Internal Revenue Code:Sec. 465. Deductions limited to amount at risk

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

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 E - Accounting Periods and Methods of Accounting
         PART II - METHODS OF ACCOUNTING
          Subpart C - Taxable Year for Which Deductions Taken
        

Statute

    Sec. 465. Deductions limited to amount at risk
 
    (a) Limitation to amount at risk
      (1) In general
        In the case of -
          (A) an individual, and
          (B) a C corporation with respect to which the stock ownership
        requirement of paragraph (2) of section 542(a) is met,
      engaged in an activity to which this section applies, any loss
      from such activity for the taxable year shall be allowed only to
      the extent of the aggregate amount with respect to which the
      taxpayer is at risk (within the meaning of subsection (b)) for
      such activity at the close of the taxable year.
      (2) Deduction in succeeding year
        Any loss from an activity to which this section applies not
      allowed under this section for the taxable year shall be treated
      as a deduction allocable to such activity in the first succeeding
      taxable year.
      (3) Special rules for applying paragraph (1)(B)
        For purposes of paragraph (1)(B) -
          (A) section 544(a)(2) shall be applied as if such section did
        not contain the phrase ''or by or for his partner''; and
          (B) sections 544(a)(4)(A) and 544(b)(1) shall be applied by
        substituting ''the corporation meet the stock ownership
        requirements of section 542(a)(2)'' for ''the corporation a
        personal holding company''.
    (b) Amounts considered at risk
      (1) In general
        For purposes of this section, a taxpayer shall be considered at
      risk for an activity with respect to amounts including -
          (A) the amount of money and the adjusted basis of other
        property contributed by the taxpayer to the activity, and
          (B) amounts borrowed with respect to such activity (as
        determined under paragraph (2)).
      (2) Borrowed amounts
        For purposes of this section, a taxpayer shall be considered at
      risk with respect to amounts borrowed for use in an activity to
      the extent that he -
          (A) is personally liable for the repayment of such amounts,
        or
          (B) has pledged property, other than property used in such
        activity, as security for such borrowed amount (to the extent
        of the net fair market value of the taxpayer's interest in such
        property).
      No property shall be taken into account as security if such
      property is directly or indirectly financed by indebtedness which
      is secured by property described in paragraph (1).
      (3) Certain borrowed amounts excluded
        (A) In general
          Except to the extent provided in regulations, for purposes of
        paragraph (1)(B), amounts borrowed shall not be considered to
        be at risk with respect to an activity if such amounts are
        borrowed from any person who has an interest in such activity
        or from a related person to a person (other than the taxpayer)
        having such an interest.
        (B) Exceptions
          (i) Interest as creditor
            Subparagraph (A) shall not apply to an interest as a
          creditor in the activity.
          (ii) Interest as shareholder with respect to amounts borrowed
              by corporation
            In the case of amounts borrowed by a corporation from a
          shareholder, subparagraph (A) shall not apply to an interest
          as a shareholder.
        (C) Related person
          For purposes of this subsection, a person (hereinafter in
        this paragraph referred to as the ''related person'') is
        related to any person if -
            (i) the related person bears a relationship to such person
          specified in section 267(b) or section 707(b)(1), or
            (ii) the related person and such person are engaged in
          trades or business under common control (within the meaning
          of subsections (a) and (b) of section 52).
        For purposes of clause (i), in applying section 267(b) or
        707(b)(1), ''10 percent'' shall be substituted for ''50
        percent''.
      (4) Exception
        Notwithstanding any other provision of this section, a taxpayer
      shall not be considered at risk with respect to amounts protected
      against loss through nonrecourse financing, guarantees, stop loss
      agreements, or other similar arrangements.
      (5) Amounts at risk in subsequent years
        If in any taxable year the taxpayer has a loss from an activity
      to which subsection (a) applies, the amount with respect to which
      a taxpayer is considered to be at risk (within the meaning of
      subsection (b)) in subsequent taxable years with respect to that
      activity shall be reduced by that portion of the loss which
      (after the application of subsection (a)) is allowable as a
      deduction.
      (6) Qualified nonrecourse financing treated as amount at risk
        For purposes of this section -
        (A) In general
          Notwithstanding any other provision of this subsection, in
        the case of an activity of holding real property, a taxpayer
        shall be considered at risk with respect to the taxpayer's
        share of any qualified nonrecourse financing which is secured
        by real property used in such activity.
        (B) Qualified nonrecourse financing
          For purposes of this paragraph, the term ''qualified
        nonrecourse financing'' means any financing -
            (i) which is borrowed by the taxpayer with respect to the
          activity of holding real property,
            (ii) which is borrowed by the taxpayer from a qualified
          person or represents a loan from any Federal, State, or local
          government or instrumentality thereof, or is guaranteed by
          any Federal, State, or local government,
            (iii) except to the extent provided in regulations, with
          respect to which no person is personally liable for
          repayment, and
            (iv) which is not convertible debt.
