Subpart D—Business Related Credits
Amendments
1993—
1992—
1990—
1986—
1984—
Subpart Referred to in Other Sections
This subpart is referred to in
1 Section 41 repealed by
§38. General business credit
(a) Allowance of credit
There shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the sum of—
(1) the business credit carryforwards carried to such taxable year,
(2) the amount of the current year business credit, plus
(3) the business credit carrybacks carried to such taxable year.
(b) Current year business credit
For purposes of this subpart, the amount of the current year business credit is the sum of the following credits determined for the taxable year:
(1) the investment credit determined under section 46,
(2) the targeted jobs credit determined under section 51(a),
(3) the alcohol fuels credit determined under section 40(a),
(4) the research credit determined under section 41(a),
(5) the low-income housing credit determined under section 42(a),
(6) the enhanced oil recovery credit under section 43(a),
(7) in the case of an eligible small business (as defined in section 44(b)), the disabled access credit determined under section 44(a),
(8) the renewable electricity production credit under section 45(a),
(9) the empowerment zone employment credit determined under section 1396(a),
(10) the Indian employment credit as determined under section 45A(a), plus
(11) the employer social security credit determined under section 45B(a).
(c) Limitation based on amount of tax
(1) In general
The credit allowed under subsection (a) for any taxable year shall not exceed the excess (if any) of the taxpayer's net income tax over the greater of—
(A) the tentative minimum tax for the taxable year, or
(B) 25 percent of so much of the taxpayer's net regular tax liability as exceeds $25,000.
For purposes of the preceding sentence, the term "net income tax" means the sum of the regular tax liability and the tax imposed by section 55, reduced by the credits allowable under subparts A and B of this part, and the term "net regular tax liability" means the regular tax liability reduced by the sum of the credits allowable under subparts A and B of this part.
(2) Empowerment zone employment credit may offset 25 percent of minimum tax
(A) In general
In the case of the empowerment zone employment credit credit—
(i) this section and section 39 shall be applied separately with respect to such credit, and
(ii) for purposes of applying paragraph (1) to such credit—
(I) 75 percent of the tentative minimum tax shall be substituted for the tentative minimum tax under subparagraph (A) thereof, and
(II) the limitation under paragraph (1) (as modified by subclause (I)) shall be reduced by the credit allowed under subsection (a) for the taxable year (other than the empowerment zone employment credit).
(B) Empowerment zone employment credit
For purposes of this paragraph, the term "empowerment zone employment credit" means the portion of the credit under subsection (a) which is attributable to the credit determined under section 1396 (relating to empowerment zone employment credit).
(3) Special rules
(A) Married individuals
In the case of a husband or wife who files a separate return, the amount specified under subparagraph (B) of paragraph (1) shall be $12,500 in lieu of $25,000. This subparagraph shall not apply if the spouse of the taxpayer has no business credit carryforward or carryback to, and has no current year business credit for, the taxable year of such spouse which ends within or with the taxpayer's taxable year.
(B) Controlled groups
In the case of a controlled group, the $25,000 amount specified under subparagraph (B) of paragraph (1) shall be reduced for each component member of such group by apportioning $25,000 among the component members of such group in such manner as the Secretary shall by regulations prescribe. For purposes of the preceding sentence, the term "controlled group" has the meaning given to such term by section 1563(a).
(C) Limitations with respect to certain persons
In the case of a person described in subparagraph (A) or (B) of section 46(e)(1) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990), the $25,000 amount specified under subparagraph (B) of paragraph (1) shall equal such person's ratable share (as determined under section 46(e)(2) (as so in effect) of such amount.
(D) Estates and trusts
In the case of an estate or trust, the $25,000 amount specified under subparagraph (B) of paragraph (1) shall be reduced to an amount which bears the same ratio to $25,000 as the portion of the income of the estate or trust which is not allocated to beneficiaries bears to the total income of the estate or trust.
(d) Ordering rules
For purposes of any provision of this title where it is necessary to ascertain the extent to which the credits determined under any section referred to in subsection (b) are used in a taxable year or as a carryback or carryforward—
(1) In general
The order in which such credits are used shall be determined on the basis of the order in which they are listed in subsection (b) as of the close of the taxable year in which the credit is used.
(2) Components of investment credit
The order in which the credits listed in section 46 are used shall be determined on the basis of the order in which such credits are listed in section 46 as of the close of the taxable year in which the credit is used.
(3) Credits no longer listed
For purposes of this subsection—
(A) the credit allowable by section 40, as in effect on the day before the date of the enactment of the Tax Reform Act of 1984, (relating to expenses of work incentive programs) and the credit allowable by section 41(a), as in effect on the day before the date of the enactment of the Tax Reform Act of 1986, (relating to employee stock ownership credit) shall be treated as referred to in that order after the last paragraph of subsection (b), and
(B) the credit determined under section 46—
(i) to the extent attributable to the employee plan percentage (as defined in section 46(a)(2)(E) as in effect on the day before the date of the enactment of the Tax Reform Act of 1984) shall be treated as a credit listed after paragraph (1) of section 46, and
(ii) to the extent attributable to the regular percentage (as defined in section 46(b)(1) as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990) shall be treated as the first credit listed in section 46.
(Added and amended
References in Text
The date of the enactment of the Revenue Reconciliation Act of 1990, referred to in subsecs. (c)(3)(C) and (d)(3)(B)(ii), is the date of enactment of
The date of the enactment of the Tax Reform Act of 1984, referred to in subsec. (d)(3)(A), (B)(i), is the date of enactment of
The date of the enactment of the Tax Reform Act of 1986, referred to in subsec. (d)(3)(A), is the date of enactment of
Prior Provisions
A prior section 38, added
Another prior section 38 was renumbered
Amendments
1993—Subsec. (b)(7).
Subsec. (b)(8).
Subsec. (b)(9).
Subsec. (b)(10).
Subsec. (b)(11).
Subsec. (c)(2), (3).
1992—Subsec. (b)(6) to (8).
1990—Subsec. (b)(1).
Subsec. (b)(4).
Subsec. (b)(5).
Subsec. (b)(6).
Subsec. (b)(7).
Subsec. (c)(2).
Subsec. (c)(2)(C).
Subsec. (c)(3).
Subsec. (d).
Subsec. (d)(2).
Subsec. (d)(3)(B).
1988—Subsec. (c).
Subsec. (d).
1986—Subsec. (b)(4).
Subsec. (b)(5).
Subsec. (c).
"(A) so much of the taxpayer's net tax liability for the taxable year as does not exceed $25,000, plus
"(B) 75 percent of so much of the taxpayer's net tax liability for the taxable year as exceeds $25,000."
and former par. (2) "Net tax liability", which provided: "For purposes of paragraph (1), the term 'net tax liability' means the tax liability (as defined in section 26(b)), reduced by the sum of the credits allowable under subparts A and B of this part."
Subsec. (c)(1)(B).
Subsec. (d).
1984—Subsec. (c)(2).
Effective Date of 1993 Amendment
Section 13303 of
Section 13322(f) of
Section 13443(d) of
Effective Date of 1992 Amendment
Section 1914(e) of
Effective Date of 1990 Amendment
Amendment by section 11511(b)(1) of
Section 11611(e) of
"(1)
"(2)
Amendment by section 11813(b)(2) of
Effective Date of 1988 Amendment
Section 1002(e)(8)(C) of
Amendment by section 1007(g)(2), (8) of
Effective Date of 1986 Amendment
Section 221(b) of
Amendment by section 231(d)(1), (3)(B) of
Amendment by section 252(b) of
Amendment by section 701(c)(4) of
Section 1171(c) of
"(1)
"(2)
Effective Date of 1984 Amendment
Amendment by
Effective Date
Section applicable to taxable years beginning after Dec. 31, 1983, and to carrybacks from such years, see section 475(a) of
Savings Provision
For provisions that nothing in amendment by section 11813(b)(2) of
Credit for Contributions to Certain Community Development Corporations
Section 13311 of
"(a)
"(b)
"(c)
"(d)
"(1)
"(A) which is made to a selected community development corporation during the 5-year period beginning on the date such corporation was selected for purposes of this section,
"(B) the amount of which is available for use by such corporation for at least 10 years,
"(C) which is to be used by such corporation for qualified low-income assistance within its operational area, and
"(D) which is designated by such corporation for purposes of this section.
"(2)
"(e)
"(1)
"(A) which is described in section 501(c)(3) of such Code and exempt from tax under section 501(a) of such Code,
"(B) the principal purposes of which include promoting employment of, and business opportunities for, low-income individuals who are residents of the operational area, and
"(C) which is selected by the Secretary of Housing and Urban Development for purposes of this section.
"(2)
"(3)
"(A) The area meets the size requirements under section 1392(a)(3).
"(B) The unemployment rate (as determined by the appropriate available data) is not less than the national unemployment rate.
"(C) The median family income of residents of such area does not exceed 80 percent of the median gross income of residents of the jurisdiction of the local government which includes such area.
"(f)
"(1) which is designed to provide employment of, and business opportunities for, low-income individuals who are residents of the operational area of the community development corporation, and
"(2) which is approved by the Secretary of Housing and Urban Development."
Applicability of Certain Amendments by Public Law 99–514 in Relation to Treaty Obligations of United States
For applicability of amendment by section 701(c)(4) of
Effective 15-Year Carryback of Existing Carryforwards of Steel Companies
Section 212 of
"(a)
"(b)
"(1) 50 percent of the portion of the corporation's existing carryforwards to which the election under subsection (a) applies, or
"(2) the corporation's net tax liability for the carryback period.
"(c)
"(d)
"(1)
"(2)
"(3)
"(A) which begins with the corporation's 15th taxable year preceding the 1st taxable year from which there is an unused credit included in such corporation's existing carryforwards (but in no event shall such period begin before the corporation's 1st taxable year ending after December 31, 1961), and
"(B) which ends with the corporation's last taxable year beginning before January 1, 1986.
"(e)
"(1) the amount of the tax imposed by section 56 of the Internal Revenue Code of 1986, or
"(2) the amount of any credit allowable under such Code,
for any taxable year in the carryback period.
"(f)
"(1)
"(2)
"(A) such corporation shall place such refund in a separate account; and
"(B) amounts in such separate account—
"(i) shall only be used by the corporation—
"(I) to purchase an insurance policy which provides that, in the event the corporation becomes involved in a title 11 or similar case (as defined in section 368(a)(3)(A) of the Internal Revenue Code of 1954 [now 1986]), the insurer will provide life and health insurance coverage during the 1-year period beginning on the date when the corporation receives the refund to any individual with respect to whom the corporation would (but for such involvement) have been obligated to provide such coverage the coverage provided by the insurer will be identical to the coverage which the corporation would (but for such involvement) have been obligated to provide, and provides that the payment of insurance premiums will not be required during such 1-year period to keep such policy in force, or
"(II) directly in connection with the trade or business of the corporation in the manufacturer or production of steel; and
"(ii) shall be used (or obligated) for purposes described in clause (i) not later than 3 months after the corporation receives the refund.
"(3) In the case of a qualified corporation, no offset to any refund under this section may be made by reason of any tax imposed by section 4971 of the Internal Revenue Code of 1986 (or any interest or penalty attributable to any such tax), and the date on which any such refund is to be paid shall be determined without regard to such corporation's status under
"(g)
"(1)
"(A)
"(B)
"(2)
"(A) are unused business credit carryforwards to the taxpayer's 1st taxable year beginning after December 31, 1986 (determined without regard to the limitations of section 38(c) and any reduction under section 49 of the Internal Revenue Code of 1986), and
"(B) are attributable to the amount of the regular investment credit determined for periods before January 1, 1986, under section 46(a)(1) of such Code (relating to regular percentage), or any corresponding provision of prior law, determined on the basis that the regular investment credit was used first.
"(3)
"(h)
Effective 15-Year Carryback of Existing Carryforwards of Qualified Farmers
Section 213 of
"(a)
"(b)
"(1) 50 percent of the portion of the taxpayer's existing carryforwards to which the election under subsection (a) applies,
"(2) the taxpayer's net tax liability for the carryback period (within the meaning of section 212(d) of this Act [set out as a note above]), or
"(3) $750.
"(c)
"(d)
"(1) the amount of the tax imposed by section 56 of the Internal Revenue Code of 1954 [now 1986], or
"(2) the amount of any credit allowable under such Code,
for any taxable year in the carryback period (within the meaning of section 212(d)(3) of this Act [set out as a note above]).
"(e)
"(1)
"(2)
"(A) are unused business credit carryforwards to the taxpayer's 1st taxable year beginning after December 31, 1986 (determined without regard to the limitations of section 38(c) of the Internal Revenue Code of 1986), and
"(B) are attributable to the amount of the investment credit determined for periods before January 1, 1986, under section 46(a) of such Code (or any corresponding provision of prior law) with respect to section 38 property which was used by the taxpayer in the trade or business of farming, determined on the basis that such credit was used first.
"(3)
Treatment of Investment Tax Credits With Respect to Certain Public Utilities
For provisions requiring different applications of subsec. (c) of this section to certain public utilities by making substitutions in the percentages of the tentative minimum tax referred to in subsec. (c)(3)(A)(ii), (B), under certain circumstances, see section 701(f)(6) of
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 [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Transition Rules
Section 1177 of subtitle C (§§1171–1177) of title XI of
"(a)
"(1) such plan was favorably approved on September 23, 1983, by employees, and
"(2) not later than January 11, 1984, the employer of such employees was 100 percent owned by such plan.
"(b)
"(1) which was first published on December 17, 1855, and which began publication under its current name in 1954, and
"(2) which is published in a constitutional home rule city (within the meaning of section 146(d)(3)(C) of the Internal Revenue Code of 1986) which has a population of less than 2,500,000."
Section 1011B(l)(3) of
Accounting for Investment Credit in Certain Financial Reports and Reports to Federal Agencies
"(1)
"(A) no taxpayer shall be required to use, for purposes of financial reports subject to the jurisdiction of any Federal agency or reports made to any Federal agency, any particular method of accounting for the credit allowed by such section 38 [this section], and
"(B) a taxpayer shall disclose, in any such report, the method of accounting for such credit used by him for purposes of such report.
"(2)
[Section 450(b) of
Treatment of Investment Credit by Federal Regulatory Agencies
"(1) in the case of public utility property (as defined in section 46(c)(3)(B) of the Internal Revenue Code of 1986, more than a proportionate part (determined with reference to the average useful life of the property with respect to which the credit was allowed) of the credit against tax allowed for any taxable year by section 38 of such Code, or
"(2) in the case of any other property, any credit against tax allowed by section 38 of such Code,
to reduce such taxpayer's Federal income taxes for the purpose of establishing the cost of service of the taxpayer or to accomplish a similar result by any other method."
Section 203(e) of
Section Referred to in Other Sections
This section is referred to in
§39. Carryback and carryforward of unused credits
(a) In general
(1) 3-year carryback and 15-year carryforward
If the sum of the business credit carryforwards to the taxable year plus the amount of the current year business credit for the taxable year exceeds the amount of the limitation imposed by subsection (c) of section 38 for such taxable year (hereinafter in this section referred to as the "unused credit year"), such excess (to the extent attributable to the amount of the current year business credit) shall be—
(A) a business credit carryback to each of the 3 taxable years preceding the unused credit year, and
(B) a business credit carryforward to each of the 15 taxable years following the unused credit year,
and, subject to the limitations imposed by subsections (b) and (c), shall be taken into account under the provisions of section 38(a) in the manner provided in section 38(a).
(2) Amount carried to each year
(A) Entire amount carried to first year
The entire amount of the unused credit for an unused credit year shall be carried to the earliest of the 18 taxable years to which (by reason of paragraph (1)) such credit may be carried.
(B) Amount carried to other 17 years
The amount of the unused credit for the unused credit year shall be carried to each of the other 17 taxable years to the extent that such unused credit may not be taken into account under section 38(a) for a prior taxable year because of the limitations of subsections (b) and (c).
(b) Limitation on carrybacks
The amount of the unused credit which may be taken into account under section 38(a)(3) for any preceding taxable year shall not exceed the amount by which the limitation imposed by section 38(c) for such taxable year exceeds the sum of—
(1) the amounts determined under paragraphs (1) and (2) of section 38(a) for such taxable year, plus
(2) the amounts which (by reason of this section) are carried back to such taxable year and are attributable to taxable years preceding the unused credit year.
(c) Limitation on carryforwards
The amount of the unused credit which may be taken into account under section 38(a)(1) for any succeeding taxable year shall not exceed the amount by which the limitation imposed by section 38(c) for such taxable year exceeds the sum of the amounts which, by reason of this section, are carried to such taxable year and are attributable to taxable years preceding the unused credit year.
(d) Transitional rules
(1) No carryback of enhanced oil recovery credit before 1991
No portion of the unused business credit for any taxable year which is attributable to the credit determined under section 43(a) (relating to enhanced oil recovery credit) may be carried to a taxable year beginning before January 1, 1991.
(2) No carryback of section 44 credit before enactment
No portion of the unused business credit for any taxable year which is attributable to the disabled access credit determined under section 44 may be carried to a taxable year ending before the date of the enactment of section 44.
(3) No carryback of renewable electricity production credit before effective date
No portion of the unused business credit for any taxable year which is attributable to the credit determined under section 45 (relating to electricity produced from certain renewable resources) may be carried back to any taxable year ending before January 1, 1993 (before January 1, 1994, to the extent such credit is attributable to wind as a qualified energy resource).
(4) Empowerment zone employment credit
No portion of the unused business credit which is attributable to the credit determined under section 1396 (relating to empowerment zone employment credit) may be carried to any taxable year ending before January 1, 1994.
(5) No carryback of section 45 credit before enactment
No portion of the unused business credit for any taxable year which is attributable to the Indian employment credit determined under section 45A may be carried to a taxable year ending before the date of the enactment of section 45A.
(6) No carryback of section 45 credit before enactment
No portion of the unused business credit for any taxable year which is attributable to the employer social security credit determined under section 45B may be carried back to a taxable year ending before the date of the enactment of section 45B.
(Added
References in Text
The date of the enactment of section 44, referred to in subsec. (d)(2), means the date of the enactment of
The date of the enactment of section 45A, referred to in subsec. (d)(5), means the date of the enactment of
The date of the enactment of section 45B, referred to in subsec. (d)(6), means the date of the enactment of
Prior Provisions
A prior section 39 was renumbered
Another prior section 39 was renumbered
Amendments
1993—Subsec. (d)(4).
Subsec. (d)(5).
Subsec. (d)(6).
1992—Subsec. (d).
1990—Subsec. (d)(1) to (4).
Subsec. (d)(5).
1988—Subsec. (d)(4).
1986—Subsec. (d)(1)(A).
Subsec. (d)(2)(B).
Subsec. (d)(3).
Effective Date of 1993 Amendment
Amendment by section 13322(d) of
Amendment by section 13443(b)(2) of
Effective Date of 1992 Amendment
Amendment by
Effective Date of 1990 Amendment
Amendment by section 11511(b)(2) of
Amendment by section 11611(b)(2) of
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 231(d)(3)(C)(i) of
Amendment by section 1846 of
Effective Date
Section applicable to taxable years beginning after Dec. 31, 1983, and to carrybacks from such years, see section 475(a) of
Savings Provision
For provisions that nothing in amendment by section 11801(a)(2) of
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 [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Section Referred to in Other Sections
This section is referred to in
§40. Alcohol used as fuel
(a) General rule
For purposes of section 38, the alcohol fuels credit determined under this section for the taxable year is an amount equal to the sum of—
(1) the alcohol mixture credit, plus
(2) the alcohol credit, plus
(3) in the case of an eligible small ethanol producer, the small ethanol producer credit.
(b) Definition of alcohol mixture credit, alcohol credit, and small ethanol producer credit
For purposes of this section, and except as provided in subsection (h)—
(1) Alcohol mixture credit
(A) In general
The alcohol mixture credit of any taxpayer for any taxable year is 60 cents for each gallon of alcohol used by the taxpayer in the production of a qualified mixture.
