PART III—COMMON NONTAXABLE EXCHANGES
Amendments
1993—
1990—
1989—
1986—
1984—
1981—
1980—
1978—
1976—
1969—
1964—
1959—
§1031. Exchange of property held for productive use or investment
(a) Nonrecognition of gain or loss from exchanges solely in kind
(1) In general
No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment.
(2) Exception
This subsection shall not apply to any exchange of—
(A) stock in trade or other property held primarily for sale,
(B) stocks, bonds, or notes,
(C) other securities or evidences of indebtedness or interest,
(D) interests in a partnership,
(E) certificates of trust or beneficial interests, or
(F) choses in action.
For purposes of this section, an interest in a partnership which has in effect a valid election under section 761(a) to be excluded from the application of all of subchapter K shall be treated as an interest in each of the assets of such partnership and not as an interest in a partnership.
(3) Requirement that property be identified and that exchange be completed not more than 180 days after transfer of exchanged property
For purposes of this subsection, any property received by the taxpayer shall be treated as property which is not like-kind property if—
(A) such property is not identified as property to be received in the exchange on or before the day which is 45 days after the date on which the taxpayer transfers the property relinquished in the exchange, or
(B) such property is received after the earlier of—
(i) the day which is 180 days after the date on which the taxpayer transfers the property relinquished in the exchange, or
(ii) the due date (determined with regard to extension) for the transferor's return of the tax imposed by this chapter for the taxable year in which the transfer of the relinquished property occurs.
(b) Gain from exchanges not solely in kind
If an exchange would be within the provisions of subsection (a), of section 1035(a), of section 1036(a), or of section 1037(a), if it were not for the fact that the property received in exchange consists not only of property permitted by such provisions to be received without the recognition of gain, but also of other property or money, then the gain, if any, to the recipient shall be recognized, but in an amount not in excess of the sum of such money and the fair market value of such other property.
(c) Loss from exchanges not solely in kind
If an exchange would be within the provisions of subsection (a), of section 1035(a), of section 1036(a), or of section 1037(a), if it were not for the fact that the property received in exchange consists not only of property permitted by such provisions to be received without the recognition of gain or loss, but also of other property or money, then no loss from the exchange shall be recognized.
(d) Basis
If property was acquired on an exchange described in this section, section 1035(a), section 1036(a), or section 1037(a), then the basis shall be the same as that of the property exchanged, decreased in the amount of any money received by the taxpayer and increased in the amount of gain or decreased in the amount of loss to the taxpayer that was recognized on such exchange. If the property so acquired consisted in part of the type of property permitted by this section, section 1035(a), section 1036(a), or section 1037(a), to be received without the recognition of gain or loss, and in part of other property, the basis provided in this subsection shall be allocated between the properties (other than money) received, and for the purpose of the allocation there shall be assigned to such other property an amount equivalent to its fair market value at the date of the exchange. For purposes of this section, section 1035(a), and section 1036(a), where as part of the consideration to the taxpayer another party to the exchange assumed a liability of the taxpayer or acquired from the taxpayer property subject to a liability, such assumption or acquisition (in the amount of the liability) shall be considered as money received by the taxpayer on the exchange.
(e) Exchanges of livestock of different sexes
For purposes of this section, livestock of different sexes are not property of a like kind.
(f) Special rules for exchanges between related persons
(1) In general
If—
(A) a taxpayer exchanges property with a related person,
(B) there is nonrecognition of gain or loss to the taxpayer under this section with respect to the exchange of such property (determined without regard to this subsection), and
(C) before the date 2 years after the date of the last transfer which was part of such exchange—
(i) the related person disposes of such property, or
(ii) the taxpayer disposes of the property received in the exchange from the related person which was of like kind to the property transferred by the taxpayer,
there shall be no nonrecognition of gain or loss under this section to the taxpayer with respect to such exchange; except that any gain or loss recognized by the taxpayer by reason of this subsection shall be taken into account as of the date on which the disposition referred to in subparagraph (C) occurs.
(2) Certain dispositions not taken into account
For purposes of paragraph (1)(C), there shall not be taken into account any disposition—
(A) after the earlier of the death of the taxpayer or the death of the related person,
(B) in a compulsory or involuntary conversion (within the meaning of section 1033) if the exchange occurred before the threat or imminence of such conversion, or
(C) with respect to which it is established to the satisfaction of the Secretary that neither the exchange nor such disposition had as one of its principal purposes the avoidance of Federal income tax.
