Subpart D—Business Related Credits
Editorial Notes
Amendments
2022—
2019—
2018—
2017—
2010—
2008—
2006—
2005—
2004—
2001—
2000—
1996—
1993—
1992—
1990—
1986—
1984—
1 So in original. Does not conform to section catchline.
§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 work opportunity 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),
(11) the employer social security credit determined under section 45B(a),
(12) the orphan drug credit determined under section 45C(a),
(13) the new markets tax credit determined under section 45D(a),
(14) in the case of an eligible employer (as defined in section 45E(c)), the small employer pension plan startup cost credit determined under section 45E(a),
(15) the employer-provided child care credit determined under section 45F(a),
(16) the railroad track maintenance credit determined under section 45G(a),
(17) the biodiesel fuels credit determined under section 40A(a),
(18) the low sulfur diesel fuel production credit determined under section 45H(a),
(19) the marginal oil and gas well production credit determined under section 45I(a),
(20) the distilled spirits credit determined under section 5011(a),
(21) the advanced nuclear power facility production credit determined under section 45J(a),
(22) the nonconventional source production credit determined under section 45K(a),
(23) the new energy efficient home credit determined under section 45L(a),
(24) the portion of the alternative motor vehicle credit to which section 30B(g)(1) applies,
(25) the portion of the alternative fuel vehicle refueling property credit to which section 30C(d)(1) applies,
(26) the mine rescue team training credit determined under section 45N(a),
(27) in the case of an eligible agricultural business (as defined in section 45O(e)), the agricultural chemicals security credit determined under section 45O(a),
(28) the differential wage payment credit determined under section 45P(a),
(29) the carbon dioxide sequestration credit determined under section 45Q(a),
(30) the portion of the new clean vehicle credit to which section 30D(c)(1) applies,
(31) the small employer health insurance credit determined under section 45R,
(32) in the case of an eligible employer (as defined in section 45S(c)), the paid family and medical leave credit determined under section 45S(a), plus
(33) in the case of an eligible employer (as defined in section 45T(c)), the retirement auto-enrollment credit determined under section 45T(a).
(35) 1 the sustainable aviation fuel credit determined under section 40B,
(36) the clean hydrogen production credit determined under section 45V(a),
(37) the qualified commercial clean vehicle credit determined under section 45W, plus
(38) the advanced manufacturing production credit determined under section 45X(a).
(41) 1 in the case of an eligible small employer (as defined in section 45AA(c)), the military spouse retirement plan eligibility credit determined under section 45AA(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—
(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 and the specified credits).
(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) Repealed. Pub. L. 115–141, div. U, title IV, §401(d)(6)(B)(iii), Mar. 23, 2018, 132 Stat. 1211 ]
(4) Special rules for specified credits
(A) In general
In the case of specified credits—
(i) this section and section 39 shall be applied separately with respect to such credits, and
(ii) in applying paragraph (1) to such credits—
(I) the tentative minimum tax shall be treated as being zero, 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 specified credits).
(B) Specified credits
For purposes of this subsection, the term "specified credits" means—
(i) for taxable years beginning after December 31, 2004, the credit determined under section 40,
(ii) the credit determined under section 41 for the taxable year with respect to an eligible small business (as defined in paragraph (5)(A) after application of the rules of paragraph (5)(B)),
(iii) the credit determined under section 42 to the extent attributable to buildings placed in service after December 31, 2007,
(iv) the credit determined under section 45 to the extent that such credit is attributable to electricity or refined coal produced—
(I) at a facility which is originally placed in service after the date of the enactment of this paragraph, and
(II) during the 4-year period beginning on the date that such facility was originally placed in service,
(v) the credit determined under section 45 to the extent that such credit is attributable to section 45(e)(10) (relating to Indian coal production facilities),
(vi) the credit determined under section 45B,
(vii) the credit determined under section 45G,
(viii) the credit determined under section 45R,
(ix) the credit determined under section 45S,
(x) the credit determined under section 46 to the extent that such credit is attributable to the energy credit determined under section 48,
(xi) the credit determined under section 46 to the extent that such credit is attributable to the rehabilitation credit under section 47, but only with respect to qualified rehabilitation expenditures properly taken into account for periods after December 31, 2007, and
(xii) the credit determined under section 51.
(5) Rules related to eligible small businesses
(A) Eligible small business
For purposes of this subsection, the term "eligible small business" means, with respect to any taxable year—
(i) a corporation the stock of which is not publicly traded,
(ii) a partnership, or
(iii) a sole proprietorship,
if the average annual gross receipts of such corporation, partnership, or sole proprietorship for the 3-taxable-year period preceding such taxable year does not exceed $50,000,000. For purposes of applying the test under the preceding sentence, rules similar to the rules of paragraphs (2) and (3) of section 448(c) shall apply.
(B) Treatment of partners and S corporation shareholders
For purposes of paragraph (4)(B)(ii), any credit determined under section 41 with respect to a partnership or S corporation shall not be treated as a specified credit by any partner or shareholder unless such partner or shareholder meets the gross receipts test under subparagraph (A) for the taxable year in which such credit is treated as a current year business credit.
(6) 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.
(E) Corporations
In the case of a corporation—
(i) the first sentence of paragraph (1) shall be applied by substituting "25 percent of the taxpayer's net income tax as exceeds $25,000" for "the greater of" and all that follows,
(ii) paragraph (2)(A) shall be applied without regard to clause (ii)(I) thereof, and
(iii) paragraph (4)(A) shall be applied without regard to clause (ii)(I) thereof.
(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.
(Added and amended
Amendment of Subsection (b)
(34) the zero-emission nuclear power production credit determined under section 45U(a).
See 2022 Amendment note below.
(39) the clean electricity production credit determined under section 45Y(a).
See 2022 Amendment note below.
(40) the clean fuel production credit determined under section 45Z(a).
See 2022 Amendment note below.
Editorial Notes
References in Text
The date of the enactment of this paragraph, referred to in subsec. (c)(4)(B)(iv)(I), is the date of enactment of
The date of the enactment of the Revenue Reconciliation Act of 1990, referred to in subsec. (c)(6)(C), is the date of enactment of
Codification
Prior Provisions
A prior section 38, added
Another prior section 38 was renumbered
Amendments
2022—Subsec. (b)(30).
Subsec. (b)(34).
Subsec. (b)(35).
Subsec. (b)(36).
Subsec. (b)(37).
Subsec. (b)(38).
Subsec. (b)(39).
Subsec. (b)(40).
Subsec. (b)(41).
Subsec. (c)(6)(E).
2019—Subsec. (b)(33).
2018—Subsec. (b)(24), (25).
Subsec. (b)(26) to (29).
Subsec. (b)(30) to (32).
Subsec. (b)(33) to (37).
Subsec. (c)(2)(A)(ii)(II).
Subsec. (c)(3).
Subsec. (c)(4)(A)(ii)(II).
Subsec. (c)(4)(B)(ii).
Subsec. (c)(5).
Subsec. (c)(5)(A).
Subsec. (c)(5)(B).
Subsec. (c)(5)(C), (D).
2017—Subsec. (b)(35) to (37).
Subsec. (c)(4)(B)(ix) to (xii).
Subsec. (c)(6)(E).
2015—Subsec. (c)(4)(B)(ii) to (iv).
Subsec. (c)(4)(B)(v) to (x).
Subsec. (c)(4)(B)(xi).
2014—Subsec. (b)(35) to (37).
Subsec. (c)(2)(A).
Subsec. (d)(3).
2010—Subsec. (b)(36).
Subsec. (c)(2)(A)(ii)(II).
Subsec. (c)(3)(A)(ii)(II).
Subsec. (c)(4)(A)(ii)(II).
Subsec. (c)(4)(B)(vi) to (ix).
Subsec. (c)(5), (6).
2009—Subsec. (b)(35).
2008—Subsec. (b)(32).
Subsec. (b)(33).
Subsec. (b)(34).
Subsec. (b)(35).
Subsec. (c)(4)(B)(ii) to (iv).
Subsec. (c)(4)(B)(v).
Subsec. (c)(4)(B)(vi).
Subsec. (c)(4)(B)(vii).
Subsec. (c)(4)(B)(viii).
2007—Subsec. (b)(8), (24).
Subsec. (b)(30).
Subsec. (c)(4)(B)(iii), (iv).
2006—Subsec. (b)(29) to (31).
2005—Subsec. (b)(20).
Subsec. (b)(21).
Subsec. (b)(22).
Subsec. (b)(23).
Subsec. (b)(24).
Subsec. (b)(25).
Subsec. (b)(26).
Subsec. (b)(27).
Subsec. (b)(28) to (30).
Subsec. (c)(2)(A)(ii)(II).
Subsec. (c)(3)(A)(ii)(II).
Subsec. (c)(4)(B).
2004—Subsec. (b)(16).
Subsec. (b)(17).
Subsec. (b)(18).
Subsec. (b)(19).
Subsec. (c)(2)(A)(ii)(II), (3)(A)(ii)(II).
Subsec. (c)(4), (5).
2002—Subsec. (b)(15).
Subsec. (c)(2)(A)(ii)(II).
Subsec. (c)(3), (4).
2001—Subsec. (b)(12).
Subsec. (b)(13).
Subsec. (b)(14).
Subsec. (b)(15).
2000—Subsec. (b)(13).
1996—Subsec. (b)(2).
Subsec. (b)(12).
Subsec. (c)(2)(C).
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).
Statutory Notes and Related Subsidiaries
Effective Date of 2022 Amendment
Amendment by section 10101(d) of
Amendment by section 13105(b)(1) of
Amendment by section 13203(b) of
Amendment by section 13204(a)(4)(A) of
Amendment by section 13401(i)(3) of
Amendment by section 13403(b)(1) of
Amendment by section 13502(b)(1) of
Amendment by section 13701(b)(1) of
Amendment by section 13704(b)(3) of
Effective Date of 2019 Amendment
Effective Date of 2017 Amendment
Amendment by section 12001(b)(1) of
Effective Date of 2015 Amendment
"(1)
"(2)
"(3)
Effective Date of 2014 Amendment
Amendment by section 209(f)(1) of
Amendment by section 221(a)(2)(B), (6) of
Effective Date of 2010 Amendment
"(1)
"(2)
Effective Date of 2009 Amendment
Amendment by
Effective Date of 2008 Amendment
Amendment by section 103(b) of
Amendment by section 205(c) of
"(2)
"(3)
Amendment of this section and repeal of
[
Effective Date of 2007 Amendment
Effective Date of 2006 Amendment
Effective Date of 2005 Amendment
Amendment by section 1322(a)(2) of
Amendment by section 1341(b)(1) of
Amendment by section 1342(b)(1) of
Effective Date of 2004 Amendment
Effective Date of 2002 Amendment
Amendment by section 411(d)(2) of
Effective Date of 2001 Amendment
Effective Date of 2000 Amendment
Effective Date of 1996 Amendment
Amendment by section 1205(a)(2) of
Effective Date of 1993 Amendment
Effective Date of 1992 Amendment
Effective Date of 1990 Amendment
Amendment by section 11511(b)(1) of
"(1)
"(2)
Amendment by section 11813(b)(2) of
Effective Date of 1988 Amendment
Amendment by section 1007(g)(2), (8) of
Effective Date of 1986 Amendment
Amendment by section 231(d)(1), (3)(B) of
Amendment by section 252(b) of
Amendment by section 701(c)(4) 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 amendment made by section 401(d)(6)(B)(i)–(iii) of
For provisions that nothing in amendment by section 401(b)(5)(A)–(D), (d)(2)(B), (6)(B)(i)–(iii) of
For provisions that nothing in amendment by section 11813(b)(2) of
Business Credit for Retention of Certain Newly Hired Individuals in 2010
"(a)
"(1) $1,000, or
"(2) 6.2 percent of the wages (as defined in section 3401(a) [probably means section 3401(a) of the Internal Revenue Code of 1986]) paid by the taxpayer to such retained worker during the 52 consecutive week period referred to in subsection (b)(2).