        (C) Special rule for partnerships
          In the case of a partnership, a partner's share of any
        qualified nonrecourse financing of such partnership shall be
        determined on the basis of the partner's share of liabilities
        of such partnership incurred in connection with such financing
        (within the meaning of section 752).
        (D) Qualified person defined
          For purposes of this paragraph -
          (i) In general
            The term ''qualified person'' has the meaning given such
          term by section 49(a)(1)(D)(iv).
          (ii) Certain commercially reasonable financing from related
              persons
            For purposes of clause (i), section 49(a)(1)(D)(iv) shall
          be applied without regard to subclause (I) thereof (relating
          to financing from related persons) if the financing from the
          related person is commercially reasonable and on
          substantially the same terms as loans involving unrelated
          persons.
        (E) Activity of holding real property
          For purposes of this paragraph -
          (i) Incidental personal property and services
            The activity of holding real property includes the holding
          of personal property and the providing of services which are
          incidental to making real property available as living
          accommodations.
          (ii) Mineral property
            The activity of holding real property shall not include the
          holding of mineral property.
    (c) Activities to which section applies
      (1) Types of activities
        This section applies to any taxpayer engaged in the activity of
      -
          (A) holding, producing, or distributing motion picture films
        or video tapes,
          (B) farming (as defined in section 464(e)),
          (C) leasing any section 1245 property (as defined in section
        1245(a)(3)),
          (D) exploring for, or exploiting, oil and gas resources as a
        trade or business or for the production of income, or
          (E) exploring for, or exploiting, geothermal deposits (as
        defined in section 613(e)(2)).
      (2) Separate activities
        For purposes of this section -
        (A) In general
          Except as provided in subparagraph (B), a taxpayer's activity
        with respect to each -
            (i) film or video tape,
            (ii) section 1245 property which is leased or held for
          leasing,
            (iii) farm,
            (iv) oil and gas property (as defined under section 614),
          or
            (v) geothermal property (as defined under section 614),
        shall be treated as a separate activity.
        (B) Aggregation rules
          (i) Special rule for leases of section 1245 property by
              partnerships or S corporations
            In the case of any partnership or S corporation, all
          activities with respect to section 1245 properties which -
              (I) are leased or held for lease, and
              (II) are placed in service in any taxable year of the
            partnership or S corporation,
         shall be treated as a single activity.
          (ii) Other aggregation rules
            Rules similar to the rules of subparagraphs (B) and (C) of
          paragraph (3) shall apply for purposes of this paragraph.
      (3) Extension to other activities
        (A) In general
          In the case of taxable years beginning after December 31,
        1978, this section also applies to each activity -
            (i) engaged in by the taxpayer in carrying on a trade or
          business or for the production of income, and
            (ii) which is not described in paragraph (1).
        (B) Aggregation of activities where taxpayer actively
            participates in management of trade or business
          Except as provided in subparagraph (C), for purposes of this
        section, activities described in subparagraph (A) which
        constitute a trade or business shall be treated as one activity
        if -
            (i) the taxpayer actively participates in the management of
          such trade or business, or
            (ii) such trade or business is carried on by a partnership
          or an S corporation and 65 percent or more of the losses for
          the taxable year is allocable to persons who actively
          participate in the management of the trade or business.
        (C) Aggregation or separation of activities under regulations
          The Secretary shall prescribe regulations under which
        activities described in subparagraph (A) shall be aggregated or
        treated as separate activities.
        (D) Application of subsection (b)(3)
          In the case of an activity described in subparagraph (A),
        subsection (b)(3) shall apply only to the extent provided in
        regulations prescribed by the Secretary.
      (4) Exclusion for certain equipment leasing by closely-held
          corporations
        (A) In general
          In the case of a corporation described in subsection
        (a)(1)(B) actively engaged in equipment leasing -
            (i) the activity of equipment leasing shall be treated as a
          separate activity, and
            (ii) subsection (a) shall not apply to losses from such
          activity.
        (B) 50-percent gross receipts test
          For purposes of subparagraph (A), a corporation shall not be
        considered to be actively engaged in equipment leasing unless
        50 percent or more of the gross receipts of the corporation for
        the taxable year is attributable, under regulations prescribed
        by the Secretary, to equipment leasing.
        (C) Component members of controlled group treated as a single
            corporation
          For purposes of subparagraph (A), the component members of a
        controlled group of corporations shall be treated as a single
        corporation.
