (e). See
Effective and Termination Dates of 2001 Amendment note below.
-REFTEXT-
REFERENCES IN TEXT
The Investment Company Act of 1940, as amended, referred to in
subsec. (b)(1), is title I of act Aug. 22, 1940, ch. 686, 54 Stat.
789, as amended, which is classified generally to subchapter I
(Sec. 80a-1 et seq.) of chapter 2D of Title 15, Commerce and Trade.
Section 2(a)(36) of such Act, referred to in subsec. (b)(2), is
classified to section 80a-2(a)(36) of Title 15. For complete
classification of this Act to the Code, see section 80a-51 of Title
15 and Tables.
-MISC1-
AMENDMENTS
1988 - Subsec. (f). Pub. L. 100-647, Sec. 1012(p)(21),
redesignated subsec. (g), relating to information with respect to
certain foreign investment companies, as (f). Former subsec. (f)
redesignated (g).
Subsec. (g). Pub. L. 100-647, Sec. 1018(o)(2), substituted
"1248(g)(2)" for "1248(g)(3)".
Pub. L. 100-647, Sec. 1012(p)(21), redesignated former subsec.
(f) as (g). Former subsec. (g), relating to information with
respect to certain foreign investment companies, redesignated (f)
and former subsec. (g), relating to cross reference, redesignated
(h).
Subsec. (h). Pub. L. 100-647, Sec. 1012(p)(21), redesignated
subsec. (g), relating to cross reference, as (h).
1986 - Subsecs. (f), (g). Pub. L. 99-514 added subsec. (f) and
redesignated former subsec. (f), relating to information with
respect to certain foreign investment companies, as (g).
1984 - Subsec. (a)(4). Pub. L. 98-369, Sec. 1001(b)(20), (e),
substituted "6 months" for "1 year", applicable to property
acquired after June 22, 1984, and before Jan. 1, 1988. See
Effective Date of 1984 Amendment note below.
Subsec. (b)(2). Pub. L. 98-369, Sec. 134(a), in amending par. (2)
generally, substituted reference to securities, as defined in
section 2(a)(36) of the Investment Company Act of 1940,
commodities, or any interest, including a futures or forward
contract or option, in property described in subpars. (A) and (B)
for reference to securities within the meaning of section 3(a)(1)
of the Investment Company Act of 1940, as limited by pars. (2)
through (10), except par. (6)(C), and pars. (12) through (15) of
section 3(c) of such Act, and reference to pars. (2) and (3) of
section 958(a) and par. (4) of section 318(a) for reference to
section 958(a).
1981 - Subsec. (a)(2)(B). Pub. L. 97-34 designated existing
provisions as cl. (i) and added cl. (ii).
1980 - Subsecs. (e) to (g). Pub. L. 96-223 repealed the amendment
made by Pub. L. 94-455, Sec. 2005(a)(5). See 1976 Amendment note
below.
1976 - Subsec. (a)(1), (2), (3). Pub. L. 94-455, Sec.
1901(b)(3)(I), substituted "ordinary income" for "gain from the
sale or exchange of property which is not a capital asset". Sec.
1901(b)(13)(A) struck out "or his delegate" after "Secretary".
Subsec. (a)(4). Pub. L. 94-455, Sec. 1402(b)(2), provided that "9
months" would be changed to "1 year".
Pub. L. 94-455, Sec. 1402(b)(1)(W), provided that "6 months"
would be changed to "9 months" for taxable years beginning in 1977.
Subsecs. (c), (d). Pub. L. 94-455, Sec. 1906(b)(13)(a), struck
out "or his delegate" after "Secretary".
Subsecs. (e) to (g). Pub. L. 94-455, Sec. 2005(a)(5), struck out
subsec. (e) and redesignated subsecs. (f) and (g) as (e) and (f),
respectively. See Repeals note below.
Pub. L. 94-455, Secs. 1901(a)(141), (b)(32)(B)(ii),
1906(b)(13)(A), struck out "or his delegate" in subsecs. (e)(2) and
(f), struck out "beginning after December 31, 1962" after "foreign
investment company" in subsec. (f), and substituted "section
312(j)" for "section 312(l)" in subsec. (g).
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Amendment by Pub. L. 107-16 applicable to estates of decedents
dying after Dec. 31, 2009, see section 542(f)(1) of Pub. L. 107-16,
set out as a note under section 121 of this title.
Amendment by Pub. L. 107-16 inapplicable to estates of decedents
dying, gifts made, or generation skipping transfers, after Dec. 31,
2010, and the Internal Revenue Code of 1986 to be applied and
administered to such estates, gifts, and transfers 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 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 Pub. L. 99-514 applicable to taxable years of
foreign corporations beginning after Dec. 31, 1986, see section
1235(h) of Pub. L. 99-514, set out as an Effective Date note under
section 1291 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 134(b) of Pub. L. 98-369 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendment made by subsection (a) [amending this section] shall
apply to sales and exchanges (and distributions) on or after
September 29, 1983, in taxable years ending on or after such date.
"(2) Stock held on september 29, 1983. - In the case of a sale or
exchange (or distribution) not later than the date which is 1 year
after the date of the enactment of this Act [July 18, 1984], the
amendment made by subsection (a) shall not apply with respect to
stock held by the taxpayer continuously from September 29, 1983, to
the date of such sale or exchange (or distribution)."
Amendment by section 1001(b)(20) of Pub. L. 98-369 applicable to
property acquired after June 22, 1984, and before Jan. 1, 1988, see
section 1001(e) of Pub. L. 98-369, set out as a note under section
166 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Section 832(b) of Pub. L. 97-34 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to sales
or exchanges after the date of the enactment of this Act [Aug. 13,
1981] in taxable years ending after such date."
EFFECTIVE DATE OF 1980 AMENDMENT AND REVIVAL OF PRIOR LAW
Amendment by Pub. L. 96-223 (repealing section 2005(a)(5) of Pub.
L. 94-455 and the amendments made thereby, which had amended this
section) applicable in respect of decedents dying after Dec. 31,
1976, and except for certain elections, this title to be applied
and administered as if those repealed provisions had not been
enacted, see section 401(b), (e) of Pub. L. 96-223, set out as a
note under section 1023 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1402(b)(1) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning in 1977.
Section 1402(b)(2) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning after Dec. 31, 1977.
Amendment by section 1901(a)(141), (b)(3)(I), (32)(B)(ii) of Pub.
L. 94-455 effective for taxable years beginning after Dec. 31,
1976, see section 1901(d) of Pub. L. 94-455, set out as a note
under section 2 of this title.
Amendment by section 2005(a)(5) of Pub. L. 94-455 applicable in
respect of decedents dying after Dec. 31, 1976, see section
2005(f)(1) of Pub. L. 94-455, set out as an Effective Date note
under section 1015 of this title.
EFFECTIVE DATE
Section 14(c) of Pub. L. 87-834 provided that: "The amendments
made by this section [enacting this section and section 1247 and
amending sections 312, 751, and 1223 of this title] shall apply
with respect to taxable years beginning after December 31, 1962."
REPEALS
Pub. L. 94-455, Sec. 2005(a)(5), cited as a credit to this
section, and the amendments made thereby, were repealed by Pub. L.
96-223, title IV, Sec. 401(a), 94 Stat. 299, resulting in the text
of this section reading as it read prior to enactment of section
2005(a)(5). See Effective Date of 1980 Amendment and Revival of
Prior Law note above.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 1, 312, 751, 904, 1223,
1247, 1248, 1260, 1291, 1298 of this title.
-End-
-CITE-
26 USC Sec. 1247 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART IV - SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-HEAD-
Sec. 1247. Election by foreign investment companies to distribute
income currently
-STATUTE-
(a) Election by foreign investment company
(1) In general
If a foreign investment company which is described in section
1246(b)(1) elects (in the manner provided in regulations
prescribed by the Secretary) on or before December 31, 1962, with
respect to each taxable year beginning after December 31, 1962,
to -
(A) distribute to its shareholders 90 percent or more of what
its taxable income would be if it were a domestic corporation;
(B) designate in a written notice mailed to its shareholders
at any time before the expiration of 45 days after the close of
its taxable year the pro rata amount of the amount (determined
as if such corporation were a domestic corporation) of the net
capital gain of the taxable year; and the portion thereof which
is being distributed; and
(C) provide such information as the Secretary deems necessary
to carry out the purposes of this section,
then section 1246 shall not apply with respect to the qualified
shareholders of such company during any taxable year to which
such election applies.
(2) Special rules
(A) Computation of taxable income
For purposes of paragraph (1)(A), the taxable income of the
company shall be computed without regard to -
(i) the net capital gain referred to in paragraph (1)(B),
(ii) section 172 (relating to net operating losses), and
(iii) any deduction provided by part VIII of subchapter B
(other than the deduction provided by section 248, relating
to organizational expenditures).
(B) Distributions after the close of the taxable year
For purposes of paragraph (1)(A), a distribution made after
the close of the taxable year and on or before the 15th day of
the third month of the next taxable year shall be treated as
distributed during the taxable year to the extent elected by
the company (in accordance with regulations prescribed by the
Secretary) on or before the 15th day of such third month.
(C) Carryover of capital losses from nonelection years denied
In computing the net capital gain referred to in paragraph
(1)(B), section 1212 shall not apply to losses incurred in or
with respect to taxable years before the first taxable year to
which the election applies.
(b) Years to which election applies
The election of any foreign investment company under this section
shall terminate as of the close of the taxable year preceding its
first taxable year in which any of the following occurs:
(1) the company fails to comply with the provisions of
subparagraph (A), (B), or (C) of subsection (a)(1), unless it is
shown that such failure is due to reasonable cause and not due to
willful neglect,
(2) the company is a foreign personal holding company, or
(3) the company is not a foreign investment company which is
described in section 1246(b)(1).
(c) Qualified shareholders
For purposes of this section -
(1) In general
The term "qualified shareholder" means any shareholder who is a
United States person (as defined in section 7701(a)(30)), other
than a shareholder described in paragraph (2).
(2) Certain United States persons excluded from definition
A United States person shall not be treated as a qualified
shareholder for the taxable year if for such taxable year (or for
any prior taxable year) he did not include, in computing his
long-term capital gains in his return for such taxable year, the
amount designated by such company pursuant to subsection
(a)(1)(B) as his share of the undistributed capital gains of such
company for its taxable year ending within or with such taxable
year of the taxpayer. The preceding sentence shall not apply with
respect to any failure by the taxpayer to treat an amount as
provided therein if the taxpayer shows that such failure was due
to reasonable cause and not due to willful neglect.
(d) Treatment of distributed and undistributed capital gains by a
qualified shareholder
Every qualified shareholder of a foreign investment company for
any taxable year of such company with respect to which an election
pursuant to subsection (a) is in effect shall include, in computing
his long-term capital gains -
(1) for his taxable year in which received, his pro rata share
of the distributed portion of the net capital gain for such
taxable year of such company, and
(2) for his taxable year in which or with which the taxable
year of such company ends, his pro rata share of the
undistributed portion of the net capital gain for such taxable
year of such company.
(e) Adjustments
Under regulations prescribed by the Secretary, proper adjustment
shall be made -
(1) in the earnings and profits of the electing foreign
investment company and a qualified shareholder's ratable share
thereof, and
(2) in the adjusted basis of stock of such company held by such
shareholder,
to reflect such shareholder's inclusion in gross income of
undistributed capital gains.
(f) Election by foreign investment company with respect to foreign
tax credit
A foreign investment company with respect to which an election
pursuant to subsection (a) is in effect and more than 50 percent of
the value (as defined in section 851(c)(4)) of whose total assets
at the close of the taxable year consists of stock or securities in
foreign corporations may, for such taxable year, elect the
application of this subsection with respect to income, war profits,
and excess profits taxes described in section 901(b)(1) which are
paid by the foreign investment company during such taxable year to
foreign countries and possessions of the United States. If such
election is made -
(1) the foreign investment company -
(A) shall compute its taxable income, for purposes of
subsection (a)(1)(A), without any deductions for income, war
profits, or excess profits taxes paid to foreign countries or
possessions of the United States, and
(B) shall treat the amount of such taxes, for purposes of
subsection (a)(1)(A), as distributed to its shareholders;
(2) each qualified shareholder of such foreign investment
company -
(A) shall include in gross income and treat as paid by him
his proportionate share of such taxes, and
(B) shall treat, for purposes of applying subpart A of part
III of subchapter N, his proportionate share of such taxes as
having been paid to the country in which the foreign investment
company is incorporated, and
(C) shall treat as gross income from sources within the
country in which the foreign investment company is
incorporated, for purposes of applying subpart A of part III of
subchapter N, the sum of his proportionate share of such taxes
and any dividend paid to him by such foreign investment
company.
(g) Notice to shareholders
The amounts to be treated by qualified shareholders, for purposes
of subsection (f)(2), as their proportionate share of the taxes
described in subsection (f)(1)(A) paid by a foreign investment
company shall not exceed the amounts so designated by the foreign
investment company in a written notice mailed to its shareholders
not later than 45 days after the close of its taxable year.
(h) Manner of making election and notifying shareholders
The election provided in subsection (f) and the notice to
shareholders required by subsection (g) shall be made in such
manner as the Secretary may prescribe by regulations.
(i) Loss on sale or exchange of certain stock held less than 1 year
If -
(1) under this section, any qualified shareholder treats any
amount designated under subsection (a)(1)(B) with respect to a
share of stock as long-term capital gain, and
(2) such share is held by the taxpayer for less than 1 year,
then any loss on the sale or exchange of such share shall, to the
extent of the amount described in paragraph (1), be treated as loss
from the sale or exchange of a capital asset held for more than 1
year.
-SOURCE-
(Added Pub. L. 87-834, Sec. 14(a)(1), Oct. 16, 1962, 76 Stat. 1037;
amended Pub. L. 94-455, title XIV, Sec. 1402(b)(1)(X), (2), title
XIX, Secs. 1901(b)(33)(P), (R), 1906(b)(13)(A), Oct. 4, 1976, 90
Stat. 1732, 1802, 1834; Pub. L. 98-369, div. A, title X, Sec.
1001(b)(21), (e), July 18, 1984, 98 Stat. 1012.)
-MISC1-
AMENDMENTS
1984 - Subsec. (i)(2). Pub. L. 98-369 substituted "6 months" for
"1 year", applicable to property acquired after June 22, 1984, and
before Jan. 1, 1988. See Effective Date of 1984 Amendment note
below.
1976 - Subsec. (a)(1)(B), (C). Pub. L. 94-455, Sec.
1901(b)(33)(P), substituted "the amount (determined as if such
corporation were a domestic corporation) of the net capital gain"
for "the excess (determined as if such corporation were a domestic
corporation) of the net long-term capital gain over the net
short-term capital loss", and Sec. 1906(b)(13)(A) struck out "or
his delegate" after "Secretary".
Subsec. (a)(2)(A)(i), (B), (C). Pub. L. 94-455, Sec.
1901(b)(33)(R), substituted in subpars. (A)(i) and (C) "the net
capital gain" for "the excess of the net long-term capital gain
over the net short-term capital loss,". Sec. 1906(b)(13)(A) struck
out in subpara. (a)(2)(B) "or his delegate" after "Secretary".
Subsec. (d)(1), (2). Pub. L. 94-455, Sec. 1901(b)(33)(R),
substituted "the net capital gain" for "the excess of the net
long-term capital gain over the net short-term capital loss,".
Subsecs. (e), (h). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
Subsec. (i). Pub. L. 94-455, Sec. 1402(b)(2), provided that "9
months" would be changed to "1 year" wherever appearing.
Pub. L. 94-455, Sec. 1402(b)(1)(X), provided that "6 months"
would be changed to "9 months" for taxable years beginning in 1977.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to property acquired after
June 22, 1984, and before Jan. 1, 1988, see section 1001(e) of Pub.
L. 98-369, set out as a note under section 166 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1402(b)(1) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning in 1977.
Section 1402(b)(2) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning after Dec. 31, 1977.
Amendment by section 1901(b)(33)(P), (R) 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 applicable with respect to taxable years beginning after
Dec. 31, 1962, see section 14(c) of Pub. L. 87-834, set out as a
note under section 1246 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 1, 951, 1212, 1248, 1297
of this title.
-End-
-CITE-
26 USC Sec. 1248 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART IV - SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-HEAD-
Sec. 1248. Gain from certain sales or exchanges of stock in certain
foreign corporations
-STATUTE-
(a) General rule
If -
(1) a United States person sells or exchanges stock in a
foreign corporation, and
(2) such person owns, within the meaning of section 958(a), or
is considered as owning by applying the rules of ownership of
section 958(b), 10 percent or more of the total combined voting
power of all classes of stock entitled to vote of such foreign
corporation at any time during the 5-year period ending on the
date of the sale or exchange when such foreign corporation was a
controlled foreign corporation (as defined in section 957),
then the gain recognized on the sale or exchange of such stock
shall be included in the gross income of such person as a dividend,
to the extent of the earnings and profits of the foreign
corporation attributable (under regulations prescribed by the
Secretary) to such stock which were accumulated in taxable years of
such foreign corporation beginning after December 31, 1962, and
during the period or periods the stock sold or exchanged was held
by such person while such foreign corporation was a controlled
foreign corporation. For purposes of this section, a United States
person shall be treated as having sold or exchanged any stock if,
under any provision of this subtitle, such person is treated as
realizing gain from the sale or exchange of such stock.
(b) Limitation on tax applicable to individuals
In the case of an individual, if the stock sold or exchanged is a
capital asset (within the meaning of section 1221) and has been
held for more than 1 year, the tax attributable to an amount
included in gross income as a dividend under subsection (a) shall
not be greater than a tax equal to the sum of -
(1) a pro rata share of the excess of -
(A) the taxes that would have been paid by the foreign
corporation with respect to its income had it been taxed under
this chapter as a domestic corporation (but without allowance
for deduction of, or credit for, taxes described in
subparagraph (B)), for the period or periods the stock sold or
exchanged was held by the United States person in taxable years
beginning after December 31, 1962, while the foreign
corporation was a controlled foreign corporation, adjusted for
distributions and amounts previously included in gross income
of a United States shareholder under section 951, over
(B) the income, war profits, or excess profits taxes paid by
the foreign corporation with respect to such income; and
(2) an amount equal to the tax that would result by including
in gross income, as gain from the sale or exchange of a capital
asset held for more than 1 year, an amount equal to the excess of
(A) the amount included in gross income as a dividend under
subsection (a), over (B) the amount determined under paragraph
(1).
(c) Determination of earnings and profits
(1) In general
Except as provided in section 312(k)(4), for purposes of this
section, the earnings and profits of any foreign corporation for
any taxable year shall be determined according to rules
substantially similar to those applicable to domestic
corporations, under regulations prescribed by the Secretary.
(2) Earnings and profits of subsidiaries of foreign corporations
If -
(A) subsection (a) or (f) applies to a sale, exchange, or
distribution by a United States person of stock of a foreign
corporation and, by reason of the ownership of the stock sold
or exchanged, such person owned within the meaning of section
958(a)(2) stock of any other foreign corporation; and
(B) such person owned, within the meaning of section 958(a),
or was considered as owning by applying the rules of ownership
of section 958(b), 10 percent or more of the total combined
voting power of all classes of stock entitled to vote of such
other foreign corporation at any time during the 5-year period
ending on the date of the sale or exchange when such other
foreign corporation was a controlled foreign corporation (as
defined in section 957),
then, for purposes of this section, the earnings and profits of
the foreign corporation the stock of which is sold or exchanged
which are attributable to the stock sold or exchanged shall be
deemed to include the earnings and profits of such other foreign
corporation which -
(C) are attributable (under regulations prescribed by the
Secretary) to the stock of such other foreign corporation which
such person owned within the meaning of section 958(a)(2) (by
reason of his ownership within the meaning of section
958(a)(1)(A) of the stock sold or exchanged) on the date of
such sale or exchange (or on the date of any sale or exchange
of the stock of such other foreign corporation occurring during
the 5-year period ending on the date of the sale or exchange of
the stock of such foreign corporation, to the extent not
otherwise taken into account under this section but not in
excess of the fair market value of the stock of such other
foreign corporation sold or exchanged over the basis of such
stock (for determining gain) in the hands of the transferor);
and
(D) were accumulated in taxable years of such other
corporation beginning after December 31, 1962, and during the
period or periods -
(i) such other corporation was a controlled foreign
corporation, and
(ii) such person owned within the meaning of section 958(a)
the stock of such other foreign corporation.
(d) Exclusions from earnings and profits
For purposes of this section, the following amounts shall be
excluded, with respect to any United States person, from the
earnings and profits of a foreign corporation:
(1) Amounts included in gross income under section 951
Earnings and profits of the foreign corporation attributable to
any amount previously included in the gross income of such person
under section 951, with respect to the stock sold or exchanged,
but only to the extent the inclusion of such amount did not
result in an exclusion of an amount from gross income under
section 959.
[(2) Repealed. Pub. L. 100-647, title I, Sec. 1006(e)(14)(A),
Nov. 10, 1988, 102 Stat. 3402]
(3) Less developed country corporations under prior law
Earnings and profits of a foreign corporation which were
accumulated during any taxable year beginning before January 1,
1976, while such corporation was a less developed country
corporation under section 902(d) as in effect before the
enactment of the Tax Reduction Act of 1975.
(4) United States income
Any item includible in gross income of the foreign corporation
under this chapter -
(A) for any taxable year beginning before January 1, 1967, as
income derived from sources within the United States of a
foreign corporation engaged in trade or business within the
United States, or
(B) for any taxable year beginning after December 31, 1966,
as income effectively connected with the conduct by such
corporation of a trade or business within the United States.
This paragraph shall not apply with respect to any item which is
exempt from taxation (or is subject to a reduced rate of tax)
pursuant to a treaty obligation of the United States.
(5) Amounts included in gross income under section 1247
If the United States person whose stock is sold or exchanged
was a qualified shareholder (as defined in section 1247(c)) of a
foreign corporation which was a foreign investment company (as
described in section 1246(b)(1)), the earnings and profits of the
foreign corporation for taxable years in which such person was a
qualified shareholder.
(6) Foreign trade income
Earnings and profits of the foreign corporation attributable to
foreign trade income of a FSC other than foreign trade income
which -
(A) is section 923(a)(2) (!1) non-exempt income (within the
meaning of section 927(d)(6)),(!1) or
(B) would not (but for section 923(a)(4)) (!1) be treated as
exempt foreign trade income.
For purposes of the preceding sentence, the terms "foreign trade
income" and "exempt foreign trade income" have the respective
meanings given such terms by section 923.(!1)
(7) Amounts included in gross income under section 1293
Earnings and profits of the foreign corporation attributable to
any amount previously included in the gross income of such person
under section 1293 with respect to the stock sold or exchanged,
but only to the extent the inclusion of such amount did not
result in an exclusion of an amount under section 1293(c).
(e) Sales or exchanges of stock in certain domestic corporations
Except as provided in regulations prescribed by the Secretary, if
-
(1) a United States person sells or exchanges stock of a
domestic corporation, and
(2) such domestic corporation was formed or availed of
principally for the holding, directly or indirectly, of stock of
one or more foreign corporations,
such sale or exchange shall, for purposes of this section, be
treated as a sale or exchange of the stock of the foreign
corporation or corporations held by the domestic corporation.
(f) Certain nonrecognition transactions
Except as provided in regulations prescribed by the Secretary -
(1) In general
If -
(A) a domestic corporation satisfies the stock ownership
requirements of subsection (a)(2) with respect to a foreign
corporation, and
(B) such domestic corporation distributes stock of such
foreign corporation in a distribution to which section 311(a),
337, 355(c)(1), or 361(c)(1) applies,
then, notwithstanding any other provision of this subtitle, an
amount equal to the excess of the fair market value of such stock
over its adjusted basis in the hands of the domestic corporation
shall be included in the gross income of the domestic corporation
as a dividend to the extent of the earnings and profits of the
foreign corporation attributable (under regulations prescribed by
the Secretary) to such stock which were accumulated in taxable
years of such foreign corporation beginning after December 31,
1962, and during the period or periods the stock was held by such
domestic corporation while such foreign corporation was a
controlled foreign corporation. For purposes of subsections
(c)(2), (d), and (h), a distribution of stock to which this
subsection applies shall be treated as a sale of stock to which
subsection (a) applies.
(2) Exception for certain distributions
In the case of any distribution of stock of a foreign
corporation, paragraph (1) shall not apply if such distribution
is to a domestic corporation -
(A) which is treated under this section as holding such stock
for the period for which the stock was held by the distributing
corporation, and
(B) which, immediately after the distribution, satisfies the
stock ownership requirements of subsection (a)(2) with respect
to such foreign corporation.
(3) Application to cases described in subsection (e)
To the extent that earnings and profits are taken into account
under this subsection, they shall be excluded and not taken into
account for purposes of subsection (e).
(g) Exceptions
This section shall not apply to -
(1) distributions to which section 303 (relating to
distributions in redemption of stock to pay death taxes) applies;
or
(2) any amount to the extent that such amount is, under any
other provision of this title, treated as -
(A) a dividend (other than an amount treated as a dividend
under subsection (f)),
(B) ordinary income, or
(C) gain from the sale of an asset held for not more than 1
year.
(h) Taxpayer to establish earnings and profits
Unless the taxpayer establishes the amount of the earnings and
profits of the foreign corporation to be taken into account under
subsection (a) or (f), all gain from the sale or exchange shall be
considered a dividend under subsection (a) or (f), and unless the
taxpayer establishes the amount of foreign taxes to be taken into
account under subsection (b), the limitation of such subsection
shall not apply.
(i) Treatment of certain indirect transfers
(1) In general
If any shareholder of a 10-percent corporate shareholder of a
foreign corporation exchanges stock of the 10-percent corporate
shareholder for stock of the foreign corporation, such 10-percent
corporate shareholder shall recognize gain in the same manner as
if the stock of the foreign corporation received in such exchange
had been -
(A) issued to the 10-percent corporate shareholder, and
(B) then distributed by the 10-percent corporate shareholder
to such shareholder in redemption or liquidation (whichever is
appropriate).
The amount of gain recognized by such 10-percent corporate
shareholder under the preceding sentence shall not exceed the
amount treated as a dividend under this section.
(2) 10-percent corporate shareholder defined
For purposes of this subsection, the term "10-percent corporate
shareholder" means any domestic corporation which, as of the day
before the exchange referred to in paragraph (1), satisfies the
stock ownership requirements of subsection (a)(2) with respect to
the foreign corporation.
(j) Cross reference
For provision excluding amounts previously taxed under this
section from gross income when subsequently distributed, see
section 959(e).
-SOURCE-
(Added Pub. L. 87-834, Sec. 15(a), Oct. 16, 1962, 76 Stat. 1041;
amended Pub. L. 89-809, title I, Sec. 104(k), Nov. 13, 1966, 80
Stat. 1562; Pub. L. 91-172, title IV, Sec. 442(b)(2), Dec. 30,
1969, 83 Stat. 628; Pub. L. 94-455, title X, Secs. 1022(a),
1042(b), (c)(1), (3), title XIV, Sec. 1402(b)(1)(Y), (2), title
XIX, Secs. 1901(b)(3)(H), (32)(B)(iii), 1906(b)(13)(A), Oct. 4,
1976, 90 Stat. 1619, 1636, 1637, 1732, 1793, 1800, 1834; Pub. L.
97-448, title I, Sec. 102(c)(1), Jan. 12, 1983, 96 Stat. 2370; Pub.
L. 98-369, div. A, title I, Sec. 133(a), (b)(2), (c), title VIII,
Sec. 801(d)(6), title X, Sec. 1001(b)(22), (e), July 18, 1984, 98
Stat. 667, 668, 996, 1012; Pub. L. 99-514, title VI, Sec.
631(d)(2), title XVIII, Secs. 1810(i)(1), 1875(g)(1), 1876(a)(2),
Oct. 22, 1986, 100 Stat. 2272, 2829, 2897; Pub. L. 100-647, title
I, Secs. 1006(e)(14), 1012(p)(19), Nov. 10, 1988, 102 Stat. 3402,
3518; Pub. L. 104-188, title I, Sec. 1702(g)(1), Aug. 20, 1996, 110
Stat. 1872.)
-REFTEXT-
REFERENCES IN TEXT
The Tax Reduction Act of 1975, referred to in subsec. (d)(3), is
Pub. L. 94-12, Mar. 29, 1975, 89 Stat. 26, as amended. For complete
classification of this Act to the Code, see Short Title of 1975
Amendment note set out under section 1 of this title and Tables.
Sections 923 and 927, referred to in subsec. (d)(6), were
repealed by Pub. L. 106-519, Sec. 2, Nov. 15, 2000, 114 Stat. 2423.
-MISC1-
AMENDMENTS
1996 - Subsec. (a). Pub. L. 104-188, Sec. 1702(g)(1)(A)(ii), in
closing provisions inserted at end "For purposes of this section, a
United States person shall be treated as having sold or exchanged
any stock if, under any provision of this subtitle, such person is
treated as realizing gain from the sale or exchange of such stock."
Subsec. (a)(1). Pub. L. 104-188, Sec. 1702(g)(1)(A)(i), struck
out ", or if a United States person receives a distribution from a
foreign corporation which, under section 302 or 331, is treated as
an exchange of stock" after "in a foreign corporation".
Subsec. (e)(1). Pub. L. 104-188, Sec. 1702(g)(1)(B), struck out
", or receives a distribution from a domestic corporation which,
under section 302 or 331, is treated as an exchange of stock" after
"of a domestic corporation".
Subsec. (f)(1)(B). Pub. L. 104-188, Sec. 1702(g)(1)(C),
substituted "355(c)(1), or 361(c)(1)" for "or 361(c)(1)".
Subsec. (i)(1). Pub. L. 104-188, Sec. 1702(g)(1)(D), reenacted
heading without change and amended text generally. Prior to
amendment, text read as follows: "If any shareholder of a
10-percent corporate shareholder of a foreign corporation exchanges
stock of the 10-percent corporate shareholder for stock of the
foreign corporation, for purposes of this section, the stock of the
foreign corporation received in such exchange shall be treated as
if it had been -
"(A) issued to the 10-percent corporate shareholder, and
"(B) then distributed by the 10-percent corporate shareholder
to such shareholder in redemption or liquidation (whichever is
appropriate)."
1988 - Subsec. (d)(2). Pub. L. 100-647, Sec. 1006(e)(14)(A),
struck out par. (2) which related to gain realized from sale or
exchange of property in pursuance of plan of complete liquidation.
Subsec. (d)(7). Pub. L. 100-647, Sec. 1012(p)(19), added par.
(7).
Subsec. (f). Pub. L. 100-647, Sec. 1006(e)(14)(E), substituted
"nonrecognition" for "section 311, 336, or 337" in heading.
Subsec. (f)(1). Pub. L. 100-647, Sec. 1006(e)(14)(C), struck out
", sale, or exchange" after "(h), a distribution" in last sentence.
Subsec. (f)(1)(B). Pub. L. 100-647, Sec. 1006(e)(14)(B), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: "such domestic corporation distributes, sells, or
exchanges stock of such foreign corporation in a transaction to
which section 311, 336, or 337 applies,".
Subsec. (f)(3), (4). Pub. L. 100-647, Sec. 1006(e)(14)(D),
redesignated par. (4) as (3) and struck out former par. (3) which
related to nonapplication of paragraph (1) in certain cases.
1986 - Subsec. (d)(6). Pub. L. 99-514, Sec. 1876(a)(2), amended
par. (6) generally. Prior to amendment, par. (6) read as follows:
"Earnings and profits of the foreign corporation attributable to
foreign trade income (within the meaning of section 923(b)) of a
FSC."
Subsec. (e). Pub. L. 99-514, Sec. 631(d)(2)(A), substituted
"Except as provided in regulations" for "Under regulations".
Subsec. (f). Pub. L. 99-514, Sec. 631(d)(2)(B), inserted "Except
as provided in regulations prescribed by the Secretary - " after
heading.
Subsec. (g). Pub. L. 99-514, Sec. 1875(g)(1), inserted "or" at
end of par. (1), redesignated par. (3) as (2), and struck out
former par. (2) which read as follows: "gain realized on exchanges
to which section 356 (relating to receipt of additional
consideration in certain reorganizations) applies; or".
Subsec. (i)(1)(B). Pub. L. 99-514, Sec. 1810(i)(1), substituted
"in redemption or liquidation (whichever is appropriate)" for "in
redemption of his stock".
1984 - Subsec. (b). Pub. L. 98-369, Sec. 1001(b)(22), (e),
substituted "6 months" for "1 year", applicable to property
acquired after June 22, 1984, and before Jan. 1, 1988. See
Effective Date of 1984 Amendment note below.
Subsec. (c)(2)(D). Pub. L. 98-369, Sec. 133(c), substituted
"section 958(a)" for "section 958(a)(2)".
Subsec. (d)(6). Pub. L. 98-369, Sec. 801(d)(6), added par. (6).
Subsec. (g)(3)(C). Pub. L. 98-369, Sec. 1001(b)(22), (e),
substituted "6 months" for "1 year", applicable to property
acquired after June 22, 1984, and before Jan. 1, 1988. See
Effective Date of 1984 Amendment note below.
Subsec. (i). Pub. L. 98-369, Sec. 133(a), added subsec. (i).
Subsec. (j). Pub. L. 98-369, Sec. 133(b)(2), added subsec. (j).
1983 - Subsec. (c)(1). Pub. L. 97-448 substituted "section
312(k)(4)" for "section 312(k)(3)".
1976 - Subsec. (a). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
Subsec. (b). Pub. L. 94-455, Sec. 1402(b)(2), provided that "9
months" would be changed to "1 year".
Pub. L. 94-455, Sec. 1402(b)(1)(Y), provided that "6 months"
would be changed to "9 months" for taxable years beginning in 1977.
Subsec. (c)(1). Pub. L. 94-455, Secs. 1901(b)(32)(B)(iii),
1906(b)(13(A), substituted "section 312(k)" for "section
312(m)(3)", and struck out "or his delegate" after "Secretary".
Subsec. (c)(2)(A). Pub. L. 94-455, Sec. 1042(c)(3)(A),
substituted "subsection (a) or (f) applies to a sale, exchange, or
distribution" for "subsection (a) applies to a sale or exchange".
Subsec. (c)(2)(C). Pub. L. 94-455, Sec. 1042(b), inserted "(or on
the date of any sale or exchange of the stock of such other foreign
corporation occurring during the 5-year period ending on the date
of the sale or exchange of the stock of such foreign corporation,
to the extent not otherwise taken into account under this section
but not in excess of the fair market value of the stock of such
other foreign corporation sold or exchanged over the basis of such
stock (for determining gain) in the hands of the transferor)". Sec.
1906(b)(13)(A), struck out "or his delegate" after "Secretary".
Subsec. (d)(2). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out
"or his delegate" after "Secretary".
Subsec. (d)(3). Pub. L. 94-455, Sec. 1022(a), substituted
provisions of par. (3) relating to "Less developed country
corporations under prior law" and reading "Earnings and profits of
a foreign corporation which were accumulated during any taxable
year beginning before January 1, 1976, while such corporation was a
less developed country corporation under section 902(d) as in
effect before the enactment of the Tax Reduction Act of 1975" for
prior par. (3) relating to "Less developed country corporations"
and reading "Earnings and profits accumulated by a foreign
corporation while it was a less developed country corporation (as
defined in section 902(d)), if the stock sold or exchanged was
owned for a continuous period of at least 10 years, ending with the
date of the sale or exchange, by the United States person who sold
or exchanged such stock. In the case of stock sold or exchanged by
a corporation, if United States persons who are individuals,
estates, or trusts (each of whom owned within the meaning of
section 958(a), or were considered as owning by applying the rules
of ownership of section 958(b), 10 percent or more of the total
combined voting power of all classes of stock entitled to vote of
such corporation) owned, or were considered as owning, at any time
during the 10-year period ending on the date of the sale or
exchange more than 50 percent of the total combined voting power of
all classes of stock entitled to vote such corporation, this
paragraph shall apply only if such United States persons owned, or
were considered as owning, at all times during the remainder of
such 10-year period more than 50 percent of the total combined
voting power of all classes of stock entitled to vote of such
corporation. For purposes of this paragraph, stock owned by a
United States person who is an individual, estate, or trust which
was acquired by reason of the death of the predecessor in interest
of such United States person shall be considered as owned by such
United States person during the period such stock was owned by such
predecessor in interest, and during the period such stock was owned
by any other predecessor in interest if between such United States
person and such other predecessor in interest there was no transfer
other than by reason of the death of an individual."
Subsec. (e). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out "or
his delegate" after "Secretary".
Subsec. (f). Pub. L. 94-455, Sec. 1042(c)(1), added subsec. (f).
Former subsec. (f) redesignated (g).
Subsec. (g). Pub. L. 94-455, Secs. 1042(c)(1), (3)(B),
1901(b)(3)(H), redesignated former subsec. (f) as (g); inserted
"(other than an amount treated as a dividend under subsection (f))"
in par. (3)(A); and substituted in par. (3)(B) "ordinary income"
for "gain from the sale of an asset which is not a capital asset",
respectively. Former subsec. (g) redesignated (h).
Subsec. (g)(3)(C). Pub. L. 94-455, Sec. 1402(b)(2), provided that
"9 months" would be changed to "1 year".
Pub. L. 94-455, Sec. 1402(b)(1)(Y), provided that "6 months"
would be changed to "9 months" for taxable years beginning in 1977.
Subsec. (h). Pub. L. 94-455, Sec. 1042(c)(1), (3)(C),
redesignated former subsec. (g) as (h) and inserted reference to
subsec. (f) in two places.
1969 - Subsec. (c)(1). Pub. L. 91-172 inserted reference to the
exception provided for in section 312(m)(3).
1966 - Subsec. (d)(4). Pub. L. 89-809 provided that for taxable
years beginning after December 31, 1966, the earnings and profits
of the foreign corporation, for purposes of this section, is not to
include income effectively connected with the conduct of a trade or
business within the United States, and inserted provision that the
exclusion does not apply to income which is exempt from tax or
subject to a reduced rate of tax pursuant to a treaty.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 effective, except as otherwise
expressly provided, as if included in the provision of the Revenue
Reconciliation Act of 1990, Pub. L. 101-508, title XI, to which
such amendment relates, see section 1702(i) of Pub. L. 104-188, set
out as a note under section 38 of this title.
EFFECTIVE DATE OF 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(d)(2) 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 1875(g)(2) of Pub. L. 99-514 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to exchanges after March 1, 1986."
Amendment by sections 1810(i)(1) and 1876(a)(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 133(d)(1) of Pub. L. 98-369 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
exchanges after the date of the enactment of this Act [July 18,
1984] in taxable years ending after such date."
Amendment by section 133(b)(2), (c) of Pub. L. 98-369 applicable
with respect to transactions to which subsec. (a) or (f) of this
section applies occurring after July 18, 1984, with election of
earlier date for certain transactions, see section 133(d)(2), (3)
of Pub. L. 98-369, set out as a note under section 959 of this
title.
Amendment by section 801(d)(6) of Pub. L. 98-369 applicable to
transactions after Dec. 31, 1984, in taxable years ending after
such date, see section 805(a)(1) of Pub. L. 98-369, as amended, set
out as a note under section 245 of this title.
Amendment by section 1001(b)(22) of Pub. L. 98-369 applicable to
property acquired after June 22, 1984, and before Jan. 1, 1988, see
section 1001(e) of Pub. L. 98-369, set out as a note under section
166 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the
Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1022(b) of Pub. L. 94-455 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1975."
For effective date of amendment by section 1042 of Pub. L.
94-455, see section 1042(e) of Pub. L. 94-455, set out as a note
under section 367 of this title.
Section 1402(b)(1) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning in 1977.
Section 1402(b)(2) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning after Dec. 31, 1977.
Amendment by section 1901(b)(3)(H), (32)(B)(iii) 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 OF 1966 AMENDMENT
Amendment by Pub. L. 89-809 applicable with respect to sales or
exchanges occurring after Dec. 31, 1966, see section 104(n) of Pub.
L. 89-809, set out as a note under section 11 of this title.
EFFECTIVE DATE
Section 15(c) of Pub. L. 87-834 provided that: "The amendments
made by this section [enacting this section] shall apply with
respect to sales or exchanges occurring after December 31, 1962."
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
Section 1875(g)(3) of Pub. L. 99-514 provided that: "An exchange
shall be treated as occurring on or before March 1, 1986, if -
"(A) on or before such date, the taxpayer adopts a plan of
reorganization to which section 356 [of the Internal Revenue Code
of 1986] applies, and
"(B) such plan or reorganization is implemented and
distributions pursuant to such plan are completed on or before
the date of enactment of this Act [Oct. 22, 1986]."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 245, 338, 751, 865, 951,
953, 959, 964, 989, 1246, 1291, 4916 of this title.
-FOOTNOTE-
(!1) See References in Text note below.
-End-
-CITE-
26 USC Sec. 1249 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART IV - SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-HEAD-
Sec. 1249. Gain from certain sales or exchanges of patents, etc.,
to foreign corporations
-STATUTE-
(a) General rule
Gain from the sale or exchange after December 31, 1962, of a
patent, an invention, model, or design (whether or not patented), a
copyright, a secret formula or process, or any other similar
property right to any foreign corporation by any United States
person (as defined in section 7701(a)(30)) which controls such
foreign corporation shall, if such gain would (but for the
provisions of this subsection) be gain from the sale or exchange of
a capital asset or of property described in section 1231, be
considered as ordinary income.
(b) Control
For purposes of subsection (a), control means, with respect to
any foreign corporation, the ownership, directly or indirectly, of
stock possessing more than 50 percent of the total combined voting
power of all classes of stock entitled to vote. For purposes of
this subsection, the rules for determining ownership of stock
prescribed by section 958 shall apply.
-SOURCE-
(Added Pub. L. 87-834, Sec. 16(a), Oct. 16, 1962, 76 Stat. 1045;
amended Pub. L. 89-809, title I, Sec. 104(m)(3), Nov. 13, 1966, 80
Stat. 1563; Pub. L. 94-455, title XIX, Sec. 1901(b)(3)(K), Oct. 4,
1976, 90 Stat. 1793.)
-MISC1-
AMENDMENTS
1976 - Subsec. (a). Pub. L. 94-455 substituted "ordinary income"
for "gain from the sale or exchange of property which is neither a
capital asset nor property described in section 1231".
1966 - Subsec. (a). Pub. L. 89-809 substituted "Gain" for "Except
as provided in subsection (c), gain".
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by 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 OF 1966 AMENDMENT
Amendment by Pub. L. 89-809 applicable with respect to taxable
years beginning after Dec. 31, 1966, see section 104(n) of Pub. L.
89-809, set out as a note under section 11 of this title.
EFFECTIVE DATE
Section 16(c) of Pub. L. 87-834 provided that: "The amendments
made by this section [enacting this section] shall apply to taxable
years beginning after December 31, 1962."
-End-
-CITE-
26 USC Sec. 1250 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART IV - SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-HEAD-
Sec. 1250. Gain from dispositions of certain depreciable realty
-STATUTE-
(a) General rule
Except as otherwise provided in this section -
(1) Additional depreciation after December 31, 1975
(A) In general
If section 1250 property is disposed of after December 31,
1975, then the applicable percentage of the lower of -
(i) that portion of the additional depreciation (as defined
in subsection (b)(1) or (4)) attributable to periods after
December 31, 1975, in respect of the property, or
(ii) the excess of the amount realized (in the case of a
sale, exchange, or involuntary conversion), or the fair
market value of such property (in the case of any other
disposition), over the adjusted basis of such property,
shall be treated as gain which is ordinary income. Such gain
shall be recognized notwithstanding any other provision of this
subtitle.