"(b)
"(1) who was employed by the taxpayer on any date during the taxable year,
"(2) who was so employed by the taxpayer for a period of not less than 52 consecutive weeks, and
"(3) whose wages (as defined in section 3401(a) [probably means section 3401(a) of the Internal Revenue Code of 1986]) for such employment during the last 26 weeks of such period equaled at least 80 percent of such wages for the first 26 weeks of such period.
"(c)
"(d)
"(1)
"(A)
"(B)
"(2)
"(A) to whom a credit is allowed against taxes imposed by the possession by reason of this section for such taxable year, or
"(B) who is eligible for a payment under a plan described in paragraph (1)(B) with respect to such taxable year.
"(3)
"(A)
"(B)
"(C)
Credit for Contributions to Certain Community Development Corporations
"(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
"(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
"(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
"(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."
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)
[
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
1 See Amendment of Subsection (b) note below.
§39. Carryback and carryforward of unused credits
(a) In general
(1) 1-year carryback and 20-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 the taxable year preceding the unused credit year, and
(B) a business credit carryforward to each of the 20 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 21 taxable years to which (by reason of paragraph (1)) such credit may be carried.
(B) Amount carried to other 20 years
The amount of the unused credit for the unused credit year shall be carried to each of the other 20 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).
(3) 5-year carryback for marginal oil and gas well production credit
Notwithstanding subsection (d), in the case of the marginal oil and gas well production credit—
(A) this section shall be applied separately from the business credit (other than the marginal oil and gas well production credit),
(B) paragraph (1) shall be applied by substituting "each of the 5 taxable years" for "the taxable year" in subparagraph (A) thereof, and
(C) paragraph (2) shall be applied—
(i) by substituting "25 taxable years" for "21 taxable years" in subparagraph (A) thereof, and
(ii) by substituting "24 taxable years" for "20 taxable years" in subparagraph (B) thereof.
(4) 3-year carryback for applicable credits
Notwithstanding subsection (d), in the case of any applicable credit (as defined in section 6417(b))—
(A) this section shall be applied separately from the business credit (other than the applicable credit),
(B) paragraph (1) shall be applied by substituting "each of the 3 taxable years" for "the taxable year" in subparagraph (A) thereof, and
(C) paragraph (2) shall be applied—
(i) by substituting "23 taxable years" for "21 taxable years" in subparagraph (A) thereof, and
(ii) by substituting "22 taxable years" for "20 taxable years" in subparagraph (B) thereof.
(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 rule
No portion of the unused business credit for any taxable year which is attributable to a credit specified in section 38(b) or any portion thereof may be carried back to any taxable year before the first taxable year for which such specified credit or such portion is allowable (without regard to subsection (a)).
(Added
Editorial Notes
Prior Provisions
A prior section 39 was renumbered
Another prior section 39 was renumbered
Amendments
2022—Subsec. (a)(4).
2018—Subsec. (a)(3)(A).
Subsec. (a)(4).
2010—Subsec. (a)(3)(A).
Subsec. (a)(4).
2005—Subsec. (a)(1)(A).
Subsec. (a)(3)(B).
2004—Subsec. (a)(3).
Subsec. (d).
2001—Subsec. (d)(10).
2000—Subsec. (d)(9).
1998—Subsec. (a)(2).
1997—Subsec. (a)(1).
Subsec. (a)(2).
Subsec. (d)(8).
1996—Subsec. (d)(5).
Subsec. (d)(6).
Subsec. (d)(7).
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).
Statutory Notes and Related Subsidiaries
Effective Date of 2022 Amendment
Amendment by
Effective Date of 2010 Amendment
Effective Date of 2004 Amendment
Amendment by section 245(b) of
Amendment by section 341(c) of
Effective Date of 2001 Amendment
Amendment by
Effective Date of 2000 Amendment
Amendment by
Effective Date of 1998 Amendment
Amendment by
Effective Date of 1997 Amendment
Effective Date of 1996 Amendment
Amendment by section 1205(c) of
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
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
§40. Alcohol, etc., 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,
(2) the alcohol credit,
(3) in the case of an eligible small ethanol producer, the small ethanol producer credit, plus
(4) the second generation biofuel 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 (determined without regard to any qualified second generation biofuel production).
(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.
(6) Second generation biofuel producer credit
(A) In general
The second generation biofuel producer credit of any taxpayer is an amount equal to the applicable amount for each gallon of qualified second generation biofuel production.
(B) Applicable amount
For purposes of subparagraph (A), the applicable amount means $1.01, except that such amount shall, in the case of second generation biofuel which is alcohol, be reduced by the sum of—
(i) the amount of the credit in effect for such alcohol under subsection (b)(1) (without regard to subsection (b)(3)) at the time of the qualified second generation biofuel production, plus
(ii) in the case of ethanol, the amount of the credit in effect under subsection (b)(4) at the time of such production.
(C) Qualified second generation biofuel production
For purposes of this section, the term "qualified second generation biofuel production" means any second generation biofuel which is produced by the taxpayer, and which during the taxable year—
(i) is sold by the taxpayer to another person—
(I) for use by such other person in the production of a qualified second generation biofuel 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 second generation biofuel at retail to another person and places such second generation biofuel in the fuel tank of such other person, or
(ii) is used or sold by the taxpayer for any purpose described in clause (i).
The qualified second generation biofuel production of any taxpayer for any taxable year shall not include any alcohol which is purchased by the taxpayer and with respect to which such producer increases the proof of the alcohol by additional distillation.
(D) Qualified second generation biofuel mixture
For purposes of this paragraph, the term "qualified second generation biofuel mixture" means a mixture of second generation biofuel and gasoline or of second generation biofuel and a special fuel which—
(i) is sold by the person producing such mixture to any person for use as a fuel, or
(ii) is used as a fuel by the person producing such mixture.
(E) Second generation biofuel
For purposes of this paragraph—
(i) In general
The term "second generation biofuel" means any liquid fuel which—
(I) is derived by, or from, qualified feedstocks, and
(II) meets the registration requirements for fuels and fuel additives established by the Environmental Protection Agency under section 211 of the Clean Air Act (
(ii) Exclusion of low-proof alcohol
The term "second generation biofuel" shall not include any alcohol with a proof of less than 150. The determination of the proof of any alcohol shall be made without regard to any added denaturants.
(iii) Exclusion of certain fuels
The term "second generation biofuel" shall not include any fuel if—
(I) more than 4 percent of such fuel (determined by weight) is any combination of water and sediment,
(II) the ash content of such fuel is more than 1 percent (determined by weight), or
(III) such fuel has an acid number greater than 25.
(F) Qualified feedstock
For purposes of this paragraph, the term "qualified feedstock" means—
(i) any lignocellulosic or hemicellulosic matter that is available on a renewable or recurring basis, and
(ii) any cultivated algae, cyanobacteria, or lemna.
(G) Special rules for algae
In the case of fuel which is derived by, or from, feedstock described in subparagraph (F)(ii) and which is sold by the taxpayer to another person for refining by such other person into a fuel which meets the requirements of subparagraph (E)(i)(II) and the refined fuel is not excluded under subparagraph (E)(iii)—
(i) such sale shall be treated as described in subparagraph (C)(i),
(ii) such fuel shall be treated as meeting the requirements of subparagraph (E)(i)(II) and as not being excluded under subparagraph (E)(iii) in the hands of such taxpayer, and
(iii) except as provided in this subparagraph, such fuel (and any fuel derived from such fuel) shall not be taken into account under subparagraph (C) with respect to the taxpayer or any other person.
(H) Allocation of second generation biofuel producer credit to patrons of cooperative
Rules similar to the rules under subsection (g)(6) shall apply for purposes of this paragraph.
(I) Registration requirement
No credit shall be determined under this paragraph with respect to any taxpayer unless such taxpayer is registered with the Secretary as a producer of second generation biofuel under section 4101.
(J) Application of paragraph
(i) In general
This paragraph shall apply with respect to qualified second generation biofuel production after December 31, 2008, and before January 1, 2025.
(ii) No carryover to certain years after expiration
If this paragraph ceases to apply for any period by reason of clause (i), rules similar to the rules of subsection (e)(2) shall apply.
(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 section 4041(b)(2), section 6426, or section 6427(e).
(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) Small ethanol 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) Second generation biofuel producer credit
If—
(i) any credit is allowed under subsection (a)(4), and
(ii) any person does not use such fuel for a purpose described in subsection (b)(6)(C),
then there is hereby imposed on such person a tax equal to the applicable amount (as defined in subsection (b)(6)(B)) for each gallon of such second generation biofuel.
(E) 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), (C), or (D) as if such tax were imposed by section 4081 and not by this chapter.
(4) Volume of alcohol
For purposes of determining under subsection (a) the number of gallons of alcohol with respect to which a credit is allowable under subsection (a), 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 2 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.
(6) Special rule for second generation biofuel producer credit
No second generation biofuel producer credit shall be determined under subsection (a) with respect to any second generation biofuel unless such second generation biofuel is produced in the United States and used as a fuel in the United States. For purposes of this subsection, the term "United States" includes any possession of the United States.
(7) Limitation to alcohol with connection to the United States
No credit shall be determined under this section with respect to any alcohol which is produced outside the United States for use as a fuel outside the United States. For purposes of this paragraph, the term "United States" includes any possession of the United States.
(e) Termination
(1) In general
This section shall not apply to any sale or use—
(A) for any period after December 31, 2011, or
(B) for any period before January 1, 2012, during which the rates of tax under section 4081(a)(2)(A) are 4.3 cents per gallon.
(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.
(3) Exception for second generation biofuel producer credit
Paragraph (1) shall not apply to the portion of the credit allowed under this section by reason of subsection (a)(4).
(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 60,000,000 gallons.
(2) Aggregation rule
For purposes of the 15,000,000 gallon limitation under subsection (b)(4)(C) and the 60,000,000 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 60,000,000 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.
(6) Allocation of small ethanol producer credit to patrons of cooperative
(A) Election to allocate
(i) In general
In the case of a cooperative organization described in section 1381(a), any portion of the credit determined under subsection (a)(3) for the taxable year may, at the election of the organization, be apportioned pro rata among patrons of the organization on the basis of the quantity or value of business done with or for such patrons for the taxable year.
(ii) Form and effect of election
An election under clause (i) for any taxable year shall be made on a timely filed return for such year. Such election, once made, shall be irrevocable for such taxable year. Such election shall not take effect unless the organization designates the apportionment as such in a written notice mailed to its patrons during the payment period described in section 1382(d).