(B) Qualified mixture
The term "qualified mixture" means a mixture of alcohol and gasoline or of alcohol and a special fuel which—
(i) is sold by the taxpayer producing such mixture to any person for use as a fuel, or
(ii) is used as a fuel by the taxpayer producing such mixture.
(C) Sale or use must be in trade or business, etc.
Alcohol used in the production of a qualified mixture shall be taken into account—
(i) only if the sale or use described in subparagraph (B) is in a trade or business of the taxpayer, and
(ii) for the taxable year in which such sale or use occurs.
(D) Casual off-farm production not eligible
No credit shall be allowed under this section with respect to any casual off-farm production of a qualified mixture.
(2) Alcohol credit
(A) In general
The alcohol credit of any taxpayer for any taxable year is 60 cents for each gallon of alcohol which is not in a mixture with gasoline or a special fuel (other than any denaturant) and which during the taxable year—
(i) is used by the taxpayer as a fuel in a trade or business, or
(ii) is sold by the taxpayer at retail to a person and placed in the fuel tank of such person's vehicle.
(B) User credit not to apply to alcohol sold at retail
No credit shall be allowed under subparagraph (A)(i) with respect to any alcohol which was sold in a retail sale described in subparagraph (A)(ii).
(3) Smaller credit for lower proof alcohol
In the case of any alcohol with a proof which is at least 150 but less than 190, paragraphs (1)(A) and (2)(A) shall be applied by substituting "45 cents" for "60 cents".
(4) Small ethanol producer credit
(A) In general
The small ethanol producer credit of any eligible small ethanol producer for any taxable year is 10 cents for each gallon of qualified ethanol fuel production of such producer.
(B) Qualified ethanol fuel production
For purposes of this paragraph, the term "qualified ethanol fuel production" means any alcohol which is ethanol which is produced by an eligible small ethanol producer, and which during the taxable year—
(i) is sold by such producer to another person—
(I) for use by such other person in the production of a qualified mixture in such other person's trade or business (other than casual off-farm production),
(II) for use by such other person as a fuel in a trade or business, or
(III) who sells such ethanol at retail to another person and places such ethanol in the fuel tank of such other person, or
(ii) is used or sold by such producer for any purpose described in clause (i).
(C) Limitation
The qualified ethanol fuel production of any producer for any taxable year shall not exceed 15,000,000 gallons.
(D) Additional distillation excluded
The qualified ethanol fuel production of any producer for any taxable year shall not include any alcohol which is purchased by the producer and with respect to which such producer increases the proof of the alcohol by additional distillation.
(5) Adding of denaturants not treated as mixture
The adding of any denaturant to alcohol shall not be treated as the production of a mixture.
(c) Coordination with exemption from excise tax
The amount of the credit determined under this section with respect to any alcohol shall, under regulations prescribed by the Secretary, be properly reduced to take into account any benefit provided with respect to such alcohol solely by reason of the application of subsection (b)(2), (k), or (m) of section 4041, section 4081(c), or section 4091(c).
(d) Definitions and special rules
For purposes of this section—
(1) Alcohol defined
(A) In general
The term "alcohol" includes methanol and ethanol but does not include—
(i) alcohol produced from petroleum, natural gas, or coal (including peat), or
(ii) alcohol with a proof of less than 150.
(B) Determination of proof
The determination of the proof of any alcohol shall be made without regard to any added denaturants.
(2) Special fuel defined
The term "special fuel" includes any liquid fuel (other than gasoline) which is suitable for use in an internal combustion engine.
(3) Mixture or alcohol not used as a fuel, etc.
(A) Mixtures
If—
(i) any credit was determined under this section with respect to alcohol used in the production of any qualified mixture, and
(ii) any person—
(I) separates the alcohol from the mixture, or
(II) without separation, uses the mixture other than as a fuel,
then there is hereby imposed on such person a tax equal to 60 cents a gallon (45 cents in the case of alcohol with a proof less than 190) for each gallon of alcohol in such mixture.
(B) Alcohol
If—
(i) any credit was determined under this section with respect to the retail sale of any alcohol, and
(ii) any person mixes such alcohol or uses such alcohol other than as a fuel,
then there is hereby imposed on such person a tax equal to 60 cents a gallon (45 cents in the case of alcohol with a proof less than 190) for each gallon of such alcohol.
(C) Producer credit
If—
(i) any credit was determined under subsection (a)(3), and
(ii) any person does not use such fuel for a purpose described in subsection (b)(4)(B),
then there is hereby imposed on such person a tax equal to 10 cents a gallon for each gallon of such alcohol.
(D) Applicable laws
All provisions of law, including penalties, shall, insofar as applicable and not inconsistent with this section, apply in respect of any tax imposed under subparagraph (A), (B), or (C) as if such tax were imposed by section 4081 and not by this chapter.
(4) Volume of alcohol
For purposes of determining—
(A) under subsection (a) the number of gallons of alcohol with respect to which a credit is allowable under subsection (a), or
(B) under section 4041(k) or 4081(c) the percentage of any mixture which consists of alcohol,
the volume of alcohol shall include the volume of any denaturant (including gasoline) which is added under any formulas approved by the Secretary to the extent that such denaturants do not exceed 5 percent of the volume of such alcohol (including denaturants).
(5) Pass-thru in the case of estates and trusts
Under regulations prescribed by the Secretary, rules similar to the rules of subsection (d) of section 52 shall apply.
(e) Termination
(1) In general
This section shall not apply to any sale or use—
(A) for any period after December 31, 2000, or
(B) for any period before January 1, 2001, during which the Highway Trust Fund financing rate under section 4081(a)(2) 1 is not in effect.
(2) No carryovers to certain years after expiration
If this section ceases to apply for any period by reason of paragraph (1), no amount attributable to any sale or use before the first day of such period may be carried under section 39 by reason of this section (treating the amount allowed by reason of this section as the first amount allowed by this subpart) to any taxable year beginning after the 3-taxable-year period beginning with the taxable year in which such first day occurs.
(f) Election to have alcohol fuels credit not apply
(1) In general
A taxpayer may elect to have this section not apply for any taxable year.
(2) Time for making election
An election under paragraph (1) for any taxable year may be made (or revoked) at any time before the expiration of the 3-year period beginning on the last date prescribed by law for filing the return for such taxable year (determined without regard to extensions).
(3) Manner of making election
An election under paragraph (1) (or revocation thereof) shall be made in such manner as the Secretary may by regulations prescribe.
(g) Definitions and special rules for eligible small ethanol producer credit
For purposes of this section—
(1) Eligible small ethanol producer
The term "eligible small ethanol producer" means a person who, at all times during the taxable year, has a productive capacity for alcohol (as defined in subsection (d)(1)(A) without regard to clauses (i) and (ii)) not in excess of 30,000,000 gallons.
(2) Aggregration 2 rule
For purposes of the 15,000,000 gallon limitation under subsection (b)(4)(C) and the 30,000,000 gallon limitation under paragraph (1), all members of the same controlled group of corporations (within the meaning of section 267(f)) and all persons under common control (within the meaning of section 52(b) but determined by treating an interest of more than 50 percent as a controlling interest) shall be treated as 1 person.
(3) Partnership, S corporations, and other pass-thru entities
In the case of a partnership, trust, S corporation, or other pass-thru entity, the limitations contained in subsection (b)(4)(C) and paragraph (1) shall be applied at the entity level and at the partner or similar level.
(4) Allocation
For purposes of this subsection, in the case of a facility in which more than 1 person has an interest, productive capacity shall be allocated among such persons in such manner as the Secretary may prescribe.
(5) Regulations
The Secretary may prescribe such regulations as may be necessary—
(A) to prevent the credit provided for in subsection (a)(3) from directly or indirectly benefiting any person with a direct or indirect productive capacity of more than 30,000,000 gallons of alcohol during the taxable year, or
(B) to prevent any person from directly or indirectly benefiting with respect to more than 15,000,000 gallons during the taxable year.
(h) Reduced credit for ethanol blenders
In the case of any alcohol mixture credit or alcohol credit with respect to any alcohol which is ethanol—
(1) subsections (b)(1)(A) and (b)(2)(A) shall be applied by substituting "54 cents" for "60 cents";
(2) subsection (b)(3) shall be applied by substituting "40 cents" for "45 cents" and "54 cents" for "60 cents"; and
(3) subparagraphs (A) and (B) of subsection (d)(3) shall be applied by substituting "54 cents" for "60 cents" and "40 cents" for "45 cents".
(Added
References in Text
Prior Provisions
A prior section 40, added
Another prior section 40 was renumbered
Amendments
1990—Subsec. (a)(2).
Subsec. (a)(3).
Subsec. (b).
Subsec. (b)(4), (5).
Subsec. (d)(3)(C), (D).
Subsec. (e).
Subsec. (g).
Subsec. (h).
1987—Subsec. (c).
1984—
Subsec. (a).
Subsec. (b)(1)(A), (2)(A).
Subsec. (b)(3).
Subsec. (c).
Subsec. (d)(1)(A)(i).
Subsec. (d)(3)(A).
Subsec. (d)(3)(A)(i).
Subsec. (d)(3)(B).
Subsec. (d)(3)(B)(i).
Subsec. (e).
Subsec. (e)(2).
Subsec. (f).
1983—Subsec. (b)(1)(A), (2)(A).
Subsec. (b)(3).
Subsec. (c).
Subsec. (d)(3)(A), (B).
1982—Subsec. (d)(5).
1981—Subsec. (e)(2)(A).
Effective Date of 1990 Amendment
Section 11502(h) of
"(1) Except as provided in paragraph (2), the amendments made by this section [amending this section] shall apply to alcohol produced, and sold or used, in taxable years beginning after December 31, 1990.
"(2) The amendments made by subsection (g) [amending provisions not classified to the Code] shall apply to articles entered or withdrawn from warehouse on or after January 1, 1991."
Effective Date of 1987 Amendment
Section 10502(e) of
Effective Date of 1984 Amendment
Amendment by section 474(k) of
Section 912(g) of
Amendment by section 913(b) of
Effective Date of 1983 Amendment
Amendments by section 511(b)(2), (d)(3) of
Effective Date of 1982 Amendment
Amendment by
Effective Date of 1981 Amendment
Amendment by
Effective Date
Section 232(h)(1), (4) of
"(1) The amendments made by subsections (b) and (c) [enacting sections 44E [now 40] and 86 of this title and amending
"(4) Notwithstanding paragraph (1), the provisions of section 44E(d)(4)(B) [now 40(d)(4)(B)] of such Code, as added by this section, shall take effect on April 2, 1980."
Section Referred to in Other Sections
This section is referred to in
1 See References in Text note below.
2 So in original. Probably should be "Aggregation".
§41. Credit for increasing research activities
(a) General rule
For purposes of section 38, the research credit determined under this section for the taxable year shall be an amount equal to the sum of—
(1) 20 percent of the excess (if any) of—
(A) the qualified research expenses for the taxable year, over
(B) the base amount, and
(2) 20 percent of the basic research payments determined under subsection (e)(1)(A).
(b) Qualified research expenses
For purposes of this section—
(1) Qualified research expenses
The term "qualified research expenses" means the sum of the following amounts which are paid or incurred by the taxpayer during the taxable year in carrying on any trade or business of the taxpayer—
(A) in-house research expenses, and
(B) contract research expenses.
(2) In-house research expenses
(A) In general
The term "in-house research expenses" means—
(i) any wages paid or incurred to an employee for qualified services performed by such employee,
(ii) any amount paid or incurred for supplies used in the conduct of qualified research, and
(iii) under regulations prescribed by the Secretary, any amount paid or incurred to another person for the right to use computers in the conduct of qualified research.
Clause (iii) shall not apply to any amount to the extent that the taxpayer (or any person with whom the taxpayer must aggregate expenditures under subsection (f)(1)) receives or accrues any amount from any other person for the right to use substantially identical personal property.
(B) Qualified services
The term "qualified services" means services consisting of—
(i) engaging in qualified research, or
(ii) engaging in the direct supervision or direct support of research activities which constitute qualified research.
If substantially all of the services performed by an individual for the taxpayer during the taxable year consists of services meeting the requirements of clause (i) or (ii), the term "qualified services" means all of the services performed by such individual for the taxpayer during the taxable year.
(C) Supplies
The term "supplies" means any tangible property other than—
(i) land or improvements to land, and
(ii) property of a character subject to the allowance for depreciation.
(D) Wages
(i) In general
The term "wages" has the meaning given such term by section 3401(a).
(ii) Self-employed individuals and owner-employees
In the case of an employee (within the meaning of section 401(c)(1)), the term "wages" includes the earned income (as defined in section 401(c)(2)) of such employee.
(iii) Exclusion for wages to which targeted jobs credit applies
The term "wages" shall not include any amount taken into account in determining the targeted jobs credit under section 51(a).
(3) Contract research expenses
(A) In general
The term "contract research expenses" means 65 percent of any amount paid or incurred by the taxpayer to any person (other than an employee of the taxpayer) for qualified research.
(B) Prepaid amounts
If any contract research expenses paid or incurred during any taxable year are attributable to qualified research to be conducted after the close of such taxable year, such amount shall be treated as paid or incurred during the period during which the qualified research is conducted.
(4) Trade or business requirement disregarded for in-house research expenses of certain startup ventures
In the case of in-house research expenses, a taxpayer shall be treated as meeting the trade or business requirement of paragraph (1) if, at the time such in-house research expenses are paid or incurred, the principal purpose of the taxpayer in making such expenditures is to use the results of the research in the active conduct of a future trade or business—
(A) of the taxpayer, or
(B) of 1 or more other persons who with the taxpayer are treated as a single taxpayer under subsection (f)(1).
(c) Base amount
(1) In general
The term "base amount" means the product of—
(A) the fixed-base percentage, and
(B) the average annual gross receipts of the taxpayer for the 4 taxable years preceding the taxable year for which the credit is being determined (hereinafter in this subsection referred to as the "credit year").
(2) Minimum base amount
In no event shall the base amount be less than 50 percent of the qualified research expenses for the credit year.
(3) Fixed-base percentage
(A) In general
Except as otherwise provided in this paragraph, the fixed-base percentage is the percentage which the aggregate qualified research expenses of the taxpayer for taxable years beginning after December 31, 1983, and before January 1, 1989, is of the aggregate gross receipts of the taxpayer for such taxable years.
(B) Start-up companies
(i) Taxpayers to which subparagraph applies
The fixed-base percentage shall be determined under this subparagraph if there are fewer than 3 taxable years beginning after December 31, 1983, and before January 1, 1989, in which the taxpayer had both gross receipts and qualified research expenses.
(ii) Fixed-base percentage
In a case to which this subparagraph applies, the fixed-base percentage is—
(I) 3 percent for each of the taxpayer's 1st 5 taxable years beginning after December 31, 1993, for which the taxpayer has qualified research expenses,
(II) in the case of the taxpayer's 6th such taxable year, 1/6 of the percentage which the aggregate qualified research expenses of the taxpayer for the 4th and 5th such taxable years is of the aggregate gross receipts of the taxpayer for such years,
(III) in the case of the taxpayer's 7th such taxable year, 1/3 of the percentage which the aggregate qualified research expenses of the taxpayer for the 5th and 6th such taxable years is of the aggregate gross receipts of the taxpayer for such years,
(IV) in the case of the taxpayer's 8th such taxable year, ½ of the percentage which the aggregate qualified research expenses of the taxpayer for the 5th, 6th, and 7th such taxable years is of the aggregate gross receipts of the taxpayer for such years,
(V) in the case of the taxpayer's 9th such taxable year, 2/3 of the percentage which the aggregate qualified research expenses of the taxpayer for the 5th, 6th, 7th, and 8th such taxable years is of the aggregate gross receipts of the taxpayer for such years,
(VI) in the case of the taxpayer's 10th such taxable year, 5/6 of the percentage which the aggregate qualified research expenses of the taxpayer for the 5th, 6th, 7th, 8th, and 9th such taxable years is of the aggregate gross receipts of the taxpayer for such years, and
(VII) for taxable years thereafter, the percentage which the aggregate qualified research expenses for any 5 taxable years selected by the taxpayer from among the 5th through the 10th such taxable years is of the aggregate gross receipts of the taxpayer for such selected years.
(iii) Treatment of de minimis amounts of gross receipts and qualified research expenses
The Secretary may prescribe regulations providing that de minimis amounts of gross receipts and qualified research expenses shall be disregarded under clauses (i) and (ii).
(C) Maximum fixed-base percentage
In no event shall the fixed-base percentage exceed 16 percent.
(D) Rounding
The percentages determined under subparagraphs (A) and (B)(ii) shall be rounded to the nearest 1/100th of 1 percent.
(4) Consistent treatment of expenses required
(A) In general
Notwithstanding whether the period for filing a claim for credit or refund has expired for any taxable year taken into account in determining the fixed-base percentage, the qualified research expenses taken into account in computing such percentage shall be determined on a basis consistent with the determination of qualified research expenses for the credit year.
(B) Prevention of distortions
The Secretary may prescribe regulations to prevent distortions in calculating a taxpayer's qualified research expenses or gross receipts caused by a change in accounting methods used by such taxpayer between the current year and a year taken into account in computing such taxpayer's fixed-base percentage.
(5) Gross receipts
For purposes of this subsection, gross receipts for any taxable year shall be reduced by returns and allowances made during the taxable year. In the case of a foreign corporation, there shall be taken into account only gross receipts which are effectively connected with the conduct of a trade or business within the United States.
(d) Qualified research defined
For purposes of this section—
(1) In general
The term "qualified research" means research—
(A) with respect to which expenditures may be treated as expenses under section 174,
(B) which is undertaken for the purpose of discovering information—
(i) which is technological in nature, and
(ii) the application of which is intended to be useful in the development of a new or improved business component of the taxpayer, and
(C) substantially all of the activities of which constitute elements of a process of experimentation for a purpose described in paragraph (3).
Such term does not include any activity described in paragraph (4).
(2) Tests to be applied separately to each business component
For purposes of this subsection—
(A) In general
Paragraph (1) shall be applied separately with respect to each business component of the taxpayer.
(B) Business component defined
The term "business component" means any product, process, computer software, technique, formula, or invention which is to be—
(i) held for sale, lease, or license, or
(ii) used by the taxpayer in a trade or business of the taxpayer.
(C) Special rule for production processes
Any plant process, machinery, or technique for commercial production of a business component shall be treated as a separate business component (and not as part of the business component being produced).
(3) Purposes for which research may qualify for credit
For purposes of paragraph (1)(C)—
(A) In general
Research shall be treated as conducted for a purpose described in this paragraph if it relates to—
(i) a new or improved function,
(ii) performance, or
(iii) reliability or quality.
(B) Certain purposes not qualified
Research shall in no event be treated as conducted for a purpose described in this paragraph if it relates to style, taste, cosmetic, or seasonal design factors.
(4) Activities for which credit not allowed
The term "qualified research" shall not include any of the following:
(A) Research after commercial production
Any research conducted after the beginning of commercial production of the business component.
(B) Adaptation of existing business components
Any research related to the adaptation of an existing business component to a particular customer's requirement or need.
(C) Duplication of existing business component
Any research related to the reproduction of an existing business component (in whole or in part) from a physical examination of the business component itself or from plans, blueprints, detailed specifications, or publicly available information with respect to such business component.
(D) Surveys, studies, etc.
Any—
(i) efficiency survey,
(ii) activity relating to management function or technique,
(iii) market research, testing, or development (including advertising or promotions),
(iv) routine data collection, or
(v) routine or ordinary testing or inspection for quality control.
(E) Computer software
Except to the extent provided in regulations, any research with respect to computer software which is developed by (or for the benefit of) the taxpayer primarily for internal use by the taxpayer, other than for use in—
(i) an activity which constitutes qualified research (determined with regard to this subparagraph), or
(ii) a production process with respect to which the requirements of paragraph (1) are met.
(F) Foreign research
Any research conducted outside the United States.
(G) Social sciences, etc.
Any research in the social sciences, arts, or humanities.
