Internal Revenue Code:Sec. 49. At-risk rules
From TaxAlmanac, A Free Online Resource
Note: You are using this website at your own risk, subject to our Disclaimer and Website Use and Contribution Terms.
From TaxAlmanac
Contents |
Location in Internal Revenue Code
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart E - Rules for Computing Investment Credit
Statute
Sec. 49. At-risk rules
(a) General rule
(1) Certain nonrecourse financing excluded from credit base
(A) Limitation
The credit base of any property to which this paragraph
applies shall be reduced by the nonqualified nonrecourse
financing with respect to such credit base (as of the close of
the taxable year in which placed in service).
(B) Property to which paragraph applies
This paragraph applies to any property which -
(i) is placed in service during the taxable year by a
taxpayer described in section 465(a)(1), and
(ii) is used in connection with an activity with respect to
which any loss is subject to limitation under section 465.
(C) Credit base defined
For purposes of this paragraph, the term ''credit base''
means -
(i) the portion of the basis of any qualified rehabilitated
building attributable to qualified rehabilitation
expenditures,
(ii) the basis of any energy property,
(iii) the basis of any property which is part of a qualifying
advanced coal project under Sec. 48A, and
(iv) the basis of any property which is part of a qualifying
gasification project under section 48B.
(D) Nonqualified nonrecourse financing
(i) In general
For purposes of this paragraph and paragraph (2), the term
''nonqualified nonrecourse financing'' means any nonrecourse
financing which is not qualified commercial financing.
(ii) Qualified commercial financing
For purposes of this paragraph, the term ''qualified
commercial financing'' means any financing with respect to
any property if -
(I) such property is acquired by the taxpayer from a
person who is not a related person,
(II) the amount of the nonrecourse financing with respect
to such property does not exceed 80 percent of the credit
base of such property, and
(III) such financing is borrowed 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.
Such term shall not include any convertible debt.
(iii) Nonrecourse financing
For purposes of this subparagraph, the term ''nonrecourse
financing'' includes -
(I) any amount with respect to which the taxpayer is
protected against loss through guarantees, stop-loss
agreements, or other similar arrangements, and
(II) except to the extent provided in regulations, any
amount borrowed from a person who has an interest (other
than as a creditor) in the activity in which the property
is used or from a related person to a person (other than
the taxpayer) having such an interest.
In the case of amounts borrowed by a corporation from a
shareholder, subclause (II) shall not apply to an interest as
a share-holder. (FOOTNOTE 1)
(FOOTNOTE 1) So in original. Probably should not be hyphenated.
(iv) Qualified person
For purposes of this paragraph, the term ''qualified
person'' means any person which is actively and regularly
engaged in the business of lending money and which is not -
(I) a related person with respect to the taxpayer,
(II) a person from which the taxpayer acquired the
property (or a related person to such person), or
(III) a person who receives a fee with respect to the
taxpayer's investment in the property (or a related person
to such person).
(v) Related person
For purposes of this subparagraph, the term ''related
person'' has the meaning given such term by section
465(b)(3)(C). Except as otherwise provided in regulations
prescribed by the Secretary, the determination of whether a
person is a related person shall be made as of the close of
the taxable year in which the property is placed in service.
(E) Application to partnerships and S corporations
For purposes of this paragraph and paragraph (2) -
(i) In general
Except as otherwise provided in this subparagraph, in the
case of any partnership or S corporation, the determination
of whether a partner's or shareholder's allocable share of
any financing is nonqualified nonrecourse financing shall be
made at the partner or shareholder level.
(ii) Special rule for certain recourse financing of S
corporation
A shareholder of an S corporation shall be treated as
liable for his allocable share of any financing provided by a
qualified person to such corporation if -
(I) such financing is recourse financing (determined at
the corporate level), and
(II) such financing is provided with respect to qualified
business property of such corporation.
(iii) Qualified business property
For purposes of clause (ii), the term ''qualified business
property'' means any property if -
(I) such property is used by the corporation in the
active conduct of a trade or 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 employees who were not owner-employees (as
defined in section 465(c)(7)(E)(i)) and substantially all
the services of whom were services directly related to such
trade or business, and
(III) during the entire 12-month period ending on the
last day of such taxable year, such corporation had at
least 1 full-time employee substantially all of the
services of whom were in the active management of the trade
or business.
(iv) Determination of allocable share
The determination of any partner's or shareholder's
allocable share of any financing shall be made in the same
manner as the credit allowable by section 38 with respect to
such property.
(F) Special rules for energy property
Rules similar to the rules of subparagraph (F) of section
46(c)(8) (as in effect on the day before the date of the
enactment of the Revenue Reconciliation Act of 1990) shall
apply for purposes of this paragraph.
