TITLE 26 - US CODE - PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS

26 USC 161 - Allowance of deductions

In computing taxable income under section 63, there shall be allowed as deductions the items specified in this part, subject to the exceptions provided in part IX (sec. 261 and following, relating to items not deductible).

26 USC 162 - Trade or business expenses

(a) In general 
There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including
(1) a reasonable allowance for salaries or other compensation for personal services actually rendered;
(2) traveling expenses (including amounts expended for meals and lodging other than amounts which are lavish or extravagant under the circumstances) while away from home in the pursuit of a trade or business; and
(3) rentals or other payments required to be made as a condition to the continued use or possession, for purposes of the trade or business, of property to which the taxpayer has not taken or is not taking title or in which he has no equity.

For purposes of the preceding sentence, the place of residence of a Member of Congress (including any Delegate and Resident Commissioner) within the State, congressional district, or possession which he represents in Congress shall be considered his home, but amounts expended by such Members within each taxable year for living expenses shall not be deductible for income tax purposes in excess of $3,000. For purposes of paragraph (2), the taxpayer shall not be treated as being temporarily away from home during any period of employment if such period exceeds 1 year. The preceding sentence shall not apply to any Federal employee during any period for which such employee is certified by the Attorney General (or the designee thereof) as traveling on behalf of the United States in temporary duty status to investigate or prosecute, or provide support services for the investigation or prosecution of, a Federal crime.

(b) Charitable contributions and gifts excepted 
No deduction shall be allowed under subsection (a) for any contribution or gift which would be allowable as a deduction under section 170 were it not for the percentage limitations, the dollar limitations, or the requirements as to the time of payment, set forth in such section.
(c) Illegal bribes, kickbacks, and other payments 

(1) Illegal payments to government officials or employees 
No deduction shall be allowed under subsection (a) for any payment made, directly or indirectly, to an official or employee of any government, or of any agency or instrumentality of any government, if the payment constitutes an illegal bribe or kickback or, if the payment is to an official or employee of a foreign government, the payment is unlawful under the Foreign Corrupt Practices Act of 1977. The burden of proof in respect of the issue, for the purposes of this paragraph, as to whether a payment constitutes an illegal bribe or kickback (or is unlawful under the Foreign Corrupt Practices Act of 1977) shall be upon the Secretary to the same extent as he bears the burden of proof under section 7454 (concerning the burden of proof when the issue relates to fraud).
(2) Other illegal payments 
No deduction shall be allowed under subsection (a) for any payment (other than a payment described in paragraph (1)) made, directly or indirectly, to any person, if the payment constitutes an illegal bribe, illegal kickback, or other illegal payment under any law of the United States, or under any law of a State (but only if such State law is generally enforced), which subjects the payor to a criminal penalty or the loss of license or privilege to engage in a trade or business. For purposes of this paragraph, a kickback includes a payment in consideration of the referral of a client, patient, or customer. The burden of proof in respect of the issue, for purposes of this paragraph, as to whether a payment constitutes an illegal bribe, illegal kickback, or other illegal payment shall be upon the Secretary to the same extent as he bears the burden of proof under section 7454 (concerning the burden of proof when the issue relates to fraud).
(3) Kickbacks, rebates, and bribes under medicare and medicaid 
No deduction shall be allowed under subsection (a) for any kickback, rebate, or bribe made by any provider of services, supplier, physician, or other person who furnishes items or services for which payment is or may be made under the Social Security Act, or in whole or in part out of Federal funds under a State plan approved under such Act, if such kickback, rebate, or bribe is made in connection with the furnishing of such items or services or the making or receipt of such payments. For purposes of this paragraph, a kickback includes a payment in consideration of the referral of a client, patient, or customer.
(d) Capital contributions to Federal National Mortgage Association 
For purposes of this subtitle, whenever the amount of capital contributions evidenced by a share of stock issued pursuant to section 303(c) of the Federal National Mortgage Association Charter Act (12 U.S.C., sec. 1718) exceeds the fair market value of the stock as of the issue date of such stock, the initial holder of the stock shall treat the excess as ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business.
(e) Denial of deduction for certain lobbying and political expenditures 

(1) In general 
No deduction shall be allowed under subsection (a) for any amount paid or incurred in connection with
(A) influencing legislation,
(B) participation in, or intervention in, any political campaign on behalf of (or in opposition to) any candidate for public office,
(C) any attempt to influence the general public, or segments thereof, with respect to elections, legislative matters, or referendums, or
(D) any direct communication with a covered executive branch official in an attempt to influence the official actions or positions of such official.
(2) Exception for local legislation 
In the case of any legislation of any local council or similar governing body
(A) paragraph (1)(A) shall not apply, and
(B) the deduction allowed by subsection (a) shall include all ordinary and necessary expenses (including, but not limited to, traveling expenses described in subsection (a)(2) and the cost of preparing testimony) paid or incurred during the taxable year in carrying on any trade or business
(i) in direct connection with appearances before, submission of statements to, or sending communications to the committees, or individual members, of such council or body with respect to legislation or proposed legislation of direct interest to the taxpayer, or
(ii) in direct connection with communication of information between the taxpayer and an organization of which the taxpayer is a member with respect to any such legislation or proposed legislation which is of direct interest to the taxpayer and to such organization,

and that portion of the dues so paid or incurred with respect to any organization of which the taxpayer is a member which is attributable to the expenses of the activities described in clauses (i) and (ii) carried on by such organization.

(3) Application to dues of tax-exempt organizations 
No deduction shall be allowed under subsection (a) for the portion of dues or other similar amounts paid by the taxpayer to an organization which is exempt from tax under this subtitle which the organization notifies the taxpayer under section 6033 (e)(1)(A)(ii) is allocable to expenditures to which paragraph (1) applies.
(4) Influencing legislation 
For purposes of this subsection
(A) In general 
The term influencing legislation means any attempt to influence any legislation through communication with any member or employee of a legislative body, or with any government official or employee who may participate in the formulation of legislation.
(B) Legislation 
The term legislation has the meaning given such term by section 4911 (e)(2).
(5) Other special rules 

(A) Exception for certain taxpayers 
In the case of any taxpayer engaged in the trade or business of conducting activities described in paragraph (1), paragraph (1) shall not apply to expenditures of the taxpayer in conducting such activities directly on behalf of another person (but shall apply to payments by such other person to the taxpayer for conducting such activities).
(B) De minimis exception 

(i) In general Paragraph (1) shall not apply to any in-house expenditures for any taxable year if such expenditures do not exceed $2,000. In determining whether a taxpayer exceeds the $2,000 limit under this clause, there shall not be taken into account overhead costs otherwise allocable to activities described in paragraphs (1)(A) and (D).
(ii) In-house expenditures For purposes of clause (i), the term in-house expenditures means expenditures described in paragraphs (1)(A) and (D) other than
(I) payments by the taxpayer to a person engaged in the trade or business of conducting activities described in paragraph (1) for the conduct of such activities on behalf of the taxpayer, or
(II) dues or other similar amounts paid or incurred by the taxpayer which are allocable to activities described in paragraph (1).
(C) Expenses incurred in connection with lobbying and political activities 
Any amount paid or incurred for research for, or preparation, planning, or coordination of, any activity described in paragraph (1) shall be treated as paid or incurred in connection with such activity.
(6) Covered executive branch official 
For purposes of this subsection, the term covered executive branch official means
(A) the President,
(B) the Vice President,
(C) any officer or employee of the White House Office of the Executive Office of the President, and the 2 most senior level officers of each of the other agencies in such Executive Office, and
(D) 
(i) any individual serving in a position in level I of the Executive Schedule under section 5312 of title 5, United States Code,
(ii)  any other individual designated by the President as having Cabinet level status, and
(iii)  any immediate deputy of an individual described in clause (i) or (ii).
(7) Special rule for Indian tribal governments 
For purposes of this subsection, an Indian tribal government shall be treated in the same manner as a local council or similar governing body.
(8) Cross reference 
For reporting requirements and alternative taxes related to this subsection, see section 6033 (e).
(f) Fines and penalties 
No deduction shall be allowed under subsection (a) for any fine or similar penalty paid to a government for the violation of any law.
(g) Treble damage payments under the antitrust laws 
If in a criminal proceeding a taxpayer is convicted of a violation of the antitrust laws, or his plea of guilty or nolo contendere to an indictment or information charging such a violation is entered or accepted in such a proceeding, no deduction shall be allowed under subsection (a) for two-thirds of any amount paid or incurred
(1) on any judgment for damages entered against the taxpayer under section 4 of the Act entitled An Act to supplement existing laws against unlawful restraints and monopolies, and for other purposes, approved October 15, 1914 (commonly known as the Clayton Act), on account of such violation or any related violation of the antitrust laws which occurred prior to the date of the final judgment of such conviction, or
(2) in settlement of any action brought under such section 4 on account of such violation or related violation.

The preceding sentence shall not apply with respect to any conviction or plea before January 1, 1970, or to any conviction or plea on or after such date in a new trial following an appeal of a conviction before such date.

(h) State legislators’ travel expenses away from home 

(1) In general 
For purposes of subsection (a), in the case of any individual who is a State legislator at any time during the taxable year and who makes an election under this subsection for the taxable year
(A) the place of residence of such individual within the legislative district which he represented shall be considered his home,
(B) he shall be deemed to have expended for living expenses (in connection with his trade or business as a legislator) an amount equal to the sum of the amounts determined by multiplying each legislative day of such individual during the taxable year by the greater of
(i) the amount generally allowable with respect to such day to employees of the State of which he is a legislator for per diem while away from home, to the extent such amount does not exceed 110 percent of the amount described in clause (ii) with respect to such day, or
(ii) the amount generally allowable with respect to such day to employees of the executive branch of the Federal Government for per diem while away from home but serving in the United States, and
(C) he shall be deemed to be away from home in the pursuit of a trade or business on each legislative day.
(2) Legislative days 
For purposes of paragraph (1), a legislative day during any taxable year for any individual shall be any day during such year on which
(A) the legislature was in session (including any day in which the legislature was not in session for a period of 4 consecutive days or less), or
(B) the legislature was not in session but the physical presence of the individual was formally recorded at a meeting of a committee of such legislature.
(3) Election 
An election under this subsection for any taxable year shall be made at such time and in such manner as the Secretary shall by regulations prescribe.
(4) Section not to apply to legislators who reside near capitol 
For taxable years beginning after December 31, 1980, this subsection shall not apply to any legislator whose place of residence within the legislative district which he represents is 50 or fewer miles from the capitol building of the State.
[(i) Repealed. Pub. L. 101–239, title VI, § 6202(b)(3)(A), Dec. 19, 1989, 103 Stat. 2233] 
(j) Certain foreign advertising expenses 

(1) In general 
No deduction shall be allowed under subsection (a) for any expenses of an advertisement carried by a foreign broadcast undertaking and directed primarily to a market in the United States. This paragraph shall apply only to foreign broadcast undertakings located in a country which denies a similar deduction for the cost of advertising directed primarily to a market in the foreign country when placed with a United States broadcast undertaking.
(2) Broadcast undertaking 
For purposes of paragraph (1), the term broadcast undertaking includes (but is not limited to) radio and television stations.
(k) Stock reacquisition expenses 

(1) In general 
Except as provided in paragraph (2), no deduction otherwise allowable shall be allowed under this chapter for any amount paid or incurred by a corporation in connection with the reacquisition of its stock or of the stock of any related person (as defined in section 465 (b)(3)(C)).
(2) Exceptions 
Paragraph (1) shall not apply to
(A) Certain specific deductions 
Any
(i) deduction allowable under section 163 (relating to interest),
(ii) deduction for amounts which are properly allocable to indebtedness and amortized over the term of such indebtedness, or
(iii) deduction for dividends paid (within the meaning of section 561).
(B) Stock of certain regulated investment companies 
Any amount paid or incurred in connection with the redemption of any stock in a regulated investment company which issues only stock which is redeemable upon the demand of the shareholder.
(l) Special rules for health insurance costs of self-employed individuals 

(1) Allowance of deduction 

(A) In general 
In the case of an individual who is an employee within the meaning of section 401 (c)(1), there shall be allowed as a deduction under this section an amount equal to the applicable percentage of the amount paid during the taxable year for insurance which constitutes medical care for the taxpayer, his spouse, and dependents.
(B) Applicable percentage 
For purposes of subparagraph (A), the applicable percentage shall be determined under the following table:
(2) Limitations 

(A) Dollar amount 
No deduction shall be allowed under paragraph (1) to the extent that the amount of such deduction exceeds the taxpayers earned income (within the meaning of section 401 (c)) derived by the taxpayer from the trade or business with respect to which the plan providing the medical care coverage is established.
(B) Other coverage 
Paragraph (1) shall not apply to any taxpayer for any calendar month for which the taxpayer is eligible to participate in any subsidized health plan maintained by any employer of the taxpayer or of the spouse of the taxpayer. The preceding sentence shall be applied separately with respect to
(i) plans which include coverage for qualified long-term care services (as defined in section 7702B (c)) or are qualified long-term care insurance contracts (as defined in section 7702B (b)), and
(ii) plans which do not include such coverage and are not such contracts.
(C) Long-term care premiums 
In the case of a qualified long-term care insurance contract (as defined in section 7702B (b)), only eligible long-term care premiums (as defined in section 213 (d)(10)) shall be taken into account under paragraph (1).
(3) Coordination with medical deduction 
Any amount paid by a taxpayer for insurance to which paragraph (1) applies shall not be taken into account in computing the amount allowable to the taxpayer as a deduction under section 213 (a).
(4) Deduction not allowed for self-employment tax purposes 
The deduction allowable by reason of this subsection shall not be taken into account in determining an individuals net earnings from self-employment (within the meaning of section 1402 (a)) for purposes of chapter 2.
(5) Treatment of certain S corporation shareholders 
This subsection shall apply in the case of any individual treated as a partner under section 1372 (a), except that
(A) for purposes of this subsection, such individuals wages (as defined in section 3121) from the S corporation shall be treated as such individuals earned income (within the meaning of section 401 (c)(1)), and
(B) there shall be such adjustments in the application of this subsection as the Secretary may by regulations prescribe.
(m) Certain excessive employee remuneration 

(1) In general 
In the case of any publicly held corporation, no deduction shall be allowed under this chapter for applicable employee remuneration with respect to any covered employee to the extent that the amount of such remuneration for the taxable year with respect to such employee exceeds $1,000,000.
(2) Publicly held corporation 
For purposes of this subsection, the term publicly held corporation means any corporation issuing any class of common equity securities required to be registered under section 12 of the Securities Exchange Act of 1934.
(3) Covered employee 
For purposes of this subsection, the term covered employee means any employee of the taxpayer if
(A) as of the close of the taxable year, such employee is the chief executive officer of the taxpayer or is an individual acting in such a capacity, or
(B) the total compensation of such employee for the taxable year is required to be reported to shareholders under the Securities Exchange Act of 1934 by reason of such employee being among the 4 highest compensated officers for the taxable year (other than the chief executive officer).
(4) Applicable employee remuneration 
For purposes of this subsection
(A) In general 
Except as otherwise provided in this paragraph, the term applicable employee remuneration means, with respect to any covered employee for any taxable year, the aggregate amount allowable as a deduction under this chapter for such taxable year (determined without regard to this subsection) for remuneration for services performed by such employee (whether or not during the taxable year).
(B) Exception for remuneration payable on commission basis 
The term applicable employee remuneration shall not include any remuneration payable on a commission basis solely on account of income generated directly by the individual performance of the individual to whom such remuneration is payable.
(C) Other performance-based compensation 
The term applicable employee remuneration shall not include any remuneration payable solely on account of the attainment of one or more performance goals, but only if
(i) the performance goals are determined by a compensation committee of the board of directors of the taxpayer which is comprised solely of 2 or more outside directors,
(ii) the material terms under which the remuneration is to be paid, including the performance goals, are disclosed to shareholders and approved by a majority of the vote in a separate shareholder vote before the payment of such remuneration, and
(iii) before any payment of such remuneration, the compensation committee referred to in clause (i) certifies that the performance goals and any other material terms were in fact satisfied.
(D) Exception for existing binding contracts 
The term applicable employee remuneration shall not include any remuneration payable under a written binding contract which was in effect on February 17, 1993, and which was not modified thereafter in any material respect before such remuneration is paid.
(E) Remuneration 
For purposes of this paragraph, the term remuneration includes any remuneration (including benefits) in any medium other than cash, but shall not include
(i) any payment referred to in so much of section 3121 (a)(5) as precedes subparagraph (E) thereof, and
(ii) any benefit provided to or on behalf of an employee if at the time such benefit is provided it is reasonable to believe that the employee will be able to exclude such benefit from gross income under this chapter.

For purposes of clause (i), section 3121 (a)(5) shall be applied without regard to section 3121 (v)(1).

(F) Coordination with disallowed golden parachute payments 
The dollar limitation contained in paragraph (1) shall be reduced (but not below zero) by the amount (if any) which would have been included in the applicable employee remuneration of the covered employee for the taxable year but for being disallowed under section 280G.
(G) Coordination with excise tax on specified stock compensation 
The dollar limitation contained in paragraph (1) with respect to any covered employee shall be reduced (but not below zero) by the amount of any payment (with respect to such employee) of the tax imposed by section 4985 directly or indirectly by the expatriated corporation (as defined in such section) or by any member of the expanded affiliated group (as defined in such section) which includes such corporation.
(n) Special rule for certain group health plans 

(1) In general 
No deduction shall be allowed under this chapter to an employer for any amount paid or incurred in connection with a group health plan if the plan does not reimburse for inpatient hospital care services provided in the State of New York
(A) except as provided in subparagraphs (B) and (C), at the same rate as licensed commercial insurers are required to reimburse hospitals for such services when such reimbursement is not through such a plan,
(B) in the case of any reimbursement through a health maintenance organization, at the same rate as health maintenance organizations are required to reimburse hospitals for such services for individuals not covered by such a plan (determined without regard to any government-supported individuals exempt from such rate), or
(C) in the case of any reimbursement through any corporation organized under Article 43 of the New York State Insurance Law, at the same rate as any such corporation is required to reimburse hospitals for such services for individuals not covered by such a plan.
(2) State law exception 
Paragraph (1) shall not apply to any group health plan which is not required under the laws of the State of New York (determined without regard to this subsection or other provisions of Federal law) to reimburse at the rates provided in paragraph (1).
(3) Group health plan 
For purposes of this subsection, the term group health plan means a plan of, or contributed to by, an employer or employee organization (including a self-insured plan) to provide health care (directly or otherwise) to any employee, any former employee, the employer, or any other individual associated or formerly associated with the employer in a business relationship, or any member of their family.
(o) Treatment of certain expenses of rural mail carriers 

(1) General rule 
In the case of any employee of the United States Postal Service who performs services involving the collection and delivery of mail on a rural route and who receives qualified reimbursements for the expenses incurred by such employee for the use of a vehicle in performing such services
(A) the amount allowable as a deduction under this chapter for the use of a vehicle in performing such services shall be equal to the amount of such qualified reimbursements; and
(B) such qualified reimbursements shall be treated as paid under a reimbursement or other expense allowance arrangement for purposes of section 62 (a)(2)(A) (and section 62 (c) shall not apply to such qualified reimbursements).
(2) Special rule where expenses exceed reimbursements 
Notwithstanding paragraph (1)(A), if the expenses incurred by an employee for the use of a vehicle in performing services described in paragraph (1) exceed the qualified reimbursements for such expenses, such excess shall be taken into account in computing the miscellaneous itemized deductions of the employee under section 67.
(3) Definition of qualified reimbursements 
For purposes of this subsection, the term qualified reimbursements means the amounts paid by the United States Postal Service to employees as an equipment maintenance allowance under the 1991 collective bargaining agreement between the United States Postal Service and the National Rural Letter Carriers Association. Amounts paid as an equipment maintenance allowance by such Postal Service under later collective bargaining agreements that supersede the 1991 agreement shall be considered qualified reimbursements if such amounts do not exceed the amounts that would have been paid under the 1991 agreement, adjusted for changes in the Consumer Price Index (as defined in section 1 (f)(5)) since 1991.
(p) Treatment of expenses of members of reserve component of Armed Forces of the United States 
For purposes of subsection (a)(2), in the case of an individual who performs services as a member of a reserve component of the Armed Forces of the United States at any time during the taxable year, such individual shall be deemed to be away from home in the pursuit of a trade or business for any period during which such individual is away from home in connection with such service.
(q) Cross reference 

(1) For special rule relating to expenses in connection with subdividing real property for sale, see section 1237.
(2) For special rule relating to the treatment of payments by a transferee of a franchise, trademark, or trade name, see section 1253.
(3) For special rules relating to
(A) funded welfare benefit plans, see section 419, and
(B) deferred compensation and other deferred benefits, see section 404.

26 USC 163 - Interest

(a) General rule 
There shall be allowed as a deduction all interest paid or accrued within the taxable year on indebtedness.
(b) Installment purchases where interest charge is not separately stated 

(1) General rule 
If personal property or educational services are purchased under a contract
(A) which provides that payment of part or all of the purchase price is to be made in installments, and
(B) in which carrying charges are separately stated but the interest charge cannot be ascertained,

then the payments made during the taxable year under the contract shall be treated for purposes of this section as if they included interest equal to 6 percent of the average unpaid balance under the contract during the taxable year. For purposes of the preceding sentence, the average unpaid balance is the sum of the unpaid balance outstanding on the first day of each month beginning during the taxable year, divided by 12. For purposes of this paragraph, the term educational services means any service (including lodging) which is purchased from an educational organization described in section 170 (b)(1)(A)(ii) and which is provided for a student of such organization.

(2) Limitation 
In the case of any contract to which paragraph (1) applies, the amount treated as interest for any taxable year shall not exceed the aggregate carrying charges which are properly attributable to such taxable year.
(c) Redeemable ground rents 
For purposes of this subtitle, any annual or periodic rental under a redeemable ground rent (excluding amounts in redemption thereof) shall be treated as interest on an indebtedness secured by a mortgage.
(d) Limitation on investment interest 

(1) In general 
In the case of a taxpayer other than a corporation, the amount allowed as a deduction under this chapter for investment interest for any taxable year shall not exceed the net investment income of the taxpayer for the taxable year.
(2) Carryforward of disallowed interest 
The amount not allowed as a deduction for any taxable year by reason of paragraph (1) shall be treated as investment interest paid or accrued by the taxpayer in the succeeding taxable year.
(3) Investment interest 
For purposes of this subsection
(A) In general 
The term investment interest means any interest allowable as a deduction under this chapter (determined without regard to paragraph (1)) which is paid or accrued on indebtedness properly allocable to property held for investment.
(B) Exceptions 
The term investment interest shall not include
(i) any qualified residence interest (as defined in subsection (h)(3)), or
(ii) any interest which is taken into account under section 469 in computing income or loss from a passive activity of the taxpayer.
(C) Personal property used in short sale 
For purposes of this paragraph, the term interest includes any amount allowable as a deduction in connection with personal property used in a short sale.
(4) Net investment income 
For purposes of this subsection
(A) In general 
The term net investment income means the excess of
(i) investment income, over
(ii) investment expenses.
(B) Investment income 
The term investment income means the sum of
(i) gross income from property held for investment (other than any gain taken into account under clause (ii)(I)),
(ii) the excess (if any) of
(I) the net gain attributable to the disposition of property held for investment, over
(II) the net capital gain determined by only taking into account gains and losses from dispositions of property held for investment, plus
(iii) so much of the net capital gain referred to in clause (ii)(II) (or, if lesser, the net gain referred to in clause (ii)(I)) as the taxpayer elects to take into account under this clause.

Such term shall include qualified dividend income (as defined in section 1 (h)(11)(B)) only to the extent the taxpayer elects to treat such income as investment income for purposes of this subsection.

(C) Investment expenses 
The term investment expenses means the deductions allowed under this chapter (other than for interest) which are directly connected with the production of investment income.
(D) Income and expenses from passive activities 
Investment income and investment expenses shall not include any income or expenses taken into account under section 469 in computing income or loss from a passive activity.
(E) Reduction in investment income during phase-in of passive loss rules 
Investment income of the taxpayer for any taxable year shall be reduced by the amount of the passive activity loss to which section 469 (a) does not apply for such taxable year by reason of section 469 (m). The preceding sentence shall not apply to any portion of such passive activity loss which is attributable to a rental real estate activity with respect to which the taxpayer actively participates (within the meaning of section 469 (i)(6)) during such taxable year.
(5) Property held for investment 
For purposes of this subsection
(A) In general 
The term property held for investment shall include
(i) any property which produces income of a type described in section 469 (e)(1), and
(ii) any interest held by a taxpayer in an activity involving the conduct of a trade or business
(I) which is not a passive activity, and
(II) with respect to which the taxpayer does not materially participate.
(B) Investment expenses 
In the case of property described in subparagraph (A)(i), expenses shall be allocated to such property in the same manner as under section 469.
(C) Terms 
For purposes of this paragraph, the terms activity, passive activity, and materially participate have the meanings given such terms by section 469.
(6) Phase-in of disallowance 
In the case of any taxable year beginning in calendar years 1987 through 1990
(A) In general 
The amount of interest paid or accrued during any such taxable year which is disallowed under this subsection shall not exceed the sum of
(i) the amount which would be disallowed under this subsection if
(I) paragraph (1) were applied by substituting the sum of the ceiling amount and the net investment income for the net investment income, and
(II) paragraphs (4)(E) and (5)(A)(ii) did not apply, and
(ii) the applicable percentage of the excess of
(I) the amount which (without regard to this paragraph) is not allowable as a deduction under this subsection for the taxable year, over
(II) the amount described in clause (i).

The preceding sentence shall not apply to any interest treated as paid or accrued during the taxable year under paragraph (2).

(B) Applicable percentage 
For purposes of this paragraph, the applicable percentage shall be determined in accordance with the following table:
(C) Ceiling amount 
For purposes of this paragraph, the term ceiling amount means
(i) $10,000 in the case of a taxpayer not described in clause (ii) or (iii),
(ii) $5,000 in the case of a married individual filing a separate return, and
(iii) zero in the case of a trust.
(e) Original issue discount 

(1) In general 
In the case of any debt instrument issued after July 1, 1982, the portion of the original issue discount with respect to such debt instrument which is allowable as a deduction to the issuer for any taxable year shall be equal to the aggregate daily portions of the original issue discount for days during such taxable year.
(2) Definitions and special rules 
For purposes of this subsection
(A) Debt instrument 
The term debt instrument has the meaning given such term by section 1275 (a)(1).
(B) Daily portions 
The daily portion of the original issue discount for any day shall be determined under section 1272 (a) (without regard to paragraph (7) thereof and without regard to section 1273 (a)(3)).
(C) Short-term obligations 
In the case of an obligor of a short-term obligation (as defined in section 1283 (a)(1)(A)) who uses the cash receipts and disbursements method of accounting, the original issue discount (and any other interest payable) on such obligation shall be deductible only when paid.
(3) Special rule for original issue discount on obligation held by related foreign person 

(A) In general 
If any debt instrument having original issue discount is held by a related foreign person, any portion of such original issue discount shall not be allowable as a deduction to the issuer until paid. The preceding sentence shall not apply to the extent that the original issue discount is effectively connected with the conduct by such foreign related person of a trade or business within the United States unless such original issue discount is exempt from taxation (or is subject to a reduced rate of tax) pursuant to a treaty obligation of the United States.
(B) Special rule for certain foreign entities 

(i) In general In the case of any debt instrument having original issue discount which is held by a related foreign person which is a controlled foreign corporation (as defined in section 957) or a passive foreign investment company (as defined in section 1297), a deduction shall be allowable to the issuer with respect to such original issue discount for any taxable year before the taxable year in which paid only to the extent such original issue discount is includible (determined without regard to properly allocable deductions and qualified deficits under section 952 (c)(1)(B)) during such prior taxable year in the gross income of a United States person who owns (within the meaning of section 958 (a)) stock in such corporation.
(ii) Secretarial authority The Secretary may by regulation exempt transactions from the application of clause (i), including any transaction which is entered into by a payor in the ordinary course of a trade or business in which the payor is predominantly engaged.
(C) Related foreign person 
For purposes of subparagraph (A), the term related foreign person means any person
(i) who is not a United States person, and
(ii) who is related (within the meaning of section 267 (b)) to the issuer.
(4) Exceptions 
This subsection shall not apply to any debt instrument described in
(A) subparagraph (D) of section 1272 (a)(2) (relating to obligations issued by natural persons before March 2, 1984), and
(B) subparagraph (E) of section 1272 (a)(2) (relating to loans between natural persons).
(5) Special rules for original issue discount on certain high yield obligations 

(A) In general 
In the case of an applicable high yield discount obligation issued by a corporation
(i) no deduction shall be allowed under this chapter for the disqualified portion of the original issue discount on such obligation, and
(ii) the remainder of such original issue discount shall not be allowable as a deduction until paid.

For purposes of this paragraph, rules similar to the rules of subsection (i)(3)(B) shall apply in determining the amount of the original issue discount and when the original issue discount is paid.

(B) Disqualified portion treated as stock distribution for purposes of dividend received deduction 

(i) In general Solely for purposes of sections 243, 245, 246, and 246A, the dividend equivalent portion of any amount includible in gross income of a corporation under section 1272 (a) in respect of an applicable high yield discount obligation shall be treated as a dividend received by such corporation from the corporation issuing such obligation.
(ii) Dividend equivalent portion For purposes of clause (i), the dividend equivalent portion of any amount includible in gross income under section 1272 (a) in respect of an applicable high yield discount obligation is the portion of the amount so includible
(I) which is attributable to the disqualified portion of the original issue discount on such obligation, and
(II) which would have been treated as a dividend if it had been a distribution made by the issuing corporation with respect to stock in such corporation.
(C) Disqualified portion 

(i) In general For purposes of this paragraph, the disqualified portion of the original issue discount on any applicable high yield discount obligation is the lesser of
(I) the amount of such original issue discount, or
(II) the portion of the total return on such obligation which bears the same ratio to such total return as the disqualified yield on such obligation bears to the yield to maturity on such obligation.
(ii) Definitions For purposes of clause (i), the term disqualified yield means the excess of the yield to maturity on the obligation over the sum referred to[1] subsection (i)(1)(B) plus 1 percentage point, and the term total return is the amount which would have been the original issue discount on the obligation if interest described in the parenthetical in section 1273 (a)(2) were included in the stated redemption price at maturity.
(D) Exception for S corporations 
This paragraph shall not apply to any obligation issued by any corporation for any period for which such corporation is an S corporation.
(E) Effect on earnings and profits 
This paragraph shall not apply for purposes of determining earnings and profits; except that, for purposes of determining the dividend equivalent portion of any amount includible in gross income under section 1272 (a) in respect of an applicable high yield discount obligation, no reduction shall be made for any amount attributable to the disqualified portion of any original issue discount on such obligation.
(F) Cross reference 
For definition of applicable high yield discount obligation, see subsection (i).
(6) Cross references 
For provision relating to deduction of original issue discount on tax-exempt obligation, see section 1288. For special rules in the case of the borrower under certain loans for personal use, see section 1275 (b).
(f) Denial of deduction for interest on certain obligations not in registered form 

(1) In general 
Nothing in subsection (a) or in any other provision of law shall be construed to provide a deduction for interest on any registration-required obligation unless such obligation is in registered form.
(2) Registration-required obligation 
For purposes of this section
(A) In general 
The term registration-required obligation means any obligation (including any obligation issued by a governmental entity) other than an obligation which
(i) is issued by a natural person,
(ii) is not of a type offered to the public,
(iii) has a maturity (at issue) of not more than 1 year, or
(iv) is described in subparagraph (B).
(B) Certain obligations not included 
An obligation is described in this subparagraph if
(i) there are arrangements reasonably designed to ensure that such obligation will be sold (or resold in connection with the original issue) only to a person who is not a United States person, and
(ii) in the case of an obligation not in registered form
(I) interest on such obligation is payable only outside the United States and its possessions, and
(II) on the face of such obligation there is a statement that any United States person who holds such obligation will be subject to limitations under the United States income tax laws.
(C) Authority to include other obligations 
Clauses (ii) and (iii) of subparagraph (A), and subparagraph (B), shall not apply to any obligation if
(i) in the case of
(I) subparagraph (A), such obligation is of a type which the Secretary has determined by regulations to be used frequently in avoiding Federal taxes, or
(II) subparagraph (B), such obligation is of a type specified by the Secretary in regulations, and
(ii) such obligation is issued after the date on which the regulations referred to in clause (i) take effect.
(3) Book entries permitted, etc. 
For purposes of this subsection, rules similar to the rules of section 149 (a)(3) shall apply.
(g) Reduction of deduction where section 25 credit taken 
The amount of the deduction under this section for interest paid or accrued during any taxable year on indebtedness with respect to which a mortgage credit certificate has been issued under section 25 shall be reduced by the amount of the credit allowable with respect to such interest under section 25 (determined without regard to section 26).
(h) Disallowance of deduction for personal interest 

(1) In general 
In the case of a taxpayer other than a corporation, no deduction shall be allowed under this chapter for personal interest paid or accrued during the taxable year.
(2) Personal interest 
For purposes of this subsection, the term personal interest means any interest allowable as a deduction under this chapter other than
(A) interest paid or accrued on indebtedness properly allocable to a trade or business (other than the trade or business of performing services as an employee),
(B) any investment interest (within the meaning of subsection (d)),
(C) any interest which is taken into account under section 469 in computing income or loss from a passive activity of the taxpayer,
(D) any qualified residence interest (within the meaning of paragraph (3)),
(E) any interest payable under section 6601 on any unpaid portion of the tax imposed by section 2001 for the period during which an extension of time for payment of such tax is in effect under section 6163, and
(F) any interest allowable as a deduction under section 221 (relating to interest on educational loans).
(3) Qualified residence interest 
For purposes of this subsection
(A) In general 
The term qualified residence interest means any interest which is paid or accrued during the taxable year on
(i) acquisition indebtedness with respect to any qualified residence of the taxpayer, or
(ii) home equity indebtedness with respect to any qualified residence of the taxpayer.

For purposes of the preceding sentence, the determination of whether any property is a qualified residence of the taxpayer shall be made as of the time the interest is accrued.

(B) Acquisition indebtedness 

(i) In general The term acquisition indebtedness means any indebtedness which
(I) is incurred in acquiring, constructing, or substantially improving any qualified residence of the taxpayer, and
(II) is secured by such residence.

Such term also includes any indebtedness secured by such residence resulting from the refinancing of indebtedness meeting the requirements of the preceding sentence (or this sentence); but only to the extent the amount of the indebtedness resulting from such refinancing does not exceed the amount of the refinanced indebtedness.

(ii) $1,000,000 limitation The aggregate amount treated as acquisition indebtedness for any period shall not exceed $1,000,000 ($500,000 in the case of a married individual filing a separate return).
(C) Home equity indebtedness 

(i) In general The term home equity indebtedness means any indebtedness (other than acquisition indebtedness) secured by a qualified residence to the extent the aggregate amount of such indebtedness does not exceed
(I) the fair market value of such qualified residence, reduced by
(II) the amount of acquisition indebtedness with respect to such residence.
(ii) Limitation The aggregate amount treated as home equity indebtedness for any period shall not exceed $100,000 ($50,000 in the case of a separate return by a married individual).
(D) Treatment of indebtedness incurred on or before October 13, 1987 

(i) In general In the case of any pre-October 13, 1987, indebtedness
(I) such indebtedness shall be treated as acquisition indebtedness, and
(II) the limitation of subparagraph (B)(ii) shall not apply.
(ii) Reduction in $1,000,000 limitation The limitation of subparagraph (B)(ii) shall be reduced (but not below zero) by the aggregate amount of outstanding pre-October 13, 1987, indebtedness.
(iii) Pre-October 13, 1987, indebtedness The term pre-October 13, 1987, indebtedness means
(I) any indebtedness which was incurred on or before October 13, 1987, and which was secured by a qualified residence on October 13, 1987, and at all times thereafter before the interest is paid or accrued, or
(II) any indebtedness which is secured by the qualified residence and was incurred after October 13, 1987, to refinance indebtedness described in subclause (I) (or refinanced indebtedness meeting the requirements of this subclause) to the extent (immediately after the refinancing) the principal amount of the indebtedness resulting from the refinancing does not exceed the principal amount of the refinanced indebtedness (immediately before the refinancing).
(iv) Limitation on period of refinancing Subclause (II) of clause (iii) shall not apply to any indebtedness after
(I) the expiration of the term of the indebtedness described in clause (iii)(I), or
(II) if the principal of the indebtedness described in clause (iii)(I) is not amortized over its term, the expiration of the term of the 1st refinancing of such indebtedness (or if earlier, the date which is 30 years after the date of such 1st refinancing).
(E) Mortgage insurance premiums treated as interest 

(i) In general Premiums paid or accrued for qualified mortgage insurance by a taxpayer during the taxable year in connection with acquisition indebtedness with respect to a qualified residence of the taxpayer shall be treated for purposes of this section as interest which is qualified residence interest.
(ii) Phaseout The amount otherwise treated as interest under clause (i) shall be reduced (but not below zero) by 10 percent of such amount for each $1,000 ($500 in the case of a married individual filing a separate return) (or fraction thereof) that the taxpayers adjusted gross income for the taxable year exceeds $100,000 ($50,000 in the case of a married individual filing a separate return).
(iii) Limitation Clause (i) shall not apply with respect to any mortgage insurance contracts issued before January 1, 2007.
(iv) Termination Clause (i) shall not apply to amounts
(I) paid or accrued after December 31, 2010, or
(II) properly allocable to any period after such date.
(4) Other definitions and special rules 
For purposes of this subsection
(A) Qualified residence 

(i) In general The term qualified residence means
(I) the principal residence (within the meaning of section 121) of the taxpayer, and
(II) 1 other residence of the taxpayer which is selected by the taxpayer for purposes of this subsection for the taxable year and which is used by the taxpayer as a residence (within the meaning of section 280A (d)(1)).
(ii) Married individuals filing separate returns If a married couple does not file a joint return for the taxable year
(I) such couple shall be treated as 1 taxpayer for purposes of clause (i), and
(II) each individual shall be entitled to take into account 1 residence unless both individuals consent in writing to 1 individual taking into account the principal residence and 1 other residence.
(iii) Residence not rented For purposes of clause (i)(II), notwithstanding section 280A (d)(1), if the taxpayer does not rent a dwelling unit at any time during a taxable year, such unit may be treated as a residence for such taxable year.
(B) Special rule for cooperative housing corporations 
Any indebtedness secured by stock held by the taxpayer as a tenant-stockholder (as defined in section 216) in a cooperative housing corporation (as so defined) shall be treated as secured by the house or apartment which the taxpayer is entitled to occupy as such a tenant-stockholder. If stock described in the preceding sentence may not be used to secure indebtedness, indebtedness shall be treated as so secured if the taxpayer establishes to the satisfaction of the Secretary that such indebtedness was incurred to acquire such stock.
(C) Unenforceable security interests 
Indebtedness shall not fail to be treated as secured by any property solely because, under any applicable State or local homestead or other debtor protection law in effect on August 16, 1986, the security interest is ineffective or the enforceability of the security interest is restricted.
(D) Special rules for estates and trusts 
For purposes of determining whether any interest paid or accrued by an estate or trust is qualified residence interest, any residence held by such estate or trust shall be treated as a qualified residence of such estate or trust if such estate or trust establishes that such residence is a qualified residence of a beneficiary who has a present interest in such estate or trust or an interest in the residuary of such estate or trust.
(E) Qualified mortgage insurance 
The term qualified mortgage insurance means
(i) mortgage insurance provided by the Veterans Administration, the Federal Housing Administration, or the Rural Housing Administration, and
(ii) private mortgage insurance (as defined by section 2 of the Homeowners Protection Act of 1998 (12 U.S.C. 4901), as in effect on the date of the enactment of this subparagraph).
(F) Special rules for prepaid qualified mortgage insurance 
Any amount paid by the taxpayer for qualified mortgage insurance that is properly allocable to any mortgage the payment of which extends to periods that are after the close of the taxable year in which such amount is paid shall be chargeable to capital account and shall be treated as paid in such periods to which so allocated. No deduction shall be allowed for the unamortized balance of such account if such mortgage is satisfied before the end of its term. The preceding sentences shall not apply to amounts paid for qualified mortgage insurance provided by the Veterans Administration or the Rural Housing Administration.
(5) Phase-in of limitation 
In the case of any taxable year beginning in calendar years 1987 through 1990, the amount of interest with respect to which a deduction is disallowed under this subsection shall be equal to the applicable percentage (within the meaning of subsection (d)(6)(B)) of the amount which (but for this paragraph) would have been so disallowed.
(i) Applicable high yield discount obligation 

(1) In general 
For purposes of this section, the term applicable high yield discount obligation means any debt instrument if
(A) the maturity date of such instrument is more than 5 years from the date of issue,
(B) the yield to maturity on such instrument equals or exceeds the sum of
(i) the applicable Federal rate in effect under section 1274 (d) for the calendar month in which the obligation is issued, plus
(ii) 5 percentage points, and
(C) such instrument has significant original issue discount.

For purposes of subparagraph (B)(i), the Secretary may by regulation permit a rate to be used with respect to any debt instrument which is higher than the applicable Federal rate if the taxpayer establishes to the satisfaction of the Secretary that such higher rate is based on the same principles as the applicable Federal rate and is appropriate for the term of the instrument.

(2) Significant original issue discount 
For purposes of paragraph (1)(C), a debt instrument shall be treated as having significant original issue discount if
(A) the aggregate amount which would be includible in gross income with respect to such instrument for periods before the close of any accrual period (as defined in section 1272 (a)(5)) ending after the date 5 years after the date of issue, exceeds
(B) the sum of
(i) the aggregate amount of interest to be paid under the instrument before the close of such accrual period, and
(ii) the product of the issue price of such instrument (as defined in sections 1273 (b) and 1274 (a)) and its yield to maturity.
(3) Special rules 
For purposes of determining whether a debt instrument is an applicable high yield discount obligation
(A) any payment under the instrument shall be assumed to be made on the last day permitted under the instrument, and
(B) any payment to be made in the form of another obligation of the issuer (or a related person within the meaning of section 453 (f)(1)) shall be assumed to be made when such obligation is required to be paid in cash or in property other than such obligation.

