Internal Revenue Code:Sec. 57. Items of tax preference
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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 A - Determination of Tax Liability
PART VI - ALTERNATIVE MINIMUM TAX
Statute
Sec. 57. Items of tax preference
(a) General rule
For purposes of this part, the items of tax preference determined
under this section are -
(1) Depletion
With respect to each property (as defined in section 614), the
excess of the deduction for depletion allowable under section 611
for the taxable year over the adjusted basis of the property at
the end of the taxable year (determined without regard to the
depletion deduction for the taxable year).Effective with
respect to taxable years beginning after December 31, 1992, this
paragraph shall not apply to any deduction for depletion computed
in accordance with section 613A(c).
(2) Intangible drilling costs
(A) In general
With respect to all oil, gas, and geothermal properties of
the taxpayer, the amount (if any) by which the amount of the
excess intangible drilling costs arising in the taxable year is
greater than 65 percent of the net income of the taxpayer from
oil, gas, and geothermal properties for the taxable year.
(B) Excess intangible drilling costs
For purposes of subparagraph (A), the amount of the excess
intangible drilling costs arising in the taxable year is the
excess of -
(i) the intangible drilling and development costs paid or
incurred in connection with oil, gas, and geothermal wells
(other than costs incurred in drilling a nonproductive well)
allowable under section 263(c) or 291(b) for the taxable
year, over
(ii) the amount which would have been allowable for the
taxable year if such costs had been capitalized and straight
line recovery of intangibles (as defined in subsection (b))
had been used with respect to such costs.
(C) Net income from oil, gas, and geothermal properties
For purposes of subparagraph (A), the amount of the net
income of the taxpayer from oil, gas, and geothermal properties
for the taxable year is the excess of -
(i) the aggregate amount of gross income (within the
meaning of section 613(a)) from all oil, gas, and geothermal
properties of the taxpayer received or accrued by the
taxpayer during the taxable year, over
(ii) the amount of any deductions allocable to such
properties reduced by the excess described in subparagraph
(B) for such taxable year.
(D) Paragraph applied separately with respect to geothermal
properties and oil and gas properties
This paragraph shall be applied separately with respect to -
(i) all oil and gas properties which are not described in
clause (ii), and
(ii) all properties which are geothermal deposits (as
defined in section 613(e)(2)).
(E) Exception for independent producers
In the case of any oil or gas well -
(i) In general
In the case of any taxable year beginning after December
31, 1992, this paragraph shall not apply to any taxpayer
which is not an integrated oil company (as defined in section
291(b)(4)).
(ii) Limitation on benefit
The reduction in alternative minimum taxable income by
reason of clause (i) for any taxable year shall not exceed 40
percent (30 percent in case of taxable years beginning in
1993) of the alternative minimum taxable income for such year
determined without regard to clause (i) and the alternative
tax net operating loss deduction under section 56(a)(4).
((3) Repealed. Pub. L. 100-647, title I, Sec. 1007(b)(14)(B),
Nov. 10, 1988, 102 Stat. 3430)
((4) Repealed. Pub. L. 104-188, title I, Sec. 1616(b)(3), Aug.
20, 1996, 110 Stat. 1856)
(5) Tax-exempt interest
(A) In general
Interest on specified private activity bonds reduced by any
deduction (not allowable in computing the regular tax) which
would have been allowable if such interest were includible in
gross income.
(B) Treatment of exempt-interest dividends
Under regulations prescribed by the Secretary, any
exempt-interest dividend (as defined in section 852(b)(5)(A))
shall be treated as interest on a specified private activity
bond to the extent of its proportionate share of the interest
on such bonds received by the company paying such dividend.
(C) Specified private activity bonds
(i) In general
For purposes of this part, the term ''specified private
activity bond'' means any private activity bond (as defined
in section 141) which is issued after August 7, 1986, and the
interest on which is not includible in gross income under
section 103.
(ii) Exception for qualified 501(c)(3) bonds
For purposes of clause (i), the term ''private activity
bond'' shall not include any qualified 501(c)(3) bond (as
defined in section 145).
(iii) Exception for refundings
For purposes of clause (i), the term ''private activity
bond'' shall not include any refunding bond (whether a
current or advance refunding) if the refunded bond (or in the
case of a series of refundings, the original bond) was issued
before August 8, 1986.
