Internal Revenue Code:Sec. 465. Deductions limited to amount at risk
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Location in Internal Revenue Code
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart C - Taxable Year for Which Deductions Taken
Statute
Sec. 465. Deductions limited to amount at risk
(a) Limitation to amount at risk
(1) In general
In the case of -
(A) an individual, and
(B) a C corporation with respect to which the stock ownership
requirement of paragraph (2) of section 542(a) is met,
engaged in an activity to which this section applies, any loss
from such activity for the taxable year shall be allowed only to
the extent of the aggregate amount with respect to which the
taxpayer is at risk (within the meaning of subsection (b)) for
such activity at the close of the taxable year.
(2) Deduction in succeeding year
Any loss from an activity to which this section applies not
allowed under this section for the taxable year shall be treated
as a deduction allocable to such activity in the first succeeding
taxable year.
(3) Special rules for applying paragraph (1)(B)
For purposes of paragraph (1)(B) -
(A) section 544(a)(2) shall be applied as if such section did
not contain the phrase ''or by or for his partner''; and
(B) sections 544(a)(4)(A) and 544(b)(1) shall be applied by
substituting ''the corporation meet the stock ownership
requirements of section 542(a)(2)'' for ''the corporation a
personal holding company''.
(b) Amounts considered at risk
(1) In general
For purposes of this section, a taxpayer shall be considered at
risk for an activity with respect to amounts including -
(A) the amount of money and the adjusted basis of other
property contributed by the taxpayer to the activity, and
(B) amounts borrowed with respect to such activity (as
determined under paragraph (2)).
(2) Borrowed amounts
For purposes of this section, a taxpayer shall be considered at
risk with respect to amounts borrowed for use in an activity to
the extent that he -
(A) is personally liable for the repayment of such amounts,
or
(B) has pledged property, other than property used in such
activity, as security for such borrowed amount (to the extent
of the net fair market value of the taxpayer's interest in such
property).
No property shall be taken into account as security if such
property is directly or indirectly financed by indebtedness which
is secured by property described in paragraph (1).
(3) Certain borrowed amounts excluded
(A) In general
Except to the extent provided in regulations, for purposes of
paragraph (1)(B), amounts borrowed shall not be considered to
be at risk with respect to an activity if such amounts are
borrowed from any person who has an interest in such activity
or from a related person to a person (other than the taxpayer)
having such an interest.
(B) Exceptions
(i) Interest as creditor
Subparagraph (A) shall not apply to an interest as a
creditor in the activity.
(ii) Interest as shareholder with respect to amounts borrowed
by corporation
In the case of amounts borrowed by a corporation from a
shareholder, subparagraph (A) shall not apply to an interest
as a shareholder.
(C) Related person
For purposes of this subsection, a person (hereinafter in
this paragraph referred to as the ''related person'') is
related to any person if -
(i) the related person bears a relationship to such person
specified in section 267(b) or section 707(b)(1), or
(ii) the related person and such person are engaged in
trades or business under common control (within the meaning
of subsections (a) and (b) of section 52).
For purposes of clause (i), in applying section 267(b) or
707(b)(1), ''10 percent'' shall be substituted for ''50
percent''.
(4) Exception
Notwithstanding any other provision of this section, a taxpayer
shall not be considered at risk with respect to amounts protected
against loss through nonrecourse financing, guarantees, stop loss
agreements, or other similar arrangements.
(5) Amounts at risk in subsequent years
If in any taxable year the taxpayer has a loss from an activity
to which subsection (a) applies, the amount with respect to which
a taxpayer is considered to be at risk (within the meaning of
subsection (b)) in subsequent taxable years with respect to that
activity shall be reduced by that portion of the loss which
(after the application of subsection (a)) is allowable as a
deduction.
(6) Qualified nonrecourse financing treated as amount at risk
For purposes of this section -
(A) In general
Notwithstanding any other provision of this subsection, in
the case of an activity of holding real property, a taxpayer
shall be considered at risk with respect to the taxpayer's
share of any qualified nonrecourse financing which is secured
by real property used in such activity.
(B) Qualified nonrecourse financing
For purposes of this paragraph, the term ''qualified
nonrecourse financing'' means any financing -
(i) which is borrowed by the taxpayer with respect to the
activity of holding real property,
(ii) which is borrowed by the taxpayer from a qualified
person or represents a loan from any Federal, State, or local
government or instrumentality thereof, or is guaranteed by
any Federal, State, or local government,
(iii) except to the extent provided in regulations, with
respect to which no person is personally liable for
repayment, and
(iv) which is not convertible debt.
