Internal Revenue Code:Sec. 163. Interest
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TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
Statute
Sec. 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:
---------------------------------------------------------------------
In the case of taxable years The applicable percentage is:
beginning in:
---------------------------------------------------------------------
1987 35
1988 60
1989 80
1990 90.
-------------------------------
(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 (FOOTNOTE 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.
(FOOTNOTE 1) So in original. Probably should be followed by
''in''.
(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 taxpayer's 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 corporation's 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 corporation's 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 corporation's 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
partner's share of any interest paid or accrued to a
partnership, such partner's 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
person's 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 corporation's 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 corporation's distributive share of
interest paid or accrued by such partnership shall be
treated as interest paid or accrued by such corporation,
and
(C) such corporation's 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 partnership's 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.
References
REFERENCES
Pub. L. 108-357, Sec. 424. STUDY OF EARNINGS STRIPPING PROVISIONS.
In General.--The Secretary of the Treasury or the Secretary's
delegate shall conduct a study of the effectiveness of the provisions
of the Internal Revenue Code of 1986 applicable to earnings stripping,
including a study of--
(1) the effectiveness of section 163(j) of such Code in
preventing the shifting of income outside the United States,
(2) whether any deficiencies of such provisions place United
States-based businesses at a competitive disadvantage relative
to foreign-based businesses,
(3) the impact of earnings stripping activities on the
United States tax base,
(4) whether laws of foreign countries facilitate stripping
of earnings out of the United States, and
(5) whether changes to the earning stripping rules would
affect jobs in the United States.
Report.--Not later than June 30, 2005, the Secretary shall submit
to the Congress a report of the study conducted under this
section, including specific recommendations as to how to improve the
provisions of such Code applicable to earnings stripping.
Sources
(Aug. 16, 1954, ch. 736, 68A Stat. 46; Pub. L. 88-9, Sec. 1(a),
(c), Apr. 10, 1963, 77 Stat. 6, 7; Pub. L. 88-272, title II, Sec.
224(c), Feb. 26, 1964, 78 Stat. 79; Pub. L. 91-172, title II, Sec.
221(a), Dec. 30, 1969, 83 Stat. 574; Pub. L. 92-178, title III,
Sec. 304(a)(2), (b)(2), (d), Dec. 10, 1971, 85 Stat. 523, 524; Pub.
L. 94-455, title II, Sec. 205(c)(3), 209(a), title XIX, Sec.
1901(b)(3)(K), (8)(C), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1535,
1542, 1793, 1794, 1834; Pub. L. 97-248, title II, Sec. 231(b),
title III, Sec. 310(b)(2), Sept. 3, 1982, 96 Stat. 498, 596; Pub.
L. 97-354, Sec. 5(a)(18), Oct. 19, 1982, 96 Stat. 1693; Pub. L.
98-369, div. A, title I, Sec. 42(a)(3), 56(b), 127(f), 128(c),
title VI, Sec. 612(c), July 18, 1984, 98 Stat. 556, 574, 652, 654,
911; Pub. L. 99-514, title V, Sec. 511(a), (b), title IX, Sec.
902(e)(1), title XIII, Sec. 1301(j)(3), title XVIII, Sec.
1803(a)(4), 1810(e)(1), Oct. 22, 1986, 100 Stat. 2244, 2246, 2382,
2657, 2793, 2825; Pub. L. 100-203, title X, Sec. 10102(a), (b),
10212(b), Dec. 22, 1987, 101 Stat. 1330-384, 1330-386, 1330-406;
Pub. L. 100-647, title I, Sec. 1005(c)(1)-(9), (12), 1006(u)(1),
1009(b)(6), title II, Sec. 2004(b)(1), Nov. 10, 1988, 102 Stat.
3390-3392, 3427, 3449, 3598; Pub. L. 101-239, title VII, Sec.
7202(a), (b), 7210(a), Dec. 19, 1989, 103 Stat. 2330, 2331, 2339;
Pub. L. 101-508, title XI, Sec. 11701(b), (c), Nov. 5, 1990, 104
Stat. 1388-507; Pub. L. 103-66, title XIII, Sec. 13206(d)(1),
13228(a)-(c), Aug. 10, 1993, 107 Stat. 467, 494, 495; Pub. L.
104-188, title I, Sec. 1703(n)(4), 1704(f)(2)(A), (B), Aug. 20,
1996, 110 Stat. 1877, 1879; Pub. L. 105-34, title III, Sec.
312(d)(1), title V, Sec. 503(b)(2), title X, Sec. 1005(a), title
XVI, Sec. 1604(g)(1), Aug. 5, 1997, 111 Stat. 839, 853, 911, 1099;
Pub. L. 105-277, div. J, title IV, Sec. 4003(a)(1), Oct. 21, 1998,
112 Stat. 2681-908; Pub. L. 106-170, title V, Sec. 544, Dec. 17,
1999, 113 Stat. 1944.)
Miscellaneous
AMENDMENTS
2007 - P.L. 110-142
SEC. 3. EXTENSION OF TREATMENT OF MORTGAGE INSURANCE PREMIUMS AS
INTEREST.
(a) In General.--Subclause (I) of section 163(h)(3)(E)(iv) of the
Internal Revenue Code of 1986 (relating to termination) is amended by
striking ``December 31, 2007'' and inserting ``December 31, 2010''.
2006 - Tax Relief and Health Care Act of 2006 (P.L. 109-432)
SEC. 419. PREMIUMS FOR MORTGAGE INSURANCE.
(a) In <<NOTE: 26 USC 163.>> General.--Section 163(h)(3) (relating
to qualified residence interest) is amended by adding at the end the
following new subparagraph:
``(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 taxpayer's 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, 2007, or
``(II) properly allocable to any
period after such date.''.
(b) Definition and Special Rules.--Section 163(h)(4) (relating to
other definitions and special rules) is amended by adding at the end the
following new subparagraphs:
``(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.''.
