§26. Limitation based on tax liability; definition of tax liability

(a) Limitation based on amount of tax

The aggregate amount of credits allowed by this subpart for the taxable year shall not exceed the excess (if any) of-

(1) the taxpayer's regular tax liability for the taxable year, over

(2) the tentative minimum tax for the taxable year (determined without regard to the alternative minimum tax foreign tax credit).

(b) Regular tax liability

For purposes of this part-

(1) In general

The term "regular tax liability" means the tax imposed by this chapter for the taxable year.

(2) Exception for certain taxes

For purposes of paragraph (1), any tax imposed by any of the following provisions shall not be treated as tax imposed by this chapter:

(A) section 55 (relating to minimum tax),

(B) section 59A (relating to environmental tax),

(C) subsection (m)(5)(B), (q), (t), or (v) of section 72 (relating to additional taxes on certain distributions),

(D) section 143(m) (relating to recapture of proration of Federal subsidy from use of mortgage bonds and mortgage credit certificates),

(E) section 531 (relating to accumulated earnings tax),

(F) section 541 (relating to personal holding company tax),

(G) section 1351(d)(1) (relating to recoveries of foreign expropriation losses),

(H) section 1374 (relating to tax on certain built-in gains of S corporations),

(I) section 1375 (relating to tax imposed when passive investment income of corporation having subchapter C earnings and profits exceeds 25 percent of gross receipts),

(J) subparagraph (A) of section 7518(g)(6) (relating to nonqualified withdrawals from capital construction funds taxed at highest marginal rate),

(K) sections 871(a) and 881 (relating to certain income of nonresident aliens and foreign corporations),

(L) section 860E(e) (relating to taxes with respect to certain residual interests),

(M) section 884 (relating to branch profits tax), and

(N) sections 453(l)(3) and 453A(c) (relating to interest on certain deferred tax liabilities).

(c) Tentative minimum tax

For purposes of this part, the term "tentative minimum tax" means the amount determined under section 55(b)(1).

(Added §25, renumbered §26, Pub. L. 98–369, div. A, title IV, §472, title VI, §612(a), July 18, 1984, 98 Stat. 827 , 905; amended Pub. L. 99–499, title V, §516(b)(1)(A), Oct. 17, 1986, 100 Stat. 1770 ; Pub. L. 99–514, title II, §261(c), title VI, §632(c)(1), title VII, §701(c)(1), Oct. 22, 1986, 100 Stat. 2214 , 2277, 2340; Pub. L. 100–647, title I, §§1006(t)(16)(C), 1007(g)(1), 1011A(c)(10), 1012(q)(8), title IV, §4005(g)(4), title V, §5012(b)(2), Nov. 10, 1988, 102 Stat. 3425 , 3434, 3476, 3524, 3650, 3662; Pub. L. 101–239, title VII, §§7811(c)(1), (2), 7821(a)(4)(A), Dec. 19, 1989, 103 Stat. 2406 , 2407, 2424.)

Amendments

1989-Subsec. (b)(2)(C), (D). Pub. L. 101–239, §7811(c)(1), amended subpars. (C) and (D) generally. Prior to amendment, subpars. (C) and (D) read as follows:

"(C) subsection (m)(5)(B) (q), or (v) of section 72 (relating to additional tax on certain distributions),

"(D) section 72(t) (relating to 10-percent additional tax on early distributions from qualified retirement plans),".

Subsec. (b)(2)(K). Pub. L. 101–239, §7811(c)(2), added subpar. (K) and struck out former subpar. (K) which was identical.

Subsec. (b)(2)(L), (M). Pub. L. 101–239, §7811(c)(2), added subpars. (L) and (M) and struck out former subpars. (L) and (M) which read as follows:

"(L) section 860E(e) (relating to taxes with respect to certain residual interests), and

"(L) section 884 (relating to branch profits tax), and

"(M) section 143(m) (relating to recapture of portion of federal subsidy from use of mortgage bonds and mortgage credit certificates)."

Subsec. (b)(2)(N). Pub. L. 101–239, §7821(a)(4)(A), which directed amendment of subsec. (b)(2) of this section "as amended by section 11811" by adding subpar. (N), was executed as if it directed amendment of subsec. (b)(2) of this section "as amended by section 7811", to reflect the probable intent of Congress and the renumbering of section 11811 of H.R. 3299 as section 7811 prior to the enactment of H.R. 3299 into law as Pub. L. 101–239.

1988-Subsec. (b)(2)(C). Pub. L. 100–647, §1011A(c)(10)(A), struck out ", (o)(2)," after "subsection (m)(5)(B)".

Pub. L. 100–647, §5012(b)(2), substituted "(q), or (v)" for "or (q)".

Subsec. (b)(2)(D). Pub. L. 100–647, §1011A(c)(10)(B), substituted "72(t) (relating to 10-percent additional tax on early distributions from qualified retirement plans)" for "408(f) (relating to additional tax on income from certain retirement accounts)".

Subsec. (b)(2)(K). Pub. L. 100–647, §1007(g)(1), substituted "corporations)." for "corporations,".

Subsec. (b)(2)(L). Pub. L. 100–647, §1012(q)(8), added subpar. (L) relating to branch profits tax.

Pub. L. 100–647, §1006(t)(16)(C), added subpar. (L) relating to taxes with respect to certain residual interests.

Subsec. (b)(2)(M). Pub. L. 100–647, §4005(g)(4), added subpar. (M).

1986-Subsec. (a). Pub. L. 99–514, §701(c)(1)(A), amended subsec. (a) generally. Prior to amendment, subsec. (a) read as follows: "The aggregate amount of credits allowed by this subpart for the taxable year shall not exceed the taxpayer's tax liability for such taxable year."