(C) Special rule for partnerships
In the case of a partnership, a partner's share of any
qualified nonrecourse financing of such partnership shall be
determined on the basis of the partner's share of liabilities
of such partnership incurred in connection with such financing
(within the meaning of section 752).
(D) Qualified person defined
For purposes of this paragraph -
(i) In general
The term ''qualified person'' has the meaning given such
term by section 49(a)(1)(D)(iv).
(ii) Certain commercially reasonable financing from related
persons
For purposes of clause (i), section 49(a)(1)(D)(iv) shall
be applied without regard to subclause (I) thereof (relating
to financing from related persons) if the financing from the
related person is commercially reasonable and on
substantially the same terms as loans involving unrelated
persons.
(E) Activity of holding real property
For purposes of this paragraph -
(i) Incidental personal property and services
The activity of holding real property includes the holding
of personal property and the providing of services which are
incidental to making real property available as living
accommodations.
(ii) Mineral property
The activity of holding real property shall not include the
holding of mineral property.
(c) Activities to which section applies
(1) Types of activities
This section applies to any taxpayer engaged in the activity of
-
(A) holding, producing, or distributing motion picture films
or video tapes,
(B) farming (as defined in section 464(e)),
(C) leasing any section 1245 property (as defined in section
1245(a)(3)),
(D) exploring for, or exploiting, oil and gas resources as a
trade or business or for the production of income, or
(E) exploring for, or exploiting, geothermal deposits (as
defined in section 613(e)(2)).
(2) Separate activities
For purposes of this section -
(A) In general
Except as provided in subparagraph (B), a taxpayer's activity
with respect to each -
(i) film or video tape,
(ii) section 1245 property which is leased or held for
leasing,
(iii) farm,
(iv) oil and gas property (as defined under section 614),
or
(v) geothermal property (as defined under section 614),
shall be treated as a separate activity.
(B) Aggregation rules
(i) Special rule for leases of section 1245 property by
partnerships or S corporations
In the case of any partnership or S corporation, all
activities with respect to section 1245 properties which -
(I) are leased or held for lease, and
(II) are placed in service in any taxable year of the
partnership or S corporation,
shall be treated as a single activity.
(ii) Other aggregation rules
Rules similar to the rules of subparagraphs (B) and (C) of
paragraph (3) shall apply for purposes of this paragraph.
(3) Extension to other activities
(A) In general
In the case of taxable years beginning after December 31,
1978, this section also applies to each activity -
(i) engaged in by the taxpayer in carrying on a trade or
business or for the production of income, and
(ii) which is not described in paragraph (1).
(B) Aggregation of activities where taxpayer actively
participates in management of trade or business
Except as provided in subparagraph (C), for purposes of this
section, activities described in subparagraph (A) which
constitute a trade or business shall be treated as one activity
if -
(i) the taxpayer actively participates in the management of
such trade or business, or
(ii) such trade or business is carried on by a partnership
or an S corporation and 65 percent or more of the losses for
the taxable year is allocable to persons who actively
participate in the management of the trade or business.
(C) Aggregation or separation of activities under regulations
The Secretary shall prescribe regulations under which
activities described in subparagraph (A) shall be aggregated or
treated as separate activities.
(D) Application of subsection (b)(3)
In the case of an activity described in subparagraph (A),
subsection (b)(3) shall apply only to the extent provided in
regulations prescribed by the Secretary.
(4) Exclusion for certain equipment leasing by closely-held
corporations
(A) In general
In the case of a corporation described in subsection
(a)(1)(B) actively engaged in equipment leasing -
(i) the activity of equipment leasing shall be treated as a
separate activity, and
(ii) subsection (a) shall not apply to losses from such
activity.
(B) 50-percent gross receipts test
For purposes of subparagraph (A), a corporation shall not be
considered to be actively engaged in equipment leasing unless
50 percent or more of the gross receipts of the corporation for
the taxable year is attributable, under regulations prescribed
by the Secretary, to equipment leasing.
(C) Component members of controlled group treated as a single
corporation
For purposes of subparagraph (A), the component members of a
controlled group of corporations shall be treated as a single
corporation.