(B) Treatment of organizations and patrons
(i) Organizations
The amount of the credit not apportioned to patrons pursuant to subparagraph (A) shall be included in the amount determined under subsection (a)(3) for the taxable year of the organization.
(ii) Patrons
The amount of the credit apportioned to patrons pursuant to subparagraph (A) shall be included in the amount determined under such subsection for the first taxable year of each patron ending on or after the last day of the payment period (as defined in section 1382(d)) for the taxable year of the organization or, if earlier, for the taxable year of each patron ending on or after the date on which the patron receives notice from the cooperative of the apportionment.
(iii) Special rules for decrease in credits for taxable year
If the amount of the credit of the organization determined under such subsection for a taxable year is less than the amount of such credit shown on the return of the organization for such year, an amount equal to the excess of—
(I) such reduction, over
(II) the amount not apportioned to such patrons under subparagraph (A) for the taxable year,
shall be treated as an increase in tax imposed by this chapter on the organization. Such increase shall not be treated as tax imposed by this chapter for purposes of determining the amount of any credit under this chapter or for purposes of section 55.
(h) Reduced credit for ethanol blenders
(1) In general
In the case of any alcohol mixture credit or alcohol credit with respect to any sale or use of alcohol which is ethanol during calendar years 2001 through 2011—
(A) subsections (b)(1)(A) and (b)(2)(A) shall be applied by substituting "the blender amount" for "60 cents",
(B) subsection (b)(3) shall be applied by substituting "the low-proof blender amount" for "45 cents" and "the blender amount" for "60 cents", and
(C) subparagraphs (A) and (B) of subsection (d)(3) shall be applied by substituting "the blender amount" for "60 cents" and "the low-proof blender amount" for "45 cents".
(2) Amounts
For purposes of paragraph (1), the blender amount and the low-proof blender amount shall be determined in accordance with the following table:
| In the case of any sale or use during calendar year: | The blender amount is: | The low-proof blender amount is: |
|---|---|---|
| 2001 or 2002 | 53 cents | 39.26 cents |
| 2003 or 2004 | 52 cents | 38.52 cents |
| 2005, 2006, 2007, or 2008 | 51 cents | 37.78 cents |
| 2009 through 2011 | 45 cents | 33.33 cents. |
(3) Reduction delayed until annual production or importation of 7,500,000,000 gallons
(A) In general
In the case of any calendar year beginning after 2008, if the Secretary makes a determination described in subparagraph (B) with respect to all preceding calendar years beginning after 2007, the last row in the table in paragraph (2) shall be applied by substituting "51 cents" for "45 cents".
(B) Determination
A determination described in this subparagraph with respect to any calendar year is a determination, in consultation with the Administrator of the Environmental Protection Agency, that an amount less than 7,500,000,000 gallons of ethanol (including cellulosic ethanol) has been produced in or imported into the United States in such year.
(Added
Editorial Notes
Codification
Prior Provisions
A prior section 40, added
Another prior section 40 was renumbered
Amendments
2022—Subsec. (b)(6)(J)(i).
2020—Subsec. (b)(6)(J)(i).
2019—Subsec. (b)(6)(J)(i).
2018—Subsec. (b)(6)(J)(i).
Subsec. (g)(2).
2015—Subsec. (b)(6)(J)(i).
2014—Subsec. (b)(6)(J)(i).
2013—
Subsec. (b)(6).
Subsec. (b)(6)(C), (D).
Subsec. (b)(6)(E).
Subsec. (b)(6)(E)(i)(I).
Subsec. (b)(6)(E)(ii).
Subsec. (b)(6)(F), (G).
Subsec. (b)(6)(H).
Subsec. (b)(6)(I), (J).
Subsec. (d)(3)(D).
Subsec. (d)(6).
Subsec. (e)(2).
Subsec. (e)(3).
2010—Subsec. (b)(6)(E)(iii).
Subsec. (b)(6)(E)(iii)(III).
Subsec. (e)(1)(A).
Subsec. (e)(1)(B).
Subsec. (h)(1), (2).
2008—
Subsec. (a)(4).
Subsec. (b)(4)(C).
Subsec. (b)(6).
Subsec. (d)(3)(C).
Subsec. (d)(3)(D).
Subsec. (d)(3)(E).
Subsec. (d)(4).
Subsec. (d)(6).
Subsec. (d)(7).
Subsec. (e)(2).
Subsec. (e)(3).
Subsec. (h)(2).
Subsec. (h)(3).
2005—Subsec. (g)(1), (2), (5)(A).
Subsec. (g)(6)(A)(ii).
2004—Subsec. (c).
Subsec. (d)(4).
Subsec. (e)(1)(A).
Subsec. (e)(1)(B).
Subsec. (g)(6).
Subsec. (h)(1).
Subsec. (h)(2).
1998—Subsec. (e)(1).
Subsec. (h).
"(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'."
1996—Subsec. (e)(1)(B).
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).
Statutory Notes and Related Subsidiaries
Effective Date of 2022 Amendment
Effective Date of 2020 Amendment
Effective Date of 2019 Amendment
Effective Date of 2018 Amendment
Effective Date of 2015 Amendment
Effective Date of 2014 Amendment
Effective Date of 2013 Amendment
Effective Date of 2010 Amendment
Effective Date of 2008 Amendment
Amendment of this section and repeal of
[
[
[
Effective Date of 2005 Amendment
Effective Date of 2004 Amendment
"(1)
"(2)
"(3)
"(4)
Effective Date of 1998 Amendment
Effective Date of 1996 Amendment
Amendment by
Effective Date of 1990 Amendment
"(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
Effective Date of 1984 Amendment
Amendment by section 474(k) 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
"(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."
§40A. Biodiesel and renewable diesel used as fuel
(a) General rule
For purposes of section 38, the biodiesel fuels credit determined under this section for the taxable year is an amount equal to the sum of—
(1) the biodiesel mixture credit, plus
(2) the biodiesel credit, plus
(3) in the case of an eligible small agri-biodiesel producer, the small agri-biodiesel producer credit.
(b) Definition of biodiesel mixture credit, biodiesel credit, and small agri-biodiesel producer credit
For purposes of this section—
(1) Biodiesel mixture credit
(A) In general
The biodiesel mixture credit of any taxpayer for any taxable year is $1.00 for each gallon of biodiesel used by the taxpayer in the production of a qualified biodiesel mixture.
(B) Qualified biodiesel mixture
The term "qualified biodiesel mixture" means a mixture of biodiesel and diesel fuel (as defined in section 4083(a)(3)), determined without regard to any use of kerosene, 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.
Biodiesel used in the production of a qualified biodiesel 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 biodiesel mixture.
(2) Biodiesel credit
(A) In general
The biodiesel credit of any taxpayer for any taxable year is $1.00 for each gallon of biodiesel which is not in a mixture with diesel fuel 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 biodiesel sold at retail
No credit shall be allowed under subparagraph (A)(i) with respect to any biodiesel which was sold in a retail sale described in subparagraph (A)(ii).
(3) Certification for biodiesel
No credit shall be allowed under paragraph (1) or (2) of subsection (a) unless the taxpayer obtains a certification (in such form and manner as prescribed by the Secretary) from the producer or importer of the biodiesel which identifies the product produced and the percentage of biodiesel and agri-biodiesel in the product.
(4) Small agri-biodiesel producer credit
(A) In general
The small agri-biodiesel producer credit of any eligible small agri-biodiesel producer for any taxable year is 10 cents for each gallon of qualified agri-biodiesel production of such producer.
(B) Qualified agri-biodiesel production
For purposes of this paragraph, the term "qualified agri-biodiesel production" means any agri-biodiesel which is produced by an eligible small agri-biodiesel 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 biodiesel 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 agri-biodiesel at retail to another person and places such agri-biodiesel 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 agri-biodiesel production of any producer for any taxable year shall not exceed 15,000,000 gallons.
(c) Coordination with credit against excise tax
The amount of the credit determined under this section with respect to any biodiesel shall be properly reduced to take into account any benefit provided with respect to such biodiesel solely by reason of the application of section 6426 or 6427(e).
(d) Definitions and special rules
For purposes of this section—
(1) Biodiesel
The term "biodiesel" means the monoalkyl esters of long chain fatty acids derived from plant or animal matter which meet—
(A) the registration requirements for fuels and fuel additives established by the Environmental Protection Agency under section 211 of the Clean Air Act (
(B) the requirements of the American Society of Testing and Materials D6751.
Such term shall not include any liquid with respect to which a credit may be determined under section 40 or 40B.
(2) Agri-biodiesel
The term "agri-biodiesel" means biodiesel derived solely from virgin oils, including esters derived from virgin vegetable oils from corn, soybeans, sunflower seeds, cottonseeds, canola, crambe, rapeseeds, safflowers, flaxseeds, rice bran, mustard seeds, and camelina, and from animal fats.
(3) Mixture or biodiesel not used as a fuel, etc.
(A) Mixtures
If—
(i) any credit was determined under this section with respect to biodiesel used in the production of any qualified biodiesel mixture, and
(ii) any person—
(I) separates the biodiesel 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 the product of the rate applicable under subsection (b)(1)(A) and the number of gallons of such biodiesel in such mixture.
(B) Biodiesel
If—
(i) any credit was determined under this section with respect to the retail sale of any biodiesel, and
(ii) any person mixes such biodiesel or uses such biodiesel other than as a fuel,
then there is hereby imposed on such person a tax equal to the product of the rate applicable under subsection (b)(2)(A) and the number of gallons of such biodiesel.
(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 agri-biodiesel.
(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) or (B) as if such tax were imposed by section 4081 and not by this chapter.
(4) 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.
(5) Limitation to biodiesel with connection to the United States
No credit shall be determined under this section with respect to any biodiesel which is produced outside the United States for use as a fuel outside the United States. For purposes of this paragraph, the term "United States" includes any possession of the United States.
(e) Definitions and special rules for small agri-biodiesel producer credit
For purposes of this section—
(1) Eligible small agri-biodiesel producer
The term "eligible small agri-biodiesel producer" means a person who, at all times during the taxable year, has a productive capacity for agri-biodiesel not in excess of 60,000,000 gallons.
(2) Aggregation rule
For purposes of the 15,000,000 gallon limitation under subsection (b)(4)(C) and the 60,000,000 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 corporation, 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 60,000,000 gallons of agri-biodiesel 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.
(6) Allocation of small agri-biodiesel credit to patrons of cooperative
(A) Election to allocate
(i) In general
In the case of a cooperative organization described in section 1381(a), any portion of the credit determined under subsection (a)(3) for the taxable year may, at the election of the organization, be apportioned pro rata among patrons of the organization on the basis of the quantity or value of business done with or for such patrons for the taxable year.
(ii) Form and effect of election
An election under clause (i) for any taxable year shall be made on a timely filed return for such year. Such election, once made, shall be irrevocable for such taxable year. Such election shall not take effect unless the organization designates the apportionment as such in a written notice mailed to its patrons during the payment period described in section 1382(d).
(B) Treatment of organizations and patrons
(i) Organizations
The amount of the credit not apportioned to patrons pursuant to subparagraph (A) shall be included in the amount determined under subsection (a)(3) for the taxable year of the organization.