      (5) Waiver of controlled group rule where there is substantial
          leasing activity
        (A) In general
          In the case of the component members of a qualified leasing
        group, paragraph (4) shall be applied -
            (i) by substituting ''80 percent'' for ''50 percent'' in
          subparagraph (B) thereof, and
            (ii) as if paragraph (4) did not include subparagraph (C)
          thereof.
        (B) Qualified leasing group
          For purposes of this paragraph, the term ''qualified leasing
        group'' means a controlled group of corporations which, for the
        taxable year and each of the 2 immediately preceding taxable
        years, satisfied each of the following 3 requirements:
          (i) At least 3 employees
            During the entire year, the group had at least 3 full-time
          employees substantially all of the services of whom were
          services directly related to the equipment leasing activity
          of the qualified leasing members.
          (ii) At least 5 separate leasing transactions
            During the year, the qualified leasing members in the
          aggregate entered into at least 5 separate equipment leasing
          transactions.
          (iii) At least $1,000,000 equipment leasing receipts
            During the year, the qualified leasing members in the
          aggregate had at least $1,000,000 in gross receipts from
          equipment leasing.
        The term ''qualified leasing group'' does not include any
        controlled group of corporations to which, without regard to
        this paragraph, paragraph (4) applies.
        (C) Qualified leasing member
          For purposes of this paragraph, a corporation shall be
        treated as a qualified leasing member for the taxable year only
        if for each of the taxable years referred to in subparagraph
        (B) -
            (i) it is a component member of the controlled group of
          corporations, and
            (ii) it meets the requirements of paragraph (4)(B) (as
          modified by subparagraph (A)(i) of this paragraph).
      (6) Definitions relating to paragraphs (4) and (5)
        For purposes of paragraphs (4) and (5) -
        (A) Equipment leasing
          The term ''equipment leasing'' means -
            (i) the leasing of equipment which is section 1245
          property, and
            (ii) the purchasing, servicing, and selling of such
          equipment.
        (B) Leasing of master sound recordings, etc., excluded
          The term ''equipment leasing'' does not include the leasing
        of master sound recordings, and other similar contractual
        arrangements with respect to tangible or intangible assets
        associated with literary, artistic, or musical properties.
        (C) Controlled group of corporations; component member
          The terms ''controlled group of corporations'' and
        ''component members'' have the same meanings as when used in
        section 1563. The determination of the taxable years taken into
        account with respect to any controlled group of corporations
        shall be made in a manner consistent with the manner set forth
        in section 1563.
      (7) Exclusion of active businesses of qualified C corporations
        (A) In general
          In the case of a taxpayer which is a qualified C corporation
        -
            (i) each qualifying business carried on by such taxpayer
          shall be treated as a separate activity, and
            (ii) subsection (a) shall not apply to losses from such
          business.
        (B) Qualified C corporation
          For purposes of subparagraph (A), the term ''qualified C
        corporation'' means any corporation described in subparagraph
        (B) of subsection (a)(1) which is not -
            (i) a personal holding company (as defined in section 542(a)),
                or
            (ii) a personal service corporation (as defined in section
          269A(b) but determined by substituting ''5 percent'' for ''10
          percent'' in section 269A(b)(2)).
        (C) Qualifying business
          For purposes of this paragraph, the term ''qualifying
        business'' means any active business if -
            (i) during the entire 12-month period ending on the last
          day of the taxable year, such corporation had at least 1
          full-time employee substantially all the services of whom
          were in the active management of such business,
            (ii) during the entire 12-month period ending on the last
          day of the taxable year, such corporation had at least 3
          full-time, nonowner employees substantially all of the
          services of whom were services directly related to such
          business,
            (iii) the amount of the deductions attributable to such
          business which are allowable to the taxpayer solely by reason
          of sections 162 and 404 for the taxable year exceeds 15
          percent of the gross income from such business for such year,
          and
            (iv) such business is not an excluded business.
        (D) Special rules for application of subparagraph (C)
          (i) Partnerships in which taxpayer is a qualified corporate
              partner
            In the case of an active business of a partnership, if -
              (I) the taxpayer is a qualified corporate partner in the
            partnership, and
              (II) during the entire 12-month period ending on the last
            day of the partnership's taxable year, there was at least 1
            full-time employee of the partnership (or of a qualified
            corporate partner) substantially all the services of whom
            were in the active management of such business,
         then the taxpayer's proportionate share (determined on the
          basis of its profits interest) of the activities of the
          partnership in such business shall be treated as activities
          of the taxpayer (and clause (i) of subparagraph (C) shall not
          apply in determining whether such business is a qualifying
          business of the taxpayer).
          (ii) Qualified corporate partner
            For purposes of clause (i), the term ''qualified corporate
          partner'' means any corporation if -
              (I) such corporation is a general partner in the
            partnership,
              (II) such corporation has an interest of 10 percent or
            more in the profits and losses of the partnership, and
              (III) such corporation has contributed property to the
            partnership in an amount not less than the lesser of
            $500,000 or 10 percent of the net worth of the corporation.