(5) Waiver of controlled group rule where there is substantial
leasing activity
(A) In general
In the case of the component members of a qualified leasing
group, paragraph (4) shall be applied -
(i) by substituting ''80 percent'' for ''50 percent'' in
subparagraph (B) thereof, and
(ii) as if paragraph (4) did not include subparagraph (C)
thereof.
(B) Qualified leasing group
For purposes of this paragraph, the term ''qualified leasing
group'' means a controlled group of corporations which, for the
taxable year and each of the 2 immediately preceding taxable
years, satisfied each of the following 3 requirements:
(i) At least 3 employees
During the entire year, the group had at least 3 full-time
employees substantially all of the services of whom were
services directly related to the equipment leasing activity
of the qualified leasing members.
(ii) At least 5 separate leasing transactions
During the year, the qualified leasing members in the
aggregate entered into at least 5 separate equipment leasing
transactions.
(iii) At least $1,000,000 equipment leasing receipts
During the year, the qualified leasing members in the
aggregate had at least $1,000,000 in gross receipts from
equipment leasing.
The term ''qualified leasing group'' does not include any
controlled group of corporations to which, without regard to
this paragraph, paragraph (4) applies.
(C) Qualified leasing member
For purposes of this paragraph, a corporation shall be
treated as a qualified leasing member for the taxable year only
if for each of the taxable years referred to in subparagraph
(B) -
(i) it is a component member of the controlled group of
corporations, and
(ii) it meets the requirements of paragraph (4)(B) (as
modified by subparagraph (A)(i) of this paragraph).
(6) Definitions relating to paragraphs (4) and (5)
For purposes of paragraphs (4) and (5) -
(A) Equipment leasing
The term ''equipment leasing'' means -
(i) the leasing of equipment which is section 1245
property, and
(ii) the purchasing, servicing, and selling of such
equipment.
(B) Leasing of master sound recordings, etc., excluded
The term ''equipment leasing'' does not include the leasing
of master sound recordings, and other similar contractual
arrangements with respect to tangible or intangible assets
associated with literary, artistic, or musical properties.
(C) Controlled group of corporations; component member
The terms ''controlled group of corporations'' and
''component members'' have the same meanings as when used in
section 1563. The determination of the taxable years taken into
account with respect to any controlled group of corporations
shall be made in a manner consistent with the manner set forth
in section 1563.
(7) Exclusion of active businesses of qualified C corporations
(A) In general
In the case of a taxpayer which is a qualified C corporation
-
(i) each qualifying business carried on by such taxpayer
shall be treated as a separate activity, and
(ii) subsection (a) shall not apply to losses from such
business.
(B) Qualified C corporation
For purposes of subparagraph (A), the term ''qualified C
corporation'' means any corporation described in subparagraph
(B) of subsection (a)(1) which is not -
(i) a personal holding company (as defined in section 542(a)),
or
(ii) a personal service corporation (as defined in section
269A(b) but determined by substituting ''5 percent'' for ''10
percent'' in section 269A(b)(2)).
(C) Qualifying business
For purposes of this paragraph, the term ''qualifying
business'' means any active business if -
(i) during the entire 12-month period ending on the last
day of the taxable year, such corporation had at least 1
full-time employee substantially all the services of whom
were in the active management of such business,
(ii) during the entire 12-month period ending on the last
day of the taxable year, such corporation had at least 3
full-time, nonowner employees substantially all of the
services of whom were services directly related to such
business,
(iii) the amount of the deductions attributable to such
business which are allowable to the taxpayer solely by reason
of sections 162 and 404 for the taxable year exceeds 15
percent of the gross income from such business for such year,
and
(iv) such business is not an excluded business.
(D) Special rules for application of subparagraph (C)
(i) Partnerships in which taxpayer is a qualified corporate
partner
In the case of an active business of a partnership, if -
(I) the taxpayer is a qualified corporate partner in the
partnership, and
(II) during the entire 12-month period ending on the last
day of the partnership's taxable year, there was at least 1
full-time employee of the partnership (or of a qualified
corporate partner) substantially all the services of whom
were in the active management of such business,
then the taxpayer's proportionate share (determined on the
basis of its profits interest) of the activities of the
partnership in such business shall be treated as activities
of the taxpayer (and clause (i) of subparagraph (C) shall not
apply in determining whether such business is a qualifying
business of the taxpayer).