Except for purposes of paragraph (1)(B), any reference to an obligation in subparagraph (B) of this paragraph shall be treated as including a reference to stock.

(4) Debt instrument 
For purposes of this subsection, the term debt instrument means any instrument which is a debt instrument as defined in section 1275 (a).
(5) Regulations 
The Secretary shall prescribe such regulations as may be appropriate to carry out the purposes of this subsection and subsection (e)(5), including
(A) regulations providing for modifications to the provisions of this subsection and subsection (e)(5) in the case of varying rates of interest, put or call options, indefinite maturities, contingent payments, assumptions of debt instruments, conversion rights, or other circumstances where such modifications are appropriate to carry out the purposes of this subsection and subsection (e)(5), and
(B) regulations to prevent avoidance of the purposes of this subsection and subsection (e)(5) through the use of issuers other than C corporations, agreements to borrow amounts due under the debt instrument, or other arrangements.
(j) Limitation on deduction for interest on certain indebtedness 

(1) Limitation 

(A) In general 
If this subsection applies to any corporation for any taxable year, no deduction shall be allowed under this chapter for disqualified interest paid or accrued by such corporation during such taxable year. The amount disallowed under the preceding sentence shall not exceed the corporations excess interest expense for the taxable year.
(B) Disallowed amount carried to succeeding taxable year 
Any amount disallowed under subparagraph (A) for any taxable year shall be treated as disqualified interest paid or accrued in the succeeding taxable year (and clause (ii) of paragraph (2)(A) shall not apply for purposes of applying this subsection to the amount so treated).
(2) Corporations to which subsection applies 

(A) In general 
This subsection shall apply to any corporation for any taxable year if
(i) such corporation has excess interest expense for such taxable year, and
(ii) the ratio of debt to equity of such corporation as of the close of such taxable year (or on any other day during the taxable year as the Secretary may by regulations prescribe) exceeds 1.5 to 1.
(B) Excess interest expense 

(i) In general For purposes of this subsection, the term excess interest expense means the excess (if any) of
(I) the corporations net interest expense, over
(II) the sum of 50 percent of the adjusted taxable income of the corporation plus any excess limitation carryforward under clause (ii).
(ii) Excess limitation carryforward If a corporation has an excess limitation for any taxable year, the amount of such excess limitation shall be an excess limitation carryforward to the 1st succeeding taxable year and to the 2nd and 3rd succeeding taxable years to the extent not previously taken into account under this clause. The amount of such a carryforward taken into account for any such succeeding taxable year shall not exceed the excess interest expense for such succeeding taxable year (determined without regard to the carryforward from the taxable year of such excess limitation).
(iii) Excess limitation For purposes of clause (ii), the term excess limitation means the excess (if any) of
(I) 50 percent of the adjusted taxable income of the corporation, over
(II) the corporations net interest expense.
(C) Ratio of debt to equity 
For purposes of this paragraph, the term ratio of debt to equity means the ratio which the total indebtedness of the corporation bears to the sum of its money and all other assets reduced (but not below zero) by such total indebtedness. For purposes of the preceding sentence
(i) the amount taken into account with respect to any asset shall be the adjusted basis thereof for purposes of determining gain,
(ii) the amount taken into account with respect to any indebtedness with original issue discount shall be its issue price plus the portion of the original issue discount previously accrued as determined under the rules of section 1272 (determined without regard to subsection (a)(7) or (b)(4) thereof), and
(iii) there shall be such other adjustments as the Secretary may by regulations prescribe.
(3) Disqualified interest 
For purposes of this subsection, the term disqualified interest means
(A) any interest paid or accrued by the taxpayer (directly or indirectly) to a related person if no tax is imposed by this subtitle with respect to such interest,
(B) any interest paid or accrued by the taxpayer with respect to any indebtedness to a person who is not a related person if
(i) there is a disqualified guarantee of such indebtedness, and
(ii) no gross basis tax is imposed by this subtitle with respect to such interest, and
(C) any interest paid or accrued (directly or indirectly) by a taxable REIT subsidiary (as defined in section 856(l)) of a real estate investment trust to such trust.
(4) Related person 
For purposes of this subsection
(A) In general 
Except as provided in subparagraph (B), the term related person means any person who is related (within the meaning of section 267 (b) or 707 (b)(1)) to the taxpayer.
(B) Special rule for certain partnerships 

(i) In general Any interest paid or accrued to a partnership which (without regard to this subparagraph) is a related person shall not be treated as paid or accrued to a related person if less than 10 percent of the profits and capital interests in such partnership are held by persons with respect to whom no tax is imposed by this subtitle on such interest. The preceding sentence shall not apply to any interest allocable to any partner in such partnership who is a related person to the taxpayer.
(ii) Special rule where treaty reduction If any treaty between the United States and any foreign country reduces the rate of tax imposed by this subtitle on a partners share of any interest paid or accrued to a partnership, such partners interests in such partnership shall, for purposes of clause (i), be treated as held in part by a tax-exempt person and in part by a taxable person under rules similar to the rules of paragraph (5)(B).
(5) Special rules for determining whether interest is subject to tax 

(A) Treatment of pass-thru entities 
In the case of any interest paid or accrued to a partnership, the determination of whether any tax is imposed by this subtitle on such interest shall be made at the partner level. Rules similar to the rules of the preceding sentence shall apply in the case of any pass-thru entity other than a partnership and in the case of tiered partnerships and other entities.
(B) Interest treated as tax-exempt to extent of treaty reduction 
If any treaty between the United States and any foreign country reduces the rate of tax imposed by this subtitle on any interest paid or accrued by the taxpayer, such interest shall be treated as interest on which no tax is imposed by this subtitle to the extent of the same proportion of such interest as
(i) the rate of tax imposed without regard to such treaty, reduced by the rate of tax imposed under the treaty, bears to
(ii) the rate of tax imposed without regard to the treaty.
(6) Other definitions and special rules 
For purposes of this subsection
(A) Adjusted taxable income 
The term adjusted taxable income means the taxable income of the taxpayer
(i) computed without regard to
(I) any deduction allowable under this chapter for the net interest expense,
(II) the amount of any net operating loss deduction under section 172,
(III) any deduction allowable under section 199, and
(IV) any deduction allowable for depreciation, amortization, or depletion, and
(ii) computed with such other adjustments as the Secretary may by regulations prescribe.
(B) Net interest expense 
The term net interest expense means the excess (if any) of
(i) the interest paid or accrued by the taxpayer during the taxable year, over
(ii) the amount of interest includible in the gross income of such taxpayer for such taxable year.

The Secretary may by regulations provide for adjustments in determining the amount of net interest expense.

(C) Treatment of affiliated group 
All members of the same affiliated group (within the meaning of section 1504 (a)) shall be treated as 1 taxpayer.
(D) Disqualified guarantee 

(i) In general Except as provided in clause (ii), the term disqualified guarantee means any guarantee by a related person which is
(I) an organization exempt from taxation under this subtitle, or
(II) a foreign person.
(ii) Exceptions The term disqualified guarantee shall not include a guarantee
(I) in any circumstances identified by the Secretary by regulation, where the interest on the indebtedness would have been subject to a net basis tax if the interest had been paid to the guarantor, or
(II) if the taxpayer owns a controlling interest in the guarantor.

For purposes of subclause (II), except as provided in regulations, the term a controlling interest means direct or indirect ownership of at least 80 percent of the total voting power and value of all classes of stock of a corporation, or 80 percent of the profit and capital interests in any other entity. For purposes of the preceding sentence, the rules of paragraphs (1) and (5) of section 267 (c) shall apply; except that such rules shall also apply to interest in entities other than corporations.

(iii) Guarantee Except as provided in regulations, the term guarantee includes any arrangement under which a person (directly or indirectly through an entity or otherwise) assures, on a conditional or unconditional basis, the payment of another persons obligation under any indebtedness.
(E) Gross basis and net basis taxation 

(i) Gross basis tax The term gross basis tax means any tax imposed by this subtitle which is determined by reference to the gross amount of any item of income without any reduction for any deduction allowed by this subtitle.
(ii) Net basis tax The term net basis tax means any tax imposed by this subtitle which is not a gross basis tax.
(7) Coordination with passive loss rules, etc. 
This subsection shall be applied before sections 465 and 469.
(8) Treatment of corporate partners 
Except to the extent provided by regulations, in applying this subsection to a corporation which owns (directly or indirectly) an interest in a partnership
(A) such corporations distributive share of interest income paid or accrued to such partnership shall be treated as interest income paid or accrued to such corporation,
(B) such corporations distributive share of interest paid or accrued by such partnership shall be treated as interest paid or accrued by such corporation, and
(C) such corporations share of the liabilities of such partnership shall be treated as liabilities of such corporation.
(9) Regulations 
The Secretary shall prescribe such regulations as may be appropriate to carry out the purposes of this subsection, including
(A) such regulations as may be appropriate to prevent the avoidance of the purposes of this subsection,
(B) regulations providing such adjustments in the case of corporations which are members of an affiliated group as may be appropriate to carry out the purposes of this subsection,
(C) regulations for the coordination of this subsection with section 884, and
(D) regulations providing for the reallocation of shares of partnership indebtedness, or distributive shares of the partnerships interest income or interest expense.
(k) Section 6166 interest 
No deduction shall be allowed under this section for any interest payable under section 6601 on any unpaid portion of the tax imposed by section 2001 for the period during which an extension of time for payment of such tax is in effect under section 6166.
(l) Disallowance of deduction on certain debt instruments of corporations 

(1) In general 
No deduction shall be allowed under this chapter for any interest paid or accrued on a disqualified debt instrument.
(2) Disqualified debt instrument 
For purposes of this subsection, the term disqualified debt instrument means any indebtedness of a corporation which is payable in equity of the issuer or a related party or equity held by the issuer (or any related party) in any other person.
(3) Special rules for amounts payable in equity 
For purposes of paragraph (2), indebtedness shall be treated as payable in equity of the issuer or any other person only if
(A) a substantial amount of the principal or interest is required to be paid or converted, or at the option of the issuer or a related party is payable in, or convertible into, such equity,
(B) a substantial amount of the principal or interest is required to be determined, or at the option of the issuer or a related party is determined, by reference to the value of such equity, or
(C) the indebtedness is part of an arrangement which is reasonably expected to result in a transaction described in subparagraph (A) or (B).

For purposes of this paragraph, principal or interest shall be treated as required to be so paid, converted, or determined if it may be required at the option of the holder or a related party and there is a substantial certainty the option will be exercised.

(4) Capitalization allowed with respect to equity of persons other than issuer and related parties 
If the disqualified debt instrument of a corporation is payable in equity held by the issuer (or any related party) in any other person (other than a related party), the basis of such equity shall be increased by the amount not allowed as a deduction by reason of paragraph (1) with respect to the instrument.
(5) Exception for certain instruments issued by dealers in securities 
For purposes of this subsection, the term disqualified debt instrument does not include indebtedness issued by a dealer in securities (or a related party) which is payable in, or by reference to, equity (other than equity of the issuer or a related party) held by such dealer in its capacity as a dealer in securities. For purposes of this paragraph, the term dealer in securities has the meaning given such term by section 475.
(6) Related party 
For purposes of this subsection, a person is a related party with respect to another person if such person bears a relationship to such other person described in section 267 (b) or 707 (b).
(7) Regulations 
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection, including regulations preventing avoidance of this subsection through the use of an issuer other than a corporation.
(m) Interest on unpaid taxes attributable to nondisclosed reportable transactions 
No deduction shall be allowed under this chapter for any interest paid or accrued under section 6601 on any underpayment of tax which is attributable to the portion of any reportable transaction understatement (as defined in section 6662A (b)) with respect to which the requirement of section 6664 (d)(2)(A) is not met.
(n) Cross references 

(1) For disallowance of certain amounts paid in connection with insurance, endowment, or annuity contracts, see section 264.
(2) For disallowance of deduction for interest relating to tax-exempt income, see section 265 (a)(2).
(3) For disallowance of deduction for carrying charges chargeable to capital account, see section 266.
(4) For disallowance of interest with respect to transactions between related taxpayers, see section 267.
(5) For treatment of redeemable ground rents and real property held subject to liabilities under redeemable ground rents, see section 1055.
[1] So in original. Probably should be followed by “in”.

26 USC 164 - Taxes

(a) General rule 
Except as otherwise provided in this section, the following taxes shall be allowed as a deduction for the taxable year within which paid or accrued:
(1) State and local, and foreign, real property taxes.
(2) State and local personal property taxes.
(3) State and local, and foreign, income, war profits, and excess profits taxes.
(4) The GST tax imposed on income distributions.
(5) The environmental tax imposed by section 59A.

In addition, there shall be allowed as a deduction State and local, and foreign, taxes not described in the preceding sentence which are paid or accrued within the taxable year in carrying on a trade or business or an activity described in section 212 (relating to expenses for production of income). Notwithstanding the preceding sentence, any tax (not described in the first sentence of this subsection) which is paid or accrued by the taxpayer in connection with an acquisition or disposition of property shall be treated as part of the cost of the acquired property or, in the case of a disposition, as a reduction in the amount realized on the disposition.

(b) Definitions and special rules 
For purposes of this section
(1) Personal property taxes 
The term personal property tax means an ad valorem tax which is imposed on an annual basis in respect of personal property.
(2) State or local taxes 
A State or local tax includes only a tax imposed by a State, a possession of the United States, or a political subdivision of any of the foregoing, or by the District of Columbia.
(3) Foreign taxes 
A foreign tax includes only a tax imposed by the authority of a foreign country.
(4) Special rules for GST tax 

(A) In general 
The GST tax imposed on income distributions is
(i) the tax imposed by section 2601, and
(ii) any State tax described in section 2604,

but only to the extent such tax is imposed on a transfer which is included in the gross income of the distributee and to which section 666 does not apply.

(B) Special rule for tax paid before due date 
Any tax referred to in subparagraph (A) imposed with respect to a transfer occurring during the taxable year of the distributee (or, in the case of a taxable termination, the trust) which is paid not later than the time prescribed by law (including extensions) for filing the return with respect to such transfer shall be treated as having been paid on the last day of the taxable year in which the transfer was made.
(5) General sales taxes 
For purposes of subsection (a)
(A) Election to deduct State and local sales taxes in lieu of State and local income taxes 
At the election of the taxpayer for the taxable year, subsection (a) shall be applied
(i) without regard to the reference to State and local income taxes, and
(ii) as if State and local general sales taxes were referred to in a paragraph thereof.
(B) Definition of general sales tax 
The term general sales tax means a tax imposed at one rate with respect to the sale at retail of a broad range of classes of items.
(C) Special rules for food, etc. 
In the case of items of food, clothing, medical supplies, and motor vehicles
(i) the fact that the tax does not apply with respect to some or all of such items shall not be taken into account in determining whether the tax applies with respect to a broad range of classes of items, and
(ii) the fact that the rate of tax applicable with respect to some or all of such items is lower than the general rate of tax shall not be taken into account in determining whether the tax is imposed at one rate.
(D) Items taxed at different rates 
Except in the case of a lower rate of tax applicable with respect to an item described in subparagraph (C), no deduction shall be allowed under this paragraph for any general sales tax imposed with respect to an item at a rate other than the general rate of tax.
(E) Compensating use taxes 
A compensating use tax with respect to an item shall be treated as a general sales tax. For purposes of the preceding sentence, the term compensating use tax means, with respect to any item, a tax which
(i) is imposed on the use, storage, or consumption of such item, and
(ii) is complementary to a general sales tax, but only if a deduction is allowable under this paragraph with respect to items sold at retail in the taxing jurisdiction which are similar to such item.
(F) Special rule for motor vehicles 
In the case of motor vehicles, if the rate of tax exceeds the general rate, such excess shall be disregarded and the general rate shall be treated as the rate of tax.
(G) Separately stated general sales taxes 
If the amount of any general sales tax is separately stated, then, to the extent that the amount so stated is paid by the consumer (other than in connection with the consumers trade or business) to the seller, such amount shall be treated as a tax imposed on, and paid by, such consumer.
(H) Amount of deduction may be determined under tables 

(i) In general At the election of the taxpayer for the taxable year, the amount of the deduction allowed under this paragraph for such year shall be
(I) the amount determined under this paragraph (without regard to this subparagraph) with respect to motor vehicles, boats, and other items specified by the Secretary, and
(II) the amount determined under tables prescribed by the Secretary with respect to items to which subclause (I) does not apply.
(ii) Requirements for tables The tables prescribed under clause (i)
(I) shall reflect the provisions of this paragraph,
(II) shall be based on the average consumption by taxpayers on a State-by-State basis (as determined by the Secretary) of items to which clause (i)(I) does not apply, taking into account filing status, number of dependents, adjusted gross income, and rates of State and local general sales taxation, and
(III) need only be determined with respect to adjusted gross incomes up to the applicable amount (as determined under section 68 (b)).
(I) Application of paragraph 
This paragraph shall apply to taxable years beginning after December 31, 2003, and before January 1, 2008.
(c) Deduction denied in case of certain taxes 
No deduction shall be allowed for the following taxes:
(1) Taxes assessed against local benefits of a kind tending to increase the value of the property assessed; but this paragraph shall not prevent the deduction of so much of such taxes as is properly allocable to maintenance or interest charges.
(2) Taxes on real property, to the extent that subsection (d) requires such taxes to be treated as imposed on another taxpayer.
(d) Apportionment of taxes on real property between seller and purchaser 

(1) General rule 
For purposes of subsection (a), if real property is sold during any real property tax year, then
(A) so much of the real property tax as is properly allocable to that part of such year which ends on the day before the date of the sale shall be treated as a tax imposed on the seller, and
(B) so much of such tax as is properly allocable to that part of such year which begins on the date of the sale shall be treated as a tax imposed on the purchaser.
(2) Special rules 

(A) in the case of any sale of real property, if
(i) a taxpayer may not, by reason of his method of accounting, deduct any amount for taxes unless paid, and
(ii) the other party to the sale is (under the law imposing the real property tax) liable for the real property tax for the real property tax year,

then for purposes of subsection (a) the taxpayer shall be treated as having paid, on the date of the sale, so much of such tax as, under paragraph (1) of this subsection, is treated as imposed on the taxpayer. For purposes of the preceding sentence, if neither party is liable for the tax, then the party holding the property at the time the tax becomes a lien on the property shall be considered liable for the real property tax for the real property tax year.

(B) In the case of any sale of real property, if the taxpayers taxable income for the taxable year during which the sale occurs is computed under an accrual method of accounting, and if no election under section 461 (c) (relating to the accrual of real property taxes) applies, then, for purposes of subsection (a), that portion of such tax which
(i) is treated, under paragraph (1) of this subsection, as imposed on the taxpayer, and
(ii) may not, by reason of the taxpayers method of accounting, be deducted by the taxpayer for any taxable year,

shall be treated as having accrued on the date of the sale.

(e) Taxes of shareholder paid by corporation 
Where a corporation pays a tax imposed on a shareholder on his interest as a shareholder, and where the shareholder does not reimburse the corporation, then
(1) the deduction allowed by subsection (a) shall be allowed to the corporation; and
(2) no deduction shall be allowed the shareholder for such tax.
(f) Deduction for one-half of self-employment taxes 

(1) In general 
In the case of an individual, in addition to the taxes described in subsection (a), there shall be allowed as a deduction for the taxable year an amount equal to one-half of the taxes imposed by section 1401 for such taxable year.
(2) Deduction treated as attributable to trade or business 
For purposes of this chapter, the deduction allowed by paragraph (1) shall be treated as attributable to a trade or business carried on by the taxpayer which does not consist of the performance of services by the taxpayer as an employee.
(g) Cross references 

(1) For provisions disallowing any deduction for certain taxes, see section 275.
(2) For treatment of taxes imposed by Indian tribal governments (or their subdivisions), see section 7871.

26 USC 165 - Losses

(a) General rule 
There shall be allowed as a deduction any loss sustained during the taxable year and not compensated for by insurance or otherwise.
(b) Amount of deduction 
For purposes of subsection (a), the basis for determining the amount of the deduction for any loss shall be the adjusted basis provided in section 1011 for determining the loss from the sale or other disposition of property.
(c) Limitation on losses of individuals 
In the case of an individual, the deduction under subsection (a) shall be limited to
(1) losses incurred in a trade or business;
(2) losses incurred in any transaction entered into for profit, though not connected with a trade or business; and
(3) except as provided in subsection (h), losses of property not connected with a trade or business or a transaction entered into for profit, if such losses arise from fire, storm, shipwreck, or other casualty, or from theft.
(d) Wagering losses 
Losses from wagering transactions shall be allowed only to the extent of the gains from such transactions.
(e) Theft losses 
For purposes of subsection (a), any loss arising from theft shall be treated as sustained during the taxable year in which the taxpayer discovers such loss.
(f) Capital losses 
Losses from sales or exchanges of capital assets shall be allowed only to the extent allowed in sections 1211 and 1212.
(g) Worthless securities 

(1) General rule 
If any security which is a capital asset becomes worthless during the taxable year, the loss resulting therefrom shall, for purposes of this subtitle, be treated as a loss from the sale or exchange, on the last day of the taxable year, of a capital asset.
(2) Security defined 
For purposes of this subsection, the term security means
(A) a share of stock in a corporation;
(B) a right to subscribe for, or to receive, a share of stock in a corporation; or
(C) a bond, debenture, note, or certificate, or other evidence of indebtedness, issued by a corporation or by a government or political subdivision thereof, with interest coupons or in registered form.
(3) Securities in affiliated corporation 
For purposes of paragraph (1), any security in a corporation affiliated with a taxpayer which is a domestic corporation shall not be treated as a capital asset. For purposes of the preceding sentence, a corporation shall be treated as affiliated with the taxpayer only if
(A) the taxpayer owns directly stock in such corporation meeting the requirements of section 1504 (a)(2), and
(B) more than 90 percent of the aggregate of its gross receipts for all taxable years has been from sources other than royalties, rents (except rents derived from rental of properties to employees of the corporation in the ordinary course of its operating business), dividends, interest (except interest received on deferred purchase price of operating assets sold), annuities, and gains from sales or exchanges of stocks and securities.

In computing gross receipts for purposes of the preceding sentence, gross receipts from sales or exchanges of stocks and securities shall be taken into account only to the extent of gains therefrom.

(h) Treatment of casualty gains and losses 

(1) $100 limitation per casualty 
Any loss of an individual described in subsection (c)(3) shall be allowed only to the extent that the amount of the loss to such individual arising from each casualty, or from each theft, exceeds $100.
(2) Net casualty loss allowed only to the extent it exceeds 10 percent of adjusted gross income 

(A) In general 
If the personal casualty losses for any taxable year exceed the personal casualty gains for such taxable year, such losses shall be allowed for the taxable year only to the extent of the sum of
(i) the amount of the personal casualty gains for the taxable year, plus
(ii) so much of such excess as exceeds 10 percent of the adjusted gross income of the individual.
(B) Special rule where personal casualty gains exceed personal casualty losses 
If the personal casualty gains for any taxable year exceed the personal casualty losses for such taxable year
(i) all such gains shall be treated as gains from sales or exchanges of capital assets, and
(ii) all such losses shall be treated as losses from sales or exchanges of capital assets.
(3) Definitions of personal casualty gain and personal casualty loss 
For purposes of this subsection
(A) Personal casualty gain 
The term personal casualty gain means the recognized gain from any involuntary conversion of property which is described in subsection (c)(3) arising from fire, storm, shipwreck, or other casualty, or from theft.
(B) Personal casualty loss 
The term personal casualty loss means any loss described in subsection (c)(3). For purposes of paragraph (2), the amount of any personal casualty loss shall be determined after the application of paragraph (1).
(4) Special rules 

(A) Personal casualty losses allowable in computing adjusted gross income to the extent of personal casualty gains 
In any case to which paragraph (2)(A) applies, the deduction for personal casualty losses for any taxable year shall be treated as a deduction allowable in computing adjusted gross income to the extent such losses do not exceed the personal casualty gains for the taxable year.
(B) Joint returns 
For purposes of this subsection, a husband and wife making a joint return for the taxable year shall be treated as 1 individual.
(C) Determination of adjusted gross income in case of estates and trusts 
For purposes of paragraph (2), the adjusted gross income of an estate or trust shall be computed in the same manner as in the case of an individual, except that the deductions for costs paid or incurred in connection with the administration of the estate or trust shall be treated as allowable in arriving at adjusted gross income.
(D) Coordination with estate tax 
No loss described in subsection (c)(3) shall be allowed if, at the time of filing the return, such loss has been claimed for estate tax purposes in the estate tax return.
(E) Claim required to be filed in certain cases 
Any loss of an individual described in subsection (c)(3) to the extent covered by insurance shall be taken into account under this section only if the individual files a timely insurance claim with respect to such loss.
(i) Disaster losses 

(1) Election to take deduction for preceding year 
Notwithstanding the provisions of subsection (a), any loss attributable to a disaster occurring in an area subsequently determined by the President of the United States to warrant assistance by the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act may, at the election of the taxpayer, be taken into account for the taxable year immediately preceding the taxable year in which the disaster occurred.
(2) Year of loss 
If an election is made under this subsection, the casualty resulting in the loss shall be treated for purposes of this title as having occurred in the taxable year for which the deduction is claimed.
(3) Amount of loss 
The amount of the loss taken into account in the preceding taxable year by reason of paragraph (1) shall not exceed the uncompensated amount determined on the basis of the facts existing at the date the taxpayer claims the loss.
(4) Use of disaster loan appraisals to establish amount of loss 
Nothing in this title shall be construed to prohibit the Secretary from prescribing regulations or other guidance under which an appraisal for the purpose of obtaining a loan of Federal funds or a loan guarantee from the Federal Government as a result of a Presidentially declared disaster (as defined by section 1033 (h)(3)) may be used to establish the amount of any loss described in paragraph (1) or (2).
(j) Denial of deduction for losses on certain obligations not in registered form 

(1) In general 
Nothing in subsection (a) or in any other provision of law shall be construed to provide a deduction for any loss sustained on any registration-required obligation unless such obligation is in registered form (or the issuance of such obligation was subject to tax under section 4701).
(2) Definitions 
For purposes of this subsection
(A) Registration-required obligation 
The term registration-required obligation has the meaning given to such term by section 163 (f)(2) except that clause (iv) of subparagraph (A), and subparagraph (B), of such section shall not apply.
(B) Registered form 
The term registered form has the same meaning as when used in section 163 (f).
(3) Exceptions 
The Secretary may, by regulations, provide that this subsection and section 1287 shall not apply with respect to obligations held by any person if
(A) such person holds such obligations in connection with a trade or business outside the United States,
(B) such person holds such obligations as a broker dealer (registered under Federal or State law) for sale to customers in the ordinary course of his trade or business,
(C) such person complies with reporting requirements with respect to ownership, transfers, and payments as the Secretary may require, or
(D) such person promptly surrenders the obligation to the issuer for the issuance of a new obligation in registered form,

but only if such obligations are held under arrangements provided in regulations or otherwise which are designed to assure that such obligations are not delivered to any United States person other than a person described in subparagraph (A), (B), or (C).

(k) Treatment as disaster loss where taxpayer ordered to demolish or relocate residence in disaster area because of disaster 
In the case of a taxpayer whose residence is located in an area which has been determined by the President of the United States to warrant assistance by the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, if
(1) not later than the 120th day after the date of such determination, the taxpayer is ordered, by the government of the State or any political subdivision thereof in which such residence is located, to demolish or relocate such residence, and
(2) the residence has been rendered unsafe for use as a residence by reason of the disaster,

any loss attributable to such disaster shall be treated as a loss which arises from a casualty and which is described in subsection (i).

(l) Treatment of certain losses in insolvent financial institutions 

(1) In general 
If
(A) as of the close of the taxable year, it can reasonably be estimated that there is a loss on a qualified individuals deposit in a qualified financial institution, and
(B) such loss is on account of the bankruptcy or insolvency of such institution,

then the taxpayer may elect to treat the amount so estimated as a loss described in subsection (c)(3) incurred during the taxable year.

(2) Qualified individual defined 
For purposes of this subsection, the term qualified individual means any individual, except an individual
(A) who owns at least 1 percent in value of the outstanding stock of the qualified financial institution,
(B) who is an officer of the qualified financial institution,
(C) who is a sibling (whether by the whole or half blood), spouse, aunt, uncle, nephew, niece, ancestor, or lineal descendant of an individual described in subparagraph (A) or (B), or
(D) who otherwise is a related person (as defined in section 267 (b)) with respect to an individual described in subparagraph (A) or (B).
(3) Qualified financial institution 
For purposes of this subsection, the term qualified financial institution means
(A) any bank (as defined in section 581),
(B) any institution described in section 591,
(C) any credit union the deposits or accounts in which are insured under Federal or State law or are protected or guaranteed under State law, or
(D) any similar institution chartered and supervised under Federal or State law.
(4) Deposit 
For purposes of this subsection, the term deposit means any deposit, withdrawable account, or withdrawable or repurchasable share.
(5) Election to treat as ordinary loss 

(A) In general 
In lieu of any election under paragraph (1), the taxpayer may elect to treat the amount referred to in paragraph (1) for the taxable year as an ordinary loss described in subsection (c)(2) incurred during the taxable year.
(B) Limitations 

(i) Deposit may not be federally insured No election may be made under subparagraph (A) with respect to any loss on a deposit in a qualified financial institution if part or all of such deposit is insured under Federal law.
(ii) Dollar limitation With respect to each financial institution, the aggregate amount of losses attributable to deposits in such financial institution to which an election under subparagraph (A) may be made by the taxpayer for any taxable year shall not exceed $20,000 ($10,000 in the case of a separate return by a married individual). The limitation of the preceding sentence shall be reduced by the amount of any insurance proceeds under any State law which can reasonably be expected to be received with respect to losses on deposits in such institution.
(6) Election 
Any election by the taxpayer under this subsection for any taxable year
(A) shall apply to all losses for such taxable year of the taxpayer on deposits in the institution with respect to which such election was made, and
(B) may be revoked only with the consent of the Secretary.
(7) Coordination with section 166 
Section 166 shall not apply to any loss to which an election under this subsection applies.
(m) Cross references 

(1) For special rule for banks with respect to worthless securities, see section 582.
(2) For disallowance of deduction for worthlessness of securities to which subsection (g)(2)(C) applies, if issued by a political party or similar organization, see section 271.
(3) For special rule for losses on stock in a small business investment company, see section 1242.
(4) For special rule for losses of a small business investment company, see section 1243.
(5) For special rule for losses on small business stock, see section 1244.

26 USC 166 - Bad debts

(a) General rule 

(1) Wholly worthless debts 
There shall be allowed as a deduction any debt which becomes worthless within the taxable year.
(2) Partially worthless debts 
When satisfied that a debt is recoverable only in part, the Secretary may allow such debt, in an amount not in excess of the part charged off within the taxable year, as a deduction.
(b) Amount of deduction 
For purposes of subsection (a), the basis for determining the amount of the deduction for any bad debt shall be the adjusted basis provided in section 1011 for determining the loss from the sale or other disposition of property.
[(c) Repealed. Pub. L. 99–514, title VIII, § 805(a), Oct. 22, 1986, 100 Stat. 2361] 
(d) Nonbusiness debts 

(1) General rule 
In the case of a taxpayer other than a corporation
(A) subsection (a) shall not apply to any nonbusiness debt; and
(B) where any nonbusiness debt becomes worthless within the taxable year, the loss resulting therefrom shall be considered a loss from the sale or exchange, during the taxable year, of a capital asset held for not more than 1 year.
(2) Nonbusiness debt defined 
For purposes of paragraph (1), the term nonbusiness debt means a debt other than
(A) a debt created or acquired (as the case may be) in connection with a trade or business of the taxpayer; or
(B) a debt the loss from the worthlessness of which is incurred in the taxpayers trade or business.
(e) Worthless securities 
This section shall not apply to a debt which is evidenced by a security as defined in section 165 (g)(2)(C).
(f) Cross references 

(1) For disallowance of deduction for worthlessness of debts owed by political parties and similar organizations, see section 271.
(2) For special rule for banks with respect to worthless securities, see section 582.

26 USC 167 - Depreciation

(a) General rule 
There shall be allowed as a depreciation deduction a reasonable allowance for the exhaustion, wear and tear (including a reasonable allowance for obsolescence)
(1) of property used in the trade or business, or
(2) of property held for the production of income.
(b) Cross reference 
For determination of depreciation deduction in case of property to which section 168 applies, see section 168.
(c) Basis for depreciation 

(1) In general 
The basis on which exhaustion, wear and tear, and obsolescence are to be allowed in respect of any property shall be the adjusted basis provided in section 1011, for the purpose of determining the gain on the sale or other disposition of such property.
(2) Special rule for property subject to lease 
If any property is acquired subject to a lease
(A) no portion of the adjusted basis shall be allocated to the leasehold interest, and
(B) the entire adjusted basis shall be taken into account in determining the depreciation deduction (if any) with respect to the property subject to the lease.
(d) Life tenants and beneficiaries of trusts and ­estates 
In the case of property held by one person for life with remainder to another person, the deduction shall be computed as if the life tenant were the absolute owner of the property and shall be allowed to the life tenant. In the case of property held in trust, the allowable deduction shall be apportioned between the income beneficiaries and the trustee in accordance with the pertinent provisions of the instrument creating the trust, or, in the absence of such provisions, on the basis of the trust income allocable to each. In the case of an estate, the allowable deduction shall be apportioned between the estate and the heirs, legatees, and devisees on the basis of the income of the estate allocable to each.
(e) Certain term interests not depreciable 

(1) In general 
No depreciation deduction shall be allowed under this section (and no depreciation or amortization deduction shall be allowed under any other provision of this subtitle) to the taxpayer for any term interest in property for any period during which the remainder interest in such property is held (directly or indirectly) by a related person.
(2) Coordination with other provisions 

(A) Section 273 
This subsection shall not apply to any term interest to which section 273 applies.
(B) Section 305 (e) 
This subsection shall not apply to the holder of the dividend rights which were separated from any stripped preferred stock to which section 305 (e)(1) applies.
(3) Basis adjustments 
If, but for this subsection, a depreciation or amortization deduction would be allowable to the taxpayer with respect to any term interest in property
(A) the taxpayers basis in such property shall be reduced by any depreciation or amortization deductions disallowed under this subsection, and
(B) the basis of the remainder interest in such property shall be increased by the amount of such disallowed deductions (properly adjusted for any depreciation deductions allowable under subsection (d) to the taxpayer).
(4) Special rules 

(A) Denial of increase in basis of remainderman 
No increase in the basis of the remainder interest shall be made under paragraph (3)(B) for any disallowed deductions attributable to periods during which the term interest was held
(i) by an organization exempt from tax under this subtitle, or
(ii) by a nonresident alien individual or foreign corporation but only if income from the term interest is not effectively connected with the conduct of a trade or business in the United States.
(B) Coordination with subsection (d) 
If, but for this subsection, a depreciation or amortization deduction would be allowable to any person with respect to any term interest in property, the principles of subsection (d) shall apply to such person with respect to such term interest.
(5) Definitions 
For purposes of this subsection
(A) Term interest in property 
The term term interest in property has the meaning given such term by section 1001 (e)(2).
(B) Related person 
The term related person means any person bearing a relationship to the taxpayer described in subsection (b) or (e) of section 267.
(6) Regulations 
The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subsection, including regulations preventing avoidance of this subsection through cross-ownership arrangements or otherwise.
(f) Treatment of certain property excluded from section 197 

(1) Computer software 

(A) In general 
If a depreciation deduction is allowable under subsection (a) with respect to any computer software, such deduction shall be computed by using the straight line method and a useful life of 36 months.
(B) Computer software 
For purposes of this section, the term computer software has the meaning given to such term by section 197 (e)(3)(B); except that such term shall not include any such software which is an amortizable section 197 intangible.
(C) Tax-exempt use property subject to lease 
In the case of computer software which would be tax-exempt use property as defined in subsection (h) of section 168 if such section applied to computer software, the useful life under subparagraph (A) shall not be less than 125 percent of the lease term (within the meaning of section 168 (i)(3)).
(2) Certain interests or rights acquired separately 
If a depreciation deduction is allowable under subsection (a) with respect to any property described in subparagraph (B), (C), or (D) of section 197 (e)(4), such deduction shall be computed in accordance with regulations prescribed by the Secretary. If such property would be tax-exempt use property as defined in subsection (h) of section 168 if such section applied to such property, the useful life under such regulations shall not be less than 125 percent of the lease term (within the meaning of section 168 (i)(3)).
(3) Mortgage servicing rights 
If a depreciation deduction is allowable under subsection (a) with respect to any right described in section 197 (e)(6), such deduction shall be computed by using the straight line method and a useful life of 108 months.
(g) Depreciation under income forecast method 

(1) In general 
If the depreciation deduction allowable under this section to any taxpayer with respect to any property is determined under the income forecast method or any similar method
(A) the income from the property to be taken into account in determining the depreciation deduction under such method shall be equal to the amount of income earned in connection with the property before the close of the 10th taxable year following the taxable year in which the property was placed in service,
(B) the adjusted basis of the property shall only include amounts with respect to which the requirements of section 461 (h) are satisfied,
(C) the depreciation deduction under such method for the 10th taxable year beginning after the taxable year in which the property was placed in service shall be equal to the adjusted basis of such property as of the beginning of such 10th taxable year, and
(D) such taxpayer shall pay (or be entitled to receive) interest computed under the look-back method of paragraph (2) for any recomputation year.
(2) Look-back method 
The interest computed under the look-back method of this paragraph for any recomputation year shall be determined by
(A) first determining the depreciation deductions under this section with respect to such property which would have been allowable for prior taxable years if the determination of the amounts so allowable had been made on the basis of the sum of the following (instead of the estimated income from such property)
(i) the actual income earned in connection with such property for periods before the close of the recomputation year, and
(ii) an estimate of the future income to be earned in connection with such property for periods after the recomputation year and before the close of the 10th taxable year following the taxable year in which the property was placed in service,
(B) second, determining (solely for purposes of computing such interest) the overpayment or underpayment of tax for each such prior taxable year which would result solely from the application of subparagraph (A), and
(C) then using the adjusted overpayment rate (as defined in section 460 (b)(7)), compounded daily, on the overpayment or underpayment determined under subparagraph (B).

For purposes of the preceding sentence, any cost incurred after the property is placed in service (which is not treated as a separate property under paragraph (5)) shall be taken into account by discounting (using the Federal mid-term rate determined under section 1274(d) as of the time such cost is incurred) such cost to its value as of the date the property is placed in service. The taxpayer may elect with respect to any property to have the preceding sentence not apply to such property.

(3) Exception from look-back method 
Paragraph (1)(D) shall not apply with respect to any property which had a cost basis of $100,000 or less.
(4) Recomputation year 
For purposes of this subsection, except as provided in regulations, the term recomputation year means, with respect to any property, the 3d and the 10th taxable years beginning after the taxable year in which the property was placed in service, unless the actual income earned in connection with the property for the period before the close of such 3d or 10th taxable year is within 10 percent of the income earned in connection with the property for such period which was taken into account under paragraph (1)(A).
(5) Special rules 

(A) Certain costs treated as separate property 
For purposes of this subsection, the following costs shall be treated as separate properties:
(i) Any costs incurred with respect to any property after the 10th taxable year beginning after the taxable year in which the property was placed in service.
(ii) Any costs incurred after the property is placed in service and before the close of such 10th taxable year if such costs are significant and give rise to a significant increase in the income from the property which was not included in the estimated income from the property.
(B) Syndication income from television series 
In the case of property which is 1 or more episodes in a television series, income from syndicating such series shall not be required to be taken into account under this subsection before the earlier of
(i) the 4th taxable year beginning after the date the first episode in such series is placed in service, or
(ii) the earliest taxable year in which the taxpayer has an arrangement relating to the future syndication of such series.
(C) Special rules for financial exploitation of characters, etc. 
For purposes of this subsection, in the case of television and motion picture films, the income from the property shall include income from the exploitation of characters, designs, scripts, scores, and other incidental income associated with such films, but only to the extent that such income is earned in connection with the ultimate use of such items by, or the ultimate sale of merchandise to, persons who are not related persons (within the meaning of section 267 (b)) to the taxpayer.
(D) Collection of interest 
For purposes of subtitle F (other than sections 6654 and 6655), any interest required to be paid by the taxpayer under paragraph (1) for any recomputation year shall be treated as an increase in the tax imposed by this chapter for such year.
(E) Treatment of distribution costs 
For purposes of this subsection, the income with respect to any property shall be the taxpayers gross income from such property.
(F) Determinations 
For purposes of paragraph (2), determinations of the amount of income earned in connection with any property shall be made in the same manner as for purposes of applying the income forecast method; except that any income from the disposition of such property shall be taken into account.
(G) Treatment of pass-thru entities 
Rules similar to the rules of section 460 (b)(4) shall apply for purposes of this subsection.
(6) Limitation on property for which income forecast method may be used 
The depreciation deduction allowable under this section may be determined under the income forecast method or any similar method only with respect to
(A) property described in paragraph (3) or (4) of section 168 (f),
(B) copyrights,
(C) books,
(D) patents, and
(E) other property specified in regulations.

Such methods may not be used with respect to any amortizable section 197 intangible (as defined in section 197 (c)).