(c) Information Returns Relating to Mortgage Insurance.--Section
6050H <<NOTE: 26 USC 6050H.>> (relating to returns relating to mortgage
interest received in trade or business from individuals) is amended by
adding at the end the following new subsection:
``(h) Returns Relating to Mortgage Insurance Premiums.--
``(1) In general.--The Secretary may prescribe, by
regulations, that any person who, in the course of a trade or
business, receives from any individual premiums for mortgage
insurance aggregating $600 or more for any calendar year, shall
make a return with respect to each such individual. Such return
shall be in such form, shall be made at such time, and shall
contain such information as the Secretary may prescribe.
``(2) Statement to be furnished to individuals with respect
to whom information is required.--Every person required to make
a return under paragraph (1) shall furnish to each individual
with respect to whom a return is made a written statement
showing such information as the Secretary may prescribe. Such
written statement shall be furnished on or before January 31 of
the year following the calendar year for which the return under
paragraph (1) was required to be made.
``(3) Special rules.--For purposes of this subsection--
``(A) rules similar to the rules of subsection (c)
shall apply, and
``(B) the term `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 subsection).''.
2006 - P.L. 109-222
SEC. 501. APPLICATION OF EARNINGS STRIPPING RULES TO PARTNERS WHICH ARE
CORPORATIONS.
(a) In General.--Section <<NOTE: 26 USC 163.>> 163(j) (relating to
limitation on deduction for interest on certain indebtedness) is amended
by redesignating paragraph (8) as paragraph (9) and by inserting after
paragraph (7) the following new paragraph:
``(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 corporation's 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 corporation's distributive share of
interest paid or accrued by such partnership shall be
treated as interest paid or accrued by such corporation,
and
``(C) such corporation's share of the liabilities of
such partnership shall be treated as liabilities of such
corporation.''.
(b) Additional Regulatory Authority.--Section 163(j)(9) (relating to
regulations), as redesignated by subsection (a), is amended by striking
``and'' at the end of subparagraph (B), by striking the period at the
end of subparagraph (C) and inserting ``, and'', and by adding at the
end the following new subparagraph:
``(D) regulations providing for the reallocation of
shares of partnership indebtedness, or distributive
shares of the partnership's interest income or interest
expense.''.
(c) Effective Date.--The <<NOTE: 26 USC 163 note.>> amendments made
by this section shall apply to taxable years beginning on or after the
date of the enactment of this Act.
2004 - Subsec.845,Pub.L.108-357, amended Sec.163(l) as
follows:
(a) In General.--Paragraph (2) of section 163(l) is amended by
inserting ``or equity held by the issuer (or any related party) in
any other person'' after ``or a related party''.
(b) Capitalization Allowed With Respect to Equity of Persons Other
Than Issuer and Related Parties.--Section 163(l) is amended by
redesignating paragraphs (4) and (5) as paragraphs (5) and (6) and
by inserting after paragraph (3) the following new paragraph:
"(4) Capitalization allowed with respect to equity of
persons other than issuer and related parties.--".
(c) Exception for Certain Instruments Issued by Dealers in
Securities.--Section 163(l), as amended by subsection (b), is
amended by redesignating paragraphs (5) and (6) as paragraphs (6)
and (7) and by inserting after paragraph (4) the following new
paragraph:
"(5) Exception for certain instruments issued by dealers
in securities.--".
(d) Conforming Amendment.--Paragraph (3) of section 163(l) is
amended by striking ``or a related party'' in the material
preceding subparagraph (A) and inserting ``or any other person''.
2004 - Subsec.841(a),Pub.L.108-357, amended Sec.163(e)(3)
by redesignating subparagraph (B) as subparagraph (C)
and by inserting after subparagraph (A) the following new
subparagraph:
"(B) Special rule for certain foreign entities.--".
2004 - Subsec.838(a),Pub.L.108-357, amended Sec.163 by
redesignating subsection (m) as subsection (n) and by
inserting after subsection (l) the following new subsection:
``(m) Interest on Unpaid Taxes Attributable to Nondisclosed
Reportable Transactions.
2003 - Subsec.302(b), Pub. L. 108-27, amends Sec.163(d)
(4)(B)by adding a new sentence at the end.
1999 - Subsec. (j)(3)(C). Pub. L. 106-170 added subpar. (C).
1998 - Subsec. (h)(2)(F). Pub. L. 105-277 added subpar. (F).
1997 - Subsec. (h)(2)(E). Pub. L. 105-34, Sec. 503(b)(2)(B),
struck out ''or 6166 or under section 6166A (as in effect before
its repeal by the Economic Recovery Tax Act of 1981)'' after
''section 6163''.
Subsec. (h)(4)(A)(i)(I). Pub. L. 105-34, Sec. 312(d)(1),
substituted ''section 121'' for ''section 1034''.
Subsec. (j)(2)(B)(iii). Pub. L. 105-34, Sec. 1604(g)(1),
substituted ''clause (ii)'' for ''clause (i)'' in introductory
provisions.
Subsec. (k). Pub. L. 105-34, Sec. 503(b)(2)(A), added subsec.
(k). Former subsec. (k) redesignated (l).
Subsec. (l). Pub. L. 105-34, Sec. 1005(a), added subsec. (l).
Former subsec. (l) redesignated (m).
Pub. L. 105-34, Sec. 503(b)(2)(A), redesignated subsec. (k) as
(l).
Subsec. (m). Pub. L. 105-34, Sec. 1005(a), redesignated subsec.
(l) as (m).
1996 - Subsec. (j)(1)(B). Pub. L. 104-188, Sec. 1704(f)(2)(A),
inserted before period at end ''(and clause (ii) of paragraph
(2)(A) shall not apply for purposes of applying this subsection to
the amount so treated)''.
Subsec. (j)(6)(E)(ii). Pub. L. 104-188, Sec. 1703(n)(4), which
directed that cl. (ii) be amended by substituting ''which is'' for
''which is a'', could not be executed, because ''which is a'' does
not appear.
Subsec. (j)(7), (8). Pub. L. 104-188, Sec. 1704(f)(2)(B), added
par. (7) and redesignated former par. (7) as (8).