(ii) Qualified corporate partner
For purposes of clause (i), the term ''qualified corporate
partner'' means any corporation if -
(I) such corporation is a general partner in the
partnership,
(II) such corporation has an interest of 10 percent or
more in the profits and losses of the partnership, and
(III) such corporation has contributed property to the
partnership in an amount not less than the lesser of
$500,000 or 10 percent of the net worth of the corporation.
For purposes of subclause (III), any contribution of property
other than money shall be taken into account at its fair
market value.
(iii) Deduction for owner employee compensation not taken
into account
For purposes of clause (iii) of subparagraph (C), there
shall not be taken into account any deduction in respect of
compensation for personal services rendered by any employee
(other than a non-owner employee) of the taxpayer or any
member of such employee's family (within the meaning of
section 318(a)(1)).
(iv) Special rule for banks
For purposes of clause (iii) of subparagraph (C), in the
case of a bank (as defined in section 581) or a financial
institution to which section 591 applies -
(I) gross income shall be determined without regard to
the exclusion of interest from gross income under section
103, and
(II) in addition to the deductions described in such
clause, there shall also be taken into account the amount
of the deductions which are allowable for amounts paid or
credited to the accounts of depositors or holders of
accounts as dividends or interest on their deposits or
withdrawable accounts under section 163 or 591.
(v) Special rule for life insurance companies
(I) In general
Clause (iii) of subparagraph (C) shall not apply to any
insurance business of a qualified life insurance company.
(II) Insurance business
For purposes of subclause (I), the term ''insurance
business'' means any business which is not a noninsurance
business (within the meaning of section 806(b)(3)).
(III) Qualified life insurance company
For purposes of subclause (I), the term ''qualified life
insurance company'' means any company which would be a life
insurance company as defined in section 816 if unearned
premiums were not taken into account under subsections
(a)(2) and (c)(2) of section 816.
(E) Definitions
For purposes of this paragraph -
(i) Non-owner employee
The term ''non-owner employee'' means any employee who does
not own, at any time during the taxable year, more than 5
percent in value of the outstanding stock of the taxpayer.
For purposes of the preceding sentence, section 318 shall
apply, except that ''5 percent'' shall be substituted for
''50 percent'' in section 318(a)(2)(C).
(ii) Excluded business
The term ''excluded business'' means -
(I) equipment leasing (as defined in paragraph (6)), and
(II) any business involving the use, exploitation, sale,
lease, or other disposition of master sound recordings,
motion picture films, video tapes, or tangible or
intangible assets associated with literary, artistic,
musical, or similar properties.
(iii) Special rules relating to communications industry, etc.
(I) Business not excluded where taxpayer not completely at
risk
A business involving the use, exploitation, sale, lease,
or other disposition of property described in subclause
(II) of clause (ii) shall not constitute an excluded
business by reason of such subclause if the taxpayer is at
risk with respect to all amounts paid or incurred (or
chargeable to capital account) in such business.
(II) Certain licensed businesses not excluded
For purposes of subclause (II) of clause (ii), the
provision of radio, television, cable television, or
similar services pursuant to a license or franchise granted
by the Federal Communications Commission or any other
Federal, State, or local authority shall not constitute an
excluded business by reason of such subclause.
(F) Affiliated group treated as 1 taxpayer
For purposes of this paragraph -
(i) In general
Except as provided in subparagraph (G), the component
members of an affiliated group of corporations shall be
treated as a single taxpayer.
(ii) Affiliated group of corporations
The term ''affiliated group of corporations'' means an
affiliated group (as defined in section 1504(a)) which files
or is required to file consolidated income tax returns.
(iii) Component member
The term ''component member'' means an includible
corporation (as defined in section 1504) which is a member of
the affiliated group.
(G) Loss of 1 member of affiliated group may not offset income
of personal holding company or personal service corporation
Nothing in this paragraph shall permit any loss of a member
of an affiliated group to be used as an offset against the
income of any other member of such group which is a personal
holding company (as defined in section 542(a)) or a personal
service corporation (as defined in section 269A(b) but
determined by substituting ''5 percent'' for ''10 percent'' in
section 269A(b)(2)).