(B) Applicable percentage
For purposes of subparagraph (A), the term "applicable
percentage" means -
(i) in the case of section 1250 property with respect to
which a mortgage is insured under section 221(d)(3) or 236 of
the National Housing Act, or housing financed or assisted by
direct loan or tax abatement under similar provisions of
State or local laws and with respect to which the owner is
subject to the restrictions described in section
1039(b)(1)(B) (as in effect on the day before the date of the
enactment of the Revenue Reconciliation Act of 1990), 100
percent minus 1 percentage point for each full month the
property was held after the date the property was held 100
full months;
(ii) in the case of dwelling units which, on the average,
were held for occupancy by families or individuals eligible
to receive subsidies under section 8 of the United States
Housing Act of 1937, as amended, or under the provisions of
State or local law authorizing similar levels of subsidy for
lower-income families, 100 percent minus 1 percentage point
for each full month the property was held after the date the
property was held 100 full months;
(iii) in the case of section 1250 property with respect to
which a depreciation deduction for rehabilitation
expenditures was allowed under section 167(k), 100 percent
minus 1 percentage point for each full month in excess of 100
full months after the date on which such property was placed
in service;
(iv) in the case of section 1250 property with respect to
which a loan is made or insured under title V of the Housing
Act of 1949, 100 percent minus 1 percentage point for each
full month the property was held after the date the property
was held 100 full months; and
(v) in the case of all other section 1250 property, 100
percent.
In the case of a building (or a portion of a building devoted
to dwelling units), if, on the average, 85 percent or more of
the dwelling units contained in such building (or portion
thereof) are units described in clause (ii), such building (or
portion thereof) shall be treated as property described in
clause (ii). Clauses (i), (ii), and (iv) shall not apply with
respect to the additional depreciation described in subsection
(b)(4) which was allowed under section 167(k).
(2) Additional depreciation after December 31, 1969, and before
January 1, 1976
(A) In general
If section 1250 property is disposed of after December 31,
1969, and the amount determined under paragraph (1)(A)(ii)
exceeds the amount determined under paragraph (1)(A)(i), then
the applicable percentage of the lower of -
(i) that portion of the additional depreciation
attributable to periods after December 31, 1969, and before
January 1, 1976, in respect of the property, or
(ii) the excess of the amount determined under paragraph
(1)(A)(ii) over the amount determined under paragraph
(1)(A)(i),
shall also be treated as gain which is ordinary income. Such
gain shall be recognized notwithstanding any other provision of
this subtitle.
(B) Applicable percentage
For purposes of subparagraph (A), the term "applicable
percentage" means -
(i) in the case of section 1250 property disposed of
pursuant to a written contract which was, on July 24, 1969,
and at all times thereafter, binding on the owner of the
property, 100 percent minus 1 percentage point for each full
month the property was held after the date the property was
held 20 full months;
(ii) in the case of section 1250 property with respect to
which a mortgage is insured under section 221(d)(3) or 236 of
the National Housing Act, or housing financed or assisted by
direct loan or tax abatement under similar provisions of
State or local laws, and with respect to which the owner is
subject to the restrictions described in section
1039(b)(1)(B) (as in effect on the day before the date of the
enactment of the Revenue Reconciliation Act of 1990), 100
percent minus 1 percentage point for each full month the
property was held after the date the property was held 20
full months;
(iii) in the case of residential rental property (as
defined in section 167(j)(2)(B)) other than that covered by
clauses (i) and (ii), 100 percent minus 1 percentage point
for each full month the property was held after the date the
property was held 100 full months;
(iv) in the case of section 1250 property with respect to
which a depreciation deduction for rehabilitation
expenditures was allowed under section 167(k), 100 percent
minus 1 percentage point for each full month in excess of 100
full months after the date on which such property was placed
in service; and
(v) in the case of all other section 1250 property, 100
percent.
Clauses (i), (ii), and (iii) shall not apply with respect to
the additional depreciation described in subsection (b)(4).
(3) Additional depreciation before January 1, 1970
(A) In general
If section 1250 property is disposed of after December 31,
1963, and the amount determined under paragraph (1)(A)(ii)
exceeds the sum of the amounts determined under paragraphs
(1)(A)(i) and (2)(A)(i), then the applicable percentage of the
lower of -
(i) that portion of the additional depreciation
attributable to periods before January 1, 1970, in respect of
the property, or
(ii) the excess of the amount determined under paragraph
(1)(A)(ii) over the sum of the amounts determined under
paragraphs (1)(A)(i) and (2)(A)(i),
shall also be treated as gain which is ordinary income. Such
gain shall be recognized notwithstanding any other provision of
this subtitle.
(B) Applicable percentage
For purposes of subparagraph (A), the term "applicable
percentage" means 100 percent minus 1 percentage point for each
full month the property was held after the date on which the
property was held for 20 full months.
(4) Special rule
For purposes of this subsection, any reference to section
167(k) or 167(j)(2)(B) shall be treated as a reference to such
section as in effect on the day before the date of the enactment
of the Revenue Reconciliation Act of 1990.
(5) Cross reference
For reduction in the case of corporations on capital gain
treatment under this section, see section 291(a)(1).
(b) Additional depreciation defined
For purposes of this section -
(1) In general
The term "additional depreciation" means, in the case of any
property, the depreciation adjustments in respect of such
property; except that, in the case of property held more than one
year, it means such adjustments only to the extent that they
exceed the amount of the depreciation adjustments which would
have resulted if such adjustments had been determined for each
taxable year under the straight line method of adjustment.
(2) Property held by lessee
In the case of a lessee, in determining the depreciation
adjustments which would have resulted in respect of any building
erected (or other improvement made) on the leased property, or in
respect of any cost of acquiring the lease, the lease period
shall be treated as including all renewal periods. For purposes
of the preceding sentence -
(A) the term "renewal period" means any period for which the
lease may be renewed, extended, or continued pursuant to an
option exercisable by the lessee, but
(B) the inclusion of renewal periods shall not extend the
period taken into account by more than 2/3 of the period on
the basis of which the depreciation adjustments were allowed.
(3) Depreciation adjustments
The term "depreciation adjustments" means, in respect of any
property, all adjustments attributable to periods after December
31, 1963, reflected in the adjusted basis of such property on
account of deductions (whether in respect of the same or other
property) allowed or allowable to the taxpayer or to any other
person for exhaustion, wear and tear, obsolescence, or
amortization (other than amortization under section 168 (as in
effect before its repeal by the Tax Reform Act of 1976), 169, 185
(as in effect before its repeal by the Tax Reform Act of 1986),
188 (as in effect before its repeal by the Revenue Reconciliation
Act of 1990), 190, or 193). For purposes of the preceding
sentence, if the taxpayer can establish by adequate records or
other sufficient evidence that the amount allowed as a deduction
for any period was less than the amount allowable, the amount
taken into account for such period shall be the amount allowed.
(4) Additional depreciation attributable to rehabilitation
expenditures
The term "additional depreciation" also means, in the case of
section 1250 property with respect to which a depreciation or
amortization deduction for rehabilitation expenditures was
allowed under section 167(k) (as in effect on the day before the
date of the enactment of the Revenue Reconciliation Act of 1990)
or 191 (as in effect before its repeal by the Economic Recovery
Tax Act of 1981), the depreciation or amortization adjustments
allowed under such section to the extent attributable to such
property, except that, in the case of such property held for more
than one year after the rehabilitation expenditures so allowed
were incurred, it means such adjustments only to the extent that
they exceed the amount of the depreciation adjustments which
would have resulted if such adjustments had been determined under
the straight line method of adjustment without regard to the
useful life permitted under section 167(k) (as in effect on the
day before the date of the enactment of the Revenue
Reconciliation Act of 1990) or 191 (as in effect before its
repeal by the Economic Recovery Tax Act of 1981).
(5) Method of computing straight line adjustments
For purposes of paragraph (1), the depreciation adjustments
which would have resulted for any taxable year under the straight
line method shall be determined -
(A) in the case of property to which section 168 applies, by
determining the adjustments which would have resulted for such
year if the taxpayer had elected the straight line method for
such year using the recovery period applicable to such
property, and
(B) in the case any property to which section 168 does not
apply, if a useful life (or salvage value) was used in
determining the amount allowable as a deduction for any taxable
year, by using such life (or value).
(c) Section 1250 property
For purposes of this section, the term "section 1250 property"
means any real property (other than section 1245 property, as
defined in section 1245(a)(3)) which is or has been property of a
character subject to the allowance for depreciation provided in
section 167.
(d) Exceptions and limitations
(1) Gifts
Subsection (a) shall not apply to a disposition by gift.
(2) Transfers at death
Except as provided in section 691 (relating to income in
respect of a decedent), subsection (a) shall not apply to a
transfer at death.
(3) Certain tax-free transactions
If the basis of property in the hands of a transferee is
determined by reference to its basis in the hands of the
transferor by reason of the application of section 332, 351, 361,
721, or 731, then the amount of gain taken into account by the
transferor under subsection (a) shall not exceed the amount of
gain recognized to the transferor on the transfer of such
property (determined without regard to this section). Except as
provided in paragraph (9), this paragraph shall not apply to a
disposition to an organization (other than a cooperative
described in section 521) which is exempt from the tax imposed by
this chapter.
(4) Like kind exchanges; involuntary conversions, etc.
(A) Recognition limit
If property is disposed of and gain (determined without
regard to this section) is not recognized in whole or in part
under section 1031 or 1033, then the amount of gain taken into
account by the transferor under subsection (a) shall not exceed
the greater of the following:
(i) the amount of gain recognized on the disposition
(determined without regard to this section), increased as
provided in subparagraph (B), or
(ii) the amount determined under subparagraph (C).
(B) Increase for certain stock
With respect to any transaction, the increase provided by
this subparagraph is the amount equal to the fair market value
of any stock purchased in a corporation which (but for this
paragraph) would result in nonrecognition of gain under section
1033(a)(2)(A).
(C) Adjustment where insufficient section 1250 property is
acquired
With respect to any transaction, the amount determined under
this subparagraph shall be the excess of -
(i) the amount of gain which would (but for this paragraph)
be taken into account under subsection (a), over
(ii) the fair market value (or cost in the case of a
transaction described in section 1033(a)(2)) of the section
1250 property acquired in the transaction.
(D) Basis of property acquired
In the case of property purchased by the taxpayer in a
transaction described in section 1033(a)(2), in applying
section 1033(b)(2), such sentence shall be applied -
(i) first solely to section 1250 properties and to the
amount of gain not taken into account under subsection (a) by
reason of this paragraph, and
(ii) then to all purchased properties to which such
sentence applies and to the remaining gain not recognized on
the transaction as if the cost of the section 1250 properties
were the basis of such properties computed under clause (i).
In the case of property acquired in any other transaction to
which this paragraph applies, rules consistent with the
preceding sentence shall be applied under regulations
prescribed by the Secretary.
(E) Additional depreciation with respect to property disposed
of
In the case of any transaction described in section 1031 or
1033, the additional depreciation in respect of the section
1250 property acquired which is attributable to the section
1250 property disposed of shall be an amount equal to the
amount of the gain which was not taken into account under
subsection (a) by reason of the application of this paragraph.
(5) Section 1081 transactions
Under regulations prescribed by the Secretary, rules consistent
with paragraphs (3) and (4) of this subsection and with
subsections (e) and (f) shall apply in the case of transactions
described in section 1081 (relating to exchanges in obedience to
SEC orders).
(6) Property distributed by a partnership to a partner
(A) In general
For purposes of this section, the basis of section 1250
property distributed by a partnership to a partner shall be
deemed to be determined by reference to the adjusted basis of
such property to the partnership.
(B) Additional depreciation
In respect of any property described in subparagraph (A), the
additional depreciation attributable to periods before the
distribution by the partnership shall be -
(i) the amount of the gain to which subsection (a) would
have applied if such property had been sold by the
partnership immediately before the distribution at its fair
market value at such time and the applicable percentage for
the property had been 100 percent, reduced by
(ii) if section 751(b) applied to any part of such gain,
the amount of such gain to which section 751(b) would have
applied if the applicable percentage for the property had
been 100 percent.
(7) Transfers to tax-exempt organization where property will be
used in unrelated business
(A) In general
The second sentence of paragraph (3) shall not apply to a
disposition of section 1250 property to an organization
described in section 511(a)(2) or 511(b)(2) if, immediately
after such disposition, such organization uses such property in
an unrelated trade or business (as defined in section 513).
(B) Later change in use
If any property with respect to the disposition of which gain
is not recognized by reason of subparagraph (A) ceases to be
used in an unrelated trade or business of the organization
acquiring such property, such organization shall be treated for
purposes of this section as having disposed of such property on
the date of such cessation.
(8) Foreclosure dispositions
If any section 1250 property is disposed of by the taxpayer
pursuant to a bid for such property at foreclosure or by
operation of an agreement or of process of law after there was a
default on indebtedness which such property secured, the
applicable percentage referred to in paragraph (1)(B), (2)(B), or
(3)(B) of subsection (a), as the case may be, shall be determined
as if the taxpayer ceased to hold such property on the date of
the beginning of the proceedings pursuant to which the
disposition occurred, or, in the event there are no proceedings,
such percentage shall be determined as if the taxpayer ceased to
hold such property on the date, determined under regulations
prescribed by the Secretary, on which such operation of an
agreement or process of law, pursuant to which the disposition
occurred, began.
(e) Holding period
For purposes of determining the applicable percentage under this
section, the provisions of section 1223 shall not apply, and the
holding period of section 1250 property shall be determined under
the following rules:
(1) Beginning of holding period
The holding period of section 1250 property shall be deemed to
begin -
(A) in the case of property acquired by the taxpayer, on the
day after the date of acquisition, or
(B) in the case of property constructed, reconstructed, or
erected by the taxpayer, on the first day of the month during
which the property is placed in service.
(2) Property with transferred basis
If the basis of property acquired in a transaction described in
paragraph (1), (2), (3), or (5) of subsection (d) is determined
by reference to its basis in the hands of the transferor, then
the holding period of the property in the hands of the transferee
shall include the holding period of the property in the hands of
the transferor.
(f) Special rules for property which is substantially improved
(1) Amount treated as ordinary income
If, in the case of a disposition of section 1250 property, the
property is treated as consisting of more than one element by
reason of paragraph (3), then the amount taken into account under
subsection (a) in respect of such section 1250 property as
ordinary income shall be the sum of the amounts determined under
paragraph (2).
(2) Ordinary income attributable to an element
For purposes of paragraph (1), the amount taken into account
for any element shall be the sum of a series of amounts
determined for the periods set forth in subsection (a), with the
amount for any such period being determined by multiplying -
(A) the amount which bears the same ratio to the lower of the
amounts specified in clause (i) or (ii) of subsection
(a)(1)(A), in clause (i) or (ii) of subsection (a)(2)(A), or in
clause (i) or (ii) of subsection (a)(3)(A), as the case may be,
for the section 1250 property as the additional depreciation
for such element attributable to such period bears to the sum
of the additional depreciation for all elements attributable to
such period, by
(B) the applicable percentage for such element for such
period.
For purposes of this paragraph, determinations with respect to
any element shall be made as if it were a separate property.
(3) Property consisting of more than one element
In applying this subsection in the case of any section 1250
property, there shall be treated as a separate element -
(A) each separate improvement,
(B) if, before completion of section 1250 property, units
thereof (as distinguished from improvements) were placed in
service, each such unit of section 1250 property, and
(C) the remaining property which is not taken into account
under subparagraphs (A) and (B).
(4) Property which is substantially improved
For purposes of this subsection -
(A) In general
The term "separate improvement" means each improvement added
during the 36-month period ending on the last day of any
taxable year to the capital account for the property, but only
if the sum of the amounts added to such account during such
period exceeds the greatest of -
(i) 25 percent of the adjusted basis of the property,
(ii) 10 percent of the adjusted basis of the property,
determined without regard to the adjustments provided in
paragraphs (2) and (3) of section 1016(a), or
(iii) $5,000.
For purposes of clauses (i) and (ii), the adjusted basis of the
property shall be determined as of the beginning of the first
day of such 36-month period, or of the holding period of the
property (within the meaning of subsection (e)), whichever is
the later.
(B) Exception
Improvements in any taxable year shall be taken into account
for purposes of subparagraph (A) only if the sum of the amounts
added to the capital account for the property for such taxable
year exceeds the greater of -
(i) $2,000, or
(ii) one percent of the adjusted basis referred to in
subparagraph (A)(ii), determined, however, as of the
beginning of such taxable year.
For purposes of this section, if the amount added to the
capital account for any separate improvement does not exceed
the greater of clause (i) or (ii), such improvement shall be
treated as placed in service on the first day, of a calendar
month, which is closest to the middle of the taxable year.
(C) Improvement
The term "improvement" means, in the case of any section 1250
property, any addition to capital account for such property
after the initial acquisition or after completion of the
property.
(g) Adjustments to basis
The Secretary shall prescribe such regulations as he may deem
necessary to provide for adjustments to the basis of property to
reflect gain recognized under subsection (a).
(h) Application of section
This section shall apply notwithstanding any other provision of
this subtitle.
-SOURCE-
(Added Pub. L. 88-272, title II, Sec. 231(a), Feb. 26, 1964, 78
Stat. 100; amended Pub. L. 91-172, title V, Sec. 521(b), (c), (e),
title VII, Sec. 704(b)(5), title IX, Sec. 910(b), Dec. 30, 1969, 83
Stat. 652, 653, 670, 720; Pub. L. 92-178, title III, Sec.
303(c)(3), Dec. 10, 1971, 85 Stat. 522; Pub. L. 93-625, Sec. 5(c),
Jan. 3, 1975, 88 Stat. 2112; Pub. L. 94-81, Sec. 2(b), Aug. 9,
1975, 89 Stat. 417; Pub. L. 94-455, title II, Sec. 202(a)-(c)(1),
(2), title XIX, Secs. 1901(b)(3)(K), (31)(A), (B), (E),
1906(b)(13)(A), 1951(c)(2)(C), title XXI, Secs. 2122(b)(4),
2124(a)(3)(D), Oct. 4, 1976, 90 Stat. 1527, 1529, 1530, 1793, 1799,
1800, 1834, 1840, 1915, 1918; Pub. L. 95-600, title IV, Secs.
404(c)(7), 405(c)(4), title VII, Sec. 701(f)(3)(C), (E), Nov. 6,
1978, 92 Stat. 2870, 2871, 2901; Pub. L. 96-222, title I, Sec.
107(a)(1)(D), Apr. 1, 1980, 94 Stat. 222; Pub. L. 96-223, title II,
Sec. 251(a)(2)(D), Apr. 2, 1980, 94 Stat. 287; Pub. L. 97-34, title
II, Secs. 204(e), 212(d)(2)(F), Aug. 13, 1981, 95 Stat. 223, 239;
Pub. L. 97-448, title I, Sec. 102(a)(7), Jan. 12, 1983, 96 Stat.
2368; Pub. L. 98-369, div. A, title VII, Sec. 712(a)(1)(B), July
18, 1984, 98 Stat. 946; Pub. L. 99-514, title II, Sec. 242(b)(2),
Oct. 22, 1986, 100 Stat. 2181; Pub. L. 100-647, title I, Sec.
1002(a)(1), Nov. 10, 1988, 102 Stat. 3352; Pub. L. 101-239, title
VII, Sec. 7831(b), Dec. 19, 1989, 103 Stat. 2426; Pub. L. 101-508,
title XI, Secs. 11801(c)(6)(F), (8)(I), (15), 11812(b)(11), (12),
Nov. 5, 1990, 104 Stat. 1388-524, 1388-527, 1388-536; Pub. L.
104-7, Sec. 2(b), Apr. 11, 1995, 109 Stat. 93; Pub. L. 104-188,
title I, Sec. 1702(h)(18), Aug. 20, 1996, 110 Stat. 1874; Pub. L.
105-34, title III, Sec. 312(d)(10), Aug. 5, 1997, 111 Stat. 840;
Pub. L. 105-206, title VI, Sec. 6023(12), July 22, 1998, 112 Stat.
825.)
-REFTEXT-
REFERENCES IN TEXT
Sections 221 and 236 of the National Housing Act, referred to in
subsec. (a)(1)(B)(i), (2)(B)(ii), are classified to sections 1715l
and 1715z-1, respectively, of Title 12, Banks and Banking.
The date of the enactment of the Revenue Reconciliation Act of
1990, referred to in subsecs. (a)(1)(B)(i), (2)(B)(ii), (4) and
(b)(4), is the date of enactment of Pub. L. 101-508, which was
approved Nov. 5, 1990.
Section 8 of the United States Housing Act of 1937, referred to
in subsec. (a)(1)(B)(ii), is classified to section 1437f of Title
42, The Public Health and Welfare.
The Housing Act of 1949, referred to in subsec. (a)(1)(B)(iv), is
act July 15, 1949, ch. 338, 63 Stat. 413, as amended. Title V of
the Housing Act of 1949 is classified generally to subchapter III
(Sec. 1471 et seq.) of chapter 8A of Title 42. For complete
classification of this Act to the Code, see Short Title note set
out under section 1441 of Title 42 and Tables.
The Tax Reform Act of 1976, referred to in subsec. (b)(3), is
Pub. L. 94-455, Oct. 4, 1976, 90 Stat. 1520, as amended. Section
1951(a)(4)(A) of the Act repealed section 168 of this title. For
complete classification of this Act to the Code, see Tables.
The Tax Reform Act of 1986, referred to in subsec. (b)(3), is
Pub. L. 99-514, Oct. 22, 1986, 100 Stat. 2085. Section 242(a) of
the Act repealed section 185 of this title. For complete
classification of this Act to the Code, see Tables.
The Revenue Reconciliation Act of 1990, referred to in subsec.
(b)(3), is title XI of Pub. L. 101-508, Nov. 5, 1990, 104 Stat.
1388-400. Section 11801(a)(13) of the Act repealed section 188 of
this title. For complete classification of this Act to the Code,
see Short Title note set out under section 1 of this title and
Tables.
The Economic Recovery Tax Act of 1981, referred to in subsec.
(b)(4), is Pub. L. 97-34, Aug. 13, 1981, 95 Stat. 172, as amended.
Section 191 of this title was repealed by section 212(d)(1) of Pub.
L. 97-34. For complete classification of this Act to the Code, see
Tables.
-MISC1-
AMENDMENTS
1998 - Subsec. (d)(4)(D). Pub. L. 105-206 substituted "section
1033(b)(2)" for "the last sentence of section 1033(b)" in
introductory provisions.
1997 - Subsec. (d)(7) to (10). Pub. L. 105-34, Sec.
312(d)(10)(A), redesignated pars. (9) and (10) as (7) and (8),
respectively, and struck out heading and text of former par. (7).
Text read as follows: "Subsection (a) shall not apply to a
disposition of -
"(A) property to the extent used by the taxpayer as his
principal residence (within the meaning of section 1034, relating
to rollover of gain on sale of principal residence), and
"(B) property in respect of which the taxpayer meets the age
and ownership requirements of section 121 (relating to one-time
exclusion of gain from sale of principal residence by individual
who has attained age 55) but only to the extent that he meets the
use requirements of such section in respect of such property."
Subsec. (e)(3). Pub. L. 105-34, Sec. 312(d)(10)(B), struck out
heading and text of par. (3). Text read as follows: "If the basis
of property acquired in a transaction described in paragraph (7) of
subsection (d) is determined by reference to the basis in the hands
of the taxpayer of other property, then the holding period of the
property acquired shall include the holding period of such other
property."
1996 - Subsec. (e)(4). Pub. L. 104-188 struck out par. (4) which
read as follows:
"(4) Qualified low-income housing. - The holding period of any
section 1250 property acquired which is described in subsection
(d)(8)(E)(i) shall include the holding period of the corresponding
element of section 1250 property disposed of."
1995 - Subsec. (d)(5). Pub. L. 104-7 struck out "1071 and" before
"1081 transactions" in heading and "section 1071 (relating to gain
from sale or exchange to effectuate policies of FCC) or" before
"section 1081" in text.
1990 - Subsec. (a)(1)(B)(i), (2)(B)(ii). Pub. L. 101-508, Sec.
11801(c)(15)(A), which directed the insertion of "(as in effect on
the day before the date of the enactment of the Revenue
Reconciliation Act of 1990)" after "section 1039(b)(1)(B)" in pars.
(1)(A)(i) and (2)(B)(ii) of subsec. (a), was executed to pars.
(1)(B)(i) and (2)(B)(ii) to reflect the probable intent of
Congress.
Subsec. (a)(4), (5). Pub. L. 101-508, Sec. 11812(b)(11), added
par. (4) and redesignated former par. (4) as (5).
Subsec. (b)(3). Pub. L. 101-508, Sec. 11801(c)(6)(F), substituted
"188 (as in effect before its repeal by the Revenue Reconciliation
Act of 1990)," for "188,".
Subsec. (b)(4). Pub. L. 101-508, Sec. 11812(b)(12), substituted
"section 167(k) (as in effect on the day before the date of the
enactment of the Revenue Reconciliation Act of 1990)" for "section
167(k)" in two places.
Subsec. (d)(3). Pub. L. 101-508, Sec. 11801(c)(8)(I), struck out
"371(a), 374(a)," after "332, 351, 361,".
Subsec. (d)(8). Pub. L. 101-508, Sec. 11801(c)(15)(B), struck out
par. (8) which related to the treatment of gain from the
disposition of qualified low-income housing.
Subsecs. (g) to (i). Pub. L. 101-508, Sec. 11801(c)(15)(C),
redesignated subsecs. (h) and (i) as (g) and (h), respectively, and
struck out former subsec. (g) which provided special rules for
qualified low-income housing.
1989 - Subsec. (b)(5)(A). Pub. L. 101-239, Sec. 7831(b)(1),
substituted "of property to which section 168 applies" for "of
recovery property".
Subsec. (b)(5)(B). Pub. L. 101-239, Sec. 7831(b)(2), substituted
"to which section 168 does not apply" for "which is not recovery
property".
1988 - Subsec. (d)(11). Pub. L. 100-647 struck out par. (11)
which related to section 1245 recovery property.
1986 - Subsec. (b)(3). Pub. L. 99-514 inserted "(as in effect
before its repeal by the Tax Reform Act of 1986)" after "185".
1984 - Subsec. (a)(4). Pub. L. 98-369 added par. (4).
1983 - Subsec. (b)(1). Pub. L. 97-448, Sec. 102(a)(7)(B), struck
out last sentence providing that, for purposes of defining
"additional depreciation", if a useful life (or salvage value) was
used in determining the amount allowed as a deduction for any
taxable year, such life (or value) was to be used in determining
the depreciation adjustments which would have resulted for such
year under the straight line method.
Subsec. (b)(5). Pub. L. 97-448, Sec. 102(a)(7)(A), added par.
(5).
1981 - Subsec. (b)(4). Pub. L. 97-34, Sec. 212(d)(2)(F), inserted
"(as in effect before its repeal by the Economic Recovery Tax Act
of 1981)" after "section 167(k) or 191" in two places.
Subsec. (d)(11). Pub. L. 97-34, Sec. 204(e), added par. (11).
1980 - Subsec. (a)(1)(B). Pub. L. 96-222 inserted "which was
allowed under section 167(k)" at end of last sentence.
Subsec. (b)(3). Pub. L. 96-223 inserted reference to section 193.
1978 - Subsec. (b)(3). Pub. L. 95-600, Sec. 701(f)(3)(C), struck
out reference to section 191.
Subsec. (b)(4). Pub. L. 95-600, Sec. 701(f)(3)(E), inserted
reference to amortization deduction, amortization adjustments, and
to section 191 in two places.
Subsec. (d)(7)(A). Pub. L. 95-600, Sec. 405(c)(4), substituted
"relating to rollover of gain on sale of principal residence" for
"relating to sale or exchange of residence".
Subsec. (d)(7)(B). Pub. L. 95-600, Sec. 404(c)(7), inserted
provisions relating to a one-time exclusion and principal residence
and substituted "55" for "65".
1976 - Subsec. (a). Pub. L. 94-455, Sec. 202(a), in revising text
generally, made the following changes:
(1) Added par. (1).
(2) Redesignated as pars. (2) and (3) existing pars. (1) and (2).
(3) Made the following changes in par. (2): inserted in heading
", and before January 1, 1976"; designated introductory text as
subpar. "(A) In general"; inserted therein "and the amount
determined under paragraph (1)(A)(ii) exceeds the amount determined
under paragraph (1)(A)(i), then"; redesignated as cl. (i) existing
subpar. (A); substituted therein "attributable to periods after
December 31, 1969, and before January 1, 1976" for "(as defined in
subsection (b)(1) or (4) attributable to periods after December 31,
1969"; substituted cl. (ii) and concluding text for subpar. (B) and
concluding text which read:
"(B) the excess of -
"(i) the amount realized (in the case of a sale, exchange, or
involuntary conversion), or the fair market value of such
property (in the case of any other disposition), over
"(ii) the adjusted basis of such property,
shall be treated as gain from the sale or exchange of property
which is neither a capital asset nor property described in section
1231. Such gain shall be recognized notwithstanding any other
provision of this subtitle."; redesignated as subpar. (B) existing
subpar. (C); substituted therein introductory "subparagraph (A)"
for "paragraph (1)"; and deleted from cl. (ii) "constructed,
reconstructed, or acquired by the taxpayer before January 1, 1976,"
after "section 1250 property" and "is" before "financed", and
substituted "1" for "one".
(4) Made the following changes in par. (3): substituted in
subpar. (A) "determined under paragraph (1)(A)(ii) exceeds the sum
of the amounts determined under paragraphs (1)(A)(i) and (2)(A)(i)"
for "determined under paragraph (1)(B) exceeds the amount
determined under paragraph (1)(A)"; and substituted subpar. (A)(ii)
and concluding text for par. (2)(A)(ii), and concluding text which
read:
"(ii) the excess of the amount determined under paragraph
(1)(B) over the amount determined under paragraph (1)(A),
shall also be treated as gain from the sale or exchange of property
which is neither a capital asset nor property described in section
1231. Such gain shall be recognized notwithstanding any other
provisions of this subtitle."
Subsec. (b)(3). Pub. L. 94-455, Secs. 1951(c)(2)(C), 2122(b)(4),
2124(a)(3)(D), inserted "(as in effect before its repeal by the Tax
Reform Act of 1976)" after "section 168" and reference to sections
190 and 191.
Subsec. (d)(4)(B). Pub. L. 94-455, Sec. 1901(b)(31)(A),
substituted reference to section "1033(a)(2)(A)" for
"1033(a)(3)(A)".
Subsec. (d)(4)(C). Pub. L. 94-455, Sec. 1901(b)(31)(B),
substituted reference to section "1033(a)(2)" for "1033(a)(3)".
Subsec. (d)(4)(D). Pub. L. 94-455, Sec. 1901(b)(31)(B), (E),
substituted reference to sections "1033(a)(2)" and "1033(b)" for
"1033(a)(3)" and "1033(c)" Sec. 1906(b)(13)(A), struck out "or his
delegate" after "Secretary".
Subsec. (d)(5), (8)(F)(ii). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
Subsec. (d)(10). Pub. L. 94-455, Sec. 202(b), added par. (10).
Subsec. (f)(1). Pub. L. 94-455, Sec. 1901(b)(3)(K), substituted
"ordinary income" for "gain from the sale or exchange of property
which is neither a capital asset nor property described in section
1231".
Subsec. (f)(2). Pub. L. 94-455, Sec. 202(c)(1), substituted
introductory text "the sum of a series of amounts determined for
the periods set forth in subsection (a), with the amount for any
such period being determined by multiplying" for "the sum of - (A)
the amount (if any) determined by multiplying"; substituted subpar.
(A) as combined text for prior subpars. (A)(i) and (B)(i) reading
"(i) the amount which bears the same ratio to the lower of the
amounts specified in subparagraph (A) or (B) of subsection (a)(1)
for the section 1250 property as the additional depreciation for
such element attributable to periods after December 31, 1969, bears
to the sum of the additional depreciation for all elements
attributable to periods after December 31, 1969, by" and "(i) the
amount which bears the same ratio to the lower of the amounts
specified in subsection (a)(2)(A)(i) or (ii) for the section 1250
property as the additional depreciation for such element
attributable to periods before January 1, 1970, bears to the sum of
the additional depreciation for all elements attributable to
periods before January 1, 1970, by"; and substituted subpar. (B) as
combined text for prior subpars. (A)(ii) and (B)(ii), inserting
therein "for such period" after "for such element".
Subsec. (g)(1). Pub. L. 94-455, Sec. 1901(b)(3)(K), substituted
"ordinary income" for "gain from the sale or exchange of property
which is neither a capital asset nor property described in section
1231".
Subsec. (g)(2). Pub. L. 94-455, Sec. 202(c)(2), substituted
"shall be determined in a manner similar to that provided by
subsection (f)(2)." for "shall be the amount determined by
multiplying -
"(A) the amount which bears the same ratio to the lower of the
additional depreciation or the gain recognized for the section
1250 property disposed of as the additional depreciation for such
element bears to the sum of the additional depreciation for all
elements disposed of, by
"(B) the applicable percentage for such element.
For purposes of this paragraph, determinations with respect to any
element shall be made as if it were a separate property."
Subsec. (h). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out "or
his delegate" after "Secretary".
1975 - Subsec. (a)(1)(C)(ii). Pub. L. 93-625 substituted "January
1, 1976" for "January 1, 1975".
Subsec. (d)(3), (9). Pub. L. 94-81, Sec. 2(b), inserted reference
to par. (9) in par. (3), and added par. (9).
1971 - Subsec. (b)(3). Pub. L. 92-178 inserted reference to
section 188.
1969 - Subsec. (a). Pub. L. 91-172, Sec. 521(b), modified the
recapture rules pertaining to residential housing by allowing a 1
percent per month reduction in the amount to be recaptured as
ordinary income after the property has been held for 100 full
months, with other real property remaining subject to full
recapture, applied the existing recapture rules where the sale of
property was subject to a binding contract in existence prior to
July 25, 1969, provided that changes in the recapture rules are not
to apply in federally assisted projects (such as programs under
section 221(d)(3) or 236 of the National Housing Act) or to other
publicly assisted housing programs under which the return to the
investor is limited on a comparable basis, thereby rendering these
projects subject to a recapture of the depreciation in full if the
sale occurs in the first 12 months and for a phaseout of the
recapture of the excess of accelerated over straight-line
depreciation after 20 months, the recapture being reduced at the
rate of 1 percent per month until 120 months after which no
recapture applies, with such recapture rules to continue to apply
only with respect to such property constructed, reconstructed, or
acquired before Jan. 1, 1975, and applied new recapture rules to
depreciation attributable to periods after Dec. 31, 1969.
Subsec. (b)(4). Pub. L. 91-172, Sec. 512(c), added par. (4).
Subsec. (b)(3). Pub. L. 91-172, Sec. 704(b)(5), inserted
reference to sections 169 and 185.
Subsec. (d). Pub. L. 91-172, Secs. 521(e)(1), 910(b)(1),
substituted "subsection (a)" for "subsection (a)(1)" wherever it
appears and added par. (8).
Subsec. (e)(4). Pub. L. 91-172, Sec. 910(b)(2), added par. (4).
Subsec. (f)(1). Pub. L. 91-172, Sec. 521(e)(2)(A), substituted
"subsection (a)" for "subsection (a)(1)".
Subsec. (f)(2). Pub. L. 91-172, Sec. 521(e)(2)(B), redesignated
subpars. (A) and (B) as cls. (i) and (ii), respectively, of subpar.
(A) and, in cls. (i) and (ii) as so redesignated, inserted
reference to depreciation attributable to periods after Dec. 31,
1969, and added subpar. (B).
Subsecs. (g) to (i). Pub. L. 91-172, Sec. 910(b)(3), added
subsec. (g) and redesignated former subsecs. (g) and (h) as (h) and
(i), respectively.
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 1996 AMENDMENT
Amendment by Pub. L. 104-188 effective, except as otherwise
expressly provided, as if included in the provision of the Revenue
Reconciliation Act of 1990, Pub. L. 101-508, title XI, to which
such amendment relates, see section 1702(i) of Pub. L. 104-188, set
out as a note under section 38 of this title.
EFFECTIVE DATE OF 1995 AMENDMENT
Amendment by Pub. L. 104-7 applicable to sales and exchanges on
or after January 17, 1995, and to sales and exchanges before such
date if FCC tax certificate with respect to such sale or exchange
was issued on or after such date, but not applicable with respect
to certain binding contracts, see section 2(d) of Pub. L. 104-7,
set out as an Effective Date of Repeal note under section 1071 of
this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by section 11812(b)(11), (12) of 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
Amendment by Pub. L. 101-239 effective as if included in the
provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which
such amendment relates, see section 7831(g) of Pub. L. 101-239, 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 Pub. L. 99-514 applicable to that portion of the
basis of any property which is attributable to expenditures paid or
incurred after Dec. 31, 1986, except as otherwise provided, see
section 242(c) of Pub. L. 99-514, set out as an Effective Date of
Repeal note under former section 185 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 effective as if included in the
provision of the Tax Equity and Fiscal Responsibility Act of 1982,
Pub. L. 97-248, to which such amendment relates, see section 715 of
Pub. L. 98-369, set out as a note under section 31 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the
Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by section 204(e) of 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.
Amendment by section 212(d)(2)(F) of Pub. L. 97-34 applicable to
expenditures incurred after Dec. 31, 1981, in taxable years ending
after such date, see section 212(e) of Pub. L. 97-34, set out as a
note under section 46 of this title.
EFFECTIVE DATE OF 1980 AMENDMENTS
Amendment by Pub. L. 96-223 applicable to taxable years beginning
after Dec. 31, 1979, see section 251(b) of Pub. L. 96-223, set out
as an Effective Date note under section 193 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
Amendment by section 404(c)(7) of Pub. L. 95-600 applicable to
sales or exchanges after July 26, 1978, in taxable years ending
after such date, see section 404(d)(1) of Pub. L. 95-600, set out
as a note under section 121 of this title.
Amendment by section 405(c)(4) of Pub. L. 95-600 applicable to
sales and exchanges of residences after July 26, 1978, in taxable
years ending after such date, see section 405(d) of Pub. L. 95-600,
set out as a note under section 1038 of this title.
Amendment by section 701(f)(3)(C), (E) of Pub. L. 95-600
effective as if included within the amendment of subsec. (b)(3) and
(4) by section 2124 of Pub. L. 94-455, see section 701(f)(8) of
Pub. L. 95-600, set out as an Effective and Termination Dates of
1978 Amendments note under section 167 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 202(d) of Pub. L. 94-455, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by this section (other than subsection (b))
[amending this section and section 167 of this title] shall apply
for taxable years ending after December 31, 1975. The amendment
made by subsection (b) [amending this section] shall apply with
respect to proceedings (and to operations of law) referred to in
section 1250(d)(10) of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954] which begin after December 31, 1975."
Amendment by section 1901(b)(3)(K), (31)(A), (B), (E) of Pub. L.
94-455 effective for taxable years beginning after Dec. 31, 1976,
see section 1901(d) of Pub. L. 94-455, set out as a note under
section 2 of this title.
Amendment by section 1951(c)(2)(C) of Pub. L. 94-455 applicable
to taxable years beginning after Dec. 31, 1976, see section 1951(d)
of Pub. L. 94-455, set out as a note under section 72 of this
title.
Amendment by section 2122(b)(4) of Pub. L. 94-455 applicable to
taxable years beginning after Dec. 31, 1976, and before Jan. 1,
1983, see section 2122(c) of Pub. L. 94-455, as amended by Pub. L.
96-167, 9(c), Dec. 29, 1979, 93 Stat. 1278, set out as a note under
section 190 of this title.
Amendment by section 2124(a)(3)(D) of Pub. L. 94-455 applicable
with respect to additions to capital accounts made after June 14,
1976 and before June 15, 1981, see section 2124(a)(4) of Pub. L.
94-455, set out as an Effective Date note under section 642 of this
title.
EFFECTIVE DATE OF 1975 AMENDMENTS
Section 2(c) of Pub. L. 94-81 provided that:
"(1) In general. - Except as provided in paragraph (2) the
amendments made by this section [amending this section and section
1245 of this title] shall apply to dispositions after December 31,
1969, in taxable years ending after such date.
"(2) Election for past transactions. - In the case of any
disposition occurring before the date of the enactment of this Act
[Aug. 9, 1975], the amendments made by this section shall apply
only if the organization acquiring the property elects (in the
manner provided by regulations prescribed by the Secretary of the
Treasury or his delegate) within 1 year after the date of the
enactment of this Act to have such amendments apply with respect to
such property."
Amendment by Pub. L. 93-625 applicable with respect to property
placed in service after Dec. 31, 1973, see section 5(d) of Pub. L.
93-625, set out as a note under section 167 of this title.
EFFECTIVE DATE OF 1971 AMENDMENT
Amendment by Pub. L. 92-178 applicable to taxable years ending
after Dec. 31, 1971, see section 303(d) of Pub. L. 92-178, set out
as a note under section 642 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by section 521(b), (c), (e) of Pub. L. 91-172
applicable with respect to taxable years ending after July 24,
1969, see section 521(g) of Pub. L. 91-172, set out as a note under
section 167 of this title.
Amendment by section 704(b)(5) of Pub. L. 91-172 applicable to
taxable years ending after Dec. 31, 1968, see section 704(c) of
Pub. L. 91-172, set out as an Effective Date note under section 169
of this title.
Section 910(d) of Pub. L. 91-172, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by this section [enacting section 1039 of this
title and amending this section] shall apply to approved
dispositions of qualified housing projects (within the meaning of
section 1039 of the Internal Revenue Code of 1986 [formerly I.R.C.
1954] as added by subsection (a)) after October 9, 1969."
EFFECTIVE DATE
Section 231(c) of Pub. L. 88-272 provided that: "The amendments
made by this section [enacting this section and amending sections
170, 301, 312, 341, 453, 751, and the analysis preceding section
1231 of this title] shall apply to dispositions after December 31,
1963, in taxable years ending after such date."
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.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 1, 50, 55, 56, 121, 168,
170, 267, 291, 453, 467, 751, 1017, 1400B, 1400I, 7701 of this
title.
-End-
-CITE-
26 USC Sec. 1251 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART IV - SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-HEAD-
[Sec. 1251. Repealed. Pub. L. 98-369, div. A, title IV, Sec.
492(a), July 18, 1984, 98 Stat. 853]
-MISC1-
Section, added Pub. L. 91-172, title II, Sec. 211(a), Dec. 30,
1969, 83 Stat. 566; amended Pub. L. 92-178, title III, Sec. 305(a),
Dec. 10, 1971, 85 Stat. 524; Pub. L. 94-455, title II, Sec. 206(a),
(b)(1), (2), title XIV, Sec. 1402(b)(1)(Z), (2), title XIX, Secs.
1901(b)(3)(K), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1535, 1732,
1793, 1834; Pub. L. 97-354, Sec. 5(a)(36), Oct. 19, 1982, 96 Stat.
1695; Pub. L. 98-369, div. A, title X, Sec. 1001(b)(23), (e), July
18, 1984, 98 Stat. 1012, related to gain from disposition of
property used in farming where farm losses offset nonfarm income.