(2) Subsequent decreases in nonqualified nonrecourse financing
with respect to the property
(A) In general
If, at the close of a taxable year following the taxable year
in which the property was placed in service, there is a net
decrease in the amount of nonqualified nonrecourse financing
with respect to such property, such net decrease shall be taken
into account as an increase in the credit base for such
property in accordance with subparagraph (C).
(B) Certain transactions not taken into account
For purposes of this paragraph, nonqualified nonrecourse
financing shall not be treated as decreased through the
surrender or other use of property financed by nonqualified
nonrecourse financing.
(C) Manner in which taken into account
(i) Credit determined by reference to taxable year property
placed in service
For purposes of determining the amount of credit allowable
under section 38 and the amount of credit subject to the
early disposition or cessation rules under section 50(a), any
increase in a taxpayer's credit base for any property by
reason of this paragraph shall be taken into account as if it
were property placed in service by the taxpayer in the
taxable year in which the property referred to in
subparagraph (A) was first placed in service.
(ii) Credit allowed for year of decrease in nonqualified
nonrecourse financing
Any credit allowable under this subpart for any increase in
qualified investment by reason of this paragraph shall be
treated as earned during the taxable year of the decrease in
the amount of nonqualified nonrecourse financing.
(b) Increases in nonqualified nonrecourse financing
(1) In general
If, as of the close of the taxable year, there is a net
increase with respect to the taxpayer in the amount of
nonqualified nonrecourse financing (within the meaning of
subsection (a)(1)) with respect to any property to which
subsection (a)(1) applied, then the tax under this chapter for
such taxable year shall be increased by an amount equal to the
aggregate decrease in credits allowed under section 38 for all
prior taxable years which would have resulted from reducing the
credit base (as defined in subsection (a)(1)(C)) taken into
account with respect to such property by the amount of such net
increase. For purposes of determining the amount of credit
subject to the early disposition or cessation rules of section
50(a), the net increase in the amount of the nonqualified
nonrecourse financing with respect to the property shall be
treated as reducing the property's credit base in the year in
which the property was first placed in service.
(2) Transfers of debt more than 1 year after initial borrowing
not treated as increasing nonqualified nonrecourse financing
For purposes of paragraph (1), the amount of nonqualified
nonrecourse financing (within the meaning of subsection
(a)(1)(D)) with respect to the taxpayer shall not be treated as
increased by reason of a transfer of (or agreement to transfer)
any evidence of any indebtedness if such transfer occurs (or such
agreement is entered into) more than 1 year after the date such
indebtedness was incurred.
(3) Special rules for certain energy property
Rules similar to the rules of section 47(d)(3) (as in effect on
the day before the date of the enactment of the Revenue
Reconciliation Act of 1990) shall apply for purposes of this
subsection.
(4) Special rule
Any increase in tax under paragraph (1) shall not be treated as
tax imposed by this chapter for purposes of determining the
amount of any credit allowable under this chapter.
Sources
(Added Pub. L. 99-514, title II, Sec. 211(a), Oct. 22, 1986, 100
Stat. 2166; amended Pub. L. 100-647, title I, Sec. 1002(e)(1)-(3),
(8)(B), Nov. 10, 1988, 102 Stat. 3367, 3369; Pub. L. 101-508, title
XI, Sec. 11813(a), Nov. 5, 1990, 104 Stat. 1388-543; Pub. L.
105-206, title VI, Sec. 6004(g)(6), July 22, 1998, 112 Stat. 796.)
References in Text
REFERENCES IN TEXT
The date of the enactment of the Revenue Reconciliation Act of
1990, referred to in subsecs. (a)(1)(F) and (b)(3), is the date of
enactment of Pub. L. 101-508, which was approved Nov. 5, 1990.
Miscellaneous
PRIOR PROVISIONS
A prior section 49, Pub. L. 91-172, title VII, Sec. 703(a), Dec.
30, 1969, 83 Stat. 660; Pub. L. 92-178, title I, Sec.
101(b)(1)-(4), Dec. 10, 1971, 85 Stat. 498, 499, related to
termination of rules for computing credit for investment in certain
depreciable property for period beginning Apr. 19, 1969, and ending
during 1971, prior to repeal by Pub. L. 95-600, title III, Sec.
312(c)(1), Nov. 6, 1978, 92 Stat. 2826, applicable to taxable years
ending after Dec. 31, 1978.
AMENDMENTS
2005 - PL109-058, Sec. 1307(c)(1), amended Sec. 49(a)(1)(C) by adding
a new subpara (iii) and (iv). Effective date is enactment of the Act.
1998 - Subsec. (b)(4). Pub. L. 105-206 substituted ''this
chapter'' for ''subpart A, B, D, or G''.