         For purposes of subclause (III), any contribution of property
          other than money shall be taken into account at its fair
          market value.
          (iii) Deduction for owner employee compensation not taken
              into account
            For purposes of clause (iii) of subparagraph (C), there
          shall not be taken into account any deduction in respect of
          compensation for personal services rendered by any employee
          (other than a non-owner employee) of the taxpayer or any
          member of such employee's family (within the meaning of
          section 318(a)(1)).
          (iv) Special rule for banks
            For purposes of clause (iii) of subparagraph (C), in the
          case of a bank (as defined in section 581) or a financial
          institution to which section 591 applies -
              (I) gross income shall be determined without regard to
            the exclusion of interest from gross income under section
            103, and
              (II) in addition to the deductions described in such
            clause, there shall also be taken into account the amount
            of the deductions which are allowable for amounts paid or
            credited to the accounts of depositors or holders of
            accounts as dividends or interest on their deposits or
            withdrawable accounts under section 163 or 591.
          (v) Special rule for life insurance companies
            (I) In general
              Clause (iii) of subparagraph (C) shall not apply to any
            insurance business of a qualified life insurance company.
            (II) Insurance business
              For purposes of subclause (I), the term ''insurance
            business'' means any business which is not a noninsurance
            business (within the meaning of section 806(b)(3)).
            (III) Qualified life insurance company
              For purposes of subclause (I), the term ''qualified life
            insurance company'' means any company which would be a life
            insurance company as defined in section 816 if unearned
            premiums were not taken into account under subsections
            (a)(2) and (c)(2) of section 816.
        (E) Definitions
          For purposes of this paragraph -
          (i) Non-owner employee
            The term ''non-owner employee'' means any employee who does
          not own, at any time during the taxable year, more than 5
          percent in value of the outstanding stock of the taxpayer.
          For purposes of the preceding sentence, section 318 shall
          apply, except that ''5 percent'' shall be substituted for
          ''50 percent'' in section 318(a)(2)(C).
          (ii) Excluded business
            The term ''excluded business'' means -
              (I) equipment leasing (as defined in paragraph (6)), and
              (II) any business involving the use, exploitation, sale,
            lease, or other disposition of master sound recordings,
            motion picture films, video tapes, or tangible or
            intangible assets associated with literary, artistic,
            musical, or similar properties.
          (iii) Special rules relating to communications industry, etc.
            (I) Business not excluded where taxpayer not completely at
          risk
              A business involving the use, exploitation, sale, lease,
            or other disposition of property described in subclause
            (II) of clause (ii) shall not constitute an excluded
            business by reason of such subclause if the taxpayer is at
            risk with respect to all amounts paid or incurred (or
            chargeable to capital account) in such business.
            (II) Certain licensed businesses not excluded
              For purposes of subclause (II) of clause (ii), the
            provision of radio, television, cable television, or
            similar services pursuant to a license or franchise granted
            by the Federal Communications Commission or any other
            Federal, State, or local authority shall not constitute an
            excluded business by reason of such subclause.
        (F) Affiliated group treated as 1 taxpayer
          For purposes of this paragraph -
          (i) In general
            Except as provided in subparagraph (G), the component
          members of an affiliated group of corporations shall be
          treated as a single taxpayer.
          (ii) Affiliated group of corporations
            The term ''affiliated group of corporations'' means an
          affiliated group (as defined in section 1504(a)) which files
          or is required to file consolidated income tax returns.
          (iii) Component member
            The term ''component member'' means an includible
          corporation (as defined in section 1504) which is a member of
          the affiliated group.
        (G) Loss of 1 member of affiliated group may not offset income
            of personal holding company or personal service corporation
          Nothing in this paragraph shall permit any loss of a member
        of an affiliated group to be used as an offset against the
        income of any other member of such group which is a personal
        holding company (as defined in section 542(a)) or a personal
        service corporation (as defined in section 269A(b) but
        determined by substituting ''5 percent'' for ''10 percent'' in
        section 269A(b)(2)).
    (d) Definition of loss
      For purposes of this section, the term ''loss'' means the excess
    of the deductions allowable under this chapter for the taxable year
    (determined without regard to the first sentence of subsection (a))
    and allocable to an activity to which this section applies over the
    income received or accrued by the taxpayer during the taxable year
    from such activity (determined without regard to subsection
    (e)(1)(A)).