EFFECTIVE DATE OF REPEAL
Repeal applicable to taxable years beginning after Dec. 31, 1983,
see section 492(d) of Pub. L. 98-369, set out as an Effective Date
of 1984 Amendment note under section 170 of this title.
-End-
-CITE-
26 USC Sec. 1252 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART IV - SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-HEAD-
Sec. 1252. Gain from disposition of farm land
-STATUTE-
(a) General rule
(1) Ordinary income
Except as otherwise provided in this section, if farm land
which the taxpayer has held for less than 10 years is disposed of
during a taxable year beginning after December 31, 1969, the
lower of -
(A) the applicable percentage of the aggregate of the
deductions allowed under sections 175 (relating to soil and
water conservation expenditures) and 182 (relating to
expenditures by farmers for clearing land) for expenditures
made by the taxpayer after December 31, 1969, with respect to
the farm land or
(B) the excess of -
(i) the amount realized (in the case of a sale, exchange,
or involuntary conversion), or the fair market value of the
farm land (in the case of any other disposition), over
(ii) the adjusted basis of such land,
shall be treated as ordinary income. Such gain shall be
recognized notwithstanding any other provision of this subtitle.
(2) Farm land
For purposes of this section, the term "farm land" means any
land with respect to which deductions have been allowed under
sections 175 (relating to soil and water conservation
expenditures) or 182 (as in effect on the day before the date of
the enactment of the Tax Reform Act of 1986).
(3) Applicable percentage
For purposes of this section -
If the farm land is disposed of - 2The applicable
percentage is -
--------------------------------------------------------------------
Within 5 years after the date it was acquire 100 percent.
Within the sixth year after it was acquired 80 percent.
Within the seventh year after it was acquire 60 percent.
Within the eighth year after it was acquired 40 percent.
Within the ninth year after it was acquired 20 percent.
10 years or more years after it was acquired 0 percent.
--------------------------------------------------------------------
(b) Special rules
Under regulations prescribed by the Secretary, rules similar to
the rules of section 1245 shall be applied for purposes of this
section.
-SOURCE-
(Added Pub. L. 91-172, title II, Sec. 214(a), Dec. 30, 1969, 83
Stat. 572; amended Pub. L. 94-455, title XIX, Secs. 1901(b)(3)(K),
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1793, 1834; Pub. L. 98-369,
div. A, title IV, Sec. 492(b)(5), July 18, 1984, 98 Stat. 854; Pub.
L. 99-514, title IV, Sec. 402(b)(2), Oct. 22, 1986, 100 Stat.
2221.)
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of the Tax Reform Act of 1986, referred
to in subsec. (a)(1)(A), is the date of enactment of Pub. L.
99-514, which was approved Oct. 22, 1986. Section 402(a) of the Tax
Reform Act of 1986 repealed section 182 of this title.
-MISC1-
AMENDMENTS
1986 - Subsec. (a)(1)(A). Pub. L. 99-514 substituted "(as in
effect on the day before the date of the enactment of the Tax
Reform Act of 1986)" for "(relating to expenditures by farmers for
clearing land)".
1984 - Subsec. (a)(1). Pub. L. 98-369 struck out ", except that
this section shall not apply to the extent section 1251 applies to
such gain" after "of this subtitle" in last sentence.
1976 - Subsec. (a)(1). Pub. L. 94-455, Sec. 1901(b)(3)(K),
substituted "ordinary income" for "gain from the sale or exchange
of property which is neither a capital asset nor property described
in section 1231".
Subsec. (b). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out "or
his delegate" after "Secretary".
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to amounts paid or
incurred after Dec. 31, 1985, in taxable years ending after such
date, see section 402(c) of Pub. L. 99-514, set out as an Effective
Date of Repeal note under former section 182 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by 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 1976 AMENDMENT
Amendment by section 1901(b)(3)(K) 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 214(c) of Pub. L. 91-172 provided that: "The amendments
made by this section [enacting this section] shall apply to taxable
years beginning after December 31, 1969."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 170, 751 of this title.
-End-
-CITE-
26 USC Sec. 1253 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART IV - SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-HEAD-
Sec. 1253. Transfers of franchises, trademarks, and trade names
-STATUTE-
(a) General rule
A transfer of a franchise, trademark, or trade name shall not be
treated as a sale or exchange of a capital asset if the transferor
retains any significant power, right, or continuing interest with
respect to the subject matter of the franchise, trademark, or trade
name.
(b) Definitions
For purposes of this section -
(1) Franchise
The term "franchise" includes an agreement which gives one of
the parties to the agreement the right to distribute, sell, or
provide goods, services, or facilities, within a specified area.
(2) Significant power, right, or continuing interest
The term "significant power, right, or continuing interest"
includes, but is not limited to, the following rights with
respect to the interest transferred:
(A) A right to disapprove any assignment of such interest, or
any part thereof.
(B) A right to terminate at will.
(C) A right to prescribe the standards of quality of products
used or sold, or of services furnished, and of the equipment
and facilities used to promote such products or services.
(D) A right to require that the transferee sell or advertise
only products or services of the transferor.
(E) A right to require that the transferee purchase
substantially all of his supplies and equipment from the
transferor.
(F) A right to payments contingent on the productivity, use,
or disposition of the subject matter of the interest
transferred, if such payments constitute a substantial element
under the transfer agreement.
(3) Transfer
The term "transfer" includes the renewal of a franchise,
trademark, or trade name.
(c) Treatment of contingent payments by transferor
Amounts received or accrued on account of a transfer, sale, or
other disposition of a franchise, trademark, or trade name which
are contingent on the productivity, use, or disposition of the
franchise, trademark, or trade name transferred shall be treated as
amounts received or accrued from the sale or other disposition of
property which is not a capital asset.
(d) Treatment of payments by transferee
(1) Contingent serial payments
(A) In general
Any amount described in subparagraph (B) which is paid or
incurred during the taxable year on account of a transfer,
sale, or other disposition of a franchise, trademark, or trade
name shall be allowed as a deduction under section 162(a)
(relating to trade or business expenses).
(B) Amounts to which paragraph applies
An amount is described in this subparagraph if it -
(i) is contingent on the productivity, use, or disposition
of the franchise, trademark, or trade name, and
(ii) is paid as part of a series of payments -
(I) which are payable not less frequently than annually
throughout the entire term of the transfer agreement, and
(II) which are substantially equal in amount (or payable
under a fixed formula).
(2) Other payments
Any amount paid or incurred on account of a transfer, sale, or
other disposition of a franchise, trademark, or trade name to
which paragraph (1) does not apply shall be treated as an amount
chargeable to capital account.
(3) Renewals, etc.
For purposes of determining the term of a transfer agreement
under this section, there shall be taken into account all renewal
options (and any other period for which the parties reasonably
expect the agreement to be renewed).
(e) Exception
This section shall not apply to the transfer of a franchise to
engage in professional football, basketball, baseball, or other
professional sport.
-SOURCE-
(Added Pub. L. 91-172, title V, Sec. 516(c)(1), Dec. 30, 1969, 83
Stat. 647; amended Pub. L. 94-455, title XIX, Sec. 1906(b)(13)(A),
Oct. 4, 1976, 90 Stat. 1834; Pub. L. 101-239, title VII, Sec.
7622(a)-(c), Dec. 19, 1989, 103 Stat. 2377; Pub. L. 101-508, title
XI, Sec. 11701(i), Nov. 5, 1990, 104 Stat. 1388-508; Pub. L.
103-66, title XIII, Sec. 13261(c), Aug. 10, 1993, 107 Stat. 539;
Pub. L. 104-188, title I, Sec. 1704(t)(47), Aug. 20, 1996, 110
Stat. 1889.)
-MISC1-
AMENDMENTS
1996 - Subsec. (d)(4). Pub. L. 104-188 provided that section
11701(i) of Pub. L. 101-508 shall be applied as if "subsection"
appeared instead of "section" in the material proposed to be
stricken. See 1990 Amendment note below.
1993 - Subsec. (d)(2) to (5). Pub. L. 103-66 added pars. (2) and
(3) and struck out former pars. (2) relating to deduction of
certain payments for transfer of a franchise, trademark, or trade
name not treated as sale or exchange of capital asset, (3) relating
to treatment of amounts paid or incurred on account of transfer,
sale, or other disposition of a franchise, trademark, or trade name
to which pars. (1) and (2) did not apply, (4) relating to renewals
for purposes of determining term of transfer agreement under this
section or period of amortization under this subtitle, and (5)
relating to rules applicable to this subsection.
1990 - Subsec. (d)(4). Pub. L. 101-508, Sec. 11701(i), which
directed the substitution of "under this section or any period of
amortization under this subtitle for any payment described in this
section" for "or any period of amortization under this section",
was executed by making the substitution for "or any period of
amortization under this subsection". See 1996 Amendment note above.
1989 - Subsec. (d)(1). Pub. L. 101-239, Sec. 7622(a), substituted
"serial payments" for "payments" in heading and amended text
generally. Prior to amendment, text read as follows: "Amounts paid
or incurred during the taxable year on account of a transfer, sale,
or other disposition of a franchise, trademark, or trade name which
are contingent on the productivity, use, or disposition of the
franchise, trademark, or trade name transferred shall be allowed as
a deduction under section 162(a) (relating to trade or business
expenses)."
Subsec. (d)(2). Pub. L. 101-239, Sec. 7622(b), designated
existing provisions as subpar. (A), inserted subpar. heading,
redesignated former subpars. (A) to (C) as cls. (i) to (iii),
respectively, and former cls. (i) and (ii) of former subpar. (B) as
subcls. (I) and (II), respectively, of cl. (ii), and added subpar.
(B).
Subsec. (d)(3) to (5). Pub. L. 101-239, Sec. 7622(c), added pars.
(3) to (5).
1976 - Subsec. (d)(2)(C). Pub. L. 94-455 struck out "or his
delegate" after "Secretary".
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable, except as otherwise
provided, with respect to property acquired after Aug. 10, 1993,
see section 13261(g) of Pub. L. 103-66, set out as an Effective
Date note under section 197 of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub. L. 101-508 effective, except as otherwise
provided, as if included in the provision of the Revenue
Reconciliation Act of 1989, Pub. L. 101-239, title VII, to which
such amendment relates, see section 11701(n) of Pub. L. 101-508,
set out as a note under section 42 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 applicable to transfers after Oct.
2, 1989, but not applicable to any transfer pursuant to a written
binding contract in effect on Oct. 2, 1989, and at all times
thereafter before the transfer, see section 7622(c)[(e)] of Pub. L.
101-239, set out as a note under section 167 of this title.
EFFECTIVE DATE
Section applicable to transfers after Dec. 31, 1969, except that
subsec. (d)(1) shall, at the election of the taxpayer (made at such
time and in such manner as the Secretary or his delegate may by
regulations prescribe), apply to transfers before Jan. 1, 1970, but
only with respect to payments made in taxable years ending after
Dec. 31, 1969, and beginning before Jan. 1, 1980, see section
516(d)(3) of Pub. L. 91-172, set out as a note under section 1001
of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 144, 162, 197, 751 of
this title.
-End-
-CITE-
26 USC Sec. 1254 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART IV - SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-HEAD-
Sec. 1254. Gain from disposition of interest in oil, gas,
geothermal, or other mineral properties
-STATUTE-
(a) General rule
(1) Ordinary income
If any section 1254 property is disposed of, the lesser of -
(A) the aggregate amount of -
(i) expenditures which have been deducted by the taxpayer
or any person under section 263, 616, or 617 with respect to
such property and which, but for such deduction, would have
been included in the adjusted basis of such property, and
(ii) the deductions for depletion under section 611 which
reduced the adjusted basis of such property, or
(B) the excess of -
(i) in the case of -
(I) a sale, exchange, or involuntary conversion, the
amount realized, or
(II) in the case of any other disposition, the fair
market value of such property, over
(ii) the adjusted basis of such property,
shall be treated as gain which is ordinary income. Such gain
shall be recognized notwithstanding any other provision of this
subtitle.
(2) Disposition of portion of property
For purposes of paragraph (1) -
(A) In the case of the disposition of a portion of section
1254 property (other than an undivided interest), the entire
amount of the aggregate expenditures or deductions described in
paragraph (1)(A) with respect to such property shall be treated
as allocable to such portion to the extent of the amount of the
gain to which paragraph (1) applies.
(B) In the case of the disposition of an undivided interest
in a section 1254 property (or a portion thereof), a
proportionate part of the expenditures or deductions described
in paragraph (1)(A) with respect to such property shall be
treated as allocable to such undivided interest to the extent
of the amount of the gain to which paragraph (1) applies.
This paragraph shall not apply to any expenditures to the extent
the taxpayer establishes to the satisfaction of the Secretary
that such expenditures do not relate to the portion (or interest
therein) disposed of.
(3) Section 1254 property
The term "section 1254 property" means any property (within the
meaning of section 614) if -
(A) any expenditures described in paragraph (1)(A) are
properly chargeable to such property, or
(B) the adjusted basis of such property includes adjustments
for deductions for depletion under section 611.
(4) Adjustment for amounts included in gross income under section
617(b)(1)(A)
The amount of the expenditures referred to in paragraph
(1)(A)(i) shall be properly adjusted for amounts included in
gross income under section 617(b)(1)(A).
(b) Special rules under regulations
Under regulations prescribed by the Secretary -
(1) rules similar to the rule of subsection (g) of section 617
and to the rules of subsections (b) and (c) of section 1245 shall
be applied for purposes of this section; and
(2) in the case of the sale or exchange of stock in an S
corporation, rules similar to the rules of section 751 shall be
applied to that portion of the excess of the amount realized over
the adjusted basis of the stock which is attributable to
expenditures referred to in subsection (a)(1)(A) of this section.
-SOURCE-
(Added Pub. L. 94-455, title II, Sec. 205(a), Oct. 4, 1976, 90
Stat. 1533; amended Pub. L. 95-618, title IV, Sec. 402(c)(1)-(3),
Nov. 9, 1978, 92 Stat. 3202; Pub. L. 97-354, Sec. 5(a)(37), Oct.
19, 1982, 96 Stat. 1696; Pub. L. 99-514, title IV, Sec. 413(a),
Oct. 22, 1986, 100 Stat. 2227; Pub. L. 100-647, title I, Sec.
1004(c), Nov. 10, 1988, 102 Stat. 3387.)
-MISC1-
AMENDMENTS
1988 - Subsec. (a)(4). Pub. L. 100-647 added par. (4).
1986 - Pub. L. 99-514 amended section generally, substituting
"geothermal, or other mineral properties" for "or geothermal
property" in section catchline, revising and restating subsec. (a),
pars. (1) to (4) as pars. (1) to (3), and reenacting subsec. (b)
without change except for substituting "rule of subsection (g)" for
"rules of subsection (g)" in par. (1).
1982 - Subsec. (b)(2). Pub. L. 97-354 substituted "an S
corporation" for "an electing small business corporation (as
defined in section 1371(b))".
1978 - Pub. L. 95-618, Sec. 402(c)(3), substituted "oil, gas, or
geothermal" for "oil or gas" in section catchline.
Subsec. (a)(1), (2). Pub. L. 95-618, Sec. 402(c)(1), substituted
"oil, gas, or geothermal property" for "oil or gas property"
wherever appearing.
Subsec. (a)(3). Pub. L. 95-618, Sec. 402(c)(2), substituted "Oil,
gas, or geothermal" for "Oil or gas" in heading and in text
substituted "The term 'oil, gas, or geothermal property' means" for
"The term 'oil or gas property' means".
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
Section 413(c) of Pub. L. 99-514 provided that:
"(1) In general. - The amendments made by this section [amending
this section and section 617 of this title] shall apply to any
disposition of property which is placed in service by the taxpayer
after December 31, 1986.
"(2) Exception for binding contracts. - The amendments made by
this section shall not apply to any disposition of property placed
in service after December 31, 1986, if such property was acquired
pursuant to a written contract which was entered into before
September 26, 1985, and which was binding at all times thereafter."
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. 95-618 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.
EFFECTIVE DATE
Section 205(e) of Pub. L. 94-455 provided that: "The amendments
made by this section [enacting this section and amending sections
163, 170, 301, 312, 341, 453, and 751 of this title] shall apply
with respect to taxable years ending after December 31, 1975."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 59, 291, 617, 751 of this
title.
-End-
-CITE-
26 USC Sec. 1255 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART IV - SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-HEAD-
Sec. 1255. Gain from disposition of section 126 property
-STATUTE-
(a) General rule
(1) Ordinary income
Except as otherwise provided in this section, if section 126
property is disposed of, the lower of -
(A) the applicable percentage of the aggregate payments, with
respect to such property, excluded from gross income under
section 126, or
(B) the excess of -
(i) the amount realized (in the case of a sale, exchange,
or involuntary conversion), or the fair market value of such
section 126 property (in the case of any other disposition),
over
(ii) the adjusted basis of such property,
shall be treated as ordinary income. Such gain shall be
recognized notwithstanding any other provision of this
subtitle, except that this section shall not apply to the
extent such gain is recognized as ordinary income under any
other provision of this part.
(2) Section 126 property
For purposes of this section, "section 126 property" means any
property acquired, improved, or otherwise modified by the
application of payments excluded from gross income under section
126.
(3) Applicable percentage
For purposes of this section, if section 126 property is
disposed of less than 10 years after the date of receipt of
payments excluded from gross income under section 126, the
applicable percentage is 100 percent. If section 126 property is
disposed of more than 10 years after such date, the applicable
percentage is 100 percent reduced (but not below zero) by 10
percent for each year or part thereof in excess of 10 years such
property was held after the date of receipt of the payments.
(b) Special rules
Under regulations prescribed by the Secretary -
(1) rules similar to the rules applicable under section 1245
shall be applied for purposes of this section, and
(2) for purposes of sections 170(e),(!1) 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.
-SOURCE-
(Added Pub. L. 95-600, title V, Sec. 543(c)(1), Nov. 6, 1978, 92
Stat. 2890; amended Pub. L. 96-222, title I, Sec. 105(a)(7)(B),
(D), Apr. 1, 1980, 94 Stat. 221; Pub. L. 96-471, Sec. 2(b)(6), Oct.
19, 1980, 94 Stat. 2254; Pub. L. 99-514, title V, Sec.
511(d)(2)(A), title VI, Sec. 631(e)(14), Oct. 22, 1986, 100 Stat.
2248, 2275; Pub. L. 100-647, title I, Sec. 1005(c)(10), Nov. 10,
1988, 102 Stat. 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. (b)(2). 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. (b)(2). Pub. L. 100-647 amended Pub. L. 99-514,
Sec. 511(d)(2)(A), see 1986 Amendment note below.
1986 - Subsec. (b)(2). Pub. L. 99-514, Sec. 511(d)(2)(A), as
amended by Pub. L. 100-647, struck out "163(d)," after "sections".
Pub. L. 99-514, Sec. 631(e)(14), struck out "453B(d)(2)" after
"341(e)(12),".
1980 - Subsec. (a)(1)(B). Pub. L. 96-222, Sec. 105(a)(7)(B),
inserted following cl. (ii) provisions requiring that such gain be
recognized notwithstanding any other provision of this subtitle,
except that this section shall not apply to the extent such gain is
recognized as ordinary income under any other provision of this
part.
Subsec. (b)(2). Pub. L. 96-471 substituted "453B(d)(2)" for
"453(d)(4)(B)".
Pub. L. 96-222, Sec. 105(a)(7)(D), inserted "for purposes of
sections 163(d), 170(e), 341(e)(12), 453(d)(4)(B), and 751(c)"
before "amounts treated as".
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 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)(14) 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.
EFFECTIVE DATE OF 1980 AMENDMENTS
For effective date of amendment by Pub. L. 96-471, see section
6(a)(1) of Pub. L. 96-471, set out as an Effective Date note under
section 453 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
Section effective with respect to grants made under the programs
after Sept. 30, 1979, see section 543(d) of Pub. L. 95-600, set out
as a note under section 126 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 126 of this title.
-FOOTNOTE-
(!1) So in original. The comma probably should not appear.
-End-
-CITE-
26 USC Sec. 1256 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART IV - SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-HEAD-
Sec. 1256. Section 1256 contracts marked to market
-STATUTE-
(a) General rule
For purposes of this subtitle -
(1) each section 1256 contract held by the taxpayer at the
close of the taxable year shall be treated as sold for its fair
market value on the last business day of such taxable year (and
any gain or loss shall be taken into account for the taxable
year),
(2) proper adjustment shall be made in the amount of any gain
or loss subsequently realized for gain or loss taken into account
by reason of paragraph (1),
(3) any gain or loss with respect to a section 1256 contract
shall be treated as -
(A) short-term capital gain or loss, to the extent of 40
percent of such gain or loss, and
(B) long-term capital gain or loss, to the extent of 60
percent of such gain or loss, and
(4) if all the offsetting positions making up any straddle
consist of section 1256 contracts to which this section applies
(and such straddle is not part of a larger straddle), sections
1092 and 263(g) shall not apply with respect to such straddle.
(b) Section 1256 contract defined
For purposes of this section, the term "section 1256 contract"
means -
(1) any regulated futures contract,
(2) any foreign currency contract,
(3) any nonequity option,
(4) any dealer equity option, and
(5) any dealer securities futures contract.
The term "section 1256 contract" shall not include any securities
futures contract or option on such a contract unless such contract
or option is a dealer securities futures contract.
(c) Terminations, etc.
(1) In general
The rules of paragraphs (1), (2), and (3) of subsection (a)
shall also apply to the termination (or transfer) during the
taxable year of the taxpayer's obligation (or rights) with
respect to a section 1256 contract by offsetting, by taking or
making delivery, by exercise or being exercised, by assignment or
being assigned, by lapse, or otherwise.
(2) Special rule where taxpayer takes delivery on or exercises
part of straddle
If -
(A) 2 or more section 1256 contracts are part of a straddle
(as defined in section 1092(c)), and
(B) the taxpayer takes delivery under or exercises any of
such contracts,
then, for purposes of this section, each of the other such
contracts shall be treated as terminated on the day on which the
taxpayer took delivery.
(3) Fair market value taken into account
For purposes of this subsection, fair market value at the time
of the termination (or transfer) shall be taken into account.
(d) Elections with respect to mixed straddles
(1) Election
The taxpayer may elect to have this section not to apply to all
section 1256 contracts which are part of a mixed straddle.
(2) Time and manner
An election under paragraph (1) shall be made at such time and
in such manner as the Secretary may by regulations prescribe.
(3) Election revocable only with consent
An election under paragraph (1) shall apply to the taxpayer's
taxable year for which made and to all subsequent taxable years,
unless the Secretary consents to a revocation of such election.
(4) Mixed straddle
For purposes of this subsection, the term "mixed straddle"
means any straddle (as defined in section 1092(c)) -
(A) at least 1 (but not all) of the positions of which are
section 1256 contracts, and
(B) with respect to which each position forming part of such
straddle is clearly identified, before the close of the day on
which the first section 1256 contract forming part of the
straddle is acquired (or such earlier time as the Secretary may
prescribe by regulations), as being part of such straddle.
(e) Mark to market not to apply to hedging transactions
(1) Section not to apply
Subsection (a) shall not apply in the case of a hedging
transaction.
(2) Definition of hedging transaction
For purposes of this subsection, the term "hedging transaction"
means any hedging transaction (as defined in section
1221(b)(2)(A)) if, before the close of the day on which such
transaction was entered into (or such earlier time as the
Secretary may prescribe by regulations), the taxpayer clearly
identifies such transaction as being a hedging transaction.
(3) Special rule for syndicates
(A) In general
Notwithstanding paragraph (2), the term "hedging transaction"
shall not include any transaction entered into by or for a
syndicate.
(B) Syndicate defined
For purposes of subparagraph (A), the term "syndicate" means
any partnership or other entity (other than a corporation which
is not an S corporation) if more than 35 percent of the losses
of such entity during the taxable year are allocable to limited
partners or limited entrepreneurs (within the meaning of
section 464(e)(2)).
(C) Holdings attributable to active management
For purposes of subparagraph (B), an interest in an entity
shall not be treated as held by a limited partner or a limited
entrepreneur (within the meaning of section 464(e)(2)) -
(i) for any period if during such period such interest is
held by an individual who actively participates at all times
during such period in the management of such entity,
(ii) for any period if during such period such interest is
held by the spouse, children, grandchildren, and parents of
an individual who actively participates at all times during
such period in the management of such entity,
(iii) if such interest is held by an individual who
actively participated in the management of such entity for a
period of not less than 5 years,
(iv) if such interest is held by the estate of an
individual who actively participated in the management of
such entity or is held by the estate of an individual if with
respect to such individual such interest was at any time
described in clause (ii), or
(v) if the Secretary determines (by regulations or
otherwise) that such interest should be treated as held by an
individual who actively participates in the management of
such entity, and that such entity and such interest are not
used (or to be used) for tax-avoidance purposes.
For purposes of this subparagraph, a legally adopted child of
an individual shall be treated as a child of such individual by
blood.
(4) Limitation on losses from hedging transactions
(A) In general
(i) Limitation
Any hedging loss for a taxable year which is allocable to
any limited partner or limited entrepreneur (within the
meaning of paragraph (3)) shall be allowed only to the extent
of the taxable income of such limited partner or entrepreneur
for such taxable year attributable to the trade or business
in which the hedging transactions were entered into. For
purposes of the preceding sentence, taxable income shall be
determined by not taking into account items attributable to
hedging transactions.
(ii) Carryover of disallowed loss
Any hedging loss disallowed under clause (i) shall be
treated as a deduction attributable to a hedging transaction
allowable in the first succeeding taxable year.
(B) Exception where economic loss
Subparagraph (A)(i) shall not apply to any hedging loss to
the extent that such loss exceeds the aggregate unrecognized
gains from hedging transactions as of the close of the taxable
year attributable to the trade or business in which the hedging
transactions were entered into.
(C) Exception for certain hedging transactions
In the case of any hedging transaction relating to property
other than stock or securities, this paragraph shall apply only
in the case of a taxpayer described in section 465(a)(1).
(D) Hedging loss
The term "hedging loss" means the excess of -
(i) the deductions allowable under this chapter for the
taxable year attributable to hedging transactions (determined
without regard to subparagraph (A)(i)), over
(ii) income received or accrued by the taxpayer during such
taxable year from such transactions.
(E) Unrecognized gain
The term "unrecognized gain" has the meaning given to such
term by section 1092(a)(3).
(f) Special rules
(1) Denial of capital gains treatment for property identified as
part of a hedging transaction
For purposes of this title, gain from any property shall in no
event be considered as gain from the sale or exchange of a
capital asset if such property was at any time personal property
(as defined in section 1092(d)(1)) identified under subsection
(e)(2)(C) by the taxpayer as being part of a hedging transaction.
(2) Subsection (a)(3) not to apply to ordinary income property
Paragraph (3) of subsection (a) shall not apply to any gain or
loss which, but for such paragraph, would be ordinary income or
loss.
(3) Capital gain treatment for traders in section 1256 contracts
(A) In general
For purposes of this title, gain or loss from trading of
section 1256 contracts shall be treated as gain or loss from
the sale or exchange of a capital asset.
(B) Exception for certain hedging transactions
Subparagraph (A) shall not apply to any section 1256 contract
to the extent such contract is held for purposes of hedging
property if any loss with respect to such property in the hands
of the taxpayer would be ordinary loss.
(C) Treatment of underlying property
For purposes of determining whether gain or loss with respect
to any property is ordinary income or loss, the fact that the
taxpayer is actively engaged in dealing in or trading section
1256 contracts related to such property shall not be taken into
account.
(4) Special rule for dealer equity options and dealer securities
futures contracts of limited partners or limited entrepreneurs
In the case of any gain or loss with respect to dealer equity
options, or dealer securities futures contracts, which are
allocable to limited partners or limited entrepreneurs (within
the meaning of subsection (e)(3)) -
(A) paragraph (3) of subsection (a) shall not apply to any
such gain or loss, and
(B) all such gains or losses shall be treated as short-term
capital gains or losses, as the case may be.
(5) Special rule related to losses
Section 1091 (relating to loss from wash sales of stock or
securities) shall not apply to any loss taken into account by
reason of paragraph (1) of subsection (a).
(g) Definitions
For purposes of this section -
(1) Regulated futures contracts defined
The term "regulated futures contract" means a contract -
(A) with respect to which the amount required to be deposited
and the amount which may be withdrawn depends on a system of
marking to market, and
(B) which is traded on or subject to the rules of a qualified
board or exchange.
(2) Foreign currency contract defined
(A) Foreign currency contract
The term "foreign currency contract" means a contract -
(i) which requires delivery of, or the settlement of which
depends on the value of, a foreign currency which is a
currency in which positions are also traded through regulated
futures contracts,
(ii) which is traded in the interbank market, and
(iii) which is entered into at arm's length at a price
determined by reference to the price in the interbank market.
(B) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of
subparagraph (A), including regulations excluding from the
application of subparagraph (A) any contract (or type of
contract) if its application thereto would be inconsistent with
such purposes.
(3) Nonequity option
The term "nonequity option" means any listed option which is
not an equity option.
(4) Dealer equity option
The term "dealer equity option" means, with respect to an
options dealer, any listed option which -
(A) is an equity option,
(B) is purchased or granted by such options dealer in the
normal course of his activity of dealing in options, and
(C) is listed on the qualified board or exchange on which
such options dealer is registered.
(5) Listed option
The term "listed option" means any option (other than a right
to acquire stock from the issuer) which is traded on (or subject
to the rules of) a qualified board or exchange.
(6) Equity option
The term "equity option" means any option -
(A) to buy or sell stock, or
(B) the value of which is determined directly or indirectly
by reference to any stock or any narrow-based security index
(as defined in section 3(a)(55) of the Securities Exchange Act
of 1934, as in effect on the date of the enactment of this
paragraph).
The term "equity option" includes such an option on a group of
stocks only if such group meets the requirements for a
narrow-based security index (as so defined).
(7) Qualified board or exchange
The term "qualified board or exchange" means -
(A) a national securities exchange which is registered with
the Securities and Exchange Commission,
(B) a domestic board of trade designated as a contract market
by the Commodity Futures Trading Commission, or
(C) any other exchange, board of trade, or other market which
the Secretary determines has rules adequate to carry out the
purposes of this section.
(8) Options dealer
(A) In general
The term "options dealer" means any person registered with an
appropriate national securities exchange as a market maker or
specialist in listed options.
(B) Persons trading in other markets
In any case in which the Secretary makes a determination
under subparagraph (C) of paragraph (7), the term "options
dealer" also includes any person whom the Secretary determines
performs functions similar to the persons described in
subparagraph (A). Such determinations shall be made to the
extent appropriate to carry out the purposes of this section.
(9) Dealer securities futures contract
(A) In general
The term "dealer securities futures contract" means, with
respect to any dealer, any securities futures contract, and any
option on such a contract, which -
(i) is entered into by such dealer (or, in the case of an
option, is purchased or granted by such dealer) in the normal
course of his activity of dealing in such contracts or
options, as the case may be, and
(ii) is traded on a qualified board or exchange.
(B) Dealer
For purposes of subparagraph (A), a person shall be treated
as a dealer in securities futures contracts or options on such
contracts if the Secretary determines that such person
performs, with respect to such contracts or options, as the
case may be, functions similar to the functions performed by
persons described in paragraph (8)(A). Such determination shall
be made to the extent appropriate to carry out the purposes of
this section.
(C) Securities futures contract
The term "securities futures contract" has the meaning given
to such term by section 1234B.
-SOURCE-
(Added Pub. L. 97-34, title V, Sec. 503(a), Aug. 13, 1981, 95 Stat.
327; amended Pub. L. 97-354, Sec. 5(a)(38), Oct. 19, 1982, 96 Stat.
1696; Pub. L. 97-448, title I, Sec. 105(c)(1)-(3), (5)(A)-(C), Jan.
12, 1983, 96 Stat. 2385, 2386; Pub. L. 98-369, div. A, title I,
Secs. 102(a), (b), (e)(1), (5), 104(a), 107(c), (d), title VII,
Sec. 722(a)(2), July 18, 1984, 98 Stat. 620, 621, 623, 624, 628,
630, 972; Pub. L. 99-514, title XII, Sec. 1261(c), Oct. 22, 1986,
100 Stat. 2591; Pub. L. 106-170, title V, Sec. 532(b)(4), Dec. 17,
1999, 113 Stat. 1930; Pub. L. 106-554, Sec. 1(a)(7) [title IV, Sec.
401(g)(1)-(3)], Dec. 21, 2000, 114 Stat. 2763, 2763A-649,
2763A-650; Pub. L. 107-147, title IV, Sec. 416(b)(1), Mar. 9, 2002,
116 Stat. 55.)
-REFTEXT-
REFERENCES IN TEXT
Section 3(a)(55) of the Securities Exchange Act of 1934, referred
to in subsec. (g)(6)(B), is classified to section 78c(a)(55) of
Title 15, Commerce and Trade.
The date of the enactment of this paragraph, referred to in
subsec. (g)(6)(B), probably means the date of enactment of Pub. L.
106-554, which amended subsec. (g)(6) generally and which was
approved Dec. 21, 2000.
-MISC1-
AMENDMENTS
2002 - Subsec. (f)(5). Pub. L. 107-147 added par. (5).
2000 - Subsec. (b). Pub. L. 106-554, Sec. 1(a)(7) [title IV, Sec.
401(g)(1)(A)], added par. (5) and concluding provisions.
Subsec. (f)(4). Pub. L. 106-554, Sec. 1(a)(7) [title IV, Sec.
401(g)(2)], inserted "and dealer securities futures contracts"
after "dealer equity options" in heading and ", or dealer
securities futures contracts," after "dealer equity options" in
introductory provisions.
Subsec. (g)(6). Pub. L. 106-554, Sec. 1(a)(7) [title IV, Sec.
401(g)(3)], amended heading and text of par. (6) generally. Prior
to amendment, text read as follows:
"(A) In general. - Except as provided in subparagraph (B), the
term 'equity option' means any option -
"(i) to buy or sell stock, or
"(ii) the value of which is determined directly or indirectly
by reference to any stock (or group of stocks) or stock index.
"(B) Exception for certain options regulated by commodities
futures trading commission. - The term 'equity option' does not
include any option with respect to any group of stocks or stock
index if -
"(i) there is in effect a designation by the Commodities
Futures Trading Commission of a contract market for a contract
based on such group of stocks or index, or
"(ii) the Secretary determines that such option meets the
requirements of law for such a designation."
Subsec. (g)(9). Pub. L. 106-554, Sec. 1(a)(7) [title IV, Sec.
401(g)(1)(B)], added par. (9).
1999 - Subsec. (e)(2). Pub. L. 106-170 reenacted heading without
change and amended text generally. Prior to amendment, text read as
follows: "For purposes of this subsection, the term 'hedging
transaction' means any transaction if -
"(A) such transaction is entered into by the taxpayer in the
normal course of the taxpayer's trade or business primarily -
"(i) to reduce risk of price change or currency fluctuations
with respect to property which is held or to be held by the
taxpayer, or
"(ii) to reduce risk of interest rate or price changes or
currency fluctuations with respect to borrowings made or to be
made, or obligations incurred or to be incurred, by the
taxpayer,
"(B) the gain or loss on such transactions is treated as
ordinary income or loss, and
"(C) before the close of the day on which such transaction was
entered into (or such earlier time as the Secretary may prescribe
by regulations), the taxpayer clearly identifies such transaction
as being a hedging transaction."
1986 - Subsec. (e)(4), (5). Pub. L. 99-514 redesignated par. (5)
as (4) and struck out former par. (4), special rule for banks,
which read as follows: "In the case of a bank (as defined in
section 581), subparagraph (A) of paragraph (2) shall be applied
without regard to clause (i) or (ii) thereof."
1984 - Pub. L. 98-369, Sec. 102(e)(5), substituted "Section 1256
contracts" for "Regulated futures contracts" in section catchline.
Subsec. (a)(1), (3), (4). Pub. L. 98-369, Sec. 102(a)(1),
substituted "section 1256 contract" for "regulated futures
contract" and "section 1256 contracts" for "regulated futures
contracts" wherever appearing.
Subsec. (b). Pub. L. 98-369, Sec. 102(a)(2), in par. (1),
substituted "any regulated futures contract" for "with respect to
which the amount required to be deposited and the amount which may
be withdrawn depends on the system of marking to market; and", in
par. (2), substituted "any foreign currency contract," for "which
is traded on or subject to the rules of a domestic board of trade
designated as a contract market by the Commodity Futures Trading
Commission or of any board of trade or exchange which the Secretary
determines has rules adequate to carry out the purposes of this
section. Such term includes any foreign currency contract.", and
added pars. (3) and (4).
Subsec. (c)(1). Pub. L. 98-369, Sec. 102(a)(1)(A), (e)(1)(A),
substituted "section 1256 contracts" for "regulated futures
contracts", and "by taking or making delivery, by exercise or being
exercised, by assignment or being assigned, by lapse," for "by
taking or making delivery,".
Subsec. (c)(2). Pub. L. 98-369, Sec. 102(e)(1)(C), substituted
"takes delivery on or exercises" for "takes delivery on" in
heading.
Subsec. (c)(2)(A). Pub. L. 98-369, Sec. 102(a)(1)(B), substituted
"section 1256 contracts" for "regulated futures contracts".
Subsec. (c)(2)(B). Pub. L. 98-369, Sec. 102(e)(1)(B), substituted
"takes delivery under or exercises" for "takes delivery under".
Subsec. (d)(1), (4)(A). Pub. L. 98-369, Sec. 102(a)(1)(B),
substituted "section 1256 contracts" for "regulated futures
contracts".
Subsec. (d)(4)(B). Pub. L. 98-369, Sec. 102(a)(1)(A), substituted
"section 1256 contract" for "regulated futures contract".
Pub. L. 98-369, Sec. 107(c), inserted "(or such earlier time as
the Secretary may prescribe by regulations)".
Subsec. (e)(2)(C). Pub. L. 98-369, Sec. 107(d), inserted "(or
such earlier time as the Secretary may prescribe by regulations".
Subsec. (e)(5). Pub. L. 98-369, Sec. 104(a), added par. (5).
Subsec. (f)(3), (4). Pub. L. 98-369, Sec. 102(b), added pars. (3)
and (4).
Subsec. (g). Pub. L. 98-369, Sec. 102(a)(3), in amending subsec.
(g) generally, inserted provisions relating to regulated futures
contracts as par. (1), redesignated former pars. (1) and (2) as
subpars. (A) and (B), respectively, of par. (2), and added pars.
(3) to (8).
Subsec. (g)(1)(A). Pub. L. 98-369, Sec. 722(a)(2), inserted ", or
the settlement of which depends on the value of," after "delivery
of".
1983 - Subsec. (b). Pub. L. 97-448, Sec. 105(c)(5)(A), (B),
struck out par. (1) which related to contracts requiring delivery
of personal property (as defined in section 1092(d)(1)) or an
interest in such property, redesignated pars. (2) and (3) as (1)
and (2), respectively, and inserted last sentence providing that
such term includes any foreign currency contract.
Subsec. (c). Pub. L. 97-448, Sec. 105(c)(1), inserted ", etc."
after "Terminations" in heading and, in text, designated existing
first and second sentences as pars. (1) and (3), respectively,
added par. (2), inserted "(or transfer)" after "termination" and
"(or rights)" after "obligation" in par. (1) as so designated, and
substituted "this subsection" for "the preceding sentence" and
inserted "(or transfer)" after "termination" in par. (3) as so
designated.
Subsec. (d)(4)(B). Pub. L. 97-448, Sec. 105(c)(2), substituted
"day on which the first regulated futures contract forming part of
the straddle is acquired" for "day on which such position is
acquired".
Subsec. (e)(3)(C)(v). Pub. L. 97-448, Sec. 105(c)(3), inserted
"(by regulations or otherwise)" after "determines".
Subsec. (g). Pub. L. 97-448, Sec. 105(c)(5)(C), added subsec.
(g).
1982 - Subsec. (e)(3)(B). Pub. L. 97-354 substituted "an S
corporation" for "an electing small business corporation within the
meaning of section 1371(b)".
EFFECTIVE DATE OF 2002 AMENDMENT
Pub. L. 107-147, title IV, Sec. 416(b)(2), Mar. 9, 2002, 116
Stat. 55, provided that: "The amendment made by this subsection
[amending this section] shall take effect as if included in section
5075 of the Technical and Miscellaneous Revenue Act of 1988 [Pub.
L. 100-647]."
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-170 applicable to any instrument held,
acquired, or entered into, any transaction entered into, and
supplies held or acquired on or after Dec. 17, 1999, see section
532(d) of Pub. L. 106-170, set out as a note under section 170 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, with certain exceptions and qualifications,
see section 1261(e) of Pub. L. 99-514, set out as an Effective Date
note under section 985 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 102(f)-(j) of Pub. L. 98-369, as amended by Pub. L.
99-514, Sec. 2, title XVIII, Sec. 1808(a)(1), Oct. 22, 1986, 100
Stat. 2095, 2817, provided that:
"(f) Effective Dates. -
"(1) In general. - Except as otherwise provided in this
subsection or subsection (g), the amendments made by this section
[amending this section, sections 263, 1092, 1212, 1234A, 1362,
1374, and 1402 of this title, and section 411 of Title 42, The
Public Health and Welfare, and enacting provisions set out as a
note under section 1362 of this title] shall apply to positions
established after the date of the enactment of this Act [July 18,
1984], in taxable years ending after such date.
"(2) Special rule for options on regulated futures contracts. -
In the case of any option with respect to a regulated futures
contract (within the meaning of section 1256 of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954]), the amendments made
by this section shall apply to positions established after
October 31, 1983, in taxable years ending after such date.
"(3) Special rule for self-employment tax. - Except as provided
in subsection (g)(2), the amendments made by subsection (c)
[amending section 1402 of this title and section 411 of Title 42]
shall apply to taxable years beginning after the date of the
enactment of this Act [July 18, 1984].
"(4) Gains or losses from certain terminations. - The amendment
made by subsection (d)(9) [probably means subsec. (e)(9), which
amended section 1234A of this title] shall apply as if included
in the amendment made by section 505(a) [probably means section
507(a)] of the Economic Recovery Tax Act of 1981 [Pub. L. 97-34],
as amended by section 105(e) of the Technical Corrections Act of
1982 [Pub. L. 97-448].
"(g) Elections With Respect to Property Held on or Before the
Date of the Enactment of This Act. - At the election of the
taxpayer -
"(1) the amendments made by this section [amending this
section, sections 263, 1092, 1212, 1234A, 1362, 1374, and 1402 of
this title, and section 411 of Title 42, The Public Health and
Welfare, and enacting provisions set out as a note under section
1362 of this title] shall apply to all section 1256 contracts
held by the taxpayer on the date of the enactment of this Act
[July 18, 1984], effective for periods after such date in taxable
years ending after such date, or
"(2) in lieu of an election under paragraph (1), the amendments
made by this section shall apply to all section 1256 contracts
held by the taxpayer at any time during the taxable year of the
taxpayer which includes the date of the enactment of this Act.