(ii) Patrons
The amount of the credit apportioned to patrons pursuant to subparagraph (A) shall be included in the amount determined under such subsection for the first taxable year of each patron ending on or after the last day of the payment period (as defined in section 1382(d)) for the taxable year of the organization or, if earlier, for the taxable year of each patron ending on or after the date on which the patron receives notice from the cooperative of the apportionment.
(iii) Special rules for decrease in credits for taxable year
If the amount of the credit of the organization determined under such subsection for a taxable year is less than the amount of such credit shown on the return of the organization for such year, an amount equal to the excess of—
(I) such reduction, over
(II) the amount not apportioned to such patrons under subparagraph (A) for the taxable year,
shall be treated as an increase in tax imposed by this chapter on the organization. Such increase shall not be treated as tax imposed by this chapter for purposes of determining the amount of any credit under this chapter or for purposes of section 55.
(f) Renewable diesel
For purposes of this title—
(1) Treatment in the same manner as biodiesel
Except as provided in paragraph (2), renewable diesel shall be treated in the same manner as biodiesel.
(2) Exception
Subsection (b)(4) shall not apply with respect to renewable diesel.
(3) Renewable diesel defined
The term "renewable diesel" means liquid fuel derived from biomass which meets—
(A) the registration requirements for fuels and fuel additives established by the Environmental Protection Agency under section 211 of the Clean Air Act (
(B) the requirements of the American Society of Testing and Materials D975 or D396, or other equivalent standard approved by the Secretary.
Such term shall not include any liquid with respect to which a credit may be determined under section 40. Such term does not include any fuel derived from coprocessing biomass with a feedstock which is not biomass. For purposes of this paragraph, the term "biomass" has the meaning given such term by section 45K(c)(3).
(g) Termination
This section shall not apply to any sale or use after December 31, 2024.
(Added
Editorial Notes
Codification
Amendments
2022—Subsec. (d)(1).
Subsec. (f)(4).
Subsec. (g).
2019—Subsec. (g).
2018—Subsec. (g).
2015—Subsec. (g).
2014—Subsec. (g).
2013—Subsec. (g).
2010—Subsec. (g).
2008—Subsec. (b)(1)(A), (2)(A).
Subsec. (b)(3) to (5).
Subsec. (d)(1).
Subsec. (d)(2).
Subsec. (d)(3)(C)(ii).
Subsec. (d)(5).
Subsec. (e)(2), (3).
Subsec. (f)(2).
"(A)
"(B)
Subsec. (f)(3).
Subsec. (f)(3)(B).
Subsec. (f)(4).
Subsec. (g).
2005—
Subsec. (a).
"(1) the biodiesel mixture credit, plus
"(2) the biodiesel credit."
Subsec. (b).
Subsec. (b)(4).
Subsec. (b)(5).
Subsec. (b)(5)(B).
Subsec. (d)(3)(C), (D).
Subsec. (e).
Subsec. (f).
Subsec. (g).
Statutory Notes and Related Subsidiaries
Effective Date of 2022 Amendment
Amendment by section 13203(c) of
Effective Date of 2019 Amendment
Effective Date of 2018 Amendment
Effective Date of 2015 Amendment
Effective Date of 2014 Amendment
Effective Date of 2013 Amendment
Effective Date of 2010 Amendment
Effective Date of 2008 Amendment
"(1)
"(2)
Amendment by section 203(b) of
Amendment of this section and repeal of
Amendment by section 15321(f) of
Effective Date of 2005 Amendment
Effective Date
Section applicable to fuel produced, and sold or used, after Dec. 31, 2004, in taxable years ending after such date, see section 302(d) of
§40B. Sustainable aviation fuel credit
(a) In general
For purposes of section 38, the sustainable aviation fuel credit determined under this section for the taxable year is, with respect to any sale or use of a qualified mixture which occurs during such taxable year, an amount equal to the product of—
(1) the number of gallons of sustainable aviation fuel in such mixture, multiplied by
(2) the sum of—
(A) $1.25, plus
(B) the applicable supplementary amount with respect to such sustainable aviation fuel.
(b) Applicable supplementary amount
For purposes of this section, the term "applicable supplementary amount" means, with respect to any sustainable aviation fuel, an amount equal to $0.01 for each percentage point by which the lifecycle greenhouse gas emissions reduction percentage with respect to such fuel exceeds 50 percent. In no event shall the applicable supplementary amount determined under this subsection exceed $0.50.
(c) Qualified mixture
For purposes of this section, the term "qualified mixture" means a mixture of sustainable aviation fuel and kerosene if—
(1) such mixture is produced by the taxpayer in the United States,
(2) such mixture is used by the taxpayer (or sold by the taxpayer for use) in an aircraft,
(3) such sale or use is in the ordinary course of a trade or business of the taxpayer, and
(4) the transfer of such mixture to the fuel tank of such aircraft occurs in the United States.
(d) Sustainable aviation fuel
(1) In general
For purposes of this section, the term "sustainable aviation fuel" means liquid fuel, the portion of which is not kerosene, which—
(A) meets the requirements of—
(i) ASTM International Standard D7566, or
(ii) the Fischer Tropsch provisions of ASTM International Standard D1655, Annex A1,
(B) is not derived from coprocessing an applicable material (or materials derived from an applicable material) with a feedstock which is not biomass,
(C) is not derived from palm fatty acid distillates or petroleum, and
(D) has been certified in accordance with subsection (e) as having a lifecycle greenhouse gas emissions reduction percentage of at least 50 percent.
(2) Definitions
In this subsection—
(A) Applicable material
The term "applicable material" means—
(i) monoglycerides, diglycerides, and triglycerides,
(ii) free fatty acids, and
(iii) fatty acid esters.
(B) Biomass
The term "biomass" has the same meaning given such term in section 45K(c)(3).
(e) Lifecycle greenhouse gas emissions reduction percentage
For purposes of this section, the term "lifecycle greenhouse gas emissions reduction percentage" means, with respect to any sustainable aviation fuel, the percentage reduction in lifecycle greenhouse gas emissions achieved by such fuel as compared with petroleum-based jet fuel, as defined in accordance with—
(1) the most recent Carbon Offsetting and Reduction Scheme for International Aviation which has been adopted by the International Civil Aviation Organization with the agreement of the United States, or
(2) any similar methodology which satisfies the criteria under section 211(o)(1)(H) of the Clean Air Act (
(f) Registration of sustainable aviation fuel producers
No credit shall be allowed under this section with respect to any sustainable aviation fuel unless the producer or importer of such fuel—
(1) is registered with the Secretary under section 4101, and
(2) provides—
(A) certification (in such form and manner as the Secretary shall prescribe) from an unrelated party demonstrating compliance with—
(i) any general requirements, supply chain traceability requirements, and information transmission requirements established under the Carbon Offsetting and Reduction Scheme for International Aviation described in paragraph (1) of subsection (e), or
(ii) in the case of any methodology established under paragraph (2) of such subsection, requirements similar to the requirements described in clause (i), and
(B) such other information with respect to such fuel as the Secretary may require for purposes of carrying out this section.
(g) Coordination with credit against excise tax
The amount of the credit determined under this section with respect to any sustainable aviation fuel shall, under rules prescribed by the Secretary, be properly reduced to take into account any benefit provided with respect to such sustainable aviation fuel solely by reason of the application of section 6426 or 6427(e).
(h) Termination
This section shall not apply to any sale or use after December 31, 2024.
(Added
Editorial Notes
References in Text
The date of enactment of this section, referred to in subsec. (e)(2), is the date of enactment of
Statutory Notes and Related Subsidiaries
Effective Date
§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,
(2) 20 percent of the basic research payments determined under subsection (e)(1)(A), and
(3) 20 percent of the amounts paid or incurred by the taxpayer in carrying on any trade or business of the taxpayer during the taxable year (including as contributions) to an energy research consortium for energy research.
(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 work opportunity credit applies
The term "wages" shall not include any amount taken into account in determining the work opportunity 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.
(C) Amounts paid to certain research consortia
(i) In general
Subparagraph (A) shall be applied by substituting "75 percent" for "65 percent" with respect to amounts paid or incurred by the taxpayer to a qualified research consortium for qualified research on behalf of the taxpayer and 1 or more unrelated taxpayers. For purposes of the preceding sentence, all persons treated as a single employer under subsection (a) or (b) of section 52 shall be treated as related taxpayers.
(ii) Qualified research consortium
The term "qualified research consortium" means any organization which—
(I) is described in section 501(c)(3) or 501(c)(6) 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.
(D) Amounts paid to eligible small businesses, universities, and Federal laboratories
(i) In general
In the case of amounts paid by the taxpayer to—
(I) an eligible small business,
(II) an institution of higher education (as defined in section 3304(f)), or
(III) an organization which is a Federal laboratory,
for qualified research which is energy research, subparagraph (A) shall be applied by substituting "100 percent" for "65 percent".
(ii) Eligible small business
For purposes of this subparagraph, the term "eligible small business" means a small business with respect to which the taxpayer does not own (within the meaning of section 318) 50 percent or more of—
(I) in the case of a corporation, the outstanding stock of the corporation (either by vote or value), and
(II) in the case of a small business which is not a corporation, the capital and profits interests of the small business.
(iii) Small business
For purposes of this subparagraph—
(I) In general
The term "small business" means, with respect to any calendar year, any person if the annual average number of employees employed by such person during either of the 2 preceding calendar years was 500 or fewer. For purposes of the preceding sentence, a preceding calendar year may be taken into account only if the person was in existence throughout the year.
(II) Startups, controlled groups, and predecessors
Rules similar to the rules of subparagraphs (B) and (D) of section 220(c)(4) shall apply for purposes of this clause.
(iv) Federal laboratory
For purposes of this subparagraph, the term "Federal laboratory" has the meaning given such term by section 4(6) of the Stevenson-Wydler Technology Innovation Act of 1980 (
(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—
(I) the first taxable year in which a taxpayer had both gross receipts and qualified research expenses begins after December 31, 1983, or
(II) 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) Election of alternative simplified credit
(A) In general
At the election of the taxpayer, the credit determined under subsection (a)(1) shall be equal to 14 percent of so much of the qualified research expenses for the taxable year as exceeds 50 percent of the average qualified research expenses for the 3 taxable years preceding the taxable year for which the credit is being determined.
(B) Special rule in case of no qualified research expenses in any of 3 preceding taxable years
(i) Taxpayers to which subparagraph applies
The credit under this paragraph shall be determined under this subparagraph if the taxpayer has no qualified research expenses in any one of the 3 taxable years preceding the taxable year for which the credit is being determined.
(ii) Credit rate
The credit determined under this subparagraph shall be equal to 6 percent of the qualified research expenses for the taxable year.
(C) Election
An election under this paragraph shall apply to the taxable year for which made and all succeeding taxable years unless revoked with the consent of the Secretary.
(5) 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.
(6) 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, the Commonwealth of Puerto Rico, or any possession of 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 specified research or experimental expenditures 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, the Commonwealth of Puerto Rico, or any possession of 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 2016" in subparagraph (A)(ii) 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)(A)(ii) shall, for purposes of this paragraph, be applied by substituting the calendar year in which such base period ends for 2016. 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 determined on a proportionate basis to its share of the aggregate of the qualified research expenses, basic research payments, and amounts paid or incurred to energy research consortiums, taken into account by such controlled group for purposes of this section.