(H) Funded research
Any research to the extent funded by any grant, contract, or otherwise by another person (or governmental entity).
(e) Credit allowable with respect to certain payments to qualified organizations for basic research
For purposes of this section—
(1) In general
In the case of any taxpayer who makes basic research payments for any taxable year—
(A) the amount of basic research payments taken into account under subsection (a)(2) shall be equal to the excess of—
(i) such basic research payments, over
(ii) the qualified organization base period amount, and
(B) that portion of such basic research payments which does not exceed the qualified organization base period amount shall be treated as contract research expenses for purposes of subsection (a)(1).
(2) Basic research payments defined
For purposes of this subsection—
(A) In general
The term "basic research payment" means, with respect to any taxable year, any amount paid in cash during such taxable year by a corporation to any qualified organization for basic research but only if—
(i) such payment is pursuant to a written agreement between such corporation and such qualified organization, and
(ii) such basic research is to be performed by such qualified organization.
(B) Exception to requirement that research be performed by the organization
In the case of a qualified organization described in subparagraph (C) or (D) of paragraph (6), clause (ii) of subparagraph (A) shall not apply.
(3) Qualified organization base period amount
For purposes of this subsection, the term "qualified organization base period amount" means an amount equal to the sum of—
(A) the minimum basic research amount, plus
(B) the maintenance-of-effort amount.
(4) Minimum basic research amount
For purposes of this subsection—
(A) In general
The term "minimum basic research amount" means an amount equal to the greater of—
(i) 1 percent of the average of the sum of amounts paid or incurred during the base period for—
(I) any in-house research expenses, and
(II) any contract research expenses, or
(ii) the amounts treated as contract research expenses during the base period by reason of this subsection (as in effect during the base period).
(B) Floor amount
Except in the case of a taxpayer which was in existence during a taxable year (other than a short taxable year) in the base period, the minimum basic research amount for any base period shall not be less than 50 percent of the basic research payments for the taxable year for which a determination is being made under this subsection.
(5) Maintenance-of-effort amount
For purposes of this subsection—
(A) In general
The term "maintenance-of-effort amount" means, with respect to any taxable year, an amount equal to the excess (if any) of—
(i) an amount equal to—
(I) the average of the nondesignated university contributions paid by the taxpayer during the base period, multiplied by
(II) the cost-of-living adjustment for the calendar year in which such taxable year begins, over
(ii) the amount of nondesignated university contributions paid by the taxpayer during such taxable year.
(B) Nondesignated university contributions
For purposes of this paragraph, the term "nondesignated university contribution" means any amount paid by a taxpayer to any qualified organization described in paragraph (6)(A)—
(i) for which a deduction was allowable under section 170, and
(ii) which was not taken into account—
(I) in computing the amount of the credit under this section (as in effect during the base period) during any taxable year in the base period, or
(II) as a basic research payment for purposes of this section.
(C) Cost-of-living adjustment defined
(i) In general
The cost-of-living adjustment for any calendar year is the cost-of-living adjustment for such calendar year determined under section 1(f)(3), by substituting "calendar year 1987" for "calendar year 1992" in subparagraph (B) thereof.
(ii) Special rule where base period ends in a calendar year other than 1983 or 1984
If the base period of any taxpayer does not end in 1983 or 1984, section 1(f)(3)(B) shall, for purposes of this paragraph, be applied by substituting the calendar year in which such base period ends for 1992. Such substitution shall be in lieu of the substitution under clause (i).
(6) Qualified organization
For purposes of this subsection, the term "qualified organization" means any of the following organizations:
(A) Educational institutions
Any educational organization which—
(i) is an institution of higher education (within the meaning of section 3304(f)), and
(ii) is described in section 170(b)(1)(A)(ii).
(B) Certain scientific research organizations
Any organization not described in subparagraph (A) which—
(i) is described in section 501(c)(3) and is exempt from tax under section 501(a),
(ii) is organized and operated primarily to conduct scientific research, and
(iii) is not a private foundation.
(C) Scientific tax-exempt organizations
Any organization which—
(i) is described in—
(I) section 501(c)(3) (other than a private foundation), or
(II) section 501(c)(6),
(ii) is exempt from tax under section 501(a),
(iii) is organized and operated primarily to promote scientific research by qualified organizations described in subparagraph (A) pursuant to written research agreements, and
(iv) currently expends—
(I) substantially all of its funds, or
(II) substantially all of the basic research payments received by it,
for grants to, or contracts for basic research with, an organization described in subparagraph (A).
(D) Certain grant organizations
Any organization not described in subparagraph (B) or (C) which—
(i) is described in section 501(c)(3) and is exempt from tax under section 501(a) (other than a private foundation),
(ii) is established and maintained by an organization established before July 10, 1981, which meets the requirements of clause (i),
(iii) is organized and operated exclusively for the purpose of making grants to organizations described in subparagraph (A) pursuant to written research agreements for purposes of basic research, and
(iv) makes an election, revocable only with the consent of the Secretary, to be treated as a private foundation for purposes of this title (other than section 4940, relating to excise tax based on investment income).
(7) Definitions and special rules
For purposes of this subsection—
(A) Basic research
The term "basic research" means any original investigation for the advancement of scientific knowledge not having a specific commercial objective, except that such term shall not include—
(i) basic research conducted outside of the United States, and
(ii) basic research in the social sciences, arts, or humanities.
(B) Base period
The term "base period" means the 3-taxable-year period ending with the taxable year immediately preceding the 1st taxable year of the taxpayer beginning after December 31, 1983.
(C) Exclusion from incremental credit calculation
For purposes of determining the amount of credit allowable under subsection (a)(1) for any taxable year, the amount of the basic research payments taken into account under subsection (a)(2)—
(i) shall not be treated as qualified research expenses under subsection (a)(1)(A), and
(ii) shall not be included in the computation of base amount under subsection (a)(1)(B).
(D) Trade or business qualification
For purposes of applying subsection (b)(1) to this subsection, any basic research payments shall be treated as an amount paid in carrying on a trade or business of the taxpayer in the taxable year in which it is paid (without regard to the provisions of subsection (b)(3)(B)).
(E) Certain corporations not eligible
The term "corporation" shall not include—
(i) an S corporation,
(ii) a personal holding company (as defined in section 542), or
(iii) a service organization (as defined in section 414(m)(3)).
(f) Special rules
For purposes of this section—
(1) Aggregation of expenditures
(A) Controlled group of corporations
In determining the amount of the credit under this section—
(i) all members of the same controlled group of corporations shall be treated as a single taxpayer, and
(ii) the credit (if any) allowable by this section to each such member shall be its proportionate shares of the qualified research expenses and basic research payments giving rise to the credit.
(B) Common control
Under regulations prescribed by the Secretary, in determining the amount of the credit under this section—
(i) all trades or businesses (whether or not incorporated) which are under common control shall be treated as a single taxpayer, and
(ii) the credit (if any) allowable by this section to each such person shall be its proportionate shares of the qualified research expenses and basic research payments giving rise to the credit.
The regulations prescribed under this subparagraph shall be based on principles similar to the principles which apply in the case of subparagraph (A).
(2) Allocations
(A) Pass-thru in the case of estates and trusts
Under regulations prescribed by the Secretary, rules similar to the rules of subsection (d) of section 52 shall apply.
(B) Allocation in the case of partnerships
In the case of partnerships, the credit shall be allocated among partners under regulations prescribed by the Secretary.
(3) Adjustments for certain acquisitions, etc.
Under regulations prescribed by the Secretary—
(A) Acquisitions
If, after December 31, 1983, a taxpayer acquires the major portion of a trade or business of another person (hereinafter in this paragraph referred to as the "predecessor") or the major portion of a separate unit of a trade or business of a predecessor, then, for purposes of applying this section for any taxable year ending after such acquisition, the amount of qualified research expenses paid or incurred by the taxpayer during periods before such acquisition shall be increased by so much of such expenses paid or incurred by the predecessor with respect to the acquired trade or business as is attributable to the portion of such trade or business or separate unit acquired by the taxpayer, and the gross receipts of the taxpayer for such periods shall be increased by so much of the gross receipts of such predecessor with respect to the acquired trade or business as is attributable to such portion.
(B) Dispositions
If, after December 31, 1983—
(i) a taxpayer disposes of the major portion of any trade or business or the major portion of a separate unit of a trade or business in a transaction to which subparagraph (A) applies, and
(ii) the taxpayer furnished the acquiring person such information as is necessary for the application of subparagraph (A),
then, for purposes of applying this section for any taxable year ending after such disposition, the amount of qualified research expenses paid or incurred by the taxpayer during periods before such disposition shall be decreased by so much of such expenses as is attributable to the portion of such trade or business or separate unit disposed of by the taxpayer, and the gross receipts of the taxpayer for such periods shall be decreased by so much of the gross receipts as is attributable to such portion.
(C) Certain reimbursements taken into account in determining fixed-base percentage
If during any of the 3 taxable years following the taxable year in which a disposition to which subparagraph (B) applies occurs, the disposing taxpayer (or a person with whom the taxpayer is required to aggregate expenditures under paragraph (1)) reimburses the acquiring person (or a person required to so aggregate expenditures with such person) for research on behalf of the taxpayer, then the amount of qualified research expenses of the taxpayer for the taxable years taken into account in computing the fixed-base percentage shall be increased by the lesser of—
(i) the amount of the decrease under subparagraph (B) which is allocable to taxable years so taken into account, or
(ii) the product of the number of taxable years so taken into account, multiplied by the amount of the reimbursement described in this subparagraph.
(4) Short taxable years
In the case of any short taxable year, qualified research expenses and gross receipts shall be annualized in such circumstances and under such methods as the Secretary may prescribe by regulation.
(5) Controlled group of corporations
The term "controlled group of corporations" has the same meaning given to such term by section 1563(a), except that—
(A) "more than 50 percent" shall be substituted for "at least 80 percent" each place it appears in section 1563(a)(1), and
(B) the determination shall be made without regard to subsections (a)(4) and (e)(3)(C) of section 1563.
(g) Special rule for pass-thru of credit
In the case of an individual who—
(1) owns an interest in an unincorporated trade or business,
(2) is a partner in a partnership,
(3) is a beneficiary of an estate or trust, or
(4) is a shareholder in an S corporation,
the amount determined under subsection (a) for any taxable year shall not exceed an amount (separately computed with respect to such person's interest in such trade or business or entity) equal to the amount of tax attributable to that portion of a person's taxable income which is allocable or apportionable to the person's interest in such trade or business or entity. If the amount determined under subsection (a) for any taxable year exceeds the limitation of the preceding sentence, such amount may be carried to other taxable years under the rules of section 39; except that the limitation of the preceding sentence shall be taken into account in lieu of the limitation of section 38(c) in applying section 39.
(h) Termination
(1) In general
This section shall not apply to any amount paid or incurred after June 30, 1995.
(2) Computation of base amount
In the case of any taxable year which begins before July 1, 1995, and ends after June 30, 1995, the base amount with respect to such taxable year shall be the amount which bears the same ratio to the base amount for such year (determined without regard to this paragraph) as the number of days in such taxable year before July 1, 1995, bears to the total number of days in such taxable year.
(Added
Prior Provisions
A prior section 41, added
Another prior section 41 was renumbered
Amendments
1993—Subsec. (c)(3)(B)(ii).
Subsec. (c)(3)(B)(iii).
Subsec. (c)(3)(D).
Subsec. (e)(5)(C).
Subsec. (h).
1991—Subsec. (h).
1990—Subsec. (e)(5)(C)(i).
Subsec. (e)(5)(C)(ii).
Subsec. (h).
1989—Subsec. (a)(1)(B).
Subsec. (b)(4).
Subsec. (c).
Subsec. (e)(7)(C)(ii).
Subsec. (f)(1).
Subsec. (f)(3)(A).
Subsec. (f)(3)(B).
Subsec. (f)(3)(C).
"(i) the amount of the decrease under subparagraph (B) which is allocable to such base period, or
"(ii) the product of the number of years in the base period, multiplied by the amount of the reimbursement described in this subparagraph."
Subsec. (f)(4).
Subsec. (h).
Subsec. (h)(1).
Subsec. (h)(2).
Subsec. (i).
1988—Subsec. (g).
Subsec. (h).
Subsec. (i).
1986—
Subsec. (a).
"(1) the qualified research expenses for the taxable year, over
"(2) the base period research expenses."
Subsec. (b)(2)(A)(iii).
Subsec. (b)(2)(D)(iii).
Subsec. (d).
"(1) qualified research conducted outside the United States,
"(2) qualified research in the social sciences or humanities, and
"(3) qualified research to the extent funded by any grant, contract, or otherwise by another person (or any governmental entity)."
Subsec. (e).
Subsec. (g).
Subsec. (h).
1984—
Subsec. (b)(2)(D)(iii).
Subsec. (g)(1)(A).
1983—Subsec. (b)(2)(A).
1982—Subsec. (f)(2)(A).
Subsec. (g)(1)(B)(iv).
Effective Date of 1993 Amendment
Amendment by section 13111(a)(1) of
Section 13112(c) of
Amendment by section 13201(b)(3)(C) of
Effective Date of 1991 Amendment
Amendment by
Effective Date of 1990 Amendment
Amendment by section 11101(d)(1)(C) of
Amendment by section 11402(a) of
Effective Date of 1989 Amendment
Section 7110(e) of
Amendment by section 7814(e)(2)(C) of
Effective Date of 1988 Amendment
Amendment by section 1002(h)(1) of
Section 4008(d) of
Effective Date of 1986 Amendment
Section 231(g) of
"(1)
"(2)
"(3)
Amendment by section 1847(b)(1) of
Effective Date of 1984 Amendment
Amendment by section 474(i)(1) of
Amendment by section 612(e)(1) of
Effective Date of 1983 Amendment
Section 102(h)(2) of
Effective Date of 1982 Amendment
Amendment by
Effective Date
Section 221(d) of
"(1)
"(2)
"(A)
"(B)
Special Rules for Taxable Years Beginning Before Oct. 1, 1990, and Ending After Sept. 30, 1990
Section 7110(a)(2) of
Study and Report on Credit Provided by This Section
Section 4007(b) of
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 [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
New Section 41 Treated as Continuation of Old Section 44F
Section 474(i)(2) of
"(A) whether any excess credit under old section 44F [now 41] for a taxable year beginning before January 1, 1984, is allowable as a carryover under new section 30 [now 41], and
"(B) the period during which new section 30 [now 41] is in effect,
new section 30 [now 41] shall be treated as a continuation of old section 44F (and shall apply only to the extent old section 44F would have applied)."
Section Referred to in Other Sections
This section is referred to in
§42. Low-income housing credit
(a) In general
For purposes of section 38, the amount of the low-income housing credit determined under this section for any taxable year in the credit period shall be an amount equal to—
(1) the applicable percentage of
(2) the qualified basis of each qualified low-income building.
(b) Applicable percentage: 70 percent present value credit for certain new buildings; 30 percent present value credit for certain other buildings
For purposes of this section—
(1) Building placed in service during 1987
In the case of any qualified low-income building placed in service by the taxpayer during 1987, the term "applicable percentage" means—
(A) 9 percent for new buildings which are not federally subsidized for the taxable year, or
(B) 4 percent for—
(i) new buildings which are federally subsidized for the taxable year, and
(ii) existing buildings.
(2) Buildings placed in service after 1987
(A) In general
In the case of any qualified low-income building placed in service by the taxpayer after 1987, the term "applicable percentage" means the appropriate percentage prescribed by the Secretary for the earlier of—
(i) the month in which such building is placed in service, or
(ii) at the election of the taxpayer—
(I) the month in which the taxpayer and the housing credit agency enter into an agreement with respect to such building (which is binding on such agency, the taxpayer, and all successors in interest) as to the housing credit dollar amount to be allocated to such building, or
(II) in the case of any building to which subsection (h)(4)(B) applies, the month in which the tax-exempt obligations are issued.
A month may be elected under clause (ii) only if the election is made not later than the 5th day after the close of such month. Such an election, once made, shall be irrevocable.
(B) Method of prescribing percentages
The percentages prescribed by the Secretary for any month shall be percentages which will yield over a 10-year period amounts of credit under subsection (a) which have a present value equal to—
(i) 70 percent of the qualified basis of a building described in paragraph (1)(A), and
(ii) 30 percent of the qualified basis of a building described in paragraph (1)(B).
(C) Method of discounting
The present value under subparagraph (B) shall be determined—
(i) as of the last day of the 1st year of the 10-year period referred to in subparagraph (B),
(ii) by using a discount rate equal to 72 percent of the average of the annual Federal mid-term rate and the annual Federal long-term rate applicable under section 1274(d)(1) to the month applicable under clause (i) or (ii) of subparagraph (A) and compounded annually, and
(iii) by assuming that the credit allowable under this section for any year is received on the last day of such year.
(3) Cross references
(A) For treatment of certain rehabilitation expenditures as separate new buildings, see subsection (e).
(B) For determination of applicable percentage for increases in qualified basis after the 1st year of the credit period, see subsection (f)(3).
(C) For authority of housing credit agency to limit applicable percentage and qualified basis which may be taken into account under this section with respect to any building, see subsection (h)(7).
(c) Qualified basis; qualified low-income building
For purposes of this section—
(1) Qualified basis
(A) Determination
The qualified basis of any qualified low-income building for any taxable year is an amount equal to—
(i) the applicable fraction (determined as of the close of such taxable year) of
(ii) the eligible basis of such building (determined under subsection (d)(5)).
(B) Applicable fraction
For purposes of subparagraph (A), the term "applicable fraction" means the smaller of the unit fraction or the floor space fraction.
(C) Unit fraction
For purposes of subparagraph (B), the term "unit fraction" means the fraction—
(i) the numerator of which is the number of low-income units in the building, and
(ii) the denominator of which is the number of residential rental units (whether or not occupied) in such building.
(D) Floor space fraction
For purposes of subparagraph (B), the term "floor space fraction" means the fraction—
(i) the numerator of which is the total floor space of the low-income units in such building, and
(ii) the denominator of which is the total floor space of the residential rental units (whether or not occupied) in such building.
(E) Qualified basis to include portion of building used to provide supportive services for homeless
In the case of a qualified low-income building described in subsection (i)(3)(B)(iii), the qualified basis of such building for any taxable year shall be increased by the lesser of—
(i) so much of the eligible basis of such building as is used throughout the year to provide supportive services designed to assist tenants in locating and retaining permanent housing, or
(ii) 20 percent of the qualified basis of such building (determined without regard to this subparagraph).
(2) Qualified low-income building
The term "qualified low-income building" means any building—
(A) which is part of a qualified low-income housing project at all times during the period—
(i) beginning on the 1st day in the compliance period on which such building is part of such a project, and
(ii) ending on the last day of the compliance period with respect to such building, and
(B) to which the amendments made by section 201(a) of the Tax Reform Act of 1986 apply.
Such term does not include any building with respect to which moderate rehabilitation assistance is provided, at any time during the compliance period, under section 8(e)(2) 1 of the United States Housing Act of 1937 (other than assistance under the Stewart B. McKinney Homeless Assistance Act of 1988 (as in effect on the date of the enactment of this sentence)).
(d) Eligible basis
For purposes of this section—
(1) New buildings
The eligible basis of a new building is its adjusted basis as of the close of the 1st taxable year of the credit period.
(2) Existing buildings
(A) In general
The eligible basis of an existing building is—
(i) in the case of a building which meets the requirements of subparagraph (B), its adjusted basis as of the close of the 1st taxable year of the credit period, and
(ii) zero in any other case.
(B) Requirements
A building meets the requirements of this subparagraph if—
(i) the building is acquired by purchase (as defined in section 179(d)(2)),
(ii) there is a period of at least 10 years between the date of its acquisition by the taxpayer and the later of—
(I) the date the building was last placed in service, or
(II) the date of the most recent nonqualified substantial improvement of the building,
(iii) the building was not previously placed in service by the taxpayer or by any person who was a related person with respect to the taxpayer as of the time previously placed in service, and
(iv) except as provided in subsection (f)(5), a credit is allowable under subsection (a) by reason of subsection (e) with respect to the building.