(d) Definition of loss
For purposes of this section, the term ''loss'' means the excess
of the deductions allowable under this chapter for the taxable year
(determined without regard to the first sentence of subsection (a))
and allocable to an activity to which this section applies over the
income received or accrued by the taxpayer during the taxable year
from such activity (determined without regard to subsection
(e)(1)(A)).
(e) Recapture of losses where amount at risk is less than zero
(1) In general
If zero exceeds the amount for which the taxpayer is at risk in
any activity at the close of any taxable year -
(A) the taxpayer shall include in his gross income for such
taxable year (as income from such activity) an amount equal to
such excess, and
(B) an amount equal to the amount so included in gross income
shall be treated as a deduction allocable to such activity for
the first succeeding taxable year.
(2) Limitation
The excess referred to in paragraph (1) shall not exceed -
(A) the aggregate amount of the reductions required by
subsection (b)(5) with respect to the activity by reason of
losses for all prior taxable years beginning after December 31,
1978, reduced by
(B) the amounts previously included in gross income with
respect to such activity under this subsection.
Sources
(Added Pub. L. 94-455, title II, Sec. 204(a), Oct. 4, 1976, 90
Stat. 1531; amended Pub. L. 95-600, title II, Sec. 201(a), (c)(1),
202, 203, title VII, Sec. 701(k)(2), Nov. 6, 1978, 92 Stat. 2814,
2816, 2906; Pub. L. 95-618, title IV, Sec. 402(d), Nov. 9, 1978, 92
Stat. 3202; Pub. L. 96-222, title I, Sec. 102(a)(1)(A)-(D), Apr. 1,
1980, 94 Stat. 206; Pub. L. 97-354, Sec. 5(a)(31), Oct. 19, 1982,
96 Stat. 1695; Pub. L. 98-369, div. A, title IV, Sec. 432(a)-(c),
title VII, Sec. 721(x)(2), July 18, 1984, 98 Stat. 811-814, 971;
Pub. L. 99-514, title II, Sec. 201(d)(7)(A), title V, Sec. 503(a),
(b), title X, Sec. 1011(b)(1), Oct. 22, 1986, 100 Stat. 2141, 2243,
2389; Pub. L. 101-508, title XI, Sec. 11813(b)(15), 11815(b)(3),
Nov. 5, 1990, 104 Stat. 1388-555, 1388-558.)
Miscellaneous
AMENDMENTS
2004 - Pub. L. 108-357 Sec. 413(c)(7). Subpara.(B) of section 465(c)(7)
is amended by adding ``or'' at the end of clause (i), by striking
clause (ii), and by redesignating clause (iii) as clause (ii).
1990 - Subsec. (b)(6)(D). Pub. L. 101-508, Sec. 11813(b)(15),
substituted ''49(a)(1)(D)(iv)'' for ''46(c)(8)(D)(iv)'' wherever
appearing.
Subsec. (c)(1)(E). Pub. L. 101-508, Sec. 11815(b)(3), substituted
''section 613(e)(2)'' for ''section 613(e)(3)''.
1986 - Subsec. (b)(3)(C). Pub. L. 99-514, Sec. 201(d)(7)(A),
struck out ''defined'' after ''person'' in heading and amended text
generally. Prior to amendment, text read as follows: ''For
purposes of subparagraph (A), the term 'related person' has the
meaning given such term by section 168(e)(4).''
Subsec. (b)(6). Pub. L. 99-514, Sec. 503(b), added par. (6).
Subsec. (c)(3)(D), (E). Pub. L. 99-514, Sec. 503(a), redesignated
subpar. (E) as (D) and struck out former subpar. (D) which read as
follows: ''In the case of activities described in subparagraph (A),
the holding of real property (other than mineral property) shall be
treated as a separate activity, and subsection (a) shall not apply
to losses from such activity. For purposes of the preceding
sentence, personal property and services which are incidental to
making real property available as living accommodations shall be
treated as part of the activity of holding such real property.''
Subsec. (c)(7)(D)(v)(II). Pub. L. 99-514, Sec. 1011(b)(1),
substituted ''section 806(b)(3)'' for ''section 806(c)(3)''.
1984 - Subsec. (a)(1)(B). Pub. L. 98-369, Sec. 721(x)(2),
substituted ''a C corporation'' for ''a corporation''.