1993 - Subsec. (d)(4)(B). Pub. L. 103-66, Sec. 13206(d)(1),
amended heading and text of subpar. (B) generally. Prior to
amendment, text read as follows: ''The term 'investment income'
means the sum of -
''(i) gross income (other than gain taken into account under
clause (ii)) from property held for investment, and
''(ii) any net gain attributable to the disposition of property
held for investment.''
Subsec. (j). Pub. L. 103-66, Sec. 13228(c)(2), substituted ''for
interest on certain indebtedness'' for ''for certain interest paid
by corporation to related person'' in heading.
Subsec. (j)(3). Pub. L. 103-66, Sec. 13228(a), amended heading
and text of par. (3) generally. Prior to amendment, text read as
follows: ''For purposes of this subsection -
''(A) In general. - Except as provided in subparagraph (B), the
term 'disqualified interest' means 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) Exception for certain existing indebtedness. - The term
'disqualified interest' does not include any interest paid or
accrued under indebtedness with a fixed term -
''(i) which was issued on or before July 10, 1989, or
''(ii) which was issued after such date pursuant to a written
binding contract in effect on such date and all times
thereafter before such indebtedness was issued.''
Subsec. (j)(5)(B). Pub. L. 103-66, Sec. 13228(c)(1), struck out
''to a related person'' after ''by the taxpayer'' in introductory
provisions.
Subsec. (j)(6)(D), (E). Pub. L. 103-66, Sec. 13228(b), added
subpars. (D) and (E).
1990 - Subsec. (e)(5)(A). Pub. L. 101-508, Sec. 11701(b)(1),
amended last sentence generally. Prior to amendment, last sentence
read as follows: ''For purposes of clause (ii), rules similar to
the rules of subsection (i)(3)(B) shall apply in determining the
time when the original issue discount is paid.''
Subsec. (i)(3). Pub. L. 101-508, Sec. 11701(b)(2)(B), inserted
sentence at end.
Subsec. (i)(3)(B). Pub. L. 101-508, Sec. 11701(b)(2)(A), struck
out ''(or stock)'' after ''obligation'' wherever appearing.
Subsec. (j)(2)(A)(ii). Pub. L. 101-508, Sec. 11701(c)(2),
substituted ''or on any other day'' for ''and on such other days''.
Subsec. (j)(2)(C). Pub. L. 101-508, Sec. 11701(c)(1), substituted
''reduced (but not below zero) by such'' for ''less such'' in
introductory provisions.
1989 - Subsec. (e)(5), (6). Pub. L. 101-239, Sec. 7202(a), added
par. (5) and redesignated former par. (5) as (6).
Subsec. (i). Pub. L. 101-239, Sec. 7202(b), added subsec. (i).
Former subsec. (i) redesignated (j).
Subsec. (j). Pub. L. 101-239, Sec. 7210(a), added subsec. (j).
Former subsec. (j) redesignated (k).
Pub. L. 101-239, Sec. 7202(b), redesignated subsec. (i) as (j).
Subsec. (k). Pub. L. 101-239, Sec. 7210(a), redesignated subsec.
(j) as (k).
1988 - Subsec. (d)(3)(A). Pub. L. 100-647, Sec. 1005(c)(1),
substituted ''properly allocable to'' for ''incurred or continued
to purchase or carry''.
Subsec. (d)(4)(B). Pub. L. 100-647, Sec. 1005(c)(2), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: ''The term 'investment income' means the sum of -
''(i) gross income (other than gain described in clause (ii))
from property held for investment, and
''(ii) any net gain attributable to the disposition of property
held for investment,
but only to the extent such amounts are not derived from the
conduct of a trade or business.''
Subsec. (d)(6)(A). Pub. L. 100-647, Sec. 1005(c)(3), amended
subpar. (A) generally. Prior to amendment, subpar. (A) read as
follows: ''The amount of interest disallowed under this subsection
for any such taxable year shall be equal to the sum of -
''(i) the applicable percentage of the amount which (without
regard to this paragraph) is not allowed as a deduction under
this subsection for the taxable year to the extent such amount
does not exceed the ceiling amount,
''(ii) the amount which (without regard to this paragraph) is
not allowed as a deduction under this subsection in excess of the
ceiling amount, plus
''(iii) the amount of any carryforward to such taxable year
under paragraph (2) with respect to which a deduction was
disallowed under this subsection for a preceding taxable year.
For purposes of this subparagraph, the amount under clause (i) or
(ii) shall be computed without regard to the amount described in
clause (iii).''
Subsec. (e)(2)(B). Pub. L. 100-647, Sec. 1006(u)(1), substituted
''paragraph (7)'' for ''paragraph (6)''.
Subsec. (h)(2)(A). Pub. L. 100-647, Sec. 1005(c)(4), substituted
''properly allocable to'' for ''incurred or continued in connection
with the conduct of''.
Subsec. (h)(2)(E). Pub. L. 100-647, Sec. 1005(c)(12), inserted
''or under section 6166A (as in effect before its repeal by the
Economic Recovery Tax Act of 1981)'' before period at end.
Subsec. (h)(3)(C). Pub. L. 100-647, Sec. 1005(c)(5), effective as
if enacted immediately before enactment of Pub. L. 100-203 (see
1987 Amendment note below), amended subpar. (C) generally. Prior
to amendment, subpar. (C) read as follows: ''The amount under
subparagraph (B)(ii)(I) at any time after August 16, 1986, shall
not be less than the outstanding aggregate principal amount (as of
such time) of indebtedness which was incurred on or before August
16, 1986, and which was secured by the qualified residence on
August 16, 1986.''
Subsec. (h)(4). Pub. L. 100-647, Sec. 1005(c)(6)(A), effective as
if enacted immediately before enactment of Pub. L. 100-203
(redesignating par. (5) as (4), see 1987 Amendment note below),
amended heading by substituting ''Other definitions and special
rules - For purposes of this subsection - '' for ''Other
definitions and special rules''.
Subsec. (h)(4)(A). Pub. L. 100-647, Sec. 1005(c)(6)(B)(i), (7),
effective as if enacted immediately before enactment of Pub. L.
