Internal Revenue Code:Sec. 163. Interest

From TaxAlmanac, A Free Online Resource for Tax Professionals
Note: You are using this website at your own risk, subject to our Disclaimer and Website Use and Contribution Terms.

From TaxAlmanac

(Redirected from Sec. 163. Interest)
Jump to: navigation, search

Contents


Location in Internal Revenue Code


     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.
 

Personal tools