(C) Adjusted basis
For purposes of subparagraph (A), the adjusted basis of any building shall not include so much of the basis of such building as is determined by reference to the basis of other property held at any time by the person acquiring the building.
(D) Special rules for subparagraph (B)
(i) Nonqualified substantial improvement
For purposes of subparagraph (B)(ii)—
(I) In general
The term "nonqualified substantial improvement" means any substantial improvement if section 167(k) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990) was elected with respect to such improvement or section 168 (as in effect on the day before the date of the enactment of the Tax Reform Act of 1986) applied to such improvement.
(II) Date of substantial improvement
The date of a substantial improvement is the last day of the 24-month period referred to in subclause (III).
(III) Substantial improvement
The term "substantial improvement" means the improvements added to capital account with respect to the building during any 24-month period, but only if the sum of the amounts added to such account during such period equals or exceeds 25 percent of the adjusted basis of the building (determined without regard to paragraphs (2) and (3) of section 1016(a)) as of the 1st day of such period.
(ii) Special rules for certain transfers
For purposes of determining under subparagraph (B)(ii) when a building was last placed in service, there shall not be taken into account any placement in service—
(I) in connection with the acquisition of the building in a transaction in which the basis of the building in the hands of the person acquiring it is determined in whole or in part by reference to the adjusted basis of such building in the hands of the person from whom acquired,
(II) by a person whose basis in such building is determined under section 1014(a) (relating to property acquired from a decedent),
(III) by any governmental unit or qualified nonprofit organization (as defined in subsection (h)(5)) if the requirements of subparagraph (B)(ii) are met with respect to the placement in service by such unit or organization and all the income from such property is exempt from Federal income taxation,
(IV) by any person who acquired such building by foreclosure (or by instrument in lieu of foreclosure) of any purchase-money security interest held by such person if the requirements of subparagraph (B)(ii) are met with respect to the placement in service by such person and such building is resold within 12 months after the date such building is placed in service by such person after such foreclosure, or
(V) of a single-family residence by any individual who owned and used such residence for no other purpose than as his principal residence.
(iii) Related person, etc.
(I) Application of section 179
For purposes of subparagraph (B)(i), section 179(d) shall be applied by substituting "10 percent" for "50 percent" in section 2 267(b) and 707(b) and in section 179(b)(7).
(II) Related person
For purposes of subparagraph (B)(iii), a person (hereinafter in this subclause referred to as the "related person") is related to any person if the related person bears a relationship to such person specified in section 267(b) or 707(b)(1), or the related person and such person are engaged in trades or businesses under common control (within the meaning of subsections (a) and (b) of section 52). For purposes of the preceding sentence, in applying section 267(b) or 707(b)(1), "10 percent" shall be substituted for "50 percent".
(3) Eligible basis reduced where disproportionate standards for units
(A) In general
Except as provided in subparagraph (B), the eligible basis of any building shall be reduced by an amount equal to the portion of the adjusted basis of the building which is attributable to residential rental units in the building which are not low-income units and which are above the average quality standard of the low-income units in the building.
(B) Exception where taxpayer elects to exclude excess costs
(i) In general
Subparagraph (A) shall not apply with respect to a residential rental unit in a building which is not a low-income unit if—
(I) the excess described in clause (ii) with respect to such unit is not greater than 15 percent of the cost described in clause (ii)(II), and
(II) the taxpayer elects to exclude from the eligible basis of such building the excess described in clause (ii) with respect to such unit.
(ii) Excess
The excess described in this clause with respect to any unit is the excess of—
(I) the cost of such unit, over
(II) the amount which would be the cost of such unit if the average cost per square foot of low-income units in the building were substituted for the cost per square foot of such unit.
The Secretary may by regulation provide for the determination of the excess under this clause on a basis other than square foot costs.
(4) Special rules relating to determination of adjusted basis
For purposes of this subsection—
(A) In general
Except as provided in subparagraph (B), the adjusted basis of any building shall be determined without regard to the adjusted basis of any property which is not residential rental property.
(B) Basis of property in common areas, etc., included
The adjusted basis of any building shall be determined by taking into account the adjusted basis of property (of a character subject to the allowance for depreciation) used in common areas or provided as comparable amenities to all residential rental units in such building.
(C) No reduction for depreciation
The adjusted basis of any building shall be determined without regard to paragraphs (2) and (3) of section 1016(a).
(5) Special rules for determining eligible basis
(A) Eligible basis reduced by Federal grants
If, during any taxable year of the compliance period, a grant is made with respect to any building or the operation thereof and any portion of such grant is funded with Federal funds (whether or not includible in gross income), the eligible basis of such building for such taxable year and all succeeding taxable years shall be reduced by the portion of such grant which is so funded.
(B) Eligible basis not to include expenditures where section 167(k) elected
The eligible basis of any building shall not include any portion of its adjusted basis which is attributable to amounts with respect to which an election is made under section 167(k) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990).
(C) Increase in credit for buildings in high cost areas
(i) In general
In the case of any building located in a qualified census tract or difficult development area which is designated for purposes of this subparagraph—
(I) in the case of a new building, the eligible basis of such building shall be 130 percent of such basis determined without regard to this subparagraph, and
(II) in the case of an existing building, the rehabilitation expenditures taken into account under subsection (e) shall be 130 percent of such expenditures determined without regard to this subparagraph.
(ii) Qualified census tract
(I) In general
The term "qualified census tract" means any census tract which is designated by the Secretary of Housing and Urban Development and, for the most recent year for which census data are available on household income in such tract, in which 50 percent or more of the households have an income which is less than 60 percent of the area median gross income for such year. If the Secretary of Housing and Urban Development determines that sufficient data for any period are not available to apply this clause on the basis of census tracts, such Secretary shall apply this clause for such period on the basis of enumeration districts.
(II) Limit on MSA's designated
The portion of a metropolitan statistical area which may be designated for purposes of this subparagraph shall not exceed an area having 20 percent of the population of such metropolitan statistical area.
(III) Determination of areas
For purposes of this clause, each metropolitan statistical area shall be treated as a separate area and all nonmetropolitan areas in a State shall be treated as 1 area.
(iii) Difficult development areas
(I) In general
The term "difficult development areas" means any area designated by the Secretary of Housing and Urban Development as an area which has high construction, land, and utility costs relative to area median gross income.
(II) Limit on areas designated
The portions of metropolitan statistical areas which may be designated for purposes of this subparagraph shall not exceed an aggregate area having 20 percent of the population of such metropolitan statistical areas. A comparable rule shall apply to nonmetropolitan areas.
(iv) Special rules and definitions
For purposes of this subparagraph—
(I) population shall be determined on the basis of the most recent decennial census for which data are available,
(II) area median gross income shall be determined in accordance with subsection (g)(4),
(III) the term "metropolitan statistical area" has the same meaning as when used in section 143(k)(2)(B), and
(IV) the term "nonmetropolitan area" means any county (or portion thereof) which is not within a metropolitan statistical area.
(6) Credit allowable for certain federally-assisted buildings acquired during 10-year period described in paragraph (2)(B)(ii)
(A) In general
On application by the taxpayer, the Secretary (after consultation with the appropriate Federal official) may waive paragraph (2)(B)(ii) with respect to any federally-assisted building if the Secretary determines that such waiver is necessary—
(i) to avert an assignment of the mortgage secured by property in the project (of which such building is a part) to the Department of Housing and Urban Development or the Farmers Home Administration, or
(ii) to avert a claim against a Federal mortgage insurance fund (or such Department or Administration) with respect to a mortgage which is so secured.
The preceding sentence shall not apply to any building described in paragraph (7)(B).
(B) Federally-assisted building
For purposes of subparagraph (A), the term "federally-assisted building" means any building which is substantially assisted, financed, or operated under—
(i) section 8 of the United States Housing Act of 1937,
(ii) section 221(d)(3) or 236 of the National Housing Act, or
(iii) section 515 of the Housing Act of 1949,
as such Acts are in effect on the date of the enactment of the Tax Reform Act of 1986.
(C) Low-income buildings where mortgage may be prepaid
A waiver may be granted under subparagraph (A) (without regard to any clause thereof) with respect to a federally-assisted building described in clause (ii) or (iii) of subparagraph (B) if—
(i) the mortgage on such building is eligible for prepayment under subtitle B of the Emergency Low Income Housing Preservation Act of 1987 or under section 502(c) of the Housing Act of 1949 at any time within 1 year after the date of the application for such a waiver,
(ii) the appropriate Federal official certifies to the Secretary that it is reasonable to expect that, if the waiver is not granted, such building will cease complying with its low-income occupancy requirements, and
(iii) the eligibility to prepay such mortgage without the approval of the appropriate Federal official is waived by all persons who are so eligible and such waiver is binding on all successors of such persons.
(D) Buildings acquired from insured depository institutions in default
A waiver may be granted under subparagraph (A) (without regard to any clause thereof) with respect to any building acquired from an insured depository institution in default (as defined in section 3 of the Federal Deposit Insurance Act) or from a receiver or conservator of such an institution.
(E) Appropriate Federal official
For purposes of subparagraph (A), the term "appropriate Federal official" means—
(i) the Secretary of Housing and Urban Development in the case of any building described in subparagraph (B) by reason of clause (i) or (ii) thereof, and
(ii) the Secretary of Agriculture in the case of any building described in subparagraph (B) by reason of clause (iii) thereof.
(7) Acquisition of building before end of prior compliance period
(A) In general
Under regulations prescribed by the Secretary, in the case of a building described in subparagraph (B) (or interest therein) which is acquired by the taxpayer—
(i) paragraph (2)(B) shall not apply, but
(ii) the credit allowable by reason of subsection (a) to the taxpayer for any period after such acquisition shall be equal to the amount of credit which would have been allowable under subsection (a) for such period to the prior owner referred to in subparagraph (B) had such owner not disposed of the building.
(B) Description of building
A building is described in this subparagraph if—
(i) a credit was allowed by reason of subsection (a) to any prior owner of such building, and
(ii) the taxpayer acquired such building before the end of the compliance period for such building with respect to such prior owner (determined without regard to any disposition by such prior owner).
(e) Rehabilitation expenditures treated as separate new building
(1) In general
Rehabilitation expenditures paid or incurred by the taxpayer with respect to any building shall be treated for purposes of this section as a separate new building.
(2) Rehabilitation expenditures
For purposes of paragraph (1)—
(A) In general
The term "rehabilitation expenditures" means amounts chargeable to capital account and incurred for property (or additions or improvements to property) of a character subject to the allowance for depreciation in connection with the rehabilitation of a building.
(B) Cost of acquisition, etc,3 not included
Such term does not include the cost of acquiring any building (or interest therein) or any amount not permitted to be taken into account under paragraph (3) or (4) of subsection (d).
(3) Minimum expenditures to qualify
(A) In general
Paragraph (1) shall apply to rehabilitation expenditures with respect to any building only if—
(i) the expenditures are allocable to 1 or more low-income units or substantially benefit such units, and
(ii) the amount of such expenditures during any 24-month period meets the requirements of whichever of the following subclauses requires the greater amount of such expenditures:
(I) The requirement of this subclause is met if such amount is not less than 10 percent of the adjusted basis of the building (determined as of the 1st day of such period and without regard to paragraphs (2) and (3) of section 1016(a)).
(II) The requirement of this subclause is met if the qualified basis attributable to such amount, when divided by the number of low-income units in the building, is $3,000 or more.
(B) Exception from 10 percent rehabilitation
In the case of a building acquired by the taxpayer from a governmental unit, at the election of the taxpayer, subparagraph (A)(ii)(I) shall not apply and the credit under this section for such rehabilitation expenditures shall be determined using the percentage applicable under subsection (b)(2)(B)(ii).
(C) Date of determination
The determination under subparagraph (A) shall be made as of the close of the 1st taxable year in the credit period with respect to such expenditures.
(4) Special rules
For purposes of applying this section with respect to expenditures which are treated as a separate building by reason of this subsection—
(A) such expenditures shall be treated as placed in service at the close of the 24-month period referred to in paragraph (3)(A), and
(B) the applicable fraction under subsection (c)(1) shall be the applicable fraction for the building (without regard to paragraph (1)) with respect to which the expenditures were incurred.
Nothing in subsection (d)(2) shall prevent a credit from being allowed by reason of this subsection.
(5) No double counting
Rehabilitation expenditures may, at the election of the taxpayer, be taken into account under this subsection or subsection (d)(2)(A)(i) but not under both such subsections.
(6) Regulations to apply subsection with respect to group of units in building
The Secretary may prescribe regulations, consistent with the purposes of this subsection, treating a group of units with respect to which rehabilitation expenditures are incurred as a separate new building.
(f) Definition and special rules relating to credit period
(1) Credit period defined
For purposes of this section, the term "credit period" means, with respect to any building, the period of 10 taxable years beginning with—
(A) the taxable year in which the building is placed in service, or
(B) at the election of the taxpayer, the succeeding taxable year,
but only if the building is a qualified low-income building as of the close of the 1st year of such period. The election under subparagraph (B), once made, shall be irrevocable.
(2) Special rule for 1st year of credit period
(A) In general
The credit allowable under subsection (a) with respect to any building for the 1st taxable year of the credit period shall be determined by substituting for the applicable fraction under subsection (c)(1) the fraction—
(i) the numerator of which is the sum of the applicable fractions determined under subsection (c)(1) as of the close of each full month of such year during which such building was in service, and
(ii) the denominator of which is 12.
(B) Disallowed 1st year credit allowed in 11th year
Any reduction by reason of subparagraph (A) in the credit allowable (without regard to subparagraph (A)) for the 1st taxable year of the credit period shall be allowable under subsection (a) for the 1st taxable year following the credit period.
(3) Determination of applicable percentage with respect to increases in qualified basis after 1st year of credit period
(A) In general
In the case of any building which was a qualified low-income building as of the close of the 1st year of the credit period, if—
(i) as of the close of any taxable year in the compliance period (after the 1st year of the credit period) the qualified basis of such building exceeds
(ii) the qualified basis of such building as of the close of the 1st year of the credit period,
the applicable percentage which shall apply under subsection (a) for the taxable year to such excess shall be the percentage equal to 2/3 of the applicable percentage which (after the application of subsection (h)) would but for this paragraph apply to such basis.
(B) 1st year computation applies
A rule similar to the rule of paragraph (2)(A) shall apply to any increase in qualified basis to which subparagraph (A) applies for the 1st year of such increase.
(4) Dispositions of property
If a building (or an interest therein) is disposed of during any year for which credit is allowable under subsection (a), such credit shall be allocated between the parties on the basis of the number of days during such year the building (or interest) was held by each. In any such case, proper adjustments shall be made in the application of subsection (j).
(5) Credit period for existing buildings not to begin before rehabilitation credit allowed
(A) In general
The credit period for an existing building shall not begin before the 1st taxable year of the credit period for rehabilitation expenditures with respect to the building.
(B) Acquisition credit allowed for certain buildings not allowed a rehabilitation credit
(i) In general
In the case of a building described in clause (ii)—
(I) subsection (d)(2)(B)(iv) shall not apply, and
(II) the credit period for such building shall not begin before the taxable year which would be the 1st taxable year of the credit period for rehabilitation expenditures with respect to the building under the modifications described in clause (ii)(II).
(ii) Building described
A building is described in this clause if—
(I) a waiver is granted under subsection (d)(6)(C) with respect to the acquisition of the building, and
(II) a credit would be allowed for rehabilitation expenditures with respect to such building if subsection (e)(3)(A)(ii)(I) did not apply and if subsection (e)(3)(A)(ii)(II) were applied by substituting "$2,000" for "$3,000".
(g) Qualified low-income housing project
For purposes of this section—
(1) In general
The term "qualified low-income housing project" means any project for residential rental property if the project meets the requirements of subparagraph (A) or (B) whichever is elected by the taxpayer:
(A) 20–50 test
The project meets the requirements of this subparagraph if 20 percent or more of the residential units in such project are both rent-restricted and occupied by individuals whose income is 50 percent or less of area median gross income.
(B) 40–60 test
The project meets the requirements of this subparagraph if 40 percent or more of the residential units in such project are both rent-restricted and occupied by individuals whose income is 60 percent or less of area median gross income.
Any election under this paragraph, once made, shall be irrevocable. For purposes of this paragraph, any property shall not be treated as failing to be residential rental property merely because part of the building in which such property is located is used for purposes other than residential rental purposes.
(2) Rent-restricted units
(A) In general
For purposes of paragraph (1), a residential unit is rent-restricted if the gross rent with respect to such unit does not exceed 30 percent of the imputed income limitation applicable to such unit. For purposes of the preceding sentence, the amount of the income limitation under paragraph (1) applicable for any period shall not be less than such limitation applicable for the earliest period the building (which contains the unit) was included in the determination of whether the project is a qualified low-income housing project.
(B) Gross rent
For purposes of subparagraph (A), gross rent—
(i) does not include any payment under section 8 of the United States Housing Act of 1937 or any comparable rental assistance program (with respect to such unit or occupants thereof),
(ii) includes any utility allowance determined by the Secretary after taking into account such determinations under section 8 of the United States Housing Act of 1937,
(iii) does not include any fee for a supportive service which is paid to the owner of the unit (on the basis of the low-income status of the tenant of the unit) by any governmental program of assistance (or by an organization described in section 501(c)(3) and exempt from tax under section 501(a)) if such program (or organization) provides assistance for rent and the amount of assistance provided for rent is not separable from the amount of assistance provided for supportive services, and
(iv) does not include any rental payment to the owner of the unit to the extent such owner pays an equivalent amount to the Farmers' Home Administration under section 515 of the Housing Act of 1949.
For purposes of clause (iii), the term "supportive service" means any service provided under a planned program of services designed to enable residents of a residential rental property to remain independent and avoid placement in a hospital, nursing home, or intermediate care facility for the mentally or physically handicapped. In the case of a single-room occupancy unit or a building described in subsection (i)(3)(B)(iii), such term includes any service provided to assist tenants in locating and retaining permanent housing.
(C) Imputed income limitation applicable to unit
For purposes of this paragraph, the imputed income limitation applicable to a unit is the income limitation which would apply under paragraph (1) to individuals occupying the unit if the number of individuals occupying the unit were as follows:
(i) In the case of a unit which does not have a separate bedroom, 1 individual.
(ii) In the case of a unit which has 1 or more separate bedrooms, 1.5 individuals for each separate bedroom.
In the case of a project with respect to which a credit is allowable by reason of this section and for which financing is provided by a bond described in section 142(a)(7), the imputed income limitation shall apply in lieu of the otherwise applicable income limitation for purposes of applying section 142(d)(4)(B)(ii).
(D) Treatment of units occupied by individuals whose incomes rise above limit
(i) In general
Except as provided in clause (ii), notwithstanding an increase in the income of the occupants of a low-income unit above the income limitation applicable under paragraph (1), such unit shall continue to be treated as a low-income unit if the income of such occupants initially met such income limitation and such unit continues to be rent-restricted.
(ii) Next available unit must be rented to low-income tenant if income rises above 140 percent of income limit
If the income of the occupants of the unit increases above 140 percent of the income limitation applicable under paragraph (1), clause (i) shall cease to apply to such unit if any residential rental unit in the building (of a size comparable to, or smaller than, such unit) is occupied by a new resident whose income exceeds such income limitation. In the case of a project described in section 142(d)(4)(B), the preceding sentence shall be applied by substituting "170 percent" for "140 percent" and by substituting "any low-income unit in the building is occupied by a new resident whose income exceeds 40 percent of area median gross income" for "any residential unit in the building (of a size comparable to, or smaller than, such unit) is occupied by a new resident whose income exceeds such income limitation".