100-203 (redesignating par. (5) as (4), see 1987 Amendment note
below), amended subpar. (A) by striking out ''For purposes of this
subsection - '' after ''Qualified residence'' in introductory
provisions, ''used or'' after ''Residence not'' in cl. (iii)
heading, and ''or use'' after ''does not rent'' in cl. (iii) text.
Subsec. (h)(4)(B). Pub. L. 100-647, Sec. 1005(c)(6)(B)(ii),
effective as if enacted immediately before enactment of Pub. L.
100-203 (redesignating par. (5) as (4), see 1987 Amendment note
below), amended subpar. (B) by substituting ''Any'' for ''For
purposes of this paragraph, any''.
Subsec. (h)(4)(C), (D). Pub. L. 100-647, Sec. 1005(c)(8),
effective as if enacted immediately before enactment of Pub. L.
100-203 (redesignating par. (5) as (4), see 1987 Amendment note
below), par. (4) added subpars. (C) and (D).
Subsec. (h)(5). Pub. L. 100-647, Sec. 2004(b)(1), redesignated
par. (6) as (5).
Subsec. (h)(6). Pub. L. 100-647, Sec. 2004(b)(1), redesignated
par. (6) as (5).
Pub. L. 100-647, Sec. 1005(c)(9), substituted ''but for this
paragraph'' for ''but for this subsection''.
Subsec. (i)(2). Pub. L. 100-647, Sec. 1009(b)(6), made technical
correction to directory language of Pub. L. 99-514, Sec. 902(e)(1),
see 1986 Amendment note below.
1987 - Subsec. (d)(4)(E). Pub. L. 100-203, Sec. 10212(b),
substituted ''section 469(m)'' for ''section 469(l)''.
Subsec. (h)(3). Pub. L. 100-203, Sec. 10102(a), amended par. (3)
generally. Prior to amendment (see 1988 Amendment note above),
par. (3) read as follows: ''For purposes of this subsection -
''(A) In general. - The term 'qualified residence interest'
means interest which is paid or accrued during the taxable year
on indebtedness which is secured by any property which (at the
time such interest is paid or accrued) is a qualified residence
of the taxpayer.
''(B) Limitation on amount of interest. - The term 'qualified
residence interest' shall not include any interest paid or
accrued on indebtedness secured by any qualified residence which
is allocable to that portion of the principal amount of such
indebtedness which, when added to the outstanding aggregate
principal amount of all other indebtedness previously incurred
and secured by such qualified residence, exceeds the lesser of -
''(i) the fair market value of such qualified residence, or
''(ii) the sum of -
''(I) the taxpayer's basis in such qualified residence
(adjusted only by the cost of any improvements to such
residence), plus
''(II) the aggregate amount of qualified indebtedness of
the taxpayer with respect to such qualified residence.
''(C) Cost not less than balance of indebtedness incurred on or
before august 16, 1986. -
''(i) In general. - The amount under subparagraph (B)(ii)(I)
at any time after August 16, 1986, shall not be less than the
outstanding principal amount (as of such time) of indebtedness
-
''(I) which was incurred on or before August 16, 1986, and
which was secured by the qualified residence on August 16,
1986, or
''(II) which is secured by the qualified residence and was
incurred after August 16, 1986, 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).
''(ii) Limitation on period of refinancing. - Subclause (II)
of clause (i) shall not apply to any indebtedness after -
''(I) the expiration of the term of the indebtedness
described in clause (i)(I), or
''(II) if the principal of the indebtedness described in
clause (i)(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
refinancing).
''(D) Time for determination. - Except as provided in
regulations, any determination under subparagraph (B) shall be
made as of the time the indebtedness is incurred.''
Subsec. (h)(4), (5). Pub. L. 100-203, Sec. 10102(b), redesignated
par. (5) as (4) and struck out former par. (4) which defined
''qualified indebtedness'' for purposes of this subsection.
1986 - Subsec. (d). Pub. L. 99-514, Sec. 511(a), substituted
''Limitation on investment interest'' for ''Limitation on interest
on investment indebtedness'' in heading, and amended text
generally, revising and restating as pars. (1) to (6) provisions of
former pars. (1) to (7).
Subsec. (e)(2)(C). Pub. L. 99-514, Sec. 1803(a)(4), added subpar.
(C).
Subsec. (e)(3)(A). Pub. L. 99-514, Sec. 1810(e)(1)(A), inserted
''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.''
Subsec. (e)(5). Pub. L. 99-514, Sec. 1810(e)(1)(B), redesignated
par. (4), relating to cross references, as (5).
Subsec. (f)(3). Pub. L. 99-514, Sec. 1301(j)(3), substituted
''section 149(a)(3)'' for ''section 103(j)(3)''.
Subsec. (h). Pub. L. 99-514, Sec. 511(b), added subsec. (h).
Former subsec. (h) redesignated (i).
Subsec. (i)(2). Pub. L. 99-514, Sec. 902(e)(1), as amended by
Pub. L. 100-647, Sec. 1009(b)(6), substituted ''section 265(a)(2)''
for ''section 265(2)''.
Pub. L. 99-514, Sec. 511(b), redesignated former subsec. (h) as
(i).
1984 - Subsec. (d)(3)(D). Pub. L. 98-369, Sec. 56(b), designated
existing provisions as cl. (i) and added cl. (ii).
Subsec. (e)(1). Pub. L. 98-369, Sec. 42(a)(3), substituted ''debt
instrument'' for ''bond'' in two places and struck out ''by an
issuer (other than a natural person)'' before '', the portion of
the original issue''.
Subsec. (e)(2). Pub. L. 98-369, Sec. 42(a)(3), substituted
provisions relating to debt instruments for provisions relating to
bonds.
Subsec. (e)(3). Pub. L. 98-369, Sec. 128(c), added par. (3)
relating to special rule for original issue discount on obligation
held by related foreign person. Former par. (3), relating to
exceptions, redesignated (4).
Pub. L. 98-369, Sec. 42(a)(3), added par. (3) relating to
exceptions.