1990 - Pub. L. 101-508, Sec. 11813(a), amended section generally,
substituting section catchline for one which read: ''Termination of
regular percentage'' and in text substituting present provisions
for provisions relating to the nonapplicability of the regular
percentage to any property placed in service after Dec. 31, 1985,
for purposes of determining the investment tax credit, exceptions
to such rule, the 35 percent reduction in credit for taxable years
after 1986, the full basis adjustment in determining investment tax
credit, and the definition of transition property and treatment of
progress expenditures.
1988 - Subsec. (c)(4)(B). Pub. L. 100-647, Sec. 1002(e)(2),
substituted ''years'' for ''year'' in heading and amended text
generally. Prior to amendment, text read as follows: ''The amount
of the reduction of the regular investment credit under paragraph
(3) -
''(i) may not be carried back to any taxable year, but
''(ii) shall be added to the carryforwards from the taxable
year before applying paragraph (2).''
Subsec. (c)(5)(B)(i). Pub. L. 100-647, Sec. 1002(e)(3), amended
cl. (i) generally. Prior to amendment, cl. (i) read as follows:
''The term 'regular investment credit' has the meaning given such
term by section 48(o)''.
Subsec. (c)(5)(C). Pub. L. 100-647, Sec. 1002(e)(8)(B), struck
out subpar. (C) which related to portion of credits attributable to
regular investment credit.
Subsec. (d)(1). Pub. L. 100-647, Sec. 1002(e)(1), amended par.
(1) generally. Prior to amendment, par. (1) read as follows: ''In
the case of periods after December 31, 1985, section 48(q)
(relating to basis adjustment to section 38 property) shall be
applied with respect to transaction property -
''(A) by substituting '100 percent' for '50 percent' in
paragraph (1), and
''(B) without regard to paragraph (4) thereof (relating to
election of reduced credit in lieu of basis adjustment).''
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub. L. 101-508 applicable to property placed in
service after Dec. 31, 1990, but not applicable to any transition
property (as defined in section 49(e) of this title), any property
with respect to which qualified progress expenditures were
previously taken into account under section 46(d) of this title,
and any property described in section 46(b)(2)(C) of this title, as
such sections were in effect on Nov. 4, 1990, see section 11813(c)
of Pub. L. 101-508, set out as a note under section 29 of this
title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1002(e)(1)-(3) of Pub. L. 100-647 effective,
except as otherwise provided, as if included in the provision of
the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment
relates, see section 1019(a) of Pub. L. 100-647, set out as a note
under section 1 of this title.
Amendment by section 1002(e)(8)(B) of Pub. L. 100-647 applicable
to taxable years beginning after Dec. 31, 1983, and to carrybacks
from such years, see section 1002(e)(8)(C) of Pub. L. 100-647, set
out as a note under section 38 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 211(e) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1002(e)(4)-(7), Nov. 10, 1988, 102 Stat. 3367, 3368,
provided that:
''(1) In general. - Except as provided in this subsection, the
amendments made by this section (enacting this section and
provisions set out below) shall apply to property placed in service
after December 31, 1985, in taxable years ending after such date.
Section 49(c) of the Internal Revenue Code of 1986 (as added by
subsection (a)) shall apply to taxable years ending after June 30,
1987, and to amounts carried to such taxable years.
''(2) Exceptions for certain films. - For purposes of determining
whether any property is transition property within the meaning of
section 49(e) of the Internal Revenue Code of 1986 -
''(A) in the case of any motion picture or television film,
construction shall be treated as including production for
purposes of section 203(b)(1) of this Act (enacting provisions
set out as a note under section 168 of this title), and written
contemporary evidence of an agreement (in accordance with
industry practice) shall be treated as a written binding contract
for such purposes,
''(B) in the case of any television film, a license agreement
or agreement for production services between a television network
and a producer shall be treated as a binding contract for
purposes of section 203(b)(1)(A) of this Act, and
''(C) a motion picture film shall be treated as described in
section 203(b)(1)(A) of this Act if -
''(i) funds were raised pursuant to a public offering before
September 26, 1985, for the production of such film,
''(ii) 40 percent of the funds raised pursuant to such public
offering are being spent on films the production of which
commenced before such date, and
''(iii) all of the films funded by such public offering are
required to be distributed pursuant to distribution agreements
entered into before September 26, 1985.
''(3) Normalization rules. - The provisions of subsection (b)
(see Normalization Rules note below) shall apply to any violation
of the normalization requirements under paragraph (1) or (2) of
section 46(f) of the Internal Revenue Code of 1986 occurring in
taxable years ending after December 31, 1985.
''(4) Additional exceptions. -
''(A) Subsections (c) and (d) of section 49 of the Internal
Revenue Code of 1986 shall not apply to any continuous caster
facility for slabs and blooms which is subject to a lease and
which is part of a project the second phase of which is a
continuous slab caster which was placed in service before
December 31, 1985.