(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 determined on a proportionate basis to its share of the aggregate of the qualified research expenses, basic research payments, and amounts paid or incurred to energy research consortiums, taken into account by all such persons under common control for purposes of this section.
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
(i) In general
If a person acquires the major portion of either a trade or business or a separate unit of a trade or business (hereinafter in this paragraph referred to as the "acquired business") of another person (hereinafter in this paragraph referred to as the "predecessor"), then the amount of qualified research expenses paid or incurred by the acquiring person during the measurement period shall be increased by the amount determined under clause (ii), and the gross receipts of the acquiring person for such period shall be increased by the amount determined under clause (iii).
(ii) Amount determined with respect to qualified research expenses
The amount determined under this clause is—
(I) for purposes of applying this section for the taxable year in which such acquisition is made, the acquisition year amount, and
(II) for purposes of applying this section for any taxable year after the taxable year in which such acquisition is made, the qualified research expenses paid or incurred by the predecessor with respect to the acquired business during the measurement period.
(iii) Amount determined with respect to gross receipts
The amount determined under this clause is the amount which would be determined under clause (ii) if "the gross receipts of" were substituted for "the qualified research expenses paid or incurred by" each place it appears in clauses (ii) and (iv).
(iv) Acquisition year amount
For purposes of clause (ii), the acquisition year amount is the amount equal to the product of—
(I) the qualified research expenses paid or incurred by the predecessor with respect to the acquired business during the measurement period, and
(II) the number of days in the period beginning on the date of the acquisition and ending on the last day of the taxable year in which the acquisition is made,
divided by the number of days in the acquiring person's taxable year.
(v) Special rules for coordinating taxable years
In the case of an acquiring person and a predecessor whose taxable years do not begin on the same date—
(I) each reference to a taxable year in clauses (ii) and (iv) shall refer to the appropriate taxable year of the acquiring person,
(II) the qualified research expenses paid or incurred by the predecessor, and the gross receipts of the predecessor, during each taxable year of the predecessor any portion of which is part of the measurement period shall be allocated equally among the days of such taxable year,
(III) the amount of such qualified research expenses taken into account under clauses (ii) and (iv) with respect to a taxable year of the acquiring person shall be equal to the total of the expenses attributable under subclause (II) to the days occurring during such taxable year, and
(IV) the amount of such gross receipts taken into account under clause (iii) with respect to a taxable year of the acquiring person shall be equal to the total of the gross receipts attributable under subclause (II) to the days occurring during such taxable year.
(vi) Measurement period
For purposes of this subparagraph, the term "measurement period" means, with respect to the taxable year of the acquiring person for which the credit is determined, any period of the acquiring person preceding such taxable year which is taken into account for purposes of determining the credit for such year.
(B) Dispositions
If the predecessor furnished to 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, and the gross receipts of, the predecessor during the measurement period (as defined in subparagraph (A)(vi), determined by substituting "predecessor" for "acquiring person" each place it appears) shall be reduced by—
(i) in the case of the taxable year in which such disposition is made, an amount equal to the product of—
(I) the qualified research expenses paid or incurred by, or gross receipts of, the predecessor with respect to the acquired business during the measurement period (as so defined and so determined), and
(II) the number of days in the period beginning on the date of acquisition (as determined for purposes of subparagraph (A)(iv)(II)) and ending on the last day of the taxable year of the predecessor in which the disposition is made,
divided by the number of days in the taxable year of the predecessor, and
(ii) in the case of any taxable year ending after the taxable year in which such disposition is made, the amount described in clause (i)(I).
(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.
(6) Energy research consortium
(A) In general
The term "energy research consortium" means any organization—
(i) which is—
(I) described in section 501(c)(3) and is exempt from tax under section 501(a) and is organized and operated primarily to conduct energy research, or
(II) organized and operated primarily to conduct energy research in the public interest (within the meaning of section 501(c)(3)),
(ii) which is not a private foundation,
(iii) to which at least 5 unrelated persons paid or incurred during the calendar year in which the taxable year of the organization begins amounts (including as contributions) to such organization for energy research, and
(iv) to which no single person paid or incurred (including as contributions) during such calendar year an amount equal to more than 50 percent of the total amounts received by such organization during such calendar year for energy research.
(B) Treatment of persons
All persons treated as a single employer under subsection (a) or (b) of section 52 shall be treated as related persons for purposes of subparagraph (A)(iii) and as a single person for purposes of subparagraph (A)(iv).
(C) Foreign research
For purposes of subsection (a)(3), amounts paid or incurred for any energy research conducted outside the United States, the Commonwealth of Puerto Rico, or any possession of the United States shall not be taken into account.
(D) Denial of double benefit
Any amount taken into account under subsection (a)(3) shall not be taken into account under paragraph (1) or (2) of subsection (a).
(E) Energy research
The term "energy research" does not include any research which is not qualified research.
(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) Treatment of credit for qualified small businesses
(1) In general
At the election of a qualified small business for any taxable year, section 3111(f) shall apply to the payroll tax credit portion of the credit otherwise determined under subsection (a) for the taxable year and such portion shall not be treated (other than for purposes of section 280C) as a credit determined under subsection (a).
(2) Payroll tax credit portion
For purposes of this subsection, the payroll tax credit portion of the credit determined under subsection (a) with respect to any qualified small business for any taxable year is the least of—
(A) the amount specified in the election made under this subsection,
(B) the credit determined under subsection (a) for the taxable year (determined before the application of this subsection), or
(C) in the case of a qualified small business other than a partnership or S corporation, the amount of the business credit carryforward under section 39 carried from the taxable year (determined before the application of this subsection to the taxable year).
(3) Qualified small business
For purposes of this subsection—
(A) In general
The term "qualified small business" means, with respect to any taxable year—
(i) a corporation or partnership, if—
(I) the gross receipts (as determined under the rules of section 448(c)(3), without regard to subparagraph (A) thereof) of such entity for the taxable year is less than $5,000,000, and
(II) such entity did not have gross receipts (as so determined) for any taxable year preceding the 5-taxable-year period ending with such taxable year, and
(ii) any person (other than a corporation or partnership) who meets the requirements of subclauses (I) and (II) of clause (i), determined—
(I) by substituting "person" for "entity" each place it appears, and
(II) by only taking into account the aggregate gross receipts received by such person in carrying on all trades or businesses of such person.
(B) Limitation
Such term shall not include an organization which is exempt from taxation under section 501.
(4) Election
(A) In general
Any election under this subsection for any taxable year—
(i) shall specify the amount of the credit to which such election applies,
(ii) shall be made on or before the due date (including extensions) of—
(I) in the case of a qualified small business which is a partnership, the return required to be filed under section 6031,
(II) in the case of a qualified small business which is an S corporation, the return required to be filed under section 6037, and
(III) in the case of any other qualified small business, the return of tax for the taxable year, and
(iii) may be revoked only with the consent of the Secretary.
(B) Limitations
(i) Amount
(I) In general
The amount specified in any election made under this subsection shall not exceed $250,000.
(II) Increase
In the case of taxable years beginning after December 31, 2022, the amount in subclause (I) shall be increased by $250,000.
(ii) Number of taxable years
A person may not make an election under this subsection if such person (or any other person treated as a single taxpayer with such person under paragraph (5)(A)) has made an election under this subsection for 5 or more preceding taxable years.
(C) Special rule for partnerships and S corporations
In the case of a qualified small business which is a partnership or S corporation, the election made under this subsection shall be made at the entity level.
(5) Aggregation rules
(A) In general
Except as provided in subparagraph (B), all persons or entities treated as a single taxpayer under subsection (f)(1) shall be treated as a single taxpayer for purposes of this subsection.
(B) Special rules
For purposes of this subsection and section 3111(f)—
(i) each of the persons treated as a single taxpayer under subparagraph (A) may separately make the election under paragraph (1) for any taxable year, and
(ii) each of the $250,000 amounts under paragraph (4)(B)(i) shall be allocated among all persons treated as a single taxpayer under subparagraph (A) in the same manner as under subparagraph (A)(ii) or (B)(ii) of subsection (f)(1), whichever is applicable.
(6) Regulations
The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subsection, including—
(A) regulations to prevent the avoidance of the purposes of the limitations and aggregation rules under this subsection through the use of successor companies or other means,
(B) regulations to minimize compliance and record-keeping burdens under this subsection, and
(C) regulations for recapturing the benefit of credits determined under section 3111(f) in cases where there is a subsequent adjustment to the payroll tax credit portion of the credit determined under subsection (a), including requiring amended income tax returns in the cases where there is such an adjustment.
(Added
Editorial Notes
References in Text
The date of the enactment of the Energy Tax Incentives Act of 2005, referred to in subsec. (b)(3)(D)(iv), is the date of enactment of title XIII of
Prior Provisions
A prior section 41, added
Another prior section 41 was renumbered
Amendments
2022—Subsec. (h)(4)(B)(i).
Subsec. (h)(5)(B)(ii).
2018—Subsec. (c)(4).
Subsec. (c)(4)(A).
Subsec. (c)(4)(C).
Subsec. (c)(5) to (7).
2017—Subsec. (d)(1)(A).
Subsec. (e)(5)(C)(i).
Subsec. (e)(5)(C)(ii).
2015—Subsec. (h).
2014—Subsec. (h)(1).
"(A) after June 30, 1995, and before July 1, 1996, or
"(B) after December 31, 2013."
2013—Subsec. (f)(1)(A)(ii).
Subsec. (f)(1)(B)(ii).
Subsec. (f)(3)(A).
Subsec. (f)(3)(B).
"(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."
Subsec. (h)(1)(B).
2010—Subsec. (h)(1)(B).
2008—Subsec. (c)(5)(A).
Subsec. (h)(1)(B).
Subsec. (h)(2).
Subsec. (h)(3).
2007—Subsec. (a)(3).
Subsec. (f)(1)(A)(ii), (B)(ii).
Subsec. (f)(6)(E).
2006—Subsec. (c)(4)(A)(i).
Subsec. (c)(4)(A)(ii).
Subsec. (c)(4)(A)(iii).
Subsec. (c)(5) to (7).
Subsec. (h)(1)(B).
2005—Subsec. (a)(3).
Subsec. (b)(3)(C)(ii).
Subsec. (b)(3)(D).
Subsec. (f)(6).
Subsec. (f)(6)(C), (D).
2004—Subsec. (h)(1)(B).
1999—Subsec. (c)(4)(A)(i).
Subsec. (c)(4)(A)(ii).
Subsec. (c)(4)(A)(iii).
Subsecs. (c)(6), (d)(4)(F).
Subsec. (h)(1).
Subsec. (h)(1)(B).
1998—Subsec. (h)(1).
1997—Subsec. (c)(4)(B).
Subsec. (h)(1).
1996—Subsec. (b)(2)(D)(iii).
Subsec. (b)(3)(C).
Subsec. (c)(3)(B)(i).
Subsec. (c)(4) to (6).
Subsec. (h).
"(1)
"(2)
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).