Subsec. (e)(4). Pub. L. 98-369, Sec. 128(c), redesignated par.
(3), relating to exceptions, as (4).
Pub. L. 98-369, Sec. 42(a)(3), added par. (4) relating to cross
references.
Subsec. (f)(2)(C)(i). Pub. L. 98-369, Sec. 127(f), redesignated
existing provision as subcl. (I), and in subcl. (I) as so
redesignated, inserted reference to subpar. (A) and substituted
''or'' for ''and'', and added subcl. (II).
Subsecs. (g), (h). Pub. L. 98-369, Sec. 612(c), added subsec. (g)
and redesignated former subsec. (g) as (h).
1982 - Subsec. (d)(4). Pub. L. 97-354 redesignated subpar. (D) as
(B). Former subpars. (B) and (C), relating to partnerships and
shareholders of electing small business corporations, respectively,
were struck out.
Subsec. (e). Pub. L. 97-248, Sec. 231(b), added subsec. (e)
relating to original issue discount. Former subsec. (e), setting
forth cross references, redesignated (f).
Pub. L. 97-248, Sec. 231(b), redesignated former subsec. (e),
setting forth cross references, as (f).
Subsec. (f). Pub. L. 97-248, Sec. 310(b)(2), added subsec. (f)
relating to the requirement that obligations be in registered form
to be tax-exempt. Former subsec. (f), setting forth cross
references, redesignated (g).
Subsec. (g). Pub. L. 97-248, Sec. 310(b)(2), redesignated former
subsec. (f), setting forth cross references, as (g).
1976 - Subsec. (b)(1). Pub. L. 94-455, Sec. 1901(b)(8)(C),
substituted ''organization described in section 170(b)(1)(A)(ii)
and which is provided for a student of such organization'' for
''institution (as defined in section 151(e)(4)) and which is
provided for a student of such institution''.
Subsec. (d)(1). Pub. L. 94-455, Sec. 209(a)(1), among other
changes, substituted in subpar. (A) ''$10,000'' for ''$25,000'' and
''$5,000'' for ''$12,500'', struck out subpar. (C) relating to the
excess of net long-term capital gain over short-term capital loss
and subpar. (D) relating to the excess of investment interest over
amounts in subpar. (A), and in provisions following lettered
paragraphs substituted ''$10,000'' for ''$25,000'' and struck out
provisions relating to the determination of the amount referred to
in subpar. (C).
Subsec. (d)(2). Pub. L. 94-455, Sec. 209(a)(1), among other
changes, struck out provisions relating to the limitation on the
amount of interest allowable by this par. and to reduction of
disallowed investment interest for capital gain deduction purposes.
Subsec. (d)(3)(A). Pub. L. 94-455, Sec. 209(a)(2), inserted
provision relating to determination of the amount of net investment
income where taxpayer has investment interest for taxable year to
which this subsection applies.
Subsec. (d)(3)(B)(iii). Pub. L. 94-455, Sec. 205(c)(3),
1901(b)(3)(K), substituted ''1250, and 1254'' for ''and 1250'', and
''ordinary income'' for ''gain from the sale or exchange of
property which is neither a capital asset nor property described in
section 1231''. Section 205(c)(3) of Pub. L. 94-455, which directed
the amendment of subsec. (d)(3)(A)(iii), was executed by amending
subsec. (d)(3)(B)(iii) to reflect the probable intent of Congress.
Subsec. (d)(3)(E). Pub. L. 94-455, Sec. 209(a)(3), substituted
''limitation in paragraph (1)'' for ''limitations in paragraphs (1)
and (2)(A)''.
Subsec. (d)(4)(B), (C). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out ''or his delegate'' after ''Secretary''.
Subsec. (d)(5). Pub. L. 94-455, Sec. 209(a)(4), (5), redesignated
par. (6) as (5) and inserted provision relating to the application
of this paragraph after Dec. 31, 1975, on an allocation basis
rather than a specific item basis. Former par. (5), relating to
capital gains treatment of investment interest, was struck out.
Pub. L. 94-455, Sec. 1901(b)(3)(K), directed the amendment of
par. (5) by substituting ''ordinary income'' for ''gain from the
sale or exchange of property which is neither a capital asset nor
property described in section 1231'', such par. (5) having been
struck out by Pub. L. 94-455, Sec. 209(a)(4).
Subsec. (d)(6). Pub. L. 94-455, Sec. 209(a)(4), 1906(b)(13)(A),
redesignated par. (7) as (6) and struck out in provision following
subpar. (B) ''or his delegate'' after ''Secretary''. Former par.
(6) redesignated (5).
Subsec. (d)(7). Pub. L. 94-455, Sec. 209(a)(6), added par. (7).
Former par. (7) redesignated (6).
1971 - Subsec. (d)(1)(B). Pub. L. 92-178, Sec. 304(b)(2),
inserted ''the amount (if any) by which the deductions allowable
under this section (determined without regard to this subsection)
and sections 162, 164(a)(1) or (2), or 212 attributable to property
of the taxpayer subject to a net lease exceeds the rental income
produced by such property for the property year, plus'' after
''plus''.
Subsec. (d)(3)(C). Pub. L. 92-178, Sec. 304(d), inserted
reference to section 162.
Subsec. (d)(4)(A)(i). Pub. L. 92-178, Sec. 304(a)(2)(A), inserted
''of the lessor'' after ''deductions'' and ''(other than rents and
reimbursed amounts with respect to such property)'' after ''section
162''.
Subsec. (d)(7). Pub. L. 92-178, Sec. 304(a)(2)(B), added par.
(7).
1969 - Subsecs. (d), (e). Pub. L. 91-172 added subsec. (d).
Former subsec. (d) redesignated (e).
1964 - Subsec. (b)(1). Pub. L. 88-272 included the purchase of
educational services, and defined ''educational services''.
1963 - Subsecs. (c), (d). Pub. L. 88-9, Sec. 1(a), (c), added
subsec. (c), redesignated former subsec. (c) as (d) and added par.
(5).