(E) Units where Federal rental assistance is reduced as tenant's income increases
If the gross rent with respect to a residential unit exceeds the limitation under subparagraph (A) by reason of the fact that the income of the occupants thereof exceeds the income limitation applicable under paragraph (1), such unit shall, nevertheless, be treated as a rent-restricted unit for purposes of paragraph (1) if—
(i) a Federal rental assistance payment described in subparagraph (B)(i) is made with respect to such unit or its occupants, and
(ii) the sum of such payment and the gross rent with respect to such unit does not exceed the sum of the amount of such payment which would be made and the gross rent which would be payable with respect to such unit if—
(I) the income of the occupants thereof did not exceed the income limitation applicable under paragraph (1), and
(II) such units were rent-restricted within the meaning of subparagraph (A).
The preceding sentence shall apply to any unit only if the result described in clause (ii) is required by Federal statute as of the date of the enactment of this subparagraph and as of the date the Federal rental assistance payment is made.
(3) Date for meeting requirements
(A) In general
Except as otherwise provided in this paragraph, a building shall be treated as a qualified low-income building only if the project (of which such building is a part) meets the requirements of paragraph (1) not later than the close of the 1st year of the credit period for such building.
(B) Buildings which rely on later buildings for qualification
(i) In general
In determining whether a building (hereinafter in this subparagraph referred to as the "prior building") is a qualified low-income building, the taxpayer may take into account 1 or more additional buildings placed in service during the 12-month period described in subparagraph (A) with respect to the prior building only if the taxpayer elects to apply clause (ii) with respect to each additional building taken into account.
(ii) Treatment of elected buildings
In the case of a building which the taxpayer elects to take into account under clause (i), the period under subparagraph (A) for such building shall end at the close of the 12-month period applicable to the prior building.
(iii) Date prior building is treated as placed in service
For purposes of determining the credit period and the compliance period for the prior building, the prior building shall be treated for purposes of this section as placed in service on the most recent date any additional building elected by the taxpayer (with respect to such prior building) was placed in service.
(C) Special rule
A building—
(i) other than the 1st building placed in service as part of a project, and
(ii) other than a building which is placed in service during the 12-month period described in subparagraph (A) with respect to a prior building which becomes a qualified low-income building,
shall in no event be treated as a qualified low-income building unless the project is a qualified low-income housing project (without regard to such building) on the date such building is placed in service.
(D) Projects with more than 1 building must be identified
For purposes of this section, a project shall be treated as consisting of only 1 building unless, before the close of the 1st calendar year in the project period (as defined in subsection (h)(1)(F)(ii)), each building which is (or will be) part of such project is identified in such form and manner as the Secretary may provide.
(4) Certain rules made applicable
Paragraphs (2) (other than subparagraph (A) thereof), (3), (4), (5), (6), and (7) of section 142(d), and section 6652(j), shall apply for purposes of determining whether any project is a qualified low-income housing project and whether any unit is a low-income unit; except that, in applying such provisions for such purposes, the term "gross rent" shall have the meaning given such term by paragraph (2)(B) of this subsection.
(5) Election to treat building after compliance period as not part of a project
For purposes of this section, the taxpayer may elect to treat any building as not part of a qualified low-income housing project for any period beginning after the compliance period for such building.
(6) Special rule where de minimis equity contribution
Property shall not be treated as failing to be residential rental property for purposes of this section merely because the occupant of a residential unit in the project pays (on a voluntary basis) to the lessor a de minimis amount to be held toward the purchase by such occupant of a residential unit in such project if—
(A) all amounts so paid are refunded to the occupant on the cessation of his occupancy of a unit in the project, and
(B) the purchase of the unit is not permitted until after the close of the compliance period with respect to the building in which the unit is located.
Any amount paid to the lessor as described in the preceding sentence shall be included in gross rent under paragraph (2) for purposes of determining whether the unit is rent- restricted.
(7) Scattered site projects
Buildings which would (but for their lack of proximity) be treated as a project for purposes of this section shall be so treated if all of the dwelling units in each of the buildings are rent-restricted (within the meaning of paragraph (2)) residential rental units.
(8) Waiver of certain de minimis errors and recertifications
On application by the taxpayer, the Secretary may waive—
(A) any recapture under subsection (j) in the case of any de minimis error in complying with paragraph (1), or
(B) any annual recertification of tenant income for purposes of this subsection, if the entire building is occupied by low-income tenants.
(h) Limitation on aggregate credit allowable with respect to projects located in a State
(1) Credit may not exceed credit amount allocated to building
(A) In general
The amount of the credit determined under this section for any taxable year with respect to any building shall not exceed the housing credit dollar amount allocated to such building under this subsection.
(B) Time for making allocation
Except in the case of an allocation which meets the requirements of subparagraph (C), (D), (E), or (F), an allocation shall be taken into account under subparagraph (A) only if it is made not later than the close of the calendar year in which the building is placed in service.
(C) Exception where binding commitment
An allocation meets the requirements of this subparagraph if there is a binding commitment (not later than the close of the calendar year in which the building is placed in service) by the housing credit agency to allocate a specified housing credit dollar amount to such building beginning in a specified later taxable year.
(D) Exception where increase in qualified basis
(i) In general
An allocation meets the requirements of this subparagraph if such allocation is made not later than the close of the calendar year in which ends the taxable year to which it will 1st apply but only to the extent the amount of such allocation does not exceed the limitation under clause (ii).
(ii) Limitation
The limitation under this clause is the amount of credit allowable under this section (without regard to this subsection) for a taxable year with respect to an increase in the qualified basis of the building equal to the excess of—
(I) the qualified basis of such building as of the close of the 1st taxable year to which such allocation will apply, over
(II) the qualified basis of such building as of the close of the 1st taxable year to which the most recent prior housing credit allocation with respect to such building applied.
(iii) Housing credit dollar amount reduced by full allocation
Notwithstanding clause (i), the full amount of the allocation shall be taken into account under paragraph (2).
(E) Exception where 10 percent of cost incurred
(i) In general
An allocation meets the requirements of this subparagraph if such allocation is made with respect to a qualified building which is placed in service not later than the close of the second calendar year following the calendar year in which the allocation is made.
(ii) Qualified building
For purposes of clause (i), the term "qualified building" means any building which is part of a project if the taxpayer's basis in such project (as of the close of the calendar year in which the allocation is made) is more than 10 percent of the taxpayer's reasonably expected basis in such project (as of the close of the second calendar year referred to in clause (i)). Such term does not include any existing building unless a credit is allowable under subsection (e) for rehabilitation expenditures paid or incurred by the taxpayer with respect to such building for a taxable year ending during the second calendar year referred to in clause (i) or the prior taxable year.
(F) Allocation of credit on a project basis
(i) In general
In the case of a project which includes (or will include) more than 1 building, an allocation meets the requirements of this subparagraph if—
(I) the allocation is made to the project for a calendar year during the project period,
(II) the allocation only applies to buildings placed in service during or after the calendar year for which the allocation is made, and
(III) the portion of such allocation which is allocated to any building in such project is specified not later than the close of the calendar year in which the building is placed in service.
(ii) Project period
For purposes of clause (i), the term "project period" means the period—
(I) beginning with the 1st calendar year for which an allocation may be made for the 1st building placed in service as part of such project, and
(II) ending with the calendar year the last building is placed in service as part of such project.
(2) Allocated credit amount to apply to all taxable years ending during or after credit allocation year
Any housing credit dollar amount allocated to any building for any calendar year—
(A) shall apply to such building for all taxable years in the compliance period ending during or after such calendar year, and
(B) shall reduce the aggregate housing credit dollar amount of the allocating agency only for such calendar year.
(3) Housing credit dollar amount for agencies
(A) In general
The aggregate housing credit dollar amount which a housing credit agency may allocate for any calendar year is the portion of the State housing credit ceiling allocated under this paragraph for such calendar year to such agency.
(B) State ceiling initially allocated to State housing credit agencies
Except as provided in subparagraphs (D) and (E), the State housing credit ceiling for each calendar year shall be allocated to the housing credit agency of such State. If there is more than 1 housing credit agency of a State, all such agencies shall be treated as a single agency.
(C) State housing credit ceiling
The State housing credit ceiling applicable to any State for any calendar year shall be an amount equal to the sum of—
(i) $1.25 multiplied by the State population,
(ii) the unused State housing credit ceiling (if any) of such State for the preceding calendar year,
(iii) the amount of State housing credit ceiling returned in the calendar year, plus
(iv) the amount (if any) allocated under subparagraph (D) to such State by the Secretary.
For purposes of clause (ii), the unused State housing credit ceiling for any calendar year is the excess (if any) of the sum of the amounts described in clauses (i) and (iii) over the aggregate housing credit dollar amount allocated for such year. For purposes of clause (iii), the amount of State housing credit ceiling returned in the calendar year equals the housing credit dollar amount previously allocated within the State to any project which does not become a qualified low-income housing project within the period required by this section or the terms of the allocation or to any project with respect to which an allocation is cancelled by mutual consent of the housing credit agency and the allocation recipient.
(D) Unused housing credit carryovers allocated among certain States
(i) In general
The unused housing credit carryover of a State for any calendar year shall be assigned to the Secretary for allocation among qualified States for the succeeding calendar year.
(ii) Unused housing credit carryover
For purposes of this subparagraph, the unused housing credit carryover of a State for any calendar year is the excess (if any) of the unused State housing credit ceiling for such year (as defined in subparagraph (C)(ii)) over the excess (if any) of—
(I) the aggregate housing credit dollar amount allocated for such year, over
(II) the sum of the amounts described in clauses (i) and (iii) of subparagraph (C).
(iii) Formula for allocation of unused housing credit carryovers among qualified States
The amount allocated under this subparagraph to a qualified State for any calendar year shall be the amount determined by the Secretary to bear the same ratio to the aggregate unused housing credit carryovers of all States for the preceding calendar year as such State's population for the calendar year bears to the population of all qualified States for the calendar year. For purposes of the preceding sentence, population shall be determined in accordance with section 146(j).
(iv) Qualified State
For purposes of this subparagraph, the term "qualified State" means, with respect to a calendar year, any State—
(I) which allocated its entire State housing credit ceiling for the preceding calendar year, and
(II) for which a request is made (not later than May 1 of the calendar year) to receive an allocation under clause (iii).
(E) Special rule for States with constitutional home rule cities
For purposes of this subsection—
(i) In general
The aggregate housing credit dollar amount for any constitutional home rule city for any calendar year shall be an amount which bears the same ratio to the State housing credit ceiling for such calendar year as—
(I) the population of such city, bears to
(II) the population of the entire State.
(ii) Coordination with other allocations
In the case of any State which contains 1 or more constitutional home rule cities, for purposes of applying this paragraph with respect to housing credit agencies in such State other than constitutional home rule cities, the State housing credit ceiling for any calendar year shall be reduced by the aggregate housing credit dollar amounts determined for such year for all constitutional home rule cities in such State.
(iii) Constitutional home rule city
For purposes of this paragraph, the term "constitutional home rule city" has the meaning given such term by section 146(d)(3)(C).
(F) State may provide for different allocation
Rules similar to the rules of section 146(e) (other than paragraph (2)(B) thereof) shall apply for purposes of this paragraph.
(G) Population
For purposes of this paragraph, population shall be determined in accordance with section 146(j).
(4) Credit for buildings financed by tax-exempt bonds subject to volume cap not taken into account
(A) In general
Paragraph (1) shall not apply to the portion of any credit allowable under subsection (a) which is attributable to eligible basis financed by any obligation the interest on which is exempt from tax under section 103 if—
(i) such obligation is taken into account under section 146, and
(ii) principal payments on such financing are applied within a reasonable period to redeem obligations the proceeds of which were used to provide such financing.
(B) Special rule where 50 percent or more of building is financed with tax-exempt bonds subject to volume cap
For purposes of subparagraph (A), if 50 percent or more of the aggregate basis of any building and the land on which the building is located is financed by any obligation described in subparagraph (A), paragraph (1) shall not apply to any portion of the credit allowable under subsection (a) with respect to such building.
(5) Portion of State ceiling set-aside for certain projects involving qualified nonprofit organizations
(A) In general
Not more than 90 percent of the State housing credit ceiling for any State for any calendar year shall be allocated to projects other than qualified low-income housing projects described in subparagraph (B).
(B) Projects involving qualified nonprofit organizations
For purposes of subparagraph (A), a qualified low-income housing project is described in this subparagraph if a qualified nonprofit organization is to own an interest in the project (directly or through a partnership) and materially participate (within the meaning of section 469(h)) in the development and operation of the project throughout the compliance period.
(C) Qualified nonprofit organization
For purposes of this paragraph, the term "qualified nonprofit organization" means any organization if—
(i) such organization is described in paragraph (3) or (4) of section 501(c) and is exempt from tax under section 501(a),
(ii) such organization is determined by the State housing credit agency not to be affiliated with or controlled by a for-profit organization; 4 and
(iii) 1 of the exempt purposes of such organization includes the fostering of low-income housing.
(D) Treatment of certain subsidiaries
(i) In general
For purposes of this paragraph, a qualified nonprofit organization shall be treated as satisfying the ownership and material participation test of subparagraph (B) if any qualified corporation in which such organization holds stock satisfies such test.
(ii) Qualified corporation
For purposes of clause (i), the term "qualified corporation" means any corporation if 100 percent of the stock of such corporation is held by 1 or more qualified nonprofit organizations at all times during the period such corporation is in existence.
(E) State may not override set-aside
Nothing in subparagraph (F) of paragraph (3) shall be construed to permit a State not to comply with subparagraph (A) of this paragraph.
(6) Buildings eligible for credit only if minimum long-term commitment to low-income housing
(A) In general
No credit shall be allowed by reason of this section with respect to any building for the taxable year unless an extended low-income housing commitment is in effect as of the end of such taxable year.
(B) Extended low-income housing commitment
For purposes of this paragraph, the term "extended low-income housing commitment" means any agreement between the taxpayer and the housing credit agency—
(i) which requires that the applicable fraction (as defined in subsection (c)(1)) for the building for each taxable year in the extended use period will not be less than the applicable fraction specified in such agreement and which prohibits the actions described in subclauses (I) and (II) of subparagraph (E)(ii),
(ii) which allows individuals who meet the income limitation applicable to the building under subsection (g) (whether prospective, present, or former occupants of the building) the right to enforce in any State court the requirement and prohibitions of clause (i),
(iii) which prohibits the disposition to any person of any portion of the building to which such agreement applies unless all of the building to which such agreement applies is disposed of to such person,
(iv) which prohibits the refusal to lease to a holder of a voucher or certificate of eligibility under section 8 of the United States Housing Act of 1937 because of the status of the prospective tenant as such a holder,
(v) which is binding on all successors of the taxpayer, and
(vi) which, with respect to the property, is recorded pursuant to State law as a restrictive covenant.
(C) Allocation of credit may not exceed amount necessary to support commitment
(i) In general
The housing credit dollar amount allocated to any building may not exceed the amount necessary to support the applicable fraction specified in the extended low-income housing commitment for such building, including any increase in such fraction pursuant to the application of subsection (f)(3) if such increase is reflected in an amended low-income housing commitment.
(ii) Buildings financed by tax-exempt bonds
If paragraph (4) applies to any building the amount of credit allowed in any taxable year may not exceed the amount necessary to support the applicable fraction specified in the extended low-income housing commitment for such building. Such commitment may be amended to increase such fraction.
(D) Extended use period
For purposes of this paragraph, the term "extended use period" means the period—
(i) beginning on the 1st day in the compliance period on which such building is part of a qualified low-income housing project, and
(ii) ending on the later of—
(I) the date specified by such agency in such agreement, or
(II) the date which is 15 years after the close of the compliance period.
(E) Exceptions if foreclosure or if no buyer willing to maintain low-income status
(i) In general
The extended use period for any building shall terminate—
(I) on the date the building is acquired by foreclosure (or instrument in lieu of foreclosure) unless the Secretary determines that such acquisition is part of an arrangement with the taxpayer a purpose of which is to terminate such period, or
(II) on the last day of the period specified in subparagraph (I) if the housing credit agency is unable to present during such period a qualified contract for the acquisition of the low-income portion of the building by any person who will continue to operate such portion as a qualified low-income building.
Subclause (II) shall not apply to the extent more stringent requirements are provided in the agreement or in State law.
(ii) Eviction, etc. of existing low-income tenants not permitted
The termination of an extended use period under clause (i) shall not be construed to permit before the close of the 3-year period following such termination—
(I) the eviction or the termination of tenancy (other than for good cause) of an existing tenant of any low-income unit, or
(II) any increase in the gross rent with respect to such unit not otherwise permitted under this section.
(F) Qualified contract
For purposes of subparagraph (E), the term "qualified contract" means a bona fide contract to acquire (within a reasonable period after the contract is entered into) the nonlow-income portion of the building for fair market value and the low-income portion of the building for an amount not less than the applicable fraction (specified in the extended low-income housing commitment) of—
(i) the sum of—
(I) the outstanding indebtedness secured by, or with respect to, the building,
(II) the adjusted investor equity in the building, plus
(III) other capital contributions not reflected in the amounts described in subclause (I) or (II), reduced by
(ii) cash distributions from (or available for distribution from) the project.
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out this paragraph, including regulations to prevent the manipulation of the amount determined under the preceding sentence.
(G) Adjusted investor equity
(i) In general
For purposes of subparagraph (E), the term "adjusted investor equity" means, with respect to any calendar year, the aggregate amount of cash taxpayers invested with respect to the project increased by the amount equal to—
(I) such amount, multiplied by
(II) the cost-of-living adjustment for such calendar year, determined under section 1(f)(3) by substituting the base calendar year for "calendar year 1987".
An amount shall be taken into account as an investment in the project only to the extent there was an obligation to invest such amount as of the beginning of the credit period and to the extent such amount is reflected in the adjusted basis of the project.
(ii) Cost-of-living increases in excess of 5 percent not taken into account
Under regulations prescribed by the Secretary, if the CPI for any calendar year (as defined in section 1(f)(4)) exceeds the CPI for the preceding calendar year by more than 5 percent, the CPI for the base calendar year shall be increased such that such excess shall never be taken into account under clause (i).
(iii) Base calendar year
For purposes of this subparagraph, the term "base calendar year" means the calendar year with or within which the 1st taxable year of the credit period ends.
(H) Low-income portion
For purposes of this paragraph, the low-income portion of a building is the portion of such building equal to the applicable fraction specified in the extended low-income housing commitment for the building.
(I) Period for finding buyer
The period referred to in this subparagraph is the 1-year period beginning on the date (after the 14th year of the compliance period) the taxpayer submits a written request to the housing credit agency to find a person to acquire the taxpayer's interest in the low-income portion of the building.
(J) Effect of noncompliance
If, during a taxable year, there is a determination that an extended low-income housing agreement was not in effect as of the beginning of such year, such determination shall not apply to any period before such year and subparagraph (A) shall be applied without regard to such determination if the failure is corrected within 1 year from the date of the determination.
(K) Projects which consist of more than 1 building
The application of this paragraph to projects which consist of more than 1 building shall be made under regulations prescribed by the Secretary.
(7) Special rules
(A) Building must be located within jurisdiction of credit agency
A housing credit agency may allocate its aggregate housing credit dollar amount only to buildings located in the jurisdiction of the governmental unit of which such agency is a part.
(B) Agency allocations in excess of limit
If the aggregate housing credit dollar amounts allocated by a housing credit agency for any calendar year exceed the portion of the State housing credit ceiling allocated to such agency for such calendar year, the housing credit dollar amounts so allocated shall be reduced (to the extent of such excess) for buildings in the reverse of the order in which the allocations of such amounts were made.
(C) Credit reduced if allocated credit dollar amount is less than credit which would be allowable without regard to placed in service convention, etc.
(i) In general
The amount of the credit determined under this section with respect to any building shall not exceed the clause (ii) percentage of the amount of the credit which would (but for this subparagraph) be determined under this section with respect to such building.
(ii) Determination of percentage
For purposes of clause (i), the clause (ii) percentage with respect to any building is the percentage which—
(I) the housing credit dollar amount allocated to such building bears to
(II) the credit amount determined in accordance with clause (iii).
(iii) Determination of credit amount
The credit amount determined in accordance with this clause is the amount of the credit which would (but for this subparagraph) be determined under this section with respect to the building if—
(I) this section were applied without regard to paragraphs (2)(A) and (3)(B) of subsection (f), and
(II) subsection (f)(3)(A) were applied without regard to "the percentage equal to 2/3 of".