Statutory Notes and Related Subsidiaries
Effective Date of 2022 Amendment
Effective Date of 2018 Amendment
Amendment by section 101(c) of
Effective Date of 2017 Amendment
Amendment by section 11002(d)(1)(F), (2) of
Effective Date of 2015 Amendment
Amendment by section 121(a)(1) of
Amendment by section 121(c)(1) of
Effective Date of 2014 Amendment
Effective Date of 2013 Amendment
"(1)
"(2)
Effective Date of 2010 Amendment
Effective Date of 2008 Amendment
"(1)
"(2)
Effective Date of 2007 Amendment
Amendment by section 6(c) of
Effective Date of 2006 Amendment
"(2)
"(3)
"(A)
"(i) the applicable 2006 percentage multiplied by the amount determined under section 41(c)(4)(A) of such Code (as in effect for taxable years ending on December 31, 2006), plus
"(ii) the applicable 2007 percentage multiplied by the amount determined under section 41(c)(4)(A) of such Code (as in effect for taxable years ending on January 1, 2007).
"(B)
"(i)
"(ii)
"(iii)
"(2)
"(3)
"(4)
"(A)
"(i) the applicable 2006 percentage multiplied by the amount determined under section 41(a)(1) of such Code (as in effect for taxable years ending on December 31, 2006), plus
"(ii) the applicable 2007 percentage multiplied by the amount determined under section 41(c)(5) of such Code (as in effect for taxable years ending on January 1, 2007).
"(B)
"(i)
"(ii)
"(iii)
Effective Date of 2005 Amendments
Amendment by
Effective Date of 2004 Amendment
Effective Date of 1999 Amendment
Effective Date of 1998 Amendment
Effective Date of 1997 Amendment
Effective Date of 1996 Amendment
Amendment by section 1201(e)(1), (4) of
"(1)
"(2)
"(3)
Effective Date of 1993 Amendment
Amendment by section 13111(a)(1) 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
Amendment by section 7814(e)(2)(C) of
Effective Date of 1988 Amendment
Amendment by section 1002(h)(1) of
Effective Date of 1986 Amendment
"(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
Effective Date of 1982 Amendment
Amendment by
Effective Date
"(1)
"(2)
"(A)
"(B)
Savings Provision
For provisions that nothing in amendment by section 401(b)(6) of
Special Rule for Elections Under Expired Provisions
"(a)
"(b)
Special Rule for Credit Attributable to Suspension Periods
"(1)
"(A) shall not be taken into account prior to October 1, 2000, to the extent such credit is attributable to the first suspension period; and
"(B) shall not be taken into account prior to October 1, 2001, to the extent such credit is attributable to the second suspension period.
On or after the earliest date that an amount of credit may be taken into account, such amount may be taken into account through the filing of an amended return, an application for expedited refund, an adjustment of estimated taxes, or other means allowed by such Code.
"(2)
"(A) the first suspension period is the period beginning on July 1, 1999, and ending on September 30, 2000; and
"(B) the second suspension period is the period beginning on October 1, 2000, and ending on September 30, 2001.
"(3)
"(A)
"(B)
"(C)
"(i) review the application;
"(ii) determine the amount of the overpayment; and
"(iii) apply, credit, or refund such overpayment,
in a manner similar to the manner provided in section 6411(b) of such Code.
"(D)
"(4)
"(A)
"(B)
"(5)
Special Rules for Taxable Years Beginning Before Oct. 1, 1990, and Ending After Sept. 30, 1990
[
Study and Report on Credit Provided by This Section
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
"(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)."
§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
(1) Determination of applicable percentage
For purposes of this section—
(A) In general
The term "applicable percentage" means, with respect to any building, 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 new building which is not federally subsidized for the taxable year, and
(ii) 30 percent of the qualified basis of a building not described in clause (i).
(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.
(2) Minimum credit rate for non-federally subsidized new buildings
In the case of any new building—
(A) which is placed in service by the taxpayer after the date of the enactment of this paragraph, and
(B) which is not federally subsidized for the taxable year,
the applicable percentage shall not be less than 9 percent.
(3) Minimum credit rate
In the case of any new or existing building to which paragraph (2) does not apply and which is placed in service by the taxpayer after December 31, 2020, the applicable percentage shall not be less than 4 percent.
(4) 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.
(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 date the building was last placed in service,
(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) 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.
(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).
(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 subparagraphs (B) and (C), 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) Inclusion of basis of property used to provide services for certain nontenants
(i) In general
The adjusted basis of any building located in a qualified census tract (as defined in paragraph (5)(B)(ii)) shall be determined by taking into account the adjusted basis of property (of a character subject to the allowance for depreciation and not otherwise taken into account) used throughout the taxable year in providing any community service facility.
(ii) Limitation
The increase in the adjusted basis of any building which is taken into account by reason of clause (i) shall not exceed the sum of—
(I) 25 percent of so much of the eligible basis of the qualified low-income housing project of which it is a part as does not exceed $15,000,000, plus
(II) 10 percent of so much of the eligible basis of such project as is not taken into account under subclause (I).
For purposes of the preceding sentence, all community service facilities which are part of the same qualified low-income housing project shall be treated as one facility.
(iii) Community service facility
For purposes of this subparagraph, the term "community service facility" means any facility designed to serve primarily individuals whose income is 60 percent or less of area median income (within the meaning of subsection (g)(1)(B)).
(D) 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) Federal grants not taken into account in determining eligible basis
The eligible basis of a building shall not include any costs financed with the proceeds of a federally funded grant.
(B) 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, either 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 or which has a poverty rate of at least 25 percent. 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.
(v) Buildings designated by State housing credit agency
Any building which is designated by the State housing credit agency as requiring the increase in credit under this subparagraph in order for such building to be financially feasible as part of a qualified low-income housing project shall be treated for purposes of this subparagraph as located in a difficult development area which is designated for purposes of this subparagraph. The preceding sentence shall not apply to any building if paragraph (1) of subsection (h) does not apply to any portion of the eligible basis of such building by reason of paragraph (4) of such subsection.
(6) Credit allowable for certain buildings acquired during 10-year period described in paragraph (2)(B)(ii)
(A) In general
Paragraph (2)(B)(ii) shall not apply to any federally- or State-assisted building.
(B) Buildings acquired from insured depository institutions in default
On application by the taxpayer, the Secretary may waive paragraph (2)(B)(ii) 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.
(C) Federally- or State-assisted building
For purposes of this paragraph—
(i) Federally-assisted building
The term "federally-assisted building" means any building which is substantially assisted, financed, or operated under section 8 of the United States Housing Act of 1937, section 221(d)(3), 221(d)(4), or 236 of the National Housing Act, section 515 of the Housing Act of 1949, or any other housing program administered by the Department of Housing and Urban Development or by the Rural Housing Service of the Department of Agriculture.
(ii) State-assisted building
The term "State-assisted building" means any building which is substantially assisted, financed, or operated under any State law similar in purposes to any of the laws referred to in clause (i).
(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., 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 20 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 $6,000 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.
(D) Inflation adjustment
In the case of any expenditures which are treated under paragraph (4) as placed in service during any calendar year after 2009, the $6,000 amount in subparagraph (A)(ii)(II) shall be increased by an amount equal to—
(i) such dollar amount, multiplied by
(ii) the cost-of-living adjustment determined under section 1(f)(3) for such calendar year by substituting "calendar year 2008" for "calendar year 2016" in subparagraph (A)(ii) thereof.
Any increase under the preceding sentence which is not a multiple of $100 shall be rounded to the nearest multiple of $100.
(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)(B) 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 the dollar amount in effect under subsection (e)(3)(A)(ii)(II) were two-thirds of such amount.
(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), (B), or (C) 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.
(C) Average income test
(i) In general
The project meets the minimum requirements of this subparagraph if 40 percent or more (25 percent or more in the case of a project described in section 142(d)(6)) of the residential units in such project are both rent-restricted and occupied by individuals whose income does not exceed the imputed income limitation designated by the taxpayer with respect to the respective unit.
(ii) Special rules relating to income limitation
For purposes of clause (i)—
(I) Designation
The taxpayer shall designate the imputed income limitation of each unit taken into account under such clause.
(II) Average test
The average of the imputed income limitations designated under subclause (I) shall not exceed 60 percent of area median gross income.
(III) 10-percent increments
The designated imputed income limitation of any unit under subclause (I) shall be 20 percent, 30 percent, 40 percent, 50 percent, 60 percent, 70 percent, or 80 percent 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 clauses (ii), (iii), and (iv), 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) Rental of next available unit in case of 20–50 or 40–60 test
In the case of a project with respect to which the taxpayer elects the requirements of subparagraph (A) or (B) of paragraph (1), 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.
(iii) Rental of next available unit in case of average income test
In the case of a project with respect to which the taxpayer elects the requirements of subparagraph (C) of paragraph (1), if the income of the occupants of the unit increases above 140 percent of the greater of—
(I) 60 percent of area median gross income, or
(II) the imputed income limitation designated with respect to the unit under paragraph (1)(C)(ii)(I),
clause (i) shall cease to apply to any 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 the limitation described in clause (v).
(iv) Deep rent skewed projects
In the case of a project described in section 142(d)(4)(B), clause (ii) or (iii), whichever is applicable, shall be applied by substituting "170 percent" for "140 percent", and—
(I) in the case of clause (ii), 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 rental unit" and all that follows in such clause, and
(II) in the case of clause (iii), by substituting "any low-income unit in the building is occupied by a new resident whose income exceeds the lesser of 40 percent of area median gross income or the imputed income limitation designated with respect to such unit under paragraph (1)(C)(ii)(I)" for "any residential rental unit" and all that follows in such clause.
(v) Limitation described
For purposes of clause (iii), the limitation described in this clause with respect to any unit is—
(I) the imputed income limitation designated with respect to such unit under paragraph (1)(C)(ii)(I), in the case of a unit which was taken into account as a low-income unit prior to becoming vacant, and
(II) the imputed income limitation which would have to be designated with respect to such unit under such paragraph in order for the project to continue to meet the requirements of paragraph (1)(C)(ii)(II), in the case of any other unit.
(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.
(9) Clarification of general public use requirement
A project does not fail to meet the general public use requirement solely because of occupancy restrictions or preferences that favor tenants—
(A) with special needs,
(B) who are members of a specified group under a Federal program or State program or policy that supports housing for such a specified group, or
(C) who are involved in artistic or literary activities.
(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 date which is 1 year after the date that the allocation was 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) the unused State housing credit ceiling (if any) of such State for the preceding calendar year,
(ii) the greater of—
(I) $1.75 multiplied by the State population, or
(II) $2,000,000,
(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 (i), the unused State housing credit ceiling for any calendar year is the excess (if any) of the sum of the amounts described in clauses (ii) through (iv) 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 fails to meet the 10 percent test under paragraph (1)(E)(ii) on a date after the close of the calendar year in which the allocation was made or 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—
(I) the unused State housing credit ceiling for the year preceding such year, over
(II) the aggregate housing credit dollar amount allocated for such year.
(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).