EFFECTIVE DATE OF 2007 AMENDMENT
2007 - P.L. 110-142
SEC. 3. EXTENSION OF TREATMENT OF MORTGAGE INSURANCE PREMIUMS AS
INTEREST.
(b) Effective Date.--The <<NOTE: 26 USC 163 note.>> amendment made
by this section shall apply to amounts paid or accrued after December
31, 2007.
EFFECTIVE DATE OF 2006 AMENDMENT
2006 - Tax Relief and Health Care Act of 2006 (P.L. 109-432)
SEC. 419(d) Effective Date.--The <<NOTE: 26 USC 163 note.>> amendments made
by this section shall apply to amounts paid or accrued after December
31, 2006.
EFFECTIVE DATE OF 2006 AMENDMENT
2006 - P.L. 109-222
SEC. 501. APPLICATION OF EARNINGS STRIPPING RULES TO PARTNERS WHICH ARE
CORPORATIONS.
(c) Effective Date.--The <<NOTE: 26 USC 163 note.>> amendments made
by this section shall apply to taxable years beginning on or after the
date of the enactment of this Act.
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub.L.108-357, Sec.845, amended Sec.163(l);
Effective Date.--The amendments made by this section shall apply
to debt instruments issued after October 3, 2004.
Amendment by Pub.L.108-357, Sec.841, amended Sec.163(e)(3);
Effective Date.--The amendments made by this section shall apply to
payments accrued on or after the date of the enactment of this Act.
Amendment by Pub.L.108-357, Sec.838, amended Sec.163;
Effective Date.--The amendments made by this section shall apply
to transactions in taxable years beginning after the date of the
enactment of this Act.
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-170 applicable to taxable years
beginning after Dec. 31, 2000, see section 546(a) of Pub. L.
106-170, set out as a note under section 856 of this title.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-277 effective as if included in the
provision of the Taxpayer Relief Act of 1997, Pub. L. 105-34, to
which such amendment relates, see section 4003(l) of Pub. L.
105-277, set out as a note under section 86 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by section 312(d)(1) of Pub. L. 105-34 applicable to
sales and exchanges after May 6, 1997, with certain exceptions, see
section 312(d) of Pub. L. 105-34, set out as a note under section
121 of this title.
Section 503(d) of Pub. L. 105-34 provided that:
''(1) In general. - The amendments made by this section (amending
this section and sections 2053, 6166, and 6601 of this title) shall
apply to estates of decedents dying after December 31, 1997.
''(2) Election. - In the case of the estate of any decedent dying
before January 1, 1998, with respect to which there is an election
under section 6166 of the Internal Revenue Code of 1986, the
executor of the estate may elect to have the amendments made by
this section apply with respect to installments due after the
effective date of the election; except that the 2-percent portion
of such installments shall be equal to the amount which would be
the 4-percent portion of such installments without regard to such
election. Such an election shall be made before January 1, 1999 in
the manner prescribed by the Secretary of the Treasury and, once
made, is irrevocable.''
Section 1005(b) of Pub. L. 105-34 provided that:
''(1) In general. - The amendment made by this section (amending
this section) shall apply to disqualified debt instruments issued
after June 8, 1997.
''(2) Transition rule. - The amendment made by this section shall
not apply to any instrument issued after June 8, 1997, if such
instrument is -
''(A) issued pursuant to a written agreement which was binding
on such date and at all times thereafter,
''(B) described in a ruling request submitted to the Internal
Revenue Service on or before such date, or
''(C) described on or before such date in a public announcement
or in a filing with the Securities and Exchange Commission
required solely by reason of the issuance.''
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1703(n)(4) of Pub. L. 104-188 effective as
if included in the provision of the Revenue Reconciliation Act of
1993, Pub. L. 103-66, Sec. 13001-13444, to which such amendment
relates, see section 1703(o) of Pub. L. 104-188, set out as a note
under section 39 of this title.
Section 1704(f)(2)(C) of Pub. L. 104-188 provided that: ''The
amendments made by this paragraph (amending this section) shall
apply as if included in the amendments made by section 7210(a) of
the Revenue Reconciliation Act of 1989 (Pub. L. 101-239).''
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by section 13206(d)(1) of Pub. L. 103-66 applicable to
taxable years beginning after Dec. 31, 1992, see section
13206(d)(3) of Pub. L. 103-66 set out as a note under section 1 of
this title.
Section 13228(d) of Pub. L. 103-66 provided that: ''The
amendments made by this section (amending this section) shall apply
to interest paid or accrued in taxable years beginning after
December 31, 1993.''
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub. L. 101-508 effective, except as otherwise
provided, as if included in the provision of the Revenue
Reconciliation Act of 1989, Pub. L. 101-239, title VII, to which
such amendment relates, see section 11701(n) of Pub. L. 101-508,
set out as a note under section 42 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Section 7202(c) of Pub. L. 101-239 provided that:
''(1) In general. - Except as provided in paragraph (2), the
amendments made by this section (amending this section) shall apply
to instruments issued after July 10, 1989.
''(2) Exceptions. -
''(A) The amendments made by this section shall not apply to
any instrument if -
''(i) such instrument is issued in connection with an
acquisition -
''(I) which is made on or before July 10, 1989,
''(II) for which there was a written binding contract in
effect on July 10, 1989, and at all times thereafter before
such acquisition, or
''(III) for which a tender offer was filed with the
Securities and Exchange Commission on or before July 10,
1989,
''(ii) the term of such instrument is not greater than -
''(I) the term specified in the written documents described
in clause (iii), or
''(II) if no term is determined under subclause (I), 10
years, and
''(iii) the use of such instrument in connection with such
acquisition (and the maximum amount of proceeds from such
instrument) was determined on or before July 10, 1989, and such
determination is evidenced by written documents -
''(I) which were transmitted on or before July 10, 1989,
between the issuer and any governmental regulatory bodies or
prospective parties to the issuance or acquisition, and
''(II) which are customarily used for the type of
acquisition or financing involved.