"(h) Elections for Installment Payment of Tax Attributable to
Stock Options. -
"(1) In general. - If the taxpayer makes an election under
subsection (g)(2) and under this subsection -
"(A) the taxpayer may pay part or all the tax for the taxable
year referred to in subsection (g)(2) in 2 or more (but not
exceeding 5) equal installments, and
"(B) the maximum amount of tax which may be paid in
installments under this subsection shall be the excess of -
"(i) the tax for such taxable year determined by taking
into account subsection (g)(2), over
"(ii) the tax for such taxable year determined by taking
into account subsection (g)(2) and by treating -
"(I) all section 1256 contracts which are stock options, and
"(II) any stock which was a part of a straddle including any
such stock options,
as having been acquired for a purchase price equal to their
fair market value on the last business day of the preceding
taxable year. Stock options and stock shall be taken into
account under subparagraph (B)(ii) only if such options or
stock were held on the last day of the preceding taxable year
and only if income on such options or stock would have been
ordinary income if such options or stock were sold at a gain
on such last day.
"(2) Date for payment of installment. -
"(A) If an election is made under this subsection, the first
installment under paragraph (1) shall be paid on or before the
due date for filing the return for the taxable year described
in paragraph (1), and each succeeding installment shall be paid
on or before the date which is 1 year after the date prescribed
for payment of the preceding installment.
"(B) If a bankruptcy case or insolvency proceeding involving
the taxpayer is commenced before the final installment is paid,
the total amount of any unpaid installments shall be treated as
due and payable on the day preceding the day on which such case
or proceeding is commenced.
"(3) Interest imposed. - For purposes of section 6601 of the
Internal Revenue Code of 1986, the time for payment of any tax
with respect to which an election is made under this subsection
shall be determined without regard to this subsection.
"(4) Form of election. - An election under this subsection
shall be made not later than the time for filing the return for
the taxable year described in paragraph (1) and shall be made in
the manner and form required by regulations prescribed by
Secretary of the Treasury or his delegate. The election shall set
forth -
"(A) the amount determined under paragraph (1)(B) and the
number of installments elected by the taxpayer,
"(B) the property described in paragraph (1)(B)(ii), and the
date on which such property was acquired,
"(C) the fair market value of the property described in
paragraph (1)(B)(ii) on the last business day of the taxable
year preceding the taxable year described in paragraph (1), and
"(D) such other information for purposes of carrying out the
provisions of this subsection as may be required by such
regulations.
"(5) Delay of identification requirement. - Section
1256(e)(2)(C) of the Internal Revenue Code of 1986 shall not
apply to any stock option or stock acquired on or before the 60th
day after the date of the enactment of this Act [July 18, 1984].
"(i) Definitions. - For purposes of subsections (g) and (h) -
"(1) Section 1256 contract. - The term 'section 1256 contract'
has the meaning given to such term by section 1256(b) of the
Internal Revenue Code of 1986 (as amended by this section).
"(2) Stock option. - The term 'stock option' means any option
to buy or sell stock.
"(j) Coordination of Election Under Subsection (d)(3) With
Elections Under Subsections (g) and (h). - The Secretary of the
Treasury or his delegate shall prescribe such regulations as may be
necessary to coordinate the election provided by subsection (d)(3)
with the elections provided by subsections (g) and (h)."
Section 104(b) of Pub. L. 98-369 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1984."
Amendment by section 107(c), (d) of Pub. L. 98-369 applicable to
positions entered into after July 18, 1984, in taxable years ending
after that date, see section 107(e) of Pub. L. 98-369 set out as a
note under section 1092 of this title.
Amendment by section 722(a)(2) of Pub. L. 98-369 effective as if
included in the provisions of the Technical Corrections Act of
1984, Pub. L. 97-448, to which such amendment relates, see section
722(a)(6) of Pub. L. 98-369, set out as a note under section 172 of
this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the
Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
Section 105(c)(5)(D) of Pub. L. 97-448, as amended by Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(i) In general. - Except as provided in clauses (ii) and (iii),
the amendments made by subparagraphs (B) and (C) [amending this
section] shall apply only with respect to contracts entered into
after May 11, 1982.
"(ii) Election by taxpayer of retroactive application. -
"(I) Retroactive application. - If the taxpayer so elects, the
amendments made by subparagraphs (B) and (C) [amending this
section] shall apply as if included within the amendments made by
title V of the Economic Recovery Tax Act of 1981 [title V of Pub.
L. 97-34].
"(II) Additional choices with respect to 1981. - If the
taxpayer held a foreign currency contract after December 31,
1980, and before June 24, 1981, and such taxpayer makes an
election under subclause (I), such taxpayer may revoke any
election made under section 508(c) [set out as an Effective Date
note under section 1092 of this title] or 509(a) [set out below]
of such Act, and may make an election under section 508(c) or
509(a) of such Act.
"(III) Additional choices apply to all regulated futures
contracts. - Except as provided in subclause (IV), in the case of
any taxpayer who makes an election under subclause (I), any
election under section 508(c) or 509(a) of such Act or any
revocation of such an election shall apply to all regulated
futures contracts (including foreign currency contracts).
"(IV) Section 509(a)(3) and (4) not to apply to foreign
currency contracts. - Paragraphs (3) and (4) of section 509(a) of
such Act shall not apply to any foreign currency contract.
"(V) Time for making election or revocation. - Any election
under subclause (I) and any election or revocation under
subclause (II) may be made only within the 90-day period
beginning on the date of the enactment of this Act [Jan. 12,
1983]. Any such action, once taken, shall be irrevocable.
"(VI) Definitions. - For purposes of this clause, the terms
'regulated futures contract' and 'foreign currency contract' have
the same respective meanings as when used in section 1256 of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as amended
by this Act).
"(iii) Election by taxpayer with respect to positions held during
taxable years ending after may 11, 1982. - In lieu of the election
under clause (ii), a taxpayer may elect to have the amendments made
by subparagraphs (B) and (C) [amending subsec. (b) of this section
to include foreign currency contracts and enacting subsec. (g) of
this section, respectively] applied to all positions held in
taxable years ending after May 11, 1982, except that the provisions
of section 509(a)(3) and (4) of the Economic Recovery Tax Act of
1981 [set out below] shall not apply."
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
Section (other than subsec. (e)(2)(C)) applicable to property
acquired and positions established by the taxpayer after June 23,
1981, in taxable years ending after such date, subsec. (e)(2)(C) of
this section applicable to property acquired and positions
established by the taxpayer after Dec. 31, 1981, in taxable years
ending after such date, and section applicable when so elected with
respect to property held on June 23, 1981, see section 508 of Pub.
L. 97-34, set out as a note under section 1092 of this title.
DEADLINE FOR DETERMINATION
Pub. L. 106-554, Sec. 1(a)(7) [title IV, Sec. 401(g)(4)], Dec.
21, 2000, 114 Stat. 2763, 2763A-650, provided that: "The Secretary
of the Treasury or his delegate shall make the determinations under
section 1256(g)(9)(B) of the Internal Revenue Code of 1986, as
added by this Act, not later than July 1, 2001."
ELECTION FOR EXTENSION OF TIME FOR PAYMENT AND APPLICATION OF THIS
SECTION FOR THE TAXABLE YEAR INCLUDING JUNE 23, 1981
Section 509 of Pub. L. 97-34, as amended by Pub. L. 97-448, title
I, Sec. 105(c)(6), Jan. 12, 1983, 96 Stat. 2387; Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(a) Election. -
"(1) In general. - In the case of any taxable year beginning
before June 23, 1981, and ending after June 22, 1981, the
taxpayer may elect, in lieu of any election under section 508(c)
[set out as an Effective Date note under section 1092 of this
title], to have this section apply to all regulated futures
contracts held during such taxable year.
"(2) Application of section 1256. - If a taxpayer elects to
have the provisions of this section apply to the taxable year
described in paragraph (1). -
"(A) the provisions of section 1256 of the Internal Revenue
Code of 1986 [formerly I.R.C. 1954] (other than section
1256(e)(2)(C)) shall apply to regulated futures contracts held
by the taxpayer at any time during such taxable year, and
"(B) for purposes of determining the rate of tax applicable
to gains and losses from regulated futures contracts held at
any time during such year, such gains and losses shall be
treated as gain or loss from a sale or exchange occurring in a
taxable year beginning in 1982.
"(3) Determination of deferred tax liability. - If the taxpayer
makes an election under this subsection. -
"(A) the taxpayer may pay part or all of the tax for such
year in two or more (but not exceeding five) equal
installments;
"(B) the maximum amount of tax which may be paid in
installments under this section shall be the excess of -
"(i) the tax for such year, determined by taking into
account paragraph (2), over
"(ii) the tax for such year, determined by taking into
account paragraph (2) and by treating all regulated futures
contracts which were held by the taxpayer on the first day of
the taxable year described in paragraph (1), and which were
acquired before the first day of such taxable year, as having
been acquired for a purchase price equal to their fair market
value on the last business day of the preceding taxable year.
"(4) Date for payment of installment. -
"(A) If an election is made under this subsection, the first
installment under subsection (a)(3)(A) shall be paid on or
before the due date for filing the return for the taxable year
described in paragraph (1), and each succeeding installment
shall be paid on or before the date which is one year after the
date prescribed for payment of the preceding installment.
"(B) If a bankruptcy case or insolvency proceeding involving
the taxpayer is commenced before the final installment is paid,
the total amount of any unpaid installments shall be treated as
due and payable on the day preceding the day on which such case
or proceeding is commenced.
"(5) Interest imposed. - For purposes of section 6601 of the
Internal Revenue Code of 1986, the time for payment of any tax
with respect to which an election is made under this subsection
shall be determined without regard to this subsection.
"(b) Form of Election. - An election under this section shall be
made not later than the time for filing the return for the taxable
year described in subsection (a)(1) and shall be made in the manner
and form required by regulations prescribed by the Secretary. The
election shall set forth -
"(1) the amount determined under subsection (a)(3)(B) and the
number of installments elected by the taxpayer,
"(2) each regulated futures contract held by the taxpayer on
the first day of the taxable year described in subsection (a)(1),
and the date such contract was acquired,
"(3) the fair market value on the last business day of the
preceding taxable year for each regulated futures contract
described in paragraph (2), and
"(4) such other information for purposes of carrying out the
provisions of this section as may be required by such
regulations."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 263, 461, 475, 988, 1092,
1212, 1221, 1223, 1234, 1234A, 1234B, 1258, 1281, 1362, 1402 of
this title; title 42 section 411.
-End-
-CITE-
26 USC Sec. 1257 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART IV - SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-HEAD-
Sec. 1257. Disposition of converted wetlands or highly erodible
croplands
-STATUTE-
(a) Gain treated as ordinary income
Any gain on the disposition of converted wetland or highly
erodible cropland shall be treated as ordinary income. Such gain
shall be recognized notwithstanding any other provision of this
subtitle, except that this section shall not apply to the extent
such gain is recognized as ordinary income under any other
provision of this part.
(b) Loss treated as long-term capital loss
Any loss recognized on the disposition of converted wetland or
highly erodible cropland shall be treated as a long-term capital
loss.
(c) Definitions
For purposes of this section -
(1) Converted wetland
The term "converted wetland" means any converted wetland (as
defined in section 1201(4) (!1) of the Food Security Act of 1985
(16 U.S.C. 3801(4))) held -
(A) by the person whose activities resulted in such land
being converted wetland, or
(B) by any other person who at any time used such land for
farming purposes.
(2) Highly erodible cropland
The term "highly erodible cropland" means any highly erodible
cropland (as defined in section 1201(6) (!1) of the Food Security
Act of 1985 (16 U.S.C. 3801(6))), if at any time the taxpayer
used such land for farming purposes (other than the grazing of
animals).
(3) Treatment of successors
If any land is converted wetland or highly erodible cropland in
the hands of any person, such land shall be treated as converted
wetland or highly erodible cropland in the hands of any other
person whose adjusted basis in such land is determined (in whole
or in part) by reference to the adjusted basis of such land in
the hands of such person.
(d) Special rules
Under regulations prescribed by the Secretary, rules similar to
the rules applicable under section 1245 shall apply for purposes of
subsection (a). For purposes of sections 170(e) and 751(c), amounts
treated as ordinary income under subsection (a) shall be treated in
the same manner as amounts treated as ordinary income under section
1245.
-SOURCE-
(Added Pub. L. 99-514, title IV, Sec. 403(a), Oct. 22, 1986, 100
Stat. 2222; amended 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.
-REFTEXT-
REFERENCES IN TEXT
Section 1201(4) of the Food Security Act of 1985 (16 U.S.C.
3801(4)) and section 1201(6) of the Food Security Act of 1985 (16
U.S.C. 3801(6)), referred to in subsec. (c)(1), (2), probably are
references to section 1201(a)(4) and 1201(a)(6) of that Act (16
U.S.C. 3801(a)(4), (6)). Section 1201 of the Food Security Act of
1985 was subsequently amended, and subsecs. (a)(4) and (a)(6) of
section 1201 no longer define the terms "converted wetland" and
"highly erodible cropland", respectively. However, such terms are
defined elsewhere in that section.
-MISC1-
AMENDMENTS
2003 - Subsec. (d). 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.
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
Section 403(c) of Pub. L. 99-514 provided that: "The amendments
made by this section [enacting this section] shall apply to
dispositions of converted wetland or highly erodible cropland (as
defined in section 1257(c) of the Internal Revenue Code of 1986 as
added by this section) first used for farming after March 1, 1986,
in taxable years ending after that date."
-FOOTNOTE-
(!1) See References in Text note below.
-End-
-CITE-
26 USC Sec. 1258 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART IV - SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-HEAD-
Sec. 1258. Recharacterization of gain from certain financial
transactions
-STATUTE-
(a) General rule
In the case of any gain -
(1) which (but for this section) would be treated as gain from
the sale or exchange of a capital asset, and
(2) which is recognized on the disposition or other termination
of any position which was held as part of a conversion
transaction,
such gain (to the extent such gain does not exceed the applicable
imputed income amount) shall be treated as ordinary income.
(b) Applicable imputed income amount
For purposes of subsection (a), the term "applicable imputed
income amount" means, with respect to any disposition or other
termination referred to in subsection (a), an amount equal to -
(1) the amount of interest which would have accrued on the
taxpayer's net investment in the conversion transaction for the
period ending on the date of such disposition or other
termination (or, if earlier, the date on which the requirements
of subsection (c) ceased to be satisfied) at a rate equal to 120
percent of the applicable rate, reduced by
(2) the amount treated as ordinary income under subsection (a)
with respect to any prior disposition or other termination of a
position which was held as a part of such transaction.
The Secretary shall by regulations provide for such reductions in
the applicable imputed income amount as may be appropriate by
reason of amounts capitalized under section 263(g), ordinary income
received, or otherwise.
(c) Conversion transaction
For purposes of this section, the term "conversion transaction"
means any transaction -
(1) substantially all of the taxpayer's expected return from
which is attributable to the time value of the taxpayer's net
investment in such transaction, and
(2) which is -
(A) the holding of any property (whether or not actively
traded), and the entering into a contract to sell such property
(or substantially identical property) at a price determined in
accordance with such contract, but only if such property was
acquired and such contract was entered into on a substantially
contemporaneous basis,
(B) an applicable straddle,
(C) any other transaction which is marketed or sold as
producing capital gains from a transaction described in
paragraph (1), or
(D) any other transaction specified in regulations prescribed
by the Secretary.
(d) Definitions and special rules
For purposes of this section -
(1) Applicable straddle
The term "applicable straddle" means any straddle (within the
meaning of section 1092(c)); except that the term "personal
property" shall include stock.
(2) Applicable rate
The term "applicable rate" means -
(A) the applicable Federal rate determined under section
1274(d) (compounded semiannually) as if the conversion
transaction were a debt instrument, or
(B) if the term of the conversion transaction is indefinite,
the Federal short-term rates in effect under section 6621(b)
during the period of the conversion transaction (compounded
daily).
(3) Treatment of built-in losses
(A) In general
If any position with a built-in loss becomes part of a
conversion transaction -
(i) for purposes of applying this subtitle to such position
for periods after such position becomes part of such
transaction, such position shall be taken into account at its
fair market value as of the time it became part of such
transaction, except that
(ii) upon the disposition or other termination of such
position in a transaction in which gain or loss is
recognized, such built-in loss shall be recognized and shall
have a character determined without regard to this section.
(B) Built-in loss
For purposes of subparagraph (A), the term "built-in loss"
means the loss (if any) which would have been realized if the
position had been disposed of or otherwise terminated at its
fair market value as of the time such position became part of
the conversion transaction.
(4) Position taken into account at fair market value
In determining the taxpayer's net investment in any conversion
transaction, there shall be included the fair market value of any
position which becomes part of such transaction (determined as of
the time such position became part of such transaction).
(5) Special rule for options dealers and commodities traders
(A) In general
Subsection (a) shall not apply to transactions -
(i) of an options dealer in the normal course of the
dealer's trade or business of dealing in options, or
(ii) of a commodities trader in the normal course of the
trader's trade or business of trading section 1256 contracts.
(B) Definitions
For purposes of this paragraph -
(i) Options dealer
The term "options dealer" has the meaning given such term
by section 1256(g)(8).
(ii) Commodities trader
The term "commodities trader" means any person who is a
member (or, except as otherwise provided in regulations, is
entitled to trade as a member) of a domestic board of trade
which is designated as a contract market by the Commodity
Futures Trading Commission.
(C) Limited partners and limited entrepreneurs
In the case of any gain from a transaction recognized by an
entity which is allocable to a limited partner or limited
entrepreneur (within the meaning of section 464(e)(2)),
subparagraph (A) shall not apply if -
(i) substantially all of the limited partner's (or limited
entrepreneur's) expected return from the entity is
attributable to the time value of the partner's (or
entrepreneur's) net investment in such entity,
(ii) the transaction (or the interest in the entity) was
marketed or sold as producing capital gains treatment from a
transaction described in subsection (c)(1), or
(iii) the transaction (or the interest in the entity) is a
transaction (or interest) specified in regulations prescribed
by the Secretary.
-SOURCE-
(Added Pub. L. 103-66, title XIII, Sec. 13206(a)(1), Aug. 10, 1993,
107 Stat. 462.)
-MISC1-
EFFECTIVE DATE
Section 13206(a)(3) of Pub. L. 103-66, as amended by Pub. L.
104-188, title I, Sec. 1703(n)(11), Aug. 20, 1996, 110 Stat. 1877,
provided that: "The amendments made by this subsection [enacting
this section] shall apply to conversion transactions entered into
after April 30, 1993."
-End-
-CITE-
26 USC Sec. 1259 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART IV - SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-HEAD-
Sec. 1259. Constructive sales treatment for appreciated financial
positions
-STATUTE-
(a) In general
If there is a constructive sale of an appreciated financial
position -
(1) the taxpayer shall recognize gain as if such position were
sold, assigned, or otherwise terminated at its fair market value
on the date of such constructive sale (and any gain shall be
taken into account for the taxable year which includes such
date), and
(2) for purposes of applying this title for periods after the
constructive sale -
(A) proper adjustment shall be made in the amount of any gain
or loss subsequently realized with respect to such position for
any gain taken into account by reason of paragraph (1), and
(B) the holding period of such position shall be determined
as if such position were originally acquired on the date of
such constructive sale.
(b) Appreciated financial position
For purposes of this section -
(1) In general
Except as provided in paragraph (2), the term "appreciated
financial position" means any position with respect to any stock,
debt instrument, or partnership interest if there would be gain
were such position sold, assigned, or otherwise terminated at its
fair market value.
(2) Exceptions
The term "appreciated financial position" shall not include -
(A) any position with respect to debt if -
(i) the position unconditionally entitles the holder to
receive a specified principal amount,
(ii) the interest payments (or other similar amounts) with
respect to such position meet the requirements of clause (i)
of section 860G(a)(1)(B), and
(iii) such position is not convertible (directly or
indirectly) into stock of the issuer or any related person,
(B) any hedge with respect to a position described in
subparagraph (A), and
(C) any position which is marked to market under any
provision of this title or the regulations thereunder.
(3) Position
The term "position" means an interest, including a futures or
forward contract, short sale, or option.
(c) Constructive sale
For purposes of this section -
(1) In general
A taxpayer shall be treated as having made a constructive sale
of an appreciated financial position if the taxpayer (or a
related person) -
(A) enters into a short sale of the same or substantially
identical property,
(B) enters into an offsetting notional principal contract
with respect to the same or substantially identical property,
(C) enters into a futures or forward contract to deliver the
same or substantially identical property,
(D) in the case of an appreciated financial position that is
a short sale or a contract described in subparagraph (B) or (C)
with respect to any property, acquires the same or
substantially identical property, or
(E) to the extent prescribed by the Secretary in regulations,
enters into 1 or more other transactions (or acquires 1 or more
positions) that have substantially the same effect as a
transaction described in any of the preceding subparagraphs.
(2) Exception for sales of nonpublicly traded property
The term "constructive sale" shall not include any contract for
sale of any stock, debt instrument, or partnership interest which
is not a marketable security (as defined in section 453(f)) if
the contract settles within 1 year after the date such contract
is entered into.
(3) Exception for certain closed transactions
(A) In general
In applying this section, there shall be disregarded any
transaction (which would otherwise be treated as a constructive
sale) during the taxable year if -
(i) such transaction is closed before the end of the 30th
day after the close of such taxable year,
(ii) the taxpayer holds the appreciated financial position
throughout the 60-day period beginning on the date such
transaction is closed, and
(iii) at no time during such 60-day period is the
taxpayer's risk of loss with respect to such position reduced
by reason of a circumstance which would be described in
section 246(c)(4) if references to stock included references
to such position.
(B) Treatment of positions which are reestablished
If -
(i) a transaction, which would otherwise be treated as a
constructive sale of an appreciated financial position, is
closed during the taxable year or during the 30 days
thereafter, and
(ii) another substantially similar transaction is entered
into during the 60-day period beginning on the date the
transaction referred to in clause (i) is closed -
(I) which also would otherwise be treated as a
constructive sale of such position,
(II) which is closed before the 30th day after the close
of the taxable year in which the transaction referred to in
clause (i) occurs, and
(III) which meets the requirements of clauses (ii) and
(iii) of subparagraph (A),
the transaction referred to in clause (ii) shall be disregarded
for purposes of determining whether the requirements of
subparagraph (A)(iii) are met with respect to the transaction
described in clause (i).
(4) Related person
A person is related to another person with respect to a
transaction if -
(A) the relationship is described in section 267(b) or
707(b), and
(B) such transaction is entered into with a view toward
avoiding the purposes of this section.
(d) Other definitions
For purposes of this section -
(1) Forward contract
The term "forward contract" means a contract to deliver a
substantially fixed amount of property (including cash) for a
substantially fixed price.
(2) Offsetting notional principal contract
The term "offsetting notional principal contract" means, with
respect to any property, an agreement which includes -
(A) a requirement to pay (or provide credit for) all or
substantially all of the investment yield (including
appreciation) on such property for a specified period, and
(B) a right to be reimbursed for (or receive credit for) all
or substantially all of any decline in the value of such
property.
(e) Special rules
(1) Treatment of subsequent sale of position which was deemed
sold
If -
(A) there is a constructive sale of any appreciated financial
position,
(B) such position is subsequently disposed of, and
(C) at the time of such disposition, the transaction
resulting in the constructive sale of such position is open
with respect to the taxpayer or any related person,
solely for purposes of determining whether the taxpayer has
entered into a constructive sale of any other appreciated
financial position held by the taxpayer, the taxpayer shall be
treated as entering into such transaction immediately after such
disposition. For purposes of the preceding sentence, an
assignment or other termination shall be treated as a
disposition.
(2) Certain trust instruments treated as stock
For purposes of this section, an interest in a trust which is
actively traded (within the meaning of section 1092(d)(1)) shall
be treated as stock unless substantially all (by value) of the
property held by the trust is debt described in subsection
(b)(2)(A).
(3) Multiple positions in property
If a taxpayer holds multiple positions in property, the
determination of whether a specific transaction is a constructive
sale and, if so, which appreciated financial position is deemed
sold shall be made in the same manner as actual sales.
(f) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this section.
-SOURCE-
(Added Pub. L. 105-34, title X, Sec. 1001(a), Aug. 5, 1997, 111
Stat. 903; amended Pub. L. 105-206, title VI, Sec. 6010(a)(1), (2),
July 22, 1998, 112 Stat. 812, 813.)
-MISC1-
AMENDMENTS
1998 - Subsec. (b)(2)(A)(i) to (iii). Pub. L. 105-206, Sec.
6010(a)(1)(A), substituted "position" for "debt".
Subsec. (b)(2)(B), (C). Pub. L. 105-206, Sec. 6010(a)(1)(B), (C),
added subpar. (B) and redesignated former subpar. (B) as (C).
Subsec. (d)(1). Pub. L. 105-206, Sec. 6010(a)(2), inserted
"(including cash)" after "property".
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE
Section applicable to any constructive sale after June 8, 1997,
with certain exceptions, see section 1001(d) of Pub. L. 105-34, set
out as an Effective Date of 1997 Amendment note under section 475
of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 475 of this title.
-End-
-CITE-
26 USC Sec. 1260 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART IV - SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-HEAD-
Sec. 1260. Gains from constructive ownership transactions
-STATUTE-
(a) In general
If the taxpayer has gain from a constructive ownership
transaction with respect to any financial asset and such gain would
(without regard to this section) be treated as a long-term capital
gain -
(1) such gain shall be treated as ordinary income to the extent
that such gain exceeds the net underlying long-term capital gain,
and
(2) to the extent such gain is treated as a long-term capital
gain after the application of paragraph (1), the determination of
the capital gain rate (or rates) applicable to such gain under
section 1(h) shall be determined on the basis of the respective
rate (or rates) that would have been applicable to the net
underlying long-term capital gain.
(b) Interest charge on deferral of gain recognition
(1) In general
If any gain is treated as ordinary income for any taxable year
by reason of subsection (a)(1), the tax imposed by this chapter
for such taxable year shall be increased by the amount of
interest determined under paragraph (2) with respect to each
prior taxable year during any portion of which the constructive
ownership transaction was open. 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.
(2) Amount of interest
The amount of interest determined under this paragraph with
respect to a prior taxable year is the amount of interest which
would have been imposed under section 6601 on the underpayment of
tax for such year which would have resulted if the gain (which is
treated as ordinary income by reason of subsection (a)(1)) had
been included in gross income in the taxable years in which it
accrued (determined by treating the income as accruing at a
constant rate equal to the applicable Federal rate as in effect
on the day the transaction closed). The period during which such
interest shall accrue shall end on the due date (without
extensions) for the return of tax imposed by this chapter for the
taxable year in which such transaction closed.
(3) Applicable Federal rate
For purposes of paragraph (2), the applicable Federal rate is
the applicable Federal rate determined under section 1274(d)
(compounded semiannually) which would apply to a debt instrument
with a term equal to the period the transaction was open.
(4) No credits against increase in tax
Any increase in tax under paragraph (1) shall not be treated as
tax imposed by this chapter for purposes of determining -
(A) the amount of any credit allowable under this chapter, or
(B) the amount of the tax imposed by section 55.
(c) Financial asset
For purposes of this section -
(1) In general
The term "financial asset" means -
(A) any equity interest in any pass-thru entity, and
(B) to the extent provided in regulations -
(i) any debt instrument, and
(ii) any stock in a corporation which is not a pass-thru
entity.
(2) Pass-thru entity
For purposes of paragraph (1), the term "pass-thru entity"
means -
(A) a regulated investment company,
(B) a real estate investment trust,
(C) an S corporation,
(D) a partnership,
(E) a trust,
(F) a common trust fund,
(G) a passive foreign investment company (as defined in
section 1297 without regard to subsection (e) thereof),
(H) a foreign personal holding company,
(I) a foreign investment company (as defined in section
1246(b)), and
(J) a REMIC.
(d) Constructive ownership transaction
For purposes of this section -
(1) In general
The taxpayer shall be treated as having entered into a
constructive ownership transaction with respect to any financial
asset if the taxpayer -
(A) holds a long position under a notional principal contract
with respect to the financial asset,
(B) enters into a forward or futures contract to acquire the
financial asset,
(C) is the holder of a call option, and is the grantor of a
put option, with respect to the financial asset and such
options have substantially equal strike prices and
substantially contemporaneous maturity dates, or
(D) to the extent provided in regulations prescribed by the
Secretary, enters into one or more other transactions (or
acquires one or more positions) that have substantially the
same effect as a transaction described in any of the preceding
subparagraphs.
(2) Exception for positions which are marked to market
This section shall not apply to any constructive ownership
transaction if all of the positions which are part of such
transaction are marked to market under any provision of this
title or the regulations thereunder.
(3) Long position under notional principal contract
A person shall be treated as holding a long position under a
notional principal contract with respect to any financial asset
if such person -
(A) has the right to be paid (or receive credit for) all or
substantially all of the investment yield (including
appreciation) on such financial asset for a specified period,
and
(B) is obligated to reimburse (or provide credit for) all or
substantially all of any decline in the value of such financial
asset.
(4) Forward contract
The term "forward contract" means any contract to acquire in
the future (or provide or receive credit for the future value of)
any financial asset.
(e) Net underlying long-term capital gain
For purposes of this section, in the case of any constructive
ownership transaction with respect to any financial asset, the term
"net underlying long-term capital gain" means the aggregate net
capital gain that the taxpayer would have had if -
(1) the financial asset had been acquired for fair market value
on the date such transaction was opened and sold for fair market
value on the date such transaction was closed, and
(2) only gains and losses that would have resulted from the
deemed ownership under paragraph (1) were taken into account.
The amount of the net underlying long-term capital gain with
respect to any financial asset shall be treated as zero unless the
amount thereof is established by clear and convincing evidence.
(f) Special rule where taxpayer takes delivery
Except as provided in regulations prescribed by the Secretary, if
a constructive ownership transaction is closed by reason of taking
delivery, this section shall be applied as if the taxpayer had sold
all the contracts, options, or other positions which are part of
such transaction for fair market value on the closing date. The
amount of gain recognized under the preceding sentence shall not
exceed the amount of gain treated as ordinary income under
subsection (a). Proper adjustments shall be made in the amount of
any gain or loss subsequently realized for gain recognized and
treated as ordinary income under this subsection.
(g) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this section,
including regulations -
(1) to permit taxpayers to mark to market constructive
ownership transactions in lieu of applying this section, and
(2) to exclude certain forward contracts which do not convey
substantially all of the economic return with respect to a
financial asset.
-SOURCE-
(Added Pub. L. 106-170, title V, Sec. 534(a), Dec. 17, 1999, 113
Stat. 1931.)
-MISC1-
EFFECTIVE DATE
Pub. L. 106-170, title V, Sec. 534(c), Dec. 17, 1999, 113 Stat.
1934, provided that: "The amendments made by this section [enacting
this section] shall apply to transactions entered into after July
11, 1999."
-End-
-CITE-
26 USC PART V - SPECIAL RULES FOR BONDS AND OTHER DEBT
INSTRUMENTS 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART V - SPECIAL RULES FOR BONDS AND OTHER DEBT INSTRUMENTS
-HEAD-
PART V - SPECIAL RULES FOR BONDS AND OTHER DEBT INSTRUMENTS
-MISC1-
Subpart
A. Original issue discount.
B. Market discount on bonds.
C. Discount on short-term obligations.
D. Miscellaneous provisions.
AMENDMENTS
1986 - Pub. L. 99-514, title XVIII, Sec. 1899A(72), Oct. 22,
1986, 100 Stat. 2963, inserted "on bonds" after "discount" in item
for subpart B.
-End-
-CITE-
26 USC Subpart A - Original Issue Discount 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART V - SPECIAL RULES FOR BONDS AND OTHER DEBT INSTRUMENTS
Subpart A - Original Issue Discount
-HEAD-
SUBPART A - ORIGINAL ISSUE DISCOUNT
-MISC1-
Sec.
1271. Treatment of amounts received on retirement or sale or
exchange of debt instruments.
1272. Current inclusion in income of original issue
discount.
1273. Determination of amount of original issue discount.
1274. Determination of issue price in the case of certain
debt instruments issued for property.
1274A. Special rules for certain transactions where stated
principal amount does not exceed $2,800,000.
1275. Other definitions and special rules.
AMENDMENTS
1985 - Pub. L. 99-121, title I, Sec. 102(d), Oct. 11, 1985, 99
Stat. 509, added item 1274A.
-SECREF-
SUBPART REFERRED TO IN OTHER SECTIONS
This subpart is referred to in sections 312, 1037, 1278 of this
title.
-End-
-CITE-
26 USC Sec. 1271 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART V - SPECIAL RULES FOR BONDS AND OTHER DEBT INSTRUMENTS
Subpart A - Original Issue Discount
-HEAD-
Sec. 1271. Treatment of amounts received on retirement or sale or
exchange of debt instruments
-STATUTE-
(a) General rule
For purposes of this title -
(1) Retirement
Amounts received by the holder on retirement of any debt
instrument shall be considered as amounts received in exchange
therefor.
(2) Ordinary income on sale or exchange where intention to call
before maturity
(A) In general
If at the time of original issue there was an intention to
call a debt instrument before maturity, any gain realized on
the sale or exchange thereof which does not exceed an amount
equal to -
(i) the original issue discount, reduced by
(ii) the portion of original issue discount previously
includible in the gross income of any holder (without regard
to subsection (a)(7) or (b)(4) of section 1272 (or the
corresponding provisions of prior law)),
shall be treated as ordinary income.
(B) Exceptions
This paragraph (and paragraph (2) of subsection (c)) shall
not apply to -
(i) any tax-exempt obligation, or
(ii) any holder who has purchased the debt instrument at a
premium.
(3) Certain short-term Government obligations
(A) In general
On the sale or exchange of any short-term Government
obligation, any gain realized which does not exceed an amount
equal to the ratable share of the acquisition discount shall be
treated as ordinary income.
(B) Short-term Government obligation
For purposes of this paragraph, the term "short-term
Government obligation" means any obligation of the United
States or any of its possessions, or of a State or any
political subdivision thereof, or of the District of Columbia,
which has a fixed maturity date not more than 1 year from the
date of issue. Such term does not include any tax-exempt
obligation.
(C) Acquisition discount
For purposes of this paragraph, the term "acquisition
discount" means the excess of the stated redemption price at
maturity over the taxpayer's basis for the obligation.
(D) Ratable share
For purposes of this paragraph, except as provided in
subparagraph (E), the ratable share of the acquisition discount
is an amount which bears the same ratio to such discount as -
(i) the number of days which the taxpayer held the
obligation, bears to
(ii) the number of days after the date the taxpayer
acquired the obligation and up to (and including) the date of
its maturity.
(E) Election of accrual on basis of constant interest rate
At the election of the taxpayer with respect to any
obligation, the ratable share of the acquisition discount is
the portion of the acquisition discount accruing while the
taxpayer held the obligation determined (under regulations
prescribed by the Secretary) on the basis of -
(i) the taxpayer's yield to maturity based on the
taxpayer's cost of acquiring the obligation, and
(ii) compounding daily.
An election under this subparagraph, once made with respect to
any obligation, shall be irrevocable.
(4) Certain short-term nongovernment obligations
(A) In general
On the sale or exchange of any short-term nongovernment
obligation, any gain realized which does not exceed an amount
equal to the ratable share of the original issue discount shall
be treated as ordinary income.
(B) Short-term nongovernment obligation
For purposes of this paragraph, the term "short-term
nongovernment obligation" means any obligation which -
(i) has a fixed maturity date not more than 1 year from the
date of the issue, and
(ii) is not a short-term Government obligation (as defined
in paragraph (3)(B) without regard to the last sentence
thereof).
(C) Ratable share
For purposes of this paragraph, except as provided in
subparagraph (D), the ratable share of the original issue
discount is an amount which bears the same ratio to such
discount as -
(i) the number of days which the taxpayer held the
obligation, bears to
(ii) the number of days after the date of original issue
and up to (and including) the date of its maturity.
(D) Election of accrual on basis of constant interest rate
At the election of the taxpayer with respect to any
obligation, the ratable share of the original issue discount is
the portion of the original issue discount accruing while the
taxpayer held the obligation determined (under regulations
prescribed by the Secretary) on the basis of -
(i) the yield to maturity based on the issue price of the
obligation, and
(ii) compounding daily.
Any election under this subparagraph, once made with respect to
any obligation, shall be irrevocable.
(b) Exception for certain obligations
(1) In general
This section shall not apply to -
(A) any obligation issued by a natural person before June 9,
1997, and
(B) any obligation issued before July 2, 1982, by an issuer
which is not a corporation and is not a government or political
subdivision thereof.
(2) Termination
Paragraph (1) shall not apply to any obligation purchased
(within the meaning of section 1272(d)(1)) after June 8, 1997.
(c) Transition rules
(1) Special rule for certain obligations issued before January 1,
1955
Paragraph (1) of subsection (a) shall apply to a debt
instrument issued before January 1, 1955, only if such instrument
was issued with interest coupons or in registered form, or was in
such form on March 1, 1954.
(2) Special rule for certain obligations with respect to which
original issue discount not currently includible
(A) In general
On the sale or exchange of debt instruments issued by a
government or political subdivision thereof after December 31,
1954, and before July 2, 1982, or by a corporation after
December 31, 1954, and on or before May 27, 1969, any gain
realized which does not exceed -
(i) an amount equal to the original issue discount, or
(ii) if at the time of original issue there was no
intention to call the debt instrument before maturity, an
amount which bears the same ratio to the original issue
discount as the number of complete months that the debt
instrument was held by the taxpayer bears to the number of
complete months from the date of original issue to the date
of maturity,
shall be considered as ordinary income.
(B) Subsection (a)(2)(A) not to apply
Subsection (a)(2)(A) shall not apply to any debt instrument
referred to in subparagraph (A) of this paragraph.
(C) Cross reference
For current inclusion of original issue discount, see section
1272.
(d) Double inclusion in income not required
This section and sections 1272 and 1286 shall not require the
inclusion of any amount previously includible in gross income.
-SOURCE-
(Added Pub. L. 98-369, div. A, title I, Sec. 41(a), July 18, 1984,
98 Stat. 531; amended Pub. L. 99-514, title XVIII, Sec.
1803(a)(1)(A), (2), (3), Oct. 22, 1986, 100 Stat. 2791, 2792; Pub.
L. 100-647, title I, Sec. 1006(u)(4), Nov. 10, 1988, 102 Stat.
3427; Pub. L. 105-34, title X, Sec. 1003(c)(1), Aug. 5, 1997, 111
Stat. 910.)
-MISC1-
AMENDMENTS
1997 - Subsec. (b). Pub. L. 105-34 amended heading and text of
subsec. (b) generally. Prior to amendment, text read as follows:
"This section shall not apply to -
"(1) Natural persons. - Any obligation issued by a natural
person.
"(2) Obligations issued before July 2, 1982, by certain
issuers. - Any obligation issued before July 2, 1982, by an
issuer which -
"(A) is not a corporation, and
"(B) is not a government or political subdivision thereof."
1988 - Subsec. (a)(2)(A)(ii). Pub. L. 100-647 substituted
"subsection (a)(7)" for "subsection (a)(6)".
1986 - Subsec. (a)(3)(B). Pub. L. 99-514, Sec. 1803(a)(3),
amended subpar. (B) generally. Prior to amendment, subpar. (B) read
as follows: "For purposes of this paragraph, the term 'short-term
Government obligation' means any obligation of the United States or
any of its possessions, or of a State or any political subdivision
thereof, or of the District of Columbia which is -
"(i) issued on a discount basis, and
"(ii) payable without interest at a fixed maturity date not
more than 1 year from the date of issue.
Such term does not include any tax-exempt obligation."
Subsec. (a)(3)(D). Pub. L. 99-514, Sec. 1803(a)(2)(B), inserted
"except as provided in subparagraph (E),".
Subsec. (a)(3)(E). Pub. L. 99-514, Sec. 1803(a)(2)(A), added
subpar. (E).
Subsec. (a)(4). Pub. L. 99-514, Sec. 1803(a)(1)(A), added par.
(4).
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1003(c)(2) of Pub. L. 105-34 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to sales, exchanges, and retirements after the date of enactment of
this Act [Aug. 5, 1997]."
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 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 44 of subtitle C (Secs. 41-44) of title I of division A
of Pub. L. 98-369, as amended by Pub. L. 98-612, Sec. 2, Oct. 31,
1984, 98 Stat. 3182; Pub. L. 99-514, Sec. 2, title XVIII, Sec.
1803(b), Oct. 22, 1986, 100 Stat. 2095, 2797, provided that:
"(a) General Rule. - Except as otherwise provided in this
section, the amendments made by this subtitle [enacting this
section and sections 1272 to 1288 and 6706, amending sections 103A,
163, 165, 249, 341, 405, 409, 453B, 483, 751, 811, 871, 881, 1016,
1037, 1351, 1441, 6049, 7701, and 7805, and repealing sections
1232, 1232A, and 1232B of this title] shall apply to taxable years
ending after the date of the enactment of this Act [July 18, 1984].
"(b) Treatment of Debt Instruments Received in Exchange for
Property. -
"(1) In general. -
"(A) Except as otherwise provided in this subsection, section
1274 of the Internal Revenue Code of 1986 [formerly I.R.C.
1954] (as added by section 41) and the amendment made by
section 41(b) (relating to amendment of section 483) shall
apply to sales or exchanges after December 31, 1984.
"(B) Section 1274 of such Code and the amendment made by
section 41(b) shall not apply to any sale or exchange pursuant
to a written contract which was binding on March 1, 1984, and
at all times thereafter before the sale or exchange.
"(2) Revision of section 482 regulations. - Not later than 180
days after the date of the enactment of this Act [July 18, 1984],
the Secretary of the Treasury or his delegate shall modify the
safe harbor interest rates applicable under the regulations
prescribed under section 482 of the Internal Revenue Code of 1986
so that such rates are consistent with the rates applicable under
section 483 of such Code by reason of the amendments made by
section 41.
"(3) Clarification of interest accrual; fair market value rule
in case of potentially abusive situations. -
"(A) In general. -
"(i) Clarification of interest accrual. - In the case of
any sale or exchange -
"(I) after March 1, 1984, nothing in section 483 of the
Internal Revenue Code of 1986 shall permit any interest to be
deductible before the period to which such interest is
properly allocable, or
"(II) after June 8, 1984, notwithstanding section 483 of the
Internal Revenue Code of 1986 or any other provision of law,
no interest shall be deductible before the period to which
such interest is properly allocable.
"(ii) Fair market rule. - In the case of any sale or
exchange after March 1, 1984, such section 483 shall be
treated as including provisions similar to the provisions of
section 1274(b)(3) of such Code (as added by section 41).
"(B) Exception for binding contracts. -
"(i) Subparagraph (A)(i)(I) shall not apply to any sale or
exchange pursuant to a written contract which was binding on
March 1, 1984, and at all times thereafter before the sale or
exchange.
"(ii) Subparagraph (A)(i)(II) shall not apply to any sale
or exchange pursuant to a written contract which was binding
on June 8, 1984, and at all times thereafter before the sale
or exchange.
"(C) Interest accrual rule not to apply where substantially
equal annual payments. - Clause (i) of subparagraph (A) shall
not apply to any debt instrument with substantially equal
annual payments.
"(4) Special rules for sales after december 31, 1984, and
before july 1, 1985. -
"(A) In general. - In the case of any sale or exchange after
December 31, 1984, and before July 1, 1985, of property other
than new section 38 property -
"(i) sections 483(c)(1)(B) and 1274(c)(3) of the Internal
Revenue Code of 1986 shall be applied by substituting the
testing rate determined under subparagraph (B) for 110
percent of the applicable Federal rate determined under
section 1274(d) of such Code, and
"(ii) sections 483(b) and 1274(b) of such Code shall be
applied by substituting the imputation rate determined under
subparagraph (C) for 120 percent of the applicable Federal
rate determined under section 1274(d) of such Code.