Subsec. (b)(3). Pub. L. 98-369, Sec. 432(c), designated existing
provisions as subpar. (A), in subpar. (A) as so designated struck
out subpar. designations ''(A)'' and ''(B)'' and substituted
provisions that, except as provided by regulation, amounts borrowed
shall not be considered to be at risk if such amounts are borrowed
from any person who has an interest in the activity or from a
related person to a person (other than the taxpayer) having such an
interest for provision that such amounts would not be considered to
be at risk if borrowed from a person who had an interest (other
than as a creditor) in such activity or who had a relationship to
the taxpayer specified in section 267(b) of this title, and added
subpars. (B) and (C).
Subsec. (c)(2). Pub. L. 98-369, Sec. 432(b), designated existing
provisions as subpar. (A), in subpar. (A) as so designated,
redesignated former subpars. (A) to (E) as cls. (i) to (v),
respectively, struck out provision that a partner's interest in a
partnership or a shareholder's interest in an S corporation had to
be treated as a single activity to the extent that the partnership
or the S corporation was engaged in activities described in any
subparagraph of this paragraph, and added subpar. (B).
Subsec. (c)(7). Pub. L. 98-369, Sec. 432(a), added par. (7).
1982 - Subsec. (a)(1). Pub. L. 97-354, Sec. 5(a)(31)(A),
redesignated subpar. (C) as (B). Former subpar. (B), relating to an
electing small business corporation, was struck out.
Subsec. (a)(3). Pub. L. 97-354, Sec. 5(a)(31)(B), substituted
''paragraph (1)(B)'' for ''paragraph (1)(C)'' in heading and text.
Subsec. (c)(2). Pub. L. 97-354, Sec. 5(a)(31)(C), substituted
''an S corporation'' for ''an electing small business corporation''
the first place appearing and ''the S corporation'' for ''an
electing small business corporation'' the second place appearing.
Subsec. (c)(3)(B)(ii). Pub. L. 97-354, Sec. 5(a)(31)(D),
substituted ''an S corporation'' for ''electing small business
corporation (as defined in section 1371(b))''.
Subsec. (c)(4)(A). Pub. L. 97-354, Sec. 5(a)(31)(E), substituted
''subsection (a)(1)(B)'' for ''subsection (a)(1)(C)''.
1980 - Subsec. (a)(1)(C), (3). Pub. L. 96-222, Sec. 102(a)(1)(A),
struck out in par. (1)(C) ''(determined by reference to the rules
contained in section 318 rather than under section 544)'' after
''of section 542(a)'' and added par. (3).
Subsec. (b)(5). Pub. L. 96-222, Sec. 102(a)(1)(D)(iii),
substituted ''to which subsection (a) applies'' for ''to which this
section applies''.
Subsec. (c)(3)(D). Pub. L. 96-222, Sec. 102(a)(1)(D)(ii), struck
out provisions relating to equipment leasing by closely-held
corporations.
Subsec. (c)(4) to (6). Pub. L. 96-222, Sec. 102(a)(1)(D)(i),
added pars. (4) to (6).
Subsec. (d). Pub. L. 96-222, Sec. 102(a)(1)(B), inserted
''(determined without regard to subsection (e)(1)(A)'' after ''from
such activity''.
Subsec. (e)(2)(A). Pub. L. 96-222, Sec. 102(a)(1)(C), inserted
''by reason of losses'' after ''with respect to the activity''.
1978 - Pub. L. 95-600, Sec. 201(c)(1), substituted ''Deductions
limited to amount at risk'' for ''Deductions limited to amount at
risk in case of certain activities'' in section catchline.
Subsec. (a). Pub. L. 95-600, Sec. 202, redesignated existing
provisions as par. (1), substituted provisions relating to
limitations with respect to an individual, an electing small
business corporation defined under section 1371(b) of this title,
and a corporation meeting the stock ownership requirements of
section 542(a)(2) of this title and the rules of section 318 of
this title, for provisions relating to limitations with respect to
a taxpayer other than a corporation which is neither an electing
small business corporation defined under section 1371(b) of this
title, nor a personal holding company defined under section 542 of
this title, and added par. (2).
Subsec. (c)(1)(E). Pub. L. 95-618, Sec. 402(d)(1), added subpar.
(E).
Subsec. (c)(2)(E). Pub. L. 95-618, Sec. 402(d)(2), added subpar.
(E).
Subsec. (c)(3). Pub. L. 95-600, Sec. 201(a), added par. (3).