Subsec. (b). Pub. L. 99–514, §701(c)(1)(B)(i), (v), substituted "Regular tax liability" for "Tax liability" in heading and "this part" for "this section" in introductory provisions.

Subsec. (b)(1). Pub. L. 99–514, §701(c)(1)(B)(ii), substituted "regular tax liability" for "tax liability".

Subsec. (b)(2). Pub. L. 99–499 added subpar. (B) and redesignated former subpars. (B) to (J) as (C) to (K), respectively.

Pub. L. 99–514, §701(c)(1)(B)(iii), substituted "section 55 (relating to minimum tax)" for "section 56 (relating to corporate minimum tax)" in subpar. (A).

Pub. L. 99–514, §632(c)(1), substituted "certain built-in gains" for "certain capital gains" in subpar. (G).

Pub. L. 99–514, §261(c), added subpar. (I).

Pub. L. 99–514, §701(c)(1)(B)(iv), added subpar. (J).

Subsec. (c). Pub. L. 99–514, §701(c)(1)(C), amended subsec. (c) generally, substituting provisions relating to tentative minimum tax for provisions referring to section 55(c) of this title for similar rule for alternative minimum tax for taxpayers other than corporations.

Effective Date of 1989 Amendment

Amendment by section 7811(c)(1), (2) of Pub. L. 101–239 effective, except as otherwise provided, as if included in the provision of the Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100–647, to which such amendment relates, see section 7817 of Pub. L. 101–239, set out as a note under section 1 of this title.

Section 7823 of Pub. L. 101–239 provided that: "Except as otherwise provided in this part [part II (§§7821–7823) of subtitle H of title VII of Pub. L. 101–239, amending this section and sections 453A, 842, 1503, 6427, 6655, 6863, 7519, 7611, 9502, 9503, and 9508 of this title and enacting provisions set out as notes under sections 56 and 7519 of this title], any amendment made by this part shall take effect as if included in the provision of the 1987 Act [Pub. L. 100–203, title X] to which such amendment relates."

Effective Date of 1988 Amendment

Amendment by section 1006(t)(16)(C) of Pub. L. 100–647 applicable, with certain exceptions, to transfers after Mar. 31, 1988, and to excess inclusions for periods after Mar. 31, 1988, see section 1006(t)(16)(D)(ii)–(iv) of Pub. L. 100–647, set out as a note under section 860E of this title.

Amendment by sections 1007(g)(1), 1011A(c)(10), and 1012(q)(8) of Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title.

Amendment by section 4005(g)(4) of Pub. L. 100–647 applicable, with certain exceptions, to financing provided, and mortgage credit certificates issued, after Dec. 31, 1990, see section 4005(h)(3) of Pub. L. 100–647, set out as a note under section 143 of this title.

Amendment by section 5012(b)(2) of Pub. L. 100–647 applicable to contracts entered into on or after June 21, 1988, with special rule where death benefit increases by more than $150,000, certain other material changes taken into account, and certain exchanges permitted, see section 5012(e) of Pub. L. 100–647, set out as an Effective Date note under section 7702A of this title.

Effective Date of 1986 Amendments

Amendment by section 261(c) of Pub. L. 99–514 applicable to taxable years beginning after Dec. 31, 1986, see section 261(g) of Pub. L. 99–514, set out as an Effective Date note under section 7518 of this title.

Amendment by section 632(c)(1) of Pub. L. 99–514 applicable to taxable years beginning after Dec. 31, 1986, but only in cases where the return for the taxable year is filed pursuant to an S election made after Dec. 31, 1986, see section 633(b) of Pub. L. 99–514, as amended, set out as an Effective Date note under section 336 of this title.

Amendment by section 632(c)(1) of Pub. L. 99–514 not applicable in the case of certain transactions, see section 54(d)(3)(D) of Pub. L. 98–369, as amended, set out as an Effective Date of 1984 Amendment note under section 311 of this title.

Amendment by section 701(c)(1) of Pub. L. 99–514 applicable to taxable years beginning after Dec. 31, 1986, with certain exceptions and qualifications, see section 701(f) of Pub. L. 99–514, set out as an Effective Date note under section 55 of this title.

Section 516(c) of Pub. L. 99–499 provided that: "The amendments made by this section [enacting section 59A of this title and amending this section and sections 164, 275, 936, 1561, 6154, 6425, and 6655 of this title] shall apply to taxable years beginning after December 31, 1986."

Effective Date

Section applicable to taxable years beginning after Dec. 31, 1983, and to carrybacks from such years, see section 475(a) of Pub. L. 98–369, set out as an Effective Date of 1984 Amendment note under section 21 of this title.

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)(1) of Pub. L. 99–514 notwithstanding any treaty obligation of the United States in effect on Oct. 22, 1986, with provision that for such purposes any amendment by title I of Pub. L. 100–647 be treated as if it had been included in the provision of Pub. L. 99–514 to which such amendment relates, see section 1012(aa)(2), (4) of Pub. L. 100–647, set out as a note under section 861 of this title.

Treatment of Tax Imposed Under Former Section 409(c)

Section 491(f)(5) of Pub. L. 98–369, as amended by Pub. L. 99–514, §2, Oct. 22, 1986, 100 Stat. 2095 , provided that: "For purposes of section 26(b) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as amended by this Act), any tax imposed by section 409(c) of such Code (as in effect before its repeal by this section) shall be treated as a tax imposed by section 408(f) of such Code."

Section Referred to in Other Sections

This section is referred to in sections 25, 39, 55, 163, 469, 901 of this title.