"(B) Testing rate. - For purposes of this paragraph -
"(i) In general. - The testing rate determined under this
subparagraph is the sum of -
"(I) 9 percent, plus
"(II) if the borrowed amount exceeds $2,000,000, the excess
determined under clause (ii) multiplied by a fraction the
numerator of which is the borrowed amount to the extent it
exceeds $2,000,000, and the denominator of which is the
borrowed amount.
"(ii) Excess. - For purposes of clause (i), the excess
determined under this clause is the excess of 110 percent of
the applicable Federal rate determined under section 1274(d)
of such Code over 9 percent.
"(C) Imputation rate. - For purposes of this paragraph -
"(i) In general. - The imputation rate determined under
this subparagraph is the sum of -
"(I) 10 percent, plus
"(II) if the borrowed amount exceeds $2,000,000, the excess
determined under clause (ii) multiplied by a fraction the
numerator of which is the borrowed amount to the extent it
exceeds $2,000,000, and the denominator of which is the
borrowed amount.
"(ii) Excess. - For purposes of clause (i), the excess
determined under this clause is the excess of 120 percent of
the applicable Federal rate determined under section 1274(d)
of such Code over 10 percent.
"(D) Borrowed amount. - For purposes of this paragraph, the
term 'borrowed amount' means the stated principal amount.
"(E) Aggregation rules. - For purposes of this paragraph -
"(i) all sales or exchanges which are part of the same
transaction (or a series of related transactions) shall be
treated as one sale or exchange, and
"(ii) all debt instruments arising from the same
transaction (or a series of related transactions) shall be
treated as one debt instrument.
"(F) Cash method of accounting. - In the case of any sale or
exchange before July 1, 1985, of property (other than new
section 38 property) used in the active business of farming and
in which the borrowed amount does not exceed $2,000,000 -
"(i) section 1274 of the Internal Revenue Code of 1986
shall not apply, and
"(ii) interest on the obligation issued in connection with
such sale or exchange shall be taken into account by both
buyer and seller on the cash receipts and disbursements
method of accounting.
The Secretary of the Treasury or his delegate may by regulation
prescribe rules to prevent the mismatching of interest income and
interest deductions in connection with obligations on which
interest is computed on the cash receipts and disbursements
method of accounting.
"(G) Clarification of application of this paragraph, etc. -
This paragraph and paragraphs (5), (6), and (7) shall apply
only in the case of sales or exchanges to which section 1274 or
483 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]
(as amended by section 41) applies.
"(5) General rule for assumptions of loans. - Except as
provided in paragraphs (6) and (7), if any person -
"(A) assumes, in connection with the sale or exchange of
property, any debt obligation, or
"(B) acquires any property subject to any debt obligation,
sections 1274 and 483 of the Internal Revenue Code of 1986 shall
apply to such debt obligation by reason of such assumption (or
such acquisition).
"(6) Exception for assumptions of loans made on or before
october 15, 1984. -
"(A) In general. - If any person -
"(i) assumes, in connection with the sale or exchange of
property, any debt obligation described in subparagraph (B)
and issued on or before October 15, 1984, or
"(ii) acquires any property subject to any such debt
obligation issued on or before October 15, 1984,
sections 1274 and 483 of the Internal Revenue Code of 1986 shall
not be applied to such debt obligation by reason of such
assumption (or such acquisition) unless the terms and conditions
of such debt obligation are modified in connection with the
assumption (or acquisition).
"(B) Obligations described in this subparagraph. - A debt
obligation is described in this subparagraph if such obligation
-
"(i) was issued on or before October 15, 1984, and
"(ii) was assumed (or property was taken subject to such
obligation) in connection with the sale or exchange of
property (including a deemed sale under section 338 (a)) the
sales price of which is not greater than $100,000,000.
"(C) Regulations. - The Secretary shall prescribe such
regulations as may be appropriate to effect the purpose of this
paragraph and paragraph (5), including regulations relating to
tax-exempt obligations, government subsidized loans, or other
instruments.
"(D) Certain exempt transactions. - The Secretary shall
prescribe regulations under which any transaction shall be
exempt from the application of this paragraph if such exemption
is not likely to significantly reduce the tax liability of the
purchaser by reason of the overstatement of the adjusted basis
of the acquired asset.
"(7) Exception for assumptions of loans with respect to certain
property. -
"(A) In general. - If any person -
"(i) assumes, in connection with the sale or exchange of
property described in subparagraph (B), any debt obligation,
or
"(ii) acquires any such property subject to any such debt
obligation,
sections 1274 and 483 of the Internal Revenue Code of 1986 shall
not be applied to such debt obligation by reason of such
assumption (or such acquisition) unless the terms and conditions
of such debt obligation are modified in connection with the
assumption (or acquisition).
"(B) Sales or exchanges to which this paragraph applies. -
This paragraph shall apply to any of the following sales or
exchanges:
"(i) Residences. - Any sale or exchange of a residence by
an individual, an estate, or a testamentary trust, but only
if -
"(I) either -
"(aa) such residence on the date of such sale or exchange
(or in the case of an estate or testamentary trust, on the
date of death of the decedent) was the principal residence
(within the meaning of section 1034) of the individual or
decedent, or
"(bb) during the 2-year period ending on such date, no
substantial portion of such residence was of a character
subject to an allowance under this title [probably means
the Internal Revenue Code of 1986] for depreciation (or
amortization in lieu thereof) in the hands of such
individual or decedent, and
"(II) such residence was not at any time, in the hands of such
individual, estate, testamentary trust, or decedent,
described in section 1221(1) (relating to inventory, etc.).
"(ii) Farms. - Any sale or exchange by a qualified person
of -
"(I) real property which was used as a farm (within the
meaning of section 6420(c)(2)) at all times during the 3-year
period ending on the date of such sale or exchange, or
"(II) tangible personal property which was used in the active
conduct of the trade or business of farming on such farm and
is sold in connection with the sale of such farm,
but only if such property is sold or exchanged for use in the
active conduct of the trade or business of farming by the
transferee of such property.
"(iii) Trades or businesses. -
"(I) In general. - Any sale or exchange by a qualified person
of any trade or business.
"(II) Application with subparagraph (b). - This subparagraph
shall not apply to any sale or exchange of any property
described in subparagraph (B).
"(III) New section 38 property. - This subparagraph shall not
apply to the sale or exchange of any property which, in the
hands of the transferee, is new section 38 property.
"(iv) Sale of business real estate. - Any sale or exchange
of any real property used in an active trade or business by a
person who would be a qualified person if he disposed of his
entire interest.
This subparagraph shall not apply to any transaction described in
the last sentence of paragraph (6)(B) (relating to transaction in
excess of $100,000,000).
"(C) Definitions. - For purposes of this paragraph -
"(i) Qualified person defined. - The term 'qualified
person' means -
"(I) a person who -
"(aa) is an individual, estate, or testamentary trust,
"(bb) is a corporation which immediately prior to the
date of the sale or exchange has 35 or fewer shareholders,
or
"(cc) is a partnership which immediately prior to the
date of the sale or exchange has 35 or fewer partners,
"(II) is a 10-percent owner of a farm or a trade or business,
"(III) pursuant to a plan, disposes of -
"(aa) an interest in a farm or farm property, or
"(bb) his entire interest in a trade or business and all
substantially similar trades or businesses, and
"(IV) the ownership interest of whom may be readily
established by reason of qualified allocations (of the type
described in section 168(j)(9)(B), one class of stock, or the
like).
"(ii) 10-percent owner defined. - The term '10-percent
owner' means a person having at least a 10-percent ownership
interest, applying the attribution rules of section 318
(other than subsection (a)(4)).
"(iii) Trade or business defined. -
"(I) In general. - The term 'trade or business' means any
trade or business, including any line of business, qualifying
as an active trade or business within the meaning of section
355.
"(II) Rental of real property. - For purposes of this clause,
the holding of real property for rental shall not be treated
as an active trade or business.
"(c) Market Discount Rules. -
"(1) Ordinary income treatment. - Section 1276 of the Internal
Revenue Code of 1986 (as added by section 41) shall apply to
obligations issued after the date of the enactment of this Act
[July 18, 1984] in taxable years ending after such date.
"(2) Interest deferral rules. - Section 1277 of such Code (as
added by section 41) shall apply to obligations acquired after
the date of the enactment of this Act in taxable years ending
after such date.
"(d) Rules Relating to Discount on Short-Term Obligations. -
Subpart C of part V of subchapter P of chapter 1 of such Code (as
added by section 41) shall apply to obligations acquired after the
date of the enactment of this Act [July 18, 1984].
"(e) 5-Year Spread of Adjustments Required by Reason of Accrual
of Discount on Certain Short-Term Obligations. -
"(1) Election to have section 1281 apply to all obligations
held during taxable year. - A taxpayer may elect for his first
taxable year ending after the date of the enactment of this Act
[July 18, 1984] to have section 1281 of the Internal Revenue Code
of 1986 apply to all short-term obligations described in
subsection (b) of such section which were held by the taxpayer at
any time during such first taxable year.
"(2) 5-year spread. -
"(A) In general. - In the case of any taxpayer who makes an
election under paragraph (1) -
"(i) the provisions of section 1281 of the Internal Revenue
Code of 1986 (as added by section 41) shall be treated as a
change in the method of accounting of the taxpayer,
"(ii) such change shall be treated as having been made with
the consent of the Secretary, and
"(iii) 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 (hereinafter in this
paragraph referred to as the 'net adjustments') shall be
taken into account during the spread period with the amount
taken into account in each taxable year in such period
determined under subparagraph (B).
"(B) Amount taken into account during each year of spread
period. -
"(i) First year. - The amount taken into account for the
first taxable year in the spread period shall be the sum of -
"(I) one-fifth of the net adjustments, and
"(II) the excess (if any) of -
"(a) the cash basis income over the accrual basis income,
over
"(b) one-fifth of the net adjustments.
"(ii) For subsequent years in spread period. - The amount
taken into account in the second or any succeeding taxable
year in the spread period shall be the sum of -
"(I) the portion of the net adjustments not taken into account
in the preceding taxable year of the spread period divided by
the number of remaining taxable years in the spread period
(including the year for which the determination is being
made), and
"(II) the excess (if any) of -
"(a) the excess of the cash basis income over the accrual
basis income, over
"(b) one-fifth of the net adjustments, multiplied by 5
minus the number of years remaining in the spread period
(not including the current year).
The excess described in subparagraph (B)(ii)(II)(a) shall be
reduced by any amount taken into account under this subclause
or clause (i)(II) in any prior year.
"(C) Spread period. - For purposes of this paragraph, the
term 'spread period' means the period consisting of the 5
taxable years beginning with the year for which the election is
made under paragraph (1).
"(D) Cash basis income. - For purposes of this paragraph, the
term 'cash basis income' means for any taxable year the
aggregate amount which would be includible in the gross income
of the taxpayer with respect to short-term obligations
described in subsection (b) of section 1281 of such Code if the
provisions of section 1281 of such Code did not apply to such
taxable year and all prior taxable years within the spread
period.
"(E) Accrual basis income. - For purposes of this paragraph,
the term 'accrual basis income' means for any taxable year the
aggregate amount includible in gross income under section
1281(a) of such Code for such a taxable year and all prior
taxable years within the spread period.
"(f) Treatment of Original Issue Discount on Tax-Exempt
Obligations. - Section 1288 of such Code (as added by section 41)
shall apply to obligations issued after September 3, 1982, and
acquired after March 1, 1984.
"(g) Repeal of Capital Asset Requirement. - Section 1272 of such
Code (as added by section 41) shall not apply to any obligation
issued on or before December 31, 1984, which is not a capital asset
in the hands of the taxpayer.
"(h) Reporting Requirements. - Section 1275(c) of such Code (as
added by section 41) and the amendments made by section 41(c)
[enacting section 6706 of this title] shall take effect on the day
30 days after the date of the enactment of this Act [July 18,
1984].
"(i) Other Miscellaneous Changes. -
"(1) Accrual period. - In the case of any obligation issued
after July 1, 1982, and before January 1, 1985, the accrual
period, for purposes of section 1272(a) of the Internal Revenue
Code of 1986 (as amended by section 41(a)), shall be a 1-year
period (or shorter period to maturity) beginning on the day in
the calendar year which corresponds to the date of original issue
of the obligation.
"(2) Change in reduction for purchase after original issue. -
Section 1272(a)(6) of such Code (as so amended) shall not apply
to any purchase on or before the date of the enactment of this
Act [July 18, 1984], and the rules of section 1232A(a)(6) of such
Code (as in effect on the day before the date of the enactment of
this Act) shall continue to apply to such purchase.
"(j) Clarification That Prior Effective Date Rules Not Affected.
- Nothing in the amendment made by section 41(a) shall affect the
application of any effective date provision (including any
transitional rule) for any provision which was a predecessor to any
provision contained in part V of subchapter P of chapter 1 of the
Internal Revenue Code of 1954 (as added by section 41)."
[Amendment of section 44 of Pub. L. 98-369, set out above, by
Pub. L. 98-612 (which added pars. (4) to (7) to subsec. (b)) not
applicable to sales and exchanges after June 30, 1985, in taxable
years ending after such date, see section 105(a)(1) of Pub. L.
99-121, set out as an Effective Date of 1985 Amendment note under
section 1274 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 263, 1037, 1283, 1286 of
this title.
-End-
-CITE-
26 USC Sec. 1272 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART V - SPECIAL RULES FOR BONDS AND OTHER DEBT INSTRUMENTS
Subpart A - Original Issue Discount
-HEAD-
Sec. 1272. Current inclusion in income of original issue discount
-STATUTE-
(a) Original issue discount on debt instruments issued after July
1, 1982, included in income on basis of constant interest rate
(1) General rule
For purposes of this title, there shall be included in the
gross income of the holder of any debt instrument having original
issue discount issued after July 1, 1982, an amount equal to the
sum of the daily portions of the original issue discount for each
day during the taxable year on which such holder held such debt
instrument.
(2) Exceptions
Paragraph (1) shall not apply to -
(A) Tax-exempt obligations
Any tax-exempt obligation.
(B) United States savings bonds
Any United States savings bond.
(C) Short-term obligations
Any debt instrument which has a fixed maturity date not more
than 1 year from the date of issue.
(D) Obligations issued by natural persons before March 2, 1984
Any obligation issued by a natural person before March 2,
1984.
(E) Loans between natural persons
(i) In general
Any loan made by a natural person to another natural person
if -
(I) such loan is not made in the course of a trade or
business of the lender, and
(II) the amount of such loan (when increased by the
outstanding amount of prior loans by such natural person to
such other natural person) does not exceed $10,000.
(ii) Clause (i) not to apply where tax avoidance a principal
purpose
Clause (i) shall not apply if the loan has as 1 of its
principal purposes the avoidance of any Federal tax.
(iii) Treatment of husband and wife
For purposes of this subparagraph, a husband and wife shall
be treated as 1 person. The preceding sentence shall not
apply where the spouses lived apart at all times during the
taxable year in which the loan is made.
(3) Determination of daily portions
For purposes of paragraph (1), the daily portion of the
original issue discount on any debt instrument shall be
determined by allocating to each day in any accrual period its
ratable portion of the increase during such accrual period in the
adjusted issue price of the debt instrument. For purposes of the
preceding sentence, the increase in the adjusted issue price for
any accrual period shall be an amount equal to the excess (if
any) of -
(A) the product of -
(i) the adjusted issue price of the debt instrument at the
beginning of such accrual period, and
(ii) the yield to maturity (determined on the basis of
compounding at the close of each accrual period and properly
adjusted for the length of the accrual period), over
(B) the sum of the amounts payable as interest on such debt
instrument during such accrual period.
(4) Adjusted issue price
For purposes of this subsection, the adjusted issue price of
any debt instrument at the beginning of any accrual period is the
sum of -
(A) the issue price of such debt instrument, plus
(B) the adjustments under this subsection to such issue price
for all periods before the first day of such accrual period.
(5) Accrual period
Except as otherwise provided in regulations prescribed by the
Secretary, the term "accrual period" means a 6-month period (or
shorter period from the date of original issue of the debt
instrument) which ends on a day in the calendar year
corresponding to the maturity date of the debt instrument or the
date 6 months before such maturity date.
(6) Determination of daily portions where principal subject to
acceleration
(A) In general
In the case of any debt instrument to which this paragraph
applies, the daily portion of the original issue discount shall
be determined by allocating to each day in any accrual period
its ratable portion of the excess (if any) of -
(i) the sum of (I) the present value determined under
subparagraph (B) of all remaining payments under the debt
instrument as of the close of such period, and (II) the
payments during the accrual period of amounts included in the
stated redemption price of the debt instrument, over
(ii) the adjusted issue price of such debt instrument at
the beginning of such period.
(B) Determination of present value
For purposes of subparagraph (A), the present value shall be
determined on the basis of -
(i) the original yield to maturity (determined on the basis
of compounding at the close of each accrual period and
properly adjusted for the length of the accrual period),
(ii) events which have occurred before the close of the
accrual period, and
(iii) a prepayment assumption determined in the manner
prescribed by regulations.
(C) Debt instruments to which paragraph applies
This paragraph applies to -
(i) any regular interest in a REMIC or qualified mortgage
held by a REMIC,
(ii) any other debt instrument if payments under such debt
instrument may be accelerated by reason of prepayments of
other obligations securing such debt instrument (or, to the
extent provided in regulations, by reason of other events),
or
(iii) any pool of debt instruments the yield on which may
be affected by reason of prepayments (or to the extent
provided in regulations, by reason of other events).
To the extent provided in regulations prescribed by the
Secretary, in the case of a small business engaged in the trade
or business of selling tangible personal property at retail,
clause (iii) shall not apply to debt instruments incurred in
the ordinary course of such trade or business while held by
such business.
(7) Reduction where subsequent holder pays acquisition premium
(A) Reduction
For purposes of this subsection, in the case of any purchase
after its original issue of a debt instrument to which this
subsection applies, the daily portion for any day shall be
reduced by an amount equal to the amount which would be the
daily portion for such day (without regard to this paragraph)
multiplied by the fraction determined under subparagraph (B).
(B) Determination of fraction
For purposes of subparagraph (A), the fraction determined
under this subparagraph is a fraction -
(i) the numerator of which is the excess (if any) of -
(I) the cost of such debt instrument incurred by the
purchaser, over
(II) the issue price of such debt instrument, increased
by the portion of original issue discount previously
includible in the gross income of any holder (computed
without regard to this paragraph), and
(ii) the denominator of which is the sum of the daily
portions for such debt instrument for all days after the date
of such purchase and ending on the stated maturity date
(computed without regard to this paragraph).
(b) Ratable inclusion retained for corporate debt instruments
issued before July 2, 1982
(1) General rule
There shall be included in the gross income of the holder of
any debt instrument issued by a corporation after May 27, 1969,
and before July 2, 1982 -
(A) the ratable monthly portion of original issue discount,
multiplied by
(B) the number of complete months (plus any fractional part
of a month determined under paragraph (3)) such holder held
such debt instrument during the taxable year.
(2) Determination of ratable monthly portion
Except as provided in paragraph (4), the ratable monthly
portion of original issue discount shall equal -
(A) the original issue discount, divided by
(B) the number of complete months from the date of original
issue to the stated maturity date of the debt instrument.
(3) Month defined
For purposes of this subsection -
(A) Complete month
A complete month commences with the date of original issue
and the corresponding day of each succeeding calendar month (or
the last day of a calendar month in which there is no
corresponding day).
(B) Transfers during month
In any case where a debt instrument is acquired on any day
other than a day determined under subparagraph (A), the ratable
monthly portion of original issue discount for the complete
month (or partial month) in which such acquisition occurs shall
be allocated between the transferor and the transferee in
accordance with the number of days in such complete (or
partial) month each held the debt instrument.
(4) Reduction where subsequent holder pays acquisition premium
(A) Reduction
For purposes of this subsection, the ratable monthly portion
of original issue discount shall not include its share of the
acquisition premium.
(B) Share of acquisition premium
For purposes of subparagraph (A), any month's share of the
acquisition premium is an amount (determined at the time of the
purchase) equal to -
(i) the excess of -
(I) the cost of such debt instrument incurred by the
holder, over
(II) the issue price of such debt instrument, increased
by the portion of original issue discount previously
includible in the gross income of any holder (computed
without regard to this paragraph),
(ii) divided by the number of complete months (plus any
fractional part of a month) from the date of such purchase to
the stated maturity date of such debt instrument.
(c) Exceptions
This section shall not apply to any holder -
(1) who has purchased the debt instrument at a premium, or
(2) which is a life insurance company to which section 811(b)
applies.
(d) Definition and special rule
(1) Purchase defined
For purposes of this section, the term "purchase" means -
(A) any acquisition of a debt instrument, where
(B) the basis of the debt instrument is not determined in
whole or in part by reference to the adjusted basis of such
debt instrument in the hands of the person from whom acquired.
(2) Basis adjustment
The basis of any debt instrument in the hands of the holder
thereof shall be increased by the amount included in his gross
income pursuant to this section.
-SOURCE-
(Added Pub. L. 98-369, div. A, title I, Sec. 41(a), July 18, 1984,
98 Stat. 533; amended Pub. L. 99-514, title VI, Sec. 672, Oct. 22,
1986, 100 Stat. 2318; Pub. L. 105-34, title X, Sec. 1004(a), Aug.
5, 1997, 111 Stat. 911.)
-MISC1-
AMENDMENTS
1997 - Subsec. (a)(6)(C). Pub. L. 105-34 added cl. (iii) and
concluding provisions.
1986 - Subsec. (a)(6), (7). Pub. L. 99-514 added par. (6) and
redesignated former par. (6) as (7).
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1004(b)(1) of Pub. L. 105-34 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 [Aug. 5, 1997]."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to debt instruments issued
after Dec. 31, 1986, in taxable years ending after such date, see
section 675(b) of Pub. L. 99-514, set out as an Effective Date note
under section 860A of this title.
EFFECTIVE DATE
Section applicable to taxable years ending after July 18, 1984,
but not applicable to any obligation issued on or before Dec. 31,
1984, which is not a capital asset in the hands of the taxpayer,
and subsec. (a)(6) of this section not applicable to any purchase
on or before July 18, 1984, see section 44 of Pub. L. 98-369, as
amended, set out as a note under section 1271 of this title.
CHANGE IN METHOD OF ACCOUNTING
Section 1004(b)(2) of Pub. L. 105-34 provided that: "In the case
of any taxpayer required by this section [amending this section and
enacting provisions set out as a note above] to change its method
of accounting for its first taxable year beginning after the date
of the enactment of this Act [Aug. 5, 1997] -
"(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 ratably over the
4-taxable year period beginning with such first taxable year."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 163, 171, 305, 483, 857,
860B, 860H, 871, 1271, 1275, 1276, 1278, 1286, 1288, 6049, 7872 of
this title; title 31 section 3101.
-End-
-CITE-
26 USC Sec. 1273 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART V - SPECIAL RULES FOR BONDS AND OTHER DEBT INSTRUMENTS
Subpart A - Original Issue Discount
-HEAD-
Sec. 1273. Determination of amount of original issue discount
-STATUTE-
(a) General rule
For purposes of this subpart -
(1) In general
The term "original issue discount" means the excess (if any) of
-
(A) the stated redemption price at maturity, over
(B) the issue price.
(2) Stated redemption price at maturity
The term "stated redemption price at maturity" means the amount
fixed by the last modification of the purchase agreement and
includes interest and other amounts payable at that time (other
than any interest based on a fixed rate, and payable
unconditionally at fixed periodic intervals of 1 year or less
during the entire term of the debt instrument).
(3) 1/4 of 1 percent de minimis rule
If the original issue discount determined under paragraph (1)
is less than -
(A) 1/4 of 1 percent of the stated redemption price at
maturity, multiplied by
(B) the number of complete years to maturity,
then the original issue discount shall be treated as zero.
(b) Issue price
For purposes of this subpart -
(1) Publicly offered debt instruments not issued for property
In the case of any issue of debt instruments -
(A) publicly offered, and
(B) not issued for property,
the issue price is the initial offering price to the public
(excluding bond houses and brokers) at which price a substantial
amount of such debt instruments was sold.
(2) Other debt instruments not issued for property
In the case of any issue of debt instruments not issued for
property and not publicly offered, the issue price of each such
instrument is the price paid by the first buyer of such debt
instrument.
(3) Debt instruments issued for property where there is public
trading
In the case of a debt instrument which is issued for property
and which -
(A) is part of an issue a portion of which is traded on an
established securities market, or
(B)(i) is issued for stock or securities which are traded on
an established securities market, or
(ii) to the extent provided in regulations, is issued for
property (other than stock or securities) of a kind regularly
traded on an established market,
the issue price of such debt instrument shall be the fair market
value of such property.
(4) Other cases
Except in any case -
(A) to which paragraph (1), (2), or (3) of this subsection
applies, or
(B) to which section 1274 applies,
the issue price of a debt instrument which is issued for property
shall be the stated redemption price at maturity.
(5) Property
In applying this subsection, the term "property" includes
services and the right to use property, but such term does not
include money.
(c) Special rules for applying subsection (b)
For purposes of subsection (b) -
(1) Initial offering price; price paid by the first buyer
The terms "initial offering price" and "price paid by the first
buyer" include the aggregate payments made by the purchaser under
the purchase agreement, including modifications thereof.
(2) Treatment of investment units
In the case of any debt instrument and an option, security, or
other property issued together as an investment unit -
(A) the issue price for such unit shall be determined in
accordance with the rules of this subsection and subsection (b)
as if it were a debt instrument,
(B) the issue price determined for such unit shall be
allocated to each element of such unit on the basis of the
relationship of the fair market value of such element to the
fair market value of all elements in such unit, and
(C) the issue price of any debt instrument included in such
unit shall be the portion of the issue price of the unit
allocated to the debt instrument under subparagraph (B).
-SOURCE-
(Added Pub. L. 98-369, div. A, title I, Sec. 41(a), July 18, 1984,
98 Stat. 536; amended Pub. L. 99-514, title XVIII, Sec.
1803(a)(10), Oct. 22, 1986, 100 Stat. 2794.)
-MISC1-
AMENDMENTS
1986 - Subsec. (b)(3)(B). Pub. L. 99-514 amended subpar. (B)
generally, designating existing provisions as cl. (i) and adding
cl. (ii).
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 effective, except as otherwise
provided, as if included in the provisions of the Tax Reform Act of
1984, Pub. L. 98-369, div. A, to which such amendment relates, see
section 1881 of Pub. L. 99-514, set out as a note under section 48
of this title.
EFFECTIVE DATE
Section applicable to taxable years ending after July 18, 1984,
except as otherwise provided, see section 44 of Pub. L. 98-369, set
out as a note under section 1271 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 108, 143, 148, 163, 249,
305, 483, 811, 834, 860G, 871, 881, 1274, 1275, 1283, 1286, 1288,
1351, 1441, 6049 of this title.
-End-
-CITE-
26 USC Sec. 1274 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART V - SPECIAL RULES FOR BONDS AND OTHER DEBT INSTRUMENTS
Subpart A - Original Issue Discount
-HEAD-
Sec. 1274. Determination of issue price in the case of certain debt
instruments issued for property
-STATUTE-
(a) In general
In the case of any debt instrument to which this section applies,
for purposes of this subpart, the issue price shall be -
(1) where there is adequate stated interest, the stated
principal amount, or
(2) in any other case, the imputed principal amount.
(b) Imputed principal amount
For purposes of this section -
(1) In general
Except as provided in paragraph (3), the imputed principal
amount of any debt instrument shall be equal to the sum of the
present values of all payments due under such debt instrument.
(2) Determination of present value
For purposes of paragraph (1), the present value of a payment
shall be determined in the manner provided by regulations
prescribed by the Secretary -
(A) as of the date of the sale or exchange, and
(B) by using a discount rate equal to the applicable Federal
rate, compounded semiannually.
(3) Fair market value rule in potentially abusive situations
(A) In general
In the case of any potentially abusive situation, the imputed
principal amount of any debt instrument received in exchange
for property shall be the fair market value of such property
adjusted to take into account other consideration involved in
the transaction.
(B) Potentially abusive situation defined
For purposes of subparagraph (A), the term "potentially
abusive situation" means -
(i) a tax shelter (as defined in section
6662(d)(2)(C)(iii)), and
(ii) any other situation which, by reason of -
(I) recent sales transactions,
(II) nonrecourse financing,
(III) financing with a term in excess of the economic
life of the property, or
(IV) other circumstances,
is of a type which the Secretary specifies by regulations as
having potential for tax avoidance.
(c) Debt instruments to which section applies
(1) In general
Except as otherwise provided in this subsection, this section
shall apply to any debt instrument given in consideration for the
sale or exchange of property if -
(A) the stated redemption price at maturity for such debt
instrument exceeds -
(i) where there is adequate stated interest, the stated
principal amount, or
(ii) in any other case, the imputed principal amount of
such debt instrument determined under subsection (b), and
(B) some or all of the payments due under such debt
instrument are due more than 6 months after the date of such
sale or exchange.
(2) Adequate stated interest
For purposes of this section, there is adequate stated interest
with respect to any debt instrument if the stated principal
amount for such debt instrument is less than or equal to the
imputed principal amount of such debt instrument determined under
subsection (b).
(3) Exceptions
This section shall not apply to -
(A) Sales for $1,000,000 or less of farms by individuals or
small businesses
(i) In general
Any debt instrument arising from the sale or exchange of a
farm (within the meaning of section 6420(c)(2)) -
(I) by an individual, estate, or testamentary trust,
(II) by a corporation which as of the date of the sale or
exchange is a small business corporation (as defined in
section 1244(c)(3)), or
(III) by a partnership which as of the date of the sale
or exchange meets requirements similar to those of section
1244(c)(3).
(ii) $1,000,000 limitation
Clause (i) shall apply only if it can be determined at the
time of the sale or exchange that the sales price cannot
exceed $1,000,000. For purposes of the preceding sentence,
all sales and exchanges which are part of the same
transaction (or a series of related transactions) shall be
treated as 1 sale or exchange.
(B) Sales of principal residences
Any debt instrument arising from the sale or exchange by an
individual of his principal residence (within the meaning of
section 121).
(C) Sales involving total payments of $250,000 or less
(i) In general
Any debt instrument arising from the sale or exchange of
property if the sum of the following amounts does not exceed
$250,000:
(I) the aggregate amount of the payments due under such
debt instrument and all other debt instruments received as
consideration for the sale or exchange, and
(II) the aggregate amount of any other consideration to
be received for the sale or exchange.
(ii) Consideration other than debt instrument taken into
account at fair market value
For purposes of clause (i), any consideration (other than a
debt instrument) shall be taken into account at its fair
market value.
(iii) Aggregation of transactions
For purposes of this subparagraph, all sales and exchanges
which are part of the same transaction (or a series of
related transactions) shall be treated as 1 sale or exchange.
(D) Debt instruments which are publicly traded or issued for
publicly traded property
Any debt instrument to which section 1273(b)(3) applies.
(E) Certain sales of patents
In the case of any transfer described in section 1235(a)
(relating to sale or exchange of patents), any amount
contingent on the productivity, use, or disposition of the
property transferred.
(F) Sales or exchanges to which section 483(e) applies
Any debt instrument to the extent section 483(e) (relating to
certain land transfers between related persons) applies to such
instrument.
(4) Exception for assumptions
If any person -
(A) in connection with the sale or exchange of property,
assumes any debt instrument, or
(B) acquires any property subject to any debt instrument,
in determining whether this section or section 483 applies to
such debt instrument, such assumption (or such acquisition) shall
not be taken into account unless the terms and conditions of such
debt instrument are modified (or the nature of the transaction is
changed) in connection with the assumption (or acquisition).
(d) Determination of applicable Federal rate
For purposes of this section -
(1) Applicable Federal rate
(A) In general
In the case of a The applicable Federal
debt instrument rate is:
with a term of:
--------------------------------------------------------------------
Not over 3 years The Federal short-term rate.
Over 3 years but not The Federal mid-term rate.
over 9 years
Over 9 years The Federal long-term rate.
--------------------------------------------------------------------
(B) Determination of rates
During each calendar month, the Secretary shall determine the
Federal short-term rate, mid-term rate, and long-term rate
which shall apply during the following calendar month.
(C) Federal rate for any calendar month
For purposes of this paragraph -
(i) Federal short-term rate
The Federal short-term rate shall be the rate determined by
the Secretary based on the average market yield (during any
1-month period selected by the Secretary and ending in the
calendar month in which the determination is made) on
outstanding marketable obligations of the United States with
remaining periods to maturity of 3 years or less.
(ii) Federal mid-term and long-term rates
The Federal mid-term and long-term rate shall be determined
in accordance with the principles of clause (i).
(D) Lower rate permitted in certain cases
The Secretary may by regulations permit a rate to be used
with respect to any debt instrument which is lower than the
applicable Federal rate if the taxpayer establishes to the
satisfaction of the Secretary that such lower rate is based on
the same principles as the applicable Federal rate and is
appropriate for the term of such instrument.
(2) Lowest 3-month rate applicable to any sale or exchange
(A) In general
In the case of any sale or exchange, the applicable Federal
rate shall be the lowest 3-month rate.
(B) Lowest 3-month rate
For purposes of subparagraph (A), the term "lowest 3-month
rate" means the lowest of the applicable Federal rates in
effect for any month in the 3-calendar-month period ending with
the 1st calendar month in which there is a binding contract in
writing for such sale or exchange.
(3) Term of debt instrument
In determining the term of a debt instrument for purposes of
this subsection, under regulations prescribed by the Secretary,
there shall be taken into account options to renew or extend.
(e) 110 Percent rate where sale-leaseback involved
(1) In general
In the case of any debt instrument to which this subsection
applies, the discount rate used under subsection (b)(2)(B) or
section 483(b) shall be 110 percent of the applicable Federal
rate, compounded semiannually.
(2) Lower discount rates shall not apply
Section 1274A shall not apply to any debt instrument to which
this subsection applies.
(3) Debt instruments to which this subsection applies
This subsection shall apply to any debt instrument given in
consideration for the sale or exchange of any property if,
pursuant to a plan, the transferor or any related person leases a
portion of such property after such sale or exchange.
-SOURCE-
(Added Pub. L. 98-369, div. A, title I, Sec. 41(a), July 18, 1984,
98 Stat. 538; amended Pub. L. 99-121, title I, Secs. 101(a)(1),
(b), (c), 102(b), Oct. 11, 1985, 99 Stat. 505, 506, 508; Pub. L.
99-514, title XVIII, Sec. 1803(a)(14)(A), Oct. 22, 1986, 100 Stat.
2797; Pub. L. 101-239, title VII, Sec. 7721(c)(11), Dec. 19, 1989,
103 Stat. 2400; Pub. L. 104-188, title I, Sec. 1704(t)(78), Aug.
20, 1996, 110 Stat. 1891; Pub. L. 105-34, title III, Sec.
312(d)(1), Aug. 5, 1997, 111 Stat. 839.)
-MISC1-
AMENDMENTS
1997 - Subsec. (c)(3)(B). Pub. L. 105-34 substituted "section
121" for "section 1034".
1996 - Subsec. (b)(3)(B)(i). Pub. L. 104-188 substituted "section
6662(d)(2)(C)(iii)" for "section 6662(d)(2)(C)(ii)".
1989 - Subsec. (b)(3)(B)(i). Pub. L. 101-239 substituted "section
6662(d)(2)(C)(ii)" for "section 6661(b)(2)(C)(ii)".
1986 - Subsec. (c)(3)(A). Pub. L. 99-514 substituted "for
$1,000,000 or less" for "for less than $1,000,000" in heading of
subsec. (c)(4)(A) as so designated prior to its redesignation as
subsec. (c)(3)(A) by Pub. L. 99-121, Sec. 101(a)(1)(D), see 1985
Amendment note below.
1985 - Subsec. (b)(2)(B). Pub. L. 99-121, Sec. 101(a)(1)(A),
struck out "120 percent of" after "rate equal to".
Subsec. (c)(1)(A)(ii). Pub. L. 99-121, Sec. 101(a)(1)(B), amended
cl. (ii) generally, substituting "the imputed principal amount of
such debt instrument determined under subsection (b)" for "the
testing amount".
Subsec. (c)(2). Pub. L. 99-121, Sec. 101(a)(1)(C), substituted
"the imputed principal amount of such debt instrument determined
under subsection (b)" for "the testing amount".
Subsec. (c)(3). Pub. L. 99-121, Sec. 101(a)(1)(D), redesignated
par. (4) as (3). Former par. (3), defining "testing amount", was
struck out.
Subsec. (c)(4). Pub. L. 99-121, Sec. 102(b), added par. (4).
Former par. (4) redesignated (3).
Subsec. (d)(1)(B) to (D). Pub. L. 99-121, Sec. 101(b)(1), amended
subpars. (B) to (D) generally, in subpar. (B) substituting
provisions setting a monthly schedule for the determination of
Federal rates for provisions which had formerly set a semi-annual
schedule for the determination of such rates, in subpar. (C)
substituting provisions setting a monthly schedule for the
determination of Federal short-term, mid-term, and long-term rates
based on the average market yield during any 1-month period ending
in the month in which the determination is made for former
provisions which had directed that the Federal rate determined
under subpar. (A) apply during the appropriate 6-month period, and
in subpar. (D) substituting provisions allowing a lower rate in
certain cases for provisions relating to the setting of the Federal
rate for any 6-month period.
Subsec. (d)(2). Pub. L. 99-121, Sec. 101(b)(2), amended par. (2)
generally. Prior to amendment, par. (2) read as follows: "In the
case of any sale or exchange, the determination of the applicable
Federal rate shall be made as of the first day on which there is a
binding contract in writing for the sale or exchange."
Subsec. (e). Pub. L. 99-121, Sec. 101(c), added subsec. (e).
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 1989 AMENDMENT
Amendment by Pub. L. 101-239 applicable to returns the due date
for which (determined without regard to extensions) is after Dec.
31, 1989, see section 7721(d) of Pub. L. 101-239, set out as a note
under section 461 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by 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 1985 AMENDMENT
Section 105(a) of Pub. L. 99-121, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by sections 101 and 102 [enacting section 1274A and
amending this section and sections 280G and 483 of this title]
shall apply to sales and exchanges after June 30, 1985, in taxable
years ending after such date. The amendment made by section 2 of
Public Law 98-612 [amending section 44(b) of Pub. L. 98-369, set
out as a note under section 1271 of this title] shall not apply to
sales and exchanges after June 30, 1985, in taxable years ending
after such date.
"(2) Regulatory authority to establish lower rate. - Section
1274(d)(1)(D) of the Internal Revenue Code of 1986 [formerly I.R.C.
1954], as added by section 101(b), shall apply as if included in
the amendments made by section 41 of the Tax Reform Act of 1984
[Pub. L. 98-369, see Effective Date note set out under section 1271
of this title]."
EFFECTIVE DATE
Section applicable to taxable years ending after July 18, 1984,
and applicable to sales or exchanges after Dec. 31, 1984, but not
applicable to any sale or exchange pursuant to a written contract
which was binding on Mar. 1, 1984, and at all times thereafter
before the sale or exchange, see section 44 of Pub. L. 98-369, set
out as a note under section 1271 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.
TRANSITIONAL RULE FOR PURPOSES OF IMPUTED INTEREST RULES
Provisions respecting treatment of debt instruments received in
exchange for property, relating to special rules for sales after
Dec. 31, 1984, and before July 1, 1985, general rule for
assumptions of loans, exception for assumptions of loans made on or
before Oct. 15, 1984, and exception for assumptions of loans with
respect to certain property, see section 44(b)(4)-(7) of Pub. L.
98-369, as amended, set out as an Effective Date note under section
1271 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 42, 108, 143, 148, 163,
167, 249, 280G, 382, 411, 412, 453, 460, 467, 468, 483, 514, 846,
860B, 860E, 860I, 954, 988, 1258, 1260, 1273, 1274A, 1275, 1288,
1298, 6621, 7520, 7872 of this title; title 29 sections 1054, 1082,
1083, 1084.
-End-
-CITE-
26 USC Sec. 1274A 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART V - SPECIAL RULES FOR BONDS AND OTHER DEBT INSTRUMENTS
Subpart A - Original Issue Discount
-HEAD-
Sec. 1274A. Special rules for certain transactions where stated
principal amount does not exceed $2,800,000
-STATUTE-
(a) Lower discount rate
In the case of any qualified debt instrument, the discount rate
used for purposes of sections 483 and 1274 shall not exceed 9
percent, compounded semiannually.
(b) Qualified debt instrument defined
For purposes of this section, the term "qualified debt
instrument" means any debt instrument given in consideration for
the sale or exchange of property (other than new section 38
property within the meaning of section 48(b), as in effect on the
day before the date of the enactment of the Revenue Reconciliation
Act of 1990) if the stated principal amount of such instrument does
not exceed $2,800,000.
(c) Election to use cash method where stated principal amount does
not exceed $2,000,000
(1) In general
In the case of any cash method debt instrument -
(A) section 1274 shall not apply, and
(B) interest on such debt instrument shall be taken into
account by both the borrower and the lender under the cash
receipts and disbursements method of accounting.
(2) Cash method debt instrument
For purposes of paragraph (1), the term "cash method debt
instrument" means any qualified debt instrument if -
(A) the stated principal amount does not exceed $2,000,000,
(B) the lender does not use an accrual method of accounting
and is not a dealer with respect to the property sold or
exchanged,
(C) section 1274 would have applied to such instrument but
for an election under this subsection, and
(D) an election under this subsection is jointly made with
respect to such debt instrument by the borrower and lender.
(3) Successors bound by election
(A) In general
Except as provided in subparagraph (B), paragraph (1) shall
apply to any successor to the borrower or lender with respect
to a cash method debt instrument.
(B) Exception where lender transfers debt instrument to accrual
method taxpayer
If the lender (or any successor) transfers any cash method
debt instrument to a taxpayer who uses an accrual method of
accounting, this paragraph shall not apply with respect to such
instrument for periods after such transfer.
(4) Fair market value rule in potentially abusive situations
In the case of any cash method debt instrument, section 483
shall be applied as if it included provisions similar to the
provisions of section 1274(b)(3).
(d) Other special rules
(1) Aggregation rules
For purposes of this section -
(A) 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, and
(B) all debt instruments arising from the same transaction
(or a series of related transactions) shall be treated as 1
debt instrument.
(2) Inflation adjustments
(A) In general
In the case of any debt instrument arising out of a sale or
exchange during any calendar year after 1989, each dollar
amount contained in the preceding provisions of this section
shall be increased by the inflation adjustment for such
calendar year. Any increase under the preceding sentence shall
be rounded to the nearest multiple of $100 (or, if such
increase is a multiple of $50, such increase shall be increased
to the nearest multiple of $100).
(B) Inflation adjustment
For purposes of subparagraph (A), the inflation adjustment
for any calendar year is the percentage (if any) by which -
(i) the CPI for the preceding calendar year exceeds
(ii) the CPI for calendar year 1988.
For purposes of the preceding sentence, the CPI for any
calendar year is the average of the Consumer Price Index as of
the close of the 12-month period ending on September 30 of such
calendar year.