(7) Treatment of participations and residuals 

(A) In general 
For purposes of determining the depreciation deduction allowable with respect to a property under this subsection, the taxpayer may include participations and residuals with respect to such property in the adjusted basis of such property for the taxable year in which the property is placed in service, but only to the extent that such participations and residuals relate to income estimated (for purposes of this subsection) to be earned in connection with the property before the close of the 10th taxable year referred to in paragraph (1)(A).
(B) Participations and residuals 
For purposes of this paragraph, the term participations and residuals means, with respect to any property, costs the amount of which by contract varies with the amount of income earned in connection with such property.
(C) Special rules relating to recomputation years 
If the adjusted basis of any property is determined under this paragraph, paragraph (4) shall be applied by substituting for each taxable year in such period for for such period.
(D) Other special rules 

(i) Participations and residuals Notwithstanding subparagraph (A), the taxpayer may exclude participations and residuals from the adjusted basis of such property and deduct such participations and residuals in the taxable year that such participations and residuals are paid.
(ii) Coordination with other rules Deductions computed in accordance with this paragraph shall be allowable notwithstanding paragraph (1)(B), section 263, 263A, 404, 419, or 461 (h).
(E) Authority to make adjustments 
The Secretary shall prescribe appropriate adjustments to the basis of property and to the look-back method for the additional amounts allowable as a deduction solely by reason of this paragraph.
(8) Special rules for certain musical works and copyrights 

(A) In general 
If an election is in effect under this paragraph for any taxable year, then, notwithstanding paragraph (1), any expense which
(i) is paid or incurred by the taxpayer in creating or acquiring any applicable musical property placed in service during the taxable year, and
(ii) is otherwise properly chargeable to capital account,

shall be amortized ratably over the 5-year period beginning with the month in which the property was placed in service. The preceding sentence shall not apply to any expense which, without regard to this paragraph, would not be allowable as a deduction.

(B) Exclusive method 
Except as provided in this paragraph, no depreciation or amortization deduction shall be allowed with respect to any expense to which subparagraph (A) applies.
(C) Applicable musical property 
For purposes of this paragraph
(i) In general The term applicable musical property means any musical composition (including any accompanying words), or any copyright with respect to a musical composition, which is property to which this subsection applies without regard to this paragraph.
(ii) Exceptions Such term shall not include any property
(I) with respect to which expenses are treated as qualified creative expenses to which section 263A (h) applies,
(II) to which a simplified procedure established under section 263A (i)(2) applies, or
(III) which is an amortizable section 197 intangible (as defined in section 197 (c)).
(D) Election 
An election under this paragraph shall be made at such time and in such form as the Secretary may prescribe and shall apply to all applicable musical property placed in service during the taxable year for which the election applies.
(E) Termination 
An election may not be made under this paragraph for any taxable year beginning after December 31, 2010.
(h) Amortization of geological and geophysical expenditures 

(1) In general 
Any geological and geophysical expenses paid or incurred in connection with the exploration for, or development of, oil or gas within the United States (as defined in section 638) shall be allowed as a deduction ratably over the 24-month period beginning on the date that such expense was paid or incurred.
(2) Half-year convention 
For purposes of paragraph (1), any payment paid or incurred during the taxable year shall be treated as paid or incurred on the mid-point of such taxable year.
(3) Exclusive method 
Except as provided in this subsection, no depreciation or amortization deduction shall be allowed with respect to such payments.
(4) Treatment upon abandonment 
If any property with respect to which geological and geophysical expenses are paid or incurred is retired or abandoned during the 24-month period described in paragraph (1), no deduction shall be allowed on account of such retirement or abandonment and the amortization deduction under this subsection shall continue with respect to such payment.
(5) Special rule for major integrated oil companies 

(A) In general 
In the case of a major integrated oil company, paragraphs (1) and (4) shall be applied by substituting 7-year for 24 month.
(B) Major integrated oil company 
For purposes of this paragraph, the term major integrated oil company means, with respect to any taxable year, a producer of crude oil
(i) which has an average daily worldwide production of crude oil of at least 500,000 barrels for the taxable year,
(ii) which had gross receipts in excess of $1,000,000,000 for its last taxable year ending during calendar year 2005, and
(iii) to which subsection (c) of section 613A does not apply by reason of paragraph (4) of section 613A (d), determined
(I) by substituting 15 percent for 5 percent each place it occurs in paragraph (3) of section 613A (d), and
(II) without regard to whether subsection (c) of section 613A does not apply by reason of paragraph (2) of section 613A (d).

For purposes of clauses (i) and (ii), all persons treated as a single employer under subsections (a) and (b) of section 52 shall be treated as 1 person and, in case of a short taxable year, the rule under section 448 (c)(3)(B) shall apply.

(i) Cross references 

(1) For additional rule applicable to depreciation of improvements in the case of mines, oil and gas wells, other natural deposits, and timber, see section 611.
(2) For amortization of goodwill and certain other intangibles, see section 197.

26 USC 168 - Accelerated cost recovery system

(a) General rule 
Except as otherwise provided in this section, the depreciation deduction provided by section 167 (a) for any tangible property shall be determined by using
(1) the applicable depreciation method,
(2) the applicable recovery period, and
(3) the applicable convention.
(b) Applicable depreciation method 
For purposes of this section
(1) In general 
Except as provided in paragraphs (2) and (3), the applicable depreciation method is
(A) the 200 percent declining balance method,
(B) switching to the straight line method for the 1st taxable year for which using the straight line method with respect to the adjusted basis as of the beginning of such year will yield a larger allowance.
(2) 150 percent declining balance method in certain cases 
Paragraph (1) shall be applied by substituting 150 percent for 200 percent in the case of
(A) any 15-year or 20-year property not referred to in paragraph (3),
(B) any property used in a farming business (within the meaning of section 263A (e)(4)), or
(C) any property (other than property described in paragraph (3)) with respect to which the taxpayer elects under paragraph (5) to have the provisions of this paragraph apply.
(3) Property to which straight line method applies 
The applicable depreciation method shall be the straight line method in the case of the following property:
(A) Nonresidential real property.
(B) Residential rental property.
(C) Any railroad grading or tunnel bore.
(D) Property with respect to which the taxpayer elects under paragraph (5) to have the provisions of this paragraph apply.
(E) Property described in subsection (e)(3)(D)(ii).
(F) Water utility property described in subsection (e)(5).
(G) Qualified leasehold improvement property described in subsection (e)(6).
(H) Qualified restaurant property described in subsection (e)(7).
(4) Salvage value treated as zero 
Salvage value shall be treated as zero.
(5) Election 
An election under paragraph (2)(C) or (3)(D) may be made with respect to 1 or more classes of property for any taxable year and once made with respect to any class shall apply to all property in such class placed in service during such taxable year. Such an election, once made, shall be irrevocable.
(c) Applicable recovery period 
For purposes of this section, the applicable recovery period shall be determined in accordance with the following table:
(d) Applicable convention 
For purposes of this section
(1) In general 
Except as otherwise provided in this subsection, the applicable convention is the half-year convention.
(2) Real property 
In the case of
(A) nonresidential real property,
(B) residential rental property, and
(C) any railroad grading or tunnel bore,

the applicable convention is the mid-month convention.

(3) Special rule where substantial property placed in service during last 3 months of taxable year 

(A) In general 
Except as provided in regulations, if during any taxable year
(i) the aggregate bases of property to which this section applies placed in service during the last 3 months of the taxable year, exceed
(ii) 40 percent of the aggregate bases of property to which this section applies placed in service during such taxable year,

the applicable convention for all property to which this section applies placed in service during such taxable year shall be the mid-quarter convention.

(B) Certain property not taken into account 
For purposes of subparagraph (A), there shall not be taken into account
(i) any nonresidential real property[1] residential rental property, and railroad grading or tunnel bore, and
(ii) any other property placed in service and disposed of during the same taxable year.
(4) Definitions 

(A) Half-year convention 
The half-year convention is a convention which treats all property placed in service during any taxable year (or disposed of during any taxable year) as placed in service (or disposed of) on the mid-point of such taxable year.
(B) Mid-month convention 
The mid-month convention is a convention which treats all property placed in service during any month (or disposed of during any month) as placed in service (or disposed of) on the mid-point of such month.
(C) Mid-quarter convention 
The mid-quarter convention is a convention which treats all property placed in service during any quarter of a taxable year (or disposed of during any quarter of a taxable year) as placed in service (or disposed of) on the mid-point of such quarter.
(e) Classification of property 
For purposes of this section
(1) In general 
Except as otherwise provided in this subsection, property shall be classified under the following table:
(2) Residential rental or nonresidential real prop­erty 

(A) Residential rental property 

(i) Residential rental property The term residential rental property means any building or structure if 80 percent or more of the gross rental income from such building or structure for the taxable year is rental income from dwelling units.
(ii) Definitions For purposes of clause (i)
(I) the term dwelling unit means a house or apartment used to provide living accommodations in a building or structure, but does not include a unit in a hotel, motel, or other establishment more than one-half of the units in which are used on a transient basis, and
(II) if any portion of the building or structure is occupied by the taxpayer, the gross rental income from such building or structure shall include the rental value of the portion so occupied.
(B) Nonresidential real property 
The term nonresidential real property means section 1250 property which is not
(i) residential rental property, or
(ii) property with a class life of less than 27.5 years.
(3) Classification of certain property 

(A) 3-year property 
The term 3-year property includes
(i) any race horse which is more than 2 years old at the time it is placed in service,
(ii) any horse other than a race horse which is more than 12 years old at the time it is placed in service, and
(iii) any qualified rent-to-own property.
(B) 5-year property 
The term 5-year property includes
(i) any automobile or light general purpose truck,
(ii) any semi-conductor manufacturing equipment,
(iii) any computer-based telephone central office switching equipment,
(iv) any qualified technological equipment,
(v) any section 1245 property used in connection with research and experimentation, and
(vi) any property which
(I) is described in subparagraph (A) of section 48 (a)(3) (or would be so described if solar or wind energy were substituted for solar energy in clause (i) thereof and the last sentence of such section did not apply to such subparagraph),
(II) is described in paragraph (15) of section 48 (l) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990) and is a qualifying small power production facility within the meaning of section 3(17)(C) of the Federal Power Act (16 U.S.C. 796 (17)(C)), as in effect on September 1, 1986, or
(III) is described in section 48 (l)(3)(A)(ix) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990).

Nothing in any provision of law shall be construed to treat property as not being described in clause (vi)(I) (or the corresponding provisions of prior law) by reason of being public utility property (within the meaning of section 48 (a)(3)).

(C) 7-year property 
The term 7-year property includes
(i) any railroad track, and[2]
(ii) any motorsports entertainment complex,
(iii) any Alaska natural gas pipeline,
(iv) any natural gas gathering line the original use of which commences with the taxpayer after April 11, 2005, and
(v) any property which
(I) does not have a class life, and
(II) is not otherwise classified under paragraph (2) or this paragraph.
(D) 10-year property 
The term 10-year property includes
(i) any single purpose agricultural or horticultural structure (within the meaning of subsection (i)(13)), and
(ii) any tree or vine bearing fruit or nuts.
(E) 15-year property 
The term 15-year property includes
(i) any municipal wastewater treatment plant,
(ii) any telephone distribution plant and comparable equipment used for 2-way exchange of voice and data communications,
(iii) any section 1250 property which is a retail motor fuels outlet (whether or not food or other convenience items are sold at the outlet),
(iv) any qualified leasehold improvement property placed in service before January 1, 2008,
(v) any qualified restaurant property placed in service before January 1, 2008,
(vi) initial clearing and grading land improvements with respect to gas utility property,
(vii) any section 1245 property (as defined in section 1245 (a)(3)) used in the transmission at 69 or more kilovolts of electricity for sale and the original use of which commences with the taxpayer after April 11, 2005, and
(viii) any natural gas distribution line the original use of which commences with the taxpayer after April 11, 2005, and which is placed in service before January 1, 2011.
(F) 20-year property 
The term 20-year property means initial clearing and grading land improvements with respect to any electric utility transmission and distribution plant.
(4) Railroad grading or tunnel bore 
The term railroad grading or tunnel bore means all improvements resulting from excavations (including tunneling), construction of embankments, clearings, diversions of roads and streams, sodding of slopes, and from similar work necessary to provide, construct, reconstruct, alter, protect, improve, replace, or restore a roadbed or right-of-way for railroad track.
(5) Water utility property 
The term water utility property means property
(A) which is an integral part of the gathering, treatment, or commercial distribution of water, and which, without regard to this paragraph, would be 20-year property, and
(B) any municipal sewer.
(6) Qualified leasehold improvement property 
The term qualified leasehold improvement property has the meaning given such term in section 168 (k)(3) except that the following special rules shall apply:
(A) Improvements made by lessor 
In the case of an improvement made by the person who was the lessor of such improvement when such improvement was placed in service, such improvement shall be qualified leasehold improvement property (if at all) only so long as such improvement is held by such person.
(B) Exception for changes in form of business 
Property shall not cease to be qualified leasehold improvement property under subparagraph (A) by reason of
(i) death,
(ii) a transaction to which section 381 (a) applies,
(iii) a mere change in the form of conducting the trade or business so long as the property is retained in such trade or business as qualified leasehold improvement property and the taxpayer retains a substantial interest in such trade or business,
(iv) the acquisition of such property in an exchange described in section 1031, 1033, or 1038 to the extent that the basis of such property includes an amount representing the adjusted basis of other property owned by the taxpayer or a related person, or
(v) the acquisition of such property by the taxpayer in a transaction described in section 332, 351, 361, 721, or 731 (or the acquisition of such property by the taxpayer from the transferee or acquiring corporation in a transaction described in such section), to the extent that the basis of the property in the hands of the taxpayer is determined by reference to its basis in the hands of the transferor or distributor.
(7) Qualified restaurant property 
The term qualified restaurant property means any section 1250 property which is an improvement to a building if
(A) such improvement is placed in service more than 3 years after the date such building was first placed in service, and
(B) more than 50 percent of the buildings square footage is devoted to preparation of, and seating for on-premises consumption of, prepared meals.
(f) Property to which section does not apply 
This section shall not apply to
(1) Certain methods of depreciation 
Any property if
(A) the taxpayer elects to exclude such property from the application of this section, and
(B) for the 1st taxable year for which a depreciation deduction would be allowable with respect to such property in the hands of the taxpayer, the property is properly depreciated under the unit-of-production method or any method of depreciation not expressed in a term of years (other than the retirement-replacement-betterment method or similar method).
(2) Certain public utility property 
Any public utility property (within the meaning of subsection (i)(10)) if the taxpayer does not use a normalization method of accounting.
(3) Films and video tape 
Any motion picture film or video tape.
(4) Sound recordings 
Any works which result from the fixation of a series of musical, spoken, or other sounds, regardless of the nature of the material (such as discs, tapes, or other phonorecordings) in which such sounds are embodied.
(5) Certain property placed in service in churning transactions 

(A) In general 
Property
(i) described in paragraph (4) of section 168 (e) (as in effect before the amendments made by the Tax Reform Act of 1986), or
(ii) which would be described in such paragraph if such paragraph were applied by substituting 1987 for 1981 and 1986 for 1980 each place such terms appear.
(B) Subparagraph (A)(ii) not to apply 
Clause (ii) of subparagraph (A) shall not apply to
(i) any residential rental property or nonresidential real property,
(ii) any property if, for the 1st taxable year in which such property is placed in service
(I) the amount allowable as a deduction under this section (as in effect before the date of the enactment of this paragraph) with respect to such property is greater than,
(II) the amount allowable as a deduction under this section (as in effect on or after such date and using the half-year convention) for such taxable year, or
(iii) any property to which this section (as amended by the Tax Reform Act of 1986) applied in the hands of the transferor.
(C) Special rule 
In the case of any property to which this section would apply but for this paragraph, the depreciation deduction under section 167 shall be determined under the provisions of this section as in effect before the amendments made by section 201 of the Tax Reform Act of 1986.
(g) Alternative depreciation system for certain property 

(1) In general 
In the case of
(A) any tangible property which during the taxable year is used predominantly outside the United States,
(B) any tax-exempt use property,
(C) any tax-exempt bond financed property,
(D) any imported property covered by an Executive order under paragraph (6), and
(E) any property to which an election under paragraph (7) applies,

the depreciation deduction provided by section 167 (a) shall be determined under the alternative depreciation system.

(2) Alternative depreciation system 
For purposes of paragraph (1), the alternative depreciation system is depreciation determined by using
(A) the straight line method (without regard to salvage value),
(B) the applicable convention determined under subsection (d), and
(C) a recovery period determined under the following table:
(3) Special rules for determining class life 

(A) Tax-exempt use property subject to lease 
In the case of any tax-exempt use property subject to a lease, the recovery period used for purposes of paragraph (2) shall (notwithstanding any other subparagraph of this paragraph) in no event be less than 125 percent of the lease term.
(B) Special rule for certain property assigned to classes 
For purposes of paragraph (2), in the case of property described in any of the following subparagraphs of subsection (e)(3), the class life shall be determined as follows:
(C) Qualified technological equipment 
In the case of any qualified technological equipment, the recovery period used for purposes of paragraph (2) shall be 5 years.
(D) Automobiles, etc. 
In the case of any automobile or light general purpose truck, the recovery period used for purposes of paragraph (2) shall be 5 years.
(E) Certain real property 
In the case of any section 1245 property which is real property with no class life, the recovery period used for purposes of paragraph (2) shall be 40 years.
(4) Exception for certain property used outside United States 
Subparagraph (A) of paragraph (1) shall not apply to
(A) any aircraft which is registered by the Administrator of the Federal Aviation Agency and which is operated to and from the United States or is operated under contract with the United States;
(B) rolling stock which is used within and without the United States and which is
(i) of a rail carrier subject to part A of subtitle IV of title 49, or
(ii) of a United States person (other than a corporation described in clause (i)) but only if the rolling stock is not leased to one or more foreign persons for periods aggregating more than 12 months in any 24-month period;
(C) any vessel documented under the laws of the United States which is operated in the foreign or domestic commerce of the United States;
(D) any motor vehicle of a United States person (as defined in section 7701 (a)(30)) which is operated to and from the United States;
(E) any container of a United States person which is used in the transportation of property to and from the United States;
(F) any property (other than a vessel or an aircraft) of a United States person which is used for the purpose of exploring for, developing, removing, or transporting resources from the outer Continental Shelf (within the meaning of section 2 of the Outer Continental Shelf Lands Act, as amended and supplemented; (43 U.S.C. 1331));
(G) any property which is owned by a domestic corporation (other than a corporation which has an election in effect under section 936) or by a United States citizen (other than a citizen entitled to the benefits of section 931 or 933) and which is used predominantly in a possession of the United States by such a corporation or such a citizen, or by a corporation created or organized in, or under the law of, a possession of the United States;
(H) any communications satellite (as defined in section 103(3) of the Communications Satellite Act of 1962, 47 U.S.C. 702 (3)), or any interest therein, of a United States person;
(I) any cable, or any interest therein, of a domestic corporation engaged in furnishing telephone service to which section 168 (i)(10)(C) applies (or of a wholly owned domestic subsidiary of such a corporation), if such cable is part of a submarine cable system which constitutes part of a communication link exclusively between the United States and one or more foreign countries;
(J) any property (other than a vessel or an aircraft) of a United States person which is used in international or territorial waters within the northern portion of the Western Hemisphere for the purpose of exploring for, developing, removing, or transporting resources from ocean waters or deposits under such waters;
(K) any property described in section 48 (l)(3)(A)(ix) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990) which is owned by a United States person and which is used in international or territorial waters to generate energy for use in the United States; and
(L) any satellite (not described in subparagraph (H)) or other spacecraft (or any interest therein) held by a United States person if such satellite or other spacecraft was launched from within the United States.

For purposes of subparagraph (J), the term northern portion of the Western Hemisphere means the area lying west of the 30th meridian west of Greenwich, east of the international dateline, and north of the Equator, but not including any foreign country which is a country of South America.

(5) Tax-exempt bond financed property 
For purposes of this subsection
(A) In general 
Except as otherwise provided in this paragraph, the term tax-exempt bond financed property means any property to the extent such property is financed (directly or indirectly) by an obligation the interest on which is exempt from tax under section 103 (a).
(B) Allocation of bond proceeds 
For purposes of subparagraph (A), the proceeds of any obligation shall be treated as used to finance property acquired in connection with the issuance of such obligation in the order in which such property is placed in service.
(C) Qualified residential rental projects 
The term tax-exempt bond financed property shall not include any qualified residential rental project (within the meaning of section 142 (a)(7)).
(6) Imported property 

(A) Countries maintaining trade restrictions or engaging in discriminatory acts 
If the President determines that a foreign country
(i) maintains nontariff trade restrictions, including variable import fees, which substantially burden United States commerce in a manner inconsistent with provisions of trade agreements, or
(ii) engages in discriminatory or other acts (including tolerance of international cartels) or policies unjustifiably restricting United States commerce,

the President may by Executive order provide for the application of paragraph (1)(D) to any article or class of articles manufactured or produced in such foreign country for such period as may be provided by such Executive order. Any period specified in the preceding sentence shall not apply to any property ordered before (or the construction, reconstruction, or erection of which began before) the date of the Executive order unless the President determines an earlier date to be in the public interest and specifies such date in the Executive order.

(B) Imported property 
For purposes of this subsection, the term imported property means any property if
(i) such property was completed outside the United States, or
(ii) less than 50 percent of the basis of such property is attributable to value added within the United States.

For purposes of this subparagraph, the term United States includes the Commonwealth of Puerto Rico and the possessions of the United States.

(7) Election to use alternative depreciation system 

(A) In general 
If the taxpayer makes an election under this paragraph with respect to any class of property for any taxable year, the alternative depreciation system under this subsection shall apply to all property in such class placed in service during such taxable year. Notwithstanding the preceding sentence, in the case of nonresidential real property or residential rental property, such election may be made separately with respect to each property.
(B) Election irrevocable 
An election under subparagraph (A), once made, shall be irrevocable.
(h) Tax-exempt use property 

(1) In general 
For purposes of this section
(A) Property other than nonresidential real property 
Except as otherwise provided in this subsection, the term tax-exempt use property means that portion of any tangible property (other than nonresidential real property) leased to a tax-exempt entity.
(B) Nonresidential real property 

(i) In general In the case of nonresidential real property, the term tax-exempt use property means that portion of the property leased to a tax-exempt entity in a disqualified lease.
(ii) Disqualified lease For purposes of this subparagraph, the term disqualified lease means any lease of the property to a tax-exempt entity, but only if
(I) part or all of the property was financed (directly or indirectly) by an obligation the interest on which is exempt from tax under section 103 (a) and such entity (or a related entity) participated in such financing,
(II) under such lease there is a fixed or determinable price purchase or sale option which involves such entity (or a related entity) or there is the equivalent of such an option,
(III) such lease has a lease term in excess of 20 years, or
(IV) such lease occurs after a sale (or other transfer) of the property by, or lease of the property from, such entity (or a related entity) and such property has been used by such entity (or a related entity) before such sale (or other transfer) or lease.
(iii) 35-percent threshold test Clause (i) shall apply to any property only if the portion of such property leased to tax-exempt entities in disqualified leases is more than 35 percent of the property.
(iv) Treatment of improvements For purposes of this subparagraph, improvements to a property (other than land) shall not be treated as a separate property.
(v) Leasebacks during 1st 3 months of use not taken into account Subclause (IV) of clause (ii) shall not apply to any property which is leased within 3 months after the date such property is first used by the tax-exempt entity (or a related entity).
(C) Exception for short-term leases 

(i) In general Property shall not be treated as tax-exempt use property merely by reason of a short-term lease.
(ii) Short-term lease For purposes of clause (i), the term short-term lease means any lease the term of which is
(I) less than 3 years, and
(II) less than the greater of 1 year or 30 percent of the propertys present class life.

In the case of nonresidential real property and property with no present class life, subclause (II) shall not apply.

(D) Exception where property used in unrelated trade or business 
The term tax-exempt use property shall not include any portion of a property if such portion is predominantly used by the tax-exempt entity (directly or through a partnership of which such entity is a partner) in an unrelated trade or business the income of which is subject to tax under section 511. For purposes of subparagraph (B)(iii), any portion of a property so used shall not be treated as leased to a tax-exempt entity in a disqualified lease.
(E) Nonresidential real property defined 
For purposes of this paragraph, the term nonresidential real property includes residential rental property.
(2) Tax-exempt entity 

(A) In general 
For purposes of this subsection, the term tax-exempt entity means
(i) the United States, any State or political subdivision thereof, any possession of the United States, or any agency or instrumentality of any of the foregoing,
(ii) an organization (other than a cooperative described in section 521) which is exempt from tax imposed by this chapter,
(iii) any foreign person or entity, and
(iv) any Indian tribal government described in section 7701 (a)(40).

For purposes of applying this subsection, any Indian tribal government referred to in clause (iv) shall be treated in the same manner as a State.

(B) Exception for certain property subject to United States tax and used by foreign person or entity 
Clause (iii) of subparagraph (A) shall not apply with respect to any property if more than 50 percent of the gross income for the taxable year derived by the foreign person or entity from the use of such property is
(i) subject to tax under this chapter, or
(ii) included under section 951 in the gross income of a United States shareholder for the taxable year with or within which ends the taxable year of the controlled foreign corporation in which such income was derived.

For purposes of the preceding sentence, any exclusion or exemption shall not apply for purposes of determining the amount of the gross income so derived, but shall apply for purposes of determining the portion of such gross income subject to tax under this chapter.

(C) Foreign person or entity 
For purposes of this paragraph, the term foreign person or entity means
(i) any foreign government, any international organization, or any agency or instrumentality of any of the foregoing, and
(ii) any person who is not a United States person.

Such term does not include any foreign partnership or other foreign pass-thru entity.

(D) Treatment of certain taxable instrumentalities 
For purposes of this subsection, a corporation shall not be treated as an instrumentality of the United States or of any State or political subdivision thereof if
(i) all of the activities of such corporation are subject to tax under this chapter, and
(ii) a majority of the board of directors of such corporation is not selected by the United States or any State or political subdivision thereof.
(E) Certain previously tax-exempt organizations 

(i) In general For purposes of this subsection, an organization shall be treated as an organization described in subparagraph (A)(ii) with respect to any property (other than property held by such organization) if such organization was an organization (other than a cooperative described in section 521) exempt from tax imposed by this chapter at any time during the 5-year period ending on the date such property was first used by such organization. The preceding sentence and subparagraph (D)(ii) shall not apply to the Federal Home Loan Mortgage Corporation.
(ii) Election not to have clause (i) apply
(I) In general In the case of an organization formerly exempt from tax under section 501 (a) as an organization described in section 501 (c)(12), clause (i) shall not apply to such organization with respect to any property if such organization elects not to be exempt from tax under section 501 (a) during the tax-exempt use period with respect to such property.
(II) Tax-exempt use period For purposes of subclause (I), the term tax-exempt use period means the period beginning with the taxable year in which the property described in subclause (I) is first used by the organization and ending with the close of the 15th taxable year following the last taxable year of the applicable recovery period of such property.
(III) Election Any election under subclause (I), once made, shall be irrevocable.
(iii) Treatment of successor organizations Any organization which is engaged in activities substantially similar to those engaged in by a predecessor organization shall succeed to the treatment under this subparagraph of such predecessor organization.
(iv) First used For purposes of this subparagraph, property shall be treated as first used by the organization
(I) when the property is first placed in service under a lease to such organization, or
(II) in the case of property leased to (or held by) a partnership (or other pass-thru entity) in which the organization is a member, the later of when such property is first used by such partnership or pass-thru entity or when such organization is first a member of such partnership or pass-thru entity.
(3) Special rules for certain high technology equipment 

(A) Exemption where lease term is 5 years or less 
For purposes of this section, the term tax-exempt use property shall not include any qualified technological equipment if the lease to the tax-exempt entity has a lease term of 5 years or less. Notwithstanding subsection (i)(3)(A)(i), in determining a lease term for purposes of the preceding sentence, there shall not be taken into account any option of the lessee to renew at the fair market value rent determined at the time of renewal; except that the aggregate period not taken into account by reason of this sentence shall not exceed 24 months.
(B) Exception for certain property 

(i) In general For purposes of subparagraph (A), the term qualified technological equipment shall not include any property leased to a tax-exempt entity if
(I) part or all of the property was financed (directly or indirectly) by an obligation the interest on which is exempt from tax under section 103 (a),
(II) such lease occurs after a sale (or other transfer) of the property by, or lease of such property from, such entity (or related entity) and such property has been used by such entity (or a related entity) before such sale (or other transfer) or lease, or
(III) such tax-exempt entity is the United States or any agency or instrumentality of the United States.
(ii) Leasebacks during 1st 3 months of use not taken into account Subclause (II) of clause (i) shall not apply to any property which is leased within 3 months after the date such property is first used by the tax-exempt entity (or a related entity).
(4) Related entities 
For purposes of this subsection
(A) 
(i) Each governmental unit and each agency or instrumentality of a governmental unit is related to each other such unit, agency, or instrumentality which directly or indirectly derives its powers, rights, and duties in whole or in part from the same sovereign authority.
(ii) For purposes of clause (i), the United States, each State, and each possession of the United States shall be treated as a separate sovereign authority.
(B) Any entity not described in subparagraph (A)(i) is related to any other entity if the 2 entities have
(i) significant common purposes and substantial common membership, or
(ii) directly or indirectly substantial common direction or control.
(C) 
(i) An entity is related to another entity if either entity owns (directly or through 1 or more entities) a 50 percent or greater interest in the capital or profits of the other entity.
(ii) For purposes of clause (i), entities treated as related under subparagraph (A) or (B) shall be treated as 1 entity.
(D) An entity is related to another entity with respect to a transaction if such transaction is part of an attempt by such entities to avoid the application of this subsection.
(5) Tax-exempt use of property leased to partnerships, etc., determined at partner level 
For purposes of this subsection
(A) In general 
In the case of any property which is leased to a partnership, the determination of whether any portion of such property is tax-exempt use property shall be made by treating each tax-exempt entity partners proportionate share (determined under paragraph (6)(C)) of such property as being leased to such partner.
(B) Other pass-thru entities; tiered entities 
Rules similar to the rules of subparagraph (A) shall also apply in the case of any pass-thru entity other than a partnership and in the case of tiered partnerships and other entities.
(C) Presumption with respect to foreign entities 
Unless it is otherwise established to the satisfaction of the Secretary, it shall be presumed that the partners of a foreign partnership (and the beneficiaries of any other foreign pass-thru entity) are persons who are not United States persons.
(6) Treatment of property owned by partnerships, etc. 

(A) In general 
For purposes of this subsection, if
(i) any property which (but for this subparagraph) is not tax-exempt use property is owned by a partnership which has both a tax-exempt entity and a person who is not a tax-exempt entity as partners, and
(ii) any allocation to the tax-exempt entity of partnership items is not a qualified allocation,

an amount equal to such tax-exempt entitys proportionate share of such property shall (except as provided in paragraph (1)(D)) be treated as tax-exempt use property.

(B) Qualified allocation 
For purposes of subparagraph (A), the term qualified allocation means any allocation to a tax-exempt entity which
(i) is consistent with such entitys being allocated the same distributive share of each item of income, gain, loss, deduction, credit, and basis and such share remains the same during the entire period the entity is a partner in the partnership, and
(ii) has substantial economic effect within the meaning of section 704 (b)(2).

For purposes of this subparagraph, items allocated under section 704 (c) shall not be taken into account.

(C) Determination of proportionate share 

(i) In general For purposes of subparagraph (A), a tax-exempt entitys proportionate share of any property owned by a partnership shall be determined on the basis of such entitys share of partnership items of income or gain (excluding gain allocated under section 704 (c)), whichever results in the largest proportionate share.
(ii) Determination where allocations vary For purposes of clause (i), if a tax-exempt entitys share of partnership items of income or gain (excluding gain allocated under section 704 (c)) may vary during the period such entity is a partner in the partnership, such share shall be the highest share such entity may receive.
(D) Determination of whether property used in unrelated trade or business 
For purposes of this subsection, in the case of any property which is owned by a partnership which has both a tax-exempt entity and a person who is not a tax-exempt entity as partners, the determination of whether such property is used in an unrelated trade or business of such an entity shall be made without regard to section 514.
(E) Other pass-thru entities; tiered entities 
Rules similar to the rules of subparagraphs (A), (B), (C), and (D) shall also apply in the case of any pass-thru entity other than a partnership and in the case of tiered partnerships and other entities.
(F) Treatment of certain taxable entities 

(i) In general For purposes of this paragraph and paragraph (5), except as otherwise provided in this subparagraph, any tax-exempt controlled entity shall be treated as a tax-exempt entity.
(ii) Election If a tax-exempt controlled entity makes an election under this clause
(I) such entity shall not be treated as a tax-exempt entity for purposes of this paragraph and paragraph (5), and
(II) any gain recognized by a tax-exempt entity on any disposition of an interest in such entity (and any dividend or interest received or accrued by a tax-exempt entity from such tax-exempt controlled entity) shall be treated as unrelated business taxable income for purposes of section 511.

Any such election shall be irrevocable and shall bind all tax-exempt entities holding interests in such tax-exempt controlled entity. For purposes of subclause (II), there shall only be taken into account dividends which are properly allocable to income of the tax-exempt controlled entity which was not subject to tax under this chapter.

(iii) Tax-exempt controlled entity
(I) In general The term tax-exempt controlled entity means any corporation (which is not a tax-exempt entity determined without regard to this subparagraph and paragraph (2)(E)) if 50 percent or more (in value) of the stock in such corporation is held by 1 or more tax-exempt entities (other than a foreign person or entity).
(II) Only 5-percent shareholders taken into account in case of publicly traded stock For purposes of subclause (I), in the case of a corporation the stock of which is publicly traded on an established securities market, stock held by a tax-exempt entity shall not be taken into account unless such entity holds at least 5 percent (in value) of the stock in such corporation. For purposes of this subclause, related entities (within the meaning of paragraph (4)) shall be treated as 1 entity.
(III) Section 318 to apply For purposes of this clause, a tax-exempt entity shall be treated as holding stock which it holds through application of section 318 (determined without regard to the 50-percent limitation contained in subsection (a)(2)(C) thereof).
(G) Regulations 
For purposes of determining whether there is a qualified allocation under subparagraph (B), the regulations prescribed under paragraph (8) for purposes of this paragraph
(i) shall set forth the proper treatment for partnership guaranteed payments, and
(ii) may provide for the exclusion or segregation of items.
(7) Lease 
For purposes of this subsection, the term lease includes any grant of a right to use property.
(8) Regulations 
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection.
(i) Definitions and special rules 
For purposes of this section
(1) Class life 
Except as provided in this section, the term class life means the class life (if any) which would be applicable with respect to any property as of January 1, 1986, under subsection (m) of section 167 (determined without regard to paragraph (4) and as if the taxpayer had made an election under such subsection). The Secretary, through an office established in the Treasury, shall monitor and analyze actual experience with respect to all depreciable assets. The reference in this paragraph to subsection (m) of section 167 shall be treated as a reference to such subsection as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990.
(2) Qualified technological equipment 

(A) In general 
The term qualified technological equipment means
(i) any computer or peripheral equipment,
(ii) any high technology telephone station equipment installed on the customers premises, and
(iii) any high technology medical equipment.
(B) Computer or peripheral equipment defined 
For purposes of this paragraph
(i) In general The term computer or peripheral equipment means
(I) any computer, and
(II) any related peripheral equipment.
(ii) Computer The term computer means a programmable electronically activated device which
(I) is capable of accepting information, applying prescribed processes to the information, and supplying the results of these processes with or without human intervention, and
(II) consists of a central processing unit containing extensive storage, logic, arithmetic, and control capabilities.
(iii) Related peripheral equipment The term related peripheral equipment means any auxiliary machine (whether on-line or off-line) which is designed to be placed under the control of the central processing unit of a computer.
(iv) Exceptions The term computer or peripheral equipment shall not include
(I) any equipment which is an integral part of other property which is not a computer,
(II) typewriters, calculators, adding and accounting machines, copiers, duplicating equipment, and similar equipment, and
(III) equipment of a kind used primarily for amusement or entertainment of the user.
(C) High technology medical equipment 
For purposes of this paragraph, the term high technology medical equipment means any electronic, electromechanical, or computer-based high technology equipment used in the screening, monitoring, observation, diagnosis, or treatment of patients in a laboratory, medical, or hospital environment.
(3) Lease term 

(A) In general 
In determining a lease term
(i) there shall be taken into account options to renew,
(ii) the term of a lease shall include the term of any service contract or similar arrangement (whether or not treated as a lease under section 7701 (e))
(I) which is part of the same transaction (or series of related transactions) which includes the lease, and
(II) which is with respect to the property subject to the lease or substantially similar property, and
(iii) 2 or more successive leases which are part of the same transaction (or a series of related transactions) with respect to the same or substantially similar property shall be treated as 1 lease.
(B) Special rule for fair rental options on nonresidential real property or residential rental property 
For purposes of clause (i) of subparagraph (A), in the case of nonresidential real property or residential rental property, there shall not be taken into account any option to renew at fair market value, determined at the time of renewal.
(4) General asset accounts 
Under regulations, a taxpayer may maintain 1 or more general asset accounts for any property to which this section applies. Except as provided in regulations, all proceeds realized on any disposition of property in a general asset account shall be included in income as ordinary income.
(5) Changes in use 
The Secretary shall, by regulations, provide for the method of determining the deduction allowable under section 167 (a) with respect to any tangible property for any taxable year (and the succeeding taxable years) during which such property changes status under this section but continues to be held by the same person.
(6) Treatments of additions or improvements to property 
In the case of any addition to (or improvement of) any property
(A) any deduction under subsection (a) for such addition or improvement shall be computed in the same manner as the deduction for such property would be computed if such property had been placed in service at the same time as such addition or improvement, and
(B) the applicable recovery period for such addition or improvement shall begin on the later of
(i) the date on which such addition (or improvement) is placed in service, or
(ii) the date on which the property with respect to which such addition (or improvement) was made is placed in service.
(7) Treatment of certain transferees 

(A) In general 
In the case of any property transferred in a transaction described in subparagraph (B), the transferee shall be treated as the transferor for purposes of computing the depreciation deduction determined under this section with respect to so much of the basis in the hands of the transferee as does not exceed the adjusted basis in the hands of the transferor. In any case where this section as in effect before the amendments made by section 201 of the Tax Reform Act of 1986 applied to the property in the hands of the transferor, the reference in the preceding sentence to this section shall be treated as a reference to this section as so in effect.
(B) Transactions covered 
The transactions described in this subparagraph are
(i) any transaction described in section 332, 351, 361, 721, or 731, and
(ii) any transaction between members of the same affiliated group during any taxable year for which a consolidated return is made by such group.

Subparagraph (A) shall not apply in the case of a termination of a partnership under section 708 (b)(1)(B).

(C) Property reacquired by the taxpayer 
Under regulations, property which is disposed of and then reacquired by the taxpayer shall be treated for purposes of computing the deduction allowable under subsection (a) as if such property had not been disposed of.
(8) Treatment of leasehold improvements 

(A) In general 
In the case of any building erected (or improvements made) on leased property, if such building or improvement is property to which this section applies, the depreciation deduction shall be determined under the provisions of this section.
(B) Treatment of lessor improvements which are abandoned at termination of lease 
An improvement
(i) which is made by the lessor of leased property for the lessee of such property, and
(ii) which is irrevocably disposed of or abandoned by the lessor at the termination of the lease by such lessee,

shall be treated for purposes of determining gain or loss under this title as disposed of by the lessor when so disposed of or abandoned.

(C) Cross reference 
For treatment of qualified long-term real property constructed or improved in connection with cash or rent reduction from lessor to lessee, see section 110 (b).
(9) Normalization rules 

(A) In general 
In order to use a normalization method of accounting with respect to any public utility property for purposes of subsection (f)(2)
(i) the taxpayer must, in computing its tax expense for purposes of establishing its cost of service for ratemaking purposes and reflecting operating results in its regulated books of account, use a method of depreciation with respect to such property that is the same as, and a depreciation period for such property that is no shorter than, the method and period used to compute its depreciation expense for such purposes; and
(ii) if the amount allowable as a deduction under this section with respect to such property differs from the amount that would be allowable as a deduction under section 167 using the method (including the period, first and last year convention, and salvage value) used to compute regulated tax expense under clause (i), the taxpayer must make adjustments to a reserve to reflect the deferral of taxes resulting from such difference.
(B) Use of inconsistent estimates and projections, etc. 

(i) In general One way in which the requirements of subparagraph (A) are not met is if the taxpayer, for ratemaking purposes, uses a procedure or adjustment which is inconsistent with the requirements of subparagraph (A).
(ii) Use of inconsistent estimates and projections The procedures and adjustments which are to be treated as inconsistent for purposes of clause (i) shall include any procedure or adjustment for ratemaking purposes which uses an estimate or projection of the taxpayers tax expense, depreciation expense, or reserve for deferred taxes under subparagraph (A)(ii) unless such estimate or projection is also used, for ratemaking purposes, with respect to the other 2 such items and with respect to the rate base.
(iii) Regulatory authority The Secretary may by regulations prescribe procedures and adjustments (in addition to those specified in clause (ii)) which are to be treated as inconsistent for purposes of clause (i).
(C) Public utility property which does not meet normalization rules 
In the case of any public utility property to which this section does not apply by reason of subsection (f)(2), the allowance for depreciation under section 167 (a) shall be an amount computed using the method and period referred to in subparagraph (A)(i).
(10) Public utility property 
The term public utility property means property used predominantly in the trade or business of the furnishing or sale of
(A) electrical energy, water, or sewage disposal services,
(B) gas or steam through a local distribution system,
(C) telephone services, or other communication services if furnished or sold by the Communications Satellite Corporation for purposes authorized by the Communications Satellite Act of 1962 (47 U.S.C. 701), or
(D) transportation of gas or steam by pipeline,

if the rates for such furnishing or sale, as the case may be, have been established or approved by a State or political subdivision thereof, by any agency or instrumentality of the United States, or by a public service or public utility commission or other similar body of any State or political subdivision thereof.