(H) Cost-of-living adjustment
(i) In general
In the case of a calendar year after 2002, the $2,000,000 and $1.75 amounts in subparagraph (C) shall each be increased by an amount equal to—
(I) such dollar amount, multiplied by
(II) the cost-of-living adjustment determined under section 1(f)(3) for such calendar year by substituting "calendar year 2001" for "calendar year 2016" in subparagraph (A)(ii) thereof.
(ii) Rounding
(I) In the case of the $2,000,000 amount, any increase under clause (i) which is not a multiple of $5,000 shall be rounded to the next lowest multiple of $5,000.
(II) In the case of the $1.75 amount, any increase under clause (i) which is not a multiple of 5 cents shall be rounded to the next lowest multiple of 5 cents.
(I) Increase in State housing credit ceiling for 2018, 2019, 2020, and 2021
In the case of calendar years 2018, 2019, 2020, and 2021, each of the dollar amounts in effect under clauses (I) and (II) of subparagraph (C)(ii) for any calendar year (after any increase under subparagraph (H)) shall be increased by multiplying such dollar amount by 1.125.
(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 or such financing is refunded as described in section 146(i)(6).
(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, 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 2016" in subparagraph (A)(ii) thereof.
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 C-CPI-U for any calendar year (as defined in section 1(f)(6)) exceeds the C-CPI-U for the preceding calendar year by more than 5 percent, the C-CPI-U for the base calendar year shall be increased such that such excess shall never be taken into account under clause (i). In the case of a base calendar year before 2017, the C-CPI-U for such year shall be determined by multiplying the CPI for such year by the amount determined under section 1(f)(3)(B).
(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 the proceeds of which 1 are or were used (directly or indirectly) with respect to such building or the operation thereof.
(B) Election to reduce eligible basis by proceeds of obligations
A 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) the proceeds of such obligation.
(C) Special rule for subsidized construction financing
Subparagraph (A) shall not apply to any tax-exempt obligation used to provide construction financing for any building if—
(i) such obligation (when issued) identified the building for which the proceeds of such obligation would be used, and
(ii) such obligation is redeemed before such building is placed in service.
(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 McKinney-Vento 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,
(II) a student who was previously under the care and placement responsibility of the State agency responsible for administering a plan under part B or part E of title IV of the Social Security Act, or
(III) 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 are not dependents (as defined in section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof) of another individual and such children are not dependents (as so defined) of another individual other than a parent of such children, 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).
(8) Treatment of rural projects
For purposes of this section, in the case of any project for residential rental property located in a rural area (as defined in section 520 of the Housing Act of 1949), any income limitation measured by reference to area median gross income shall be measured by reference to the greater of area median gross income or national non-metropolitan median income. The preceding sentence shall not apply with respect to any building if paragraph (1) of section 42(h) does not apply by reason of paragraph (4) thereof to any portion of the credit determined under this section with respect to such building.
(9) Coordination with low-income housing grants
(A) Reduction in State housing credit ceiling for low-income housing grants received in 2009
For purposes of this section, the amounts described in clauses (i) through (iv) of subsection (h)(3)(C) with respect to any State for 2009 shall each be reduced by so much of such amount as is taken into account in determining the amount of any grant to such State under section 1602 of the American Recovery and Reinvestment Tax Act of 2009.
(B) Special rule for basis
Basis of a qualified low-income building shall not be reduced by the amount of any grant described in subparagraph (A).
(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 this chapter.
(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 which continues in qualified use
(A) In general
The increase in tax under this subsection shall not apply solely by reason of the disposition of a building (or an interest therein) if 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.
(B) Statute of limitations
If a building (or an interest therein) is disposed of during any taxable year and there is any reduction in the qualified basis of such building which results in an increase in tax under this subsection for such taxable or any subsequent taxable year, then—
(i) the statutory period for the assessment of any deficiency with respect to such increase in tax shall not expire before the expiration of 3 years from the date the Secretary is notified by the taxpayer (in such manner as the Secretary may prescribe) of such reduction in qualified basis, and
(ii) such deficiency may be assessed before the expiration of such 3-year period notwithstanding the provisions of any other law or rule of law which would otherwise prevent such assessment.
(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)(C) 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.
(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,
(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,
(iii) a comprehensive market study of the housing needs of low-income individuals in the area to be served by the project is conducted before the credit allocation is made and at the developer's expense by a disinterested party who is approved by such agency, and
(iv) a written explanation is available to the general public for any allocation of a housing credit dollar amount which is not made in accordance with established priorities and selection criteria of the housing credit agency.
(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,
(II) projects obligated to serve qualified tenants for the longest periods, and
(III) projects which are located in qualified census tracts (as defined in subsection (d)(5)(B)(ii)) and the development of which contributes to a concerted community revitalization plan, 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 and in monitoring for noncompliance with habitability standards through regular site visits.
(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, including whether the project includes the use of existing housing as part of a community revitalization plan,
(iv) sponsor characteristics,
(v) tenant populations with special housing needs,
(vi) public housing waiting lists,
(vii) tenant populations of individuals with children,
(viii) projects intended for eventual tenant ownership,
(ix) the energy efficiency of the project, and
(x) the historic nature of the project.
(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
Inflation Adjusted Items for Certain Years
For inflation adjustment of certain items in this section, see Revenue Procedures listed in a table under
Editorial Notes
References in Text
The date of the enactment of this paragraph, referred to in subsec. (b)(2)(A), is the date of enactment of
Section 201(a) of the Tax Reform Act of 1986, referred to in subsec. (c)(2)(B), is section 201(a) of
Section 3 of the Federal Deposit Insurance Act, referred to in subsec. (d)(6)(B), is classified to
Section 8 of the United States Housing Act of 1937, referred to in subsecs. (d)(6)(C)(i), (g)(2)(B), and (h)(6)(B)(iv), is classified to
Sections 221(d)(3), (4) and 236 of the National Housing Act, referred to in subsec. (d)(6)(C)(i), are classified to sections 1715l(d)(3), (4) and 1715z–1, respectively, of Title 12, Banks and Banking.
Sections 515, 502(c), and 520 of the Housing Act of 1949, referred to in subsecs. (d)(6)(C)(i), (g)(2)(B)(iv), and (i)(8), are classified to sections 1485, 1472(c), and 1490, respectively, of Title 42, The Public Health and Welfare.
The date of the enactment of this subparagraph, referred to in subsec. (g)(2)(E), is the date of enactment 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), (II), is act Aug. 14, 1935, ch. 531,
The Job Training Partnership Act, referred to in subsec. (i)(3)(D)(i)(III), is
Section 1602 of the American Recovery and Reinvestment Tax Act of 2009, referred to in subsec. (i)(9)(A), is section 1602 of
Prior Provisions
A prior section 42, added
Another prior section 42 was renumbered
Amendments
2020—Subsec. (b)(3), (4).
2018—Subsec. (d)(4)(C)(i).
Subsec. (e)(2)(B).
Subsec. (f)(5)(B)(ii)(I).
Subsec. (g)(1).
Subsec. (g)(1)(C).
Subsec. (g)(2)(D)(i).
Subsec. (g)(2)(D)(ii).
Subsec. (g)(2)(D)(iii) to (v).
Subsec. (h)(3)(I).
Subsec. (h)(5)(C)(ii).
Subsec. (i)(3)(D)(ii)(I).
Subsec. (k)(2)(B).
Subsec. (k)(2)(B)(ii).
Subsec. (m)(1)(B)(ii)(III).
2017—Subsecs. (e)(3)(D)(ii), (h)(3)(H)(i)(II).
Subsec. (h)(6)(G)(i)(II).
Subsec. (h)(6)(G)(ii).
2015—Subsec. (b)(2).
Subsec. (b)(2)(A).
2014—Subsec. (b)(1).
Subsec. (b)(2)(A).
Subsec. (h)(3)(C)(ii)(I).
2013—Subsec. (b)(2)(A).
2009—Subsec. (i).
2008—Subsec. (b).
Subsec. (c)(2).
Subsec. (d)(2)(B)(ii).
"(I) the date the building was last placed in service, or
"(II) the date of the most recent nonqualified substantial improvement of the building,".
Subsec. (d)(2)(D).
Subsec. (d)(4)(C)(ii).
Subsec. (d)(5)(A).
Subsec. (d)(5)(B), (C).
Subsec. (d)(5)(C)(v).
Subsec. (d)(6).
Subsec. (e)(3)(A)(ii)(I).
Subsec. (e)(3)(A)(ii)(II).
Subsec. (e)(3)(D).
Subsec. (f)(5)(B)(ii)(II).
Subsec. (g)(9).
Subsec. (h)(1)(E)(ii).
Subsec. (h)(3)(I).
Subsec. (h)(4)(A)(ii).
Subsec. (i)(2)(A).
Subsec. (i)(2)(B).
"(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."
Subsec. (i)(2)(C).
Subsec. (i)(2)(C)(i).
Subsec. (i)(2)(C)(ii).
Subsec. (i)(2)(D), (E).
Subsec. (i)(3)(D)(i)(II), (III).
Subsec. (i)(8).
Subsec. (j)(6).
"(A) the taxpayer furnishes to the Secretary a bond in an amount satifactory 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."
Subsec. (m)(1)(C)(ix), (x).
2007—Subsec. (i)(3)(D)(ii)(I).
2004—Subsec. (d)(2)(D)(iii)(I).
Subsec. (i)(3)(D)(ii)(I).
2002—Subsec. (h)(3)(C).
Subsec. (m)(1)(B)(ii)(II), (III).
2000—Subsec. (c)(2).
Subsec. (d)(4)(A).
Subsec. (d)(4)(C), (D).
Subsec. (d)(5)(C)(ii)(I).
Subsec. (h)(1)(E)(ii).
Subsec. (h)(3)(C).
Subsec. (h)(3)(C)(i), (ii).
"(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,".
Subsec. (h)(3)(D)(ii).
"(I) the aggregate housing credit dollar amount allocated for such year, over
"(II) the sum of the amounts described in clauses (ii) and (iii) of subparagraph (C)."
Subsec. (h)(3)(H).
Subsec. (i)(2)(E).
Subsec. (i)(2)(E)(i).
Subsec. (i)(3)(B)(iii)(I).
Subsec. (m)(1)(A)(iii), (iv).
Subsec. (m)(1)(B)(ii)(III).
Subsec. (m)(1)(B)(iii).
Subsec. (m)(1)(C)(iii).
Subsec. (m)(1)(C)(v) to (viii).
"(v) participation of local tax-exempt organizations,
"(vi) tenant populations with special housing needs, and
"(vii) public housing waiting lists."
1998—Subsec. (j)(4)(D).
1996—Subsec. (c)(2).
Subsec. (d)(5)(B).
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).
Statutory Notes and Related Subsidiaries
Effective Date of 2020 Amendment
"(1) any building which receives an allocation of housing credit dollar amount after December 31, 2020, and
"(2) in the case of any building any portion of which is financed with an obligation described in section 42(h)(4)(A), any such building if any such obligation which so finances such building is issued after December 31, 2020."