(D) Housing credit agency to specify applicable percentage and maximum qualified basis
In allocating a housing credit dollar amount to any building, the housing credit agency shall specify the applicable percentage and the maximum qualified basis which may be taken into account under this section with respect to such building. The applicable percentage and maximum qualified basis so specified shall not exceed the applicable percentage and qualified basis determined under this section without regard to this subsection.
(8) Other definitions
For purposes of this subsection—
(A) Housing credit agency
The term "housing credit agency" means any agency authorized to carry out this subsection.
(B) Possessions treated as States
The term "State" includes a possession of the United States.
(i) Definitions and special rules
For purposes of this section—
(1) Compliance period
The term "compliance period" means, with respect to any building, the period of 15 taxable years beginning with the 1st taxable year of the credit period with respect thereto.
(2) Determination of whether building is federally subsidized
(A) In general
Except as otherwise provided in this paragraph, for purposes of subsection (b)(1), a new building shall be treated as federally subsidized for any taxable year if, at any time during such taxable year or any prior taxable year, there is or was outstanding any obligation the interest on which is exempt from tax under section 103, or any below market Federal loan, the proceeds of which are or were used (directly or indirectly) with respect to such building or the operation thereof.
(B) Election to reduce eligible basis by balance of loan or proceeds of obligations
A loan or tax-exempt obligation shall not be taken into account under subparagraph (A) if the taxpayer elects to exclude from the eligible basis of the building for purposes of subsection (d)—
(i) in the case of a loan, the principal amount of such loan, and
(ii) in the case of a tax-exempt obligation, the proceeds of such obligation.
(C) Special rule for subsidized construction financing
Subparagraph (A) shall not apply to any tax-exempt obligation or below market Federal loan used to provide construction financing for any building if—
(i) such obligation or loan (when issued or made) identified the building for which the proceeds of such obligation or loan would be used, and
(ii) such obligation is redeemed, and such loan is repaid, before such building is placed in service.
(D) Below market Federal loan
For purposes of this paragraph, the term "below market Federal loan" means any loan funded in whole or in part with Federal funds if the interest rate payable on such loan is less than the applicable Federal rate in effect under section 1274(d)(1) (as of the date on which the loan was made). Such term shall not include any loan which would be a below market Federal loan solely by reason of assistance provided under section 106, 107, or 108 of the Housing and Community Development Act of 1974 (as in effect on the date of the enactment of this sentence).
(E) Buildings receiving HOME assistance
(i) In general
Assistance provided under the HOME Investment Partnerships Act (as in effect on the date of the enactment of this subparagraph) with respect to any building shall not be taken into account under subparagraph (D) if 40 percent or more of the residential units in the building are occupied by individuals whose income is 50 percent or less of area median gross income. Subsection (d)(5)(C) shall not apply to any building to which the preceding sentence applies.
(ii) Special rule for certain high-cost housing areas
In the case of a building located in a city described in section 142(d)(6), clause (i) shall be applied by substituting "25 percent" for "40 percent".
(3) Low-income unit
(A) In general
The term "low-income unit" means any unit in a building if—
(i) such unit is rent-restricted (as defined in subsection (g)(2)), and
(ii) the individuals occupying such unit meet the income limitation applicable under subsection (g)(1) to the project of which such building is a part.
(B) Exceptions
(i) In general
A unit shall not be treated as a low-income unit unless the unit is suitable for occupancy and used other than on a transient basis.
(ii) Suitability for occupancy
For purposes of clause (i), the suitability of a unit for occupancy shall be determined under regulations prescribed by the Secretary taking into account local health, safety, and building codes.
(iii) Transitional housing for homeless
For purposes of clause (i), a unit shall be considered to be used other than on a transient basis if the unit contains sleeping accommodations and kitchen and bathroom facilities and is located in a building—
(I) which is used exclusively to facilitate the transition of homeless individuals (within the meaning of section 103 of the Stewart B. McKinney Homeless Assistance Act (
(II) in which a governmental entity or qualified nonprofit organization (as defined in subsection (h)(5)) provides such individuals with temporary housing and supportive services designed to assist such individuals in locating and retaining permanent housing.
(iv) Single-room occupancy units
For purposes of clause (i), a single-room occupancy unit shall not be treated as used on a transient basis merely because it is rented on a month-by-month basis.
(C) Special rule for buildings having 4 or fewer units
In the case of any building which has 4 or fewer residential rental units, no unit in such building shall be treated as a low-income unit if the units in such building are owned by—
(i) any individual who occupies a residential unit in such building, or
(ii) any person who is related (as defined in subsection (d)(2)(D)(iii)) to such individual.
(D) Certain students not to disqualify unit
A unit shall not fail to be treated as a low-income unit merely because it is occupied—
(i) by an individual who is—
(I) a student and receiving assistance under title IV of the Social Security Act, or
(II) enrolled in a job training program receiving assistance under the Job Training Partnership Act or under other similar Federal, State, or local laws, or
(ii) entirely by full-time students if such students are—
(I) single parents and their children and such parents and children are not dependents (as defined in section 152) of another individual, or
(II) married and file a joint return.
(E) Owner-occupied buildings having 4 or fewer units eligible for credit where development plan
(i) In general
Subparagraph (C) shall not apply to the acquisition or rehabilitation of a building pursuant to a development plan of action sponsored by a State or local government or a qualified nonprofit organization (as defined in subsection (h)(5)(C)).
(ii) Limitation on credit
In the case of a building to which clause (i) applies, the applicable fraction shall not exceed 80 percent of the unit fraction.
(iii) Certain unrented units treated as owner-occupied
In the case of a building to which clause (i) applies, any unit which is not rented for 90 days or more shall be treated as occupied by the owner of the building as of the 1st day it is not rented.
(4) New building
The term "new building" means a building the original use of which begins with the taxpayer.
(5) Existing building
The term "existing building" means any building which is not a new building.
(6) Application to estates and trusts
In the case of an estate or trust, the amount of the credit determined under subsection (a) and any increase in tax under subsection (j) shall be apportioned between the estate or trust and the beneficiaries on the basis of the income of the estate or trust allocable to each.
(7) Impact of tenant's right of 1st refusal to acquire property
(A) In general
No Federal income tax benefit shall fail to be allowable to the taxpayer with respect to any qualified low-income building merely by reason of a right of 1st refusal held by the tenants (in cooperative form or otherwise) or resident management corporation of such building or by a qualified nonprofit organization (as defined in subsection (h)(5)(C)) or government agency to purchase the property after the close of the compliance period for a price which is not less than the minimum purchase price determined under subparagraph (B).
(B) Minimum purchase price
For purposes of subparagraph (A), the minimum purchase price under this subparagraph is an amount equal to the sum of—
(i) the principal amount of outstanding indebtedness secured by the building (other than indebtedness incurred within the 5-year period ending on the date of the sale to the tenants), and
(ii) all Federal, State, and local taxes attributable to such sale.
Except in the case of Federal income taxes, there shall not be taken into account under clause (ii) any additional tax attributable to the application of clause (ii).
(j) Recapture of credit
(1) In general
If—
(A) as of the close of any taxable year in the compliance period, the amount of the qualified basis of any building with respect to the taxpayer is less than
(B) the amount of such basis as of the close of the preceding taxable year,
then the taxpayer's tax under this chapter for the taxable year shall be increased by the credit recapture amount.
(2) Credit recapture amount
For purposes of paragraph (1), the credit recapture amount is an amount equal to the sum of—
(A) the aggregate decrease in the credits allowed to the taxpayer under section 38 for all prior taxable years which would have resulted if the accelerated portion of the credit allowable by reason of this section were not allowed for all prior taxable years with respect to the excess of the amount described in paragraph (1)(B) over the amount described in paragraph (1)(A), plus
(B) interest at the overpayment rate established under section 6621 on the amount determined under subparagraph (A) for each prior taxable year for the period beginning on the due date for filing the return for the prior taxable year involved.
No deduction shall be allowed under this chapter for interest described in subparagraph (B).
(3) Accelerated portion of credit
For purposes of paragraph (2), the accelerated portion of the credit for the prior taxable years with respect to any amount of basis is the excess of—
(A) the aggregate credit allowed by reason of this section (without regard to this subsection) for such years with respect to such basis, over
(B) the aggregate credit which would be allowable by reason of this section for such years with respect to such basis if the aggregate credit which would (but for this subsection) have been allowable for the entire compliance period were allowable ratably over 15 years.
(4) Special rules
(A) Tax benefit rule
The tax for the taxable year shall be increased under paragraph (1) only with respect to credits allowed by reason of this section which were used to reduce tax liability. In the case of credits not so used to reduce tax liability, the carryforwards and carrybacks under section 39 shall be appropriately adjusted.
(B) Only basis for which credit allowed taken into account
Qualified basis shall be taken into account under paragraph (1)(B) only to the extent such basis was taken into account in determining the credit under subsection (a) for the preceding taxable year referred to in such paragraph.
(C) No recapture of additional credit allowable by reason of subsection (f)(3)
Paragraph (1) shall apply to a decrease in qualified basis only to the extent such decrease exceeds the amount of qualified basis with respect to which a credit was allowable for the taxable year referred to in paragraph (1)(B) by reason of subsection (f)(3).
(D) No credits against tax
Any increase in tax under this subsection shall not be treated as a tax imposed by this chapter for purposes of determining the amount of any credit under subpart A, B, D, or G of this part.
(E) No recapture by reason of casualty loss
The increase in tax under this subsection shall not apply to a reduction in qualified basis by reason of a casualty loss to the extent such loss is restored by reconstruction or replacement within a reasonable period established by the Secretary.
(F) No recapture where de minimis changes in floor space
The Secretary may provide that the increase in tax under this subsection shall not apply with respect to any building if—
(i) such increase results from a de minimis change in the floor space fraction under subsection (c)(1), and
(ii) the building is a qualified low-income building after such change.
(5) Certain partnerships treated as the taxpayer
(A) In general
For purposes of applying this subsection to a partnership to which this paragraph applies—
(i) such partnership shall be treated as the taxpayer to which the credit allowable under subsection (a) was allowed,
(ii) the amount of such credit allowed shall be treated as the amount which would have been allowed to the partnership were such credit allowable to such partnership,
(iii) paragraph (4)(A) shall not apply, and
(iv) the amount of the increase in tax under this subsection for any taxable year shall be allocated among the partners of such partnership in the same manner as such partnership's taxable income for such year is allocated among such partners.
(B) Partnerships to which paragraph applies
This paragraph shall apply to any partnership which has 35 or more partners unless the partnership elects not to have this paragraph apply.
(C) Special rules
(i) Husband and wife treated as 1 partner
For purposes of subparagraph (B)(i), a husband and wife (and their estates) shall be treated as 1 partner.
(ii) Election irrevocable
Any election under subparagraph (B), once made, shall be irrevocable.
(6) No recapture on disposition of building (or interest therein) where bond posted
In the case of a disposition of a building or an interest therein, the taxpayer shall be discharged from liability for any additional tax under this subsection by reason of such disposition if—
(A) the taxpayer furnishes to the Secretary a bond in an amount satifactory 5 to the Secretary and for the period required by the Secretary, and
(B) it is reasonably expected that such building will continue to be operated as a qualified low-income building for the remaining compliance period with respect to such building.
(k) Application of at-risk rules
For purposes of this section—
(1) In general
Except as otherwise provided in this subsection, rules similar to the rules of section 49(a)(1) (other than subparagraphs (D)(ii)(II) and (D)(iv)(I) thereof), section 49(a)(2), and section 49(b)(1) shall apply in determining the qualified basis of any building in the same manner as such sections apply in determining the credit base of property.
(2) Special rules for determining qualified person
For purposes of paragraph (1)—
(A) In general
If the requirements of subparagraphs (B), (C), and (D) are met with respect to any financing borrowed from a qualified nonprofit organization (as defined in subsection (h)(5)), the determination of whether such financing is qualified commercial financing with respect to any qualified low-income building shall be made without regard to whether such organization—
(i) is actively and regularly engaged in the business of lending money, or
(ii) is a person described in section 49(a)(1)(D)(iv)(II).
(B) Financing secured by property
The requirements of this subparagraph are met with respect to any financing if such financing is secured by the qualified low-income building, except that this subparagraph shall not apply in the case of a federally assisted building described in subsection (d)(6)(B) if—
(i) a security interest in such building is not permitted by a Federal agency holding or insuring the mortgage secured by such building, and
(ii) the proceeds from the financing (if any) are applied to acquire or improve such building..6
(C) Portion of building attributable to financing
The requirements of this subparagraph are met with respect to any financing for any taxable year in the compliance period if, as of the close of such taxable year, not more than 60 percent of the eligible basis of the qualified low-income building is attributable to such financing (reduced by the principal and interest of any governmental financing which is part of a wrap-around mortgage involving such financing).
(D) Repayment of principal and interest
The requirements of this subparagraph are met with respect to any financing if such financing is fully repaid on or before the earliest of—
(i) the date on which such financing matures,
(ii) the 90th day after the close of the compliance period with respect to the qualified low-income building, or
(iii) the date of its refinancing or the sale of the building to which such financing relates.
In the case of a qualified nonprofit organization which is not described in section 49(a)(1)(D)(iv)(II) with respect to a building, clause (ii) of this subparagraph shall be applied as if the date described therein were the 90th day after the earlier of the date the building ceases to be a qualified low-income building or the date which is 15 years after the close of a compliance period with respect thereto.
(3) Present value of financing
If the rate of interest on any financing described in paragraph (2)(A) is less than the rate which is 1 percentage point below the applicable Federal rate as of the time such financing is incurred, then the qualified basis (to which such financing relates) of the qualified low-income building shall be the present value of the amount of such financing, using as the discount rate such applicable Federal rate. For purposes of the preceding sentence, the rate of interest on any financing shall be determined by treating interest to the extent of government subsidies as not payable.
(4) Failure to fully repay
(A) In general
To the extent that the requirements of paragraph (2)(D) are not met, then the taxpayer's tax under this chapter for the taxable year in which such failure occurs shall be increased by an amount equal to the applicable portion of the credit under this section with respect to such building, increased by an amount of interest for the period—
(i) beginning with the due date for the filing of the return of tax imposed by
(ii) ending with the due date for the taxable year in which such failure occurs,
determined by using the underpayment rate and method under section 6621.
(B) Applicable portion
For purposes of subparagraph (A), the term "applicable portion" means the aggregate decrease in the credits allowed to a taxpayer under section 38 for all prior taxable years which would have resulted if the eligible basis of the building were reduced by the amount of financing which does not meet requirements of paragraph (2)(D).
(C) Certain rules to apply
Rules similar to the rules of subparagraphs (A) and (D) of subsection (j)(4) shall apply for purposes of this subsection.
(l) Certifications and other reports to Secretary
(1) Certification with respect to 1st year of credit period
Following the close of the 1st taxable year in the credit period with respect to any qualified low-income building, the taxpayer shall certify to the Secretary (at such time and in such form and in such manner as the Secretary prescribes)—
(A) the taxable year, and calendar year, in which such building was placed in service,
(B) the adjusted basis and eligible basis of such building as of the close of the 1st year of the credit period,
(C) the maximum applicable percentage and qualified basis permitted to be taken into account by the appropriate housing credit agency under subsection (h),
(D) the election made under subsection (g) with respect to the qualified low-income housing project of which such building is a part, and
(E) such other information as the Secretary may require.
In the case of a failure to make the certification required by the preceding sentence on the date prescribed therefor, unless it is shown that such failure is due to reasonable cause and not to willful neglect, no credit shall be allowable by reason of subsection (a) with respect to such building for any taxable year ending before such certification is made.
(2) Annual reports to the Secretary
The Secretary may require taxpayers to submit an information return (at such time and in such form and manner as the Secretary prescribes) for each taxable year setting forth—
(A) the qualified basis for the taxable year of each qualified low-income building of the taxpayer,
(B) the information described in paragraph (1)(C) for the taxable year, and
(C) such other information as the Secretary may require.
The penalty under section 6652(j) shall apply to any failure to submit the return required by the Secretary under the preceding sentence on the date prescribed therefor.
(3) Annual reports from housing credit agencies
Each agency which allocates any housing credit amount to any building for any calendar year shall submit to the Secretary (at such time and in such manner as the Secretary shall prescribe) an annual report specifying—
(A) the amount of housing credit amount allocated to each building for such year,
(B) sufficient information to identify each such building and the taxpayer with respect thereto, and
(C) such other information as the Secretary may require.
The penalty under section 6652(j) shall apply to any failure to submit the report required by the preceding sentence on the date prescribed therefor.
(m) Responsibilities of housing credit agencies
(1) Plans for allocation of credit among projects
(A) In general
Notwithstanding any other provision of this section, the housing credit dollar amount with respect to any building shall be zero unless—
(i) such amount was allocated pursuant to a qualified allocation plan of the housing credit agency which is approved by the governmental unit (in accordance with rules similar to the rules of section 147(f)(2) (other than subparagraph (B)(ii) thereof)) of which such agency is a part, and
(ii) such agency notifies the chief executive officer (or the equivalent) of the local jurisdiction within which the building is located of such project and provides such individual a reasonable opportunity to comment on the project.
(B) Qualified allocation plan
For purposes of this paragraph, the term "qualified allocation plan" means any plan—
(i) which sets forth selection criteria to be used to determine housing priorities of the housing credit agency which are appropriate to local conditions,
(ii) which also gives preference in allocating housing credit dollar amounts among selected projects to—
(I) projects serving the lowest income tenants, and
(II) projects obligated to serve qualified tenants for the longest periods, and
(iii) which provides a procedure that the agency (or an agent or other private contractor of such agency) will follow in monitoring for noncompliance with the provisions of this section and in notifying the Internal Revenue Service of such noncompliance which such agency becomes aware of.
(C) Certain selection criteria must be used
The selection criteria set forth in a qualified allocation plan must include
(i) project location,
(ii) housing needs characteristics,
(iii) project characteristics,
(iv) sponsor characteristics,
(v) participation of local tax-exempt organizations,
(vi) tenant populations with special housing needs, and
(vii) public housing waiting lists.
(D) Application to bond financed projects
Subsection (h)(4) shall not apply to any project unless the project satisfies the requirements for allocation of a housing credit dollar amount under the qualified allocation plan applicable to the area in which the project is located.
(2) Credit allocated to building not to exceed amount necessary to assure project feasibility
(A) In general
The housing credit dollar amount allocated to a project shall not exceed the amount the housing credit agency determines is necessary for the financial feasibility of the project and its viability as a qualified low-income housing project throughout the credit period.
(B) Agency evaluation
In making the determination under subparagraph (A), the housing credit agency shall consider—
(i) the sources and uses of funds and the total financing planned for the project,
(ii) any proceeds or receipts expected to be generated by reason of tax benefits,
(iii) the percentage of the housing credit dollar amount used for project costs other than the cost of intermediaries, and
(iv) the reasonableness of the developmental and operational costs of the project.
Clause (iii) shall not be applied so as to impede the development of projects in hard-to-develop areas. Such a determination shall not be construed to be a representation or warranty as to the feasibility or viability of the project.
(C) Determination made when credit amount applied for and when building placed in service
(i) In general
A determination under subparagraph (A) shall be made as of each of the following times:
(I) The application for the housing credit dollar amount.
(II) The allocation of the housing credit dollar amount.
(III) The date the building is placed in service.
(ii) Certification as to amount of other subsidies
Prior to each determination under clause (i), the taxpayer shall certify to the housing credit agency the full extent of all Federal, State, and local subsidies which apply (or which the taxpayer expects to apply) with respect to the building.
(D) Application to bond financed projects
Subsection (h)(4) shall not apply to any project unless the governmental unit which issued the bonds (or on behalf of which the bonds were issued) makes a determination under rules similar to the rules of subparagraphs (A) and (B).