(e) Regulations
The Secretary shall prescribe such regulations as may be
necessary to carry out the purposes of this subsection, including -
(1) regulations coordinating the provisions of this section
with other provisions of this title,
(2) regulations necessary to prevent the avoidance of tax
through the abuse of the provisions of subsection (c), and
(3) regulations relating to the treatment of transfers of cash
method debt instruments.
-SOURCE-
(Added Pub. L. 99-121, title I, Sec. 102(a), Oct. 11, 1985, 99
Stat. 506; amended Pub. L. 101-508, title XI, Sec. 11813(b)(22),
Nov. 5, 1990, 104 Stat. 1388-555; Pub. L. 104-188, title I, Sec.
1704(t)(62), Aug. 20, 1996, 110 Stat. 1890.)
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of the Revenue Reconciliation Act of
1990, referred to in subsec. (b), is the date of enactment of Pub.
L. 101-508, which was approved Nov. 5, 1990.
-MISC1-
AMENDMENTS
1996 - Subsec. (c)(1)(B). Pub. L. 104-188 substituted
"instrument" for "instument".
1990 - Subsec. (b). Pub. L. 101-508 inserted ", as in effect on
the day before the date of the enactment of the Revenue
Reconciliation Act of 1990" after "section 48(b)".
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by 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
Section applicable to sales and exchanges after June 30, 1985, in
taxable years ending after such date, see section 105(a)(1) of Pub.
L. 99-121, set out as an Effective Date of 1985 Amendment note
under section 1274 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.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 483, 1274 of this title.
-End-
-CITE-
26 USC Sec. 1275 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART V - SPECIAL RULES FOR BONDS AND OTHER DEBT INSTRUMENTS
Subpart A - Original Issue Discount
-HEAD-
Sec. 1275. Other definitions and special rules
-STATUTE-
(a) Definitions
For purposes of this subpart -
(1) Debt instrument
(A) In general
Except as provided in subparagraph (B), the term "debt
instrument" means a bond, debenture, note, or certificate or
other evidence of indebtedness.
(B) Exception for certain annuity contracts
The term "debt instrument" shall not include any annuity
contract to which section 72 applies and which -
(i) depends (in whole or in substantial part) on the life
expectancy of 1 or more individuals, or
(ii) is issued by an insurance company subject to tax under
subchapter L (or by an entity described in section 501(c) and
exempt from tax under section 501(a) which would be subject
to tax under subchapter L were it not so exempt) -
(I) in a transaction in which there is no consideration
other than cash or another annuity contract meeting the
requirements of this clause,
(II) pursuant to the exercise of an election under an
insurance contract by a beneficiary thereof on the death of
the insured party under such contract, or
(III) in a transaction involving a qualified pension or
employee benefit plan.
(2) Issue date
(A) Publicly offered debt instruments
In the case of any debt instrument which is publicly offered,
the term "date of original issue" means the date on which the
issue was first issued to the public.
(B) Issues not publicly offered and not issued for property
In the case of any debt instrument to which section
1273(b)(2) applies, the term "date of original issue" means the
date on which the debt instrument was sold by the issuer.
(C) Other debt instruments
In the case of any debt instrument not described in
subparagraph (A) or (B), the term "date of original issue"
means the date on which the debt instrument was issued in a
sale or exchange.
(3) Tax-exempt obligation
The term "tax-exempt obligation" means any obligation if -
(A) the interest on such obligation is not includible in
gross income under section 103, or
(B) the interest on such obligation is exempt from tax
(without regard to the identity of the holder) under any other
provision of law.
(4) Treatment of obligations distributed by corporations
Any debt obligation of a corporation distributed by such
corporation with respect to its stock shall be treated as if it
had been issued by such corporation for property.
(b) Treatment of borrower in the case of certain loans for personal
use
(1) Sections 1274 and 483 not to apply
In the case of the obligor under any debt instrument given in
consideration for the sale or exchange of property, sections 1274
and 483 shall not apply if such property is personal use
property.
(2) Original issue discount deducted on cash basis in certain
cases
In the case of any debt instrument, if -
(A) such instrument -
(i) is incurred in connection with the acquisition or
carrying of personal use property, and
(ii) has original issue discount (determined after the
application of paragraph (1)), and
(B) the obligor under such instrument uses the cash receipts
and disbursements method of accounting,
notwithstanding section 163(e), the original issue discount on
such instrument shall be deductible only when paid.
(3) Personal use property
For purposes of this subsection, the term "personal use
property" means any property substantially all of the use of
which by the taxpayer is not in connection with a trade or
business of the taxpayer or an activity described in section 212.
The determination of whether property is described in the
preceding sentence shall be made as of the time of issuance of
the debt instrument.
(c) Information requirements
(1) Information required to be set forth on instrument
(A) In general
In the case of any debt instrument having original issue
discount, the Secretary may by regulations require that -
(i) the amount of the original issue discount, and
(ii) the issue date,
be set forth on such instrument.
(B) Special rule for instruments not publicly offered
In the case of any issue of debt instruments not publicly
offered, the regulations prescribed under subparagraph (A)
shall not require the information to be set forth on the debt
instrument before any disposition of such instrument by the
first buyer.
(2) Information required to be submitted to Secretary
In the case of any issue of publicly offered debt instruments
having original issue discount, the issuer shall (at such time
and in such manner as the Secretary shall by regulation
prescribe) furnish the Secretary the following information:
(A) The amount of the original issue discount.
(B) The issue date.
(C) Such other information with respect to the issue as the
Secretary may by regulations require.
For purposes of the preceding sentence, any person who makes a
public offering of stripped bonds (or stripped coupons) shall be
treated as the issuer of a publicly offered debt instrument
having original issue discount.
(3) Exceptions
This subsection shall not apply to any obligation referred to
in section 1272(a)(2) (relating to exceptions from current
inclusion of original issue discount).
(4) Cross reference
For civil penalty for failure to meet requirements of this
subsection, see section 6706.
(d) Regulation authority
The Secretary may prescribe regulations providing that where, by
reason of varying rates of interest, put or call options,
indefinite maturities, contingent payments, assumptions of debt
instruments, or other circumstances, the tax treatment under this
subpart (or section 163(e)) does not carry out the purposes of this
subpart (or section 163(e)), such treatment shall be modified to
the extent appropriate to carry out the purposes of this subpart
(or section 163(e)).
-SOURCE-
(Added and amended Pub. L. 98-369, div. A, title I, Secs. 41(a),
61(c)(2), July 18, 1984, 98 Stat. 540, 581; Pub. L. 99-514, title
XVIII, Sec. 1804(f)(2)(A), Oct. 22, 1986, 100 Stat. 2805; Pub. L.
100-647, title I, Sec. 1006(u)(4), Nov. 10, 1988, 102 Stat. 3427;
Pub. L. 101-508, title XI, Sec. 11325(a)(2), Nov. 5, 1990, 104
Stat. 1388-466; Pub. L. 106-554, Sec. 1(a)(7) [title III, Sec.
318(c)(1)], Dec. 21, 2000, 114 Stat. 2763, 2763A-645.)
-MISC1-
AMENDMENTS
2000 - Subsec. (a)(1)(B)(ii). Pub. L. 106-554, in introductory
provisions, substituted "subchapter L (or by an entity described in
section 501(c) and exempt from tax under section 501(a) which would
be subject to tax under subchapter L were it not so exempt)" for
"subchapter L".
1990 - Subsec. (a)(4), (5). Pub. L. 101-508 redesignated par. (5)
as (4) and struck out former par. (4) which related to a special
rule for determination of issue price in case of exchange of debt
instruments in reorganization.
1988 - Subsec. (a)(4)(B)(ii)(I). Pub. L. 100-647 substituted
"subsection (a)(7)" for "subsection (a)(6)".
1986 - Subsec. (a)(4), (5). Pub. L. 99-514 redesignated par. (4),
relating to treatment of obligations distributed to corporations,
as (5), and substituted "by corporations" for "to corporations" in
heading.
1984 - Subsec. (a)(4). Pub. L. 98-369, Sec. 61(c)(2), added par.
(4) relating to treatment of obligations distributed to
corporations.
EFFECTIVE DATE OF 2000 AMENDMENT
Pub. L. 106-554, Sec. 1(a)(7) [title III, Sec. 318(c)(2)], Dec.
21, 2000, 114 Stat. 2763, 2763A-645, provided that: "The amendment
made by this subsection [amending this section] shall take effect
as if included in the amendments made by section 41 of the Tax
Reform Act of 1984 [Pub. L. 98-369, div. A]."
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub. L. 101-508 applicable, with certain exceptions,
to debt instruments issued and stock transferred after Oct. 1,
1990, in satisfaction of any indebtedness, see section 11325(c) of
Pub. L. 101-508, set out as a note under section 108 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 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 Pub. L. 98-369 applicable with respect to
distributions declared Mar. 15, 1984, in taxable years ending after
that date, see section 61(e)(3) of Pub. L. 98-369, set out as a
note under section 312 of this title.
EFFECTIVE DATE
Section applicable to taxable years ending after July 18, 1984,
but subsec. (c) of this section effective on the day 30 days after
July 18, 1984, see section 44 of Pub. L. 98-369, set out as a note
under section 1271 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 163, 453A, 483, 856,
860L, 1278, 1283, 1286, 1288, 6706 of this title.
-End-
-CITE-
26 USC Subpart B - Market Discount on Bonds 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART V - SPECIAL RULES FOR BONDS AND OTHER DEBT INSTRUMENTS
Subpart B - Market Discount on Bonds
-HEAD-
SUBPART B - MARKET DISCOUNT ON BONDS
-MISC1-
Sec.
1276. Disposition gain representing accrued market discount
treated as ordinary income.
1277. Deferral of interest deduction allocable to accrued
market discount.
1278. Definitions and special rules.
-End-
-CITE-
26 USC Sec. 1276 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART V - SPECIAL RULES FOR BONDS AND OTHER DEBT INSTRUMENTS
Subpart B - Market Discount on Bonds
-HEAD-
Sec. 1276. Disposition gain representing accrued market discount
treated as ordinary income
-STATUTE-
(a) Ordinary income
(1) In general
Except as otherwise provided in this section, gain on the
disposition of any market discount bond shall be treated as
ordinary income to the extent it does not exceed the accrued
market discount on such bond. Such gain shall be recognized
notwithstanding any other provision of this subtitle.
(2) Dispositions other than sales, etc.
For purposes of paragraph (1), a person disposing of any market
discount bond in any transaction other than a sale, exchange, or
involuntary conversion shall be treated as realizing an amount
equal to the fair market value of the bond.
(3) Treatment of partial principal payments
(A) In general
Any partial principal payment on a market discount bond shall
be included in gross income as ordinary income to the extent
such payment does not exceed the accrued market discount on
such bond.
(B) Adjustment
If subparagraph (A) applies to any partial principal payment
on any market discount bond, for purposes of applying this
section to any disposition of (or subsequent partial principal
payment on) such bond, the amount of accrued market discount
shall be reduced by the amount of such partial principal
payment included in gross income under subparagraph (A).
(4) Gain treated as interest for certain purposes
Except for purposes of sections 103, 871(a),,(!1) 881, 1441,
1442, and 6049 (and such other provisions as may be specified in
regulations), any amount treated as ordinary income under
paragraph (1) or (3) shall be treated as interest for purposes of
this title.
(b) Accrued market discount
For purposes of this section -
(1) Ratable accrual
Except as otherwise provided in this subsection or subsection
(c), the accrued market discount on any bond shall be an amount
which bears the same ratio to the market discount on such bond as
-
(A) the number of days which the taxpayer held the bond,
bears to
(B) the number of days after the date the taxpayer acquired
the bond and up to (and including) the date of its maturity.
(2) Election of accrual on basis of constant interest rate (in
lieu of ratable accrual)
(A) In general
At the election of the taxpayer with respect to any bond, the
accrued market discount on such bond shall be the aggregate
amount which would have been includible in the gross income of
the taxpayer under section 1272(a) (determined without regard
to paragraph (2) thereof) with respect to such bond for all
periods during which the bond was held by the taxpayer if such
bond had been -
(i) originally issued on the date on which such bond was
acquired by the taxpayer,
(ii) for an issue price equal to the basis of the taxpayer
in such bond immediately after its acquisition.
(B) Coordination where bond has original issue discount
In the case of any bond having original issue discount, for
purposes of applying subparagraph (A) -
(i) the stated redemption price at maturity of such bond
shall be treated as equal to its revised issue price, and
(ii) the determination of the portion of the original issue
discount which would have been includible in the gross income
of the taxpayer under section 1272(a) shall be made under
regulations prescribed by the Secretary.
(C) Election irrevocable
An election under subparagraph (A), once made with respect to
any bond, shall be irrevocable.
(3) Special rule where partial principal payments
In the case of a bond the principal of which may be paid in 2
or more payments, the amount of accrued market discount shall be
determined under regulations prescribed by the Secretary.
(c) Treatment of nonrecognition transactions
Under regulations prescribed by the Secretary -
(1) Transferred basis property
If a market discount bond is transferred in a nonrecognition
transaction and such bond is transferred basis property in the
hands of the transferee, for purposes of determining the amount
of the accrued market discount with respect to the transferee -
(A) the transferee shall be treated as having acquired the
bond on the date on which it was acquired by the transferor for
an amount equal to the basis of the transferor, and
(B) proper adjustments shall be made for gain recognized by
the transferor on such transfer (and for any original issue
discount or market discount included in the gross income of the
transferor).
(2) Exchanged basis property
If any market discount bond is disposed of by the taxpayer in a
nonrecognition transaction and paragraph (1) does not apply to
such transaction, any accrued market discount determined with
respect to the property disposed of to the extent not theretofore
treated as ordinary income under subsection (a) -
(A) shall be treated as accrued market discount with respect
to the exchanged basis property received by the taxpayer in
such transaction if such property is a market discount bond,
and
(B) shall be treated as ordinary income on the disposition of
the exchanged basis property received by the taxpayer in such
exchange if such property is not a market discount bond.
(3) Paragraph (1) to apply to certain distributions by
corporations or partnerships
For purposes of paragraph (1), if the basis of any market
discount bond in the hands of a transferee is determined under
section 732(a), or 732(b), such property shall be treated as
transferred basis property in the hands of such transferee.
(d) Special rules
Under regulations prescribed by the Secretary -
(1) rules similar to the rules of subsection (b) of section
1245 shall apply for purposes of this section; except that -
(A) paragraph (1) of such subsection shall not apply,
(B) an exchange qualifying under section 354(a), 355(a), or
356(a) (determined without regard to subsection (a) of this
section) shall be treated as an exchange described in paragraph
(3) of such subsection, and
(C) paragraph (3) of section 1245(b) shall be applied as if
it did not contain a reference to section 351, and
(2) appropriate adjustments shall be made to the basis of any
property to reflect gain recognized under subsection (a).
-SOURCE-
(Added Pub. L. 98-369, div. A, title I, Sec. 41(a), July 18, 1984,
98 Stat. 543; amended Pub. L. 99-514, title VI, Sec. 631(e)(15),
title XVIII, Secs. 1803(a)(5), (13)(A), 1899A(28), Oct. 22, 1986,
100 Stat. 2275, 2793, 2796, 2960; Pub. L. 100-647, title I, Sec.
1018(u)(46), Nov. 10, 1988, 102 Stat. 3592; Pub. L. 103-66, title
XIII, Sec. 13206(b)(1)(A), (2)(B)(i), Aug. 10, 1993, 107 Stat.
465.)
-MISC1-
AMENDMENTS
1993 - Subsec. (a)(4). Pub. L. 103-66, Sec. 13206(b)(2)(B)(i),
substituted "sections 103, 871(a)," for "sections 871(a)".
Subsec. (e). Pub. L. 103-66, Sec. 13206(b)(1)(A), struck out
heading and text of subsec. (e). Text read as follows: "This
section shall not apply to any market discount bond issued on or
before July 18, 1984."
1988 - Subsec. (b)(3). Pub. L. 100-647 designated paragraph
relating to special rule where there are partial principal payments
as par. (3) and inserted period at end.
1986 - Subsec. (a)(3). Pub. L. 99-514, Sec. 1803(a)(13)(A)(i),
added par. (3). Former par. (3) redesignated (4).
Subsec. (a)(4). Pub. L. 99-514, Sec. 1803(a)(13)(A)(i), (ii),
redesignated par. (3) as (4) and substituted "under paragraph (1)
or (3)" for "under paragraph (1)".
Subsec. (b). Pub. L. 99-514, Sec. 1803(a)(13)(A)(iii), added
undesignated par. at end relating to special rule where partial
principal payments.
Subsec. (c)(3). Pub. L. 99-514, Sec. 631(e)(15), struck out
reference to section 334(c).
Subsec. (d)(1)(C). Pub. L. 99-514, Sec. 1803(a)(5), added subpar.
(C).
Subsec. (e). Pub. L. 99-514, Sec. 1899A(28), substituted "July
18, 1984" for "the date of the enactment of this section".
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13206(b)(3) of Pub. L. 103-66 provided that: "The
amendments made by this section [probably should be "subsection",
which amended this section and sections 1277 and 1278 of this
title] shall apply to obligations purchased (within the meaning of
section 1272(d)(1) of the Internal Revenue Code of 1986) after
April 30, 1993."
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)(15) 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 1803(a)(5) 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 1803(a)(13)(C) of Pub. L. 99-514 provided that: "The
amendments made by this paragraph [amending this section and
section 1286 of this title] shall apply to obligations acquired
after the date of the enactment of this Act [Oct. 22, 1986]."
EFFECTIVE DATE
Section applicable to taxable years ending after July 18, 1984,
and applicable to obligations issued after July 18, 1984, in
taxable years ending after such date, see section 44 of Pub. L.
98-369, set out as a note under section 1271 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 860C, 860F, 1277, 1278 of
this title.
-FOOTNOTE-
(!1) So in original.
-End-
-CITE-
26 USC Sec. 1277 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART V - SPECIAL RULES FOR BONDS AND OTHER DEBT INSTRUMENTS
Subpart B - Market Discount on Bonds
-HEAD-
Sec. 1277. Deferral of interest deduction allocable to accrued
market discount
-STATUTE-
(a) General rule
Except as otherwise provided in this section, the net direct
interest expense with respect to any market discount bond shall be
allowed as a deduction for the taxable year only to the extent that
such expense exceeds the portion of the market discount allocable
to the days during the taxable year on which such bond was held by
the taxpayer (as determined under the rules of section 1276(b)).
(b) Disallowed deduction allowed for later years
(1) Election to take into account in later year where net
interest income from bond
(A) In general
If -
(i) there is net interest income for any taxable year with
respect to any market discount bond, and
(ii) the taxpayer makes an election under this subparagraph
with respect to such bond,
any disallowed interest expense with respect to such bond shall
be treated as interest paid or accrued by the taxpayer during
such taxable year to the extent such disallowed interest
expense does not exceed the net interest income with respect to
such bond.
(B) Determination of disallowed interest expense
For purposes of subparagraph (A), the amount of the
disallowed interest expense -
(i) shall be determined as of the close of the preceding
taxable year, and
(ii) shall not include any amount previously taken into
account under subparagraph (A).
(C) Net interest income
For purposes of this paragraph, the term "net interest
income" means the excess of the amount determined under
paragraph (2) of subsection (c) over the amount determined
under paragraph (1) of subsection (c).
(2) Remainder of disallowed interest expense allowed for year of
disposition
(A) In general
Except as otherwise provided in this paragraph, the amount of
the disallowed interest expense with respect to any market
discount bond shall be treated as interest paid or accrued by
the taxpayer in the taxable year in which such bond is disposed
of.
(B) Nonrecognition transactions
If any market discount bond is disposed of in a
nonrecognition transaction -
(i) the disallowed interest expense with respect to such
bond shall be treated as interest paid or accrued in the year
of disposition only to the extent of the amount of gain
recognized on such disposition, and
(ii) the disallowed interest expense with respect to such
property (to the extent not so treated) shall be treated as
disallowed interest expense -
(I) in the case of a transaction described in section
1276(c)(1), of the transferee with respect to the
transferred basis property, or
(II) in the case of a transaction described in section
1276(c)(2), with respect to the exchanged basis property.
(C) Disallowed interest expense reduced for amounts previously
taken into account under paragraph (1)
For purposes of this paragraph, the amount of the disallowed
interest expense shall not include any amount previously taken
into account under paragraph (1).
(3) Disallowed interest expense
For purposes of this subsection, the term "disallowed interest
expense" means the aggregate amount disallowed under subsection
(a) with respect to the market discount bond.
(c) Net direct interest expense
For purposes of this section, the term "net direct interest
expense" means, with respect to any market discount bond, the
excess (if any) of -
(1) the amount of interest paid or accrued during the taxable
year on indebtedness which is incurred or continued to purchase
or carry such bond, over
(2) the aggregate amount of interest (including original issue
discount) includible in gross income for the taxable year with
respect to such bond.
In the case of any financial institution which is a bank (as
defined in section 585(a)(2)), the determination of whether
interest is described in paragraph (1) shall be made under
principles similar to the principles of section 291(e)(1)(B)(ii).
Under rules similar to the rules of section 265(a)(5), short sale
expenses shall be treated as interest for purposes of determining
net direct interest expense.
-SOURCE-
(Added Pub. L. 98-369, div. A, title I, Sec. 41(a), July 18, 1984,
98 Stat. 545; amended Pub. L. 99-514, title IX, Secs. 901(d)(4)(F),
Sec. 902(e)(2), title XVIII, Sec. 1899A(29)-(31), Oct. 22, 1986,
100 Stat. 2380, 2382, 2960; Pub. L. 100-647, title I, Sec.
1018(u)(31), Nov. 10, 1988, 102 Stat. 3592; Pub. L. 103-66, title
XIII, Sec. 13206(b)(1)(B), Aug. 10, 1993, 107 Stat. 465; Pub. L.
104-188, title I, Sec. 1616(b)(14), Aug. 20, 1996, 110 Stat. 1857.)
-MISC1-
AMENDMENTS
1996 - Subsec. (c). Pub. L. 104-188 struck out "or to which
section 593 applies" after "585(a)(2))" in closing provisions.
1993 - Subsec. (d). Pub. L. 103-66 struck out heading and text of
subsec. (d). Text read as follows: "In the case of a market
discount bond issued on or before July 18, 1984, any gain
recognized by the taxpayer on any disposition of such bond shall be
treated as ordinary income to the extent the amount of such gain
does not exceed the amount allowable with respect to such bond
under subsection (b)(2) for the taxable year in which such bond is
disposed of."
1988 - Subsec. (c). Pub. L. 100-647 inserted a closing
parenthesis after "section 585(a)(2)".
1986 - Subsec. (b)(1)(C). Pub. L. 99-514, Sec. 1899A(29),
substituted "this paragraph" for "this paragaph".
Subsec. (b)(2)(C). Pub. L. 99-514, Sec. 1899A(30), substituted
"paragraph (1)" for "paragraph 1" in heading.
Subsec. (c). Pub. L. 99-514, Sec. 901(d)(4)(F), substituted
"which is a bank (as defined in section 585(a)(2) or to which
section 593 applies" for "to which section 585 or 593 applies".
Pub. L. 99-514, Sec. 902(e)(2), substituted "section 265(a)(5)"
for "section 265(5)".
Subsec. (d). Pub. L. 99-514, Sec. 1899A(31), substituted "July
18, 1984" for "the date of the enactment of this section".
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 applicable to taxable years
beginning after Dec. 31, 1995, see section 1616(c) of Pub. L.
104-188, set out as a note under section 593 of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable to obligations purchased
(within the meaning of section 1272(d)(1) of this title) after Apr.
30, 1993, see section 13206(b)(3) of Pub. L. 103-66, set out as a
note under section 1276 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 901(d)(4)(F) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 901(e) of
Pub. L. 99-514, set out as a note under section 166 of this title.
Amendment by section 902(e)(2) of Pub. L. 99-514 applicable to
taxable years ending after Dec. 31, 1986, with certain exceptions
and qualifications, see section 902(f) of Pub. L. 99-514, set out
as a note under section 265 of this title.
EFFECTIVE DATE
Section applicable to taxable years ending after July 18, 1984,
and applicable to obligations acquired after July 18, 1984, in
taxable years ending after such date, see section 44 of Pub. L.
98-369, set out as a note under section 1271 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 263, 860C, 1278, 1282 of
this title.
-End-
-CITE-
26 USC Sec. 1278 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART V - SPECIAL RULES FOR BONDS AND OTHER DEBT INSTRUMENTS
Subpart B - Market Discount on Bonds
-HEAD-
Sec. 1278. Definitions and special rules
-STATUTE-
(a) In general
For purposes of this part -
(1) Market discount bond
(A) In general
Except as provided in subparagraph (B), the term "market
discount bond" means any bond having market discount.
(B) Exceptions
The term "market discount bond" shall not include -
(i) Short-term obligations
Any obligation with a fixed maturity date not exceeding 6
months from the date of issue.
(ii) United States savings bonds
Any United States savings bond.
(iii) Installment obligations
Any installment obligation to which section 453B applies.
(C) Section 1277 not applicable to tax-exempt obligations
For purposes of section 1277, the term "market discount bond"
shall not include any tax-exempt obligation (as defined in
section 1275(a)(3)).
(D) Treatment of bonds acquired at original issue
(i) In general
Except as otherwise provided in this subparagraph or in
regulations, the term "market discount bond" shall not
include any bond acquired by the taxpayer at its original
issue.
(ii) Treatment of bonds acquired for less than issue price
Clause (i) shall not apply to any bond if -
(I) the basis of the taxpayer in such bond is determined
under section 1012, and
(II) such basis is less than the issue price of such bond
determined under subpart A of this part.
(iii) Bonds acquired in certain reorganizations
Clause (i) shall not apply to any bond issued pursuant to a
plan of reorganization (within the meaning of section
368(a)(1)) in exchange for another bond having market
discount. Solely for purposes of section 1276, the preceding
sentence shall not apply if such other bond was issued on or
before July 18, 1984 (the date of the enactment of section
1276) and if the bond issued pursuant to such plan of
reorganization has the same term and the same interest rate
as such other bond had.
(iv) Treatment of certain transferred basis property
For purposes of clause (i), if the adjusted basis of any
bond in the hands of the taxpayer is determined by reference
to the adjusted basis of such bond in the hands of a person
who acquired such bond at its original issue, such bond shall
be treated as acquired by the taxpayer at its original issue.
(2) Market discount
(A) In general
The term "market discount" means the excess (if any) of -
(i) the stated redemption price of the bond at maturity,
over
(ii) the basis of such bond immediately after its
acquisition by the taxpayer.
(B) Coordination where bond has original issue discount
In the case of any bond having original issue discount, for
purposes of subparagraph (A), the stated redemption price of
such bond at maturity shall be treated as equal to its revised
issue price.
(C) De minimis rule
If the market discount is less than 1/4 of 1 percent of the
stated redemption price of the bond at maturity multiplied by
the number of complete years to maturity (after the taxpayer
acquired the bond), then the market discount shall be
considered to be zero.
(3) Bond
The term "bond" means any bond, debenture, note, certificate,
or other evidence of indebtedness.
(4) Revised issue price
The term "revised issue price" means the sum of -
(A) the issue price of the bond, and
(B) the aggregate amount of the original issue discount
includible in the gross income of all holders for periods
before the acquisition of the bond by the taxpayer (determined
without regard to section 1272(a)(7) or (b)(4)) or, in the case
of a tax-exempt obligation, the aggregate amount of the
original issue discount which accrued in the manner provided by
section 1272(a) (determined without regard to paragraph (7)
thereof) during periods before the acquisition of the bond by
the taxpayer.
(5) Original issue discount, etc.
The terms "original issue discount", "stated redemption price
at maturity", and "issue price" have the respective meanings
given such terms by subpart A of this part.
(b) Election to include market discount currently
(1) In general
If the taxpayer makes an election under this subsection -
(A) sections 1276 and 1277 shall not apply, and
(B) market discount on any market discount bond shall be
included in the gross income of the taxpayer for the taxable
years to which it is attributable (as determined under the
rules of subsection (b) of section 1276).
Except for purposes of sections 103, 871(a),,(!1) 881, 1441,
1442, and 6049 (and such other provisions as may be specified in
regulations), any amount included in gross income under
subparagraph (B) shall be treated as interest for purposes of
this title.
(2) Scope of election
An election under this subsection shall apply to all market
discount bonds acquired by the taxpayer on or after the 1st day
of the 1st taxable year to which such election applies.
(3) Period to which election applies
An election under this subsection shall apply to 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) Basis adjustment
The basis of any bond in the hands of the taxpayer shall be
increased by the amount included in gross income pursuant to this
subsection.
(c) Regulations
The Secretary shall prescribe such regulations as may be
necessary to carry out the purposes of this subpart, including
regulations providing proper adjustments in the case of a bond the
principal of which may be paid in 2 or more payments.
-SOURCE-
(Added and amended Pub. L. 98-369, div. A, title I, Sec. 41(a),
title X, Sec. 1001(b)(24), July 18, 1984, 98 Stat. 547; Pub. L.
99-514, title XVIII, Secs. 1803(a)(6), 1878(a), 1899A(32), Oct. 22,
1986, 100 Stat. 2793, 2903, 2960; Pub. L. 100-647, title I, Secs.
1006(u)(2), 1018(c)(2), (3), Nov. 10, 1988, 102 Stat. 3427, 3578;
Pub. L. 103-66, title XIII, Sec. 13206(b)(2), Aug. 10, 1993, 107
Stat. 465.)
-MISC1-
AMENDMENTS
1993 - Subsec. (a)(1)(B)(ii)-(iv). Pub. L. 103-66, Sec.
13206(b)(2)(A)(i), redesignated cls. (iii) and (iv) as (ii) and
(iii), respectively, and struck out heading and text of former cl.
(ii). Text read as follows: "Any tax-exempt obligation (as defined
in section 1275(a)(3))."
Subsec. (a)(1)(C), (D). Pub. L. 103-66, Sec. 13206(b)(2)(A)(ii),
(iii), added subpar. (C) and redesignated former subpar. (C) as
(D).
Subsec. (a)(4)(B). Pub. L. 103-66, Sec. 13206(b)(2)(B)(ii),
inserted before period at end "or, in the case of a tax-exempt
obligation, the aggregate amount of the original issue discount
which accrued in the manner provided by section 1272(a) (determined
without regard to paragraph (7) thereof) during periods before the
acquisition of the bond by the taxpayer".
Subsec. (b)(1). Pub. L. 103-66, Sec. 13206(b)(2)(B)(i),
substituted "sections 103, 871(a)," for "sections 871(a)" in last
sentence.
1988 - Subsec. (a)(4)(B). Pub. L. 100-647, Sec. 1006(u)(2),
substituted "section 1272(a)(7)" for "section 1272(a)(6)".
Subsec. (b)(4). Pub. L. 100-647, Sec. 1018(c)(3), added par. (4).
Subsec. (c). Pub. L. 100-647, Sec. 1018(c)(2), inserted before
period at end ", including regulations providing proper adjustments
in the case of a bond the principal of which may be paid in 2 or
more payments".
1986 - Subsec. (a)(1)(B)(i). Pub. L. 99-514, Sec. 1878(a),
amended Pub. L. 98-369, Sec. 1001(b), by adding a par. (24) which
contained directory language substituting "6 months" for "1 year"
in cl. (i). See 1984 Amendment note below.
Subsec. (a)(1)(C). Pub. L. 99-514, Sec. 1803(a)(6), added subpar.
(C).
Subsec. (a)(4). Pub. L. 99-514, Sec. 1899A(32), substituted
"means" for "means of" in introductory provisions.
1984 - Subsec. (a)(1)(B)(i). Pub. L. 98-369, Sec. 1001(b)(24), as
added by Pub. L. 99-514, Sec. 1878(a), substituted "6 months" for
"1 year".
EFFECTIVE DATE OF 1993 AMENDMENT
Amendments by Pub. L. 103-66 applicable to obligations purchased
(within the meaning of section 1272(d)(1) of this title) after Apr.
30, 1993, see section 13206(b)(3) of Pub. L. 103-66, set out as a
note under section 1276 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 sections 1803(a)(6) and 1878(a) 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 Pub. L. 98-369 applicable to property acquired after
June 22, 1984, and before Jan. 1, 1988, see section 1001(e) of Pub.
L. 98-369, set out as a note under section 166 of this title.
EFFECTIVE DATE
Section applicable to taxable years ending after July 18, 1984,
except as otherwise provided, see section 44 of Pub. L. 98-369, set
out as a note under section 1271 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 263, 751, 1042 of this
title.
-FOOTNOTE-
(!1) So in original.
-End-
-CITE-
26 USC Subpart C - Discount on Short-Term Obligations 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART V - SPECIAL RULES FOR BONDS AND OTHER DEBT INSTRUMENTS
Subpart C - Discount on Short-Term Obligations
-HEAD-
SUBPART C - DISCOUNT ON SHORT-TERM OBLIGATIONS
-MISC1-
Sec.
1281. Current inclusion in income of discount on certain
short-term obligations.
1282. Deferral of interest deduction allocable to accrued
discount.
1283. Definitions and special rules.
-End-
-CITE-
26 USC Sec. 1281 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART V - SPECIAL RULES FOR BONDS AND OTHER DEBT INSTRUMENTS
Subpart C - Discount on Short-Term Obligations
-HEAD-
Sec. 1281. Current inclusion in income of discount on certain
short-term obligations
-STATUTE-
(a) General rule
In the case of any short-term obligation to which this section
applies, for purposes of this title -
(1) there shall be included in the gross income of the holder
an amount equal to the sum of the daily portions of the
acquisition discount for each day during the taxable year on
which such holder held such obligation, and
(2) any interest payable on the obligation (other than interest
taken into account in determining the amount of the acquisition
discount) shall be included in gross income as it accrues.
(b) Short-term obligations to which section applies
(1) In general
This section shall apply to any short-term obligation which -
(A) is held by a taxpayer using an accrual method of
accounting,
(B) is held primarily for sale to customers in the ordinary
course of the taxpayer's trade or business,
(C) is held by a bank (as defined in section 581),
(D) is held by a regulated investment company or a common
trust fund,
(E) is identified by the taxpayer under section 1256(e)(2) as
being part of a hedging transaction, or
(F) is a stripped bond or stripped coupon held by the person
who stripped the bond or coupon (or by any other person whose
basis is determined by reference to the basis in the hands of
such person).
(2) Treatment of obligations held by pass-thru entities
(A) In general
This section shall apply also to -
(i) any short-term obligation which is held by a pass-thru
entity which is formed or availed of for purposes of avoiding
the provisions of this section, and
(ii) any short-term obligation which is acquired by a
pass-thru entity (not described in clause (i)) during the
required accrual period.
(B) Required accrual period
For purposes of subparagraph (A), the term "required accrual
period" means the period -
(i) which begins with the first taxable year for which the
ownership test of subparagraph (C) is met with respect to the
pass-thru entity (or a predecessor), and
(ii) which ends with the first taxable year after the
taxable year referred to in clause (i) for which the
ownership test of subparagraph (C) is not met and with
respect to which the Secretary consents to the termination of
the required accrual period.
(C) Ownership test
The ownership test of this subparagraph is met for any
taxable year if, on at least 90 days during the taxable year,
20 percent or more of the value of the interests in the
pass-thru entity are held by persons described in paragraph (1)
or by other pass-thru entities to which subparagraph (A)
applies.
(D) Pass-thru entity
The term "pass-thru entity" means any partnership, S
corporation, trust, or other pass-thru entity.
(c) Cross reference
For special rules limiting the application of this section to
original issue discount in the case of nongovernmental
obligations, see section 1283(c).
-SOURCE-
(Added Pub. L. 98-369, div. A, title I, Sec. 41(a), July 18, 1984,
98 Stat. 548; amended Pub. L. 99-514, title XVIII, Sec. 1803(a)(7),
(8)(A), Oct. 22, 1986, 100 Stat. 2793, 2794.)
-MISC1-
AMENDMENTS
1986 - Subsec. (a). Pub. L. 99-514, Sec. 1803(a)(8), amended
subsec. (a) generally, designating existing provisions as par. (1)
and adding par. (2).
Subsec. (b)(1)(F). Pub. L. 99-514, Sec. 1803(a)(7), added subpar.
(F).
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1803(a)(7) 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 1803(a)(8)(A) of Pub. L. 99-514, as amended by Pub. L.
100-647, title I, Sec. 1018(c)(1), Nov. 10, 1988, 102 Stat. 3578,
provided that the amendment made by section 1803(a)(8)(A) of Pub.
L. 99-514 is effective with respect to obligations acquired after
Dec. 31, 1985.
EFFECTIVE DATE
Section applicable to taxable years ending after July 18, 1984,
and applicable to obligations acquired after that date, with
certain elections available, see section 44 of Pub. L. 98-369, set
out as a note under section 1271 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 263, 1282, 1283 of this
title.
-End-
-CITE-
26 USC Sec. 1282 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART V - SPECIAL RULES FOR BONDS AND OTHER DEBT INSTRUMENTS
Subpart C - Discount on Short-Term Obligations
-HEAD-
Sec. 1282. Deferral of interest deduction allocable to accrued
discount
-STATUTE-
(a) General rule
Except as otherwise provided in this section, the net direct
interest expense with respect to any short-term obligation shall be
allowed as a deduction for the taxable year only to the extent such
expense exceeds the sum of -
(1) the daily portions of the acquisition discount for each day
during the taxable year on which the taxpayer held such
obligation, and
(2) the amount of any interest payable on the obligation (other
than interest taken into account in determining the amount of the
acquisition discount) which accrues during the taxable year while
the taxpayer held such obligation (and is not included in the
gross income of the taxpayer for such taxable year by reason of
the taxpayer's method of accounting).
(b) Section not to apply to obligations to which section 1281
applies
(1) In general
This section shall not apply to any short-term obligation to
which section 1281 applies.
(2) Election to have section 1281 apply to all obligations
(A) In general
A taxpayer may make an election under this paragraph to have
section 1281 apply to all short-term obligations acquired by
the taxpayer on or after the 1st day of the 1st taxable year to
which such election applies.
(B) Period to which election applies
An election under this paragraph shall apply to 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.
(c) Certain rules made applicable
Rules similar to the rules of subsections (b) and (c) of section
1277 shall apply for purposes of this section.
(d) Cross reference
For special rules limiting the application of this section to
original issue discount in the case of nongovernmental
obligations, see section 1283(c).
-SOURCE-
(Added Pub. L. 98-369, div. A, title I, Sec. 41(a), July 18, 1984,
98 Stat. 549; amended Pub. L. 99-514, title XVIII, Sec.
1803(a)(8)(B), Oct. 22, 1986, 100 Stat. 2794.)
-MISC1-
AMENDMENTS
1986 - Subsec. (a). Pub. L. 99-514 amended subsec. (a) generally,
designating existing provisions as par. (1) and adding par. (2).
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 effective, except as otherwise
provided, as if included in the provisions of the Tax Reform Act of
1984, Pub. L. 98-369, div. A, to which such amendment relates, see
section 1881 of Pub. L. 99-514, set out as a note under section 48
of this title.
EFFECTIVE DATE
Section applicable to taxable years ending after July 18, 1984,
and to obligations acquired after that date, see section 44 of Pub.
L. 98-369, set out as a note under section 1271 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 263, 1283 of this title.
-End-
-CITE-
26 USC Sec. 1283 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART V - SPECIAL RULES FOR BONDS AND OTHER DEBT INSTRUMENTS
Subpart C - Discount on Short-Term Obligations
-HEAD-
Sec. 1283. Definitions and special rules
-STATUTE-
(a) Definitions
For purposes of this subpart -
(1) Short-term obligation
(A) In general
Except as provided in subparagraph (B), the term "short-term
obligation" means any bond, debenture, note, certificate, or
other evidence of indebtedness which has a fixed maturity date
not more than 1 year from the date of issue.
(B) Exceptions for tax-exempt obligations
The term "short-term obligation" shall not include any
tax-exempt obligation (as defined in section 1275(a)(3)).
(2) Acquisition discount
The term "acquisition discount" means the excess of -
(A) the stated redemption price at maturity (as defined in
section 1273), over
(B) the taxpayer's basis for the obligation.
(b) Daily portion
For purposes of this subpart -
(1) Ratable accrual
Except as otherwise provided in this subsection, the daily
portion of the acquisition discount is an amount equal to -
(A) the amount of such discount, divided by
(B) the number of days after the day on which the taxpayer
acquired the obligation and up to (and including) the day of
its maturity.
(2) Election of accrual on basis of constant interest rate (in
lieu of ratable accrual)
(A) In general
At the election of the taxpayer with respect to any
obligation, the daily portion of the acquisition discount for
any day is the portion of the acquisition discount accruing on
such day determined (under regulations prescribed by the
Secretary) on the basis of -
(i) the taxpayer's yield to maturity based on the
taxpayer's cost of acquiring the obligation, and
(ii) compounding daily.
(B) Election irrevocable
An election under subparagraph (A), once made with respect to
any obligation, shall be irrevocable.
(c) Special rules for nongovernmental obligations
(1) In general
In the case of any short-term obligation which is not a
short-term Government obligation (as defined in section
1271(a)(3)(B)) -
(A) sections 1281 and 1282 shall be applied by taking into
account original issue discount in lieu of acquisition
discount, and
(B) appropriate adjustments shall be made in the application
of subsection (b) of this section.
(2) Election to have paragraph (1) not apply
(A) In general
A taxpayer may make an election under this paragraph to have
paragraph (1) not apply to all obligations acquired by the
taxpayer on or after the first day of the first taxable year to
which such election applies.
(B) Period to which election applies
An election under this paragraph shall apply to 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.
(d) Other special rules
(1) Basis adjustments
The basis of any short-term obligation in the hands of the
holder thereof shall be increased by the amount included in his
gross income pursuant to section 1281.
(2) Double inclusion in income not required
Section 1281 shall not require the inclusion of any amount
previously includible in gross income.
(3) Coordination with other provisions
Section 454(b) and paragraphs (3) and (4) of section 1271(a)
shall not apply to any short-term obligation to which section
1281 applies.
-SOURCE-
(Added Pub. L. 98-369, div. A, title I, Sec. 41(a), July 18, 1984,
98 Stat. 549; amended Pub. L. 99-514, title XVIII, Sec.
1803(a)(1)(B), Oct. 22, 1986, 100 Stat. 2792.)
-MISC1-
AMENDMENTS
1986 - Subsec. (d)(3). Pub. L. 99-514 substituted "paragraphs (3)
and (4) of section 1271(a)" for "section 1271(a)(3)".
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 effective, except as otherwise
provided, as if included in the provisions of the Tax Reform Act of
1984, Pub. L. 98-369, div. A, to which such amendment relates, see
section 1881 of Pub. L. 99-514, set out as a note under section 48
of this title.
EFFECTIVE DATE
Section applicable to taxable years ending after July 18, 1984,
and to obligations acquired after that date, see section 44 of Pub.
L. 98-369, set out as a note under section 1271 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 163, 751, 1281, 1282,
1288 of this title.
-End-
-CITE-
26 USC Subpart D - Miscellaneous Provisions 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART V - SPECIAL RULES FOR BONDS AND OTHER DEBT INSTRUMENTS
Subpart D - Miscellaneous Provisions
-HEAD-
SUBPART D - MISCELLANEOUS PROVISIONS
-MISC1-
Sec.