''(B) The amendments made by this section shall not apply to
any instrument issued pursuant to the terms of a debt instrument
issued on or before July 10, 1989, or described in subparagraph
(A) or (D).
''(C) The amendments made by this section shall not apply to
any instrument issued to refinance an original issue discount
debt instrument to which the amendments made by this section do
not apply if -
''(i) the maturity date of the refinancing instrument is not
later than the maturity date of the refinanced instrument,
''(ii) the issue price of the refinancing instrument does not
exceed the adjusted issue price of the refinanced instrument,
''(iii) the stated redemption price at maturity of the
refinancing instrument is not greater than the stated
redemption price at maturity of the refinanced instrument, and
''(iv) the interest payments required under the refinancing
instrument before maturity are not less than (and are paid not
later than) the interest payments required under the refinanced
instrument.
''(D) The amendments made by this section shall not apply to
instruments issued after July 10, 1989, pursuant to a
reorganization plan in a title 11 or similar case (as defined in
section 368(a)(3) of the Internal Revenue Code of 1986) if the
amount of proceeds of such instruments, and the maturities of
such instruments, do not exceed the amount or maturities
specified in the last reorganization plan filed in such case on
or before July 10, 1989.''
Section 7210(b) of Pub. L. 101-239 provided that:
''(1) In general. - The amendment made by this section (amending
this section) shall apply to interest paid or accrued in taxable
years beginning after July 10, 1989.
''(2) Special rule for demand loans, etc. - In the case of any
demand loan (or other loan without a fixed term) which was
outstanding on July 10, 1989, interest on such loan to the extent
attributable to periods before September 1, 1989, shall not be
treated as disqualified interest for purposes of section 163(j) of
the Internal Revenue Code of 1986 (as added by subsection (a)).''
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1005(c)(13) of Pub. L. 100-647 provided that: ''For
purposes of applying the amendments made by this subsection
(amending this section and sections 467, 1255, and 7872 of this
title) and the amendments made by section 10102 of the Revenue Act
of 1987 (section 10102 of Pub. L. 100-203, amending this section),
the provisions of this subsection shall be treated as having been
enacted immediately before the enactment of the Revenue Act of
1987.''
Amendment by sections 1006(u)(1) and 1009(b)(6) of Pub. L.
100-647 effective, except as otherwise provided, as if included in
the provision of the Tax Reform Act of 1986, Pub. L. 99-514, to
which such amendment relates, see section 1019(a) of Pub. L.
100-647, set out as a note under section 1 of this title.
Amendment by section 2004(b)(1) of Pub. L. 100-647 effective,
except as otherwise provided, as if included in the provisions of
the Revenue Act of 1987, Pub. L. 100-203, title X, to which such
amendment relates, see section 2004(u) of Pub. L. 100-647, set out
as a note under section 56 of this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Section 10102(c) of Pub. L. 100-203 provided that: ''The
amendments made by this section (amending this section) shall apply
to taxable years beginning after December 31, 1987.''
Amendment by section 10212(b) of Pub. L. 100-203 effective as if
included in the amendments made by section 501 of the Tax Reform
Act of 1986, Pub. L. 99-514, see section 10212(c) of Pub. L.
100-203, set out as a note under section 58 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 511(e) of Pub. L. 99-514 provided that: ''The amendments
made by this section (amending this section and sections 467, 703,
1255, 1363, and 7872 of this title) shall apply to taxable years
beginning after December 31, 1986.''
Amendment by section 902(e)(1) of Pub. L. 99-514 applicable to
taxable years ending after Dec. 31, 1986, with certain exceptions
and qualifications, see section 902(f) of Pub. L. 99-514, set out
as a note under section 265 of this title.
Amendment by section 1301(j)(3) of Pub. L. 99-514 applicable to
bonds issued after Aug. 15, 1986, except as otherwise provided, see
sections 1311 to 1318 of Pub. L. 99-514, set out as an Effective
Date; Transitional Rules note under section 141 of this title.
Amendment by sections 1803(a)(4) and 1810(e)(1) of Pub. L. 99-514
effective, except as otherwise provided, as if included in the
provisions of the Tax Reform Act of 1984, Pub. L. 98-369, div. A,
to which such amendment relates, see section 1881 of Pub. L.
99-514, set out as a note under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 42(a)(3) of Pub. L. 98-369 applicable to
taxable years ending after July 18, 1984, see section 44 of Pub. L.
98-369, set out as an Effective Date note under section 1271 of
this title.
Section 56(d) of Pub. L. 98-369 provided that: ''The amendments
made by this section (amending this section and sections 263 and
265 of this title) shall apply to short sales after the date of
enactment of this Act (July 18, 1984) in taxable years ending after
such date.''
Amendment by section 127(f) of Pub. L. 98-369 applicable to
interest received after July 18, 1984, with respect to obligations
issued after such date, in taxable years ending after such date,
see section 127(g)(1) of Pub. L. 98-369, set out as a note under
section 871 of this title.
Amendment by section 128(c) of Pub. L. 98-369 applicable to
obligations issued after June 9, 1984, see section 128(d)(2) of
Pub. L. 98-369, set out as a note under section 871 of this title.
Amendment by section 612(c) of Pub. L. 98-369 applicable to
interest paid or accrued after Dec. 31, 1984, on indebtedness
incurred after Dec. 31, 1984, see section 612(g) of Pub. L. 98-369,
set out as an Effective Date note under section 25 of this title.
EFFECTIVE DATE OF 1982 AMENDMENTS
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.
Amendment by Pub. L. 97-248 applicable to obligations issued
after Dec. 31, 1982, with exceptions for certain warrants, see
section 310(d) of Pub. L. 97-248, set out as a note under section
103 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 205(c)(3) of Pub. L. 94-455 applicable with
respect to taxable years ending after Dec. 31, 1975, see section
205(e) of Pub. L. 94-455, set out as an Effective Date note under
section 1254 of this title.
Section 209(b) of Pub. L. 94-455, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
''(1) In general. - Except as provided in paragraph (2), the
amendments made by subsection (a) (amending this section) shall
apply to taxable years beginning after December 31, 1975.