(11) Research and experimentation 
The term research and experimentation has the same meaning as the term research and experimental has under section 174.
(12) Section 1245 and 1250 property 
The terms section 1245 property and section 1250 property have the meanings given such terms by sections 1245 (a)(3) and 1250 (c), respectively.
(13) Single purpose agricultural or horticultural structure 

(A) In general 
The term single purpose agricultural or horticultural structure means
(i) a single purpose livestock structure, and
(ii) a single purpose horticultural structure.
(B) Definitions 
For purposes of this paragraph
(i) Single purpose livestock structure The term single purpose livestock structure means any enclosure or structure specifically designed, constructed, and used
(I) for housing, raising, and feeding a particular type of livestock and their produce, and
(II) for housing the equipment (including any replacements) necessary for the housing, raising, and feeding referred to in subclause (I).
(ii) Single purpose horticultural structure The term single purpose horticultural structure means
(I) a greenhouse specifically designed, constructed, and used for the commercial production of plants, and
(II) a structure specifically designed, constructed, and used for the commercial production of mushrooms.
(iii) Structures which include work space An enclosure or structure which provides work space shall be treated as a single purpose agricultural or horticultural structure only if such work space is solely for
(I) the stocking, caring for, or collecting of livestock or plants (as the case may be) or their produce,
(II) the maintenance of the enclosure or structure, and
(III) the maintenance or replacement of the equipment or stock enclosed or housed therein.
(iv) Livestock The term livestock includes poultry.
(14) Qualified rent-to-own property 

(A) In general 
The term qualified rent-to-own property means property held by a rent-to-own dealer for purposes of being subject to a rent-to-own contract.
(B) Rent-to-own dealer 
The term rent-to-own dealer means a person that, in the ordinary course of business, regularly enters into rent-to-own contracts with customers for the use of consumer property, if a substantial portion of those contracts terminate and the property is returned to such person before the receipt of all payments required to transfer ownership of the property from such person to the customer.
(C) Consumer property 
The term consumer property means tangible personal property of a type generally used within the home for personal use.
(D) Rent-to-own contract 
The term rent-to-own contract means any lease for the use of consumer property between a rent-to-own dealer and a customer who is an individual which
(i) is titled Rent-to-Own Agreement or Lease Agreement with Ownership Option, or uses other similar language,
(ii) provides for level (or decreasing where no payment is less than 40 percent of the largest payment), regular periodic payments (for a payment period which is a week or month),
(iii) provides that legal title to such property remains with the rent-to-own dealer until the customer makes all the payments described in clause (ii) or early purchase payments required under the contract to acquire legal title to the item of property,
(iv) provides a beginning date and a maximum period of time for which the contract may be in effect that does not exceed 156 weeks or 36 months from such beginning date (including renewals or options to extend),
(v) provides for payments within the 156-week or 36-month period that, in the aggregate, generally exceed the normal retail price of the consumer property plus interest,
(vi) provides for payments under the contract that, in the aggregate, do not exceed $10,000 per item of consumer property,
(vii) provides that the customer does not have any legal obligation to make all the payments referred to in clause (ii) set forth under the contract, and that at the end of each payment period the customer may either continue to use the consumer property by making the payment for the next payment period or return such property to the rent-to-own dealer in good working order, in which case the customer does not incur any further obligations under the contract and is not entitled to a return of any payments previously made under the contract, and
(viii) provides that the customer has no right to sell, sublease, mortgage, pawn, pledge, encumber, or otherwise dispose of the consumer property until all the payments stated in the contract have been made.
(15) Motorsports entertainment complex 

(A) In general 
The term motorsports entertainment complex means a racing track facility which
(i) is permanently situated on land, and
(ii) during the 36-month period following the first day of the month in which the asset is placed in service, hosts 1 or more racing events for automobiles (of any type), trucks, or motorcycles which are open to the public for the price of admission.
(B) Ancillary and support facilities 
Such term shall include, if owned by the taxpayer who owns the complex and provided for the benefit of patrons of the complex
(i) ancillary facilities and land improvements in support of the complexs activities (including parking lots, sidewalks, waterways, bridges, fences, and landscaping),
(ii) support facilities (including food and beverage retailing, souvenir vending, and other nonlodging accommodations), and
(iii) appurtenances associated with such facilities and related attractions and amusements (including ticket booths, race track surfaces, suites and hospitality facilities, grandstands and viewing structures, props, walls, facilities that support the delivery of entertainment services, other special purpose structures, facades, shop interiors, and buildings).
(C) Exception 
Such term shall not include any transportation equipment, administrative services assets, warehouses, administrative buildings, hotels, or motels.
(D) Termination 
Such term shall not include any property placed in service after December 31, 2007.
(16) Alaska natural gas pipeline 
The term Alaska natural gas pipeline means the natural gas pipeline system located in the State of Alaska which
(A) has a capacity of more than 500,000,000,000 Btu of natural gas per day, and
(B) is
(i) placed in service after December 31, 2013, or
(ii) treated as placed in service on January 1, 2014, if the taxpayer who places such system in service before January 1, 2014, elects such treatment.

Such term includes the pipe, trunk lines, related equipment, and appurtenances used to carry natural gas, but does not include any gas processing plant.

(17) Natural gas gathering line 
The term natural gas gathering line means
(A) the pipe, equipment, and appurtenances determined to be a gathering line by the Federal Energy Regulatory Commission, and
(B) the pipe, equipment, and appurtenances used to deliver natural gas from the wellhead or a commonpoint to the point at which such gas first reaches
(i) a gas processing plant,
(ii) an interconnection with a transmission pipeline for which a certificate as an interstate transmission pipeline has been issued by the Federal Energy Regulatory Commission,
(iii) an interconnection with an intrastate transmission pipeline, or
(iv) a direct interconnection with a local distribution company, a gas storage facility, or an industrial consumer.
(j) Property on Indian reservations 

(1) In general 
For purposes of subsection (a), the applicable recovery period for qualified Indian reservation property shall be determined in accordance with the table contained in paragraph (2) in lieu of the table contained in subsection (c).
(2) Applicable recovery period for Indian reservation property 
For purposes of paragraph (1)
(3) Deduction allowed in computing minimum tax 
For purposes of determining alternative minimum taxable income under section 55, the deduction under subsection (a) for property to which paragraph (1) applies shall be determined under this section without regard to any adjustment under section 56.
(4) Qualified Indian reservation property defined 
For purposes of this subsection
(A) In general 
The term qualified Indian reservation property means property which is property described in the table in paragraph (2) and which is
(i) used by the taxpayer predominantly in the active conduct of a trade or business within an Indian reservation,
(ii) not used or located outside the Indian reservation on a regular basis,
(iii) not acquired (directly or indirectly) by the taxpayer from a person who is related to the taxpayer (within the meaning of section 465 (b)(3)(C)), and
(iv) not property (or any portion thereof) placed in service for purposes of conducting or housing class I, II, or III gaming (as defined in section 4 of the Indian Regulatory Act (25 U.S.C. 2703)).
(B) Exception for alternative depreciation property 
The term qualified Indian reservation property does not include any property to which the alternative depreciation system under subsection (g) applies, determined
(i) without regard to subsection (g)(7) (relating to election to use alternative depreciation system), and
(ii) after the application of section 280F (b) (relating to listed property with limited business use).
(C) Special rule for reservation infrastructure investment 

(i) In general Subparagraph (A)(ii) shall not apply to qualified infrastructure property located outside of the Indian reservation if the purpose of such property is to connect with qualified infrastructure property located within the Indian reservation.
(ii) Qualified infrastructure property For purposes of this subparagraph, the term qualified infrastructure property means qualified Indian reservation property (determined without regard to subparagraph (A)(ii)) which
(I) benefits the tribal infrastructure,
(II) is available to the general public, and
(III) is placed in service in connection with the taxpayers active conduct of a trade or business within an Indian reservation.

Such term includes, but is not limited to, roads, power lines, water systems, railroad spurs, and communications facilities.

(5) Real estate rentals 
For purposes of this subsection, the rental to others of real property located within an Indian reservation shall be treated as the active conduct of a trade or business within an Indian reservation.
(6) Indian reservation defined 
For purposes of this subsection, the term Indian reservation means a reservation, as defined in
(A) section 3(d) of the Indian Financing Act of 1974 (25 U.S.C. 1452 (d)), or
(B) section 4(10) of the Indian Child Welfare Act of 1978 (25 U.S.C. 1903 (10)).

For purposes of the preceding sentence, such section 3 (d) shall be applied by treating the term former Indian reservations in Oklahoma as including only lands which are within the jurisdictional area of an Oklahoma Indian tribe (as determined by the Secretary of the Interior) and are recognized by such Secretary as eligible for trust land status under 25 CFR Part 151 (as in effect on the date of the enactment of this sentence).

(7) Coordination with nonrevenue laws 
Any reference in this subsection to a provision not contained in this title shall be treated for purposes of this subsection as a reference to such provision as in effect on the date of the enactment of this paragraph.
(8) Termination 
This subsection shall not apply to property placed in service after December 31, 2007.
(k) Special allowance for certain property acquired after September 10, 2001, and before January 1, 2005 

(1) Additional allowance 
In the case of any qualified property
(A) the depreciation deduction provided by section 167 (a) for the taxable year in which such property is placed in service shall include an allowance equal to 30 percent of the adjusted basis of the qualified property, and
(B) the adjusted basis of the qualified property shall be reduced by the amount of such deduction before computing the amount otherwise allowable as a depreciation deduction under this chapter for such taxable year and any subsequent taxable year.
(2) Qualified property 
For purposes of this subsection
(A) In general 
The term qualified property means property
(i) 
(I) to which this section applies which has a recovery period of 20 years or less,
(II) which is computer software (as defined in section 167 (f)(1)(B)) for which a deduction is allowable under section 167 (a) without regard to this subsection,
(III) which is water utility property, or
(IV) which is qualified leasehold improvement property,
(ii) the original use of which commences with the taxpayer after September 10, 2001,
(iii) which is
(I) acquired by the taxpayer after September 10, 2001, and before January 1, 2005, but only if no written binding contract for the acquisition was in effect before September 11, 2001, or
(II) acquired by the taxpayer pursuant to a written binding contract which was entered into after September 10, 2001, and before January 1, 2005, and
(iv) which is placed in service by the taxpayer before January 1, 2005, or, in the case of property described in subparagraph (B) or (C), before January 1, 2006.
(B) Certain property having longer production periods treated as qualified property 

(i) In general The term qualified property includes any property if such property
(I) meets the requirements of clauses (i), (ii), and (iii) of subparagraph (A),
(II) has a recovery period of at least 10 years or is transportation property,
(III) is subject to section 263A, and
(IV) meets the requirements of clause (ii) or (iii) of section 263A (f)(1)(B) (determined as if such clauses also apply to property which has a long useful life (within the meaning of section 263A (f))).
(ii) Only pre-January 1, 2005, basis eligible for additional allowance In the case of property which is qualified property solely by reason of clause (i), paragraph (1) shall apply only to the extent of the adjusted basis thereof attributable to manufacture, construction, or production before January 1, 2005.
(iii) Transportation property For purposes of this subparagraph, the term transportation property means tangible personal property used in the trade or business of transporting persons or property.
(iv) Application of subparagraph This subparagraph shall not apply to any property which is described in subparagraph (C).
(C) Certain aircraft 
The term qualified property includes property
(i) which meets the requirements of clauses (ii) and (iii) of subparagraph (A),
(ii) which is an aircraft which is not a transportation property (as defined in subparagraph (B)(iii)) other than for agricultural or firefighting purposes,
(iii) which is purchased and on which such purchaser, at the time of the contract for purchase, has made a nonrefundable deposit of the lesser of
(I) 10 percent of the cost, or
(II) $100,000, and
(iv) which has
(I) an estimated production period exceeding 4 months, and
(II) a cost exceeding $200,000.
(D) Exceptions 

(i) Alternative depreciation property The term qualified property shall not include any property to which the alternative depreciation system under subsection (g) applies, determined
(I) without regard to paragraph (7) of subsection (g) (relating to election to have system apply), and
(II) after application of section 280F (b) (relating to listed property with limited business use).
(ii) Qualified new york liberty zone leasehold improvement property The term qualified property shall not include any qualified New York Liberty Zone leasehold improvement property (as defined in section 1400L (c)(2)).
(iii) Election out If a taxpayer makes an election under this clause with respect to any class of property for any taxable year, this subsection shall not apply to all property in such class placed in service during such taxable year. The preceding sentence shall be applied separately with respect to property treated as qualified property by paragraph (4) and other qualified property.
(E) Special rules 

(i) Self-constructed property In the case of a taxpayer manufacturing, constructing, or producing property for the taxpayers own use, the requirements of clause (iii) of subparagraph (A) shall be treated as met if the taxpayer begins manufacturing, constructing, or producing the property after September 10, 2001, and before January 1, 2005.
(ii) Sale-leasebacks For purposes of clause (iii) and subparagraph (A)(ii), if property is
(I) originally placed in service after September 10, 2001, by a person, and
(II) sold and leased back by such person within 3 months after the date such property was originally placed in service,

such property shall be treated as originally placed in service not earlier than the date on which such property is used under the leaseback referred to in subclause (II).

(iii) Syndication For purposes of subparagraph (A)(ii), if
(I) property is originally placed in service after September 10, 2001, by the lessor of such property,
(II) such property is sold by such lessor or any subsequent purchaser within 3 months after the date such property was originally placed in service (or, in the case of multiple units of property subject to the same lease, within 3 months after the date the final unit is placed in service, so long as the period between the time the first unit is placed in service and the time the last unit is placed in service does not exceed 12 months), and
(III) the user of such property after the last sale during such 3-month period remains the same as when such property was originally placed in service,

such property shall be treated as originally placed in service not earlier than the date of such last sale.

(iv) Limitations related to users and related parties The term qualified property shall not include any property if
(I) the user of such property (as of the date on which such property is originally placed in service) or a person which is related (within the meaning of section 267 (b) or 707 (b)) to such user or to the taxpayer had a written binding contract in effect for the acquisition of such property at any time on or before September 10, 2001, or
(II) in the case of property manufactured, constructed, or produced for such users or persons own use, the manufacture, construction, or production of such property began at any time on or before September 10, 2001.
(F) Coordination with section 280F 
For purposes of section 280F
(i) Automobiles In the case of a passenger automobile (as defined in section 280F (d)(5)) which is qualified property, the Secretary shall increase the limitation under section 280F (a)(1)(A)(i) by $4,600.
(ii) Listed property The deduction allowable under paragraph (1) shall be taken into account in computing any recapture amount under section 280F (b)(2).
(G) Deduction allowed in computing minimum tax 
For purposes of determining alternative minimum taxable income under section 55, the deduction under subsection (a) for qualified property shall be determined under this section without regard to any adjustment under section 56.
(3) Qualified leasehold improvement property 
For purposes of this subsection
(A) In general 
The term qualified leasehold improvement property means any improvement to an interior portion of a building which is nonresidential real property if
(i) such improvement is made under or pursuant to a lease (as defined in subsection (h)(7))
(I) by the lessee (or any sublessee) of such portion, or
(II) by the lessor of such portion,
(ii) such portion is to be occupied exclusively by the lessee (or any sublessee) of such portion, and
(iii) such improvement is placed in service more than 3 years after the date the building was first placed in service.
(B) Certain improvements not included 
Such term shall not include any improvement for which the expenditure is attributable to
(i) the enlargement of the building,
(ii) any elevator or escalator,
(iii) any structural component benefiting a common area, and
(iv) the internal structural framework of the building.
(C) Definitions and special rules 
For purposes of this paragraph
(i) Commitment to lease treated as lease A commitment to enter into a lease shall be treated as a lease, and the parties to such commitment shall be treated as lessor and lessee, respectively.
(ii) Related persons A lease between related persons shall not be considered a lease. For purposes of the preceding sentence, the term related persons means
(I) members of an affiliated group (as defined in section 1504), and
(II) persons having a relationship described in subsection (b) of section 267; except that, for purposes of this clause, the phrase 80 percent or more shall be substituted for the phrase more than 50 percent each place it appears in such subsection.
(4) 50-percent bonus depreciation for certain property 

(A) In general 
In the case of 50-percent bonus depreciation property
(i) paragraph (1)(A) shall be applied by substituting 50 percent for 30 percent, and
(ii) except as provided in paragraph (2)(D), such property shall be treated as qualified property for purposes of this subsection.
(B) 50-percent bonus depreciation property 
For purposes of this subsection, the term 50-percent bonus depreciation property means property described in paragraph (2)(A)(i)
(i) the original use of which commences with the taxpayer after May 5, 2003,
(ii) which is
(I) acquired by the taxpayer after May 5, 2003, and before January 1, 2005, but only if no written binding contract for the acquisition was in effect before May 6, 2003, or
(II) acquired by the taxpayer pursuant to a written binding contract which was entered into after May 5, 2003, and before January 1, 2005, and
(iii) which is placed in service by the taxpayer before January 1, 2005, or, in the case of property described in paragraph (2)(B) (as modified by subparagraph (C) of this paragraph) or paragraph (2)(C) (as so modified), before January 1, 2006.
(C) Special rules 
Rules similar to the rules of subparagraphs (B), (C), and (E) of paragraph (2) shall apply for purposes of this paragraph; except that references to September 10, 2001, shall be treated as references to May 5, 2003.
(D) Automobiles 
Paragraph (2)(F) shall be applied by substituting $7,650 for $4,600 in the case of 50-percent bonus depreciation property.
(E) Election of 30-percent bonus 
If a taxpayer makes an election under this subparagraph with respect to any class of property for any taxable year, subparagraph (A)(i) shall not apply to all property in such class placed in service during such taxable year.
(l) Special allowance for cellulosic biomass ethanol plant property 

(1) Additional allowance 
In the case of any qualified cellulosic biomass ethanol plant property
(A) the depreciation deduction provided by section 167 (a) for the taxable year in which such property is placed in service shall include an allowance equal to 50 percent of the adjusted basis of such property, and
(B) the adjusted basis of such property shall be reduced by the amount of such deduction before computing the amount otherwise allowable as a depreciation deduction under this chapter for such taxable year and any subsequent taxable year.
(2) Qualified cellulosic biomass ethanol plant property 
The term qualified cellulosic biomass ethanol plant property means property of a character subject to the allowance for depreciation
(A) which is used in the United States solely to produce cellulosic biomass ethanol,
(B) the original use of which commences with the taxpayer after the date of the enactment of this subsection,
(C) which is acquired by the taxpayer by purchase (as defined in section 179 (d)) after the date of the enactment of this subsection, but only if no written binding contract for the acquisition was in effect on or before the date of the enactment of this subsection, and
(D) which is placed in service by the taxpayer before January 1, 2013.
(3) Cellulosic biomass ethanol 
For purposes of this subsection, the term cellulosic biomass ethanol means ethanol produced by hydrolysis of any lignocellulosic or hemicellulosic matter that is available on a renewable or recurring basis.
(4) Exceptions 

(A) Alternative depreciation property 
Such term shall not include any property described in section 168 (k)(2)(D)(i).
(B) Tax-exempt bond-financed property 
Such term shall not include any property any portion of which is financed with the proceeds of any obligation the interest on which is exempt from tax under section 103.
(C) Election out 
If a taxpayer makes an election under this subparagraph with respect to any class of property for any taxable year, this subsection shall not apply to all property in such class placed in service during such taxable year.
(5) Special rules 
For purposes of this subsection, rules similar to the rules of subparagraph (E) of section 168 (k)(2) shall apply, except that such subparagraph shall be applied
(A) by substituting the date of the enactment of subsection (l) for September 10, 2001 each place it appears therein,
(B) by substituting January 1, 2013 for January 1, 2005 in clause (i) thereof, and
(C) by substituting qualified cellulosic biomass ethanol plant property for qualified property in clause (iv) thereof.
(6) Allowance against alternative minimum tax 
For purposes of this subsection, rules similar to the rules of section 168 (k)(2)(G) shall apply.
(7) Recapture 
For purposes of this subsection, rules similar to the rules under section 179 (d)(10) shall apply with respect to any qualified cellulosic biomass ethanol plant property which ceases to be qualified cellulosic biomass ethanol plant property.
(8) Denial of double benefit 
Paragraph (1) shall not apply to any qualified cellulosic biomass ethanol plant property with respect to which an election has been made under section 179C (relating to election to expense certain refineries).
[1] So in original. Probably should be “property,”.
[2] So in original. The word “and” probably should not appear.

26 USC 169 - Amortization of pollution control facilities

(a) Allowance of deduction 
Every person, at his election, shall be entitled to a deduction with respect to the amortization of the amortizable basis of any certified pollution control facility (as defined in subsection (d)), based on a period of 60 months. Such amortization deduction shall be an amount, with respect to each month of such period within the taxable year, equal to the amortizable basis of the pollution control facility at the end of such month divided by the number of months (including the month for which the deduction is computed) remaining in the period. Such amortizable basis at the end of the month shall be computed without regard to the amortization deduction for such month. The amortization deduction provided by this section with respect to any month shall be in lieu of the depreciation deduction with respect to such pollution control facility for such month provided by section 167. The 60-month period shall begin, as to any pollution control facility, at the election of the taxpayer, with the month following the month in which such facility was completed or acquired, or with the succeeding taxable year.
(b) Election of amortization 
The election of the taxpayer to take the amortization deduction and to begin the 60-month period with the month following the month in which the facility is completed or acquired, or with the taxable year succeeding the taxable year in which such facility is completed or acquired, shall be made by filing with the Secretary, in such manner, in such form, and within such time, as the Secretary may by regulations prescribe, a statement of such election.
(c) Termination of amortization deduction 
A taxpayer which has elected under subsection (b) to take the amortization deduction provided in subsection (a) may, at any time after making such election, discontinue the amortization deduction with respect to the remainder of the amortization period, such discontinuance to begin as of the beginning of any month specified by the taxpayer in a notice in writing filed with the Secretary before the beginning of such month. The depreciation deduction provided under section 167 shall be allowed, beginning with the first month as to which the amortization deduction does not apply, and the taxpayer shall not be entitled to any further amortization deduction under this section with respect to such pollution control facility.
(d) Definitions and special rules 
For purposes of this section
(1) Certified pollution control facility 
The term certified pollution control facility means a new identifiable treatment facility which is used, in connection with a plant or other property in operation before January 1, 1976, to abate or control water or atmospheric pollution or contamination by removing, altering, disposing, storing, or preventing the creation or omission of pollutants, contaminants, wastes, or heat and which
(A) the State certifying authority having jurisdiction with respect to such facility has certified to the Federal certifying authority as having been constructed, reconstructed, erected, or acquired in conformity with the State program or requirements for abatement or control of water or atmospheric pollution or contamination;
(B) the Federal certifying authority has certified to the Secretary
(i)  as being in compliance with the applicable regulations of Federal agencies and
(ii)  as being in furtherance of the general policy of the United States for cooperation with the States in the prevention and abatement of water pollution under the Federal Water Pollution Control Act, as amended (33 U.S.C. 466 et seq.), or in the prevention and abatement of atmospheric pollution and contamination under the Clean Air Act, as amended (42 U.S.C. 1857 et seq.); and
(C) does not significantly
(i) increase the output or capacity, extend the useful life, or reduce the total operating costs of such plant or other property (or any unit thereof), or
(ii) alter the nature of the manufacturing or production process or facility.
(2) State certifying authority 
The term State certifying authority means, in the case of water pollution, the State water pollution control agency as defined in section 13(a) of the Federal Water Pollution Control Act and, in the case of air pollution, the air pollution control agency as defined in section 302(b) of the Clean Air Act. The term State certifying authority includes any interstate agency authorized to act in place of a certifying authority of the State.
(3) Federal certifying authority 
The term Federal certifying authority means, in the case of water pollution, the Secretary of the Interior and, in the case of air pollution, the Secretary of Health and Human Services.
(4) New identifiable treatment facility 

(A) In general 
For purposes of paragraph (1), the term new identifiable treatment facility includes only tangible property (not including a building and its structural components, other than a building which is exclusively a treatment facility) which is of a character subject to the allowance for depreciation provided in section 167, which is identifiable as a treatment facility, and which is property
(i) the construction, reconstruction, or erection of which is completed by the taxpayer after December 31, 1968, or
(ii) acquired after December 31, 1968, if the original use of the property commences with the taxpayer and commences after such date.

In applying this section in the case of property described in clause (i) there shall be taken into account only that portion of the basis which is properly attributable to construction, reconstruction, or erection after December 31, 1968.

(B) Certain facilities placed in operation after April 11, 2005 
In the case of any facility described in paragraph (1) solely by reason of paragraph (5), subparagraph (A) shall be applied by substituting April 11, 2005 for December 31, 1968 each place it appears therein.
(5) Special rule relating to certain atmospheric pollution control facilities 
In the case of any atmospheric pollution control facility which is placed in service after April 11, 2005, and used in connection with an electric generation plant or other property which is primarily coal fired
(A) paragraph (1) shall be applied without regard to the phrase in operation before January 1, 1976, and
(B) in the case of facility[1] placed in service in connection with a plant or other property placed in operation after December 31, 1975, this section shall be applied by substituting 84 for 60 each place it appears in subsections (a) and (b).
(e) Profitmaking abatement works, etc. 
The Federal certifying authority shall not certify any property under subsection (d)(1)(B) to the extent it appears that by reason of profits derived through the recovery of wastes or otherwise in the operation of such property, its costs will be recovered over its actual useful life.
(f) Amortizable basis 

(1) Defined 
For purposes of this section, the term amortizable basis means that portion of the adjusted basis (for determining gain) of a certified pollution control facility which may be amortized under this section.
(2) Special rules 

(A) If a certified pollution control facility has a useful life (determined as of the first day of the first month for which a deduction is allowable under this section) in excess of 15 years, the amortizable basis of such facility shall be equal to an amount which bears the same ratio to the portion of the adjusted basis of such facility, which would be eligible for amortization but for the application of this subparagraph, as 15 bears to the number of years of useful life of such facility.
(B) The amortizable basis of a certified pollution control facility with respect to which an election under this section is in effect shall not be increased, for purposes of this section, for additions or improvements after the amortization period has begun.
(g) Depreciation deduction 
The depreciation deduction provided by section 167 shall, despite the provisions of subsection (a), be allowed with respect to the portion of the adjusted basis which is not the amortizable basis.
[(h) Repealed. Pub. L. 92–178, title I, § 104(f)(2), Dec. 10, 1971, 85 Stat. 502] 
(i) Life tenant and remainderman 
In the case of property held by one person for life with remainder to another person, the deduction under this section shall be computed as if the life tenant were the absolute owner of the property and shall be allowable to the life tenant.
(j) Cross reference 
For special rule with respect to certain gain derived from the disposition of property the adjusted basis of which is determined with regard to this section, see section 1245.
[1] So in original. Probably should be “a facility”.

26 USC 170 - Charitable, etc., contributions and gifts

(a) Allowance of deduction 

(1) General rule 
There shall be allowed as a deduction any charitable contribution (as defined in subsection (c)) payment of which is made within the taxable year. A charitable contribution shall be allowable as a deduction only if verified under regulations prescribed by the Secretary.
(2) Corporations on accrual basis 
In the case of a corporation reporting its taxable income on the accrual basis, if
(A) the board of directors authorizes a charitable contribution during any taxable year, and
(B) payment of such contribution is made after the close of such taxable year and on or before the 15th day of the third month following the close of such taxable year,

then the taxpayer may elect to treat such contribution as paid during such taxable year. The election may be made only at the time of the filing of the return for such taxable year, and shall be signified in such manner as the Secretary shall by regulations prescribe.

(3) Future interests in tangible personal property 
For purposes of this section, payment of a charitable contribution which consists of a future interest in tangible personal property shall be treated as made only when all intervening interests in, and rights to the actual possession or enjoyment of, the property have expired or are held by persons other than the taxpayer or those standing in a relationship to the taxpayer described in section 267 (b) or 707 (b). For purposes of the preceding sentence, a fixture which is intended to be severed from the real property shall be treated as tangible personal property.
(b) Percentage limitations 

(1) Individuals 
In the case of an individual, the deduction provided in subsection (a) shall be limited as provided in the succeeding subparagraphs.
(A) General rule 
Any charitable contribution to
(i) a church or a convention or association of churches,
(ii) an educational organization which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on,
(iii) an organization the principal purpose or functions of which are the providing of medical or hospital care or medical education or medical research, if the organization is a hospital, or if the organization is a medical research organization directly engaged in the continuous active conduct of medical research in conjunction with a hospital, and during the calendar year in which the contribution is made such organization is committed to spend such contributions for such research before January 1 of the fifth calendar year which begins after the date such contribution is made,
(iv) an organization which normally receives a substantial part of its support (exclusive of income received in the exercise or performance by such organization of its charitable, educational, or other purpose or function constituting the basis for its exemption under section 501 (a)) from the United States or any State or political subdivision thereof or from direct or indirect contributions from the general public, and which is organized and operated exclusively to receive, hold, invest, and administer property and to make expenditures to or for the benefit of a college or university which is an organization referred to in clause (ii) of this subparagraph and which is an agency or instrumentality of a State or political subdivision thereof, or which is owned or operated by a State or political subdivision thereof or by an agency or instrumentality of one or more States or political subdivisions,
(v) a governmental unit referred to in subsection (c)(1),
(vi) an organization referred to in subsection (c)(2) which normally receives a substantial part of its support (exclusive of income received in the exercise or performance by such organization of its charitable, educational, or other purpose or function constituting the basis for its exemption under section 501 (a)) from a governmental unit referred to in subsection (c)(1) or from direct or indirect contributions from the general public,
(vii) a private foundation described in subparagraph (F), or
(viii) an organization described in section 509 (a)(2) or (3),

shall be allowed to the extent that the aggregate of such contributions does not exceed 50 percent of the taxpayers contribution base for the taxable year.

(B) Other contributions 
Any charitable contribution other than a charitable contribution to which subparagraph (A) applies shall be allowed to the extent that the aggregate of such contributions does not exceed the lesser of
(i) 30 percent of the taxpayers contribution base for the taxable year, or
(ii) the excess of 50 percent of the taxpayers contribution base for the taxable year over the amount of charitable contributions allowable under subparagraph (A) (determined without regard to subparagraph (C)).

If the aggregate of such contributions exceeds the limitation of the preceding sentence, such excess shall be treated (in a manner consistent with the rules of subsection (d)(1)) as a charitable contribution (to which subparagraph (A) does not apply) in each of the 5 succeeding taxable years in order of time.

(C) Special limitation with respect to contributions described in subparagraph (A) of certain capital gain property 

(i) In the case of charitable contributions described in subparagraph (A) of capital gain property to which subsection (e)(1)(B) does not apply, the total amount of contributions of such property which may be taken into account under subsection (a) for any taxable year shall not exceed 30 percent of the taxpayers contribution base for such year. For purposes of this subsection, contributions of capital gain property to which this subparagraph applies shall be taken into account after all other charitable contributions (other than charitable contributions to which subparagraph (D) applies).
(ii) If charitable contributions described in subparagraph (A) of capital gain property to which clause (i) applies exceeds 30 percent of the taxpayers contribution base for any taxable year, such excess shall be treated, in a manner consistent with the rules of subsection (d)(1), as a charitable contribution of capital gain property to which clause (i) applies in each of the 5 succeeding taxable years in order of time.
(iii) At the election of the taxpayer (made at such time and in such manner as the Secretary prescribes by regulations), subsection (e)(1) shall apply to all contributions of capital gain property (to which subsection (e)(1)(B) does not otherwise apply) made by the taxpayer during the taxable year. If such an election is made, clauses (i) and (ii) shall not apply to contributions of capital gain property made during the taxable year, and, in applying subsection (d)(1) for such taxable year with respect to contributions of capital gain property made in any prior contribution year for which an election was not made under this clause, such contributions shall be reduced as if subsection (e)(1) had applied to such contributions in the year in which made.
(iv) For purposes of this paragraph, the term capital gain property means, with respect to any contribution, any capital asset the sale of which at its fair market value at the time of the contribution would have resulted in gain which would have been long-term capital gain. For purposes of the preceding sentence, any property which is property used in the trade or business (as defined in section 1231 (b)) shall be treated as a capital asset.
(D) Special limitation with respect to contributions of capital gain property to organizations not described in subparagraph (A) 

(i) In general In the case of charitable contributions (other than charitable contributions to which subparagraph (A) applies) of capital gain property, the total amount of such contributions of such property taken into account under subsection (a) for any taxable year shall not exceed the lesser of
(I) 20 percent of the taxpayers contribution base for the taxable year, or
(II) the excess of 30 percent of the taxpayers contribution base for the taxable year over the amount of the contributions of capital gain property to which subparagraph (C) applies.

For purposes of this subsection, contributions of capital gain property to which this subparagraph applies shall be taken into account after all other charitable contributions.

(ii) Carryover If the aggregate amount of contributions described in clause (i) exceeds the limitation of clause (i), such excess shall be treated (in a manner consistent with the rules of subsection (d)(1)) as a charitable contribution of capital gain property to which clause (i) applies in each of the 5 succeeding taxable years in order of time.
(E) Contributions of qualified conservation contributions 

(i) In general Any qualified conservation contribution (as defined in subsection (h)(1)) shall be allowed to the extent the aggregate of such contributions does not exceed the excess of 50 percent of the taxpayers contribution base over the amount of all other charitable contributions allowable under this paragraph.
(ii) Carryover If the aggregate amount of contributions described in clause (i) exceeds the limitation of clause (i), such excess shall be treated (in a manner consistent with the rules of subsection (d)(1)) as a charitable contribution to which clause (i) applies in each of the 15 succeeding years in order of time.
(iii) Coordination with other subparagraphs For purposes of applying this subsection and subsection (d)(1), contributions described in clause (i) shall not be treated as described in subparagraph (A), (B), (C), or (D) and such subparagraphs shall apply without regard to such contributions.
(iv) Special rule for contribution of property used in agriculture or livestock production
(I) In general If the individual is a qualified farmer or rancher for the taxable year for which the contribution is made, clause (i) shall be applied by substituting 100 percent for 50 percent.
(II) Exception Subclause (I) shall not apply to any contribution of property made after the date of the enactment of this subparagraph which is used in agriculture or livestock production (or available for such production) unless such contribution is subject to a restriction that such property remain available for such production. This subparagraph shall be applied separately with respect to property to which subclause (I) does not apply by reason of the preceding sentence prior to its application to property to which subclause (I) does apply.
(v) Definition For purposes of clause (iv), the term qualified farmer or rancher means a taxpayer whose gross income from the trade or business of farming (within the meaning of section 2032A (e)(5)) is greater than 50 percent of the taxpayers gross income for the taxable year.
(vi) Termination This subparagraph shall not apply to any contribution made in taxable years beginning after December 31, 2007.
(F) Certain private foundations 
The private foundations referred to in subparagraph (A)(vii) and subsection (e)(1)(B) are
(i) a private operating foundation (as defined in section 4942 (j)(3)),
(ii) any other private foundation (as defined in section 509 (a)) which, not later than the 15th day of the third month after the close of the foundations taxable year in which contributions are received, makes qualifying distributions (as defined in section 4942 (g), without regard to paragraph (3) thereof), which are treated, after the application of section 4942 (g)(3), as distributions out of corpus (in accordance with section 4942 (h)) in an amount equal to 100 percent of such contributions, and with respect to which the taxpayer obtains adequate records or other sufficient evidence from the foundation showing that the foundation made such qualifying distributions, and
(iii) a private foundation all of the contributions to which are pooled in a common fund and which would be described in section 509 (a)(3) but for the right of any substantial contributor (hereafter in this clause called donor) or his spouse to designate annually the recipients, from among organizations described in paragraph (1) of section 509(a), of the income attributable to the donors contribution to the fund and to direct (by deed or by will) the payment, to an organization described in such paragraph (1), of the corpus in the common fund attributable to the donors contribution; but this clause shall apply only if all of the income of the common fund is required to be (and is) distributed to one or more organizations described in such paragraph (1) not later than the 15th day of the third month after the close of the taxable year in which the income is realized by the fund and only if all of the corpus attributable to any donors contribution to the fund is required to be (and is) distributed to one or more of such organizations not later than one year after his death or after the death of his surviving spouse if she has the right to designate the recipients of such corpus.
(G) Contribution base defined 
For purposes of this section, the term contribution base means adjusted gross income (computed without regard to any net operating loss carryback to the taxable year under section 172).
(2) Corporations 
In the case of a corporation
(A) In general 
The total deductions under subsection (a) for any taxable year (other than for contributions to which subparagraph (B) applies) shall not exceed 10 percent of the taxpayers taxable income.
(B) Qualified conservation contributions by certain corporate farmers and ranchers 

(i) In general Any qualified conservation contribution (as defined in subsection (h)(1))
(I) which is made by a corporation which, for the taxable year during which the contribution is made, is a qualified farmer or rancher (as defined in paragraph (1)(E)(v)) and the stock of which is not readily tradable on an established securities market at any time during such year, and
(II) which, in the case of contributions made after the date of the enactment of this subparagraph, is a contribution of property which is used in agriculture or livestock production (or available for such production) and which is subject to a restriction that such property remain available for such production,

shall be allowed to the extent the aggregate of such contributions does not exceed the excess of the taxpayers taxable income over the amount of charitable contributions allowable under subparagraph (A).

(ii) Carryover If the aggregate amount of contributions described in clause (i) exceeds the limitation of clause (i), such excess shall be treated (in a manner consistent with the rules of subsection (d)(2)) as a charitable contribution to which clause (i) applies in each of the 15 succeeding years in order of time.
(iii) Termination This subparagraph shall not apply to any contribution made in taxable years beginning after December 31, 2007.
(C) Taxable income 
For purposes of this paragraph, taxable income shall be computed without regard to
(i) this section,
(ii) part VIII (except section 248),
(iii) any net operating loss carryback to the taxable year under section 172,
(iv) section 199, and
(v) any capital loss carryback to the taxable year under section 1212 (a)(1).
(c) Charitable contribution defined 
For purposes of this section, the term charitable contribution means a contribution or gift to or for the use of
(1) A State, a possession of the United States, or any political subdivision of any of the foregoing, or the United States or the District of Columbia, but only if the contribution or gift is made for exclusively public purposes.
(2) A corporation, trust, or community chest, fund, or foundation
(A) created or organized in the United States or in any possession thereof, or under the law of the United States, any State, the District of Columbia, or any possession of the United States;
(B) organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals;
(C) no part of the net earnings of which inures to the benefit of any private shareholder or individual; and
(D) which is not disqualified for tax exemption under section 501 (c)(3) by reason of attempting to influence legislation, and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.

A contribution or gift by a corporation to a trust, chest, fund, or foundation shall be deductible by reason of this paragraph only if it is to be used within the United States or any of its possessions exclusively for purposes specified in subparagraph (B). Rules similar to the rules of section 501 (j) shall apply for purposes of this paragraph.

(3) A post or organization of war veterans, or an auxiliary unit or society of, or trust or foundation for, any such post or organization
(A) organized in the United States or any of its possessions, and
(B) no part of the net earnings of which inures to the benefit of any private shareholder or individual.
(4) In the case of a contribution or gift by an individual, a domestic fraternal society, order, or association, operating under the lodge system, but only if such contribution or gift is to be used exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals.
(5) A cemetery company owned and operated exclusively for the benefit of its members, or any corporation chartered solely for burial purposes as a cemetery corporation and not permitted by its charter to engage in any business not necessarily incident to that purpose, if such company or corporation is not operated for profit and no part of the net earnings of such company or corporation inures to the benefit of any private shareholder or individual.

For purposes of this section, the term charitable contribution also means an amount treated under subsection (g) as paid for the use of an organization described in paragraph (2), (3), or (4).

(d) Carryovers of excess contributions 

(1) Individuals 

(A) In general 
In the case of an individual, if the amount of charitable contributions described in subsection (b)(1)(A) payment of which is made within a taxable year (hereinafter in this paragraph referred to as the contribution year) exceeds 50 percent of the taxpayers contribution base for such year, such excess shall be treated as a charitable contribution described in subsection (b)(1)(A) paid in each of the 5 succeeding taxable years in order of time, but, with respect to any such succeeding taxable year, only to the extent of the lesser of the two following amounts:
(i) the amount by which 50 percent of the taxpayers contribution base for such succeeding taxable year exceeds the sum of the charitable contributions described in subsection (b)(1)(A) payment of which is made by the taxpayer within such succeeding taxable year (determined without regard to this subparagraph) and the charitable contributions described in subsection (b)(1)(A) payment of which was made in taxable years before the contribution year which are treated under this subparagraph as having been paid in such succeeding taxable year; or
(ii) in the case of the first succeeding taxable year, the amount of such excess, and in the case of the second, third, fourth, or fifth succeeding taxable year, the portion of such excess not treated under this subparagraph as a charitable contribution described in subsection (b)(1)(A) paid in any taxable year intervening between the contribution year and such succeeding taxable year.
(B) Special rule for net operating loss carryovers 
In applying subparagraph (A), the excess determined under subparagraph (A) for the contribution year shall be reduced to the extent that such excess reduces taxable income (as computed for purposes of the second sentence of section 172 (b)(2)) and increases the net operating loss deduction for a taxable year succeeding the contribution year.
(2) Corporations 

(A) In general 
Any contribution made by a corporation in a taxable year (hereinafter in this paragraph referred to as the contribution year) in excess of the amount deductible for such year under subsection (b)(2)(A) shall be deductible for each of the 5 succeeding taxable years in order of time, but only to the extent of the lesser of the two following amounts:
(i)  the excess of the maximum amount deductible for such succeeding taxable year under subsection (b)(2)(A) over the sum of the contributions made in such year plus the aggregate of the excess contributions which were made in taxable years before the contribution year and which are deductible under this subparagraph for such succeeding taxable year; or
(ii)  in the case of the first succeeding taxable year, the amount of such excess contribution, and in the case of the second, third, fourth, or fifth succeeding taxable year, the portion of such excess contribution not deductible under this subparagraph for any taxable year intervening between the contribution year and such succeeding taxable year.
(B) Special rule for net operating loss carryovers 
For purposes of subparagraph (A), the excess of
(i) the contributions made by a corporation in a taxable year to which this section applies, over
(ii) the amount deductible in such year under the limitation in subsection (b)(2)(A),

shall be reduced to the extent that such excess reduces taxable income (as computed for purposes of the second sentence of section 172 (b)(2)) and increases a net operating loss carryover under section 172 to a succeeding taxable year.