Subsec. (d). Pub. L. 95-600, Sec. 701(k)(2), substituted
''(determined without regard to the first sentence of subsection
(a))'' for ''(determined without regard to this section)''.
Subsec. (e). Pub. L. 95-600, Sec. 203, added subsec. (e).
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by section 11813(b)(15) of Pub. L. 101-508 applicable
to property placed in service after Dec. 31, 1990, but not
applicable to any transition property (as defined in section 49(e)
of this title), any property with respect to which qualified
progress expenditures were previously taken into account under
section 46(d) of this title, and any property described in section
46(b)(2)(C) of this title, as such sections were in effect on Nov.
4, 1990, see section 11813(c) of Pub. L. 101-508, set out as a note
under section 29 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 201(d)(7)(A) of Pub. L. 99-514 applicable to
property placed in service after Dec. 31, 1986, in taxable years
ending after such date, with exceptions, see sections 203 and 204
of Pub. L. 99-514, set out as a note under section 168 of this
title.
Amendment by section 201(d)(7)(A) of Pub. L. 99-514 not
applicable to any property placed in service before Jan. 1, 1994,
if such property placed in service as part of specified
rehabilitations, and not applicable to certain additional
rehabilitations, see section 251(d)(2), (3) of Pub. L. 99-514, set
out as a note under section 46 of this title.
Section 503(c) of Pub. L. 99-514 provided that:
''(1) In general. - Except as provided in this subsection, the
amendments made by this section (amending this section) shall apply
to losses incurred after December 31, 1986, with respect to
property placed in service by the taxpayer after December 31, 1986.
''(2) Special rule for losses of s corporation, partnership, or
pass-thru entity. - In the case of an interest in an S corporation,
a partnership, or other pass-thru entity acquired after December
31, 1986, the amendments made by this section shall apply to losses
after December 31, 1986, which are attributable to property placed
in service by the S corporation, partnership, or pass-thru entity
on, before, or after January 1, 1986.
''(3) Special rule for athletic stadium. - The amendments made by
this section shall not apply to any losses incurred by a taxpayer
with respect to the holding of a multi-use athletic stadium in
Pittsburgh, Pennsylvania, which the taxpayer acquired in a sale for
which a letter of understanding was entered into before April 16,
1986.''
Amendment by section 1011(b)(1) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 1011(c)(1)
of Pub. L. 99-514, set out as a note under section 453B of this
title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 432(d) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ''The
amendments made by this section (amending this section) shall apply
to taxable years beginning after December 31, 1983; except that any
loss from an activity described in section 465(c)(7)(A) of the
Internal Revenue Code of 1986 (formerly I.R.C. 1954) (as amended by
this section) which (but for the amendments made by this section)
would have been treated as a deduction for the taxpayer's first
taxable year beginning after December 31, 1983, under section
465(a)(2) of such Code shall be allowed as a deduction for such
first taxable year notwithstanding such amendments.''
Amendment by section 721(x)(2) of Pub. L. 98-369 effective as if
included in the Subchapter S Revision Act of 1982, Pub. L. 97-354,
see section 721(y)(1) of Pub. L. 98-369, set out as a note under
section 1361 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-354 applicable to taxable years beginning
after Dec. 31, 1982, see section 6(a) of Pub. L. 97-354, set out as
an Effective Date note under section 1361 of this title.
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-222 effective, except as otherwise
provided, as if it had been included in the provisions of the
Revenue Act of 1978, Pub. L. 95-600, to which such amendment
relates, see section 201 of Pub. L. 96-222, set out as a note under
section 32 of this title.
EFFECTIVE DATE OF 1978 AMENDMENTS
Amendment by Pub. L. 95-618 applicable with respect to wells
commenced on or after Oct. 1, 1978, in taxable years ending on or
after such date, see section 402(e) of Pub. L. 95-618, set out as a
note under section 263 of this title.
Section 204(a) of Pub. L. 95-600 provided that: ''The amendments
made by this subtitle (amending this section and section 704 of
this title and enacting provisions set out as notes under this
section and section 704 of this title) shall apply to taxable years
beginning after December 31, 1978.''
Section 701(k)(3) of Pub. L. 95-600 provided that: ''The
amendments made by this subsection (amending this section and
provisions set out below) shall take effect on October 4, 1976.''