    (e) Recapture of losses where amount at risk is less than zero
      (1) In general
        If zero exceeds the amount for which the taxpayer is at risk in
      any activity at the close of any taxable year -
          (A) the taxpayer shall include in his gross income for such
        taxable year (as income from such activity) an amount equal to
        such excess, and
          (B) an amount equal to the amount so included in gross income
        shall be treated as a deduction allocable to such activity for
        the first succeeding taxable year.
      (2) Limitation
        The excess referred to in paragraph (1) shall not exceed -
          (A) the aggregate amount of the reductions required by
        subsection (b)(5) with respect to the activity by reason of
        losses for all prior taxable years beginning after December 31,
        1978, reduced by
          (B) the amounts previously included in gross income with
        respect to such activity under this subsection.
 

Sources

    (Added Pub. L. 94-455, title II, Sec. 204(a), Oct. 4, 1976, 90
    Stat. 1531; amended Pub. L. 95-600, title II, Sec. 201(a), (c)(1),
    202, 203, title VII, Sec. 701(k)(2), Nov. 6, 1978, 92 Stat. 2814,
    2816, 2906; Pub. L. 95-618, title IV, Sec. 402(d), Nov. 9, 1978, 92
    Stat. 3202; Pub. L. 96-222, title I, Sec. 102(a)(1)(A)-(D), Apr. 1,
    1980, 94 Stat. 206; Pub. L. 97-354, Sec. 5(a)(31), Oct. 19, 1982,
    96 Stat. 1695; Pub. L. 98-369, div.  A, title IV, Sec. 432(a)-(c),
    title VII, Sec. 721(x)(2), July 18, 1984, 98 Stat. 811-814, 971;
    Pub. L. 99-514, title II, Sec. 201(d)(7)(A), title V, Sec. 503(a),
    (b), title X, Sec. 1011(b)(1), Oct. 22, 1986, 100 Stat. 2141, 2243,
    2389; Pub. L. 101-508, title XI, Sec. 11813(b)(15), 11815(b)(3),
    Nov. 5, 1990, 104 Stat. 1388-555, 1388-558.)
 

Miscellaneous

                                 AMENDMENTS
     2004 - Pub. L. 108-357 Sec. 413(c)(7). Subpara.(B) of section 465(c)(7)
     is amended by adding ``or'' at the end of clause (i), by striking
     clause (ii), and by redesignating clause (iii) as clause (ii).

      1990 - Subsec. (b)(6)(D). Pub. L. 101-508, Sec. 11813(b)(15),
    substituted ''49(a)(1)(D)(iv)'' for ''46(c)(8)(D)(iv)'' wherever
    appearing.
      Subsec. (c)(1)(E). Pub. L. 101-508, Sec. 11815(b)(3), substituted
    ''section 613(e)(2)'' for ''section 613(e)(3)''.
      1986 - Subsec. (b)(3)(C). Pub. L. 99-514, Sec. 201(d)(7)(A),
    struck out ''defined'' after ''person'' in heading and amended text
    generally.  Prior to amendment, text read as follows: ''For
    purposes of subparagraph (A), the term 'related person' has the
    meaning given such term by section 168(e)(4).''
      Subsec. (b)(6). Pub. L. 99-514, Sec. 503(b), added par. (6).
      Subsec. (c)(3)(D), (E). Pub. L. 99-514, Sec. 503(a), redesignated
    subpar. (E) as (D) and struck out former subpar. (D) which read as
    follows: ''In the case of activities described in subparagraph (A),
    the holding of real property (other than mineral property) shall be
    treated as a separate activity, and subsection (a) shall not apply
    to losses from such activity.  For purposes of the preceding
    sentence, personal property and services which are incidental to
    making real property available as living accommodations shall be
    treated as part of the activity of holding such real property.''
      Subsec. (c)(7)(D)(v)(II). Pub. L. 99-514, Sec. 1011(b)(1),
    substituted ''section 806(b)(3)'' for ''section 806(c)(3)''.
      1984 - Subsec. (a)(1)(B). Pub. L. 98-369, Sec. 721(x)(2),
    substituted ''a C corporation'' for ''a corporation''.
      Subsec. (b)(3). Pub. L. 98-369, Sec. 432(c), designated existing
    provisions as subpar. (A), in subpar. (A) as so designated struck
    out subpar. designations ''(A)'' and ''(B)'' and substituted
    provisions that, except as provided by regulation, amounts borrowed
    shall not be considered to be at risk if such amounts are borrowed
    from any person who has an interest in the activity or from a
    related person to a person (other than the taxpayer) having such an
    interest for provision that such amounts would not be considered to
    be at risk if borrowed from a person who had an interest (other
    than as a creditor) in such activity or who had a relationship to
    the taxpayer specified in section 267(b) of this title, and added
    subpars. (B) and (C).