(e) Certain contributions of ordinary income and capital gain property 

(1) General rule 
The amount of any charitable contribution of property otherwise taken into account under this section shall be reduced by the sum of
(A) the amount of gain which would not have been long-term capital gain (determined without regard to section 1221 (b)(3)) if the property contributed had been sold by the taxpayer at its fair market value (determined at the time of such contribution), and
(B) in the case of a charitable contribution
(i) of tangible personal property
(I) if the use by the donee is unrelated to the purpose or function constituting the basis for its exemption under section 501 (or, in the case of a governmental unit, to any purpose or function described in subsection (c)), or
(II) which is applicable property (as defined in paragraph (7)(C), but without regard to clause (ii) thereof) which is sold, exchanged, or otherwise disposed of by the donee before the last day of the taxable year in which the contribution was made and with respect to which the donee has not made a certification in accordance with paragraph (7)(D),
(ii) to or for the use of a private foundation (as defined in section 509 (a)), other than a private foundation described in subsection (b)(1)(F),
(iii) of any patent, copyright (other than a copyright described in section 1221 (a)(3) or 1231 (b)(1)(C)), trademark, trade name, trade secret, know-how, software (other than software described in section 197 (e)(3)(A)(i)), or similar property, or applications or registrations of such property, or
(iv) of any taxidermy property which is contributed by the person who prepared, stuffed, or mounted the property or by any person who paid or incurred the cost of such preparation, stuffing, or mounting, the amount of gain which would have been long-term capital gain if the property contributed had been sold by the taxpayer at its fair market value (determined at the time of such contribution).

For purposes of applying this paragraph (other than in the case of gain to which section 617 (d)(1), 1245 (a), 1250 (a), 1252 (a), or 1254 (a) applies), property which is property used in the trade or business (as defined in section 1231 (b)) shall be treated as a capital asset. For purposes of applying this paragraph in the case of a charitable contribution of stock in an S corporation, rules similar to the rules of section 751 shall apply in determining whether gain on such stock would have been long-term capital gain if such stock were sold by the taxpayer.

(2) Allocation of basis 
For purposes of paragraph (1), in the case of a charitable contribution of less than the taxpayers entire interest in the property contributed, the taxpayers adjusted basis in such property shall be allocated between the interest contributed and any interest not contributed in accordance with regulations prescribed by the Secretary.
(3) Special rule for certain contributions of inventory and other property 

(A) Qualified contributions 
For purposes of this paragraph, a qualified contribution shall mean a charitable contribution of property described in paragraph (1) or (2) of section 1221 (a), by a corporation (other than a corporation which is an S corporation) to an organization which is described in section 501 (c)(3) and is exempt under section 501 (a) (other than a private foundation, as defined in section 509 (a), which is not an operating foundation, as defined in section 4942 (j)(3)), but only if
(i) the use of the property by the donee is related to the purpose or function constituting the basis for its exemption under section 501 and the property is to be used by the donee solely for the care of the ill, the needy, or infants;
(ii) the property is not transferred by the donee in exchange for money, other property, or services;
(iii) the taxpayer receives from the donee a written statement representing that its use and disposition of the property will be in accordance with the provisions of clauses (i) and (ii); and
(iv) in the case where the property is subject to regulation under the Federal Food, Drug, and Cosmetic Act, as amended, such property must fully satisfy the applicable requirements of such Act and regulations promulgated thereunder on the date of transfer and for one hundred and eighty days prior thereto.
(B) Amount of reduction 
The reduction under paragraph (1)(A) for any qualified contribution (as defined in subparagraph (A)) shall be no greater than the sum of
(i) one-half of the amount computed under paragraph (1)(A) (computed without regard to this paragraph), and
(ii) the amount (if any) by which the charitable contribution deduction under this section for any qualified contribution (computed by taking into account the amount determined in clause (i), but without regard to this clause) exceeds twice the basis of such property.
(C) Special rule for contributions of food inventory 

(i) General rule In the case of a charitable contribution of food from any trade or business of the taxpayer, this paragraph shall be applied
(I) without regard to whether the contribution is made by a C corporation, and
(II) only to food that is apparently wholesome food.
(ii) Limitation In the case of a taxpayer other than a C corporation, the aggregate amount of such contributions for any taxable year which may be taken into account under this section shall not exceed 10 percent of the taxpayers aggregate net income for such taxable year from all trades or businesses from which such contributions were made for such year, computed without regard to this section.
(iii) Apparently wholesome food For purposes of this subparagraph, the term apparently wholesome food has the meaning given to such term by section 22(b)(2) of the Bill Emerson Good Samaritan Food Donation Act (42 U.S.C. 1791 (b)(2)), as in effect on the date of the enactment of this subparagraph.
(iv) Termination This subparagraph shall not apply to contributions made after December 31, 2007.
(D) Special rule for contributions of book inventory to public schools 

(i) Contributions of book inventory In determining whether a qualified book contribution is a qualified contribution, subparagraph (A) shall be applied without regard to whether the donee is an organization described in the matter preceding clause (i) of subparagraph (A).
(ii) Qualified book contribution For purposes of this paragraph, the term qualified book contribution means a charitable contribution of books to a school">public school which is an educational organization described in subsection (b)(1)(A)(ii) and which provides elementary education or secondary education (kindergarten through grade 12).
(iii) Certification by donee Subparagraph (A) shall not apply to any contribution unless (in addition to the certifications required by subparagraph (A) (as modified by this subparagraph)), the donee certifies in writing that
(I) the books are suitable, in terms of currency, content, and quantity, for use in the donees educational programs, and
(II) the donee will use the books in its educational programs.
(iv) Termination This subparagraph shall not apply to contributions made after December 31, 2007.
(E) This paragraph shall not apply to so much of the amount of the gain described in paragraph (1)(A) which would be long-term capital gain but for the application of sections 617, 1245, 1250, or 1252.
(4) Special rule for contributions of scientific property used for research 

(A) Limit on reduction 
In the case of a qualified research contribution, the reduction under paragraph (1)(A) shall be no greater than the amount determined under paragraph (3)(B).
(B) Qualified research contributions 
For purposes of this paragraph, the term qualified research contribution means a charitable contribution by a corporation of tangible personal property described in paragraph (1) of section 1221 (a), but only if
(i) the contribution is to an organization described in subparagraph (A) or subparagraph (B) of section 41 (e)(6),
(ii) the property is constructed or assembled by the taxpayer,
(iii) the contribution is made not later than 2 years after the date the construction or assembly of the property is substantially completed,
(iv) the original use of the property is by the donee,
(v) the property is scientific equipment or apparatus substantially all of the use of which by the donee is for research or experimentation (within the meaning of section 174), or for research training, in the United States in physical or biological sciences,
(vi) the property is not transferred by the donee in exchange for money, other property, or services, and
(vii) the taxpayer receives from the donee a written statement representing that its use and disposition of the property will be in accordance with the provisions of clauses (v) and (vi).
(C) Construction of property by taxpayer 
For purposes of this paragraph, property shall be treated as constructed by the taxpayer only if the cost of the parts used in the construction of such property (other than parts manufactured by the taxpayer or a related person) do not exceed 50 percent of the taxpayers basis in such property.
(D) Corporation 
For purposes of this paragraph, the term corporation shall not include
(i) an S corporation,
(ii) a personal holding company (as defined in section 542), and
(iii) a service organization (as defined in section 414 (m)(3)).
(5) Special rule for contributions of stock for which market quotations are readily available 

(A) In general 
Subparagraph (B)(ii) of paragraph (1) shall not apply to any contribution of qualified appreciated stock.
(B) Qualified appreciated stock 
Except as provided in subparagraph (C), for purposes of this paragraph, the term qualified appreciated stock means any stock of a corporation
(i) for which (as of the date of the contribution) market quotations are readily available on an established securities market, and
(ii) which is capital gain property (as defined in subsection (b)(1)(C)(iv)).
(C) Donor may not contribute more than 10 percent of stock of corporation 

(i) In general In the case of any donor, the term qualified appreciated stock shall not include any stock of a corporation contributed by the donor in a contribution to which paragraph (1)(B)(ii) applies (determined without regard to this paragraph) to the extent that the amount of the stock so contributed (when increased by the aggregate amount of all prior such contributions by the donor of stock in such corporation) exceeds 10 percent (in value) of all of the outstanding stock of such corporation.
(ii) Special rule For purposes of clause (i), an individual shall be treated as making all contributions made by any member of his family (as defined in section 267 (c)(4)).
(6) Special rule for contributions of computer technology and equipment for educational purposes 

(A) Limit on reduction 
In the case of a qualified computer contribution, the reduction under paragraph (1)(A) shall be no greater than the amount determined under paragraph (3)(B).
(B) Qualified computer contribution 
For purposes of this paragraph, the term qualified computer contribution means a charitable contribution by a corporation of any computer technology or equipment, but only if
(i) the contribution is to
(I) an educational organization described in subsection (b)(1)(A)(ii),
(II) an entity described in section 501 (c)(3) and exempt from tax under section 501 (a) (other than an entity described in subclause (I)) that is organized primarily for purposes of supporting elementary and secondary education, or
(III) a public library (within the meaning of section 213(1)(A) of the Library Services and Technology Act (20 U.S.C. 9122 (1)(A))),[1] as in effect on the date of the enactment of the Community Renewal Tax Relief Act of 2000), established and maintained by an entity described in subsection (c)(1),
(ii) the contribution is made not later than 3 years after the date the taxpayer acquired the property (or in the case of property constructed or assembled by the taxpayer, the date the construction or assembling of the property is substantially completed),
(iii) the original use of the property is by the donor or the donee,
(iv) substantially all of the use of the property by the donee is for use within the United States for educational purposes that are related to the purpose or function of the donee,
(v) the property is not transferred by the donee in exchange for money, other property, or services, except for shipping, installation and transfer costs,
(vi) the property will fit productively into the donees education plan,
(vii) the donees use and disposition of the property will be in accordance with the provisions of clauses (iv) and (v), and
(viii) the property meets such standards, if any, as the Secretary may prescribe by regulation to assure that the property meets minimum functionality and suitability standards for educational purposes.
(C) Contribution to private foundation 
A contribution by a corporation of any computer technology or equipment to a private foundation (as defined in section 509) shall be treated as a qualified computer contribution for purposes of this paragraph if
(i) the contribution to the private foundation satisfies the requirements of clauses (ii) and (v) of subparagraph (B), and
(ii) within 30 days after such contribution, the private foundation
(I) contributes the property to a donee described in clause (i) of subparagraph (B) that satisfies the requirements of clauses (iv) through (vii) of subparagraph (B), and
(II) notifies the donor of such contribution.
(D) Donations of property reacquired by manufacturer 
In the case of property which is reacquired by the person who constructed or assembled the property
(i) subparagraph (B)(ii) shall be applied to a contribution of such property by such person by taking into account the date that the original construction or assembly of the property was substantially completed, and
(ii) subparagraph (B)(iii) shall not apply to such contribution.
(E) Special rule relating to construction of property 
For the purposes of this paragraph, the rules of paragraph (4)(C) shall apply.
(F) Definitions 
For the purposes of this paragraph
(i) Computer technology or equipment The term computer technology or equipment means computer software (as defined by section 197 (e)(3)(B)), computer or peripheral equipment (as defined by section 168 (i)(2)(B)), and fiber optic cable related to computer use.
(ii) Corporation The term corporation has the meaning given to such term by paragraph (4)(D).
(G) Termination 
This paragraph shall not apply to any contribution made during any taxable year beginning after December 31, 2007.
(7) Recapture of deduction on certain dispositions of exempt use property 

(A) In general 
In the case of an applicable disposition of applicable property, there shall be included in the income of the donor of such property for the taxable year of such donor in which the applicable disposition occurs an amount equal to the excess (if any) of
(i) the amount of the deduction allowed to the donor under this section with respect to such property, over
(ii) the donors basis in such property at the time such property was contributed.
(B) Applicable disposition 
For purposes of this paragraph, the term applicable disposition means any sale, exchange, or other disposition by the donee of applicable property
(i) after the last day of the taxable year of the donor in which such property was contributed, and
(ii) before the last day of the 3-year period beginning on the date of the contribution of such property,

unless the donee makes a certification in accordance with subparagraph (D).

(C) Applicable property 
For purposes of this paragraph, the term applicable property means charitable deduction property (as defined in section 6050L (a)(2)(A))
(i) which is tangible personal property the use of which is identified by the donee as related to the purpose or function constituting the basis of the donees exemption under section 501, and
(ii) for which a deduction in excess of the donors basis is allowed.
(D) Certification 
A certification meets the requirements of this subparagraph if it is a written statement which is signed under penalty of perjury by an officer of the donee organization and
(i) which
(I) certifies that the use of the property by the donee was substantial and related to the purpose or function constituting the basis for the donees exemption under section 501, and
(II) describes how the property was used and how such use furthered such purpose or function, or
(ii) which
(I) states the intended use of the property by the donee at the time of the contribution, and
(II) certifies that such intended use has become impossible or infeasible to implement.
(f) Disallowance of deduction in certain cases and special rules 

(1) In general 
No deduction shall be allowed under this section for a contribution to or for the use of an organization or trust described in section 508 (d) or 4948 (c)(4) subject to the conditions specified in such sections.
(2) Contributions of property placed in trust 

(A) Remainder interest 
In the case of property transferred in trust, no deduction shall be allowed under this section for the value of a contribution of a remainder interest unless the trust is a charitable remainder annuity trust or a charitable remainder unitrust (described in section 664), or a pooled income fund (described in section 642 (c)(5)).
(B) Income interests, etc. 
No deduction shall be allowed under this section for the value of any interest in property (other than a remainder interest) transferred in trust unless the interest is in the form of a guaranteed annuity or the trust instrument specifies that the interest is a fixed percentage distributed yearly of the fair market value of the trust property (to be determined yearly) and the grantor is treated as the owner of such interest for purposes of applying section 671. If the donor ceases to be treated as the owner of such an interest for purposes of applying section 671, at the time the donor ceases to be so treated, the donor shall for purposes of this chapter be considered as having received an amount of income equal to the amount of any deduction he received under this section for the contribution reduced by the discounted value of all amounts of income earned by the trust and taxable to him before the time at which he ceases to be treated as the owner of the interest. Such amounts of income shall be discounted to the date of the contribution. The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subparagraph.
(C) Denial of deduction in case of payments by certain trusts 
In any case in which a deduction is allowed under this section for the value of an interest in property described in subparagraph (B), transferred in trust, no deduction shall be allowed under this section to the grantor or any other person for the amount of any contribution made by the trust with respect to such interest.
(D) Exception 
This paragraph shall not apply in a case in which the value of all interests in property transferred in trust are deductible under subsection (a).
(3) Denial of deduction in case of certain contributions of partial interests in property 

(A) In general 
In the case of a contribution (not made by a transfer in trust) of an interest in property which consists of less than the taxpayers entire interest in such property, a deduction shall be allowed under this section only to the extent that the value of the interest contributed would be allowable as a deduction under this section if such interest had been transferred in trust. For purposes of this subparagraph, a contribution by a taxpayer of the right to use property shall be treated as a contribution of less than the taxpayers entire interest in such property.
(B) Exceptions 
Subparagraph (A) shall not apply to
(i) a contribution of a remainder interest in a personal residence or farm,
(ii) a contribution of an undivided portion of the taxpayers entire interest in property, and
(iii) a qualified conservation contribution.
(4) Valuation of remainder interest in real property 
For purposes of this section, in determining the value of a remainder interest in real property, depreciation (computed on the straight line method) and depletion of such property shall be taken into account, and such value shall be discounted at a rate of 6 percent per annum, except that the Secretary may prescribe a different rate.
(5) Reduction for certain interest 
If, in connection with any charitable contribution, a liability is assumed by the recipient or by any other person, or if a charitable contribution is of property which is subject to a liability, then, to the extent necessary to avoid the duplication of amounts, the amount taken into account for purposes of this section as the amount of the charitable contribution
(A) shall be reduced for interest
(i)  which has been paid (or is to be paid) by the taxpayer,
(ii)  which is attributable to the liability, and
(iii)  which is attributable to any period after the making of the contribution, and
(B) in the case of a bond, shall be further reduced for interest
(i)  which has been paid (or is to be paid) by the taxpayer on indebtedness incurred or continued to purchase or carry such bond, and
(ii)  which is attributable to any period before the making of the contribution.

The reduction pursuant to subparagraph (B) shall not exceed the interest (including interest equivalent) on the bond which is attributable to any period before the making of the contribution and which is not (under the taxpayers method of accounting) includible in the gross income of the taxpayer for any taxable year. For purposes of this paragraph, the term bond means any bond, debenture, note, or certificate or other evidence of indebtedness.

(6) Deductions for out-of-pocket expenditures 
No deduction shall be allowed under this section for an out-of-pocket expenditure made by any person on behalf of an organization described in subsection (c) (other than an organization described in section 501 (h)(5) (relating to churches, etc.)) if the expenditure is made for the purpose of influencing legislation (within the meaning of section 501 (c)(3)).
(7) Reformations to comply with paragraph (2) 

(A) In general 
A deduction shall be allowed under subsection (a) in respect of any qualified reformation (within the meaning of section 2055 (e)(3)(B)).
(B) Rules similar to section 2055 (e)(3) to apply 
For purposes of this paragraph, rules similar to the rules of section 2055 (e)(3) shall apply.
(8) Substantiation requirement for certain contributions 

(A) General rule 
No deduction shall be allowed under subsection (a) for any contribution of $250 or more unless the taxpayer substantiates the contribution by a contemporaneous written acknowledgment of the contribution by the donee organization that meets the requirements of subparagraph (B).
(B) Content of acknowledgement 
An acknowledgement meets the requirements of this subparagraph if it includes the following information:
(i) The amount of cash and a description (but not value) of any property other than cash contributed.
(ii) Whether the donee organization provided any goods or services in consideration, in whole or in part, for any property described in clause (i).
(iii) A description and good faith estimate of the value of any goods or services referred to in clause (ii) or, if such goods or services consist solely of intangible religious benefits, a statement to that effect.

For purposes of this subparagraph, the term intangible religious benefit means any intangible religious benefit which is provided by an organization organized exclusively for religious purposes and which generally is not sold in a commercial transaction outside the donative context.

(C) Contemporaneous 
For purposes of subparagraph (A), an acknowledgment shall be considered to be contemporaneous if the taxpayer obtains the acknowledgment on or before the earlier of
(i) the date on which the taxpayer files a return for the taxable year in which the contribution was made, or
(ii) the due date (including extensions) for filing such return.
(D) Substantiation not required for contributions reported by the donee organization 
Subparagraph (A) shall not apply to a contribution if the donee organization files a return, on such form and in accordance with such regulations as the Secretary may prescribe, which includes the information described in subparagraph (B) with respect to the contribution.
(E) Regulations 
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this paragraph, including regulations that may provide that some or all of the requirements of this paragraph do not apply in appropriate cases.
(9) Denial of deduction where contribution for lobbying activities 
No deduction shall be allowed under this section for a contribution to an organization which conducts activities to which section 162 (e)(1) applies on matters of direct financial interest to the donors trade or business, if a principal purpose of the contribution was to avoid Federal income tax by securing a deduction for such activities under this section which would be disallowed by reason of section 162 (e) if the donor had conducted such activities directly. No deduction shall be allowed under section 162 (a) for any amount for which a deduction is disallowed under the preceding sentence.
(10) Split-dollar life insurance, annuity, and endowment contracts 

(A) In general 
Nothing in this section or in section 545 (b)(2), 642 (c), 2055, 2106 (a)(2), or 2522 shall be construed to allow a deduction, and no deduction shall be allowed, for any transfer to or for the use of an organization described in subsection (c) if in connection with such transfer
(i) the organization directly or indirectly pays, or has previously paid, any premium on any personal benefit contract with respect to the transferor, or
(ii) there is an understanding or expectation that any person will directly or indirectly pay any premium on any personal benefit contract with respect to the transferor.
(B) Personal benefit contract 
For purposes of subparagraph (A), the term personal benefit contract means, with respect to the transferor, any life insurance, annuity, or endowment contract if any direct or indirect beneficiary under such contract is the transferor, any member of the transferors family, or any other person (other than an organization described in subsection (c)) designated by the transferor.
(C) Application to charitable remainder trusts 
In the case of a transfer to a trust referred to in subparagraph (E), references in subparagraphs (A) and (F) to an organization described in subsection (c) shall be treated as a reference to such trust.
(D) Exception for certain annuity contracts 
If, in connection with a transfer to or for the use of an organization described in subsection (c), such organization incurs an obligation to pay a charitable gift annuity (as defined in section 501 (m)) and such organization purchases any annuity contract to fund such obligation, persons receiving payments under the charitable gift annuity shall not be treated for purposes of subparagraph (B) as indirect beneficiaries under such contract if
(i) such organization possesses all of the incidents of ownership under such contract,
(ii) such organization is entitled to all the payments under such contract, and
(iii) the timing and amount of payments under such contract are substantially the same as the timing and amount of payments to each such person under such obligation (as such obligation is in effect at the time of such transfer).
(E) Exception for certain contracts held by charitable remainder trusts 
A person shall not be treated for purposes of subparagraph (B) as an indirect beneficiary under any life insurance, annuity, or endowment contract held by a charitable remainder annuity trust or a charitable remainder unitrust (as defined in section 664 (d)) solely by reason of being entitled to any payment referred to in paragraph (1)(A) or (2)(A) of section 664 (d) if
(i) such trust possesses all of the incidents of ownership under such contract, and
(ii) such trust is entitled to all the payments under such contract.
(F) Excise tax on premiums paid 

(i) In general There is hereby imposed on any organization described in subsection (c) an excise tax equal to the premiums paid by such organization on any life insurance, annuity, or endowment contract if the payment of premiums on such contract is in connection with a transfer for which a deduction is not allowable under subparagraph (A), determined without regard to when such transfer is made.
(ii) Payments by other persons For purposes of clause (i), payments made by any other person pursuant to an understanding or expectation referred to in subparagraph (A) shall be treated as made by the organization.
(iii) Reporting Any organization on which tax is imposed by clause (i) with respect to any premium shall file an annual return which includes
(I) the amount of such premiums paid during the year and the name and TIN of each beneficiary under the contract to which the premium relates, and
(II) such other information as the Secretary may require.

The penalties applicable to returns required under section 6033 shall apply to returns required under this clause. Returns required under this clause shall be furnished at such time and in such manner as the Secretary shall by forms or regulations require.

(iv) Certain rules to apply The tax imposed by this subparagraph shall be treated as imposed by chapter 42 for purposes of this title other than subchapter B of chapter 42.
(G) Special rule where State requires specification of charitable gift annuitant in contract 
In the case of an obligation to pay a charitable gift annuity referred to in subparagraph (D) which is entered into under the laws of a State which requires, in order for the charitable gift annuity to be exempt from insurance regulation by such State, that each beneficiary under the charitable gift annuity be named as a beneficiary under an annuity contract issued by an insurance company authorized to transact business in such State, the requirements of clauses (i) and (ii) of subparagraph (D) shall be treated as met if
(i) such State law requirement was in effect on February 8, 1999,
(ii) each such beneficiary under the charitable gift annuity is a bona fide resident of such State at the time the obligation to pay a charitable gift annuity is entered into, and
(iii) the only persons entitled to payments under such contract are persons entitled to payments as beneficiaries under such obligation on the date such obligation is entered into.
(H) Member of family 
For purposes of this paragraph, an individuals family consists of the individuals grandparents, the grandparents of such individuals spouse, the lineal descendants of such grandparents, and any spouse of such a lineal descendant.
(I) Regulations 
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this paragraph, including regulations to prevent the avoidance of such purposes.
(11) Qualified appraisal and other documentation for certain contributions 

(A) In general 

(i) Denial of deduction In the case of an individual, partnership, or corporation, no deduction shall be allowed under subsection (a) for any contribution of property for which a deduction of more than $500 is claimed unless such person meets the requirements of subparagraphs (B), (C), and (D), as the case may be, with respect to such contribution.
(ii) Exceptions
(I) Readily valued property Subparagraphs (C) and (D) shall not apply to cash, property described in subsection (e)(1)(B)(iii) or section 1221 (a)(1), publicly traded securities (as defined in section 6050L (a)(2)(B)), and any qualified vehicle described in paragraph (12)(A)(ii) for which an acknowledgement under paragraph (12)(B)(iii) is provided.
(II) Reasonable cause Clause (i) shall not apply if it is shown that the failure to meet such requirements is due to reasonable cause and not to willful neglect.
(B) Property description for contributions of more than $500 
In the case of contributions of property for which a deduction of more than $500 is claimed, the requirements of this subparagraph are met if the individual, partnership or corporation includes with the return for the taxable year in which the contribution is made a description of such property and such other information as the Secretary may require. The requirements of this subparagraph shall not apply to a C corporation which is not a personal service corporation or a closely held C corporation.
(C) Qualified appraisal for contributions of more than $5,000 
In the case of contributions of property for which a deduction of more than $5,000 is claimed, the requirements of this subparagraph are met if the individual, partnership, or corporation obtains a qualified appraisal of such property and attaches to the return for the taxable year in which such contribution is made such information regarding such property and such appraisal as the Secretary may require.
(D) Substantiation for contributions of more than $500,000 
In the case of contributions of property for which a deduction of more than $500,000 is claimed, the requirements of this subparagraph are met if the individual, partnership, or corporation attaches to the return for the taxable year a qualified appraisal of such property.
(E) Qualified appraisal and appraiser 
For purposes of this paragraph
(i) Qualified appraisal The term qualified appraisal means, with respect to any property, an appraisal of such property which
(I) is treated for purposes of this paragraph as a qualified appraisal under regulations or other guidance prescribed by the Secretary, and
(II) is conducted by a qualified appraiser in accordance with generally accepted appraisal standards and any regulations or other guidance prescribed under subclause (I).
(ii) Qualified appraiser Except as provided in clause (iii), the term qualified appraiser means an individual who
(I) has earned an appraisal designation from a recognized professional appraiser organization or has otherwise met minimum education and experience requirements set forth in regulations prescribed by the Secretary,
(II) regularly performs appraisals for which the individual receives compensation, and
(III) meets such other requirements as may be prescribed by the Secretary in regulations or other guidance.
(iii) Specific appraisals An individual shall not be treated as a qualified appraiser with respect to any specific appraisal unless
(I) the individual demonstrates verifiable education and experience in valuing the type of property subject to the appraisal, and
(II) the individual has not been prohibited from practicing before the Internal Revenue Service by the Secretary under section 330 (c) of title 31, United States Code, at any time during the 3-year period ending on the date of the appraisal.
(F) Aggregation of similar items of property 
For purposes of determining thresholds under this paragraph, property and all similar items of property donated to 1 or more donees shall be treated as 1 property.
(G) Special rule for pass-thru entities 
In the case of a partnership or S corporation, this paragraph shall be applied at the entity level, except that the deduction shall be denied at the partner or shareholder level.
(H) Regulations 
The Secretary may prescribe such regulations as may be necessary or appropriate to carry out the purposes of this paragraph, including regulations that may provide that some or all of the requirements of this paragraph do not apply in appropriate cases.
(12) Contributions of used motor vehicles, boats, and airplanes 

(A) In general 
In the case of a contribution of a qualified vehicle the claimed value of which exceeds $500
(i) paragraph (8) shall not apply and no deduction shall be allowed under subsection (a) for such contribution unless the taxpayer substantiates the contribution by a contemporaneous written acknowledgement of the contribution by the donee organization that meets the requirements of subparagraph (B) and includes the acknowledgement with the taxpayers return of tax which includes the deduction, and
(ii) if the organization sells the vehicle without any significant intervening use or material improvement of such vehicle by the organization, the amount of the deduction allowed under subsection (a) shall not exceed the gross proceeds received from such sale.
(B) Content of acknowledgement 
An acknowledgement meets the requirements of this subparagraph if it includes the following information:
(i) The name and taxpayer identification number of the donor.
(ii) The vehicle identification number or similar number.
(iii) In the case of a qualified vehicle to which subparagraph (A)(ii) applies
(I) a certification that the vehicle was sold in an arms length transaction between unrelated parties,
(II) the gross proceeds from the sale, and
(III) a statement that the deductible amount may not exceed the amount of such gross proceeds.
(iv) In the case of a qualified vehicle to which subparagraph (A)(ii) does not apply
(I) a certification of the intended use or material improvement of the vehicle and the intended duration of such use, and
(II) a certification that the vehicle would not be transferred in exchange for money, other property, or services before completion of such use or improvement.
(v) Whether the donee organization provided any goods or services in consideration, in whole or in part, for the qualified vehicle.
(vi) A description and good faith estimate of the value of any goods or services referred to in clause (v) or, if such goods or services consist solely of intangible religious benefits (as defined in paragraph (8)(B)), a statement to that effect.
(C) Contemporaneous 
For purposes of subparagraph (A), an acknowledgement shall be considered to be contemporaneous if the donee organization provides it within 30 days of
(i) the sale of the qualified vehicle, or
(ii) in the case of an acknowledgement including a certification described in subparagraph (B)(iv), the contribution of the qualified vehicle.
(D) Information to Secretary 
A donee organization required to provide an acknowledgement under this paragraph shall provide to the Secretary the information contained in the acknowledgement. Such information shall be provided at such time and in such manner as the Secretary may prescribe.
(E) Qualified vehicle 
For purposes of this paragraph, the term qualified vehicle means any
(i) motor vehicle manufactured primarily for use on public streets, roads, and highways,
(ii) boat, or
(iii) airplane.

Such term shall not include any property which is described in section 1221 (a)(1).

(F) Regulations or other guidance 
The Secretary shall prescribe such regulations or other guidance as may be necessary to carry out the purposes of this paragraph. The Secretary may prescribe regulations or other guidance which exempts sales by the donee organization which are in direct furtherance of such organizations charitable purpose from the requirements of subparagraphs (A)(ii) and (B)(iv)(II).
(13) Contributions of certain interests in buildings located in registered historic districts 

(A) In general 
No deduction shall be allowed with respect to any contribution described in subparagraph (B) unless the taxpayer includes with the return for the taxable year of the contribution a $500 filing fee.
(B) Contribution described 
A contribution is described in this subparagraph if such contribution is a qualified conservation contribution (as defined in subsection (h)) which is a restriction with respect to the exterior of a building described in subsection (h)(4)(C)(ii) and for which a deduction is claimed in excess of $10,000.
(C) Dedication of fee 
Any fee collected under this paragraph shall be used for the enforcement of the provisions of subsection (h).
(14) Reduction for amounts attributable to rehabilitation credit 
In the case of any qualified conservation contribution (as defined in subsection (h)), the amount of the deduction allowed under this section shall be reduced by an amount which bears the same ratio to the fair market value of the contribution as
(A) the sum of the credits allowed to the taxpayer under section 47 for the 5 preceding taxable years with respect to any building which is a part of such contribution, bears to
(B) the fair market value of the building on the date of the contribution.
(15) Special rule for taxidermy property 

(A) Basis 
For purposes of this section and notwithstanding section 1012, in the case of a charitable contribution of taxidermy property which is made by the person who prepared, stuffed, or mounted the property or by any person who paid or incurred the cost of such preparation, stuffing, or mounting, only the cost of the preparing, stuffing, or mounting shall be included in the basis of such property.
(B) Taxidermy property 
For purposes of this section, the term taxidermy property means any work of art which
(i) is the reproduction or preservation of an animal, in whole or in part,
(ii) is prepared, stuffed, or mounted for purposes of recreating one or more characteristics of such animal, and
(iii) contains a part of the body of the dead animal.
(16) Contributions of clothing and household items 

(A) In general 
In the case of an individual, partnership, or corporation, no deduction shall be allowed under subsection (a) for any contribution of clothing or a household item unless such clothing or household item is in good used condition or better.
(B) Items of minimal value 
Notwithstanding subparagraph (A), the Secretary may by regulation deny a deduction under subsection (a) for any contribution of clothing or a household item which has minimal monetary value.
(C) Exception for certain property 
Subparagraphs (A) and (B) shall not apply to any contribution of a single item of clothing or a household item for which a deduction of more than $500 is claimed if the taxpayer includes with the taxpayers return a qualified appraisal with respect to the property.
(D) Household items 
For purposes of this paragraph
(i) In general The term household items includes furniture, furnishings, electronics, appliances, linens, and other similar items.
(ii) Excluded items Such term does not include
(I) food,
(II) paintings, antiques, and other objects of art,
(III) jewelry and gems, and
(IV) collections.
(E) Special rule for pass-thru entities 
In the case of a partnership or S corporation, this paragraph shall be applied at the entity level, except that the deduction shall be denied at the partner or shareholder level.
(17) Recordkeeping 
No deduction shall be allowed under subsection (a) for any contribution of a cash, check, or other monetary gift unless the donor maintains as a record of such contribution a bank record or a written communication from the donee showing the name of the donee organization, the date of the contribution, and the amount of the contribution.
(18) Contributions to donor advised funds 
A deduction otherwise allowed under subsection (a) for any contribution to a donor advised fund (as defined in section 4966 (d)(2)) shall only be allowed if
(A) the sponsoring organization (as defined in section 4966 (d)(1)) with respect to such donor advised fund is not
(i) described in paragraph (3), (4), or (5) of subsection (c), or
(ii) a type III supporting organization (as defined in section 4943 (f)(5)(A)) which is not a functionally integrated type III supporting organization (as defined in section 4943 (f)(5)(B)), and
(B) the taxpayer obtains a contemporaneous written acknowledgment (determined under rules similar to the rules of paragraph (8)(C)) from the sponsoring organization (as so defined) of such donor advised fund that such organization has exclusive legal control over the assets contributed.
(g) Amounts paid to maintain certain students as members of taxpayer’s household 

(1) In general 
Subject to the limitations provided by paragraph (2), amounts paid by the taxpayer to maintain an individual (other than a dependent, as defined in section 152 (determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof), or a relative of the taxpayer) as a member of his household during the period that such individual is
(A) a member of the taxpayers household under a written agreement between the taxpayer and an organization described in paragraph (2), (3), or (4) of subsection (c) to implement a program of the organization to provide educational opportunities for pupils or students in private homes, and
(B) a full-time pupil or student in the twelfth or any lower grade at an educational organization described in section 170 (b)(1)(A)(ii) located in the United States,

shall be treated as amounts paid for the use of the organization.

(2) Limitations 

(A) Amount 
Paragraph (1) shall apply to amounts paid within the taxable year only to the extent that such amounts do not exceed $50 multiplied by the number of full calendar months during the taxable year which fall within the period described in paragraph (1). For purposes of the preceding sentence, if 15 or more days of a calendar month fall within such period such month shall be considered as a full calendar month.
(B) Compensation or reimbursement 
Paragraph (1) shall not apply to any amount paid by the taxpayer within the taxable year if the taxpayer receives any money or other property as compensation or reimbursement for maintaining the individual in his household during the period described in paragraph (1).
(3) Relative defined 
For purposes of paragraph (1), the term relative of the taxpayer means an individual who, with respect to the taxpayer, bears any of the relationships described in subparagraphs (A) through (G) of section 152 (d)(2).
(4) No other amount allowed as deduction 
No deduction shall be allowed under subsection (a) for any amount paid by a taxpayer to maintain an individual as a member of his household under a program described in paragraph (1)(A) except as provided in this subsection.
(h) Qualified conservation contribution 

(1) In general 
For purposes of subsection (f)(3)(B)(iii), the term qualified conservation contribution means a contribution
(A) of a qualified real property interest,
(B) to a qualified organization,
(C) exclusively for conservation purposes.
(2) Qualified real property interest 
For purposes of this subsection, the term qualified real property interest means any of the following interests in real property:
(A) the entire interest of the donor other than a qualified mineral interest,
(B) a remainder interest, and
(C) a restriction (granted in perpetuity) on the use which may be made of the real property.
(3) Qualified organization 
For purposes of paragraph (1), the term qualified organization means an organization which
(A) is described in clause (v) or (vi) of subsection (b)(1)(A), or
(B) is described in section 501 (c)(3) and
(i) meets the requirements of section 509 (a)(2), or
(ii) meets the requirements of section 509 (a)(3) and is controlled by an organization described in subparagraph (A) or in clause (i) of this subparagraph.
(4) Conservation purpose defined 

(A) In general 
For purposes of this subsection, the term conservation purpose means
(i) the preservation of land areas for outdoor recreation by, or the education of, the general public,
(ii) the protection of a relatively natural habitat of fish, wildlife, or plants, or similar ecosystem,
(iii) the preservation of open space (including farmland and forest land) where such preservation is
(I) for the scenic enjoyment of the general public, or
(II) pursuant to a clearly delineated Federal, State, or local governmental conservation policy,

and will yield a significant public benefit, or

(iv) the preservation of an historically important land area or a certified historic structure.
(B) Special rules with respect to buildings in registered historic districts 
In the case of any contribution of a qualified real property interest which is a restriction with respect to the exterior of a building described in subparagraph (C)(ii), such contribution shall not be considered to be exclusively for conservation purposes unless
(i) such interest
(I) includes a restriction which preserves the entire exterior of the building (including the front, sides, rear, and height of the building), and
(II) prohibits any change in the exterior of the building which is inconsistent with the historical character of such exterior,
(ii) the donor and donee enter into a written agreement certifying, under penalty of perjury, that the donee
(I) is a qualified organization (as defined in paragraph (3)) with a purpose of environmental protection, land conservation, open space preservation, or historic preservation, and
(II) has the resources to manage and enforce the restriction and a commitment to do so, and
(iii) in the case of any contribution made in a taxable year beginning after the date of the enactment of this subparagraph, the taxpayer includes with the taxpayers return for the taxable year of the contribution
(I) a qualified appraisal (within the meaning of subsection (f)(11)(E)) of the qualified property interest,
(II) photographs of the entire exterior of the building, and
(III) a description of all restrictions on the development of the building.
(C) Certified historic structure 
For purposes of subparagraph (A)(iv), the term certified historic structure means
(i) any building, structure, or land area which is listed in the National Register, or
(ii) any building which is located in a registered historic district (as defined in section 47 (c)(3)(B)) and is certified by the Secretary of the Interior to the Secretary as being of historic significance to the district.

A building, structure, or land area satisfies the preceding sentence if it satisfies such sentence either at the time of the transfer or on the due date (including extensions) for filing the transferors return under this chapter for the taxable year in which the transfer is made.

(5) Exclusively for conservation purposes 
For purposes of this subsection
(A) Conservation purpose must be protected 
A contribution shall not be treated as exclusively for conservation purposes unless the conservation purpose is protected in perpetuity.
(B) No surface mining permitted 

(i) In general Except as provided in clause (ii), in the case of a contribution of any interest where there is a retention of a qualified mineral interest, subparagraph (A) shall not be treated as met if at any time there may be extraction or removal of minerals by any surface mining method.
(ii) Special rule With respect to any contribution of property in which the ownership of the surface estate and mineral interests has been and remains separated, subparagraph (A) shall be treated as met if the probability of surface mining occurring on such property is so remote as to be negligible.
(6) Qualified mineral interest 
For purposes of this subsection, the term qualified mineral interest means
(A) subsurface oil, gas, or other minerals, and
(B) the right to access to such minerals.
(i) Standard mileage rate for use of passenger automobile 
For purposes of computing the deduction under this section for use of a passenger automobile, the standard mileage rate shall be 14 cents per mile.
(j) Denial of deduction for certain travel expenses 
No deduction shall be allowed under this section for traveling expenses (including amounts expended for meals and lodging) while away from home, whether paid directly or by reimbursement, unless there is no significant element of personal pleasure, recreation, or vacation in such travel.
(k) Disallowance of deductions in certain cases 
For disallowance of deductions for contributions to or for the use of communist controlled organizations, see section 11(a)2 of the Internal Security Act of 1950 (50 U.S.C. 790).
(l) Treatment of certain amounts paid to or for the benefit of institutions of higher education 

(1) In general 
For purposes of this section, 80 percent of any amount described in paragraph (2) shall be treated as a charitable contribution.
(2) Amount described 
For purposes of paragraph (1), an amount is described in this paragraph if
(A) the amount is paid by the taxpayer to or for the benefit of an educational organization
(i) which is described in subsection (b)(1)(A)(ii), and
(ii) which is an institution of higher education (as defined in section 3304 (f)), and
(B) such amount would be allowable as a deduction under this section but for the fact that the taxpayer receives (directly or indirectly) as a result of paying such amount the right to purchase tickets for seating at an athletic event in an athletic stadium of such institution.

If any portion of a payment is for the purchase of such tickets, such portion and the remaining portion (if any) of such payment shall be treated as separate amounts for purposes of this subsection.