EFFECTIVE DATE AND TRANSITIONAL RULES
Section 204(c) of Pub. L. 94-455, as amended by Pub. L. 95-600,
title VII, Sec. 701(k)(1), Nov. 6, 1978, 92 Stat. 2906; Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
''(1) In general. - Except as provided in paragraphs (2) and
(3), the amendments made by this section (enacting this section)
shall apply to losses attributable to amounts paid or incurred in
taxable years beginning after December 31, 1975. For purposes of
this subsection, any amount allowed or allowable for depreciation
or amortization for any period shall be treated as an amount paid
or incurred in such period.
''(2) Special transitional rules for movies and video tapes. -
''(A) In general. - In the case of any activity described in
section 465(c)(1)(A) of the Internal Revenue Code of 1986
(formerly I.R.C. 1954), the amendments made by this section
shall not apply to -
''(i) deductions for depreciation or amortization with
respect to property the principal production of which began
before September 11, 1975, and for the purchase of which
there was on September 11, 1975, and at all times thereafter
a binding contract, and
''(ii) deductions attributable to producing or distributing
property the principal production of which began before
September 11, 1975.
''(B) Exception for certain agreements where principal
photography begin before 1976. - In the case of any activity
described in section 465(c)(1)(A) of the Internal Revenue Code
of 1986, the amendments made by this section shall not apply to
deductions attributable to the producing of a film the
principal photography of which began on or before December 31,
1975, if -
''(i) on September 10, 1975, there was an agreement with
the director or a principal motion picture star, or on or
before September 10, 1975, there had been expended (or
committed to the production) an amount not less than the
lower of $100,000 or 10 percent of the estimated costs of
producing the film, and
''(ii) the production takes place in the United States.
Subparagraph (A) shall apply only to taxpayers who held their
interests on September 10, 1975. Subparagraph (B) shall apply
only to taxpayers who held their interests on December 31, 1975.
''(3) Special transitional rules for leasing activities. -
''(A) Rule for leases other than operating leases. - In the
case of any activity described in section 465(c)(1)(C) of the
Internal Revenue Code of 1986, the amendments made by this
section shall not apply with respect to -
''(i) leases entered into before January 1, 1976, and
''(ii) leases where the property was ordered by the lessor
or lessee before January 1, 1976.
''(B) Holding of interests for purposes of subparagraph (a).
- Subparagraph (A) shall apply only to taxpayers who held their
interests in the property on December 31, 1975.
''(C) Special rule for operating leases. - In the case of a
lease described in section 46(e)(3)(B) of the Internal Revenue
Code of 1986 -
''(i) subparagraph (A) shall be applied by substituting
'May 1, 1976' for 'January 1, 1976' each place it appears
therein, and
''(ii) subparagraph (B) shall be applied by substituting
'April 30, 1976' for 'December 31, 1975'.''
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 29 of this title.
TRANSITIONAL RULES FOR RECAPTURE PROVISIONS AND LEASING ACTIVITIES
Section 204(b) of Pub. L. 95-600, as amended by Pub. L. 96-222,
title I, Sec. 102(a)(1)(E), Apr. 1, 1980, 94 Stat. 208; Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
''(1) Recapture provisions. - If the amount for which the
taxpayer is at risk in any activity as of the close of the
taxpayer's last taxable year beginning before January 1, 1979, is
less than zero, section 465(e)(1) of the Internal Revenue Code of
1986 (formerly I.R.C. 1954) (as added by section 203 of this Act)
shall be applied with respect to such activity of the taxpayer by
substituting such negative amount for zero.
''(2) Special transitional rules for leasing activities. -
''(A) Rule for leases. - In the case of any activity described
in section 465(c)(1)(C) of such Code in which a corporation
described in section 465(a)(1)(C) of such Code is engaged, the
amendments made by this subtitle (amending sections 465 and 704
of this title and enacting provisions set out as notes under
sections 465 and 704 of this title) shall not apply with respect
to -
''(i) leases entered into before November 1, 1978, and
''(ii) leases where the property was ordered by the lessor or
lessee before November 1, 1978.
''(B) Holding of interests for purposes of subparagraph (a). -
Subparagraph (A) shall apply only to taxpayers who held their
interests in the property on October 31, 1978.''
References
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 49, 59, 162, 163, 168,
461, 467, 469, 773, 1256, 1366, 4162, 6111 of this title.