(n) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including regulations—
(1) dealing with—
(A) projects which include more than 1 building or only a portion of a building,
(B) buildings which are placed in service in portions,
(2) providing for the application of this section to short taxable years,
(3) preventing the avoidance of the rules of this section, and
(4) providing the opportunity for housing credit agencies to correct administrative errors and omissions with respect to allocations and record keeping within a reasonable period after their discovery, taking into account the availability of regulations and other administrative guidance from the Secretary.
(Added
References in Text
Section 8 of the United States Housing Act of 1937, referred to in subsecs. (c)(2), (d)(6)(B)(i), (g)(2)(B), and (h)(6)(B)(iv), is classified to
The Stewart B. McKinney Homeless Assistance Act of 1988, referred to in subsec. (c)(2), probably means the Stewart B. McKinney Homeless Assistance Act,
The date of the enactment of this sentence, referred to in subsec. (c)(2), is the date of the enactment of
Section 201(a) of the Tax Reform Act of 1986, referred to in subsec. (c)(2)(B), is section 201(a) of
The date of the enactment of the Tax Reform Act of 1986, referred to in subsec. (d)(2)(D)(i)(I), (6)(B), is the date of enactment of
The date of the enactment of the Revenue Reconciliation Act of 1990, referred to in subsec. (d)(2)(D)(i)(I), (5)(B), is the date of the enactment of
Sections 221(d)(3) and 236 of the National Housing Act, referred to in subsec. (d)(6)(B)(ii), are classified to sections 1715l(d)(3) and 1715z–1, respectively, of Title 12, Banks and Banking.
Sections 515 and 502(c) of the Housing Act of 1949, referred to in subsecs. (d)(6)(B)(iii), (C)(i) and (g)(2)(B)(iv), are classified to sections 1485 and 1472(c), respectively, of Title 42, The Public Health and Welfare.
The Emergency Low Income Housing Preservation Act of 1987, referred to in subsec. (d)(6)(C)(i), now the Low-Income Housing Preservation and Resident Homeownership Act of 1990, is title II of
Section 3 of the Federal Deposit Insurance Act, referred to in subsec. (d)(6)(D), is classified to
The date of the enactment of this subparagraph, referred to in subsec. (g)(2)(E), is the date of enactment of
Sections 106, 107, and 108 of the Housing and Community Development Act of 1974 (as in effect on the date of the enactment of this sentence), referred to in subsec. (i)(2)(D), are classified to
The HOME Investment Partnerships Act (as in effect on the date of the enactment of this subparagraph), referred to in subsec. (i)(2)(E)(i), is title II of
The date of the enactment of this clause, referred to in subsec. (i)(3)(B)(iii)(I), is date of enactment of
The Social Security Act, referred to in subsec. (i)(3)(D)(i)(I), is act Aug. 14, 1935, ch. 531,
The Job Training Partnership Act, referred to in subsec. (i)(3)(D)(i)(II), is
Prior Provisions
A prior section 42, added
Another prior section 42 was renumbered
Amendments
1993—Subsec. (g)(8).
Subsec. (h)(6)(B)(iv) to (vi).
Subsec. (i)(2)(E).
Subsec. (i)(3)(D).
"(i) a student and receiving assistance under title IV of the Social Security Act, or
"(ii) enrolled in a job training program receiving assistance under the Job Training Partnership Act or under other similar Federal, State, or local laws."
Subsec. (m)(2)(B)(iv).
Subsec. (o).
1991—Subsec. (o)(1).
Subsec. (o)(2).
1990—Subsec. (b)(1).
Subsec. (c)(2).
Subsec. (d)(2)(D)(i)(I).
Subsec. (d)(2)(D)(ii)(V).
Subsec. (d)(5)(B).
Subsec. (d)(5)(C)(ii)(I).
Subsec. (g)(2)(B)(iv).
Subsec. (g)(2)(D)(i).
Subsec. (g)(2)(D)(ii).
Subsec. (g)(3)(A).
Subsec. (h)(3)(C).
Subsec. (h)(3)(D)(ii)(II).
Subsec. (h)(5)(B).
Subsec. (h)(5)(C)(i) to (iii).
Subsec. (h)(5)(D)(i).
Subsec. (h)(6)(B)(i).
Subsec. (h)(6)(B)(ii).
Subsec. (h)(6)(B)(iii) to (v).
Subsec. (h)(6)(E)(i)(I).
Subsec. (h)(6)(E)(ii)(II).
Subsec. (h)(6)(F).
Subsec. (h)(6)(J) to (L).
Subsec. (i)(3)(D).
Subsec. (i)(7).
Subsec. (i)(7)(A).
Subsec. (i)(8).
Subsec. (k)(1).
Subsec. (k)(2)(A)(ii), (D).
Subsec. (m)(1)(B)(ii) to (iv).
Subsec. (m)(2)(B).
Subsec. (o)(1).
Subsec. (o)(2).
"(A) the bonds with respect to such building are issued before 1990,
"(B) such building is constructed, reconstructed, or rehabilitated by the taxpayer,
"(C) more than 10 percent of the reasonably anticipated cost of such construction, reconstruction, or rehabilitation has been incurred as of January 1, 1990, and some of such cost is incurred on or after such date, and
"(D) such building is placed in service before January 1, 1992."
1989—Subsec. (b)(1).
Subsec. (b)(3)(C).
Subsec. (c)(1)(E).
Subsec. (d)(1).
Subsec. (d)(2)(A).
"(I) the portion of its adjusted basis attributable to its acquisition cost, plus
"(II) amounts chargeable to capital account and incurred by the taxpayer (before the close of the 1st taxable year of the credit period for such building) for property (or additions or improvements to property) of a character subject to the allowance for depreciation, and".
Subsec. (d)(2)(B)(iv).
Subsec. (d)(2)(C).
Subsec. (d)(5).
Subsec. (d)(5)(A).
Subsec. (d)(5)(B).
Subsec. (d)(5)(C).
Subsec. (d)(5)(D).
Subsec. (d)(6)(A)(i).
Subsec. (d)(6)(C) to (E).
Subsec. (d)(7)(A).
Subsec. (d)(7)(A)(ii).
Subsec. (e)(2)(A).
Subsec. (e)(3).
Subsec. (e)(5).
Subsec. (f)(4).
Subsec. (f)(5).
Subsec. (g)(2)(A).
Subsec. (g)(2)(B).
Subsec. (g)(2)(C) to (E).
Subsec. (g)(3)(D).
Subsec. (g)(4).
Subsec. (g)(7).
Subsec. (h)(1)(B).
Subsec. (h)(1)(F).
Subsec. (h)(3)(C) to (G).
Subsec. (h)(4)(B).
Subsec. (h)(5)(D)(ii).
Subsec. (h)(5)(E).
Subsec. (h)(6).
Subsec. (h)(6)(B) to (E).
Subsec. (h)(7), (8).
Subsec. (i)(2)(D).
Subsec. (i)(3)(B).
Subsec. (i)(3)(D).
Subsec. (i)(3)(E).
Subsec. (i)(6).
Subsec. (i)(8).
Subsec. (k)(2)(D).
Subsec. (l)(1).
Subsec. (m).
Subsec. (m)(4).
Subsec. (n).
Subsec. (o).
1988—Subsec. (b)(2)(A).
Subsec. (b)(2)(C)(ii).
Subsec. (b)(3).
Subsec. (c)(2)(A).
Subsec. (d)(2)(D)(ii).
Subsec. (d)(3).
Subsec. (d)(5)(A).
Subsec. (d)(5)(C).
Subsec. (d)(6)(A)(iii).
Subsec. (d)(6)(B)(ii).
Subsec. (f)(1).
Subsec. (f)(3).
"(A)
"(i) as of the close of any taxable year in the compliance period (after the 1st year of the credit period) the qualified basis of any building exceeds
"(ii) the qualified basis of such building as of the close of the 1st year of the credit period,
the credit allowable under subsection (a) for the taxable year (determined without regard to this paragraph) shall be increased by an amount equal to the product of such excess and the percentage equal to 2/3 of the applicable percentage for such building.
"(B) 1
Subsec. (g)(2)(B)(i).
Subsec. (g)(2)(C).
Subsec. (g)(3).
Subsec. (g)(4).
Subsec. (g)(6).
Subsec. (h)(1).
"(A) the 60th day after the close of the taxable year, or
"(B) the close of the calendar year in which such taxable year ends."
Subsec. (h)(1)(B).
Subsec. (h)(1)(E).
Subsec. (h)(4)(A).
Subsec. (h)(5)(D), (E).
Subsec. (h)(6)(B)(ii).
"(ii)
Subsec. (h)(6)(D).
"(i) without regard to paragraphs (2)(A) and (3)(B) of subsection (f), and
"(ii) by applying subsection (f)(3)(A) without regard to 'the percentage equal to 2/3 of'."
Subsec. (h)(6)(E).
Subsec. (i)(2)(A).
Subsec. (i)(2)(B).
Subsec. (i)(2)(C).
Subsec. (i)(2)(D).
Subsec. (j)(4)(D).
Subsec. (j)(4)(F).
Subsec. (j)(5)(B).
"(i) more than ½ the capital interests, and more than ½ the profit interests, in which are owned by a group of 35 or more partners each of whom is a natural person or an estate, and
"(ii) which elects the application of this paragraph."
Subsec. (j)(5)(B)(i).
Subsec. (j)(6).
Subsec. (k)(2)(B).
Subsec. (l).
Subsec. (l)(2), (3).
Subsec. (n).
Subsec. (n)(1).
1986—Subsec. (k)(1).
Effective Date of 1993 Amendment
Section 13142(a)(2) of
Section 13142(b)(6) of
"(A)
"(i) determinations under section 42 of the Internal Revenue Code of 1986 with respect to housing credit dollar amounts allocated from State housing credit ceilings after June 30, 1992, or
"(ii) buildings placed in service after June 30, 1992, to the extent paragraph (1) of section 42(h) of such Code does not apply to any building by reason of paragraph (4) thereof, but only with respect to bonds issued after such date.
"(B)
"(C)
Effective Date of 1991 Amendment
Section 107(b) of
Effective Date of 1990 Amendment
Section 11407(a)(3) of
Section 11407(b)(10) of
"(A)
"(i) determinations under section 42 of the Internal Revenue Code of 1986 with respect to housing credit dollar amounts allocated from State housing credit ceilings for calendar years after 1990, or
"(ii) buildings placed in service after December 31, 1990, to the extent paragraph (1) of section 42(h) of such Code does not apply to any building by reason of paragraph (4) thereof, but only with respect to bonds issued after such date.
"(B)
"(C)
"(D)
Section 11701(a)(3)(B) of
"(i) determinations of qualified basis for taxable years beginning after the date of the enactment of this Act [Nov. 5, 1990], and
"(ii) determinations of qualified basis for taxable years beginning on or before such date except that determinations for such taxable years shall be made without regard to any reduction in gross rent after August 3, 1990, for any period before August 4, 1990."
Section 11701(n) of
Section 11812(c) of
"(1)
"(2)
"(3)
Amendment by section 11813(b)(3) of
Effective Date of 1989 Amendment
Section 7108(r) of
"(1)
"(2)
"(3)
"(4)
"(5)
"(6)
"(7)
"(A) Paragraph (1) of subsection (h) (relating to units rented on a monthly basis) [amending this section].
"(B) Subsection (l) (relating to eligible basis for new buildings to include expenditures before close of 1st year of credit period) [amending this section].
"(8)
"(A) the Secretary of Housing and Urban Development shall publish initial guidance on the designation of difficult development areas under section 42(d)(5)(C) of such Code, as added by this section, and
"(B) the Secretary of the Treasury shall publish initial guidance under section 42(j)(6) of such Code (relating to no recapture on disposition of building (or interest therein) where bond posted)."
Amendment by section 7811(a) of
Amendment by section 7831(c) of
Effective Date of 1988 Amendment
Amendment by sections 1002(l)(1)–(25), (32) and 1007(g)(3)(B) of
Section 4003(c) of
Section 4004(b) of
"(1)
"(2)
Effective Date of 1986 Amendment
Section 8072(b) of
Effective Date
Section 252(e) of
"(1)
"(2)
Savings Provision
For provisions that nothing in amendment by sections 11812(b)(3) and 11813(b)(3) of
Election To Determine Rent Limitation Based on Number of Bedrooms and Deep Rent Skewing
Section 13142(c) of
"(1) In the case of a building to which the amendments made by subsection (e)(1) or (n)(2) of section 7108 of the Revenue Reconciliation Act of 1989 [
"(2) In the case of the amendment made by such subsection (e)(1), such election shall apply only with respect to tenants first occupying any unit in the building after the date of the election.
"(3) In the case of the amendment made by such subsection (n)(2), such election shall apply only if rents of low-income tenants in such building do not increase as a result of such election.
"(4) An election under this subsection may be made only during the 180-day period beginning on the date of the enactment of this Act [Aug. 10, 1993] and, once made, shall be irrevocable."
Election To Accelerate Credit Into 1990
Section 11407(c) of
"(1)
"(2)
"(3)
Exception to Time Period for Meeting Project Requirements in Order To Qualify as Low-Income Housing
Section 11701(a)(5)(B) of
State Housing Credit Ceiling for Calendar Year 1990
Section 7108(a)(2) of
Transitional Rules
Section 252(f) of
"(1)
"(A)
"(i) section 42(c)(2)(B) of the Internal Revenue Code of 1986 (as added by this section) shall not apply,
"(ii) such building shall be treated as not federally subsidized for purposes of section 42(b)(1)(A) of such Code,
"(iii) the eligible basis of such building shall be treated, for purposes of section 42(h)(4)(A) of such Code, as if it were financed by an obligation the interest on which is exempt from tax under section 103 of such Code and which is taken into account under section 146 of such Code, and
"(iv) the amendments made by section 803 [enacting
"(B)
"(i) an urban development action grant application with respect to such project was submitted on September 13, 1984,
"(ii) a zoning commission map amendment related to such project was granted on July 17, 1985, and
"(iii) the number assigned to such project by the Federal Housing Administration is 023–36602.
"(C)
"(D)
"(i) rents charged for units in such project are restricted by State regulations,
"(ii) the annual cash flow of such project is restricted by State law,
"(iii) the project is located on land owned by or ground leased from a public housing authority,
"(iv) construction of such project begins on or before December 31, 1986, and units within such project are placed in service on or before June 1, 1990, and
"(v) for a 20-year period, 20 percent or more of the residential units in such project are occupied by individuals whose income is 50 percent or less of area median gross income.
"(E)
"(2)
"(A)
| The additional | |
| "For calendar year: | allocation is: |
| 1987 | $3,900,000 |
| 1988 | $7,600,000 |
| 1989 | $1,300,000. |
"(B)
"(i) A corporate governmental agency constituted as a public benefit corporation and established in 1971 under the provisions of Article XII of the Private Housing Finance Law of the State.
"(ii) A city department established on December 20, 1979, pursuant to chapter XVIII of a municipal code of such city for the purpose of supervising and coordinating the formation and execution of projects and programs affecting housing within such city.
"(iii) The State housing finance agency referred to in subparagraph (C), but only with respect to projects described in subparagraph (C).
"(C)
"(i) receives financing from a State housing finance agency from the proceeds of bonds issued pursuant to
"(ii) is subject to subsidy commitments issued pursuant to a program established under
"(D)
"(i) Any building—
"(I) which is allocated any housing credit dollar amount by a housing credit agency described in clause (iii) of subparagraph (B), and
"(II) which is placed in service after June 30, 1986, and before January 1, 1987,
shall be treated for purposes of the amendments made by this section as placed in service on January 1, 1987.
"(ii) Section 42(c)(2)(B) of the Internal Revenue Code of 1986 shall not apply to any building which is allocated any housing credit dollar amount by any agency described in subparagraph (B).
"(E)
"(i) which is allocated any housing credit dollar amount by any agency described in subparagraph (B), and
"(ii) which after the application of subparagraph (D)(ii) is a qualified low-income building at all times during any taxable year,
such building shall be treated as described in section 42(b)(1)(B) of such Code and having an applicable fraction for such year of 1. The preceding sentence shall apply to any building only to the extent of the portion of the additional housing credit dollar amount (allocated to such agency under subparagraph (A)) allocated to such building.
"(3)
"(A)
"(i) section 42(c)(2)(B) of such Code shall not apply,
"(ii) such building shall be treated as placed in service during the first calendar year after 1986 and before 1990 in which such building is a qualified low-income building (determined after the application of clause (i)), and
"(iii) for purposes of section 42(h) of such Code, such building shall be treated as having allocated to it a housing credit dollar amount equal to the dollar amount appearing in the clause of subparagraph (B) in which such building is described.
"(B)
| The housing credit | |
| "The code number is: | dollar amount is: |
| (i) 49284553664 | $16,000 |
| (ii) 4927742022446 | $22,000 |
| (iii) 49270742276087 | $64,000 |
| (iv) 490270742387293 | $48,000 |
| (v) 4927074218234 | $32,000 |
| (vi) 49270742274019 | $36,000 |
| (vii) 51460742345074 | $53,000. |
"(C)
"(D)
"(4)
"(5)
"(A) the amendments made by this section [enacting this section and amending
"(B) paragraph (1) of section 167(k) of the Internal Revenue Code of 1986, shall be applied as if it did not contain the phrase 'and before January 1, 1987'.
The number of units to which the preceding sentence applies shall not exceed 150."
Section Referred to in Other Sections
This section is referred to in
1 See References in Text note below.
2 So in original. Probably should be "sections".
3 So in original. Probably should be "etc.,".
4 So in original. The semicolon probably should be a comma.
5 So in original. Probably should be "satisfactory".
§43. Enhanced oil recovery credit
(a) General rule
For purposes of section 38, the enhanced oil recovery credit for any taxable year is an amount equal to 15 percent of the taxpayer's qualified enhanced oil recovery costs for such taxable year.
(b) Phase-out of credit as crude oil prices increase
(1) In general
The amount of the credit determined under subsection (a) for any taxable year shall be reduced by an amount which bears the same ratio to the amount of such credit (determined without regard to this paragraph) as—
(A) the amount by which the reference price for the calendar year preceding the calendar year in which the taxable year begins exceeds $28, bears to
(B) $6.
(2) Reference price
For purposes of this subsection, the term "reference price" means, with respect to any calendar year, the reference price determined for such calendar year under section 29(d)(2)(C).
(3) Inflation adjustment
(A) In general
In the case of any taxable year beginning in a calendar year after 1991, there shall be substituted for the $28 amount under paragraph (1)(A) an amount equal to the product of—
(i) $28, multiplied by
(ii) the inflation adjustment factor for such calendar year.
(B) Inflation adjustment factor
The term "inflation adjustment factor" means, with respect to any calendar year, a fraction the numerator of which is the GNP implicit price deflator for the preceding calendar year and the denominator of which is the GNP implicit price deflator for 1990. For purposes of the preceding sentence, the term "GNP implicit price deflator" means the first revision of the implicit price deflator for the gross national product as computed and published by the Secretary of Commerce. Not later than April 1 of any calendar year, the Secretary shall publish the inflation adjustment factor for the preceding calendar year.
(c) Qualified enhanced oil recovery costs
For purposes of this section—
(1) In general
The term "qualified enhanced oil recovery costs" means any of the following:
(A) Any amount paid or incurred during the taxable year for tangible property—
(i) which is an integral part of a qualified enhanced oil recovery project, and
(ii) with respect to which depreciation (or amortization in lieu of depreciation) is allowable under this chapter.
(B) Any intangible drilling and development costs—
(i) which are paid or incurred in connection with a qualified enhanced oil recovery project, and
(ii) with respect to which the taxpayer may make an election under section 263(c) for the taxable year.
(C) Any qualified tertiary injectant expenses which are paid or incurred in connection with a qualified enhanced oil recovery project and for which a deduction is allowable under section 193 for the taxable year.