      Subsec. (c)(2). Pub. L. 98-369, Sec. 432(b), designated existing
    provisions as subpar. (A), in subpar. (A) as so designated,
    redesignated former subpars. (A) to (E) as cls. (i) to (v),
    respectively, struck out provision that a partner's interest in a
    partnership or a shareholder's interest in an S corporation had to
    be treated as a single activity to the extent that the partnership
    or the S corporation was engaged in activities described in any
    subparagraph of this paragraph, and added subpar. (B).
      Subsec. (c)(7). Pub. L. 98-369, Sec. 432(a), added par. (7).
      1982 - Subsec. (a)(1). Pub. L. 97-354, Sec. 5(a)(31)(A),
    redesignated subpar. (C) as (B). Former subpar. (B), relating to an
    electing small business corporation, was struck out.
      Subsec. (a)(3). Pub. L. 97-354, Sec. 5(a)(31)(B), substituted
    ''paragraph (1)(B)'' for ''paragraph (1)(C)'' in heading and text.
      Subsec. (c)(2). Pub. L. 97-354, Sec. 5(a)(31)(C), substituted
    ''an S corporation'' for ''an electing small business corporation''
    the first place appearing and ''the S corporation'' for ''an
    electing small business corporation'' the second place appearing.
      Subsec. (c)(3)(B)(ii). Pub. L. 97-354, Sec. 5(a)(31)(D),
    substituted ''an S corporation'' for ''electing small business
    corporation (as defined in section 1371(b))''.
      Subsec. (c)(4)(A). Pub. L. 97-354, Sec. 5(a)(31)(E), substituted
    ''subsection (a)(1)(B)'' for ''subsection (a)(1)(C)''.
      1980 - Subsec. (a)(1)(C), (3). Pub. L. 96-222, Sec. 102(a)(1)(A),
    struck out in par. (1)(C) ''(determined by reference to the rules
    contained in section 318 rather than under section 544)'' after
    ''of section 542(a)'' and added par. (3).
      Subsec. (b)(5). Pub. L. 96-222, Sec. 102(a)(1)(D)(iii),
    substituted ''to which subsection (a) applies'' for ''to which this
    section applies''.
      Subsec. (c)(3)(D). Pub. L. 96-222, Sec. 102(a)(1)(D)(ii), struck
    out provisions relating to equipment leasing by closely-held
    corporations.
      Subsec. (c)(4) to (6). Pub. L. 96-222, Sec. 102(a)(1)(D)(i),
    added pars. (4) to (6).
      Subsec. (d). Pub. L. 96-222, Sec. 102(a)(1)(B), inserted
    ''(determined without regard to subsection (e)(1)(A)'' after ''from
    such activity''.
      Subsec. (e)(2)(A). Pub. L. 96-222, Sec. 102(a)(1)(C), inserted
    ''by reason of losses'' after ''with respect to the activity''.
      1978 - Pub. L. 95-600, Sec. 201(c)(1), substituted ''Deductions
    limited to amount at risk'' for ''Deductions limited to amount at
    risk in case of certain activities'' in section catchline.
      Subsec. (a). Pub. L. 95-600, Sec. 202, redesignated existing
    provisions as par. (1), substituted provisions relating to
    limitations with respect to an individual, an electing small
    business corporation defined under section 1371(b) of this title,
    and a corporation meeting the stock ownership requirements of
    section 542(a)(2) of this title and the rules of section 318 of
    this title, for provisions relating to limitations with respect to
    a taxpayer other than a corporation which is neither an electing
    small business corporation defined under section 1371(b) of this
    title, nor a personal holding company defined under section 542 of
    this title, and added par. (2).
      Subsec. (c)(1)(E). Pub. L. 95-618, Sec. 402(d)(1), added subpar.
    (E).
      Subsec. (c)(2)(E). Pub. L. 95-618, Sec. 402(d)(2), added subpar.
    (E).
      Subsec. (c)(3). Pub. L. 95-600, Sec. 201(a), added par. (3).
      Subsec. (d). Pub. L. 95-600, Sec. 701(k)(2), substituted
    ''(determined without regard to the first sentence of subsection
    (a))'' for ''(determined without regard to this section)''.
      Subsec. (e). Pub. L. 95-600, Sec. 203, added subsec. (e).
                      EFFECTIVE DATE OF 1990 AMENDMENT
      Amendment by section 11813(b)(15) of Pub. L. 101-508 applicable
    to property placed in service after Dec. 31, 1990, but not
    applicable to any transition property (as defined in section 49(e)
    of this title), any property with respect to which qualified
    progress expenditures were previously taken into account under
    section 46(d) of this title, and any property described in section
    46(b)(2)(C) of this title, as such sections were in effect on Nov.
    4, 1990, see section 11813(c) of Pub. L. 101-508, set out as a note
    under section 29 of this title.