(m) Certain donee income from intellectual property treated as an additional charitable contribution 

(1) Treatment as additional contribution 
In the case of a taxpayer who makes a qualified intellectual property contribution, the deduction allowed under subsection (a) for each taxable year of the taxpayer ending on or after the date of such contribution shall be increased (subject to the limitations under subsection (b)) by the applicable percentage of qualified donee income with respect to such contribution which is properly allocable to such year under this subsection.
(2) Reduction in additional deductions to extent of initial deduction 
With respect to any qualified intellectual property contribution, the deduction allowed under subsection (a) shall be increased under paragraph (1) only to the extent that the aggregate amount of such increases with respect to such contribution exceed the amount allowed as a deduction under subsection (a) with respect to such contribution determined without regard to this subsection.
(3) Qualified donee income 
For purposes of this subsection, the term qualified donee income means any net income received by or accrued to the donee which is properly allocable to the qualified intellectual property.
(4) Allocation of qualified donee income to taxable years of donor 
For purposes of this subsection, qualified donee income shall be treated as properly allocable to a taxable year of the donor if such income is received by or accrued to the donee for the taxable year of the donee which ends within or with such taxable year of the donor.
(5) 10-year limitation 
Income shall not be treated as properly allocable to qualified intellectual property for purposes of this subsection if such income is received by or accrued to the donee after the 10-year period beginning on the date of the contribution of such property.
(6) Benefit limited to life of intellectual property 
Income shall not be treated as properly allocable to qualified intellectual property for purposes of this subsection if such income is received by or accrued to the donee after the expiration of the legal life of such property.
(7) Applicable percentage 
For purposes of this subsection, the term applicable percentage means the percentage determined under the following table which corresponds to a taxable year of the donor ending on or after the date of the qualified intellectual property contribution:
(8) Qualified intellectual property contribution 
For purposes of this subsection, the term qualified intellectual property contribution means any charitable contribution of qualified intellectual property
(A) the amount of which taken into account under this section is reduced by reason of subsection (e)(1), and
(B) with respect to which the donor informs the donee at the time of such contribution that the donor intends to treat such contribution as a qualified intellectual property contribution for purposes of this subsection and section 6050L.
(9) Qualified intellectual property 
For purposes of this subsection, the term qualified intellectual property means property described in subsection (e)(1)(B)(iii) (other than property contributed to or for the use of an organization described in subsection (e)(1)(B)(ii)).
(10) Other special rules 

(A) Application of limitations on charitable contributions 
Any increase under this subsection of the deduction provided under subsection (a) shall be treated for purposes of subsection (b) as a deduction which is attributable to a charitable contribution to the donee to which such increase relates.
(B) Net income determined by donee 
The net income taken into account under paragraph (3) shall not exceed the amount of such income reported under section 6050L (b)(1).
(C) Deduction limited to 12 taxable years 
Except as may be provided under subparagraph (D)(i), this subsection shall not apply with respect to any qualified intellectual property contribution for any taxable year of the donor after the 12th taxable year of the donor which ends on or after the date of such contribution.
(D) Regulations 
The Secretary may issue regulations or other guidance to carry out the purposes of this subsection, including regulations or guidance
(i) modifying the application of this subsection in the case of a donor or donee with a short taxable year, and
(ii) providing for the determination of an amount to be treated as net income of the donee which is properly allocable to qualified intellectual property in the case of a donee who uses such property to further a purpose or function constituting the basis of the donees exemption under section 501 (or, in the case of a governmental unit, any purpose described in section 170 (c)) and does not possess a right to receive any payment from a third party with respect to such property.
(n) Expenses paid by certain whaling captains in support of Native Alaskan subsistence whaling 

(1) In general 
In the case of an individual who is recognized by the Alaska Eskimo Whaling Commission as a whaling captain charged with the responsibility of maintaining and carrying out sanctioned whaling activities and who engages in such activities during the taxable year, the amount described in paragraph (2) (to the extent such amount does not exceed $10,000 for the taxable year) shall be treated for purposes of this section as a charitable contribution.
(2) Amount described 

(A) In general 
The amount described in this paragraph is the aggregate of the reasonable and necessary whaling expenses paid by the taxpayer during the taxable year in carrying out sanctioned whaling activities.
(B) Whaling expenses 
For purposes of subparagraph (A), the term whaling expenses includes expenses for
(i) the acquisition and maintenance of whaling boats, weapons, and gear used in sanctioned whaling activities,
(ii) the supplying of food for the crew and other provisions for carrying out such activities, and
(iii) storage and distribution of the catch from such activities.
(3) Sanctioned whaling activities 
For purposes of this subsection, the term sanctioned whaling activities means subsistence bowhead whale hunting activities conducted pursuant to the management plan of the Alaska Eskimo Whaling Commission.
(4) Substantiation of expenses 
The Secretary shall issue guidance requiring that the taxpayer substantiate the whaling expenses for which a deduction is claimed under this subsection, including by maintaining appropriate written records with respect to the time, place, date, amount, and nature of the expense, as well as the taxpayers eligibility for such deduction, and that (to the extent provided by the Secretary) such substantiation be provided as part of the taxpayers return of tax.
(o) Special rules for fractional gifts 

(1) Denial of deduction in certain cases 

(A) In general 
No deduction shall be allowed for a contribution of an undivided portion of a taxpayers entire interest in tangible personal property unless all interests in the property are held immediately before such contribution by
(i) the taxpayer, or
(ii) the taxpayer and the donee.
(B) Exceptions 
The Secretary may, by regulation, provide for exceptions to subparagraph (A) in cases where all persons who hold an interest in the property make proportional contributions of an undivided portion of the entire interest held by such persons.
(2) Valuation of subsequent gifts 
In the case of any additional contribution, the fair market value of such contribution shall be determined by using the lesser of
(A) the fair market value of the property at the time of the initial fractional contribution, or
(B) the fair market value of the property at the time of the additional contribution.
(3) Recapture of deduction in certain cases; addition to tax 

(A) Recapture 
The Secretary shall provide for the recapture of the amount of any deduction allowed under this section (plus interest) with respect to any contribution of an undivided portion of a taxpayers entire interest in tangible personal property
(i) in any case in which the donor does not contribute all of the remaining interests in such property to the donee (or, if such donee is no longer in existence, to any person described in section 170 (c)) on or before the earlier of
(I) the date that is 10 years after the date of the initial fractional contribution, or
(II) the date of the death of the donor, and
(ii) in any case in which the donee has not, during the period beginning on the date of the initial fractional contribution and ending on the date described in clause (i)
(I) had substantial physical possession of the property, and
(II) used the property in a use which is related to a purpose or function constituting the basis for the organizations exemption under section 501.
(B) Addition to tax 
The tax imposed under this chapter for any taxable year for which there is a recapture under subparagraph (A) shall be increased by 10 percent of the amount so recaptured.
(4) Definitions 
For purposes of this subsection
(A) Additional contribution 
The term additional contribution means any charitable contribution by the taxpayer of any interest in property with respect to which the taxpayer has previously made an initial fractional contribution.
(B) Initial fractional contribution 
The term initial fractional contribution means, with respect to any taxpayer, the first charitable contribution of an undivided portion of the taxpayers entire interest in any tangible personal property.
(p) Other cross references 

(1) For treatment of certain organizations providing child care, see section 501 (k).
(2) For charitable contributions of estates and trusts, see section 642 (c).
(3) For nondeductibility of contributions by common trust funds, see section 584.
(4) For charitable contributions of partners, see section 702.
(5) For charitable contributions of nonresident aliens, see section 873.
(6) For treatment of gifts for benefit of or use in connection with the Naval Academy as gifts to or for use of the United States, see section 6973 of title 10, United States Code.
(7) For treatment of gifts accepted by the Secretary of State, the Director of the International Communication Agency, or the Director of the United States International Development Cooperation Agency, as gifts to or for the use of the United States, see section 25 of the State Department Basic Authorities Act of 1956.
(8) For treatment of gifts of money accepted by the Attorney General for credit to the Commissary Funds Federal Prisons as gifts to or for the use of the United States, see section 4043 of title 18, United States Code.
(9) For charitable contributions to or for the use of Indian tribal governments (or their subdivisions), see section 7871.
[1] So in original. The third closing parenthesis probably should not appear.
[2] See References in Text note below.

26 USC 171 - Amortizable bond premium

(a) General rule 
In the case of any bond, as defined in subsection (d), the following rules shall apply to the amortizable bond premium (determined under subsection (b)) on the bond:
(1) Taxable bonds 
In the case of a bond (other than a bond the interest on which is excludable from gross income), the amount of the amortizable bond premium for the taxable year shall be allowed as a deduction.
(2) Tax-exempt bonds 
In the case of any bond the interest on which is excludable from gross income, no deduction shall be allowed for the amortizable bond premium for the taxable year.
(3) Cross reference 
For adjustment to basis on account of amortizable bond premium, see section 1016 (a)(5).
(b) Amortizable bond premium 

(1) Amount of bond premium 
For purposes of paragraph (2), the amount of bond premium, in the case of the holder of any bond, shall be determined
(A) with reference to the amount of the basis (for determining loss on sale or exchange) of such bond,
(B) 
(i) with reference to the amount payable on maturity or on earlier call date, in the case of any bond other than a bond to which clause (ii) applies, or and[1]
(ii) with reference to the amount payable on maturity (or if it results in a smaller amortizable bond premium attributable to the period to earlier call date, with reference to the amount payable on earlier call date), in the case of any bond described in subsection (a)(1) which is acquired after December 31, 1957, and
(C) with adjustments proper to reflect unamortized bond premium, with respect to the bond, for the period before the date as of which subsection (a) becomes applicable with respect to the taxpayer with respect to such bond.

In no case shall the amount of bond premium on a convertible bond include any amount attributable to the conversion features of the bond.

(2) Amount amortizable 
The amortizable bond premium of the taxable year shall be the amount of the bond premium attributable to such year. In the case of a bond to which paragraph (1)(B)(ii) applies and which has a call date, the amount of bond premium attributable to the taxable year in which the bond is called shall include an amount equal to the excess of the amount of the adjusted basis (for determining loss on sale or exchange) of such bond as of the beginning of the taxable year over the amount received on redemption of the bond or (if greater) the amount payable on maturity.
(3) Method of determination 

(A) In general 
Except as provided in regulations prescribed by the Secretary, the determinations required under paragraphs (1) and (2) shall be made on the basis of the taxpayers yield to maturity determined by
(i) using the taxpayers basis (for purposes of determining loss on sale or exchange) of the obligation, and
(ii) compounding at the close of each accrual period (as defined in section 1272 (a)(5)).
(B) Special rule where earlier call date is used 
For purposes of subparagraph (A), if the amount payable on an earlier call date is used under paragraph (1)(B)(ii) in determining the amortizable bond premium attributable to the period before the earlier call date, such bond shall be treated as maturing on such date for the amount so payable and then reissued on such date for the amount so payable.
(4) Treatment of certain bonds acquired in exchange for other property 

(A) In general 
If
(i) a bond is acquired by any person in exchange for other property, and
(ii) the basis of such bond is determined (in whole or in part) by reference to the basis of such other property,

for purposes of applying this subsection to such bond while held by such person, the basis of such bond shall not exceed its fair market value immediately after the exchange. A similar rule shall apply in the case of such bond while held by any other person whose basis is determined (in whole or in part) by reference to the basis in the hands of the person referred to in clause (i).

(B) Special rule where bond exchanged in reorganization 
Subparagraph (A) shall not apply to an exchange by the taxpayer of a bond for another bond if such exchange is a part of a reorganization (as defined in section 368). If any portion of the basis of the taxpayer in a bond transferred in such an exchange is not taken into account in determining bond premium by reason of this paragraph, such portion shall not be taken into account in determining the amount of bond premium on any bond received in the exchange.
(c) Election as to taxable bonds 

(1) Eligibility to elect; bonds with respect to which election permitted 
In the case of bonds the interest on which is not excludible from gross income, this section shall apply only if the taxpayer has so elected.
(2) Manner and effect of election 
The election authorized under this subsection shall be made in accordance with such regulations as the Secretary shall prescribe. If such election is made with respect to any bond (described in paragraph (1)) of the taxpayer, it shall also apply to all such bonds held by the taxpayer at the beginning of the first taxable year to which the election applies and to all such bonds thereafter acquired by him and shall be binding for all subsequent taxable years with respect to all such bonds of the taxpayer, unless, on application by the taxpayer, the Secretary permits him, subject to such conditions as the Secretary deems necessary, to revoke such election. In the case of bonds held by a common trust fund, as defined in section 584 (a), the election authorized under this subsection shall be exercisable with respect to such bonds only by the common trust fund. In case of bonds held by an estate or trust, the election authorized under this subsection shall be exercisable with respect to such bonds only by the fiduciary.
(d) Bond defined 
For purposes of this section, the term bond means any bond, debenture, note, or certificate or other evidence of indebtedness, but does not include any such obligation which constitutes stock in trade of the taxpayer or any such obligation of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or any such obligation held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business.
(e) Treatment as offset to interest payments 
Except as provided in regulations, in the case of any taxable bond
(1) the amount of any bond premium shall be allocated among the interest payments on the bond under rules similar to the rules of subsection (b)(3), and
(2) in lieu of any deduction under subsection (a), the amount of any premium so allocated to any interest payment shall be applied against (and operate to reduce) the amount of such interest payment.

For purposes of the preceding sentence, the term taxable bond means any bond the interest of which is not excludable from gross income.

(f) Dealers in tax-exempt securities 
For special rules applicable, in the case of dealers in securities, with respect to premium attributable to certain wholly tax-exempt securities, see section 75.
[1] So in original.

26 USC 172 - Net operating loss deduction

(a) Deduction allowed 
There shall be allowed as a deduction for the taxable year an amount equal to the aggregate of
(1)  the net operating loss carryovers to such year, plus
(2)  the net operating loss carrybacks to such year. For purposes of this subtitle, the term net operating loss deduction means the deduction allowed by this subsection.
(b) Net operating loss carrybacks and carryovers 

(1) Years to which loss may be carried 

(A) General rule 
Except as otherwise provided in this paragraph, a net operating loss for any taxable year
(i) shall be a net operating loss carryback to each of the 2 taxable years preceding the taxable year of such loss, and
(ii) shall be a net operating loss carryover to each of the 20 taxable years following the taxable year of the loss.
(B) Special rules for REIT’s 

(i) In general A net operating loss for a REIT year shall not be a net operating loss carryback to any taxable year preceding the taxable year of such loss.
(ii) Special rule In the case of any net operating loss for a taxable year which is not a REIT year, such loss shall not be carried back to any taxable year which is a REIT year.
(iii) REIT year For purposes of this subparagraph, the term REIT year means any taxable year for which the provisions of part II of subchapter M (relating to real estate investment trusts) apply to the taxpayer.
(C) Specified liability losses 
In the case of a taxpayer which has a specified liability loss (as defined in subsection (f)) for a taxable year, such specified liability loss shall be a net operating loss carryback to each of the 10 taxable years preceding the taxable year of such loss.
(D) Bad debt losses of commercial banks 
In the case of any bank (as defined in section 585 (a)(2)), the portion of the net operating loss for any taxable year beginning after December 31, 1986, and before January 1, 1994, which is attributable to the deduction allowed under section 166 (a) shall be a net operating loss carryback to each of the 10 taxable years preceding the taxable year of the loss and a net operating loss carryover to each of the 5 taxable years following the taxable year of such loss.
(E) Excess interest loss 

(i) In general If
(I) there is a corporate equity reduction transaction, and
(II) an applicable corporation has a corporate equity reduction interest loss for any loss limitation year ending after August 2, 1989,

then the corporate equity reduction interest loss shall be a net operating loss carryback and carryover to the taxable years described in subparagraph (A), except that such loss shall not be carried back to a taxable year preceding the taxable year in which the corporate equity reduction transaction occurs.

(ii) Loss limitation year For purposes of clause (i) and subsection (h), the term loss limitation year means, with respect to any corporate equity reduction transaction, the taxable year in which such transaction occurs and each of the 2 succeeding taxable years.
(iii) Applicable corporation For purposes of clause (i), the term applicable corporation means
(I) a C corporation which acquires stock, or the stock of which is acquired in a major stock acquisition,
(II) a C corporation making distributions with respect to, or redeeming, its stock in connection with an excess distribution, or
(III) a C corporation which is a successor of a corporation described in subclause (I) or (II).
(iv) Other definitions For definitions of terms used in this subparagraph, see subsection (h).
(F) Retention of 3-year carryback in certain cases 

(i) In general Subparagraph (A)(i) shall be applied by substituting 3 taxable years for 2 taxable years with respect to the portion of the net operating loss for the taxable year which is an eligible loss with respect to the taxpayer.
(ii) Eligible loss For purposes of clause (i), the term eligible loss means
(I) in the case of an individual, losses of property arising from fire, storm, shipwreck, or other casualty, or from theft,
(II) in the case of a taxpayer which is a small business, net operating losses attributable to Presidentially declared disasters (as defined in section 1033 (h)(3)), and
(III) in the case of a taxpayer engaged in the trade or business of farming (as defined in section 263A (e)(4)), net operating losses attributable to such Presidentially declared disasters.

Such term shall not include any farming loss (as defined in subsection (i)).

(iii) Small business For purposes of this subparagraph, the term small business means a corporation or partnership which meets the gross receipts test of section 448 (c) for the taxable year in which the loss arose (or, in the case of a sole proprietorship, which would meet such test if such proprietorship were a corporation).
(iv) Coordination with paragraph (2) For purposes of applying paragraph (2), an eligible loss for any taxable year shall be treated in a manner similar to the manner in which a specified liability loss is treated.
(G) Farming losses 
In the case of a taxpayer which has a farming loss (as defined in subsection (i)) for a taxable year, such farming loss shall be a net operating loss carryback to each of the 5 taxable years preceding the taxable year of such loss.
(H) In the case of a net operating loss for any taxable year ending during 2001 or 2002, subparagraph (A)(i) shall be applied by substituting 5 for 2 and subparagraph (F) shall not apply.
(I) Transmission property and pollution control investment 

(i) In general At the election of the taxpayer for any taxable year ending after December 31, 2005, and before January 1, 2009, in the case of a net operating loss for a taxable year ending after December 31, 2002, and before January 1, 2006, there shall be a net operating loss carryback to each of the 5 taxable years preceding the taxable year of such loss to the extent that such loss does not exceed 20 percent of the sum of the electric transmission property capital expenditures and the pollution control facility capital expenditures of the taxpayer for the taxable year preceding the taxable year for which such election is made.
(ii) Limitations For purposes of this subsection
(I) not more than one election may be made under clause (i) with respect to any net operating loss for a taxable year, and
(II) an election may not be made under clause (i) for more than 1 taxable year beginning in any calendar year.
(iii) Coordination with ordering rule For purposes of applying subsection (b)(2), the portion of any loss which is carried back 5 years by reason of clause (i) shall be treated in a manner similar to the manner in which a specified liability loss is treated.
(iv) Special rules relating to credit or refund In the case of the portion of the loss which is carried back 5 years by reason of clause (i)
(I) an application under section 6411 (a) with respect to such portion shall not fail to be treated as timely filed if filed within 24 months after the due date specified under such section, and
(II) references in sections 6501 (h), 6511 (d)(2)(A), and 6611 (f)(1) to the taxable year in which such net operating loss arises or results in a net operating loss carryback shall be treated as references to the taxable year for which such election is made.
(v) Definitions For purposes of this subparagraph
(I) Electric transmission property capital expenditures The term electric transmission property capital expenditures means any expenditure, chargeable to capital account, made by the taxpayer which is attributable to electric transmission property used by the taxpayer in the transmission at 69 or more kilovolts of electricity for sale. Such term shall not include any expenditure which may be refunded or the purpose of which may be modified at the option of the taxpayer so as to cease to be treated as an expenditure within the meaning of such term.
(II) Pollution control facility capital expenditures The term pollution control facility capital expenditures means any expenditure, chargeable to capital account, made by an electric utility company (as defined in section 2(3) of the Public Utility Holding Company Act[1] (15 U.S.C. 79b (3)), as in effect on the day before the date of the enactment of the Energy Tax Incentives Act of 2005) which is attributable to a facility which will qualify as a certified pollution control facility as determined under section 169 (d)(1) by striking before January 1, 1976, and by substituting an identifiable for a new identifiable. Such term shall not include any expenditure which may be refunded or the purpose of which may be modified at the option of the taxpayer so as to cease to be treated as an expenditure within the meaning of such term.
(2) Amount of carrybacks and carryovers 
The entire amount of the net operating loss for any taxable year (hereinafter in this section referred to as the loss year) shall be carried to the earliest of the taxable years to which (by reason of paragraph (1)) such loss may be carried. The portion of such loss which shall be carried to each of the other taxable years shall be the excess, if any, of the amount of such loss over the sum of the taxable income for each of the prior taxable years to which such loss may be carried. For purposes of the preceding sentence, the taxable income for any such prior taxable year shall be computed
(A) with the modifications specified in subsection (d) other than paragraphs (1), (4), and (5) thereof, and
(B) by determining the amount of the net operating loss deduction without regard to the net operating loss for the loss year or for any taxable year thereafter,

and the taxable income so computed shall not be considered to be less than zero.

(3) Election to waive carryback 
Any taxpayer entitled to a carryback period under paragraph (1) may elect to relinquish the entire carryback period with respect to a net operating loss for any taxable year. Such election shall be made in such manner as may be prescribed by the Secretary, and shall be made by the due date (including extensions of time) for filing the taxpayers return for the taxable year of the net operating loss for which the election is to be in effect. Such election, once made for any taxable year, shall be irrevocable for such taxable year.
(c) Net operating loss defined 
For purposes of this section, the term net operating loss means the excess of the deductions allowed by this chapter over the gross income. Such excess shall be computed with the modifications specified in subsection (d).
(d) Modifications 
The modifications referred to in this section are as follows:
(1) Net operating loss deduction 
No net operating loss deduction shall be allowed.
(2) Capital gains and losses of taxpayers other than corporations 
In the case of a taxpayer other than a corporation
(A) the amount deductible on account of losses from sales or exchanges of capital assets shall not exceed the amount includable on account of gains from sales or exchanges of capital assets; and
(B) the exclusion provided by section 1202 shall not be allowed.
(3) Deduction for personal exemptions 
No deduction shall be allowed under section 151 (relating to personal exemptions). No deduction in lieu of any such deduction shall be allowed.
(4) Nonbusiness deductions of taxpayers other than corporations 
In the case of a taxpayer other than a corporation, the deductions allowable by this chapter which are not attributable to a taxpayers trade or business shall be allowed only to the extent of the amount of the gross income not derived from such trade or business. For purposes of the preceding sentence
(A) any gain or loss from the sale or other disposition of
(i) property, used in the trade or business, of a character which is subject to the allowance for depreciation provided in section 167, or
(ii) real property used in the trade or business,

shall be treated as attributable to the trade or business;

(B) the modifications specified in paragraphs (1), (2)(B), and (3) shall be taken into account;
(C) any deduction for casualty or theft losses allowable under paragraph (2) or (3) of section 165 (c) shall be treated as attributable to the trade or business; and
(D) any deduction allowed under section 404 to the extent attributable to contributions which are made on behalf of an individual who is an employee within the meaning of section 401 (c)(1) shall not be treated as attributable to the trade or business of such individual.
(5) Computation of deduction for dividends received, etc. 
The deductions allowed by sections 243 (relating to dividends received by corporations), 244 (relating to dividends received on certain preferred stock of public utilities), and 245 (relating to dividends received from certain foreign corporations) shall be computed without regard to section 246 (b) (relating to limitation on aggregate amount of deductions); and the deduction allowed by section 247 (relating to dividends paid on certain preferred stock of public utilities) shall be computed without regard to subsection (a)(1)(B) of such section.
(6) Modifications related to real estate investment trusts 
In the case of any taxable year for which part II of subchapter M (relating to real estate investment trusts) applies to the taxpayer
(A) the net operating loss for such taxable year shall be computed by taking into account the adjustments described in section 857 (b)(2) (other than the deduction for dividends paid described in section 857 (b)(2)(B)); and
(B) where such taxable year is a prior taxable year referred to in paragraph (2) of subsection (b), the term taxable income in such paragraph shall mean real estate investment trust taxable income (as defined in section 857 (b)(2)).
(7) Manufacturing deduction 
The deduction under section 199 shall not be allowed.
(e) Law applicable to computations 
In determining the amount of any net operating loss carryback or carryover to any taxable year, the necessary computations involving any other taxable year shall be made under the law applicable to such other taxable year.
(f) Rules relating to specified liability loss 
For purposes of this section
(1) In general 
The term specified liability loss means the sum of the following amounts to the extent taken into account in computing the net operating loss for the taxable year:
(A) Any amount allowable as a deduction under section 162 or 165 which is attributable to
(i) product liability, or
(ii) expenses incurred in the investigation or settlement of, or opposition to, claims against the taxpayer on account of product liability.
(B) 
(i) Any amount allowable as a deduction under this chapter (other than section 468 (a)(1) or 468A (a)) which is in satisfaction of a liability under a Federal or State law requiring
(I) the reclamation of land,
(II) the decommissioning of a nuclear power plant (or any unit thereof),
(III) the dismantlement of a drilling platform,
(IV) the remediation of environmental contamination, or
(V) a payment under any workers compensation act (within the meaning of section 461 (h)(2)(C)(i)).
(ii) A liability shall be taken into account under this subparagraph only if
(I) the act (or failure to act) giving rise to such liability occurs at least 3 years before the beginning of the taxable year, and
(II) the taxpayer used an accrual method of accounting throughout the period or periods during which such act (or failure to act) occurred.
(2) Limitation 
The amount of the specified liability loss for any taxable year shall not exceed the amount of the net operating loss for such taxable year.
(3) Special rule for nuclear powerplants 
Except as provided in regulations prescribed by the Secretary, that portion of a specified liability loss which is attributable to amounts incurred in the decommissioning of a nuclear powerplant (or any unit thereof) may, for purposes of subsection (b)(1)(C), be carried back to each of the taxable years during the period
(A) beginning with the taxable year in which such plant (or unit thereof) was placed in service, and
(B) ending with the taxable year preceding the loss year.
(4) Product liability 
The term product liability means
(A) liability of the taxpayer for damages on account of physical injury or emotional harm to individuals, or damage to or loss of the use of property, on account of any defect in any product which is manufactured, leased, or sold by the taxpayer, but only if
(B) such injury, harm, or damage arises after the taxpayer has completed or terminated operations with respect to, and has relinquished possession of, such product.
(5) Coordination with subsection (b)(2) 
For purposes of applying subsection (b)(2), a specified liability loss for any taxable year shall be treated as a separate net operating loss for such taxable year to be taken into account after the remaining portion of the net operating loss for such taxable year.
(6) Election 
Any taxpayer entitled to a 10-year carryback under subsection (b)(1)(C) from any loss year may elect to have the carryback period with respect to such loss year determined without regard to subsection (b)(1)(C). Such election shall be made in such manner as may be prescribed by the Secretary and shall be made by the due date (including extensions of time) for filing the taxpayers return for the taxable year of the net operating loss. Such election, once made for any taxable year, shall be irrevocable for that taxable year.
(g) Rules relating to bad debt losses of commercial banks 
For purposes of this section
(1) Portion attributable to deduction for bad debts 
The portion of the net operating loss for any taxable year which is attributable to the deduction allowed under section 166 (a) shall be the excess of
(i) the net operating loss for such taxable year, over
(ii) the net operating loss for such taxable year determined without regard to the amount allowed as a deduction under section 166 (a) for such taxable year.
(2) Coordination with subsection (b)(2) 
For purposes of subsection (b)(2), the portion of a net operating loss for any taxable year which is attributable to the deduction allowed under section 166 (a) shall be treated in a manner similar to the manner in which a specified liability loss is treated.
(h) Corporate equity reduction interest losses 
For purposes of this section
(1) In general 
The term corporate equity reduction interest loss means, with respect to any loss limitation year, the excess (if any) of
(A) the net operating loss for such taxable year, over
(B) the net operating loss for such taxable year determined without regard to any allocable interest deductions otherwise taken into account in computing such loss.
(2) Allocable interest deductions 

(A) In general 
The term allocable interest deductions means deductions allowed under this chapter for interest on the portion of any indebtedness allocable to a corporate equity reduction transaction.
(B) Method of allocation 
Except as provided in regulations and subparagraph (E), indebtedness shall be allocated to a corporate equity reduction transaction in the manner prescribed under clause (ii) of section 263A (f)(2)(A) (without regard to clause (i) thereof).
(C) Allocable deductions not to exceed interest increases 
Allocable interest deductions for any loss limitation year shall not exceed the excess (if any) of
(i) the amount allowable as a deduction for interest paid or accrued by the taxpayer during the loss limitation year, over
(ii) the average of such amounts for the 3 taxable years preceding the taxable year in which the corporate equity reduction transaction occurred.
(D) De minimis rule 
A taxpayer shall be treated as having no allocable interest deductions for any taxable year if the amount of such deductions (without regard to this subparagraph) is less than $1,000,000.
(E) Special rule for certain unforeseeable events 
If an unforeseeable extraordinary adverse event occurs during a loss limitation year but after the corporate equity reduction transaction
(i) indebtedness shall be allocated in the manner described in subparagraph (B) to unreimbursed costs paid or incurred in connection with such event before being allocated to the corporate equity reduction transaction, and
(ii) the amount determined under subparagraph (C)(i) shall be reduced by the amount of interest on indebtedness described in clause (i).
(F) Transition rule 
If any of the 3 taxable years described in subparagraph (C)(ii) end on or before August 2, 1989, the taxpayer may substitute for the amount determined under such subparagraph an amount equal to the interest paid or accrued (determined on an annualized basis) during the taxpayers taxable year which includes August 3, 1989, on indebtedness of the taxpayer outstanding on August 2, 1989.
(3) Corporate equity reduction transaction 

(A) In general 
The term corporate equity reduction transaction means
(i) a major stock acquisition, or
(ii) an excess distribution.
(B) Major stock acquisition 

(i) In general The term major stock acquisition means the acquisition by a corporation pursuant to a plan of such corporation (or any group of persons acting in concert with such corporation) of stock in another corporation representing 50 percent or more (by vote or value) of the stock in such other corporation.
(ii) Exception The term major stock acquisition does not include a qualified stock purchase (within the meaning of section 338) to which an election under section 338 applies.
(C) Excess distribution 
The term excess distribution means the excess (if any) of
(i) the aggregate distributions (including redemptions) made during a taxable year by a corporation with respect to its stock, over
(ii) the greater of
(I) 150 percent of the average of such distributions during the 3 taxable years immediately preceding such taxable year, or
(II) 10 percent of the fair market value of the stock of such corporation as of the beginning of such taxable year.
(D) Rules for applying subparagraph (B) 
For purposes of subparagraph (B)
(i) Plans to acquire stock All plans referred to in subparagraph (B) by any corporation (or group of persons acting in concert with such corporation) with respect to another corporation shall be treated as 1 plan.
(ii) Acquisitions during 24-month period All acquisitions during any 24-month period shall be treated as pursuant to 1 plan.
(E) Rules for applying subparagraph (C) 
For purposes of subparagraph (C)
(i) Certain preferred stock disregarded Stock described in section 1504 (a)(4), and distributions (including redemptions) with respect to such stock, shall be disregarded.
(ii) Issuance of stock The amounts determined under clauses (i) and (ii)(I) of subparagraph (C) shall be reduced by the aggregate amount of stock issued by the corporation during the applicable period in exchange for money or property other than stock in the corporation.
(4) Other rules 

(A) Ordering rule 
For purposes of paragraph (1), in determining the allocable interest deductions taken into account in computing the net operating loss for any taxable year, taxable income for such taxable year shall be treated as having been computed by taking allocable interest deductions into account after all other deductions.
(B) Coordination with subsection (b)(2) 
For purposes of subsection (b)(2)
(i) a corporate equity reduction interest loss shall be treated in a manner similar to the manner in which a specified liability loss is treated, and
(ii) in determining the net operating loss deduction for any prior taxable year referred to in the 3rd sentence of subsection (b)(2), the portion of any net operating loss which may not be carried to such taxable year under subsection (b)(1)(E) shall not be taken into account.
(C) Members of affiliated groups 
Except as provided by regulations, all members of an affiliated group filing a consolidated return under section 1501 shall be treated as 1 taxpayer for purposes of this subsection and subsection (b)(1)(E).
(5) Regulations 
The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subsection, including regulations
(A) for applying this subsection to successor corporations and in cases where a taxpayer becomes, or ceases to be, a member of an affiliated group filing a consolidated return under section 1501,
(B) to prevent the avoidance of this subsection through related parties, pass-through entities, and intermediaries, and
(C) for applying this subsection where more than 1 corporation is involved in a corporate equity reduction transaction.
(i) Rules relating to farming losses 
For purposes of this section
(1) In general 
The term farming loss means the lesser of
(A) the amount which would be the net operating loss for the taxable year if only income and deductions attributable to farming businesses (as defined in section 263A (e)(4)) are taken into account, or
(B) the amount of the net operating loss for such taxable year.
(2) Coordination with subsection (b)(2) 
For purposes of applying subsection (b)(2), a farming loss for any taxable year shall be treated in a manner similar to the manner in which a specified liability loss is treated.
(3) Election 
Any taxpayer entitled to a 5-year carryback under subsection (b)(1)(G) from any loss year may elect to have the carryback period with respect to such loss year determined without regard to subsection (b)(1)(G). Such election shall be made in such manner as may be prescribed by the Secretary and shall be made by the due date (including extensions of time) for filing the taxpayers return for the taxable year of the net operating loss. Such election, once made for any taxable year, shall be irrevocable for such taxable year.
(j) Election to disregard 5-year carryback for certain net operating losses 
Any taxpayer entitled to a 5-year carryback under subsection (b)(1)(H) from any loss year may elect to have the carryback period with respect to such loss year determined without regard to subsection (b)(1)(H). Such election shall be made in such manner as may be prescribed by the Secretary and shall be made by the due date (including extensions of time) for filing the taxpayers return for the taxable year of the net operating loss. Such election, once made for any taxable year, shall be irrevocable for such taxable year.
(k) Cross references 

(1) For treatment of net operating loss carryovers in certain corporate acquisitions, see section 381.
(2) For special limitation on net operating loss carryovers in case of a corporate change of ownership, see section 382.
[1] So in original. Probably should be followed by “of 1935”.

26 USC 173 - Circulation expenditures

(a) General rule 
Notwithstanding section 263, all expenditures (other than expenditures for the purchase of land or depreciable property or for the acquisition of circulation through the purchase of any part of the business of another publisher of a newspaper, magazine, or other periodical) to establish, maintain, or increase the circulation of a newspaper, magazine, or other periodical shall be allowed as a deduction; except that the deduction shall not be allowed with respect to the portion of such expenditures as, under regulations prescribed by the Secretary, is chargeable to capital account if the taxpayer elects, in accordance with such regulations, to treat such portion as so chargeable. Such election, if made, must be for the total amount of such portion of the expenditures which is so chargeable to capital account, and shall be binding for all subsequent taxable years unless, upon application by the taxpayer, the Secretary permits a revocation of such election subject to such conditions as he deems necessary.
(b) Cross reference 
For election of 3-year amortization of expenditures allowable as a deduction under subsection (a), see section 59 (e).

26 USC 174 - Research and experimental expenditures

(a) Treatment as expenses 

(1) In general 
A taxpayer may treat research or experimental expenditures which are paid or incurred by him during the taxable year in connection with his trade or business as expenses which are not chargeable to capital account. The expenditures so treated shall be allowed as a deduction.
(2) When method may be adopted 

(A) Without consent 
A taxpayer may, without the consent of the Secretary, adopt the method provided in this subsection for his first taxable year
(i) which begins after December 31, 1953, and ends after August 16, 1954, and
(ii) for which expenditures described in paragraph (1) are paid or incurred.
(B) With consent 
A taxpayer may, with the consent of the Secretary, adopt at any time the method provided in this subsection.
(3) Scope 
The method adopted under this subsection shall apply to all expenditures described in paragraph (1). The method adopted shall be adhered to in computing taxable income for the taxable year and for all subsequent taxable years unless, with the approval of the Secretary, a change to a different method is authorized with respect to part or all of such expenditures.
(b) Amortization of certain research and experimental expenditures 

(1) In general 
At the election of the taxpayer, made in accordance with regulations prescribed by the Secretary, research or experimental expenditures which are
(A) paid or incurred by the taxpayer in connection with his trade or business,
(B) not treated as expenses under subsection (a), and
(C) chargeable to capital account but not chargeable to property of a character which is subject to the allowance under section 167 (relating to allowance for depreciation, etc.) or section 611 (relating to allowance for depletion),

may be treated as deferred expenses. In computing taxable income, such deferred expenses shall be allowed as a deduction ratably over such period of not less than 60 months as may be selected by the taxpayer (beginning with the month in which the taxpayer first realizes benefits from such expenditures). Such deferred expenses are expenditures properly chargeable to capital account for purposes of section 1016 (a)(1) (relating to adjustments to basis of property).

(2) Time for and scope of election 
The election provided by paragraph (1) may be made for any taxable year beginning after December 31, 1953, but only if made not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof). The method so elected, and the period selected by the taxpayer, shall be adhered to in computing taxable income for the taxable year for which the election is made and for all subsequent taxable years unless, with the approval of the Secretary, a change to a different method (or to a different period) is authorized with respect to part or all of such expenditures. The election shall not apply to any expenditure paid or incurred during any taxable year before the taxable year for which the taxpayer makes the election.
(c) Land and other property 
This section shall not apply to any expenditure for the acquisition or improvement of land, or for the acquisition or improvement of property to be used in connection with the research or experimentation and of a character which is subject to the allowance under section 167 (relating to allowance for depreciation, etc.) or section 611 (relating to allowance for depletion); but for purposes of this section allowances under section 167, and allowances under section 611, shall be considered as expenditures.
(d) Exploration expenditures 
This section shall not apply to any expenditure paid or incurred for the purpose of ascertaining the existence, location, extent, or quality of any deposit of ore or other mineral (including oil and gas).
(e) Only reasonable research expenditures eligible 
This section shall apply to a research or experimental expenditure only to the extent that the amount thereof is reasonable under the circumstances.
(f) Cross references 

(1) For adjustments to basis of property for amounts allowed as deductions as deferred expenses under subsection (b), see section 1016 (a)(14).
(2) For election of 10-year amortization of expenditures allowable as a deduction under subsection (a), see section 59 (e).

26 USC 175 - Soil and water conservation expenditures

(a) In general 
A taxpayer engaged in the business of farming may treat expenditures which are paid or incurred by him during the taxable year for the purpose of soil or water conservation in respect of land used in farming, or for the prevention of erosion of land used in farming, as expenses which are not chargeable to capital account. The expenditures so treated shall be allowed as a deduction.
(b) Limitation 
The amount deductible under subsection (a) for any taxable year shall not exceed 25 percent of the gross income derived from farming during the taxable year. If for any taxable year the total of the expenditures treated as expenses which are not chargeable to capital account exceeds 25 percent of the gross income derived from farming during the taxable year, such excess shall be deductible for succeeding taxable years in order of time; but the amount deductible under this section for any one such succeeding taxable year (including the expenditures actually paid or incurred during the taxable year) shall not exceed 25 percent of the gross income derived from farming during the taxable year.
(c) Definitions 
For purposes of subsection (a)
(1) The term expenditures which are paid or incurred by him during the taxable year for the purpose of soil or water conservation in respect of land used in farming, or for the prevention of erosion of land used in farming means expenditures paid or incurred for the treatment or moving of earth, including (but not limited to) leveling, grading and terracing, contour furrowing, the construction, control, and protection of diversion channels, drainage ditches, earthen dams, watercourses, outlets, and ponds, the eradication of brush, and the planting of windbreaks. Such term does not include
(A) the purchase, construction, installation, or improvement of structures, appliances, or facilities which are of a character which is subject to the allowance for depreciation provided in section 167, or
(B) any amount paid or incurred which is allowable as a deduction without regard to this section.

Notwithstanding the preceding sentences, such term also includes any amount, not otherwise allowable as a deduction, paid or incurred to satisfy any part of an assessment levied by a soil or water conservation or drainage district to defray expenditures made by such district (i) which, if paid or incurred by the taxpayer, would without regard to this sentence constitute expenditures deductible under this section, or (ii) for property of a character subject to the allowance for depreciation provided in section 167 and used in the soil or water conservation or drainage districts business as such (to the extent that the taxpayers share of the assessment levied on the members of the district for such property does not exceed 10 percent of such assessment).

(2) The term land used in farming means land used (before or simultaneously with the expenditures described in paragraph (1)) by the taxpayer or his tenant for the production of crops, fruits, or other agricultural products or for the sustenance of livestock.
(3) Additional limitations.— 

(A) Expenditures must be consistent with soil conservation plan.— 
Notwithstanding any other provision of this section, subsection (a) shall not apply to any expenditures unless such expenditures are consistent with
(i) the plan (if any) approved by the Soil Conservation Service of the Department of Agriculture for the area in which the land is located, or
(ii) if there is no plan described in clause (i), any soil conservation plan of a comparable State agency.
(B) Certain wetland, etc., activities not qualified.Subsection (a) shall not apply to any expenditures in connection with the draining or filling of wetlands or land preparation for center pivot irrigation systems.
(d) When method may be adopted 

(1) Without consent 
A taxpayer may, without the consent of the Secretary, adopt the method provided in this section for his first taxable year
(A) which begins after December 31, 1953, and ends after August 16, 1954, and
(B) for which expenditures described in subsection (a) are paid or incurred.
(2) With consent 
A taxpayer may, with the consent of the Secretary, adopt at any time the method provided in this section.
(e) Scope 
The method adopted under this section shall apply to all expenditures described in subsection (a). The method adopted shall be adhered to in computing taxable income for the taxable year and for all subsequent taxable years unless, with the approval of the Secretary, a change to a different method is authorized with respect to part or all of such expenditures.
(f) Rules applicable to assessments for depreciable property 

(1) Amounts treated as paid or incurred over 9-year period 
In the case of an assessment levied to defray expenditures for property described in clause (ii) of the last sentence of subsection (c)(1), if the amount of such assessment paid or incurred by the taxpayer during the taxable year (determined without the application of this paragraph) is in excess of an amount equal to 10 percent of the aggregate amounts which have been and will be assessed as the taxpayers share of the expenditures by the district for such property, and if such excess is more than $500, the entire excess shall be treated as paid or incurred ratably over each of the 9 succeeding taxable years.
(2) Disposition of land during 9-year period 
If paragraph (1) applies to an assessment and the land with respect to which such assessment was made is sold or otherwise disposed of by the taxpayer (other than by the reason of his death) during the 9 succeeding taxable years, any amount of the excess described in paragraph (1) which has not been treated as paid or incurred for a taxable year ending on or before the sale or other disposition shall be added to the adjusted basis of such land immediately prior to its sale or other disposition and shall not thereafter be treated as paid or incurred ratably under paragraph (1).
(3) Disposition by reason of death 
If paragraph (1) applies to an assessment and the taxpayer dies during the 9 succeeding taxable years, any amount of the excess described in paragraph (1) which has not been treated as paid or incurred for a taxable year ending before his death shall be treated as paid or incurred in the taxable year in which he dies.