1286. Tax treatment of stripped bonds.
1287. Denial of capital gain treatment for gains on certain
obligations not in registered form.
1288. Treatment of original issue discount on tax-exempt
obligations.
-End-
-CITE-
26 USC Sec. 1286 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART V - SPECIAL RULES FOR BONDS AND OTHER DEBT INSTRUMENTS
Subpart D - Miscellaneous Provisions
-HEAD-
Sec. 1286. Tax treatment of stripped bonds
-STATUTE-
(a) Inclusion in income as if bond and coupons were original issue
discount bonds
If any person purchases after July 1, 1982, a stripped bond or a
stripped coupon, then such bond or coupon while held by such
purchaser (or by any other person whose basis is determined by
reference to the basis in the hands of such purchaser) shall be
treated for purposes of this part as a bond originally issued on
the purchase date and having an original issue discount equal to
the excess (if any) of -
(1) the stated redemption price at maturity (or, in the case of
coupon, the amount payable on the due date of such coupon), over
(2) such bond's or coupon's ratable share of the purchase
price.
For purposes of paragraph (2), ratable shares shall be determined
on the basis of their respective fair market values on the date of
purchase.
(b) Tax treatment of person stripping bond
For purposes of this subtitle, if any person strips 1 or more
coupons from a bond and after July 1, 1982, disposes of the bond or
such coupon -
(1) such person shall include in gross income an amount equal
to the sum of -
(A) the interest accrued on such bond while held by such
person and before the time such coupon or bond was disposed of
(to the extent such interest has not theretofore been included
in such person's gross income), and
(B) the accrued market discount on such bond determined as of
the time such coupon or bond was disposed of (to the extent
such discount has not theretofore been included in such
person's gross income),
(2) the basis of the bond and coupons shall be increased by the
amount included in gross income under paragraph (1),
(3) the basis of the bond and coupons immediately before the
disposition (as adjusted pursuant to paragraph (2)) shall be
allocated among the items retained by such person and the items
disposed of by such person on the basis of their respective fair
market values, and
(4) for purposes of subsection (a), such person shall be
treated as having purchased on the date of such disposition each
such item which he retains for an amount equal to the basis
allocated to such item under paragraph (3).
A rule similar to the rule of paragraph (4) shall apply in the case
of any person whose basis in any bond or coupon is determined by
reference to the basis of the person described in the preceding
sentence.
(c) Retention of existing law for stripped bonds purchased before
July 2, 1982
If a bond issued at any time with interest coupons -
(1) is purchased after August 16, 1954, and before January 1,
1958, and the purchaser does not receive all the coupons which
first become payable more than 12 months after the date of the
purchase, or
(2) is purchased after December 31, 1957, and before July 2,
1982, and the purchaser does not receive all the coupons which
first become payable after the date of the purchase,
then the gain on the sale or other disposition of such bond by such
purchaser (or by a person whose basis is determined by reference to
the basis in the hands of such purchaser) shall be considered as
ordinary income to the extent that the fair market value
(determined as of the time of the purchase) of the bond with
coupons attached exceeds the purchase price. If this subsection and
section 1271(a)(2)(A) apply with respect to gain realized on the
sale or exchange of any evidence of indebtedness, then section
1271(a)(2)(A) shall apply with respect to that part of the gain to
which this subsection does not apply.
(d) Special rules for tax-exempt obligations
(1) In general
In the case of any tax-exempt obligation (as defined in section
1275(a)(3)) from which 1 or more coupons have been stripped -
(A) the amount of the original issue discount determined
under subsection (a) with respect to any stripped bond or
stripped coupon -
(i) shall be treated as original issue discount on a
tax-exempt obligation to the extent such discount does not
exceed the tax-exempt portion of such discount, and
(ii) shall be treated as original issue discount on an
obligation which is not a tax-exempt obligation to the extent
such discount exceeds the tax-exempt portion of such
discount,
(B) subsection (b)(1)(A) shall not apply, and
(C) subsection (b)(2) shall be applied by increasing the
basis of the bond or coupon by the sum of -
(i) the interest accrued but not paid before such bond or
coupon was disposed of (and not previously reflected in
basis), plus
(ii) the amount included in gross income under subsection
(b)(1)(B).
(2) Tax-exempt portion
For purposes of paragraph (1), the tax-exempt portion of the
original issue discount determined under subsection (a) is the
excess of -
(A) the amount referred to in subsection (a)(1), over
(B) an issue price which would produce a yield to maturity as
of the purchase date equal to the lower of -
(i) the coupon rate of interest on the obligation from
which the coupons were separated, or
(ii) the yield to maturity (on the basis of the purchase
price) of the stripped obligation or coupon.
The purchaser of any stripped obligation or coupon may elect to
apply clause (i) by substituting "original yield to maturity
of" for "coupon rate of interest on".
(e) Definitions and special rules
For purposes of this section -
(1) Bond
The term "bond" means a bond, debenture, note, or certificate
or other evidence of indebtedness.
(2) Stripped bond
The term "stripped bond" means a bond issued at any time with
interest coupons where there is a separation in ownership between
the bond and any coupon which has not yet become payable.
(3) Stripped coupon
The term "stripped coupon" means any coupon relating to a
stripped bond.
(4) Stated redemption price at maturity
The term "stated redemption price at maturity" has the meaning
given such term by section 1273(a)(2).
(5) Coupon
The term "coupon" includes any right to receive interest on a
bond (whether or not evidenced by a coupon). This paragraph shall
apply for purposes of subsection (c) only in the case of
purchases after July 1, 1982.
(6) Purchase
The term "purchase" has the meaning given such term by section
1272(d)(1).
(f) Regulation authority
The Secretary may prescribe regulations providing that where, by
reason of varying rates of interest, put or call options, or other
circumstances, the tax treatment under this section does not
accurately reflect the income of the holder of a stripped coupon or
stripped bond, or of the person disposing of such bond or coupon,
as the case may be, for any period, such treatment shall be
modified to require that the proper amount of income be included
for such period.
-SOURCE-
(Added Pub. L. 98-369, div. A, title I, Sec. 41(a), July 18, 1984,
98 Stat. 551; amended Pub. L. 99-514, title XVIII, Secs.
1803(a)(13)(B), 1879(s)(1), Oct. 22, 1986, 100 Stat. 2796, 2912;
Pub. L. 100-647, title I, Sec. 1018(q)(4)(A), Nov. 10, 1988, 102
Stat. 3585.)
-MISC1-
AMENDMENTS
1988 - Subsec. (d). Pub. L. 100-647 amended subsec. (d)
generally. Prior to amendment, subsec. (d) read as follows: "In the
case of any tax-exempt obligation (as defined in section
1275(a)(3)) from which 1 or more coupons have been stripped -
"(1) the amount of original issue discount determined under
subsection (a) with respect to any stripped bond or stripped
coupon from such obligation shall be the amount which produces a
yield to maturity (as of the purchase date) equal to the lower of
-
"(A) the coupon rate of interest on such obligation before
the separation of coupons, or
"(B) the yield to maturity (on the basis of purchase price)
of the stripped obligation or coupon,
"(2) the amount of original issue discount determined under
paragraph (1) shall be taken into account in determining the
adjusted basis of the holder under section 1288,
"(3) subsection (b)(1) shall not apply, and
"(4) subsection (b)(2) shall be applied by increasing the basis
of the bond or coupon by the interest accrued but not paid before
the time such bond or coupon was disposed of (and not previously
reflected in basis)."
1986 - Subsec. (b)(1). Pub. L. 99-514, Sec. 1803(a)(13)(B)(i),
amended par. (1) generally, designating existing provisions as
subpar. (A) and adding subpar. (B).
Subsec. (b)(2). Pub. L. 99-514, Sec. 1803(a)(13)(B)(ii),
substituted "the amount included in gross income under paragraph
(1)" for "the amount of the accrued interest described in paragraph
(1)".
Subsec. (d). Pub. L. 99-514, Sec. 1879(s)(1), amended subsec. (d)
generally. Prior to amendment, subsec. (d) read as follows: "In the
case of any tax-exempt obligation (as defined in section
1275(a)(3)) -
"(1) subsections (a) and (b)(1) shall not apply,
"(2) the rules of subsection (b)(4) shall apply for purposes of
subsection (c), and
"(3) subsection (c) shall be applied without regard to the
requirement that the bond be purchased before July 2, 1982."
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1018(q)(4)(B) of Pub. L. 100-647 provided that:
"(i) Except as provided in clause (ii), the amendment made by
subparagraph (A) [amending this section] shall apply to any
purchase or sale after June 10, 1987, of any stripped tax-exempt
obligation or stripped coupon from such an obligation.
"(ii) If -
"(I) any person held any obligation or coupon in stripped form
on June 10, 1987, and
"(II) such obligation or coupon was held by such person on such
date for sale in the ordinary course of such person's trade or
business,
the amendment made by subparagraph (A) shall not apply to any sale
of such obligation or coupon by such person and shall not apply to
any such obligation or coupon while held by another person who
purchased such obligation or coupon from the person referred to in
subclause (I)."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1803(a)(13)(B) of Pub. L. 99-514 applicable
to obligations acquired after Oct. 22, 1986, see section
1803(a)(13)(C) of Pub. L. 99-514, set out as a note under section
1276 of this title.
Section 1879(s)(2) of Pub. L. 99-514 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to any purchase or sale of any stripped tax-exempt obligation or
stripped coupon from such an obligation after the date of the
enactment of this Act [Oct. 22, 1986]."
EFFECTIVE DATE
Section applicable to taxable years ending after July 18, 1984,
except as otherwise provided, see section 44 of Pub. L. 98-369, set
out as a note under section 1271 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 871, 1271 of this title.
-End-
-CITE-
26 USC Sec. 1287 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART V - SPECIAL RULES FOR BONDS AND OTHER DEBT INSTRUMENTS
Subpart D - Miscellaneous Provisions
-HEAD-
Sec. 1287. Denial of capital gain treatment for gains on certain
obligations not in registered form
-STATUTE-
(a) In general
If any registration-required obligation is not in registered
form, any gain on the sale or other disposition of such obligation
shall be treated as ordinary income (unless the issuance of such
obligation was subject to tax under section 4701).
(b) Definitions
For purposes of subsection (a) -
(1) Registration-required obligation
The term "registration-required obligation" has the meaning
given to such term by section 163(f)(2) except that clause (iv)
of subparagraph (A), and subparagraph (B), of such section shall
not apply.
(2) Registered form
The term "registered form" has the same meaning as when used in
section 163(f).
-SOURCE-
(Added Pub. L. 98-369, div. A, title I, Sec. 41(a), July 18, 1984,
98 Stat. 552.)
-MISC1-
EFFECTIVE DATE
Section applicable to taxable years ending after July 18, 1984,
except as otherwise provided, see section 44 of Pub. L. 98-369, set
out as a note under section 1271 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 165 of this title.
-End-
-CITE-
26 USC Sec. 1288 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART V - SPECIAL RULES FOR BONDS AND OTHER DEBT INSTRUMENTS
Subpart D - Miscellaneous Provisions
-HEAD-
Sec. 1288. Treatment of original issue discount on tax-exempt
obligations
-STATUTE-
(a) General rule
Original issue discount on any tax-exempt obligation shall be
treated as accruing -
(1) for purposes of section 163, in the manner provided by
section 1272(a) (determined without regard to paragraph (7)
thereof), and
(2) for purposes of determining the adjusted basis of the
holder, in the manner provided by section 1272(a) (determined
with regard to paragraph (7) thereof).
(b) Definitions and special rules
For purposes of this section -
(1) Original issue discount
The term "original issue discount" has the meaning given to
such term by section 1273(a) without regard to paragraph (3)
thereof. In applying section 483 or 1274, under regulations
prescribed by the Secretary, appropriate adjustments shall be
made to the applicable Federal rate to take into account the tax
exemption for interest on the obligation.
(2) Tax-exempt obligation
The term "tax-exempt obligation" has the meaning given to such
term by section 1275(a)(3).
(3) Short-term obligations
In applying this section to obligations with maturity of 1 year
or less, rules similar to the rules of section 1283(b) shall
apply.
-SOURCE-
(Added Pub. L. 98-369, div. A, title I, Sec. 41(a), July 18, 1984,
98 Stat. 553; amended Pub. L. 100-647, title I, Sec. 1006(u)(3),
Nov. 10, 1988, 102 Stat. 3427.)
-MISC1-
AMENDMENTS
1988 - Subsec. (a). Pub. L. 100-647 substituted "paragraph (7)"
for "paragraph (6)" in pars. (1) and (2).
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
Section applicable to taxable years ending after July 18, 1984,
and applicable to obligations issued after Sept. 3, 1982, and
acquired after Mar. 1, 1984, see section 44 of Pub. L. 98-369, set
out as a note under section 1271 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 163 of this title.
-End-
-CITE-
26 USC PART VI - TREATMENT OF CERTAIN PASSIVE FOREIGN
INVESTMENT COMPANIES 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART VI - TREATMENT OF CERTAIN PASSIVE FOREIGN INVESTMENT COMPANIES
-HEAD-
PART VI - TREATMENT OF CERTAIN PASSIVE FOREIGN INVESTMENT COMPANIES
-MISC1-
Subpart
A. Interest on tax deferral.
B. Treatment of qualified electing funds.
C. Election of mark to market for marketable stock.
D. General provisions.
AMENDMENTS
1997 - Pub. L. 105-34, title XI, Sec. 1122(d)(6), Aug. 5, 1997,
111 Stat. 977, added items for subparts C and D and struck out
former item for subpart C "General provisions".
-End-
-CITE-
26 USC Subpart A - Interest on Tax Deferral 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART VI - TREATMENT OF CERTAIN PASSIVE FOREIGN INVESTMENT COMPANIES
Subpart A - Interest on Tax Deferral
-HEAD-
SUBPART A - INTEREST ON TAX DEFERRAL
-MISC1-
Sec.
1291. Interest on tax deferral.
-End-
-CITE-
26 USC Sec. 1291 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART VI - TREATMENT OF CERTAIN PASSIVE FOREIGN INVESTMENT COMPANIES
Subpart A - Interest on Tax Deferral
-HEAD-
Sec. 1291. Interest on tax deferral
-STATUTE-
(a) Treatment of distributions and stock dispositions
(1) Distributions
If a United States person receives an excess distribution in
respect of stock in a passive foreign investment company, then -
(A) the amount of the excess distribution shall be allocated
ratably to each day in the taxpayer's holding period for the
stock,
(B) with respect to such excess distribution, the taxpayer's
gross income for the current year shall include (as ordinary
income) only the amounts allocated under subparagraph (A) to -
(i) the current year, or
(ii) any period in the taxpayer's holding period before the
1st day of the 1st taxable year of the company which begins
after December 31, 1986, and for which it was a passive
foreign investment company, and
(C) the tax imposed by this chapter for the current year
shall be increased by the deferred tax amount (determined under
subsection (c)).
(2) Dispositions
If the taxpayer disposes of stock in a passive foreign
investment company, then the rules of paragraph (1) shall apply
to any gain recognized on such disposition in the same manner as
if such gain were an excess distribution.
(3) Definitions
For purposes of this section -
(A) Holding period
The taxpayer's holding period shall be determined under
section 1223; except that -
(i) for purposes of applying this section to an excess
distribution, such holding period shall be treated as ending
on the date of such distribution, and
(ii) if section 1296 applied to such stock with respect to
the taxpayer for any prior taxable year, such holding period
shall be treated as beginning on the first day of the first
taxable year beginning after the last taxable year for which
section 1296 so applied.
(B) Current year
The term "current year" means the taxable year in which the
excess distribution or disposition occurs.
(b) Excess distribution
(1) In general
For purposes of this section, the term "excess distribution"
means any distribution in respect of stock received during any
taxable year to the extent such distribution does not exceed its
ratable portion of the total excess distribution (if any) for
such taxable year.
(2) Total excess distribution
For purposes of this subsection -
(A) In general
The term "total excess distribution" means the excess (if
any) of -
(i) the amount of the distributions in respect of the stock
received by the taxpayer during the taxable year, over
(ii) 125 percent of the average amount received in respect
of such stock by the taxpayer during the 3 preceding taxable
years (or, if shorter, the portion of the taxpayer's holding
period before the taxable year).
For purposes of clause (ii), any excess distribution received
during such 3-year period shall be taken into account only to
the extent it was included in gross income under subsection
(a)(1)(B).
(B) No excess for 1st year
The total excess distributions with respect to any stock
shall be zero for the taxable year in which the taxpayer's
holding period in such stock begins.
(3) Adjustments
Under regulations prescribed by the Secretary -
(A) determinations under this subsection shall be made on a
share-by-share basis, except that shares with the same holding
period may be aggregated,
(B) proper adjustments shall be made for stock splits and
stock dividends,
(C) if the taxpayer does not hold the stock during the entire
taxable year, distributions received during such year shall be
annualized,
(D) if the taxpayer's holding period includes periods during
which the stock was held by another person, distributions
received by such other person shall be taken into account as if
received by the taxpayer,
(E) if the distributions are received in a foreign currency,
determinations under this subsection shall be made in such
currency and the amount of any excess distribution determined
in such currency shall be translated into dollars,
(F) proper adjustment shall be made for amounts not
includible in gross income by reason of section 551(d), 959(a),
or 1293(c), and
(G) if a charitable deduction was allowable under section
642(c) to a trust for any distribution of its income, proper
adjustments shall be made for the deduction so allowable to the
extent allocable to distributions or gain in respect of stock
in a passive foreign investment company.
(c) Deferred tax amount
For purposes of this section -
(1) In general
The term "deferred tax amount" means, with respect to any
distribution or disposition to which subsection (a) applies, an
amount equal to the sum of -
(A) the aggregate increases in taxes described in paragraph
(2), plus
(B) the aggregate amount of interest (determined in the
manner provided under paragraph (3)) on such increases in tax.
Any increase in the tax imposed by this chapter for the current
year under subsection (a) to the extent attributable to the
amount referred to in subparagraph (B) shall be treated as
interest paid under section 6601 on the due date for the current
year.
(2) Aggregate increases in taxes
For purposes of paragraph (1)(A), the aggregate increases in
taxes shall be determined by multiplying each amount allocated
under subsection (a)(1)(A) to any taxable year (other than any
taxable year referred to in subsection (a)(1)(B)) by the highest
rate of tax in effect for such taxable year under section 1 or
11, whichever applies.
(3) Computation of interest
(A) In general
The amount of interest referred to in paragraph (1)(B) on any
increase determined under paragraph (2) for any taxable year
shall be determined for the period -
(i) beginning on the due date for such taxable year, and
(ii) ending on the due date for the taxable year with or
within which the distribution or disposition occurs,
by using the rates and method applicable under section 6621 for
underpayments of tax for such period.
(B) Due date
For purposes of this subsection, the term "due date" means
the date prescribed by law (determined without regard to
extensions) for filing the return of the tax imposed by this
chapter for the taxable year.
(d) Coordination with subparts B and C
(1) In general
This section shall not apply with respect to any distribution
paid by a passive foreign investment company, or any disposition
of stock in a passive foreign investment company, if such company
is a qualified electing fund with respect to the taxpayer for
each of its taxable years -
(A) which begins after December 31, 1986, and for which such
company is a passive foreign investment company, and
(B) which includes any portion of the taxpayer's holding
period.
Except as provided in section 1296(j), this section also shall
not apply if an election under section 1296(k) is in effect for
the taxpayer's taxable year. In the case of stock which is marked
to market under section 475 or any other provision of this
chapter, this section shall not apply, except that rules similar
to the rules of section 1296(j) shall apply.
(2) Election to recognize gain where company becomes qualified
electing fund
(A) In general
If -
(i) a passive foreign investment company becomes a
qualified electing fund with respect to the taxpayer for a
taxable year which begins after December 31, 1986,
(ii) the taxpayer holds stock in such company on the first
day of such taxable year, and
(iii) the taxpayer establishes to the satisfaction of the
Secretary the fair market value of such stock on such first
day,
the taxpayer may elect to recognize gain as if he sold such
stock on such first day for such fair market value.
(B) Additional election for shareholder of controlled foreign
corporations
(i) In general
If -
(I) a passive foreign investment company becomes a
qualified electing fund with respect to the taxpayer for a
taxable year which begins after December 31, 1986,
(II) the taxpayer holds stock in such company on the
first day of such taxable year, and
(III) such company is a controlled foreign corporation
(as defined in section 957(a)),
the taxpayer may elect to include in gross income as a
dividend received on such first day an amount equal to the
portion of the post-1986 earnings and profits of such company
attributable (under regulations prescribed by the Secretary)
to the stock in such company held by the taxpayer on such
first day. The amount treated as a dividend under the
preceding sentence shall be treated as an excess distribution
and shall be allocated under subsection (a)(1)(A) only to
days during periods taken into account in determining the
post-1986 earnings and profits so attributable.
(ii) Post-1986 earnings and profits
For purposes of clause (i), the term "post-1986 earnings
and profits" means earnings and profits which were
accumulated in taxable years of such company beginning after
December 31, 1986, and during the period or periods the stock
was held by the taxpayer while the company was a passive
foreign investment company.
(iii) Coordination with section 959(e)
For purposes of section 959(e), any amount included in
gross income under this subparagraph shall be treated as
included in gross income under section 1248(a).
(C) Adjustments
In the case of any stock to which subparagraph (A) or (B)
applies -
(i) the adjusted basis of such stock shall be increased by
the gain recognized under subparagraph (A) or the amount
treated as a dividend under subparagraph (B), as the case may
be, and
(ii) the taxpayer's holding period in such stock shall be
treated as beginning on the first day referred to in such
subparagraph.
(e) Certain basis, etc., rules made applicable
Except to the extent inconsistent with the regulations prescribed
under subsection (f), rules similar to the rules of subsections
(c), (d), (e), and (f) (!1) of section 1246 shall apply for
purposes of this section; except that -
(1) the reduction under subsection (e) of such section shall be
the excess of the basis determined under section 1014 over the
adjusted basis of the stock immediately before the decedent's
death, and
(2) such a reduction shall not apply in the case of a decedent
who was a nonresident alien at all times during his holding
period in the stock.
(f) Recognition of gain
To the extent provided in regulations, in the case of any
transfer of stock in a passive foreign investment company where
(but for this subsection) there is not full recognition of gain,
the excess (if any) of -
(1) the fair market value of such stock, over
(2) its adjusted basis,
shall be treated as gain from the sale or exchange of such stock
and shall be recognized notwithstanding any provision of law.
Proper adjustment shall be made to the basis of any such stock for
gain recognized under the preceding sentence.
(g) Coordination with foreign tax credit rules
(1) In general
If there are creditable foreign taxes with respect to any
distribution in respect of stock in a passive foreign investment
company -
(A) the amount of such distribution shall be determined for
purposes of this section with regard to section 78,
(B) the excess distribution taxes shall be allocated ratably
to each day in the taxpayer's holding period for the stock, and
(C) to the extent -
(i) that such excess distribution taxes are allocated to a
taxable year referred to in subsection (a)(1)(B), such taxes
shall be taken into account under section 901 for the current
year, and
(ii) that such excess distribution taxes are allocated to
any other taxable year, such taxes shall reduce (subject to
the principles of section 904(d) and not below zero) the
increase in tax determined under subsection (c)(2) for such
taxable year by reason of such distribution (but such taxes
shall not be taken into account under section 901).
(2) Definitions
For purposes of this subsection -
(A) Creditable foreign taxes
The term "creditable foreign taxes" means, with respect to
any distribution -
(i) any foreign taxes deemed paid under section 902 with
respect to such distribution, and
(ii) any withholding tax imposed with respect to such
distribution,
but only if the taxpayer chooses the benefits of section 901
and such taxes are creditable under section 901 (determined
without regard to paragraph (1)(C)(ii)).
(B) Excess distribution taxes
The term "excess distribution taxes" means, with respect to
any distribution, the portion of the creditable foreign taxes
with respect to such distribution which is attributable (on a
pro rata basis) to the portion of such distribution which is an
excess distribution.
(C) Section 1248 gain
The rules of this subsection also shall apply in the case of
any gain which but for this section would be includible in
gross income as a dividend under section 1248.
-SOURCE-
(Added Pub. L. 99-514, title XII, Sec. 1235(a), Oct. 22, 1986, 100
Stat. 2566; amended Pub. L. 100-647, title I, Sec. 1012(p)(1), (3),
(6), (7), (9), (12)-(14), (28), (31), (33), title VI, Sec. 6127(b),
Nov. 10, 1988, 102 Stat. 3515-3517, 3520, 3521, 3715; Pub. L.
105-34, title XI, Sec. 1122(b), Aug. 5, 1997, 111 Stat. 976; Pub.
L. 105-206, title VI, Sec. 6011(c)(2), July 22, 1998, 112 Stat.
818; Pub. L. 107-16, title V, Sec. 542(e)(5)(B), June 7, 2001, 115
Stat. 85.)
-STATAMEND-
AMENDMENT OF SUBSECTION (E)
Pub. L. 107-16, title V, Sec. 542(e)(5)(B), (f)(1), title IX,
Sec. 901, June 7, 2001, 115 Stat. 85, 86, 150, provided that,
applicable to estates of decedents dying after Dec. 31, 2009,
subsection (e) of this section is temporarily amended by striking
"(e)," and by striking "; except that" and all that follows and
inserting a period at the end. See Effective and Termination Dates
of 2001 Amendment note below.
-REFTEXT-
REFERENCES IN TEXT
Subsection (f) of section 1246, referred to in subsec. (e), was
redesignated subsec. (g) of section 1246 by Pub. L. 100-647, title
I, Sec. 1012(p)(21), Nov. 10, 1988, 102 Stat. 3519.
-MISC1-
AMENDMENTS
1998 - Subsec. (d)(1). Pub. L. 105-206 inserted at end "In the
case of stock which is marked to market under section 475 or any
other provision of this chapter, this section shall not apply,
except that rules similar to the rules of section 1296(j) shall
apply."
1997 - Subsec. (a)(3)(A). Pub. L. 105-34, Sec. 1122(b)(3),
amended heading and text of subpar. (A) generally. Prior to
amendment, text read as follows: "The taxpayer's holding period
shall be determined under section 1223; except that, for purposes
of applying this section to an excess distribution, such holding
period shall be treated as ending on the date of such
distribution."
Subsec. (d). Pub. L. 105-34, Sec. 1122(b)(2), substituted
"subparts B and C" for "subpart B" in heading.
Subsec. (d)(1). Pub. L. 105-34, Sec. 1122(b)(1), inserted
concluding provisions.
1988 - Subsec. (a)(1)(B)(ii). Pub. L. 100-647, Sec. 1012(p)(12),
amended cl. (ii) generally. Prior to amendment, cl. (ii) read as
follows: "any period in the taxpayer's holding period before the
1st day of the 1st taxable year of the company for which it was a
passive foreign investment company (or, if later, January 1, 1987),
and".
Subsec. (a)(3)(A). Pub. L. 100-647, Sec. 1012(p)(14), substituted
"for purposes of applying this section to" for "in the case of".
Subsec. (a)(4), (5). Pub. L. 100-647, Sec. 1012(p)(7)(A), struck
out par. (4) which related to coordination with section 904, and
par. (5) which related to section 902 not applying.
Subsec. (b)(2)(A). Pub. L. 100-647, Sec. 1012(p)(13), inserted at
end "For purposes of clause (ii), any excess distribution received
during such 3-year period shall be taken into account only to the
extent it was included in gross income under subsection (a)(1)(B)."
Subsec. (b)(3)(F). Pub. L. 100-647, Sec. 1012(p)(3), added
subpar. (F).
Subsec. (b)(3)(G). Pub. L. 100-647, Sec. 1012(p)(33), added
subpar. (G).
Subsec. (c)(1). Pub. L. 100-647, Sec. 1012(p)(31), inserted at
end "Any increase in the tax imposed by this chapter for the
current year under subsection (a) to the extent attributable to the
amount referred to in subparagraph (B) shall be treated as interest
paid under section 6601 on the due date for the current year."
Subsec. (d)(1). Pub. L. 100-647, Sec. 6127(b)(1), inserted "with
respect to the taxpayer" after "qualified electing fund".
Pub. L. 100-647, Sec. 1012(p)(1), amended par. (1) generally.
Prior to amendment, par. (1) read as follows: "This section shall
not apply with respect to -
"(A) any distribution paid by a passive foreign investment
company during a taxable year for which such company is a
qualified electing fund, and
"(B) any disposition of stock in a passive foreign investment
company if such company is a qualified electing fund for each of
its taxable years -
"(i) which begins after December 31, 1986, and for which such
company is a passive foreign investment company, and
"(ii) which includes any portion of the taxpayer's holding
period."
Subsec. (d)(2)(A)(i). Pub. L. 100-647, Sec. 6127(b)(2), inserted
"with respect to the taxpayer" after "qualified electing fund".
Subsec. (d)(2)(B). Pub. L. 100-647, Sec. 1012(p)(28), added
subpar. (B) and struck out former subpar. (B) which related to
adjustments to basis of stock to which subpar. (A) applies.
Subsec. (d)(2)(B)(i)(I). Pub. L. 100-647, Sec. 6127(b)(2),
inserted "with respect to the taxpayer" after "qualified electing
fund".
Subsec. (d)(2)(C). Pub. L. 100-647, Sec. 1012(p)(28), added
subpar. (C).
Subsec. (e). Pub. L. 100-647, Sec. 1012(p)(6)(B), substituted
"Except to the extent inconsistent with the regulations prescribed
under subsection (f), rules similar".
Subsec. (e)(2). Pub. L. 100-647, Sec. 1012(p)(9), struck out
"not" before "a nonresident".
Subsec. (f). Pub. L. 100-647, Sec. 1012(p)(6)(A), amended subsec.
(f) generally. Prior to amendment, subsec. (f), "Nonrecognition
provisions", read as follows: "To the extent provided in
regulations, gain shall be recognized on any disposition of stock
in a passive foreign investment company."
Subsec. (g). Pub. L. 100-647, Sec. 1012(p)(7)(B), added subsec.
(g).
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Amendment by Pub. L. 107-16 applicable to estates of decedents
dying after Dec. 31, 2009, see section 542(f)(1) of Pub. L. 107-16,
set out as a note under section 121 of this title.
Amendment by Pub. L. 107-16 inapplicable to estates of decedents
dying, gifts made, or generation skipping transfers, after Dec. 31,
2010, and the Internal Revenue Code of 1986 to be applied and
administered to such estates, gifts, and transfers 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 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to taxable years of United
States persons beginning after Dec. 31, 1997, and to taxable years
of foreign corporations ending with or within such taxable years of
United States persons, see section 1124 of Pub. L. 105-34, set out
as a note under section 532 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1012(p)(1), (3), (6), (7), (9), (12)-(14),
(28), (31), (33) 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 6127(b) of Pub. L. 100-647 effective as if
included in the amendments made by section 1235 of Pub. L. 99-514,
see section 6127(c)(1) of Pub. L. 100-647, set out as a note under
section 1295 of this title.
EFFECTIVE DATE
Section 1235(h) of Pub. L. 99-514 provided that: "The amendments
made by this section [enacting this section and sections 1293 to
1297 of this title and amending sections 532, 542, 551, 851, 904,
951, 1246, and 6503 of this title] shall apply to taxable years of
foreign corporations beginning after December 31, 1986."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 1296, 1298 of this title.
-FOOTNOTE-
(!1) See References in Text note below.
-End-
-CITE-
26 USC Subpart B - Treatment of Qualified Electing Funds 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART VI - TREATMENT OF CERTAIN PASSIVE FOREIGN INVESTMENT COMPANIES
Subpart B - Treatment of Qualified Electing Funds
-HEAD-
SUBPART B - TREATMENT OF QUALIFIED ELECTING FUNDS
-MISC1-
Sec.
1293. Current taxation of income from qualified electing
funds.
1294. Election to extend time for payment of tax on
undistributed earnings.
1295. Qualified electing fund.
-SECREF-
SUBPART REFERRED TO IN OTHER SECTIONS
This subpart is referred to in section 1291 of this title.
-End-
-CITE-
26 USC Sec. 1293 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART VI - TREATMENT OF CERTAIN PASSIVE FOREIGN INVESTMENT COMPANIES
Subpart B - Treatment of Qualified Electing Funds
-HEAD-
Sec. 1293. Current taxation of income from qualified electing funds
-STATUTE-
(a) Inclusion
(1) In general
Every United States person who owns (or is treated under
section 1298(a) as owning) stock of a qualified electing fund at
any time during the taxable year of such fund shall include in
gross income -
(A) as ordinary income, such shareholder's pro rata share of
the ordinary earnings of such fund for such year, and
(B) as long-term capital gain, such shareholder's pro rata
share of the net capital gain of such fund for such year.
(2) Year of inclusion
The inclusion under paragraph (1) shall be for the taxable year
of the shareholder in which or with which the taxable year of the
fund ends.
(b) Pro rata share
The pro rata share referred to in subsection (a) in the case of
any shareholder is the amount which would have been distributed
with respect to the shareholder's stock if, on each day during the
taxable year of the fund, the fund had distributed to each
shareholder a pro rata share of that day's ratable share of the
fund's ordinary earnings and net capital gain for such year. To the
extent provided in regulations, if the fund establishes to the
satisfaction of the Secretary that it uses a shorter period than
the taxable year to determine shareholders' interests in the
earnings of such fund, pro rata shares may be determined by using
such shorter period.
(c) Previously taxed amounts distributed tax free
If the taxpayer establishes to the satisfaction of the Secretary
that any amount distributed by a passive foreign investment company
is paid out of earnings and profits of the company which were
included under subsection (a) in the income of any United States
person, such amount shall be treated, for purposes of this chapter,
as a distribution which is not a dividend; except that such
distribution shall immediately reduce earnings and profits. If the
passive foreign investment company is a controlled foreign
corporation (as defined in section 957(a)), the preceding sentence
shall not apply to any United States shareholder (as defined in
section 951(b)) in such corporation, and, in applying section 959
to any such shareholder, any inclusion under this section shall be
treated as an inclusion under section 951(a)(1)(A).
(d) Basis adjustments
The basis of the taxpayer's stock in a passive foreign investment
company shall be -
(1) increased by any amount which is included in the income of
the taxpayer under subsection (a) with respect to such stock, and
(2) decreased by any amount distributed with respect to such
stock which is not includible in the income of the taxpayer by
reason of subsection (c).
A similar rule shall apply also in the case of any property if by
reason of holding such property the taxpayer is treated under
section 1298(a) as owning stock in a qualified electing fund.
(e) Ordinary earnings
For purposes of this section -
(1) Ordinary earnings
The term "ordinary earnings" means the excess of the earnings
and profits of the qualified electing fund for the taxable year
over its net capital gain for such taxable year.
(2) Limitation on net capital gain
A qualified electing fund's net capital gain for any taxable
year shall not exceed its earnings and profits for such taxable
year.
(3) Determination of earnings and profits
The earnings and profits of any qualified electing fund shall
be determined without regard to paragraphs (4), (5), and (6) of
section 312(n). Under regulations, the preceding sentence shall
not apply to the extent it would increase earnings and profits by
an amount which was previously distributed by the qualified
electing fund.
(f) Foreign tax credit allowed in the case of 10-percent corporate
shareholder
For purposes of section 960 -
(1) any amount included in the gross income under subsection
(a) shall be treated as if it were included under section 951(a),
and
(2) any amount excluded from gross income under subsection (c)
shall be treated in the same manner as amounts excluded from
gross income under section 959.
(g) Other special rules
(1) Exception for certain income
For purposes of determining the amount included in the gross
income of any person under this section, the ordinary earnings
and net capital gain of a qualified electing fund shall not
include any item of income received by such fund if -
(A) such fund is a controlled foreign corporation (as defined
in section 957(a)) and such person is a United States
shareholder (as defined in section 951(b)) in such fund, and
(B) such person establishes to the satisfaction of the
Secretary that -
(i) such income was subject to an effective rate of income
tax imposed by a foreign country greater than 90 percent of
the maximum rate of tax specified in section 11, or
(ii) such income is -
(I) from sources within the United States,
(II) effectively connected with the conduct by the
qualified electing fund of a trade or business in the
United States, and
(III) not exempt from taxation (or subject to a reduced
rate of tax) pursuant to a treaty obligation of the United
States.
(2) Prevention of double inclusion
The Secretary shall prescribe such adjustment to the provisions
of this section as may be necessary to prevent the same item of
income of a qualified electing fund from being included in the
gross income of a United States person more than once.
-SOURCE-
(Added Pub. L. 99-514, title XII, Sec. 1235(a), Oct. 22, 1986, 100
Stat. 2569; amended Pub. L. 100-647, title I, Sec. 1012(p)(15),
(18), (23), (32), Nov. 10, 1988, 102 Stat. 3518, 3519, 3521; Pub.
L. 103-66, title XIII, Sec. 13231(c)(3), Aug. 10, 1993, 107 Stat.
498; Pub. L. 105-34, title XI, Sec. 1122(d)(3), Aug. 5, 1997, 111
Stat. 977.)
-MISC1-
AMENDMENTS
1997 - Subsecs. (a)(1), (d). Pub. L. 105-34 substituted "section
1298(a)" for "section 1297(a)".
1993 - Subsec. (c). Pub. L. 103-66 inserted at end "If the
passive foreign investment company is a controlled foreign
corporation (as defined in section 957(a)), the preceding sentence
shall not apply to any United States shareholder (as defined in
section 951(b)) in such corporation, and, in applying section 959
to any such shareholder, any inclusion under this section shall be
treated as an inclusion under section 951(a)(1)(A)."
1988 - Subsec. (b). Pub. L. 100-647, Sec. 1012(p)(15), inserted
at end "To the extent provided in regulations, if the fund
establishes to the satisfaction of the Secretary that it uses a
shorter period than the taxable year to determine shareholders'
interests in the earnings of such fund, pro rata shares may be
determined by using such shorter period."
Subsec. (c). Pub. L. 100-647, Sec. 1012(p)(23), inserted ", for
purposes of this chapter," after "shall be treated", and "; except
that such distribution shall immediately reduce earnings and
profits" after "is not a dividend".
Subsec. (e)(3). Pub. L. 100-647, Sec. 1012(p)(18), added par.
(3).
Subsec. (g). Pub. L. 100-647, Sec. 1012(p)(32), added subsec.
(g).
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to taxable years of United
States persons beginning after Dec. 31, 1997, and to taxable years
of foreign corporations ending with or within such taxable years of
United States persons, see section 1124 of Pub. L. 105-34, set out
as a note under section 532 of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable to taxable years of
foreign corporations beginning after Sept. 30, 1993, and to taxable
years of United States shareholders in which or with which such
taxable years of foreign corporations end, see section 13231(e) of
Pub. L. 103-66, set out as a note under section 951 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
Section applicable to taxable years of foreign corporations
beginning after Dec. 31, 1986, see section 1235(h) of Pub. L.
99-514, set out as a note under section 1291 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 551, 851, 904, 951, 986,
989, 1248, 1291, 1294, 1298 of this title.
-End-
-CITE-
26 USC Sec. 1294 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART VI - TREATMENT OF CERTAIN PASSIVE FOREIGN INVESTMENT COMPANIES
Subpart B - Treatment of Qualified Electing Funds
-HEAD-
Sec. 1294. Election to extend time for payment of tax on
undistributed earnings
-STATUTE-
(a) Extension allowed by election
(1) In general
At the election of the taxpayer, the time for payment of any
undistributed PFIC earnings tax liability of the taxpayer for the
taxable year shall be extended to the extent and subject to the
limitations provided in this section.
(2) Election not permitted where amounts otherwise includible
under section 551 or 951
The taxpayer may not make an election under paragraph (1) with
respect to the undistributed PFIC earnings tax liability
attributable to a qualified electing fund for the taxable year if
-
(A) any amount is includible in the gross income of the
taxpayer under section 551 with respect to such fund for such
taxable year, or
(B) any amount is includible in the gross income of the
taxpayer under section 951 with respect to such fund for such
taxable year.
(b) Definitions
For purposes of this section -
(1) Undistributed PFIC earnings tax liability
The term "undistributed PFIC earnings tax liability" means, in
the case of any taxpayer, the excess of -
(A) the tax imposed by this chapter for the taxable year,
over
(B) the tax which would be imposed by this chapter for such
year without regard to the inclusion in gross income under
section 1293 of the undistributed earnings of a qualified
electing fund.
(2) Undistributed earnings
The term "undistributed earnings" means, with respect to any
qualified electing fund, the excess (if any) of -
(A) the amount includible in gross income by reason of
section 1293(a) for the taxable year, over
(B) the amount not includible in gross income by reason of
section 1293(c) for such taxable year.
(c) Termination of extension
(1) Distributions
(A) In general
If a distribution is not includible in gross income for the
taxable year by reason of section 1293(c), then the extension
under subsection (a) for payment of the undistributed PFIC
earnings tax liability with respect to the earnings to which
such distribution is attributable shall expire on the last date
prescribed by law (determined without regard to extensions) for
filing the return of tax for such taxable year.
(B) Ordering rule
For purposes of subparagraph (A), a distribution shall be
treated as made from the most recently accumulated earnings and
profits.
(2) Transfers, etc.
If -
(A) stock in a passive foreign investment company is
transferred during the taxable year, or
(B) a passive foreign investment company ceases to be a
qualified electing fund,
all extensions under subsection (a) for payment of undistributed
PFIC earnings tax liability attributable to such stock (or, in
the case of such a cessation, attributable to any stock in such
company) which had not expired before the date of such transfer
or cessation shall expire on the last date prescribed by law
(determined without regard to extensions) for filing the return
of tax for the taxable year in which such transfer or cessation
occurs. To the extent provided in regulations, the preceding
sentence shall not apply in the case of a transfer in a
transaction with respect to which gain or loss is not recognized
(in whole or in part), and the transferee in such transaction
shall succeed to the treatment under this section of the
transferor.
(3) Jeopardy
If the Secretary believes that collection of an amount to which
an extension under this section relates is in jeopardy, the
Secretary shall immediately terminate such extension with respect
to such amount, and notice and demand shall be made by him for
payment of such amount.
(d) Election
The election under subsection (a) shall be made not later than
the time prescribed by law (including extensions) for filing the
return of tax imposed by this chapter for the taxable year.
(e) Authority to require bond
Section 6165 shall apply to any extension under this section as
though the Secretary were extending the time for payment of the
tax.
(f) Treatment of loans to shareholder
For purposes of this section and section 1293, any loan by a
qualified electing fund (directly or indirectly) to a shareholder
of such fund shall be treated as a distribution to such
shareholder.
(g) Cross reference
For provisions providing for interest for the period of the
extension under this section, see section 6601.
-SOURCE-
(Added Pub. L. 99-514, title XII, Sec. 1235(a), Oct. 22, 1986, 100
Stat. 2570; amended Pub. L. 100-647, title I, Sec. 1012(p)(4), (8),
(25), (34), Nov. 10, 1988, 102 Stat. 3515, 3517, 3519, 3522.)
-MISC1-
AMENDMENTS
1988 - Subsec. (c)(2). Pub. L. 100-647, Sec. 1012(p)(4), (34),
substituted "Transfers" for "Dispositions" in heading and "is
transferred" for "is disposed of" in subpar. (A), and in closing
provisions substituted "such transfer" for "such disposition" in
two places and inserted at end "To the extent provided in
regulations, the preceding sentence shall not apply in the case of
a transfer in a transaction with respect to which gain or loss is
not recognized (in whole or in part), and the transferee in such
transaction shall succeed to the treatment under this section of
the transferor."