                      EFFECTIVE DATE OF 1986 AMENDMENT
      Amendment by section 201(d)(7)(A) of Pub. L. 99-514 applicable to
    property placed in service after Dec. 31, 1986, in taxable years
    ending after such date, with exceptions, see sections 203 and 204
    of Pub. L. 99-514, set out as a note under section 168 of this
    title.
      Amendment by section 201(d)(7)(A) of Pub. L. 99-514 not
    applicable to any property placed in service before Jan. 1, 1994,
    if such property placed in service as part of specified
    rehabilitations, and not applicable to certain additional
    rehabilitations, see section 251(d)(2), (3) of Pub. L. 99-514, set
    out as a note under section 46 of this title.
      Section 503(c) of Pub. L. 99-514 provided that:
      ''(1) In general. - Except as provided in this subsection, the
    amendments made by this section (amending this section) shall apply
    to losses incurred after December 31, 1986, with respect to
    property placed in service by the taxpayer after December 31, 1986.
      ''(2) Special rule for losses of s corporation, partnership, or
    pass-thru entity. - In the case of an interest in an S corporation,
    a partnership, or other pass-thru entity acquired after December
    31, 1986, the amendments made by this section shall apply to losses
    after December 31, 1986, which are attributable to property placed
    in service by the S corporation, partnership, or pass-thru entity
    on, before, or after January 1, 1986.
      ''(3) Special rule for athletic stadium. - The amendments made by
    this section shall not apply to any losses incurred by a taxpayer
    with respect to the holding of a multi-use athletic stadium in
    Pittsburgh, Pennsylvania, which the taxpayer acquired in a sale for
    which a letter of understanding was entered into before April 16,
    1986.''
      Amendment by section 1011(b)(1) of Pub. L. 99-514 applicable to
    taxable years beginning after Dec. 31, 1986, see section 1011(c)(1)
    of Pub. L. 99-514, set out as a note under section 453B of this
    title.
                      EFFECTIVE DATE OF 1984 AMENDMENT
      Section 432(d) of Pub. L. 98-369, as amended by Pub. L. 99-514,
    Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ''The
    amendments made by this section (amending this section) shall apply
    to taxable years beginning after December 31, 1983; except that any
    loss from an activity described in section 465(c)(7)(A) of the
    Internal Revenue Code of 1986 (formerly I.R.C. 1954) (as amended by
    this section) which (but for the amendments made by this section)
    would have been treated as a deduction for the taxpayer's first
    taxable year beginning after December 31, 1983, under section
    465(a)(2) of such Code shall be allowed as a deduction for such
    first taxable year notwithstanding such amendments.''
      Amendment by section 721(x)(2) of Pub. L. 98-369 effective as if
    included in the Subchapter S Revision Act of 1982, Pub. L. 97-354,
    see section 721(y)(1) of Pub. L. 98-369, set out as a note under
    section 1361 of this title.
                      EFFECTIVE DATE OF 1982 AMENDMENT
      Amendment by Pub. L. 97-354 applicable to taxable years beginning
    after Dec. 31, 1982, see section 6(a) of Pub. L. 97-354, set out as
    an Effective Date note under section 1361 of this title.
                      EFFECTIVE DATE OF 1980 AMENDMENT
      Amendment by Pub. L. 96-222 effective, except as otherwise
    provided, as if it had been included in the provisions of the
    Revenue Act of 1978, Pub. L. 95-600, to which such amendment
    relates, see section 201 of Pub. L. 96-222, set out as a note under
    section 32 of this title.
                     EFFECTIVE DATE OF 1978 AMENDMENTS
      Amendment by Pub. L. 95-618 applicable with respect to wells
    commenced on or after Oct. 1, 1978, in taxable years ending on or
    after such date, see section 402(e) of Pub. L. 95-618, set out as a
    note under section 263 of this title.
      Section 204(a) of Pub. L. 95-600 provided that: ''The amendments
    made by this subtitle (amending this section and section 704 of
    this title and enacting provisions set out as notes under this
    section and section 704 of this title) shall apply to taxable years
    beginning after December 31, 1978.''
      Section 701(k)(3) of Pub. L. 95-600 provided that: ''The
    amendments made by this subsection (amending this section and
    provisions set out below) shall take effect on October 4, 1976.''
                   EFFECTIVE DATE AND TRANSITIONAL RULES
      Section 204(c) of Pub. L. 94-455, as amended by Pub. L. 95-600,
    title VII, Sec. 701(k)(1), Nov. 6, 1978, 92 Stat. 2906; Pub. L.
    99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
        ''(1) In general. - Except as provided in paragraphs (2) and
      (3), the amendments made by this section (enacting this section)
      shall apply to losses attributable to amounts paid or incurred in
      taxable years beginning after December 31, 1975. For purposes of
      this subsection, any amount allowed or allowable for depreciation
      or amortization for any period shall be treated as an amount paid
      or incurred in such period.