''(2) Indebtedness incurred before september 11, 1975. - In the
case of indebtedness attributable to a specific item of property
which -
''(A) is for a specified term, and
''(B) was incurred before September 11, 1975, or is incurred
after September 10, 1975, pursuant to a written contract or
commitment which on September 11, 1975, and at all times
thereafter before the incurring of such indebtedness, is binding
on the taxpayer,
the amendments made by this section shall not apply, but section
163(d) of the Internal Revenue Code of 1986 (formerly I.R.C. 1954)
(as in effect before the enactment of this Act (Oct. 4, 1976))
shall apply. For purposes of the preceding sentence, so much of
the net investment income (as defined in section 163(d)(3)(A) of
such Code) for any taxable year as is not taken into account under
section 163(d) of such Code, as amended by this Act, by reason of
the last sentence of section 163(d)(3)(A) of such Code, shall be
taken into account for purposes of applying such section as in
effect before the date of enactment of this Act (Oct. 4, 1976) with
respect to interest on indebtedness referred to in the preceding
sentence.''
Amendment by section 1901(b)(8)(C), (3)(K) of Pub. L. 94-455
applicable with respect to taxable years beginning after Dec. 31,
1976, see section 1901(d) of Pub. L. 94-455, set out as a note
under section 2 of this title.
EFFECTIVE DATE OF 1971 AMENDMENT
Section 304(e) of Pub. L. 92-178 provided that: ''The amendments
made by this section to section 57 of the Internal Revenue Code of
1954 shall apply to taxable years beginning after December 31,
1969. The amendments made by this section to section 163 of such
Code shall apply to taxable years beginning after December 31,
1971.''
EFFECTIVE DATE OF 1969 AMENDMENT
Section 221(b) of Pub. L. 91-172 provided that: ''The amendments
made by this section (amending this section) shall apply to taxable
years beginning after December 31, 1971.''
EFFECTIVE DATE OF 1964 AMENDMENT
Section 224(d) of Pub. L. 88-272 provided that: ''The amendments
made by subsections (a) (enacting section 483 of this title) and
(b) (amending the analysis preceding section 481 of this title)
shall apply to payments made after December 31, 1963, on account of
sales or exchanges of property occurring after June 30, 1963, other
than any sale or exchange made pursuant to a binding written
contract (including an irrevocable written option) entered into
before July 1, 1963. The amendments made by subsection (c)
(amending this section) shall apply to payments made during taxable
years beginning after December 31, 1963.''
EFFECTIVE DATE OF 1963 AMENDMENT
Subsec. (c) effective as of Jan. 1, 1962, and applicable with
respect to taxable years ending on or after such date, see section
2 of Pub. L. 88-9, set out as an Effective Date note under section
1055 of this title.
APPLICATION OF SUBSECTION (H) TO TAXABLE YEARS BEGINNING IN 1987
Section 1005(c)(14) of Pub. L. 100-647 provided that:
''(A) For purposes of applying section 163(h) of the 1986 Code to
any taxable year beginning during 1987, if, incident to a divorce
or legal separation -
''(i) an individual acquires the interest of a spouse or former
spouse in a qualified residence in a transfer to which section
1041 of the 1986 Code applies, and
''(ii) such individual incurs indebtedness which is secured by
such qualified residence,
the amount determined under paragraph (3)(B)(ii)(I) of section
163(h) of the 1986 Code (as in effect before the amendments made by
the Revenue Act of 1987 (Pub. L. 100-203, title X)) with respect to
such qualified residence shall be increased by the amount
determined under subparagraph (B).
''(B) The amount determined under this subparagraph shall be
equal to the excess (if any) of -
''(i) the lesser of the amount of the indebtedness described in
subparagraph (A)(ii), or the fair market value of the spouse's or
former spouse's interest in the qualified residence as of the
time of the transfer, over
''(ii) the basis of the spouse or former spouse in such
interest in such residence (adjusted only by the cost of any
improvements to such residence).''
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI (Sec. 1101-1147 and 1171-1177) or title
XVIII (Sec. 1800-1899A) of Pub. L. 99-514 require an amendment to
any plan, such plan amendment shall not be required to be made
before the first plan year beginning on or after Jan. 1, 1989, see
section 1140 of Pub. L. 99-514, as amended, set out as a note under
section 401 of this title.
TRANSITIONAL RULE FOR TREATMENT OF CERTAIN INCOME FROM S
CORPORATIONS
Section 1066 of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
''(a) In General. - If -
''(1) a corporation had an election in effect under subchapter
S of the Internal Revenue Code of 1986 (formerly I.R.C. 1954) for
the taxable years of such corporation beginning in 1982, 1983,
and 1984, and
''(2) a shareholder of such corporation makes an election to
have this section apply,
then any qualified income which such shareholder takes into account
by reason of holding stock in such corporation for any taxable year
of such corporation beginning in 1983 or 1984 shall be treated for
purposes of section 163(d) of the Internal Revenue Code of 1986 as
such income would have been treated but for the enactment of the
Subchapter S Revision Act of 1982 (Pub. L. 97-354, see Tables for
classification).
''(b) Qualified Income. - For purposes of subsection (a), the
term 'qualified income' means any income other than income which is
attributable to personal services performed by the shareholder for
the corporation.
''(c) Election. - The election under subsection (a)(2) shall be
made at such time and in such manner as the Secretary of the
Treasury or his delegate may by regulations prescribe.''
TRANSITIONAL RULE
For provision that, for purposes of amendments by section 231(b)
of Pub. L. 97-248, any evidence of indebtedness issued pursuant to
a written commitment which was binding on July 1, 1982, and at all
times thereafter be treated as issued on July 1, 1982, see section
231(e) of Pub. L. 97-248, set out as a note under section 1232A of
this title.
References
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 1, 56, 67, 68, 149, 162,
165, 195, 216, 263A, 312, 465, 469, 483, 691, 805, 832, 860H, 860K,
860L, 871, 881, 911, 1275, 1287, 1288, 2057, 4701, 6109, 7872 of
this title.