(iv) Certain bonds issued before September 1, 1986
For purposes of this subparagraph, a bond issued before
September 1, 1986, shall be treated as issued before August
8, 1986, unless such bond would be a private activity bond if
-
(I) paragraphs (1) and (2) of section 141(b) were applied
by substituting ''25 percent'' for ''10 percent'' each
place it appears,
(II) paragraphs (3), (4), and (5) of section 141(b) did
not apply, and
(III) subparagraph (B) of section 141(c)(1) did not
apply.
(6) Accelerated depreciation or amortization on certain property
placed in service before January 1, 1987
The amounts which would be treated as items of tax preference
with respect to the taxpayer under paragraphs (2), (3), (4), and
(12) of this subsection (as in effect on the day before the date
of the enactment of the Tax Reform Act of 1986). The preceding
sentence shall not apply to any property to which section
56(a)(1) or (5) applies.
(7) Exclusion for gains on sale of certain small business stock
An amount equal to 7 percent of the amount excluded from gross
income for the taxable year under section 1202.
(b) Straight line recovery of intangibles defined
For purposes of paragraph (2) of subsection (a) -
(1) In general
The term ''straight line recovery of intangibles'', when used
with respect to intangible drilling and development costs for any
well, means (except in the case of an election under paragraph
(2)) ratable amortization of such costs over the 120-month period
beginning with the month in which production from such well
begins.
(2) Election
If the taxpayer elects with respect to the intangible drilling
and development costs for any well, the term ''straight line
recovery of intangibles'' means any method which would be
permitted for purposes of determining cost depletion with respect
to such well and which is selected by the taxpayer for purposes
of subsection (a)(2).
Sources
(Added Pub. L. 99-514, title VII, Sec. 701(a), Oct. 22, 1986, 100
Stat. 2333; amended Pub. L. 100-647, title I, Sec. 1007(b)(14)(B),
(c), Nov. 10, 1988, 102 Stat. 3430, 3432; Pub. L. 101-508, title
XI, Sec. 11344, 11801(c)(12)(A), 11815(b)(3), Nov. 5, 1990, 104
Stat. 1388-472, 1388-527, 1388-558; Pub. L. 102-227, title I, Sec.
112, Dec. 11, 1991, 105 Stat. 1689; Pub. L. 102-486, title XIX,
Sec. 1915(a)(1), (b)(1), Oct. 24, 1992, 106 Stat. 3023, 3024; Pub.
L. 103-66, title XIII, Sec. 13113(b)(1), 13171(a), Aug. 10, 1993,
107 Stat. 429, 454; Pub. L. 104-188, title I, Sec. 1616(b)(3), Aug.
20, 1996, 110 Stat. 1856; Pub. L. 105-34, title III, Sec.
311(b)(2)(B), Aug. 5, 1997, 111 Stat. 835; Pub. L. 105-206, title
VI, Sec. 6005(d)(3), July 22, 1998, 112 Stat. 805.)
References in Text
REFERENCES IN TEXT
The date of the enactment of the Tax Reform Act of 1986, referred
to in subsec. (a)(6), is the date of enactment of Pub. L. 99-514,
which was approved Oct. 22, 1986.
Miscellaneous
PRIOR PROVISIONS
A prior section 57, added Pub. L. 91-172, title III, Sec. 301(a),
Dec. 30, 1969, 83 Stat. 581; amended Pub. L. 92-178, title III,
Sec. 303(b), 304(a)(1), (b)(1), (d), Dec. 10, 1971, 85 Stat.
522-524; Pub. L. 94-455, title III, Sec. 301(c)(1)-(4)(A), (C),
title XIX, Sec. 1901(b)(33)(A), (B), 1906(b)(13)(A), Oct. 4, 1976,
90 Stat. 1550-1552, 1800, 1834; Pub. L. 95-30, title I, Sec.
101(d)(5), title III, Sec. 308(a), title IV, Sec. 402(a)(5), May
23, 1977, 91 Stat. 133, 153, 155; Pub. L. 95-600, title III, Sec.
301(b)(2), title IV, Sec. 402(b)(1), 421(b), title VII, Sec.
701(b)(1), (3), (4), (f)(3)(D), Nov. 6, 1978, 92 Stat. 2820, 2868,
2874, 2898, 2899, 2901; Pub. L. 95-618, title IV, Sec. 402(b), Nov.
9, 1978, 92 Stat. 3202; Pub. L. 96-222, title I, Sec. 104(a)(4)(E),
(F), 107(a)(1)(A), Apr. 1, 1980, 94 Stat. 217, 222; Pub. L. 96-596,
Sec. 3(a), Dec. 24, 1980, 94 Stat. 3475; Pub. L. 97-34, title I,
Sec. 121(c)(1), title II, Sec. 205, 212(d)(2)(B), Aug. 13, 1981, 95
Stat. 197, 223, 239; Pub. L. 97-248, title II, Sec. 201(b), 204(b),
Sept. 3, 1982, 96 Stat. 416, 426; Pub. L. 97-354, Sec. 5(a)(14),
(15), Oct. 19, 1982, 96 Stat. 1693; Pub. L. 97-448, title I, Sec.