        ''(2) Special transitional rules for movies and video tapes. -
          ''(A) In general. - In the case of any activity described in
        section 465(c)(1)(A) of the Internal Revenue Code of 1986
        (formerly I.R.C. 1954), the amendments made by this section
        shall not apply to -
            ''(i) deductions for depreciation or amortization with
          respect to property the principal production of which began
          before September 11, 1975, and for the purchase of which
          there was on September 11, 1975, and at all times thereafter
          a binding contract, and
            ''(ii) deductions attributable to producing or distributing
          property the principal production of which began before
          September 11, 1975.
          ''(B) Exception for certain agreements where principal
        photography begin before 1976. - In the case of any activity
        described in section 465(c)(1)(A) of the Internal Revenue Code
        of 1986, the amendments made by this section shall not apply to
        deductions attributable to the producing of a film the
        principal photography of which began on or before December 31,
        1975, if -
            ''(i) on September 10, 1975, there was an agreement with
          the director or a principal motion picture star, or on or
          before September 10, 1975, there had been expended (or
          committed to the production) an amount not less than the
          lower of $100,000 or 10 percent of the estimated costs of
          producing the film, and
            ''(ii) the production takes place in the United States.
      Subparagraph (A) shall apply only to taxpayers who held their
      interests on September 10, 1975. Subparagraph (B) shall apply
      only to taxpayers who held their interests on December 31, 1975.
        ''(3) Special transitional rules for leasing activities. -
          ''(A) Rule for leases other than operating leases. - In the
        case of any activity described in section 465(c)(1)(C) of the
        Internal Revenue Code of 1986, the amendments made by this
        section shall not apply with respect to -
            ''(i) leases entered into before January 1, 1976, and
            ''(ii) leases where the property was ordered by the lessor
          or lessee before January 1, 1976.
          ''(B) Holding of interests for purposes of subparagraph (a).
        - Subparagraph (A) shall apply only to taxpayers who held their
        interests in the property on December 31, 1975.
          ''(C) Special rule for operating leases. - In the case of a
        lease described in section 46(e)(3)(B) of the Internal Revenue
        Code of 1986 -
            ''(i) subparagraph (A) shall be applied by substituting
          'May 1, 1976' for 'January 1, 1976' each place it appears
          therein, and
            ''(ii) subparagraph (B) shall be applied by substituting
          'April 30, 1976' for 'December 31, 1975'.''
                             SAVINGS PROVISION
      For provisions that nothing in amendment by Pub. L. 101-508 be
    construed to affect treatment of certain transactions occurring,
    property acquired, or items of income, loss, deduction, or credit
    taken into account prior to Nov. 5, 1990, for purposes of
    determining liability for tax for periods ending after Nov. 5,
    1990, see section 11821(b) of Pub. L. 101-508, set out as a note
    under section 29 of this title.
     TRANSITIONAL RULES FOR RECAPTURE PROVISIONS AND LEASING ACTIVITIES
      Section 204(b) of Pub. L. 95-600, as amended by Pub. L. 96-222,
    title I, Sec. 102(a)(1)(E), Apr. 1, 1980, 94 Stat. 208; Pub. L.
    99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
      ''(1) Recapture provisions. - If the amount for which the
    taxpayer is at risk in any activity as of the close of the
    taxpayer's last taxable year beginning before January 1, 1979, is
    less than zero, section 465(e)(1) of the Internal Revenue Code of
    1986 (formerly I.R.C. 1954) (as added by section 203 of this Act)
    shall be applied with respect to such activity of the taxpayer by
    substituting such negative amount for zero.
      ''(2) Special transitional rules for leasing activities. -
        ''(A) Rule for leases. - In the case of any activity described
      in section 465(c)(1)(C) of such Code in which a corporation
      described in section 465(a)(1)(C) of such Code is engaged, the
      amendments made by this subtitle (amending sections 465 and 704
      of this title and enacting provisions set out as notes under
      sections 465 and 704 of this title) shall not apply with respect
      to -
          ''(i) leases entered into before November 1, 1978, and
          ''(ii) leases where the property was ordered by the lessor or
        lessee before November 1, 1978.
        ''(B) Holding of interests for purposes of subparagraph (a). -
      Subparagraph (A) shall apply only to taxpayers who held their
      interests in the property on October 31, 1978.''
 

References

                   SECTION REFERRED TO IN OTHER SECTIONS
      This section is referred to in sections 49, 59, 162, 163, 168,
    461, 467, 469, 773, 1256, 1366, 4162, 6111 of this title.
 

Personal tools