(2) Qualified enhanced oil recovery project
For purposes of this subsection—
(A) In general
The term "qualified enhanced oil recovery project" means any project—
(i) which involves the application (in accordance with sound engineering principles) of 1 or more tertiary recovery methods (as defined in section 193(b)(3)) which can reasonably be expected to result in more than an insignificant increase in the amount of crude oil which will ultimately be recovered,
(ii) which is located within the United States (within the meaning of section 638(1)), and
(iii) with respect to which the first injection of liquids, gases, or other matter commences after December 31, 1990.
(B) Certification
A project shall not be treated as a qualified enhanced oil recovery project unless the operator submits to the Secretary (at such times and in such manner as the Secretary provides) a certification from a petroleum engineer that the project meets (and continues to meet) the requirements of subparagraph (A).
(3) At-risk limitation
For purposes of determining qualified enhanced oil recovery costs, rules similar to the rules of section 49(a)(1), section 49(a)(2), and section 49(b) shall apply.
(4) Special rule for certain gas displacement projects
For purposes of this section, immiscible non-hydrocarbon gas displacement shall be treated as a tertiary recovery method under section 193(b)(3).
(d) Other rules
(1) Disallowance of deduction
Any deduction allowable under this chapter for any costs taken into account in computing the amount of the credit determined under subsection (a) shall be reduced by the amount of such credit attributable to such costs.
(2) Basis adjustments
For purposes of this subtitle, if a credit is determined under this section for any expenditure with respect to any property, the increase in the basis of such property which would (but for this subsection) result from such expenditure shall be reduced by the amount of the credit so allowed.
(e) Election to have credit not apply
(1) In general
A taxpayer may elect to have this section not apply for any taxable year.
(2) Time for making election
An election under paragraph (1) for any taxable year may be made (or revoked) at any time before the expiration of the 3-year period beginning on the last date prescribed by law for filing the return for such taxable year (determined without regard to extensions).
(3) Manner of making election
An election under paragraph (1) (or revocation thereof) shall be made in such manner as the Secretary may by regulations prescribe.
(Added
Prior Provisions
A prior section 43 was renumbered
Another prior section 43 was renumbered
Effective Date
Section 11511(d) of
"(1)
"(2)
Section Referred to in Other Sections
This section is referred to in
§44. Expenditures to provide access to disabled individuals
(a) General rule
For purposes of section 38, in the case of an eligible small business, the amount of the disabled access credit determined under this section for any taxable year shall be an amount equal to 50 percent of so much of the eligible access expenditures for the taxable year as exceed $250 but do not exceed $10,250.
(b) Eligible small business
For purposes of this section, the term "eligible small business" means any person if—
(1) either—
(A) the gross receipts of such person for the preceding taxable year did not exceed $1,000,000, or
(B) in the case of a person to which subparagraph (A) does not apply, such person employed not more than 30 full-time employees during the preceding taxable year, and
(2) such person elects the application of this section for the taxable year.
For purposes of paragraph (1)(B), an employee shall be considered full-time if such employee is employed at least 30 hours per week for 20 or more calendar weeks in the taxable year.
(c) Eligible access expenditures
For purposes of this section—
(1) In general
The term "eligible access expenditures" means amounts paid or incurred by an eligible small business for the purpose of enabling such eligible small business to comply with applicable requirements under the Americans With Disabilities Act of 1990 (as in effect on the date of the enactment of this section).
(2) Certain expenditures included
The term "eligible access expenditures" includes amounts paid or incurred—
(A) for the purpose of removing architectural, communication, physical, or transportation barriers which prevent a business from being accessible to, or usable by, individuals with disabilities,
(B) to provide qualified interpreters or other effective methods of making aurally delivered materials available to individuals with hearing impairments,
(C) to provide qualified readers, taped texts, and other effective methods of making visually delivered materials available to individuals with visual impairments,
(D) to acquire or modify equipment or devices for individuals with disabilities, or
(E) to provide other similar services, modifications, materials, or equipment.
(3) Expenditures must be reasonable
Amounts paid or incurred for the purposes described in paragraph (2) shall include only expenditures which are reasonable and shall not include expenditures which are unnecessary to accomplish such purposes.
(4) Expenses in connection with new construction are not eligible
The term "eligible access expenditures" shall not include amounts described in paragraph (2)(A) which are paid or incurred in connection with any facility first placed in service after the date of the enactment of this section.
(5) Expenditures must meet standards
The term "eligible access expenditures" shall not include any amount unless the taxpayer establishes, to the satisfaction of the Secretary, that the resulting removal of any barrier (or the provision of any services, modifications, materials, or equipment) meets the standards promulgated by the Secretary with the concurrence of the Architectural and Transportation Barriers Compliance Board and set forth in regulations prescribed by the Secretary.
(d) Definition of disability; special rules
For purposes of this section—
(1) Disability
The term "disability" has the same meaning as when used in the Americans With Disabilities Act of 1990 (as in effect on the date of the enactment of this section).
(2) Controlled groups
(A) In general
All members of the same controlled group of corporations (within the meaning of section 52(a)) and all persons under common control (within the meaning of section 52(b)) shall be treated as 1 person for purposes of this section.
(B) Dollar limitation
The Secretary shall apportion the dollar limitation under subsection (a) among the members of any group described in subparagraph (A) in such manner as the Secretary shall by regulations prescribe.
(3) Partnerships and S corporations
In the case of a partnership, the limitation under subsection (a) shall apply with respect to the partnership and each partner. A similar rule shall apply in the case of an S corporation and its shareholders.
(4) Short years
The Secretary shall prescribe such adjustments as may be appropriate for purposes of paragraph (1) of subsection (b) if the preceding taxable year is a taxable year of less than 12 months.
(5) Gross receipts
Gross receipts for any taxable year shall be reduced by returns and allowances made during such year.
(6) Treatment of predecessors
The reference to any person in paragraph (1) of subsection (b) shall be treated as including a reference to any predecessor.
(7) Denial of double benefit
In the case of the amount of the credit determined under this section—
(A) no deduction or credit shall be allowed for such amount under any other provision of this chapter, and
(B) no increase in the adjusted basis of any property shall result from such amount.
(e) Regulations
The Secretary shall prescribe regulations necessary to carry out the purposes of this section.
(Added
References in Text
The Americans With Disabilities Act of 1990, referred to in subsecs. (c)(1) and (d)(1) is
The date of the enactment of this section, referred to in subsecs. (c)(1), (4) and (d)(1), is the date of enactment of
Prior Provisions
A prior section 44, added
Another prior section 44 was renumbered
Effective Date
Section applicable to expenditures paid or incurred after Nov. 5, 1990, see section 11611(e)(1) of
Section Referred to in Other Sections
This section is referred to in
[§44A. Renumbered §21]
[§44B. Repealed. Pub. L. 98–369, div. A, title IV, §474(m)(1), July 18, 1984, 98 Stat. 833 ]
Section, added
Effective Date of Repeal
Repeal applicable to taxable years beginning after Dec. 31, 1983, and to carrybacks from such years, see section 475(a) of
[§44C. Renumbered §23]
[§44D. Renumbered §29]
[§44E. Renumbered §40]
[§44F. Renumbered §30]
[§44G. Renumbered §41]
[§44H. Renumbered §28]
§45. Electricity produced from certain renewable resources
(a) General rule
For purposes of section 38, the renewable electricity production credit for any taxable year is an amount equal to the product of—
(1) 1.5 cents, multiplied by
(2) the kilowatt hours of electricity—
(A) produced by the taxpayer—
(i) from qualified energy resources, and
(ii) at a qualified facility during the 10-year period beginning on the date the facility was originally placed in service, and
(B) sold by the taxpayer to an unrelated person during the taxable year.
(b) Limitations and adjustments
(1) Phaseout of credit
The amount of the credit determined under subsection (a) shall be reduced by an amount which bears the same ratio to the amount of the credit (determined without regard to this paragraph) as—
(A) the amount by which the reference price for the calendar year in which the sale occurs exceeds 8 cents, bears to
(B) 3 cents.
(2) Credit and phaseout adjustment based on inflation
The 1.5 cent amount in subsection (a) and the 8 cent amount in paragraph (1) shall each be adjusted by multiplying such amount by the inflation adjustment factor for the calendar year in which the sale occurs. If any amount as increased under the preceding sentence is not a multiple of 0.1 cent, such amount shall be rounded to the nearest multiple of 0.1 cent.
(3) Credit reduced for grants, tax-exempt bonds, subsidized energy financing, and other credits
The amount of the credit determined under subsection (a) with respect to any project for any taxable year (determined after the application of paragraphs (1) and (2)) shall be reduced by the amount which is the product of the amount so determined for such year and a fraction—
(A) the numerator of which is the sum, for the taxable year and all prior taxable years, of—
(i) grants provided by the United States, a State, or a political subdivision of a State for use in connection with the project,
(ii) proceeds of an issue of State or local government obligations used to provide financing for the project the interest on which is exempt from tax under section 103,
(iii) the aggregate amount of subsidized energy financing provided (directly or indirectly) under a Federal, State, or local program provided in connection with the project, and
(iv) the amount of any other credit allowable with respect to any property which is part of the project, and
(B) the denominator of which is the aggregate amount of additions to the capital account for the project for the taxable year and all prior taxable years.
The amounts under the preceding sentence for any taxable year shall be determined as of the close of the taxable year.
(c) Definitions
For purposes of this section—
(1) Qualified energy resources
The term "qualified energy resources" means—
(A) wind, and
(B) closed-loop biomass.
(2) Closed-loop biomass
The term "closed-loop biomass" means any organic material from a plant which is planted exclusively for purposes of being used at a qualified facility to produce electricity.
(3) Qualified facility
The term "qualified facility" means any facility owned by the taxpayer which is originally placed in service after December 31, 1993 (December 31, 1992, in the case of a facility using closed-loop biomass to produce electricity), and before July 1, 1999.
(d) Definitions and special rules
For purposes of this section—
(1) Only production in the United States taken into account
Sales shall be taken into account under this section only with respect to electricity the production of which is within—
(A) the United States (within the meaning of section 638(1)), or
(B) a possession of the United States (within the meaning of section 638(2)).
(2) Computation of inflation adjustment factor and reference price
(A) In general
The Secretary shall, not later than April 1 of each calendar year, determine and publish in the Federal Register the inflation adjustment factor and the reference price for such calendar year in accordance with this paragraph.
(B) Inflation adjustment factor
The term "inflation adjustment factor" means, with respect to a calendar year, a fraction the numerator of which is the GDP implicit price deflator for the preceding calendar year and the denominator of which is the GDP implicit price deflator for the calendar year 1992. The term "GDP implicit price deflator" means the most recent revision of the implicit price deflator for the gross domestic product as computed and published by the Department of Commerce before March 15 of the calendar year.
(C) Reference price
The term "reference price" means, with respect to a calendar year, the Secretary's determination of the annual average contract price per kilowatt hour of electricity generated from the same qualified energy resource and sold in the previous year in the United States. For purposes of the preceding sentence, only contracts entered into after December 31, 1989, shall be taken into account.
(3) Production attributable to the taxpayer
In the case of a facility in which more than 1 person has an ownership interest, except to the extent provided in regulations prescribed by the Secretary, production from the facility shall be allocated among such persons in proportion to their respective ownership interests in the gross sales from such facility.
(4) Related persons
Persons shall be treated as related to each other if such persons would be treated as a single employer under the regulations prescribed under section 52(b). In the case of a corporation which is a member of an affiliated group of corporations filing a consolidated return, such corporation shall be treated as selling electricity to an unrelated person if such electricity is sold to such a person by another member of such group.
(5) Pass-thru in the case of estates and trusts
Under regulations prescribed by the Secretary, rules similar to the rules of subsection (d) of section 52 shall apply.
(Added
Prior Provisions
A prior section 45 was renumbered
Effective Date
Section applicable to taxable years ending after Dec. 31, 1992, see section 1914(e) of
Section Referred to in Other Sections
This section is referred to in
§45A. Indian employment credit
(a) Amount of credit
For purposes of section 38, the amount of the Indian employment credit determined under this section with respect to any employer for any taxable year is an amount equal to 20 percent of the excess (if any) of—
(1) the sum of—
(A) the qualified wages paid or incurred during such taxable year, plus
(B) qualified employee health insurance costs paid or incurred during such taxable year, over
(2) the sum of the qualified wages and qualified employee health insurance costs (determined as if this section were in effect) which were paid or incurred by the employer (or any predecessor) during calendar year 1993.
(b) Qualified wages; qualified employee health insurance costs
For purposes of this section—
(1) Qualified wages
(A) In general
The term "qualified wages" means any wages paid or incurred by an employer for services performed by an employee while such employee is a qualified employee.
(B) Coordination with targeted jobs credit
The term "qualified wages" shall not include wages attributable to service rendered during the 1-year period beginning with the day the individual begins work for the employer if any portion of such wages is taken into account in determining the credit under section 51.
(2) Qualified employee health insurance costs
(A) In general
The term "qualified employee health insurance costs" means any amount paid or incurred by an employer for health insurance to the extent such amount is attributable to coverage provided to any employee while such employee is a qualified employee.
(B) Exception for amounts paid under salary reduction arrangements
No amount paid or incurred for health insurance pursuant to a salary reduction arrangement shall be taken into account under subparagraph (A).
(3) Limitation
The aggregate amount of qualified wages and qualified employee health insurance costs taken into account with respect to any employee for any taxable year (and for the base period under subsection (a)(2)) shall not exceed $20,000.
(c) Qualified employee
For purposes of this section—
(1) In general
Except as otherwise provided in this subsection, the term "qualified employee" means, with respect to any period, any employee of an employer if—
(A) the employee is an enrolled member of an Indian tribe or the spouse of an enrolled member of an Indian tribe,
(B) substantially all of the services performed during such period by such employee for such employer are performed within an Indian reservation, and
(C) the principal place of abode of such employee while performing such services is on or near the reservation in which the services are performed.
(2) Individuals receiving wages in excess of $30,000 not eligible
An employee shall not be treated as a qualified employee for any taxable year of the employer if the total amount of the wages paid or incurred by such employer to such employee during such taxable year (whether or not for services within an Indian reservation) exceeds the amount determined at an annual rate of $30,000.
(3) Inflation adjustment
The Secretary shall adjust the $30,000 amount under paragraph (2) for years beginning after 1994 at the same time and in the same manner as under section 415(d).
(4) Employment must be trade or business employment
An employee shall be treated as a qualified employee for any taxable year of the employer only if more than 50 percent of the wages paid or incurred by the employer to such employee during such taxable year are for services performed in a trade or business of the employer. Any determination as to whether the preceding sentence applies with respect to any employee for any taxable year shall be made without regard to subsection (e)(2).
(5) Certain employees not eligible
The term "qualified employee" shall not include—
(A) any individual described in subparagraph (A), (B), or (C) of section 51(i)(1),
(B) any 5-percent owner (as defined in section 416(i)(1)(B)), and
(C) any individual if the services performed by such individual for the employer involve the conduct of class I, II, or III gaming as defined in section 4 of the Indian Gaming Regulatory Act (
(6) Indian tribe defined
The term "Indian tribe" means any Indian tribe, band, nation, pueblo, or other organized group or community, including any Alaska Native village, or regional or village corporation, as defined in, or established pursuant to, the Alaska Native Claims Settlement Act (
(7) Indian reservation defined
The term "Indian reservation" has the meaning given such term by section 168(j)(6).
(d) Early termination of employment by employer
(1) In general
If the employment of any employee is terminated by the taxpayer before the day 1 year after the day on which such employee began work for the employer—
(A) no wages (or qualified employee health insurance costs) with respect to such employee shall be taken into account under subsection (a) for the taxable year in which such employment is terminated, and
(B) the tax under this chapter for the taxable year in which such employment is terminated shall be increased by the aggregate credits (if any) allowed under section 38(a) for prior taxable years by reason of wages (or qualified employee health insurance costs) taken into account with respect to such employee.
(2) Carrybacks and carryovers adjusted
In the case of any termination of employment to which paragraph (1) applies, the carrybacks and carryovers under section 39 shall be properly adjusted.
(3) Subsection not to apply in certain cases
(A) In general
Paragraph (1) shall not apply to—
(i) a termination of employment of an employee who voluntarily leaves the employment of the taxpayer,
(ii) a termination of employment of an individual who before the close of the period referred to in paragraph (1) becomes disabled to perform the services of such employment unless such disability is removed before the close of such period and the taxpayer fails to offer reemployment to such individual, or
(iii) a termination of employment of an individual if it is determined under the applicable State unemployment compensation law that the termination was due to the misconduct of such individual.
(B) Changes in form of business
For purposes of paragraph (1), the employment relationship between the taxpayer and an employee shall not be treated as terminated—
(i) by a transaction to which section 381(a) applies if the employee continues to be employed by the acquiring corporation, or
(ii) by reason of a mere change in the form of conducting the trade or business of the taxpayer if the employee continues to be employed in such trade or business and the taxpayer retains a substantial interest in such trade or business.
(4) Special rule
Any increase in tax under paragraph (1) shall not be treated as a tax imposed by this chapter for purposes of—
(A) determining the amount of any credit allowable under this chapter, and
(B) determining the amount of the tax imposed by section 55.
(e) Other definitions and special rules
For purposes of this section—
(1) Wages
The term "wages" has the same meaning given to such term in section 51.
(2) Controlled groups
(A) All employers treated as a single employer under section (a) or (b) of section 52 shall be treated as a single employer for purposes of this section.
(B) The credit (if any) determined under this section with respect to each such employer shall be its proportionate share of the wages and qualified employee health insurance costs giving rise to such credit.
(3) Certain other rules made applicable
Rules similar to the rules of section 51(k) and subsections (c), (d), and (e) of section 52 shall apply.
(4) Coordination with nonrevenue laws
Any reference in this section to a provision not contained in this title shall be treated for purposes of this section as a reference to such provision as in effect on the date of the enactment of this paragraph.
(5) Special rule for short taxable years
For any taxable year having less than 12 months, the amount determined under subsection (a)(2) shall be multiplied by a fraction, the numerator of which is the number of days in the taxable year and the denominator of which is 365.
(f) Termination
This section shall not apply to taxable years beginning after December 31, 2003.
(Added
References in Text
The Alaska Native Claims Settlement Act, referred to in subsec. (c)(6), is
The date of the enactment of this paragraph, referred to in subsec. (e)(4), is the date of enactment of
Effective Date
Section applicable to wages paid or incurred after Dec. 31, 1993, see section 13322(f) of
Section Referred to in Other Sections
This section is referred to in
§45B. Credit for portion of employer social security taxes paid with respect to employee cash tips
(a) General rule
For purposes of section 38, the employer social security credit determined under this section for the taxable year is an amount equal to the excess employer social security tax paid or incurred by the taxpayer during the taxable year.
(b) Excess employer social security tax
For purposes of this section—
(1) In general
The term "excess employer social security tax" means any tax paid by an employer under section 3111 with respect to tips received by an employee during any month, to the extent such tips—
(A) are deemed to have been paid by the employer to the employee pursuant to section 3121(q), and
(B) exceed the amount by which the wages (excluding tips) paid by the employer to the employee during such month are less than the total amount which would be payable (with respect to such employment) at the minimum wage rate applicable to such individual under section 6(a)(1) of the Fair Labor Standards Act of 1938 (determined without regard to section 3(m) of such Act).
(2) Only tips received at food and beverage establishments taken into account
In applying paragraph (1), there shall be taken into account only tips received from customers in connection with the provision of food or beverages for consumption on the premises of an establishment with respect to which the tipping of employees serving food or beverages by customers is customary.
(c) Denial of double benefit
No deduction shall be allowed under this chapter for any amount taken into account in determining the credit under this section.
(d) Election not to claim credit
This section shall not apply to a taxpayer for any taxable year if such taxpayer elects to have this section not apply for such taxable year.
(Added
References in Text
Sections 3(m) and 6(a)(1) of the Fair Labor Standards Act of 1938, referred to in subsec. (b)(1)(B), are classified to sections 203(m) and 206(a)(1), respectively, of Title 29, Labor.
Effective Date
Section applicable with respect to taxes paid after Dec. 31, 1993, see section 13443(d) of
Section Referred to in Other Sections
This section is referred to in