26 USC 176 - Payments with respect to employees of certain foreign corporations

In the case of a domestic corporation, there shall be allowed as a deduction amounts (to the extent not compensated for) paid or incurred pursuant to an agreement entered into under section 3121 (l) with respect to services performed by United States citizens employed by foreign subsidiary corporations. Any reimbursement of any amount previously allowed as a deduction under this section shall be included in gross income for the taxable year in which received.

26 USC 177 - Repealed. Pub. L. 99514, title II, 241(a), Oct. 22, 1986, 100 Stat. 2181]

Section, added June 29, 1956, ch. 464, 4(a), 70 Stat. 406; amended Oct. 4, 1976, Pub. L. 94–455, title XIX, § 1906(b)(13)(A), 90 Stat. 1834, related to deductions for trademark and trade name expenditures.

26 USC 178 - Amortization of cost of acquiring a lease

(a) General rule 
In determining the amount of the deduction allowable to a lessee for exhaustion, wear and tear, obsolescence, or amortization in respect of any cost of acquiring the lease, the term of the lease shall be treated as including all renewal options (and any other period for which the parties reasonably expect the lease to be renewed) if less than 75 percent of such cost is attributable to the period of the term of the lease remaining on the date of its acquisition.
(b) Certain periods excluded 
For purposes of subsection (a), in determining the period of the term of the lease remaining on the date of acquisition, there shall not be taken into account any period for which the lease may subsequently be renewed, extended, or continued pursuant to an option exercisable by the lessee.

26 USC 179 - Election to expense certain depreciable business assets

(a) Treatment as expenses 
A taxpayer may elect to treat the cost of any section 179 property as an expense which is not chargeable to capital account. Any cost so treated shall be allowed as a deduction for the taxable year in which the section 179 property is placed in service.
(b) Limitations 

(1) Dollar limitation 
The aggregate cost which may be taken into account under subsection (a) for any taxable year shall not exceed $25,000 ($125,000 in the case of taxable years beginning after 2006 and before 2011).
(2) Reduction in limitation 
The limitation under paragraph (1) for any taxable year shall be reduced (but not below zero) by the amount by which the cost of section 179 property placed in service during such taxable year exceeds $200,000 ($500,000 in the case of taxable years beginning after 2006 and before 2011).
(3) Limitation based on income from trade or business 

(A) In general 
The amount allowed as a deduction under subsection (a) for any taxable year (determined after the application of paragraphs (1) and (2)) shall not exceed the aggregate amount of taxable income of the taxpayer for such taxable year which is derived from the active conduct by the taxpayer of any trade or business during such taxable year.
(B) Carryover of disallowed deduction 
The amount allowable as a deduction under subsection (a) for any taxable year shall be increased by the lesser of
(i) the aggregate amount disallowed under subparagraph (A) for all prior taxable years (to the extent not previously allowed as a deduction by reason of this subparagraph), or
(ii) the excess (if any) of
(I) the limitation of paragraphs (1) and (2) (or if lesser, the aggregate amount of taxable income referred to in subparagraph (A)), over
(II) the amount allowable as a deduction under subsection (a) for such taxable year without regard to this subparagraph.
(C) Computation of taxable income 
For purposes of this paragraph, taxable income derived from the conduct of a trade or business shall be computed without regard to the deduction allowable under this section.
(4) Married individuals filing separately 
In the case of a husband and wife filing separate returns for the taxable year
(A) such individuals shall be treated as 1 taxpayer for purposes of paragraphs (1) and (2), and
(B) unless such individuals elect otherwise, 50 percent of the cost which may be taken into account under subsection (a) for such taxable year (before application of paragraph (3)) shall be allocated to each such individual.
(5) Inflation adjustments 

(A) In general 
In the case of any taxable year beginning in a calendar year after 2007 and before 2011, the $125,000 and $500,000 amounts in paragraphs (1) and (2) shall each be increased by an amount equal to
(i) such dollar amount, multiplied by
(ii) the cost-of-living adjustment determined under section 1 (f)(3) for the calendar year in which the taxable year begins, by substituting calendar year 2006 for calendar year 1992 in subparagraph (B) thereof.
(B) Rounding 

(i) Dollar limitation If the amount in paragraph (1) as increased under subparagraph (A) is not a multiple of $1,000, such amount shall be rounded to the nearest multiple of $1,000.
(ii) Phaseout amount If the amount in paragraph (2) as increased under subparagraph (A) is not a multiple of $10,000, such amount shall be rounded to the nearest multiple of $10,000.
(6) Limitation on cost taken into account for certain passenger vehicles 

(A) In general 
The cost of any sport utility vehicle for any taxable year which may be taken into account under this section shall not exceed $25,000.
(B) Sport utility vehicle 
For purposes of subparagraph (A)
(i) In general The term sport utility vehicle means any 4-wheeled vehicle
(I) which is primarily designed or which can be used to carry passengers over public streets, roads, or highways (except any vehicle operated exclusively on a rail or rails),
(II) which is not subject to section 280F, and
(III) which is rated at not more than 14,000 pounds gross vehicle weight.
(ii) Certain vehicles excluded Such term does not include any vehicle which
(I) is designed to have a seating capacity of more than 9 persons behind the drivers seat,
(II) is equipped with a cargo area of at least 6 feet in interior length which is an open area or is designed for use as an open area but is enclosed by a cap and is not readily accessible directly from the passenger compartment, or
(III) has an integral enclosure, fully enclosing the driver compartment and load carrying device, does not have seating rearward of the drivers seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield.
(c) Election 

(1) In general 
An election under this section for any taxable year shall
(A) specify the items of section 179 property to which the election applies and the portion of the cost of each of such items which is to be taken into account under subsection (a), and
(B) be made on the taxpayers return of the tax imposed by this chapter for the taxable year.

Such election shall be made in such manner as the Secretary may by regulations prescribe.

(2) Election irrevocable 
Any election made under this section, and any specification contained in any such election, may not be revoked except with the consent of the Secretary. Any such election or specification with respect to any taxable year beginning after 2002 and before 2011 may be revoked by the taxpayer with respect to any property, and such revocation, once made, shall be irrevocable.
(d) Definitions and special rules 

(1) Section 179 property 
For purposes of this section, the term section 179 property means property
(A) which is
(i) tangible property (to which section 168 applies), or
(ii) computer software (as defined in section 197 (e)(3)(B)) which is described in section 197 (e)(3)(A)(i), to which section 167 applies, and which is placed in service in a taxable year beginning after 2002 and before 2011,
(B) which is section 1245 property (as defined in section 1245 (a)(3)), and
(C) which is acquired by purchase for use in the active conduct of a trade or business.

Such term shall not include any property described in section 50 (b) and shall not include air conditioning or heating units.

(2) Purchase defined 
For purposes of paragraph (1), the term purchase means any acquisition of property, but only if
(A) the property is not acquired from a person whose relationship to the person acquiring it would result in the disallowance of losses under section 267 or 707 (b) (but, in applying section 267 (b) and (c) for purposes of this section, paragraph (4) of section 267 (c) shall be treated as providing that the family of an individual shall include only his spouse, ancestors, and lineal descendants),
(B) the property is not acquired by one component member of a controlled group from another component member of the same controlled group, and
(C) the basis of the property in the hands of the person acquiring it is not determined
(i) in whole or in part by reference to the adjusted basis of such property in the hands of the person from whom acquired, or
(ii) under section 1014 (a) (relating to property acquired from a decedent).
(3) Cost 
For purposes of this section, the cost of property does not include so much of the basis of such property as is determined by reference to the basis of other property held at any time by the person acquiring such property.
(4) Section not to apply to estates and trusts 
This section shall not apply to estates and trusts.
(5) Section not to apply to certain noncorporate lessors 
This section shall not apply to any section 179 property which is purchased by a person who is not a corporation and with respect to which such person is the lessor unless
(A) the property subject to the lease has been manufactured or produced by the lessor, or
(B) the term of the lease (taking into account options to renew) is less than 50 percent of the class life of the property (as defined in section 168 (i)(1)), and for the period consisting of the first 12 months after the date on which the property is transferred to the lessee the sum of the deductions with respect to such property which are allowable to the lessor solely by reason of section 162 (other than rents and reimbursed amounts with respect to such property) exceeds 15 percent of the rental income produced by such property.
(6) Dollar limitation of controlled group 
For purposes of subsection (b) of this section
(A) all component members of a controlled group shall be treated as one taxpayer, and
(B) the Secretary shall apportion the dollar limitation contained in subsection (b)(1) among the component members of such controlled group in such manner as he shall by regulations prescribe.
(7) Controlled group defined 
For purposes of paragraphs (2) and (6), the term controlled group has the meaning assigned to it by section 1563 (a), except that, for such purposes, the phrase more than 50 percent shall be substituted for the phrase at least 80 percent each place it appears in section 1563 (a)(1).
(8) Treatment of partnerships and S corporations 
In the case of a partnership, the limitations of subsection (b) shall apply with respect to the partnership and with respect to each partner. A similar rule shall apply in the case of an S corporation and its shareholders.
(9) Coordination with section 38 
No credit shall be allowed under section 38 with respect to any amount for which a deduction is allowed under subsection (a).
(10) Recapture in certain cases 
The Secretary shall, by regulations, provide for recapturing the benefit under any deduction allowable under subsection (a) with respect to any property which is not used predominantly in a trade or business at any time.

26 USC 179A - Deduction for clean-fuel vehicles and certain refueling property

(a) Allowance of deduction 

(1) In general 
There shall be allowed as a deduction an amount equal to the cost of
(A) any qualified clean-fuel vehicle property, and
(B) any qualified clean-fuel vehicle refueling property.

The deduction under the preceding sentence with respect to any property shall be allowed for the taxable year in which such property is placed in service.

(2) Incremental cost for certain vehicles 
If a vehicle may be propelled by both a clean-burning fuel and any other fuel, only the incremental cost of permitting the use of the clean-burning fuel shall be taken into account.
(b) Limitations 

(1) Qualified clean-fuel vehicle property 

(A) In general 
The cost which may be taken into account under subsection (a)(1)(A) with respect to any motor vehicle shall not exceed
(i) in the case of a motor vehicle not described in clause (ii) or (iii), $2,000,
(ii) in the case of any truck or van with a gross vehicle weight rating greater than 10,000 pounds but not greater than 26,000 pounds, $5,000, or
(iii) $50,000 in the case of
(I) a truck or van with a gross vehicle weight rating greater than 26,000 pounds, or
(II) any bus which has a seating capacity of at least 20 adults (not including the driver).
(B) Phaseout 
In the case of any qualified clean-fuel vehicle property placed in service after December 31, 2005, the limit otherwise allowable under subparagraph (A) shall be reduced by 75 percent.
(2) Qualified clean-fuel vehicle refueling property 

(A) In general 
The aggregate cost which may be taken into account under subsection (a)(1)(B) with respect to qualified clean-fuel vehicle refueling property placed in service during the taxable year at a location shall not exceed the excess (if any) of
(i) $100,000, over
(ii) the aggregate amount taken into account under subsection (a)(1)(B) by the taxpayer (or any related person or predecessor) with respect to property placed in service at such location for all preceding taxable years.
(B) Related person 
For purposes of this paragraph, a person shall be treated as related to another person if such person bears a relationship to such other person described in section 267 (b) or 707 (b)(1).
(C) Election 
If the limitation under subparagraph (A) applies for any taxable year, the taxpayer shall, on the return of tax for such taxable year, specify the items of property (and the portion of costs of such property) which are to be taken into account under subsection (a)(1)(B).
(c) Qualified clean-fuel vehicle property defined 
For purposes of this section
(1) In general 
The term qualified clean-fuel vehicle property means property which is acquired for use by the taxpayer and not for resale, the original use of which commences with the taxpayer, with respect to which the environmental standards of paragraph (2) are met, and which is described in either of the following subparagraphs:
(A) Retrofit parts and components 
Any property installed on a motor vehicle which is propelled by a fuel which is not a clean-burning fuel for purposes of permitting such vehicle to be propelled by a clean-burning fuel
(i) if the property is an engine (or modification thereof) which may use a clean-burning fuel, or
(ii) to the extent the property is used in the storage or delivery to the engine of such fuel, or the exhaust of gases from combustion of such fuel.
(B) Original equipment manufacturer’s vehicles 
A motor vehicle produced by an original equipment manufacturer and designed so that the vehicle may be propelled by a clean-burning fuel, but only to the extent of the portion of the basis of such vehicle which is attributable to an engine which may use such fuel, to the storage or delivery to the engine of such fuel, or to the exhaust of gases from combustion of such fuel.
(2) Environmental standards 
Property shall not be treated as qualified clean-fuel vehicle property unless
(A) the motor vehicle of which it is a part meets any applicable Federal or State emissions standards with respect to each fuel by which such vehicle is designed to be propelled, or
(B) in the case of property described in paragraph (1)(A), such property meets applicable Federal and State emissions-related certification, testing, and warranty requirements.
(3) Exception for qualified electric vehicles 
The term qualified clean-fuel vehicle property does not include any qualified electric vehicle (as defined in section 30 (c)).
(d) Qualified clean-fuel vehicle refueling property defined 
For purposes of this section, the term qualified clean-fuel vehicle refueling property means any property (not including a building and its structural components) if
(1) such property is of a character subject to the allowance for depreciation,
(2) the original use of such property begins with the taxpayer, and
(3) such property is
(A) for the storage or dispensing of a clean-burning fuel into the fuel tank of a motor vehicle propelled by such fuel, but only if the storage or dispensing of the fuel is at the point where such fuel is delivered into the fuel tank of the motor vehicle, or
(B) for the recharging of motor vehicles propelled by electricity, but only if the property is located at the point where the motor vehicles are recharged.
(e) Other definitions and special rules 
For purposes of this section
(1) Clean-burning fuel 
The term clean-burning fuel means
(A) natural gas,
(B) liquefied natural gas,
(C) liquefied petroleum gas,
(D) hydrogen,
(E) electricity, and
(F) any other fuel at least 85 percent of which is 1 or more of the following: methanol, ethanol, any other alcohol, or ether.
(2) Motor vehicle 
The term motor vehicle means any vehicle which is manufactured primarily for use on public streets, roads, and highways (not including a vehicle operated exclusively on a rail or rails) and which has at least 4 wheels.
(3) Cost of retrofit parts includes cost of installation 
The cost of any qualified clean-fuel vehicle property referred to in subsection (c)(1)(A) shall include the cost of the original installation of such property.
(4) Recapture 
The Secretary shall, by regulations, provide for recapturing the benefit of any deduction allowable under subsection (a) with respect to any property which ceases to be property eligible for such deduction.
(5) Property used outside United States, etc., not qualified 
No deduction shall be allowed under subsection (a) with respect to any property referred to in section 50 (b) or with respect to the portion of the cost of any property taken into account under section 179.
(6) Basis reduction 

(A) In general 
For purposes of this title, the basis of any property shall be reduced by the portion of the cost of such property taken into account under subsection (a).
(B) Ordinary income recapture 
For purposes of section 1245, the amount of the deduction allowable under subsection (a) with respect to any property which is of a character subject to the allowance for depreciation shall be treated as a deduction allowed for depreciation under section 167.
(f) Termination 
This section shall not apply to any property placed in service after December 31, 2005.

26 USC 179B - Deduction for capital costs incurred in complying with Environmental Protection Agency sulfur regulations

(a) Allowance of deduction 
In the case of a small business refiner (as defined in section 45H (c)(1)) which elects the application of this section, there shall be allowed as a deduction an amount equal to 75 percent of qualified costs (as defined in section 45H (c)(2)) which are paid or incurred by the taxpayer during the taxable year and which are properly chargeable to capital account.
(b) Reduced percentage 
In the case of a small business refiner with average daily domestic refinery runs for the 1-year period ending on December 31, 2002, in excess of 155,000 barrels, the number of percentage points described in subsection (a) shall be reduced (not below zero) by the product of such number (before the application of this subsection) and the ratio of such excess to 50,000 barrels.
(c) Basis reduction 

(1) In general 
For purposes of this title, the basis of any property shall be reduced by the portion of the cost of such property taken into account under subsection (a).
(2) Ordinary income recapture 
For purposes of section 1245, the amount of the deduction allowable under subsection (a) with respect to any property which is of a character subject to the allowance for depreciation shall be treated as a deduction allowed for depreciation under section 167.
(d) Coordination with other provisions 
Section 280B shall not apply to amounts which are treated as expenses under this section.
(e) Election to allocate deduction to cooperative owner 

(1) In general 
If
(A) a small business refiner to which subsection (a) applies is an organization to which part I of subchapter T applies, and
(B) one or more persons directly holding an ownership interest in the refiner are organizations to which part I of subchapter T apply,

the refiner may elect to allocate all or a portion of the deduction allowable under subsection (a) to such persons. Such allocation shall be equal to the persons ratable share of the total amount allocated, determined on the basis of the persons ownership interest in the taxpayer. The taxable income of the refiner shall not be reduced under section 1382 by reason of any amount to which the preceding sentence applies.

(2) Form and effect of election 
An election under paragraph (1) for any taxable year shall be made on a timely filed return for such year. Such election, once made, shall be irrevocable for such taxable year.
(3) Written notice to owners 
If any portion of the deduction available under subsection (a) is allocated to owners under paragraph (1), the cooperative shall provide any owner receiving an allocation written notice of the amount of the allocation. Such notice shall be provided before the date on which the return described in paragraph (2) is due.

26 USC 179C - Election to expense certain refineries

(a) Treatment as expenses 
A taxpayer may elect to treat 50 percent of the cost of any qualified refinery property as an expense which is not chargeable to capital account. Any cost so treated shall be allowed as a deduction for the taxable year in which the qualified refinery property is placed in service.
(b) Election 

(1) In general 
An election under this section for any taxable year shall be made on the taxpayers return of the tax imposed by this chapter for the taxable year. Such election shall be made in such manner as the Secretary may by regulations prescribe.
(2) Election irrevocable 
Any election made under this section may not be revoked except with the consent of the Secretary.
(c) Qualified refinery property 

(1) In general 
The term qualified refinery property means any portion of a qualified refinery
(A) the original use of which commences with the taxpayer,
(B) which is placed in service by the taxpayer after the date of the enactment of this section and before January 1, 2012,
(C) in the case any portion of a qualified refinery (other than a qualified refinery which is separate from any existing refinery), which meets the requirements of subsection (e),
(D) which meets all applicable environmental laws in effect on the date such portion was placed in service,
(E) no written binding contract for the construction of which was in effect on or before June 14, 2005, and
(F) 
(i) the construction of which is subject to a written binding construction contract entered into before January 1, 2008,
(ii) which is placed in service before January 1, 2008, or
(iii) in the case of self-constructed property, the construction of which began after June 14, 2005, and before January 1, 2008.
(2) Special rule for sale-leasebacks 
For purposes of paragraph (1)(A), if property is
(A) originally placed in service after the date of the enactment of this section by a person, and
(B) sold and leased back by such person within 3 months after the date such property was originally placed in service,

such property shall be treated as originally placed in service not earlier than the date on which such property is used under the leaseback referred to in subparagraph (B).

(3) Effect of waiver under Clean Air Act 
A waiver under the Clean Air Act shall not be taken into account in determining whether the requirements of paragraph (1)(D) are met.
(d) Qualified refinery 
For purposes of this section, the term qualified refinery means any refinery located in the United States which is designed to serve the primary purpose of processing liquid fuel from crude oil or qualified fuels (as defined in section 45K (c)).
(e) Production capacity 
The requirements of this subsection are met if the portion of the qualified refinery
(1) enables the existing qualified refinery to increase total volume output (determined without regard to asphalt or lube oil) by 5 percent or more on an average daily basis, or
(2) enables the existing qualified refinery to process qualified fuels (as defined in section 45K (c)) at a rate which is equal to or greater than 25 percent of the total throughput of such qualified refinery on an average daily basis.
(f) Ineligible refinery property 
No deduction shall be allowed under subsection (a) for any qualified refinery property
(1) the primary purpose of which is for use as a topping plant, asphalt plant, lube oil facility, crude or product terminal, or blending facility, or
(2) which is built solely to comply with consent decrees or projects mandated by Federal, State, or local governments.
(g) Election to allocate deduction to cooperative owner 

(1) In general 
If
(A) a taxpayer to which subsection (a) applies is an organization to which part I of subchapter T applies, and
(B) one or more persons directly holding an ownership interest in the taxpayer are organizations to which part I of subchapter T apply,

the taxpayer may elect to allocate all or a portion of the deduction allowable under subsection (a) to such persons. Such allocation shall be equal to the persons ratable share of the total amount allocated, determined on the basis of the persons ownership interest in the taxpayer. The taxable income of the taxpayer shall not be reduced under section 1382 by reason of any amount to which the preceding sentence applies.

(2) Form and effect of election 
An election under paragraph (1) for any taxable year shall be made on a timely filed return for such year. Such election, once made, shall be irrevocable for such taxable year.
(3) Written notice to owners 
If any portion of the deduction available under subsection (a) is allocated to owners under paragraph (1), the cooperative shall provide any owner receiving an allocation written notice of the amount of the allocation. Such notice shall be provided before the date on which the return described in paragraph (2) is due.
(h) Reporting 
No deduction shall be allowed under subsection (a) to any taxpayer for any taxable year unless such taxpayer files with the Secretary a report containing such information with respect to the operation of the refineries of the taxpayer as the Secretary shall require.

26 USC 179D - Energy efficient commercial buildings deduction

(a) In general 
There shall be allowed as a deduction an amount equal to the cost of energy efficient commercial building property placed in service during the taxable year.
(b) Maximum amount of deduction 
The deduction under subsection (a) with respect to any building for any taxable year shall not exceed the excess (if any) of
(1) the product of
(A) $1.80, and
(B) the square footage of the building, over
(2) the aggregate amount of the deductions under subsection (a) with respect to the building for all prior taxable years.
(c) Definitions 
For purposes of this section
(1) Energy efficient commercial building property 
The term energy efficient commercial building property means property
(A) with respect to which depreciation (or amortization in lieu of depreciation) is allowable,
(B) which is installed on or in any building which is
(i) located in the United States, and
(ii) within the scope of Standard 90.12001,
(C) which is installed as part of
(i) the interior lighting systems,
(ii) the heating, cooling, ventilation, and hot water systems, or
(iii) the building envelope, and
(D) which is certified in accordance with subsection (d)(6) as being installed as part of a plan designed to reduce the total annual energy and power costs with respect to the interior lighting systems, heating, cooling, ventilation, and hot water systems of the building by 50 percent or more in comparison to a reference building which meets the minimum requirements of Standard 90.12001 using methods of calculation under subsection (d)(2).
(2) Standard 90.1–2001 
The term Standard 90.12001 means Standard 90.12001 of the American Society of Heating, Refrigerating, and Air Conditioning Engineers and the Illuminating Engineering Society of North America (as in effect on April 2, 2003).
(d) Special rules 

(1) Partial allowance 

(A) In general 
Except as provided in subsection (f), if
(i) the requirement of subsection (c)(1)(D) is not met, but
(ii) there is a certification in accordance with paragraph (6) that any system referred to in subsection (c)(1)(C) satisfies the energy-savings targets established by the Secretary under subparagraph (B) with respect to such system,

then the requirement of subsection (c)(1)(D) shall be treated as met with respect to such system, and the deduction under subsection (a) shall be allowed with respect to energy efficient commercial building property installed as part of such system and as part of a plan to meet such targets, except that subsection (b) shall be applied to such property by substituting $.60 for $1.80.

(B) Regulations 
The Secretary, after consultation with the Secretary of Energy, shall establish a target for each system described in subsection (c)(1)(C) which, if such targets were met for all such systems, the building[1] would meet the requirements of subsection (c)(1)(D).
(2) Methods of calculation 
The Secretary, after consultation with the Secretary of Energy, shall promulgate regulations which describe in detail methods for calculating and verifying energy and power consumption and cost, based on the provisions of the 2005 California Nonresidential Alternative Calculation Method Approval Manual.
(3) Computer software 

(A) In general 
Any calculation under paragraph (2) shall be prepared by qualified computer software.
(B) Qualified computer software 
For purposes of this paragraph, the term qualified computer software means software
(i) for which the software designer has certified that the software meets all procedures and detailed methods for calculating energy and power consumption and costs as required by the Secretary,
(ii) which provides such forms as required to be filed by the Secretary in connection with energy efficiency of property and the deduction allowed under this section, and
(iii) which provides a notice form which documents the energy efficiency features of the building and its projected annual energy costs.
(4) Allocation of deduction for public property 
In the case of energy efficient commercial building property installed on or in property owned by a Federal, State, or local government or a political subdivision thereof, the Secretary shall promulgate a regulation to allow the allocation of the deduction to the person primarily responsible for designing the property in lieu of the owner of such property. Such person shall be treated as the taxpayer for purposes of this section.
(5) Notice to owner 
Each certification required under this section shall include an explanation to the building owner regarding the energy efficiency features of the building and its projected annual energy costs as provided in the notice under paragraph (3)(B)(iii).
(6) Certification 

(A) In general 
The Secretary shall prescribe the manner and method for the making of certifications under this section.
(B) Procedures 
The Secretary shall include as part of the certification process procedures for inspection and testing by qualified individuals described in subparagraph (C) to ensure compliance of buildings with energy-savings plans and targets. Such procedures shall be comparable, given the difference between commercial and residential buildings, to the requirements in the Mortgage Industry National Accreditation Procedures for Home Energy Rating Systems.
(C) Qualified individuals 
Individuals qualified to determine compliance shall be only those individuals who are recognized by an organization certified by the Secretary for such purposes.
(e) Basis reduction 
For purposes of this subtitle, if a deduction is allowed under this section with respect to any energy efficient commercial building property, the basis of such property shall be reduced by the amount of the deduction so allowed.
(f) Interim rules for lighting systems 
Until such time as the Secretary issues final regulations under subsection (d)(1)(B) with respect to property which is part of a lighting system
(1) In general 
The lighting system target under subsection (d)(1)(A)(ii) shall be a reduction in lighting power density of 25 percent (50 percent in the case of a warehouse) of the minimum requirements in Table 9.3.1.1 or Table 9.3.1.2 (not including additional interior lighting power allowances) of Standard 90.12001.
(2) Reduction in deduction if reduction less than 40 percent 

(A) In general 
If, with respect to the lighting system of any building other than a warehouse, the reduction in lighting power density of the lighting system is not at least 40 percent, only the applicable percentage of the amount of deduction otherwise allowable under this section with respect to such property shall be allowed.
(B) Applicable percentage 
For purposes of subparagraph (A), the applicable percentage is the number of percentage points (not greater than 100) equal to the sum of
(i) 50, and
(ii) the amount which bears the same ratio to 50 as the excess of the reduction of lighting power density of the lighting system over 25 percentage points bears to 15.
(C) Exceptions 
This subsection shall not apply to any system
(i) the controls and circuiting of which do not comply fully with the mandatory and prescriptive requirements of Standard 90.12001 and which do not include provision for bilevel switching in all occupancies except hotel and motel guest rooms, store rooms, restrooms, and public lobbies, or
(ii) which does not meet the minimum requirements for calculated lighting levels as set forth in the Illuminating Engineering Society of North America Lighting Handbook, Performance and Application, Ninth Edition, 2000.
(g) Regulations 
The Secretary shall promulgate such regulations as necessary
(1) to take into account new technologies regarding energy efficiency and renewable energy for purposes of determining energy efficiency and savings under this section, and
(2) to provide for a recapture of the deduction allowed under this section if the plan described in subsection (c)(1)(D) or (d)(1)(A) is not fully implemented.
(h) Termination 
This section shall not apply with respect to property placed in service after December 31, 2008.
[1] So in original.

26 USC 179E - Election to expense advanced mine safety equipment

(a) Treatment as expenses 
A taxpayer may elect to treat 50 percent of the cost of any qualified advanced mine safety equipment property as an expense which is not chargeable to capital account. Any cost so treated shall be allowed as a deduction for the taxable year in which the qualified advanced mine safety equipment property is placed in service.
(b) Election 

(1) In general 
An election under this section for any taxable year shall be made on the taxpayers return of the tax imposed by this chapter for the taxable year. Such election shall specify the advanced mine safety equipment property to which the election applies and shall be made in such manner as the Secretary may by regulations prescribe.
(2) Election irrevocable 
Any election made under this section may not be revoked except with the consent of the Secretary.
(c) Qualified advanced mine safety equipment property 
For purposes of this section, the term qualified advanced mine safety equipment property means any advanced mine safety equipment property for use in any underground mine located in the United States
(1) the original use of which commences with the taxpayer, and
(2) which is placed in service by the taxpayer after the date of the enactment of this section.
(d) Advanced mine safety equipment property 
For purposes of this section, the term advanced mine safety equipment property means any of the following:
(1) Emergency communication technology or device which is used to allow a miner to maintain constant communication with an individual who is not in the mine.
(2) Electronic identification and location device which allows an individual who is not in the mine to track at all times the movements and location of miners working in or at the mine.
(3) Emergency oxygen-generating, self-rescue device which provides oxygen for at least 90 minutes.
(4) Pre-positioned supplies of oxygen which (in combination with self-rescue devices) can be used to provide each miner on a shift, in the event of an accident or other event which traps the miner in the mine or otherwise necessitates the use of such a self-rescue device, the ability to survive for at least 48 hours.
(5) Comprehensive atmospheric monitoring system which monitors the levels of carbon monoxide, methane, and oxygen that are present in all areas of the mine and which can detect smoke in the case of a fire in a mine.
(e) Coordination with section 179 
No expenditures shall be taken into account under subsection (a) with respect to the portion of the cost of any property specified in an election under section 179.
(f) Reporting 
No deduction shall be allowed under subsection (a) to any taxpayer for any taxable year unless such taxpayer files with the Secretary a report containing such information with respect to the operation of the mines of the taxpayer as the Secretary shall require.
(g) Termination 
This section shall not apply to property placed in service after December 31, 2008.

26 USC 180 - Expenditures by farmers for fertilizer, etc.

(a) In general 
A taxpayer engaged in the business of farming may elect to treat as expenses which are not chargeable to capital account expenditures (otherwise chargeable to capital account) which are paid or incurred by him during the taxable year for the purchase or acquisition of fertilizer, lime, ground limestone, marl, or other materials to enrich, neutralize, or condition land used in farming, or for the application of such materials to such land. The expenditures so treated shall be allowed as a deduction.
(b) Land used in farming 
For purposes of subsection (a), the term land used in farming means land used (before or simultaneously with the expenditures described in subsection (a)) by the taxpayer or his tenant for the production of crops, fruits, or other agricultural products or for the sustenance of livestock.
(c) Election 
The election under subsection (a) for any taxable year shall be made within the time prescribed by law (including extensions thereof) for filing the return for such taxable year. Such election shall be made in such manner as the Secretary may by regulations prescribe. Such election may not be revoked except with the consent of the Secretary.

26 USC 181 - Treatment of certain qualified film and television productions

(a) Election to treat costs as expenses 

(1) In general 
A taxpayer may elect to treat the cost of any qualified film or television production as an expense which is not chargeable to capital account. Any cost so treated shall be allowed as a deduction.
(2) Dollar limitation 

(A) In general 
Paragraph (1) shall not apply to any qualified film or television production the aggregate cost of which exceeds $15,000,000.
(B) Higher dollar limitation for productions in certain areas 
In the case of any qualified film or television production the aggregate cost of which is significantly incurred in an area eligible for designation as
(i) a low-income community under section 45D, or
(ii) a distressed county or isolated area of distress by the Delta Regional Authority established under section 2009aa–1 of title 7, United States Code,

subparagraph (A) shall be applied by substituting $20,000,000 for $15,000,000.

(b) No other deduction or amortization deduction allowable 
With respect to the basis of any qualified film or television production to which an election is made under subsection (a), no other depreciation or amortization deduction shall be allowable.
(c) Election 

(1) In general 
An election under this section with respect to any qualified film or television production shall be made in such manner as prescribed by the Secretary and by the due date (including extensions) for filing the taxpayers return of tax under this chapter for the taxable year in which costs of the production are first incurred.
(2) Revocation of election 
Any election made under this section may not be revoked without the consent of the Secretary.
(d) Qualified film or television production 
For purposes of this section
(1) In general 
The term qualified film or television production means any production described in paragraph (2) if 75 percent of the total compensation of the production is qualified compensation.
(2) Production 

(A) In general 
A production is described in this paragraph if such production is property described in section 168 (f)(3).
(B) Special rules for television series 
In the case of a television series
(i) each episode of such series shall be treated as a separate production, and
(ii) only the first 44 episodes of such series shall be taken into account.
(C) Exception 
A production is not described in this paragraph if records are required under section 2257 of title 18, United States Code, to be maintained with respect to any performer in such production.
(3) Qualified compensation 
For purposes of paragraph (1)
(A) In general 
The term qualified compensation means compensation for services performed in the United States by actors, directors, producers, and other relevant production personnel.
(B) Participations and residuals excluded 
The term compensation does not include participations and residuals (as defined in section 167 (g)(7)(B)).
(e) Application of certain other rules 
For purposes of this section, rules similar to the rules of subsections (b)(2) and (c)(4) of section 194 shall apply.
(f) Termination 
This section shall not apply to qualified film and television productions commencing after December 31, 2008.

26 USC 182 - Repealed. Pub. L. 99514, title IV, 402(a), Oct. 22, 1986, 100 Stat. 2221]

Section, added Pub. L. 87–834, § 21(a), Oct. 16, 1962, 76 Stat. 1063; amended Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834, authorized deduction of expenditures by farmers for clearing land.

26 USC 183 - Activities not engaged in for profit

(a) General rule 
In the case of an activity engaged in by an individual or an S corporation, if such activity is not engaged in for profit, no deduction attributable to such activity shall be allowed under this chapter except as provided in this section.
(b) Deductions allowable 
In the case of an activity not engaged in for profit to which subsection (a) applies, there shall be allowed
(1) the deductions which would be allowable under this chapter for the taxable year without regard to whether or not such activity is engaged in for profit, and
(2) a deduction equal to the amount of the deductions which would be allowable under this chapter for the taxable year only if such activity were engaged in for profit, but only to the extent that the gross income derived from such activity for the taxable year exceeds the deductions allowable by reason of paragraph (1).
(c) Activity not engaged in for profit defined 
For purposes of this section, the term activity not engaged in for profit means any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.
(d) Presumption 
If the gross income derived from an activity for 3 or more of the taxable years in the period of 5 consecutive taxable years which ends with the taxable year exceeds the deductions attributable to such activity (determined without regard to whether or not such activity is engaged in for profit), then, unless the Secretary establishes to the contrary, such activity shall be presumed for purposes of this chapter for such taxable year to be an activity engaged in for profit. In the case of an activity which consists in major part of the breeding, training, showing, or racing of horses, the preceding sentence shall be applied by substituting 2 for 3 and 7 for 5.
(e) Special rule 

(1) In general 
A determination as to whether the presumption provided by subsection (d) applies with respect to any activity shall, if the taxpayer so elects, not be made before the close of the fourth taxable year (sixth taxable year, in the case of an activity described in the last sentence of such subsection) following the taxable year in which the taxpayer first engages in the activity. For purposes of the preceding sentence, a taxpayer shall be treated as not having engaged in an activity during any taxable year beginning before January 1, 1970.
(2) Initial period 
If the taxpayer makes an election under paragraph (1), the presumption provided by subsection (d) shall apply to each taxable year in the 5-taxable year (or 7-taxable year) period beginning with the taxable year in which the taxpayer first engages in the activity, if the gross income derived from the activity for 3 (or 2 if applicable) or more of the taxable years in such period exceeds the deductions attributable to the activity (determined without regard to whether or not the activity is engaged in for profit).
(3) Election 
An election under paragraph (1) shall be made at such time and manner, and subject to such terms and conditions, as the Secretary may prescribe.
(4) Time for assessing deficiency attributable to activity 
If a taxpayer makes an election under paragraph (1) with respect to an activity, the statutory period for the assessment of any deficiency attributable to such activity shall not expire before the expiration of 2 years after the date prescribed by law (determined without extensions) for filing the return of tax under chapter 1 for the last taxable year in the period of 5 taxable years (or 7 taxable years) to which the election relates. Such deficiency may be assessed notwithstanding the provisions of any law or rule of law which would otherwise prevent such an assessment.

26 USC 184 - Repealed. Pub. L. 101508, title XI, 11801(a)(12), Nov. 5, 1990, 104 Stat. 1388520]

Section, added Pub. L. 91–172, title VII, § 705(a), Dec. 30, 1969, 83 Stat. 670; amended Pub. L. 93–625, § 3(b), Jan. 3, 1975, 88 Stat. 2109; Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834, related to amortization of certain railroad rolling stock.

26 USC 185 - Repealed. Pub. L. 99514, title II, 242(a), Oct. 22, 1986, 100 Stat. 2181]

Section, added Pub. L. 91–172, title VII, § 705(a), Dec. 30, 1969, 83 Stat. 672; amended Pub. L. 94–455, title XVII, § 1702, title XIX, 1906(b) (13)(A), Oct. 4, 1976, 90 Stat. 1760, 1834; Pub. L. 95–473, § 2(a)(2)(B), Oct. 17, 1978, 92 Stat. 1464, related to amortization of railroad grading and tunnel bores.

26 USC 186 - Recoveries of damages for antitrust violations, etc.

(a) Allowance of deduction 
If a compensatory amount which is included in gross income is received or accrued during the taxable year for a compensable injury, there shall be allowed as a deduction for the taxable year an amount equal to the lesser of
(1) the amount of such compensatory amount, or
(2) the amount of the unrecovered losses sustained as a result of such compensable injury.
(b) Compensable injury 
For purposes of this section, the term compensable injury means
(1) injuries sustained as a result of an infringement of a patent issued by the United States,
(2) injuries sustained as a result of a breach of contract or a breach of fiduciary duty or relationship, or
(3) injuries sustained in business, or to property, by reason of any conduct forbidden in the antitrust laws for which a civil action may be brought under section 4 of the Act entitled An Act to supplement existing laws against unlawful restraints and monopolies, and for other purposes, approved October 15, 1914 (commonly known as the Clayton Act).
(c) Compensatory amount 
For purposes of this section, the term compensatory amount means the amount received or accrued during the taxable year as damages as a result of an award in, or in settlement of, a civil action for recovery for a compensable injury, reduced by any amounts paid or incurred in the taxable year in securing such award or settlement.
(d) Unrecovered losses 

(1) In general 
For purposes of this section, the amount of any unrecovered loss sustained as a result of any compensable injury is
(A) the sum of the amount of the net operating losses (as determined under section 172) for each taxable year in whole or in part within the injury period, to the extent that such net operating losses are attributable to such compensable injury, reduced by
(B) the sum of
(i) the amount of the net operating losses described in subparagraph (A) which were allowed for any prior taxable year as a deduction under section 172 as a net operating loss carryback or carryover to such taxable year, and
(ii) the amounts allowed as a deduction under subsection (a) for any prior taxable year for prior recoveries of compensatory amounts for such compensable injury.
(2) Injury period 
For purposes of paragraph (1), the injury period is
(A) with respect to any infringement of a patent, the period in which such infringement occurred,
(B) with respect to a breach of contract or breach of fiduciary duty or relationship, the period during which amounts would have been received or accrued but for the breach of contract or breach of fiduciary duty or relationship, and
(C) with respect to injuries sustained by reason of any conduct forbidden in the antitrust laws, the period in which such injuries were sustained.
(3) Net operating losses attributable to compensable injuries 
For purposes of paragraph (1)
(A) a net operating loss for any taxable year shall be treated as attributable to a compensable injury to the extent of the compensable injury sustained during such taxable year, and
(B) if only a portion of a net operating loss for any taxable year is attributable to a compensable injury, such portion shall (in applying section 172 for purposes of this section) be considered to be a separate net operating loss for such year to be applied after the other portion of such net operating loss.
(e) Effect on net operating loss carryovers 
If for the taxable year in which a compensatory amount is received or accrued any portion of a net operating loss carryover to such year is attributable to the compensable injury for which such amount is received or accrued, such portion of such net operating loss carryover shall be reduced by an amount equal to
(1) the deduction allowed under subsection (a) with respect to such compensatory amount, reduced by
(2) any portion of the unrecovered losses sustained as a result of the compensable injury with respect to which the period for carryover under section 172 has expired.

26 USC 187 - Repealed. Pub. L. 94455, title XIX, 1901(a)(31), Oct. 4, 1976, 90 Stat. 1769]

Section, added Pub. L. 91–172, title VII, § 707(a), Dec. 30, 1969, 83 Stat. 674; amended Pub. L. 93–625, § 3(d), Jan. 3, 1975, 88 Stat. 2109, provided for an allowance of an amortization deduction for certain coal mine safety equipment, the method of election and termination of such deduction, the definition of term certified coal mine safety equipment, and special rules applicable to the amortization deduction.

26 USC 188 - Repealed. Pub. L. 101508, title XI, 11801(a)(13), Nov. 5, 1990, 104 Stat. 1388520]

Section, added Pub. L. 92–178, title III, § 303(a), Dec. 10, 1971, 85 Stat. 521; amended Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 95–30, title IV, § 402(a)(1)(3), May 23, 1977, 91 Stat. 155, related to amortization of certain expenditures for child care facilities.