''(B) For purposes of determining whether an automobile
manufacturing facility (including equipment and incidental
appurtenances) is transition property within the meaning of
section 49(e), property with respect to which the Board of
Directors of an automobile manufacturer formally approved the
plan for the project on January 7, 1985 shall be treated as
transition property and subsections (c) and (d) of section 49 of
such Code shall not apply to such property, but only with respect
to $70,000,000 of regular investment tax credits.
''(C) Any solid waste disposal facility which will process and
incinerate solid waste of one or more public or private entities
including Dakota County, Minnesota, and with respect to which a
bond carryforward from 1985 was elected in an amount equal to
$12,500,000 shall be treated as transition property within the
meaning of section 49(e) of the Internal Revenue Code of 1986.
''(D) For purposes of section 49 of such Code, the following
property shall be treated as transition property:
''(i) 2 catamarans built by a shipbuilder incorporated in the
State of Washington in 1964, the contracts for which were
signed on April 22, 1986 and November 12, 1985, and 1 barge
built by such shipbuilder the contract for which was signed on
August 7, 1985.
''(ii) 2 large passenger ocean-going United States flag
cruise ships with a passenger rated capacity of up to 250 which
are built by the shipbuilder described in clause (i), which are
the first such ships built in the United States since 1952, and
which were designed at the request of a Pacific Coast cruise
line pursuant to a contract entered into in October 1985. This
clause shall apply only to that portion of the cost of each
ship which does not exceed $40,000,000.
''(iii) Property placed in service during 1986 by Satellite
Industries, Inc., with headquarters in Minneapolis, Minnesota,
to the extent that the cost of such property does not exceed
$1,950,000.
''(E) Subsections (c) and (d) of section 49 of such Code shall
not apply to property described in section 204(a)(4) of this Act
(enacting provisions set out as a note under section 168 of this
title).''
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 29 of this title.
NORMALIZATION RULES
Section 211(b) of Pub. L. 99-514 provided that: ''If, for any
taxable year beginning after December 31, 1985, the requirements of
paragraph (1) or (2) of section 46(f) of the Internal Revenue Code
of 1986 are not met with respect to public utility property to
which the regular percentage applied for purposes of determining
the amount of the investment tax credit -
''(1) all credits for open taxable years as of the time of the
final determination referred to in section 46(f)(4)(A) of such
Code shall be recaptured, and
''(2) if the amount of the taxpayer's unamortized credits (or
the credits not previously restored to rate base) with respect to
such property (whether or not for open years) exceeds the amount
referred to in paragraph (1), the taxpayer's tax for the taxable
year shall be increased by the amount of such excess.
If any portion of the excess described in paragraph (2) is
attributable to a credit which is allowable as a carryover to a
taxable year beginning after December 31, 1985, in lieu of applying
paragraph (2) with respect to such portion, the amount of such
carryover shall be reduced by the amount of such portion. Rules
similar to the rules of this subsection shall apply in the case of
any property with respect to which the requirements of section
46(f)(9) of such Code are met.''
EXCEPTION FOR CERTAIN AIRCRAFT USED IN ALASKA
Section 211(d) of Pub. L. 99-514 provided that:
''(1) The amendments made by subsection (a) (enacting this
section and provisions set out above) shall not apply to property
originally placed in service after December 29, 1982, and before
August 1, 1985, by a corporation incorporated in Alaska on May 21,
1953, and used by it -
''(A) in part, for the transportation of mail for the United
States Postal Service in the State of Alaska, and
''(B) in part, to provide air service in the State of Alaska on
routes which had previously been served by an air carrier that
received compensation from the Civil Aeronautics Board for
providing service.
''(2) In the case of property described in subparagraph (A) -
''(A) such property shall be treated as recovery property
described in section 208(d)(5) of the Tax Equity and Fiscal
Responsibility Act of 1982 ('TEFRA') (section 208(d)(5) of Pub.
L. 97-248, enacting provisions set out as a note under section
168 of this title);
''(B) '48 months' shall be substituted for '3 months' each
place it appears in applying -
''(i) section 48(b)(2)(B) of the Code (26 U.S.C.
48(b)(2)(B)), and
''(ii) section 168(f)(8)(D) of the Code (26 U.S.C.
168(f)(8)(D)) (as in effect after the amendments made by the
Technical Corrections Act of 1982 (Pub. L. 97-448) but before
the amendments made by TEFRA); and
''(C) the limitation of section 168(f)(8)(D)(ii)(III) (as then
in effect) shall be read by substituting 'the lessee's original
cost basis.', for 'the adjusted basis of the lessee at the time
of the lease.'
''(3) The aggregate amount of property to which this paragraph
shall apply shall not exceed $60,000,000.''
References
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 29, 42, 43, 465, 773,
1371 of this title.