102(b)(1)(A), (3), (4), Jan. 12, 1983, 96 Stat. 2369, 2370; Pub. L.
98-369, div. A, title I, Sec. 16(b), 68(c), 111(e)(5)-(7), title
V, Sec. 555(a)(2), title VII, Sec. 711(a)(3)(A), 722(a)(1), July
18, 1984, 98 Stat. 505, 588, 633, 897, 942, 972; Pub. L. 99-121,
title I, Sec. 103(b)(1)(B), (7), Oct. 11, 1985, 99 Stat. 509, 510;
Pub. L. 99-272, title XIII, Sec. 13208(a), Apr. 7, 1986, 100 Stat.
321; Pub. L. 99-514, title XVIII, Sec. 1804(k)(3)(B)-(D),
1809(a)(3), Oct. 22, 1986, 100 Stat. 2809, 2819, related to items
of tax preference, prior to the general revision of this part by
Pub. L. 99-514, Sec. 701(a).
AMENDMENTS
2003- Subsec. 301(b)(3), Pub. L.108-27, amended Sec. 57(a),
paragraph (7)by substituting 7% for 42%and striking the last
sentence.
1998 - Subsec. (a)(7). Pub. L. 105-206 inserted at end ''In the
case of stock the holding period of which begins after December 31,
2000 (determined with the application of the last sentence of
section 1(h)(2)(B)), the preceding sentence shall be applied by
substituting '28 percent' for '42 percent'.''
1997 - Subsec. (a)(7). Pub. L. 105-34 substituted ''42 percent''
for ''one-half''.
1996 - Subsec. (a)(4). Pub. L. 104-188 struck out par. (4) which
read as follows: ''Reserves for losses on bad debts of financial
institutions. - In the case of a financial institution to which
section 593 applies, the amount by which the deduction allowable
for the taxable year for a reasonable addition to a reserve for bad
debts exceeds the amount that would have been allowable had the
institution maintained its bad debt reserve for all taxable years
on the basis of actual experience.''
1993 - Subsec. (a)(6), (7). Pub. L. 103-66, Sec. 13171(a),
redesignated pars. (7) and (8) as (6) and (7), respectively, and
struck out heading and text of former par. (6). Text read as
follows:
''(A) In general. - The amount by which the deduction allowable
under section 170 or 642(c) would be reduced if all capital gain
property were taken into account at its adjusted basis.
''(B) Capital gain property. - For purposes of subparagraph (A),
the term 'capital gain property' has the meaning given to such term
by section 170(b)(1)(C)(iv). Such term shall not include any
property to which an election under section 170(b)(1)(C)(iii)
applies. In the case of any taxable year beginning in 1991, such
term shall not include any tangible personal property. In the case
of a contribution made before July 1, 1992, in a taxable year
beginning in 1992, such term shall not include any tangible
personal property.''
Subsec. (a)(8). Pub. L. 103-66, Sec. 13171(a), redesignated par.
(8) as (7).
Pub. L. 103-66, Sec. 13113(b)(1), added par. (8).
1992 - Subsec. (a)(1). Pub. L. 102-486, Sec. 1915(a)(1), inserted
at end ''Effective with respect to taxable years beginning after
December 31, 1992, this paragraph shall not apply to any deduction
for depletion computed in accordance with section 613A(c).''
Subsec. (a)(2)(E). Pub. L. 102-486, Sec. 1915(b)(1), added
subpar. (E).
1991 - Subsec. (a)(6)(B). Pub. L. 102-227 inserted at end ''In
the case of a contribution made before July 1, 1992, in a taxable
year beginning in 1992, such term shall not include any tangible
personal property.''
1990 - Subsec. (a)(2)(D)(ii). Pub. L. 101-508, Sec. 11815(b)(3),
substituted ''section 613(e)(2)'' for ''section 613(e)(3)''.
Subsec. (a)(4). Pub. L. 101-508, Sec. 11801(c)(12)(A), struck out
''585 or'' after ''section''.
Subsec. (a)(6)(B). Pub. L. 101-508, Sec. 11344, inserted at end
''In the case of any taxable year beginning in 1991, such term
shall not include any tangible personal property.''