26 USC 189 - Repealed. Pub. L. 99514, title VIII, 803(b)(1), Oct. 22, 1986, 100 Stat. 2355]

Section, added Pub. L. 94–455, title II, § 201(a), Oct. 4, 1976, 90 Stat. 1525; amended Pub. L. 95–600, title VII, § 701(m)(1), Nov. 6, 1978, 92 Stat. 2907; Pub. L. 97–34, title II, § 262(a), (b), Aug. 13, 1981, 95 Stat. 264; Pub. L. 97–248, title II, § 207(a)(d), Sept. 3, 1982, 96 Stat. 431, 432; Pub. L. 97–354, § 5(a)(24), Oct. 19, 1982, 96 Stat. 1694; Pub. L. 98–369, div. A, title I, 93(a), title VII, 712(c), July 18, 1984, 98 Stat. 614, 947, related to amortization of real property construction period interest and taxes.

26 USC 190 - Expenditures to remove architectural and transportation barriers to the handicapped and elderly

(a) Treatment as expenses 

(1) In general 
A taxpayer may elect to treat qualified architectural and transportation barrier removal expenses which are paid or incurred by him during the taxable year as expenses which are not chargeable to capital account. The expenditures so treated shall be allowed as a deduction.
(2) Election 
An election under paragraph (1) shall be made at such time and in such manner as the Secretary prescribes by regulations.
(b) Definitions 
For purposes of this section
(1) Architectural and transportation barrier removal expenses 
The term architectural and transportation barrier removal expenses means an expenditure for the purpose of making any facility or public transportation vehicle owned or leased by the taxpayer for use in connection with his trade or business more accessible to, and usable by, handicapped and elderly individuals.
(2) Qualified architectural and transportation barrier removal expenses 
The term qualified architectural and transportation barrier removal expense means, with respect to any such facility or public transportation vehicle, an architectural or transportation barrier removal expense with respect to which the taxpayer establishes, to the satisfaction of the Secretary, that the resulting removal of any such barrier meets the standards promulgated by the Secretary with the concurrence of the Architectural and Transportation Barriers Compliance Board and set forth in regulations prescribed by the Secretary.
(3) Handicapped individual 
The term handicapped individual means any individual who has a physical or mental disability (including, but not limited to, blindness or deafness) which for such individual constitutes or results in a functional limitation to employment, or who has any physical or mental impairment (including, but not limited to, a sight or hearing impairment) which substantially limits one or more major life activities of such individual.
(c) Limitation 
The deduction allowed by subsection (a) for any taxable year shall not exceed $15,000.

26 USC 191 - Repealed. Pub. L. 9734, title II, 212(d)(1), Aug. 13, 1981, 95 Stat. 239]

Section, added Pub. L. 94–455, title XXI, § 2124(a)(1), Oct. 4, 1976, 90 Stat. 1916; amended Pub. L. 95–600, title VII, § 701(f)(1), (2), (7), Nov. 6, 1978, 92 Stat. 2900–2902; Pub. L. 96–222, title I, § 107(a)(1)(E)(ii), Apr. 1, 1980, 94 Stat. 222; Pub. L. 96–541, § 2(a), Dec. 17, 1980, 94 Stat. 3204, related to amortization of certain rehabilitation expenditures for certified historic structures.

26 USC 192 - Contributions to black lung benefit trust

(a) Allowance of deduction 
There is allowed as a deduction for the taxable year an amount equal to the sum of the amounts contributed by the taxpayer during the taxable year to or under a trust or trusts described in section 501 (c)(21).
(b) Limitation 
The maximum amount of the deduction allowed by subsection (a) for any taxpayer for any taxable year shall not exceed the greater of
(1) the amount necessary to fund (with level funding) the remaining unfunded liability of the taxpayer for black lung claims filed (or expected to be filed) by (or with respect to) past or present employees of the taxpayer, or
(2) the aggregate amount necessary to increase each trust described in section 501 (c)(21) to the amount required to pay all amounts payable out of such trust for the taxable year.
(c) Special rules 

(1) Method of determining amounts referred to in subsection (b) 

(A) In general 
The amounts described in subsection (b) shall be determined by using reasonable actuarial methods and assumptions which are not inconsistent with regulations prescribed by the Secretary.
(B) Funding period 
Except as provided in subparagraph (C), the funding period for purposes of subsection (b)(1) shall be the greater of
(i) the average remaining working life of miners who are present employees of the taxpayer, or
(ii) 10 taxable years.

For purposes of the preceding sentence, the term miner has the same meaning as such term has when used in section 402(d) of the Black Lung Benefits Act (30 U.S.C. 902 (d)).

(C) Different funding periods 
To the extent that
(i) regulations prescribed by the Secretary provide for a different period, or
(ii) the Secretary consents to a different period proposed by the taxpayer,

such different period shall be substituted for the funding period provided in subparagraph (B).

(2) Benefit payments taken into account 
In determining the amounts described in subsection (b), only those black lung benefit claims the payment of which is expected to be made from the trust shall be taken into account.
(3) Time when contributions deemed made 
For purposes of this section, a taxpayer shall be deemed to have made a payment of a contribution on the last day of a taxable year if the payment is on account of that taxable year and is made not later than the time prescribed by law for filing the return for that taxable year (including extensions thereof).
(4) Contributions to be in cash or certain other items 
No deduction shall be allowed under subsection (a) with respect to any contribution to a trust described in section 501 (c)(21) other than a contribution in cash or in items in which such trust may invest under subclause (II) of section 501 (c)(21)(A)(ii).
(5) Denial of section 162 deduction with respect to liability 
No deduction shall be allowed under section 162 (a) with respect to any liability taken into account in determining the deduction under subsection (a) of this section of the taxpayer (or a predecessor).
(d) Carryover of excess contributions 
If the amount of the deduction determined under subsection (a) for the taxable year (without regard to the limitation imposed by subsection (b)) with respect to a trust exceeds the limitation imposed by subsection (b) for the taxable year, the excess shall be carried over to the succeeding taxable year and treated as contributed to the trust during that year.
(e) Definition of black lung benefit claim 
For purposes of this section, the term black lung benefit claim means a claim for compensation for disability or death due to pneumoconiosis under part C of title IV of the Federal Mine Safety and Health Act of 1977 or under any State law providing for such compensation.

26 USC 193 - Tertiary injectants

(a) Allowance of deduction 
There shall be allowed as a deduction for the taxable year an amount equal to the qualified tertiary injectant expenses of the taxpayer for tertiary injectants injected during such taxable year.
(b) Qualified tertiary injectant expenses 
For purposes of this section
(1) In general 
The term qualified tertiary injectant expenses means any cost paid or incurred (whether or not chargeable to capital account) for any tertiary injectant (other than a hydrocarbon injectant which is recoverable) which is used as a part of a tertiary recovery method.
(2) Hydrocarbon injectant 
The term hydrocarbon injectant includes natural gas, crude oil, and any other injectant which is comprised of more than an insignificant amount of natural gas or crude oil. The term does not include any tertiary injectant which is hydrocarbon-based, or a hydrocarbon-derivative, and which is comprised of no more than an insignificant amount of natural gas or crude oil. For purposes of this paragraph, that portion of a hydrocarbon injectant which is not a hydrocarbon shall not be treated as a hydrocarbon injectant.
(3) Tertiary recovery method 
The term tertiary recovery method means
(A) any method which is described in subparagraphs (1) through (9) of section 212.78(c) of the June 1979 energy regulations (as defined by section 4996 (b)(8)(C) as in effect before its repeal), or
(B) any other method to provide tertiary enhanced recovery which is approved by the Secretary for purposes of this section.
(c) Application with other deductions 
No deduction shall be allowed under subsection (a) with respect to any expenditure
(1) with respect to which the taxpayer has made an election under section 263 (c), or
(2) with respect to which a deduction is allowed or allowable to the taxpayer under any other provision of this chapter.

26 USC 194 - Treatment of reforestation expenditures

(a) Allowance of deduction 
In the case of any qualified timber property with respect to which the taxpayer has made (in accordance with regulations prescribed by the Secretary) an election under this subsection, the taxpayer shall be entitled to a deduction with respect to the amortization of the amortizable basis of qualified timber property based on a period of 84 months. Such amortization deduction shall be an amount, with respect to each month of such period within the taxable year, equal to the amortizable basis at the end of such month divided by the number of months (including the month for which the deduction is computed) remaining in the period. Such amortizable basis at the end of the month shall be computed without regard to the amortization deduction for such month. The 84-month period shall begin on the first day of the first month of the second half of the taxable year in which the amortizable basis is acquired.
(b) Treatment as expenses 

(1) Election to treat certain reforestation expenditures as expenses 

(A) In general 
In the case of any qualified timber property with respect to which the taxpayer has made (in accordance with regulations prescribed by the Secretary) an election under this subsection, the taxpayer shall treat reforestation expenditures which are paid or incurred during the taxable year with respect to such property as an expense which is not chargeable to capital account. The reforestation expenditures so treated shall be allowed as a deduction.
(B) Dollar limitation 
The aggregate amount of reforestation expenditures which may be taken into account under subparagraph (A) with respect to each qualified timber property for any taxable year shall not exceed
(i) except as provided in clause (ii) or (iii), $10,000,
(ii) in the case of a separate return by a married individual (as defined in section 7703), $5,000, and
(iii) in the case of a trust, zero.
(2) Allocation of dollar limit 

(A) Controlled group 
For purposes of applying the dollar limitation under paragraph (1)(B)
(i) all component members of a controlled group shall be treated as one taxpayer, and
(ii) the Secretary shall, under regulations prescribed by him, apportion such dollar limitation among the component members of such controlled group.

For purposes of the preceding sentence, the term controlled group has the meaning assigned to it by section 1563 (a), except that the phrase more than 50 percent shall be substituted for the phrase at least 80 percent each place it appears in section 1563 (a)(1).

(B) Partnerships and S corporations 
In the case of a partnership, the dollar limitation contained in paragraph (1)(B) shall apply with respect to the partnership and with respect to each partner. A similar rule shall apply in the case of an S corporation and its shareholders.
(c) Definitions and special rule 
For purposes of this section
(1) Qualified timber property 
The term qualified timber property means a woodlot or other site located in the United States which will contain trees in significant commercial quantities and which is held by the taxpayer for the planting, cultivating, caring for, and cutting of trees for sale or use in the commercial production of timber products.
(2) Amortizable basis 
The term amortizable basis means that portion of the basis of the qualified timber property attributable to reforestation expenditures which have not been taken into account under subsection (b).
(3) Reforestation expenditures 

(A) In general 
The term reforestation expenditures means direct costs incurred in connection with forestation or reforestation by planting or artificial or natural seeding, including costs
(i) for the preparation of the site;
(ii) of seeds or seedlings; and
(iii) for labor and tools, including depreciation of equipment such as tractors, trucks, tree planters, and similar machines used in planting or seeding.
(B) Cost-sharing programs 
Reforestation expenditures shall not include any expenditures for which the taxpayer has been reimbursed under any governmental reforestation cost-sharing program unless the amounts reimbursed have been included in the gross income of the taxpayer.
(4) Treatment of trusts and estates 
The aggregate amount of reforestation expenditures incurred by any trust or estate shall be apportioned between the income beneficiaries and the fiduciary under regulations prescribed by the Secretary. Any amount so apportioned to a beneficiary shall be taken into account as expenditures incurred by such beneficiary in applying this section to such beneficiary.
(5) Application with other deductions 
No deduction shall be allowed under any other provision of this chapter with respect to any expenditure with respect to which a deduction is allowed or allowable under this section to the taxpayer.
(d) Life tenant and remainderman 
In the case of property held by one person for life with remainder to another person, the deduction under this section shall be computed as if the life tenant were the absolute owner of the property and shall be allowed to the life tenant.

26 USC 194A - Contributions to employer liability trusts

(a) Allowance of deduction 
There shall be allowed as a deduction for the taxable year an amount equal to the amount
(1) which is contributed by an employer to a trust described in section 501 (c)(22) (relating to withdrawal liability payment fund) which meets the requirements of section 4223(h) of the Employee Retirement Income Security Act of 1974, and
(2) which is properly allocable to such taxable year.
(b) Allocation to taxable year 
In the case of a contribution described in subsection (a) which relates to any specified period of time which includes more than one taxable year, the amount properly allocable to any taxable year in such period shall be determined by prorating such amounts to such taxable years under regulations prescribed by the Secretary.
(c) Disallowance of deduction 
No deduction shall be allowed under subsection (a) with respect to any contribution described in subsection (a) which does not relate to any specified period of time.

26 USC 195 - Start-up expenditures

(a) Capitalization of expenditures 
Except as otherwise provided in this section, no deduction shall be allowed for start-up expenditures.
(b) Election to deduct 

(1) Allowance of deduction 
If a taxpayer elects the application of this subsection with respect to any start-up expenditures
(A) the taxpayer shall be allowed a deduction for the taxable year in which the active trade or business begins in an amount equal to the lesser of
(i) the amount of start-up expenditures with respect to the active trade or business, or
(ii) $5,000, reduced (but not below zero) by the amount by which such start-up expenditures exceed $50,000, and
(B) the remainder of such start-up expenditures shall be allowed as a deduction ratably over the 180-month period beginning with the month in which the active trade or business begins.
(2) Dispositions before close of amortization period 
In any case in which a trade or business is completely disposed of by the taxpayer before the end of the period to which paragraph (1) applies, any deferred expenses attributable to such trade or business which were not allowed as a deduction by reason of this section may be deducted to the extent allowable under section 165.
(c) Definitions 
For purposes of this section
(1) Start-up expenditures 
The term start-up expenditure means any amount
(A) paid or incurred in connection with
(i) investigating the creation or acquisition of an active trade or business, or
(ii) creating an active trade or business, or
(iii) any activity engaged in for profit and for the production of income before the day on which the active trade or business begins, in anticipation of such activity becoming an active trade or business, and
(B) which, if paid or incurred in connection with the operation of an existing active trade or business (in the same field as the trade or business referred to in subparagraph (A)), would be allowable as a deduction for the taxable year in which paid or incurred.

The term start-up expenditure does not include any amount with respect to which a deduction is allowable under section 163 (a), 164, or 174.

(2) Beginning of trade or business 

(A) In general 
Except as provided in subparagraph (B), the determination of when an active trade or business begins shall be made in accordance with such regulations as the Secretary may prescribe.
(B) Acquired trade or business 
An acquired active trade or business shall be treated as beginning when the taxpayer acquires it.
(d) Election 

(1) Time for making election 
An election under subsection (b) shall be made not later than the time prescribed by law for filing the return for the taxable year in which the trade or business begins (including extensions thereof).
(2) Scope of election 
The period selected under subsection (b) shall be adhered to in computing taxable income for the taxable year for which the election is made and all subsequent taxable years.

26 USC 196 - Deduction for certain unused business credits

(a) Allowance of deduction 
If any portion of the qualified business credits determined for any taxable year has not, after the application of section 38 (c), been allowed to the taxpayer as a credit under section 38 for any taxable year, an amount equal to the credit not so allowed shall be allowed to the taxpayer as a deduction for the first taxable year following the last taxable year for which such credit could, under section 39, have been allowed as a credit.
(b) Taxpayer’s dying or ceasing to exist 
If a taxpayer dies or ceases to exist before the first taxable year following the last taxable year for which the qualified business credits could, under section 39, have been allowed as a credit, the amount described in subsection (a) (or the proper portion thereof) shall, under regulations prescribed by the Secretary, be allowed to the taxpayer as a deduction for the taxable year in which such death or cessation occurs.
(c) Qualified business credits 
For purposes of this section, the term qualified business credits means
(1) the investment credit determined under section 46 (but only to the extent attributable to property the basis of which is reduced by section 50 (c)),
(2) the work opportunity credit determined under section 51 (a),
(3) the alcohol fuels credit determined under section 40 (a),
(4) the research credit determined under section 41 (a) (other than such credit determined under section 280C (c)(3)) for taxable years beginning after December 31, 1988,
(5) the enhanced oil recovery credit determined under section 43 (a),
(6) the empowerment zone employment credit determined under section 1396 (a),
(7) the Indian employment credit determined under section 45A (a),
(8) the employer Social Security credit determined under section 45B (a),
(9) the new markets tax credit determined under section 45D (a),
(10) the small employer pension plan startup cost credit determined under section 45E (a),
(11) the biodiesel fuels credit determined under section 40A (a),
(12) the low sulfur diesel fuel production credit determined under section 45H (a), and
(13) the new energy efficient home credit determined under section 45L (a).
(d) Special rule for investment tax credit and research credit 
Subsection (a) shall be applied by substituting an amount equal to 50 percent of for an amount equal to in the case of
(1) the investment credit determined under section 46 (other than the rehabilitation credit), and
(2) the research credit determined under section 41 (a) for a taxable year beginning before January 1, 1990.

26 USC 197 - Amortization of goodwill and certain other intangibles

(a) General rule 
A taxpayer shall be entitled to an amortization deduction with respect to any amortizable section 197 intangible. The amount of such deduction shall be determined by amortizing the adjusted basis (for purposes of determining gain) of such intangible ratably over the 15-year period beginning with the month in which such intangible was acquired.
(b) No other depreciation or amortization deduction allowable 
Except as provided in subsection (a), no depreciation or amortization deduction shall be allowable with respect to any amortizable section 197 intangible.
(c) Amortizable section 197 intangible 
For purposes of this section
(1) In general 
Except as otherwise provided in this section, the term amortizable section 197 intangible means any section 197 intangible
(A) which is acquired by the taxpayer after the date of the enactment of this section, and
(B) which is held in connection with the conduct of a trade or business or an activity described in section 212.
(2) Exclusion of self-created intangibles, etc. 
The term amortizable section 197 intangible shall not include any section 197 intangible
(A) which is not described in subparagraph (D), (E), or (F) of subsection (d)(1), and
(B) which is created by the taxpayer.

This paragraph shall not apply if the intangible is created in connection with a transaction (or series of related transactions) involving the acquisition of assets constituting a trade or business or substantial portion thereof.

(3) Anti-churning rules 
For exclusion of intangibles acquired in certain transactions, see subsection (f)(9).
(d) Section 197 intangible 
For purposes of this section
(1) In general 
Except as otherwise provided in this section, the term section 197 intangible means
(A) goodwill,
(B) going concern value,
(C) any of the following intangible items:
(i) workforce in place including its composition and terms and conditions (contractual or otherwise) of its employment,
(ii) business books and records, operating systems, or any other information base (including lists or other information with respect to current or prospective customers),
(iii) any patent, copyright, formula, process, design, pattern, knowhow, format, or other similar item,
(iv) any customer-based intangible,
(v) any supplier-based intangible, and
(vi) any other similar item,
(D) any license, permit, or other right granted by a governmental unit or an agency or instrumentality thereof,
(E) any covenant not to compete (or other arrangement to the extent such arrangement has substantially the same effect as a covenant not to compete) entered into in connection with an acquisition (directly or indirectly) of an interest in a trade or business or substantial portion thereof, and
(F) any franchise, trademark, or trade name.
(2) Customer-based intangible 

(A) In general 
The term customer-based intangible means
(i) composition of market,
(ii) market share, and
(iii) any other value resulting from future provision of goods or services pursuant to relationships (contractual or otherwise) in the ordinary course of business with customers.
(B) Special rule for financial institutions 
In the case of a financial institution, the term customer-based intangible includes deposit base and similar items.
(3) Supplier-based intangible 
The term supplier-based intangible means any value resulting from future acquisitions of goods or services pursuant to relationships (contractual or otherwise) in the ordinary course of business with suppliers of goods or services to be used or sold by the taxpayer.
(e) Exceptions 
For purposes of this section, the term section 197 intangible shall not include any of the following:
(1) Financial interests 
Any interest
(A) in a corporation, partnership, trust, or estate, or
(B) under an existing futures contract, foreign currency contract, notional principal contract, or other similar financial contract.
(2) Land 
Any interest in land.
(3) Computer software 

(A) In general 
Any
(i) computer software which is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified, and
(ii) other computer software which is not acquired in a transaction (or series of related transactions) involving the acquisition of assets constituting a trade or business or substantial portion thereof.
(B) Computer software defined 
For purposes of subparagraph (A), the term computer software means any program designed to cause a computer to perform a desired function. Such term shall not include any data base or similar item unless the data base or item is in the public domain and is incidental to the operation of otherwise qualifying computer software.
(4) Certain interests or rights acquired separately 
Any of the following not acquired in a transaction (or series of related transactions) involving the acquisition of assets constituting a trade business or substantial portion thereof:
(A) Any interest in a film, sound recording, video tape, book, or similar property.
(B) Any right to receive tangible property or services under a contract or granted by a governmental unit or agency or instrumentality thereof.
(C) Any interest in a patent or copyright.
(D) To the extent provided in regulations, any right under a contract (or granted by a governmental unit or an agency or instrumentality thereof) if such right
(i) has a fixed duration of less than 15 years, or
(ii) is fixed as to amount and, without regard to this section, would be recoverable under a method similar to the unit-of-production method.
(5) Interests under leases and debt instruments 
Any interest under
(A) an existing lease of tangible property, or
(B) except as provided in subsection (d)(2)(B), any existing indebtedness.
(6) Mortgage servicing 
Any right to service indebtedness which is secured by residential real property unless such right is acquired in a transaction (or series of related transactions) involving the acquisition of assets (other than rights described in this paragraph) constituting a trade or business or substantial portion thereof.
(7) Certain transaction costs 
Any fees for professional services, and any transaction costs, incurred by parties to a transaction with respect to which any portion of the gain or loss is not recognized under part III of subchapter C.
(f) Special rules 

(1) Treatment of certain dispositions, etc. 

(A) In general 
If there is a disposition of any amortizable section 197 intangible acquired in a transaction or series of related transactions (or any such intangible becomes worthless) and one or more other amortizable section 197 intangibles acquired in such transaction or series of related transactions are retained
(i) no loss shall be recognized by reason of such disposition (or such worthlessness), and
(ii) appropriate adjustments to the adjusted bases of such retained intangibles shall be made for any loss not recognized under clause (i).
(B) Special rule for covenants not to compete 
In the case of any section 197 intangible which is a covenant not to compete (or other arrangement) described in subsection (d)(1)(E), in no event shall such covenant or other arrangement be treated as disposed of (or becoming worthless) before the disposition of the entire interest described in such subsection in connection with which such covenant (or other arrangement) was entered into.
(C) Special rule 
All persons treated as a single taxpayer under section 41 (f)(1) shall be so treated for purposes of this paragraph.
(2) Treatment of certain transfers 

(A) In general 
In the case of any section 197 intangible transferred in a transaction described in subparagraph (B), the transferee shall be treated as the transferor for purposes of applying this section with respect to so much of the adjusted basis in the hands of the transferee as does not exceed the adjusted basis in the hands of the transferor.
(B) Transactions covered 
The transactions described in this subparagraph are
(i) any transaction described in section 332, 351, 361, 721, 731, 1031, or 1033, and
(ii) any transaction between members of the same affiliated group during any taxable year for which a consolidated return is made by such group.
(3) Treatment of amounts paid pursuant to covenants not to compete, etc. 
Any amount paid or incurred pursuant to a covenant or arrangement referred to in subsection (d)(1)(E) shall be treated as an amount chargeable to capital account.
(4) Treatment of franchises, etc. 

(A) Franchise 
The term franchise has the meaning given to such term by section 1253 (b)(1).
(B) Treatment of renewals 
Any renewal of a franchise, trademark, or trade name (or of a license, a permit, or other right referred to in subsection (d)(1)(D)) shall be treated as an acquisition. The preceding sentence shall only apply with respect to costs incurred in connection with such renewal.
(C) Certain amounts not taken into account 
Any amount to which section 1253 (d)(1) applies shall not be taken into account under this section.
(5) Treatment of certain reinsurance transactions 
In the case of any amortizable section 197 intangible resulting from an assumption reinsurance transaction, the amount taken into account as the adjusted basis of such intangible under this section shall be the excess of
(A) the amount paid or incurred by the acquirer under the assumption reinsurance transaction, over
(B) the amount required to be capitalized under section 848 in connection with such transaction.

Subsection (b) shall not apply to any amount required to be capitalized under section 848.

(6) Treatment of certain subleases 
For purposes of this section, a sublease shall be treated in the same manner as a lease of the underlying property involved.
(7) Treatment as depreciable 
For purposes of this chapter, any amortizable section 197 intangible shall be treated as property which is of a character subject to the allowance for depreciation provided in section 167.
(8) Treatment of certain increments in value 
This section shall not apply to any increment in value if, without regard to this section, such increment is properly taken into account in determining the cost of property which is not a section 197 intangible.
(9) Anti-churning rules 
For purposes of this section
(A) In general 
The term amortizable section 197 intangible shall not include any section 197 intangible which is described in subparagraph (A) or (B) of subsection (d)(1) (or for which depreciation or amortization would not have been allowable but for this section) and which is acquired by the taxpayer after the date of the enactment of this section, if
(i) the intangible was held or used at any time on or after July 25, 1991, and on or before such date of enactment by the taxpayer or a related person,
(ii) the intangible was acquired from a person who held such intangible at any time on or after July 25, 1991, and on or before such date of enactment, and, as part of the transaction, the user of such intangible does not change, or
(iii) the taxpayer grants the right to use such intangible to a person (or a person related to such person) who held or used such intangible at any time on or after July 25, 1991, and on or before such date of enactment.

For purposes of this subparagraph, the determination of whether the user of property changes as part of a transaction shall be determined in accordance with regulations prescribed by the Secretary. For purposes of this subparagraph, deductions allowable under section 1253 (d) shall be treated as deductions allowable for amortization.

(B) Exception where gain recognized 
If
(i) subparagraph (A) would not apply to an intangible acquired by the taxpayer but for the last sentence of subparagraph (C)(i), and
(ii) the person from whom the taxpayer acquired the intangible elects, notwithstanding any other provision of this title
(I) to recognize gain on the disposition of the intangible, and
(II) to pay a tax on such gain which, when added to any other income tax on such gain under this title, equals such gain multiplied by the highest rate of income tax applicable to such person under this title,

then subparagraph (A) shall apply to the intangible only to the extent that the taxpayers adjusted basis in the intangible exceeds the gain recognized under clause (ii)(I).

(C) Related person defined 
For purposes of this paragraph
(i) Related person A person (hereinafter in this paragraph referred to as the related person) is related to any person if
(I) the related person bears a relationship to such person specified in section 267 (b) or section 707 (b)(1), or
(II) the related person and such person are engaged in trades or businesses under common control (within the meaning of subparagraphs (A) and (B) of section 41 (f)(1)).

For purposes of subclause (I), in applying section 267 (b) or 707 (b)(1), 20 percent shall be substituted for 50 percent.

(ii) Time for making determination A person shall be treated as related to another person if such relationship exists immediately before or immediately after the acquisition of the intangible involved.
(D) Acquisitions by reason of death 
Subparagraph (A) shall not apply to the acquisition of any property by the taxpayer if the basis of the property in the hands of the taxpayer is determined under section 1014 (a).
(E) Special rule for partnerships 
With respect to any increase in the basis of partnership property under section 732, 734, or 743, determinations under this paragraph shall be made at the partner level and each partner shall be treated as having owned and used such partners proportionate share of the partnership assets.
(F) Anti-abuse rules 
The term amortizable section 197 intangible does not include any section 197 intangible acquired in a transaction, one of the principal purposes of which is to avoid the requirement of subsection (c)(1) that the intangible be acquired after the date of the enactment of this section or to avoid the provisions of subparagraph (A).
(10) Tax-exempt use property subject to lease 
In the case of any section 197 intangible which would be tax-exempt use property as defined in subsection (h) of section 168 if such section applied to such intangible, the amortization period under this section shall not be less than 125 percent of the lease term (within the meaning of section 168 (i)(3)).
(g) Regulations 
The Secretary shall prescribe such regulations as may be appropriate to carry out the purposes of this section, including such regulations as may be appropriate to prevent avoidance of the purposes of this section through related persons or otherwise.

26 USC 198 - Expensing of environmental remediation costs

(a) In general 
A taxpayer may elect to treat any qualified environmental remediation expenditure which is paid or incurred by the taxpayer as an expense which is not chargeable to capital account. Any expenditure which is so treated shall be allowed as a deduction for the taxable year in which it is paid or incurred.
(b) Qualified environmental remediation expenditure 
For purposes of this section
(1) In general 
The term qualified environmental remediation expenditure means any expenditure
(A) which is otherwise chargeable to capital account, and
(B) which is paid or incurred in connection with the abatement or control of hazardous substances at a qualified contaminated site.
(2) Special rule for expenditures for depreciable property 
Such term shall not include any expenditure for the acquisition of property of a character subject to the allowance for depreciation which is used in connection with the abatement or control of hazardous substances at a qualified contaminated site; except that the portion of the allowance under section 167 for such property which is otherwise allocated to such site shall be treated as a qualified environmental remediation expenditure.
(c) Qualified contaminated site 
For purposes of this section
(1) In general 
The term qualified contaminated site means any area
(A) which is held by the taxpayer for use in a trade or business or for the production of income, or which is property described in section 1221 (a)(1) in the hands of the taxpayer, and
(B) at or on which there has been a release (or threat of release) or disposal of any hazardous substance.
(2) National priorities listed sites not included 
Such term shall not include any site which is on, or proposed for, the national priorities list under section 105(a)(8)(B) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (as in effect on the date of the enactment of this section).
(3) Taxpayer must receive statement from State environmental agency 
An area shall be treated as a qualified contaminated site with respect to expenditures paid or incurred during any taxable year only if the taxpayer receives a statement from the appropriate agency of the State in which such area is located that such area meets the requirement of paragraph (1)(B).
(4) Appropriate State agency 
For purposes of paragraph (3), the chief executive officer of each State may, in consultation with the Administrator of the Environmental Protection Agency, designate the appropriate State environmental agency within 60 days of the date of the enactment of this section. If the chief executive officer of a State has not designated an appropriate environmental agency within such 60-day period, the appropriate environmental agency for such State shall be designated by the Administrator of the Environmental Protection Agency.
(d) Hazardous substance 
For purposes of this section
(1) In general 
The term hazardous substance means
(A) any substance which is a hazardous substance as defined in section 101(14) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
(B) any substance which is designated as a hazardous substance under section 102 of such Act, and
(C) any petroleum product (as defined in section 4612 (a)(3)).
(2) Exception 
Such term shall not include any substance with respect to which a removal or remedial action is not permitted under section 104 of such Act by reason of subsection (a)(3) thereof.
(e) Deduction recaptured as ordinary income on sale, etc. 
Solely for purposes of section 1245, in the case of property to which a qualified environmental remediation expenditure would have been capitalized but for this section
(1) the deduction allowed by this section for such expenditure shall be treated as a deduction for depreciation, and
(2) such property (if not otherwise section 1245 property) shall be treated as section 1245 property solely for purposes of applying section 1245 to such deduction.
(f) Coordination with other provisions 
Sections 280B and 468 shall not apply to amounts which are treated as expenses under this section.
(g) Regulations 
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.
(h) Termination 
This section shall not apply to expenditures paid or incurred after December 31, 2007.

26 USC 199 - Income attributable to domestic production activities

(a) Allowance of deduction 

(1) In general 
There shall be allowed as a deduction an amount equal to 9 percent of the lesser of
(A) the qualified production activities income of the taxpayer for the taxable year, or
(B) taxable income (determined without regard to this section) for the taxable year.
(2) Phasein 
In the case of any taxable year beginning after 2004 and before 2010, paragraph (1) shall be applied by substituting for the percentage contained therein the transition percentage determined under the following table: For taxable years The transition beginning in: percentage is: 2005 or 2006 3 2007, 2008, or 2009 6.
(b) Deduction limited to wages paid 

(1) In general 
The amount of the deduction allowable under subsection (a) for any taxable year shall not exceed 50 percent of the W2 wages of the taxpayer for the taxable year.
(2) W-2 wages 
For purposes of this section
(A) In general 
The term W-2 wages means, with respect to any person for any taxable year of such person, the sum of the amounts described in paragraphs (3) and (8) of section 6051 (a) paid by such person with respect to employment of employees by such person during the calendar year ending during such taxable year.
(B) Limitation to wages attributable to domestic production 
Such term shall not include any amount which is not properly allocable to domestic production gross receipts for purposes of subsection (c)(1).
(C) Return requirement 
Such term shall not include any amount which is not properly included in a return filed with the Social Security Administration on or before the 60th day after the due date (including extensions) for such return.
(3) Acquisitions and dispositions 
The Secretary shall provide for the application of this subsection in cases where the taxpayer acquires, or disposes of, the major portion of a trade or business or the major portion of a separate unit of a trade or business during the taxable year.
(c) Qualified production activities income 
For purposes of this section
(1) In general 
The term qualified production activities income for any taxable year means an amount equal to the excess (if any) of
(A) the taxpayers domestic production gross receipts for such taxable year, over
(B) the sum of
(i) the cost of goods sold that are allocable to such receipts, and
(ii) other expenses, losses, or deductions (other than the deduction allowed under this section), which are properly allocable to such receipts.
(2) Allocation method 
The Secretary shall prescribe rules for the proper allocation of items described in paragraph (1) for purposes of determining qualified production activities income. Such rules shall provide for the proper allocation of items whether or not such items are directly allocable to domestic production gross receipts.
(3) Special rules for determining costs 

(A) In general 
For purposes of determining costs under clause (i) of paragraph (1)(B), any item or service brought into the United States shall be treated as acquired by purchase, and its cost shall be treated as not less than its value immediately after it entered the United States. A similar rule shall apply in determining the adjusted basis of leased or rented property where the lease or rental gives rise to domestic production gross receipts.
(B) Exports for further manufacture 
In the case of any property described in subparagraph (A) that had been exported by the taxpayer for further manufacture, the increase in cost or adjusted basis under subparagraph (A) shall not exceed the difference between the value of the property when exported and the value of the property when brought back into the United States after the further manufacture.
(4) Domestic production gross receipts 

(A) In general 
The term domestic production gross receipts means the gross receipts of the taxpayer which are derived from
(i) any lease, rental, license, sale, exchange, or other disposition of
(I) qualifying production property which was manufactured, produced, grown, or extracted by the taxpayer in whole or in significant part within the United States,
(II) any qualified film produced by the taxpayer, or
(III) electricity, natural gas, or potable water produced by the taxpayer in the United States,
(ii) in the case of a taxpayer engaged in the active conduct of a construction trade or business, construction of real property performed in the United States by the taxpayer in the ordinary course of such trade or business, or
(iii) in the case of a taxpayer engaged in the active conduct of an engineering or architectural services trade or business, engineering or architectural services performed in the United States by the taxpayer in the ordinary course of such trade or business with respect to the construction of real property in the United States.
(B) Exceptions 
Such term shall not include gross receipts of the taxpayer which are derived from
(i) the sale of food and beverages prepared by the taxpayer at a retail establishment,
(ii) the transmission or distribution of electricity, natural gas, or potable water, or
(iii) the lease, rental, license, sale, exchange, or other disposition of land.
(C) Special rule for certain Government contracts 
Gross receipts derived from the manufacture or production of any property described in subparagraph (A)(i)(I) shall be treated as meeting the requirements of subparagraph (A)(i) if
(i) such property is manufactured or produced by the taxpayer pursuant to a contract with the Federal Government, and
(ii) the Federal Acquisition Regulation requires that title or risk of loss with respect to such property be transferred to the Federal Government before the manufacture or production of such property is complete.
(D) Partnerships owned by expanded affiliated groups 
For purposes of this paragraph, if all of the interests in the capital and profits of a partnership are owned by members of a single expanded affiliated group at all times during the taxable year of such partnership, the partnership and all members of such group shall be treated as a single taxpayer during such period.
(5) Qualifying production property 
The term qualifying production property means
(A) tangible personal property,
(B) any computer software, and
(C) any property described in section 168 (f)(4).
(6) Qualified film 
The term qualified film means any property described in section 168 (f)(3) if not less than 50 percent of the total compensation relating to the production of such property is compensation for services performed in the United States by actors, production personnel, directors, and producers. Such term does not include property with respect to which records are required to be maintained under section 2257 of title 18, United States Code.
(7) Related persons 

(A) In general 
The term domestic production gross receipts shall not include any gross receipts of the taxpayer derived from property leased, licensed, or rented by the taxpayer for use by any related person.
(B) Related person 
For purposes of subparagraph (A), a person shall be treated as related to another person if such persons are treated as a single employer under subsection (a) or (b) of section 52 or subsection (m) or (o) of section 414, except that determinations under subsections (a) and (b) of section 52 shall be made without regard to section 1563 (b).
(d) Definitions and special rules 

(1) Application of section to pass-thru entities 

(A) Partnerships and S corporations 
In the case of a partnership or S corporation
(i) this section shall be applied at the partner or shareholder level,
(ii) each partner or shareholder shall take into account such persons allocable share of each item described in subparagraph (A) or (B) of subsection (c)(1) (determined without regard to whether the items described in such subparagraph (A) exceed the items described in such subparagraph (B)), and
(iii) each partner or shareholder shall be treated for purposes of subsection (b) as having W-2 wages for the taxable year in an amount equal to such persons allocable share of the W-2 wages of the partnership or S corporation for the taxable year (as determined under regulations prescribed by the Secretary).
(B) Trusts and estates 
In the case of a trust or estate
(i) the items referred to in subparagraph (A)(ii) (as determined therein) and the W2 wages of the trust or estate for the taxable year, shall be apportioned between the beneficiaries and the fiduciary (and among the beneficiaries) under regulations prescribed by the Secretary, and
(ii) for purposes of paragraph (2), adjusted gross income of the trust or estate shall be determined as provided in section 67 (e) with the adjustments described in such paragraph.
(C) Regulations 
The Secretary may prescribe rules requiring or restricting the allocation of items and wages under this paragraph and may prescribe such reporting requirements as the Secretary determines appropriate.
(2) Application to individuals 
In the case of an individual, subsection (a)(1)(B) shall be applied by substituting adjusted gross income for taxable income. For purposes of the preceding sentence, adjusted gross income shall be determined
(A) after application of sections 86, 135, 137, 219, 221, 222, and 469, and
(B) without regard to this section.
(3) Agricultural and horticultural cooperatives 

(A) Deduction allowed to patrons 
Any person who receives a qualified payment from a specified agricultural or horticultural cooperative shall be allowed for the taxable year in which such payment is received a deduction under subsection (a) equal to the portion of the deduction allowed under subsection (a) to such cooperative which is
(i) allowed with respect to the portion of the qualified production activities income to which such payment is attributable, and
(ii) identified by such cooperative in a written notice mailed to such person during the payment period described in section 1382 (d).
(B) Cooperative denied deduction for portion of qualified payments 
The taxable income of a specified agricultural or horticultural cooperative shall not be reduced under section 1382 by reason of that portion of any qualified payment as does not exceed the deduction allowable under subparagraph (A) with respect to such payment.
(C) Taxable income of cooperatives determined without regard to certain deductions 
For purposes of this section, the taxable income of a specified agricultural or horticultural cooperative shall be computed without regard to any deduction allowable under subsection (b) or (c) of section 1382 (relating to patronage dividends, per-unit retain allocations, and nonpatronage distributions).
(D) Special rule for marketing cooperatives 
For purposes of this section, a specified agricultural or horticultural cooperative described in subparagraph (F)(ii) shall be treated as having manufactured, produced, grown, or extracted in whole or significant part any qualifying production property marketed by the organization which its patrons have so manufactured, produced, grown, or extracted.
(E) Qualified payment 
For purposes of this paragraph, the term qualified payment means, with respect to any person, any amount which
(i) is described in paragraph (1) or (3) of section 1385 (a),
(ii) is received by such person from a specified agricultural or horticultural cooperative, and
(iii) is attributable to qualified production activities income with respect to which a deduction is allowed to such cooperative under subsection (a).
(F) Specified agricultural or horticultural cooperative 
For purposes of this paragraph, the term specified agricultural or horticultural cooperative means an organization to which part I of subchapter T applies which is engaged
(i) in the manufacturing, production, growth, or extraction in whole or significant part of any agricultural or horticultural product, or
(ii) in the marketing of agricultural or horticultural products.
(4) Special rule for affiliated groups 

(A) In general 
All members of an expanded affiliated group shall be treated as a single corporation for purposes of this section.
(B) Expanded affiliated group 
For purposes of this section, the term expanded affiliated group means an affiliated group as defined in section 1504 (a), determined
(i) by substituting more than 50 percent for at least 80 percent each place it appears, and
(ii) without regard to paragraphs (2) and (4) of section 1504 (b).
(C) Allocation of deduction 
Except as provided in regulations, the deduction under subsection (a) shall be allocated among the members of the expanded affiliated group in proportion to each members respective amount (if any) of qualified production activities income.
(5) Trade or business requirement 
This section shall be applied by only taking into account items which are attributable to the actual conduct of a trade or business.
(6) Coordination with minimum tax 
For purposes of determining alternative minimum taxable income under section 55
(A) qualified production activities income shall be determined without regard to any adjustments under sections 56 through 59, and
(B) in the case of a corporation, subsection (a)(1)(B) shall be applied by substituting alternative minimum taxable income for taxable income.
(7) Unrelated business taxable income 
For purposes of determining the tax imposed by section 511, subsection (a)(1)(B) shall be applied by substituting unrelated business taxable income for taxable income.
(8) Treatment of activities in Puerto Rico 

(A) In general 
In the case of any taxpayer with gross receipts for any taxable year from sources within the Commonwealth of Puerto Rico, if all of such receipts are taxable under section 1 or 11 for such taxable year, then for purposes of determining the domestic production gross receipts of such taxpayer for such taxable year under subsection (c)(4), the term United States shall include the Commonwealth of Puerto Rico.
(B) Special rule for applying wage limitation 
In the case of any taxpayer described in subparagraph (A), for purposes of applying the limitation under subsection (b) for any taxable year, the determination of W2 wages of such taxpayer shall be made without regard to any exclusion under section 3401 (a)(8) for remuneration paid for services performed in Puerto Rico.
(C) Termination 
This paragraph shall apply only with respect to the first 2 taxable years of the taxpayer beginning after December 31, 2005, and before January 1, 2008.
(9) Regulations 
The Secretary shall prescribe such regulations as are necessary to carry out the purposes of this section, including regulations which prevent more than 1 taxpayer from being allowed a deduction under this section with respect to any activity described in subsection (c)(4)(A)(i).