Effective Date of 2018 Amendment
Effective Date of 2017 Amendment
Amendment by
Effective Date of 2015 Amendment
Effective Date of 2014 Amendment
Amendment by section 221(a)(7) of
Effective Date of 2013 Amendment
Effective Date of 2008 Amendment
"(1)
"(2)
"(A)
"(B)
"(1)
"(2)
"(A) interests in buildings disposed [of] after the date of the enactment of this Act [July 30, 2008], and
"(B) interests in buildings disposed of on or before such date if—
"(i) it is reasonably expected that such building will continue to be operated as a qualified low-income building (within the meaning of section 42 of the Internal Revenue Code of 1986) for the remaining compliance period (within the meaning of such section) with respect to such building, and
"(ii) the taxpayer elects the application of this subparagraph with respect to such disposition.
"(3)
"(4)
"(5)
"(6)
Effective Date of 2007 Amendment
"(1) housing credit amounts allocated before, on, or after the date of the enactment of this Act [Dec. 20, 2007], and
"(2) buildings placed in service before, on, or after such date to the extent paragraph (1) of section 42(h) of the Internal Revenue Code of 1986 does not apply to any building by reason of paragraph (4) thereof."
Effective Date of 2004 Amendment
Amendment by section 207(8) of
Effective Date of 2000 Amendment
"(1) housing credit dollar amounts allocated after December 31, 2000; and
"(2) buildings placed in service after such date to the extent paragraph (1) of section 42(h) of the Internal Revenue Code of 1986 does not apply to any building by reason of paragraph (4) thereof, but only with respect to bonds issued after such date."
Effective Date of 1998 Amendment
Amendment by
Effective Date of 1993 Amendment
"(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
Effective Date of 1990 Amendment
"(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)
"(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."
"(1)
"(2)
"(3)
Amendment by section 11813(b)(3) of
Effective Date of 1989 Amendment
"(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)."
[
["(A) Paragraph (11) of section 11701(a) of the Revenue Reconciliation Act of 1990 (and the amendment made by such paragraph) [
["(B) Subparagraph (A) shall not apply to any building if the owner of such building establishes to the satisfaction of the Secretary of the Treasury or his delegate that such owner reasonably relied on the amendment made by such paragraph (11)."]
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
"(1)
"(2)
Effective Date of 1986 Amendment
Effective Date
"(1)
"(2)
Savings Provision
For provisions that nothing in amendment by sections 11812(b)(3) and 11813(b)(3) of
Grants to States for Low-Income Housing Projects in Lieu of Low-Income Housing Credit Allocations for 2009
"(a)
"(b)
"(1) the sum of—
"(A) 100 percent of the State housing credit ceiling for 2009 which is attributable to amounts described in clauses (i) and (iii) of section 42(h)(3)(C) of the Internal Revenue Code of 1986, and
"(B) 40 percent of the State housing credit ceiling for 2009 which is attributable to amounts described in clauses (ii) and (iv) of such section, multiplied by
"(2) 10.
"(c)
"(1)
"(2)
"(3)
"(4)
"(d)
"(e)
"(f)
Election To Determine Rent Limitation Based on Number of Bedrooms and Deep Rent Skewing
"(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
"(1)
"(2)
"(3)
Exception to Time Period for Meeting Project Requirements in Order To Qualify as Low-Income Housing
State Housing Credit Ceiling for Calendar Year 1990
Transitional Rules
"(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."
1 So in original. See 2008 Amendment note below.
§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 45K(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 (as defined in section 193(b)) which are paid or incurred in connection with a qualified enhanced oil recovery project and for which a deduction is allowable for the taxable year.
(D) Any amount which is paid or incurred during the taxable year to construct a gas treatment plant which—
(i) is located in the area of the United States (within the meaning of section 638(1)) lying north of 64 degrees North latitude,
(ii) prepares Alaska natural gas for transportation through a pipeline with a capacity of at least 2,000,000,000,000 Btu of natural gas per day, and
(iii) produces carbon dioxide which is injected into hydrocarbon-bearing geological formations.
(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).
(5) Alaska natural gas
For purposes of paragraph (1)(D)—
(A) In general
The term "Alaska natural gas" means natural gas entering the Alaska natural gas pipeline (as defined in section 168(i)(16) (determined without regard to subparagraph (B) thereof)) which is produced from a well—
(i) located in the area of the State of Alaska lying north of 64 degrees North latitude, determined by excluding the area of the Alaska National Wildlife Refuge (including the continental shelf thereof within the meaning of section 638(1)), and
(ii) pursuant to the applicable State and Federal pollution prevention, control, and permit requirements from such area (including the continental shelf thereof within the meaning of section 638(1)).
(B) Natural gas
The term "natural gas" has the meaning given such term by section 613A(e)(2).
(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
Inflation Adjusted Items for Certain Tax Years
For inflation adjustment of certain items in this section, see Internal Revenue Notices listed in a table below.
Editorial Notes
Prior Provisions
A prior section 43 was renumbered
Another prior section 43 was renumbered
Amendments
2005—Subsec. (b)(2).
Subsec. (c)(5).
"(1)
"(A) located in the area of the State of Alaska lying north of 64 degrees North latitude, determined by excluding the area of the Alaska National Wildlife Refuge (including the continental shelf thereof within the meaning of section 638(1)), and
"(B) pursuant to the applicable State and Federal pollution prevention, control, and permit requirements from such area (including the continental shelf thereof within the meaning of section 638(1)).
"(2)
2004—Subsec. (c)(1)(D).
Subsec. (c)(5).
2000—Subsec. (c)(1)(C).
Statutory Notes and Related Subsidiaries
Effective Date of 2005 Amendment
Amendment by
Effective Date of 2004 Amendment
Effective Date of 2000 Amendment
Effective Date
"(1)
"(2)
Inflation Adjusted Items for Certain Years
Provisions relating to inflation adjustment of items in this section for certain years were contained in the following:
2022—Internal Revenue Notice 2022–19.
2021—Internal Revenue Notice 2021–47.
2020—Internal Revenue Notice 2020–31.
2019—Internal Revenue Notice 2019–36.
2018—Internal Revenue Notice 2018–49.
2017—Internal Revenue Notice 2017–25.
2016—Internal Revenue Notice 2016–44.
2015—Internal Revenue Notice 2015–64.
2014—Internal Revenue Notice 2014–64.
2013—Internal Revenue Notice 2013–50.
2012—Internal Revenue Notice 2012–49.
2011—Internal Revenue Notice 2011–57.
2010—Internal Revenue Notice 2010–72.
2009—Internal Revenue Notice 2009–73.
2008—Internal Revenue Notice 2008–72.
2007—Internal Revenue Notice 2007–64.
2006—Internal Revenue Notice 2006–62.
2005—Internal Revenue Notice 2005–56.
2004—Internal Revenue Notice 2004–49.
2003—Internal Revenue Notice 2003–43.
2002—Internal Revenue Notice 2002–53.
2001—Internal Revenue Notice 2001–54.
2000—Internal Revenue Notice 2000–51.
1999—Internal Revenue Notice 99–45.
1998—Internal Revenue Notice 98–41.
1997—Internal Revenue Notice 97–39.
1996—Internal Revenue Notice 96–41.
§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
Editorial Notes
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
Statutory Notes and Related Subsidiaries
Effective Date
Section applicable to expenditures paid or incurred after Nov. 5, 1990, see section 11611(e)(1) of
[§44A. Renumbered §21]
[§44B. Repealed. Pub. L. 98–369, div. A, title IV, §474(m)(1), July 18, 1984, 98 Stat. 833 ]
Section, added
Statutory Notes and Related Subsidiaries
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 §45C]
§45. Electricity produced from certain renewable resources, etc.
(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) 0.3 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 0.3 cent amount in subsection (a), the 8 cent amount in paragraph (1), the $4.375 amount in subsection (e)(8)(A), the $2 amount in subsection (e)(8)(D)(ii)(I), and in subsection (e)(8)(B)(i) the reference price of fuel used as a feedstock (within the meaning of subsection (c)(7)(A)) in 2002 shall each be adjusted by multiplying such amount by the inflation adjustment factor for the calendar year in which the sale occurs. If the 0.3 cent amount as increased under the preceding sentence is not a multiple of 0.05 cent, such amount shall be rounded to the nearest multiple of 0.05 cent. In any other case, if an amount as increased under this paragraph 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 tax-exempt bonds
The amount of the credit determined under subsection (a) with respect to any facility 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 the lesser of 15 percent or a fraction—
(A) the numerator of which is the sum, for the taxable year and all prior taxable years, of proceeds of an issue of any obligations the interest on which is exempt from tax under section 103 and which is used to provide financing for the qualified facility, and
(B) the denominator of which is the aggregate amount of additions to the capital account for the qualified facility 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.
(4) Credit rate and period for electricity produced and sold from certain facilities
(A) Credit rate
In the case of electricity produced and sold in any calendar year after 2003 at any qualified facility described in paragraph (3), (5), (6), or (7) of subsection (d), the amount in effect under subsection (a)(1) for such calendar year (determined before the application of the last two sentences of paragraph (2) of this subsection) shall be reduced by one-half.
(B) Credit period
(i) In general
Except as provided in clause (ii) or clause (iii), in the case of any facility described in paragraph (3), (4), (5), (6), or (7) of subsection (d), the 5-year period beginning on the date the facility was originally placed in service shall be substituted for the 10-year period in subsection (a)(2)(A)(ii).
(ii) Certain open-loop biomass facilities
In the case of any facility described in subsection (d)(3)(A)(ii) placed in service before the date of the enactment of this paragraph, the 5-year period beginning on January 1, 2005, shall be substituted for the 10-year period in subsection (a)(2)(A)(ii).
(iii) Termination
Clause (i) shall not apply to any facility placed in service after the date of the enactment of this clause.
(5) Phaseout of credit for wind facilities
In the case of any facility using wind to produce electricity which is placed in service before January 1, 2022, the amount of the credit determined under subsection (a) (determined after the application of paragraphs (1), (2), and (3) and without regard to this paragraph) shall be reduced by—
(A) in the case of any facility the construction of which begins after December 31, 2016, and before January 1, 2018, 20 percent,
(B) in the case of any facility the construction of which begins after December 31, 2017, and before January 1, 2019, 40 percent,
(C) in the case of any facility the construction of which begins after December 31, 2018, and before January 1, 2020, 60 percent, and
(D) in the case of any facility the construction of which begins after December 31, 2019, and before January 1, 2022, 40 percent.
(6) Increased credit amount for qualified facilities
(A) In general
In the case of any qualified facility which satisfies the requirements of subparagraph (B), the amount of the credit determined under subsection (a) (determined after the application of paragraphs (1) through (5) and without regard to this paragraph) shall be equal to such amount multiplied by 5.
(B) Qualified facility requirements
A qualified facility meets the requirements of this subparagraph if it is one of the following:
(i) A facility with a maximum net output of less than 1 megawatt (as measured in alternating current).
(ii) A facility the construction of which begins prior to the date that is 60 days after the Secretary publishes guidance with respect to the requirements of paragraphs (7)(A) and (8).
(iii) A facility which satisfies the requirements of paragraphs (7)(A) and (8).
(7) Prevailing wage requirements
(A) In general
The requirements described in this subparagraph with respect to any qualified facility are that the taxpayer shall ensure that any laborers and mechanics employed by the taxpayer or any contractor or subcontractor in—
(i) the construction of such facility, and
(ii) with respect to any taxable year, for any portion of such taxable year which is within the period described in subsection (a)(2)(A)(ii), the alte