1988 - Subsec. (a)(3). Pub. L. 100-647, Sec. 1007(b)(14)(B),
struck out par. (3) which related to incentive stock options.
Subsec. (a)(5)(C)(i). Pub. L. 100-647, Sec. 1007(c)(2), amended
cl. (i) generally. Prior to amendment, cl. (i) read as follows:
''For purposes of this part, the term 'specified private activity
bonds' means any private activity bond (as defined in section 141)
issued after August 7, 1986.''
Subsec. (a)(5)(C)(iii). Pub. L. 100-647, Sec. 1007(c)(1),
inserted ''(whether a current or advance refunding)'' after ''any
refunding bond''.
Subsec. (a)(6)(A). Pub. L. 100-647, Sec. 1007(c)(3), inserted
''or 642(c)'' after ''section 170''.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to taxable years ending
after May 6, 1997, see section 311(d) of Pub. L. 105-34, set out as
a note under section 1 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 applicable to taxable years
beginning after Dec. 31, 1995, see section 1616(c) of Pub. L.
104-188, set out as a note under section 593 of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by section 13113(b)(1) of Pub. L. 103-66 applicable to
stock issued after Aug. 10, 1993, see section 13113(e) of Pub. L.
103-66, set out as a note under section 53 of this title.
Amendment by section 13171(a) of Pub. L. 103-66 applicable to
contributions made after June 30, 1992, except that in case of any
contribution of capital gain property which is not tangible
personal property, such amendment applicable only if the
contribution is made after Dec. 31, 1992, see section 13171(d) of
Pub. L. 103-66, set out as a note under section 53 of this title.
EFFECTIVE DATE OF 1992 AMENDMENT
Amendment by Pub. L. 102-486 applicable to taxable years
beginning after Dec. 31, 1992, see section 1915(d) of Pub. L.
102-486, set out as a note under section 56 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1007(b)(14)(B) of Pub. L. 100-647 applicable
with respect to options exercised after Dec. 31, 1987, see section
1007(b)(14)(C) of Pub. L. 100-647, set out as a note under section
56 of this title.
Amendment by section 1007(c) 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.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1986, with certain exceptions and qualifications, but subsec.
(a)(6) not to apply to any deduction attributable to contributions
made before Aug. 16, 1986, see section 701(f) of Pub. L. 99-514,
set out as a note under section 55 of this title.
SAVINGS PROVISION
For provisions that nothing in amendment by sections 11801 and
11815 of Pub. L. 101-508 be construed to affect treatment of
certain transactions occurring, property acquired, or items of
income, loss, deduction, or credit taken into account prior to Nov.
5, 1990, for purposes of determining liability for tax for periods
ending after Nov. 5, 1990, see section 11821(b) of Pub. L. 101-508,
set out as a note under section 29 of this title.
TRANSITIONAL PROVISIONS
Section 1007(f)(4) of Pub. L. 100-647 provided that:
''(A) If any property to which this paragraph applies is placed
in service in a taxable year which begins before January 1, 1987,
and ends on or after August 1, 1986, the item of tax preference
determined under section 57(a) of the Internal Revenue Code of 1954
(as in effect on the day before the date of the enactment of the
Tax Reform Act of 1986 (Oct. 22, 1986)) with respect to such
property shall be the excess of -
''(i) the amount allowable as a deduction for depreciation or
amortization for such taxable year, over
''(ii) the amount which would be determined for such taxable
year under the rules of paragraph (1) or (5) (whichever is
appropriate) of section 56(a) of the Internal Revenue Code of
1954 (as amended by the Tax Reform Act of 1986 (Pub. L. 99-514)).
''(B) This paragraph shall apply to any property -
''(i) which is described in paragraph (4) or (12) of section
57(a) of the Internal Revenue Code of 1954 (as so in effect), and
''(ii) to which paragraph (1) or (5) of section 56(a) of the
Internal Revenue Code of 1986 would apply if the taxable year
referred to in subparagraph (A) began after December 31, 1986.''
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For applicability of amendment by section 701(a) of Pub. L.
99-514 (enacting this section) notwithstanding any treaty
obligation of the United States in effect on Oct. 22, 1986, with
provision that for such purposes any amendment by title I of Pub.
L. 100-647 be treated as if it had been included in the provision
of Pub. L. 99-514 to which such amendment relates, see section
1012(aa)(2), (4) of Pub. L. 100-647, set out as a note under
section 861 of this title.
References
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 1, 53, 55, 56, 58, 59,
148, 149, 772 of this title.