Subsec. (f). Pub. L. 100-647, Sec. 1012(p)(25), added subsec.
(f).
Subsec. (g). Pub. L. 100-647, Sec. 1012(p)(8), added subsec. (g).
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
Section applicable to taxable years of foreign corporations
beginning after Dec. 31, 1986, see section 1235(h) of Pub. L.
99-514, set out as a note under section 1291 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 6503 of this title.
-End-
-CITE-
26 USC Sec. 1295 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART VI - TREATMENT OF CERTAIN PASSIVE FOREIGN INVESTMENT COMPANIES
Subpart B - Treatment of Qualified Electing Funds
-HEAD-
Sec. 1295. Qualified electing fund
-STATUTE-
(a) General rule
For purposes of this part, any passive foreign investment company
shall be treated as a qualified electing fund with respect to the
taxpayer if -
(1) an election by the taxpayer under subsection (b) applies to
such company for the taxable year, and
(2) such company complies with such requirements as the
Secretary may prescribe for purposes of -
(A) determining the ordinary earnings and net capital gain of
such company, and
(B) otherwise carrying out the purposes of this subpart.
(b) Election
(1) In general
A taxpayer may make an election under this subsection with
respect to any passive foreign investment company for any taxable
year of the taxpayer. Such an election, once made with respect to
any company, shall apply to all subsequent taxable years of the
taxpayer with respect to such company unless revoked by the
taxpayer with the consent of the Secretary.
(2) When made
An election under this subsection may be made for any taxable
year at any time on or before the due date (determined with
regard to extensions) for filing the return of the tax imposed by
this chapter for such taxable year. To the extent provided in
regulations, such an election may be made later than as required
in the preceding sentence where the taxpayer fails to make a
timely election because the taxpayer reasonably believed that the
company was not a passive foreign investment company.
-SOURCE-
(Added Pub. L. 99-514, title XII, Sec. 1235(a), Oct. 22, 1986, 100
Stat. 2571; amended Pub. L. 100-647, title I, Sec. 1012(p)(37)(A),
title VI, Sec. 6127(a), Nov. 10, 1988, 102 Stat. 3522, 3715.)
-MISC1-
AMENDMENTS
1988 - Subsec. (a). Pub. L. 100-647, Sec. 6127(a), amended
subsec. (a) generally. Prior to amendment, subsec. (a) read as
follows: "For purposes of this part, the term 'qualified electing
fund' means any passive foreign investment company if -
"(1) an election under subsection (b) applies to such company
for the taxable year, and
"(2) such company complies for such taxable year with such
requirements as the Secretary may prescribe for purposes of -
"(A) determining the ordinary earnings and net capital gain
of such company for the taxable year,
"(B) ascertaining the ownership of its outstanding stock, and
"(C) otherwise carrying out the purposes of this subpart."
Subsec. (b). Pub. L. 100-647, Sec. 6127(a), amended subsec. (b)
generally. Prior to amendment, subsec. (b) read as follows:
"(1) In general. - A passive foreign investment company may make
an election under this subsection for any taxable year. Such an
election, once made, shall apply to all subsequent taxable years of
such company for which such company is a passive foreign investment
company unless revoked with the consent of the Secretary.
"(2) When made. - An election under this subsection may be made
for any taxable year at any time before the 15th day of the 3rd
month of the following taxable year. To the extent provided in
regulations, such an election may be made later than as required by
the preceding sentence in cases where the company failed to make a
timely election because it reasonably believed it was not a passive
foreign investment company."
Pub. L. 100-647, Sec. 1012(p)(37)(A), inserted sentence at end of
par. (2) permitting a later election when a company reasonably
believed it was not a passive foreign investment company.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1012(p)(37)(A) 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 6127(c) of Pub. L. 100-647 provided that:
"(1) In general. - The amendments made by this section [amending
this section and section 1291 of this title] shall take effect as
if included in the amendments made by section 1235 of the Reform
Act [Pub. L. 99-514].
"(2) Time for making election. - The period during which an
election under section 1295(b) of the 1986 Code may be made shall
in no event expire before the date 60 days after the date of the
enactment of this Act [Nov. 10, 1988]."
EFFECTIVE DATE
Section applicable to taxable years of foreign corporations
beginning after Dec. 31, 1986, see section 1235(h) of Pub. L.
99-514, set out as a note under section 1291 of this title.
EXPIRATION OF SUBSECTION (B) ELECTION PERIOD
Section 1012(p)(37)(B) of Pub. L. 100-647 provided that: "The
period during which an election under section 1295(b) of the 1986
Code may be made shall in no event expire before the date 60 days
after the date of enactment of this Act [Nov. 10, 1988]."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 1, 1022 of this title.
-End-
-CITE-
26 USC Subpart C - Election of Mark to Market for
Marketable Stock 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART VI - TREATMENT OF CERTAIN PASSIVE FOREIGN INVESTMENT COMPANIES
Subpart C - Election of Mark to Market for Marketable Stock
-HEAD-
SUBPART C - ELECTION OF MARK TO MARKET FOR MARKETABLE STOCK
-MISC1-
Sec.
1296. Election of mark to market for marketable stock.
AMENDMENTS
1997 - Pub. L. 105-34, title XI, Sec. 1122(a), Aug. 5, 1997, 111
Stat. 972, added subpart C and item 1296. Former subpart C
redesignated D.
PRIOR PROVISIONS
A prior subpart C, consisting of sections 1296 and 1297 of this
title, was redesignated subpart D consisting of sections 1297 and
1298.
-SECREF-
SUBPART REFERRED TO IN OTHER SECTIONS
This subpart is referred to in section 1291 of this title.
-End-
-CITE-
26 USC Sec. 1296 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART VI - TREATMENT OF CERTAIN PASSIVE FOREIGN INVESTMENT COMPANIES
Subpart C - Election of Mark to Market for Marketable Stock
-HEAD-
Sec. 1296. Election of mark to market for marketable stock
-STATUTE-
(a) General rule
In the case of marketable stock in a passive foreign investment
company which is owned (or treated under subsection (g) as owned)
by a United States person at the close of any taxable year of such
person, at the election of such person -
(1) If the fair market value of such stock as of the close of
such taxable year exceeds its adjusted basis, such United States
person shall include in gross income for such taxable year an
amount equal to the amount of such excess.
(2) If the adjusted basis of such stock exceeds the fair market
value of such stock as of the close of such taxable year, such
United States person shall be allowed a deduction for such
taxable year equal to the lesser of -
(A) the amount of such excess, or
(B) the unreversed inclusions with respect to such stock.
(b) Basis adjustments
(1) In general
The adjusted basis of stock in a passive foreign investment
company -
(A) shall be increased by the amount included in the gross
income of the United States person under subsection (a)(1) with
respect to such stock, and
(B) shall be decreased by the amount allowed as a deduction
to the United States person under subsection (a)(2) with
respect to such stock.
(2) Special rule for stock constructively owned
In the case of stock in a passive foreign investment company
which the United States person is treated as owning under
subsection (g) -
(A) the adjustments under paragraph (1) shall apply to such
stock in the hands of the person actually holding such stock
but only for purposes of determining the subsequent treatment
under this chapter of the United States person with respect to
such stock, and
(B) similar adjustments shall be made to the adjusted basis
of the property by reason of which the United States person is
treated as owning such stock.
(c) Character and source rules
(1) Ordinary treatment
(A) Gain
Any amount included in gross income under subsection (a)(1),
and any gain on the sale or other disposition of marketable
stock in a passive foreign investment company (with respect to
which an election under this section is in effect), shall be
treated as ordinary income.
(B) Loss
Any -
(i) amount allowed as a deduction under subsection (a)(2),
and
(ii) loss on the sale or other disposition of marketable
stock in a passive foreign investment company (with respect
to which an election under this section is in effect) to the
extent that the amount of such loss does not exceed the
unreversed inclusions with respect to such stock,
shall be treated as an ordinary loss. The amount so treated
shall be treated as a deduction allowable in computing adjusted
gross income.
(2) Source
The source of any amount included in gross income under
subsection (a)(1) (or allowed as a deduction under subsection
(a)(2)) shall be determined in the same manner as if such amount
were gain or loss (as the case may be) from the sale of stock in
the passive foreign investment company.
(d) Unreversed inclusions
For purposes of this section, the term "unreversed inclusions"
means, with respect to any stock in a passive foreign investment
company, the excess (if any) of -
(1) the amount included in gross income of the taxpayer under
subsection (a)(1) with respect to such stock for prior taxable
years, over
(2) the amount allowed as a deduction under subsection (a)(2)
with respect to such stock for prior taxable years.
The amount referred to in paragraph (1) shall include any amount
which would have been included in gross income under subsection
(a)(1) with respect to such stock for any prior taxable year but
for section 1291. In the case of a regulated investment company
which elected to mark to market the stock held by such company as
of the last day of the taxable year preceding such company's first
taxable year for which such company elects the application of this
section, the amount referred to in paragraph (1) shall include
amounts included in gross income under such mark to market with
respect to such stock for prior taxable years.
(e) Marketable stock
For purposes of this section -
(1) In general
The term "marketable stock" means -
(A) any stock which is regularly traded on -
(i) a national securities exchange which is registered with
the Securities and Exchange Commission or the national market
system established pursuant to section 11A of the Securities
and Exchange Act of 1934, or
(ii) any exchange or other market which the Secretary
determines has rules adequate to carry out the purposes of
this part,
(B) to the extent provided in regulations, stock in any
foreign corporation which is comparable to a regulated
investment company and which offers for sale or has outstanding
any stock of which it is the issuer and which is redeemable at
its net asset value, and
(C) to the extent provided in regulations, any option on
stock described in subparagraph (A) or (B).
(2) Special rule for regulated investment companies
In the case of any regulated investment company which is
offering for sale or has outstanding any stock of which it is the
issuer and which is redeemable at its net asset value, all stock
in a passive foreign investment company which it owns directly or
indirectly shall be treated as marketable stock for purposes of
this section. Except as provided in regulations, similar
treatment as marketable stock shall apply in the case of any
other regulated investment company which publishes net asset
valuations at least annually.
(f) Treatment of controlled foreign corporations which are
shareholders in passive foreign investment companies
In the case of a foreign corporation which is a controlled
foreign corporation and which owns (or is treated under subsection
(g) as owning) stock in a passive foreign investment company -
(1) this section (other than subsection (c)(2)) shall apply to
such foreign corporation in the same manner as if such
corporation were a United States person, and
(2) for purposes of subpart F of part III of subchapter N -
(A) any amount included in gross income under subsection
(a)(1) shall be treated as foreign personal holding company
income described in section 954(c)(1)(A), and
(B) any amount allowed as a deduction under subsection (a)(2)
shall be treated as a deduction allocable to foreign personal
holding company income so described.
(g) Stock owned through certain foreign entities
Except as provided in regulations -
(1) In general
For purposes of this section, stock owned, directly or
indirectly, by or for a foreign partnership or foreign trust or
foreign estate shall be considered as being owned proportionately
by its partners or beneficiaries. Stock considered to be owned by
a person by reason of the application of the preceding sentence
shall, for purposes of applying such sentence, be treated as
actually owned by such person.
(2) Treatment of certain dispositions
In any case in which a United States person is treated as
owning stock in a passive foreign investment company by reason of
paragraph (1) -
(A) any disposition by the United States person or by any
other person which results in the United States person being
treated as no longer owning such stock, and
(B) any disposition by the person owning such stock,
shall be treated as a disposition by the United States person of
the stock in the passive foreign investment company.
(h) Coordination with section 851(b)
For purposes of paragraphs (2) and (3) of section 851(b), any
amount included in gross income under subsection (a) shall be
treated as a dividend.
(i) Stock acquired from a decedent
In the case of stock of a passive foreign investment company
which is acquired by bequest, devise, or inheritance (or by the
decedent's estate) and with respect to which an election under this
section was in effect as of the date of the decedent's death,
notwithstanding section 1014, the basis of such stock in the hands
of the person so acquiring it shall be the adjusted basis of such
stock in the hands of the decedent immediately before his death
(or, if lesser, the basis which would have been determined under
section 1014 without regard to this subsection).
(j) Coordination with section 1291 for first year of election
(1) Taxpayers other than regulated investment companies
(A) In general
If the taxpayer elects the application of this section with
respect to any marketable stock in a corporation after the
beginning of the taxpayer's holding period in such stock, and
if the requirements of subparagraph (B) are not satisfied,
section 1291 shall apply to -
(i) any distributions with respect to, or disposition of,
such stock in the first taxable year of the taxpayer for
which such election is made, and
(ii) any amount which, but for section 1291, would have
been included in gross income under subsection (a) with
respect to such stock for such taxable year in the same
manner as if such amount were gain on the disposition of such
stock.
(B) Requirements
The requirements of this subparagraph are met if, with
respect to each of such corporation's taxable years for which
such corporation was a passive foreign investment company and
which begin after December 31, 1986, and included any portion
of the taxpayer's holding period in such stock, such
corporation was treated as a qualified electing fund under this
part with respect to the taxpayer.
(2) Special rules for regulated investment companies
(A) In general
If a regulated investment company elects the application of
this section with respect to any marketable stock in a
corporation after the beginning of the taxpayer's holding
period in such stock, then, with respect to such company's
first taxable year for which such company elects the
application of this section with respect to such stock -
(i) section 1291 shall not apply to such stock with respect
to any distribution or disposition during, or amount included
in gross income under this section for, such first taxable
year, but
(ii) such regulated investment company's tax under this
chapter for such first taxable year shall be increased by the
aggregate amount of interest which would have been determined
under section 1291(c)(3) if section 1291 were applied without
regard to this subparagraph.
Clause (ii) shall not apply if for the preceding taxable year
the company elected to mark to market the stock held by such
company as of the last day of such preceding taxable year.
(B) Disallowance of deduction
No deduction shall be allowed to any regulated investment
company for the increase in tax under subparagraph (A)(ii).
(k) Election
This section shall apply to marketable stock in a passive foreign
investment company which is held by a United States person only if
such person elects to apply this section with respect to such
stock. Such an election shall apply to the taxable year for which
made and all subsequent taxable years unless -
(1) such stock ceases to be marketable stock, or
(2) the Secretary consents to the revocation of such election.
(l) Transition rule for individuals becoming subject to United
States tax
If any individual becomes a United States person in a taxable
year beginning after December 31, 1997, solely for purposes of this
section, the adjusted basis (before adjustments under subsection
(b)) of any marketable stock in a passive foreign investment
company owned by such individual on the first day of such taxable
year shall be treated as being the greater of its fair market value
on such first day or its adjusted basis on such first day.
-SOURCE-
(Added Pub. L. 105-34, title XI, Sec. 1122(a), Aug. 5, 1997, 111
Stat. 972; amended Pub. L. 105-206, title VI, Sec. 6011(c)(3), July
22, 1998, 112 Stat. 818; Pub. L. 107-16, title V, Sec.
542(e)(5)(C), June 7, 2001, 115 Stat. 85.)
-STATAMEND-
AMENDMENT OF SECTION
Pub. L. 107-16, title V, Sec. 542(e)(5)(C), (f)(1), title IX,
Sec. 901, June 7, 2001, 115 Stat. 85, 86, 150, provided that,
applicable to estates of decedents dying after Dec. 31, 2009, this
section is temporarily amended by striking out subsection (i). See
Effective and Termination Dates of 2001 Amendment note below.
-REFTEXT-
REFERENCES IN TEXT
Section 11A of the Securities and Exchange Act of 1934, referred
to in subsec. (e)(1)(A)(i), is classified to section 78k-1 of Title
15, Commerce and Trade.
-MISC1-
PRIOR PROVISIONS
A prior section 1296 was renumbered section 1297 of this title.
AMENDMENTS
1998 - Subsec. (d). Pub. L. 105-206 inserted at end "In the case
of a regulated investment company which elected to mark to market
the stock held by such company as of the last day of the taxable
year preceding such company's first taxable year for which such
company elects the application of this section, the amount referred
to in paragraph (1) shall include amounts included in gross income
under such mark to market with respect to such stock for prior
taxable years."
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Amendment by Pub. L. 107-16 applicable to estates of decedents
dying after Dec. 31, 2009, see section 542(f)(1) of Pub. L. 107-16,
set out as a note under section 121 of this title.
Amendment by Pub. L. 107-16 inapplicable to estates of decedents
dying, gifts made, or generation skipping transfers, after Dec. 31,
2010, and the Internal Revenue Code of 1986 to be applied and
administered to such estates, gifts, and transfers 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 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE
Section applicable to taxable years of United States persons
beginning after Dec. 31, 1997, and to taxable years of foreign
corporations ending with or within such taxable years of United
States persons, see section 1124 of Pub. L. 105-34, set out as an
Effective Date of 1997 Amendment note under section 532 of this
title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 852, 1291, 1298, 4982 of
this title.
-End-
-CITE-
26 USC Subpart D - General Provisions 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART VI - TREATMENT OF CERTAIN PASSIVE FOREIGN INVESTMENT COMPANIES
Subpart D - General Provisions
-HEAD-
SUBPART D - GENERAL PROVISIONS
-MISC1-
Sec.
1297. Passive foreign investment company.
1298. Special rules.
AMENDMENTS
1997 - Pub. L. 105-34, title XI, Sec. 1122(a), (d)(5), Aug. 5,
1997, 111 Stat. 972, 977, redesignated subpart C of this part as
this subpart and amended table of sections generally, renumbering
items 1296 and 1297 as 1297 and 1298, respectively.
-End-
-CITE-
26 USC Sec. 1297 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART VI - TREATMENT OF CERTAIN PASSIVE FOREIGN INVESTMENT COMPANIES
Subpart D - General Provisions
-HEAD-
Sec. 1297. Passive foreign investment company
-STATUTE-
(a) In general
For purposes of this part, except as otherwise provided in this
subpart, the term "passive foreign investment company" means any
foreign corporation if -
(1) 75 percent or more of the gross income of such corporation
for the taxable year is passive income, or
(2) the average percentage of assets (as determined in
accordance with subsection (e)) held by such corporation during
the taxable year which produce passive income or which are held
for the production of passive income is at least 50 percent.
(b) Passive income
For purposes of this section -
(1) In general
Except as provided in paragraph (2), the term "passive income"
means any income which is of a kind which would be foreign
personal holding company income as defined in section 954(c).
(2) Exceptions
Except as provided in regulations, the term "passive income"
does not include any income -
(A) derived in the active conduct of a banking business by an
institution licensed to do business as a bank in the United
States (or, to the extent provided in regulations, by any other
corporation),
(B) derived in the active conduct of an insurance business by
a corporation which is predominantly engaged in an insurance
business and which would be subject to tax under subchapter L
if it were a domestic corporation,
(C) which is interest, a dividend, or a rent or royalty,
which is received or accrued from a related person (within the
meaning of section 954(d)(3)) to the extent such amount is
properly allocable (under regulations prescribed by the
Secretary) to income of such related person which is not
passive income, or
(D) which is foreign trade income of an FSC or export trade
income of an export trade corporation (as defined in section
971).
For purposes of subparagraph (C), the term "related person" has
the meaning given such term by section 954(d)(3) determined by
substituting "foreign corporation" for "controlled foreign
corporation" each place it appears in section 954(d)(3).
(c) Look-thru in the case of 25-percent owned corporations
If a foreign corporation owns (directly or indirectly) at least
25 percent (by value) of the stock of another corporation, for
purposes of determining whether such foreign corporation is a
passive foreign investment company, such foreign corporation shall
be treated as if it -
(1) held its proportionate share of the assets of such other
corporation, and
(2) received directly its proportionate share of the income of
such other corporation.
(d) Section 1247 corporations
For purposes of this part, the term "passive foreign investment
company" does not include any foreign investment company to which
section 1247 applies.
(e) Exception for United States shareholders of controlled foreign
corporations
(1) In general
For purposes of this part, a corporation shall not be treated
with respect to a shareholder as a passive foreign investment
company during the qualified portion of such shareholder's
holding period with respect to stock in such corporation.
(2) Qualified portion
For purposes of this subsection, the term "qualified portion"
means the portion of the shareholder's holding period -
(A) which is after December 31, 1997, and
(B) during which the shareholder is a United States
shareholder (as defined in section 951(b)) of the corporation
and the corporation is a controlled foreign corporation.
(3) New holding period if qualified portion ends
(A) In general
Except as provided in subparagraph (B), if the qualified
portion of a shareholder's holding period with respect to any
stock ends after December 31, 1997, solely for purposes of this
part, the shareholder's holding period with respect to such
stock shall be treated as beginning as of the first day
following such period.
(B) Exception
Subparagraph (A) shall not apply if such stock was, with
respect to such shareholder, stock in a passive foreign
investment company at any time before the qualified portion of
the shareholder's holding period with respect to such stock and
no election under section 1298(b)(1) is made.
(4) Treatment of holders of options
Paragraph (1) shall not apply to stock treated as owned by a
person by reason of section 1298(a)(4) (relating to the treatment
of a person that has an option to acquire stock as owning such
stock) unless such person establishes that such stock is owned
(within the meaning of section 958(a)) by a United States
shareholder (as defined in section 951(b)) who is not exempt from
tax under this chapter.
(f) Methods for measuring assets
(1) Determination using value
The determination under subsection (a)(2) shall be made on the
basis of the value of the assets of a foreign corporation if -
(A) such corporation is a publicly traded corporation for the
taxable year, or
(B) paragraph (2) does not apply to such corporation for the
taxable year.
(2) Determination using adjusted bases
The determination under subsection (a)(2) shall be based on the
adjusted bases (as determined for the purposes of computing
earnings and profits) of the assets of a foreign corporation if
such corporation is not described in paragraph (1)(A) and such
corporation -
(A) is a controlled foreign corporation, or
(B) elects the application of this paragraph.
An election under subparagraph (B), once made, may be revoked
only with the consent of the Secretary.
(3) Publicly traded corporation
For purposes of this subsection, a foreign corporation shall be
treated as a publicly traded corporation if the stock in the
corporation is regularly traded on -
(A) a national securities exchange which is registered with
the Securities and Exchange Commission or the national market
system established pursuant to section 11A of the Securities
and Exchange Act of 1934, or
(B) any exchange or other market which the Secretary
determines has rules adequate to carry out the purposes of this
subsection.
-SOURCE-
(Added Pub. L. 99-514, title XII, Sec. 1235(a), Oct. 22, 1986, 100
Stat. 2572, Sec. 1296; amended Pub. L. 100-647, title I, Secs.
1012(p)(2), (5), (16), (26), (27), 1018(u)(40), Nov. 10, 1988, 102
Stat. 3515, 3518-3520, 3592; Pub. L. 103-66, title XIII, Sec.
13231(d)(1), (3), Aug. 10, 1993, 107 Stat. 499; Pub. L. 104-188,
title I, Sec. 1704(r)(1), Aug. 20, 1996, 110 Stat. 1887; renumbered
Sec. 1297 and amended Pub. L. 105-34, title XI, Secs. 1121,
1122(a), (d)(4), 1123, Aug. 5, 1997, 111 Stat. 971, 972, 977; Pub.
L. 105-206, title VI, Sec. 6011(b)(1), (d), July 22, 1998, 112
Stat. 817, 818.)
-REFTEXT-
REFERENCES IN TEXT
Section 11A of the Securities and Exchange Act of 1934, referred
to in subsec. (f)(3)(A), is classified to section 78k-1 of Title
15, Commerce and Trade.
-MISC1-
PRIOR PROVISIONS
A prior section 1297 was renumbered section 1298 of this title.
AMENDMENTS
1998 - Subsec. (e). Pub. L. 105-206, Sec. 6011(d), redesignated
subsec. (e), relating to methods for measuring assets, as (f).
Subsec. (e)(4). Pub. L. 105-206, Sec. 6011(b)(1), added par. (4).
Subsec. (f). Pub. L. 105-206, Sec. 6011(d), redesignated subsec.
(e), relating to methods for measuring assets, as (f).
1997 - Pub. L. 105-34, Sec. 1122(a), renumbered section 1296 of
this title as this section.
Subsec. (a). Pub. L. 105-34, Sec. 1123(b)(2), struck out
concluding provisions which read as follows: "In the case of a
controlled foreign corporation (or any other foreign corporation if
such corporation so elects), the determination under paragraph (2)
shall be based on the adjusted bases (as determined for purposes of
computing earnings and profits) of its assets in lieu of their
value. Such an election, once made, may be revoked only with the
consent of the Secretary."
Subsec. (a)(2). Pub. L. 105-34, Sec. 1123(b)(1), substituted "(as
determined in accordance with subsection (e))" for "(by value)".
Subsec. (b)(3). Pub. L. 105-34, Sec. 1122(d)(4), struck out par.
(3) which consisted of subpars. (A) to (C) relating to treatment of
certain dealers in securities.
Subsec. (e). Pub. L. 105-34, Sec. 1123(a), added subsec. (e)
relating to methods for measuring assets.
Pub. L. 105-34, Sec. 1121, added subsec. (e) relating to
exception for United States shareholders of controlled foreign
corporations.
1996 - Subsec. (b)(2)(D). Pub. L. 104-188 added subpar. (D).
1993 - Subsec. (a). Pub. L. 103-66, Sec. 13231(d)(1), substituted
in closing provisions "In the case of a controlled foreign
corporation (or any other foreign corporation if such corporation
so elects), the determination under paragraph (2) shall be based on
the adjusted bases (as determined for purposes of computing
earnings and profits) of its assets in lieu of their value. Such an
election, once made, may be revoked only with the consent of the
Secretary." for "A foreign corporation may elect to have the
determination under paragraph (2) based on the adjusted bases of
its assets in lieu of their value. Such an election, once made, may
be revoked only with the consent of the Secretary."
Subsec. (b)(3). Pub. L. 103-66, Sec. 13231(d)(3), added par. (3).
1988 - Subsec. (a). Pub. L. 100-647, Sec. 1018(u)(40), inserted a
comma after "subpart".
Pub. L. 100-647, Sec. 1012(p)(27), inserted at end "A foreign
corporation may elect to have the determination under paragraph (2)
based on the adjusted bases of its assets in lieu of their value.
Such an election, once made, may be revoked only with the consent
of the Secretary."
Subsec. (b)(1). Pub. L. 100-647, Sec. 1012(p)(5), amended par.
(1) generally. Prior to amendment, par. (1) read as follows:
"Except as provided in paragraph (2), the term 'passive income' has
the meaning given such term by section 904(d)(2)(A) without regard
to the exceptions contained in clause (iii) thereof."
Subsec. (b)(2). Pub. L. 100-647, Sec. 1012(p)(26), substituted
"Exceptions" for "Exception for certain banks and insurance
companies" in heading, and inserted sentence at end defining
"related person".
Subsec. (b)(2)(B). Pub. L. 100-647, Sec. 1012(p)(16), inserted
"is predominantly engaged in an insurance business and which" after
"a corporation which".
Subsec. (b)(2)(C). Pub. L. 100-647, Sec. 1012(p)(26)(A), added
subpar. (C).
Subsec. (c). Pub. L. 100-647, Sec. 1012(p)(2), inserted
"(directly or indirectly)" after "foreign corporation owns".
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to taxable years of United
States persons beginning after Dec. 31, 1997, and to taxable years
of foreign corporations ending with or within such taxable years of
United States persons, see section 1124 of Pub. L. 105-34, set out
as a note under section 532 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Section 1704(r)(2) of Pub. L. 104-188 provided that: "The
amendments made by paragraph (1) [amending this section] shall take
effect as if included in the amendments made by section 1235 of the
Tax Reform Act of 1986 [Pub. L. 99-514]."
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable to taxable years of
foreign corporations beginning after Sept. 30, 1993, and to taxable
years of United States shareholders in which or with which such
taxable years of foreign corporations end, see section 13231(e) of
Pub. L. 103-66, set out as a note under section 951 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
Section applicable to taxable years of foreign corporations
beginning after Dec. 31, 1986, see section 1235(h) of Pub. L.
99-514, set out as a note under section 1291 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 1, 532, 542, 672, 904,
1260, 1298 of this title.
-End-
-CITE-
26 USC Sec. 1298 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART VI - TREATMENT OF CERTAIN PASSIVE FOREIGN INVESTMENT COMPANIES
Subpart D - General Provisions
-HEAD-
Sec. 1298. Special rules
-STATUTE-
(a) Attribution of ownership
For purposes of this part -
(1) Attribution to United States persons
This subsection -
(A) shall apply to the extent that the effect is to treat
stock of a passive foreign investment company as owned by a
United States person, and
(B) except to the extent provided in regulations, shall not
apply to treat stock owned (or treated as owned under this
subsection) by a United States person as owned by any other
person.
(2) Corporations
(A) In general
If 50 percent or more in value of the stock of a corporation
is owned, directly or indirectly, by or for any person, such
person shall be considered as owning the stock owned directly
or indirectly by or for such corporation in that proportion
which the value of the stock which such person so owns bears to
the value of all stock in the corporation.
(B) 50-percent limitation not to apply to PFIC
For purposes of determining whether a shareholder of a
passive foreign investment company is treated as owning stock
owned directly or indirectly by or for such company,
subparagraph (A) shall be applied without regard to the
50-percent limitation contained therein. Section 1297(e) shall
not apply in determining whether a corporation is a passive
foreign investment company for purposes of this subparagraph.
(3) Partnerships, etc.
Stock owned, directly or indirectly, by or for a partnership,
estate, or trust shall be considered as being owned
proportionately by its partners or beneficiaries.
(4) Options
To the extent provided in regulations, if any person has an
option to acquire stock, such stock shall be considered as owned
by such person. For purposes of this paragraph, an option to
acquire such an option, and each one of a series of such options,
shall be considered as an option to acquire such stock.
(5) Successive application
Stock considered to be owned by a person by reason of the
application of paragraph (2), (3), or (4) shall, for purposes of
applying such paragraphs, be considered as actually owned by such
person.
(b) Other special rules
For purposes of this part -
(1) Time for determination
Stock held by a taxpayer shall be treated as stock in a passive
foreign investment company if, at any time during the holding
period of the taxpayer with respect to such stock, such
corporation (or any predecessor) was a passive foreign investment
company which was not a qualified electing fund. The preceding
sentence shall not apply if the taxpayer elects to recognize gain
(as of the last day of the last taxable year for which the
company was a passive foreign investment company (determined
without regard to the preceding sentence)) under rules similar to
the rules of section 1291(d)(2).
(2) Certain corporations not treated as PFIC's during start-up
year
A corporation shall not be treated as a passive foreign
investment company for the first taxable year such corporation
has gross income (hereinafter in this paragraph referred to as
the "start-up year") if -
(A) no predecessor of such corporation was a passive foreign
investment company,
(B) it is established to the satisfaction of the Secretary
that such corporation will not be a passive foreign investment
company for either of the 1st 2 taxable years following the
start-up year, and
(C) such corporation is not a passive foreign investment
company for either of the 1st 2 taxable years following the
start-up year.
(3) Certain corporations changing businesses
A corporation shall not be treated as a passive foreign
investment company for any taxable year if -
(A) neither such corporation (nor any predecessor) was a
passive foreign investment company for any prior taxable year,
(B) it is established to the satisfaction of the Secretary
that -
(i) substantially all of the passive income of the
corporation for the taxable year is attributable to proceeds
from the disposition of 1 or more active trades or
businesses, and
(ii) such corporation will not be a passive foreign
investment company for either of the 1st 2 taxable years
following such taxable year, and
(C) such corporation is not a passive foreign investment
company for either of such 2 taxable years.
(4) Separate interests treated as separate corporations
Under regulations prescribed by the Secretary, where necessary
to carry out the purposes of this part, separate classes of stock
(or other interests) in a corporation shall be treated as
interests in separate corporations.
(5) Application of part where stock held by other entity
(A) In general
Under regulations, in any case in which a United States
person is treated as owning stock in a passive foreign
investment company by reason of subsection (a) -
(i) any disposition by the United States person or the
person owning such stock which results in the United States
person being treated as no longer owning such stock, or
(ii) any distribution of property in respect of such stock
to the person holding such stock,
shall be treated as a disposition by, or distribution to, the
United States person with respect to the stock in the passive
foreign investment company.
(B) Amount treated in same manner as previously taxed income
Rules similar to the rules of section 959(b) shall apply to
any amount described in subparagraph (A) and to any amount
included in gross income under section 1293(a) (or which would
have been so included but for section 951(f)) in respect of
stock which the taxpayer is treated as owning under subsection
(a).
(6) Dispositions
Except as provided in regulations, if a taxpayer uses any stock
in a passive foreign investment company as security for a loan,
the taxpayer shall be treated as having disposed of such stock.
(7) Coordination with section 1246
Section 1246 shall not apply to earnings and profits of any
company for any taxable year beginning after December 31, 1986,
if such company is a passive foreign investment company for such
taxable year.
(8) Treatment of certain foreign corporations owning stock in
25-percent owned domestic corporation
(A) In general
If -
(i) a foreign corporation is subject to the tax imposed by
section 531 (or waives any benefit under any treaty which
would otherwise prevent the imposition of such tax), and
(ii) such foreign corporation owns at least 25 percent (by
value) of the stock of a domestic corporation,
for purposes of determining whether such foreign corporation is
a passive foreign investment company, any qualified stock held
by such domestic corporation shall be treated as an asset which
does not produce passive income (and is not held for the
production of passive income) and any amount included in gross
income with respect to such stock shall not be treated as
passive income.
(B) Qualified stock
For purposes of subparagraph (A), the term "qualified stock"
means any stock in a C corporation which is a domestic
corporation and which is not a regulated investment company or
real estate investment trust.
(9) Treatment of certain subpart F inclusions
Any amount included in gross income under section 951(a)(1)(B)
shall be treated as a distribution received with respect to the
stock.
(c) Treatment of stock held by pooled income fund
If stock in a passive foreign investment company is owned (or
treated as owned under subsection (a)) by a pooled income fund (as
defined in section 642(c)(5)) and no portion of any gain from a
disposition of such stock may be allocated to income under the
terms of the governing instrument of such fund -
(1) section 1291 shall not apply to any gain on a disposition
of such stock by such fund if (without regard to section 1291) a
deduction would be allowable with respect to such gain under
section 642(c)(3),
(2) section 1293 shall not apply with respect to such stock,
and
(3) in determining whether section 1291 applies to any
distribution in respect of such stock, subsection (d) of section
1291 shall not apply.
(d) Treatment of certain leased property
For purposes of this part -
(1) In general
Any tangible personal property with respect to which a foreign
corporation is the lessee under a lease with a term of at least
12 months shall be treated as an asset actually held by such
corporation.
(2) Amount taken into account
(A) In general
The amount taken into account under section 1296(a)(2) (!1)
with respect to any asset to which paragraph (1) applies shall
be the unamortized portion (as determined under regulations
prescribed by the Secretary) of the present value of the
payments under the lease for the use of such property.
(B) Present value
For purposes of subparagraph (A), the present value of
payments described in subparagraph (A) shall be determined in
the manner provided in regulations prescribed by the Secretary
-
(i) as of the beginning of the lease term, and
(ii) except as provided in such regulations, by using a
discount rate equal to the applicable Federal rate determined
under section 1274(d) -
(I) by substituting the lease term for the term of the
debt instrument, and
(II) without regard to paragraph (2) or (3) thereof.
(3) Exceptions
This subsection shall not apply in any case where -
(A) the lessor is a related person (as defined in section
954(d)(3)) with respect to the foreign corporation, or
(B) a principal purpose of leasing the property was to avoid
the provisions of this part.
(e) Special rules for certain intangibles
For purposes of this part -
(1) Research expenditures
The adjusted basis of the total assets of a controlled foreign
corporation shall be increased by the research or experimental
expenditures (within the meaning of section 174) paid or incurred
by such foreign corporation during the taxable year and the
preceding 2 taxable years. Any expenditure otherwise taken into
account under the preceding sentence shall be reduced by the
amount of any reimbursement received by the controlled foreign
corporation with respect to such expenditure.
(2) Certain licensed intangibles
(A) In general
In the case of any intangible property (as defined in section
936(h)(3)(B)) with respect to which a controlled foreign
corporation is a licensee and which is used by such foreign
corporation in the active conduct of a trade or business, the
adjusted basis of the total assets of such foreign corporation
shall be increased by an amount equal to 300 percent of the
payments made during the taxable year by such foreign
corporation for the use of such intangible property.
(B) Exceptions
Subparagraph (A) shall not apply to -
(i) any payments to a foreign person if such foreign person
is a related person (as defined in section 954(d)(3)) with
respect to the controlled foreign corporation, and
(ii) any payments under a license if a principal purpose of
entering into such license was to avoid the provisons (!2) of
this part.
(3) Controlled foreign corporation
For purposes of this subsection, the term "controlled foreign
corporation" has the meaning given such term by section 957(a).
(f) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this part.
-SOURCE-
(Added Pub. L. 99-514, title XII, Sec. 1235(a), Oct. 22, 1986, 100
Stat. 2573, Sec. 1297; amended Pub. L. 100-647, title I, Sec.
1012(p)(10), (17), (20), (22), (24), (35), (36), Nov. 10, 1988, 102
Stat. 3517-3519, 3522; Pub. L. 101-239, title VII, Sec. 7811(i)(4),
Dec. 19, 1989, 103 Stat. 2410; Pub. L. 103-66, title XIII, Sec.
13231(d)(2), (4), Aug. 10, 1993, 107 Stat. 499; Pub. L. 104-188,
title I, Secs. 1501(b)(10), (11), 1703(i)(5), (6), Aug. 20, 1996,
110 Stat. 1826, 1876; renumbered Sec. 1298 and amended Pub. L.
105-34, title XI, Sec. 1122(a), (e), Aug. 5, 1997, 111 Stat. 972,
977; Pub. L. 105-206, title VI, Sec. 6011(b)(2), July 22, 1998, 112
Stat. 818.)
-REFTEXT-
REFERENCES IN TEXT
Section 1296 of this title, referred to in subsec. (d)(2)(A), was
renumbered section 1297 of this title and a new section 1296 was
added by Pub. L. 105-34, title XI, Sec. 1122(a), Aug. 5, 1997, 111
Stat. 972.
-MISC1-
AMENDMENTS
1998 - Subsec. (a)(2)(B). Pub. L. 105-206 inserted at end
"Section 1297(e) shall not apply in determining whether a
corporation is a passive foreign investment company for purposes of
this subparagraph."
1997 - Pub. L. 105-34, Sec. 1122(a), renumbered section 1297 of
this title as this section.
Subsec. (b)(1). Pub. L. 105-34, Sec. 1122(e), inserted
"(determined without regard to the preceding sentence)" after
"investment company" in last sentence.
1996 - Subsec. (b)(9). Pub. L. 104-188, Sec. 1501(b)(10),
substituted "section 951(a)(1)(B)" for "subparagraph (B) or (C) of
section 951(a)(1)".
Subsec. (d)(2). Pub. L. 104-188, Sec. 1703(i)(5)(B), in heading
substituted "Amount taken into account" for "Determination of
adjusted basis".
Subsec. (d)(2)(A). Pub. L. 104-188, Sec. 1703(i)(5)(A),
substituted "The amount taken into account under section 1296(a)(2)
with respect to any asset" for "The adjusted basis of any asset".
Subsec. (d)(3)(B). Pub. L. 104-188, Sec. 1501(b)(11), struck out
"or section 956A" after "this part".
Subsec. (e). Pub. L. 104-188, Sec. 1703(i)(6), inserted "For
purposes of this part - " after heading.
Subsec. (e)(2)(B)(ii). Pub. L. 104-188, Sec. 1501(b)(11), struck
out "or section 956A" after "this part".
1993 - Subsec. (b)(9). Pub. L. 103-66, Sec. 13231(d)(2), added
par. (9).
Subsecs. (d) to (f). Pub. L. 103-66, Sec. 13231(d)(4), added
subsecs. (d) and (e) and redesignated former subsec. (d) as (f).
1989 - Subsec. (b)(5). Pub. L. 101-239, Sec. 7811(i)(4)(A),
substituted "where stock held" for "where held" in heading.
Subsec. (b)(5)(A). Pub. L. 101-239, Sec. 7811(i)(4)(C),
substituted "treated as a disposition by, or distribution to" for
"treated as a disposition to" in concluding provisions.
Subsec. (b)(5)(A)(ii). Pub. L. 101-239, Sec. 7811(i)(4)(B),
substituted "any distribution of" for "any disposition of".
1988 - Subsec. (a)(4). Pub. L. 100-647, Sec. 1012(p)(10)(A),
added par. (4). Former par. (4) redesignated (5).
Subsec. (a)(5). Pub. L. 100-647, Sec. 1012(p)(10), redesignated
par. (4) as (5) and substituted "paragraph (2), (3), or (4)" for
"paragraph (2) or (3)".
Subsec. (b)(1). Pub. L. 100-647, Sec. 1012(p)(36), substituted
"investment company which" for "investment corporation which".
Subsec. (b)(3)(A). Pub. L. 100-647, Sec. 1012(p)(22), amended
subpar. (A) generally. Prior to amendment, subpar. (A) read as
follows: "such corporation (and any predecessor) was not a passive
foreign investment corporation for any prior taxable year,".
Subsec. (b)(5). Pub. L. 100-647, Sec. 1012(p)(17), substituted
"part where held" for "section where stock held" in heading, and
amended text generally. Prior to amendment, text read as follows:
"Under regulations, in any case in which a United States person is
treated as holding stock in a passive foreign investment company by
reason of subsection (a), any disposition by the United States
person or the person holding such stock which results in the United
States person being treated as no longer holding such stock, shall
be treated as a disposition by the United States person with
respect to stock in the passive foreign investment company."
Subsec. (b)(6). Pub. L. 100-647, Sec. 1012(p)(20), substituted
"Except as provided in regulations, if a" for "If a".
Subsec. (b)(8). Pub. L. 100-647, Sec. 1012(p)(24), added par.
(8).
Subsecs. (c), (d). Pub. L. 100-647, Sec. 1012(p)(35), added
subsec. (c) and redesignated former subsec. (c) as (d).
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to taxable years of United
States persons beginning after Dec. 31, 1997, and to taxable years
of foreign corporations ending with or within such taxable years of
United States persons, see section 1124 of Pub. L. 105-34, set out
as a note under section 532 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1501(b)(10), (11) of Pub. L. 104-188
applicable to taxable years of foreign corporations beginning after
Dec. 31, 1996, and to taxable years of United States shareholders
within which or with which such taxable years of foreign
corporations end, see section 1501(d) of Pub. L. 104-188, set out
as a note under section 904 of this title.
Amendment by section 1703(i)(5), (6) of Pub. L. 104-188 effective
as if included in the provision of the Revenue Reconciliation Act
of 1993, Pub. L. 103-66, Secs. 13001-13444, to which such amendment
relates, see section 1703(o) of Pub. L. 104-188, set out as a note
under section 39 of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable to taxable years of
foreign corporations beginning after Sept. 30, 1993, and to taxable
years of United States shareholders in which or with which such
taxable years of foreign corporations end, see section 13231(e) of
Pub. L. 103-66, set out as a note under section 951 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
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
Section applicable to taxable years of foreign corporations
beginning after Dec. 31, 1986, see section 1235(h) of Pub. L.
99-514, set out as a note under section 1291 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 551, 1293, 1297 of this
title.
-FOOTNOTE-
(!1) See References in Text note below.
(!2) So in original. Probably should be "provisions".
-End-
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