(3) Related person
For purposes of this subsection, the term "related person" means any person bearing a relationship to the taxpayer described in section 267(b) or 707(b)(1).
(4) Treatment of certain transactions
This section shall not apply to any exchange which is part of a transaction (or series of transactions) structured to avoid the purposes of this subsection.
(g) Special rule where substantial diminution of risk
(1) In general
If paragraph (2) applies to any property for any period, the running of the period set forth in subsection (f)(1)(C) with respect to such property shall be suspended during such period.
(2) Property to which subsection applies
This paragraph shall apply to any property for any period during which the holder's risk of loss with respect to the property is substantially diminished by—
(A) the holding of a put with respect to such property,
(B) the holding by another person of a right to acquire such property, or
(C) a short sale or any other transaction.
(h) Special rule for foreign real property
For purposes of this section, real property located in the United States and real property located outside the United States are not property of a like kind.
(Aug. 16, 1954, ch. 736,
Amendments
1990—Subsec. (a)(2).
Subsec. (f)(3).
1989—Subsecs. (f) to (h).
1986—Subsec. (a)(3)(A).
1984—Subsec. (a).
1969—Subsec. (e).
1959—Subsecs. (b) to (d).
1958—Subsec. (d).
Effective Date of 1990 Amendment
Section 11701(h) of
Section 11703(d)(2) of
Effective Date of 1989 Amendment
Section 7601(b) of
"(1)
"(2)
Effective Date of 1986 Amendment
Amendment by
Effective Date of 1984 Amendment
Section 77(b) of
"(1)
"(2)
"(3)
"(A) to transfers after the date of the enactment of this Act [July 18, 1984], and
"(B) to transfers on or before such date of enactment if the property to be received in the exchange is not received before January 1, 1987.
In the case of any transfer on or before the date of the enactment of this Act which the taxpayer treated as part of a like-kind exchange, the period for assessing any deficiency of tax attributable to the amendment made by subsection (a) [amending this section] shall not expire before January 1, 1988.
"(4)
"(A) by substituting 'January 1, 1989' for 'January 1, 1987', and
"(B) by substituting 'January 1, 1990' for 'January 1, 1988'.
"(5)
Effective Date of 1969 Amendment
Section 212(c)(2) of
Effective Date of 1959 Amendment
Amendment by
Effective Date of 1958 Amendment
Amendment by
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
Cross References
Stock for stock of same corporation, see
Section Referred to in Other Sections
This section is referred to in
§1032. Exchange of stock for property
(a) Nonrecognition of gain or loss
No gain or loss shall be recognized to a corporation on the receipt of money or other property in exchange for stock (including treasury stock) of such corporation. No gain or loss shall be recognized by a corporation with respect to any lapse or acquisition of an option to buy or sell its stock (including treasury stock).
(b) Basis
For basis of property acquired by a corporation in certain exchanges for its stock, see section 362.
(Aug. 16, 1954, ch. 736,
Amendments
1984—Subsec. (a).
Effective Date of 1984 Amendment
Section 57(b) of
§1033. Involuntary conversions
(a) General rule
If property (as a result of its destruction in whole or in part, theft, seizure, or requisition or condemnation or threat or imminence thereof) is compulsorily or involuntarily converted—
(1) Conversion into similar property
Into property similar or related in service or use to the property so converted, no gain shall be recognized.
(2) Conversion into money
Into money or into property not similar or related in service or use to the converted property, the gain (if any) shall be recognized except to the extent hereinafter provided in this paragraph:
(A) Nonrecognition of gain
If the taxpayer during the period specified in subparagraph (B), for the purpose of replacing the property so converted, purchases other property similar or related in service or use to the property so converted, or purchases stock in the acquisition of control of a corporation owning such other property, at the election of the taxpayer the gain shall be recognized only to the extent that the amount realized upon such conversion (regardless of whether such amount is received in one or more taxable years) exceeds the cost of such other property or such stock. Such election shall be made at such time and in such manner as the Secretary may by regulations prescribe. For purposes of this paragraph—
(i) no property or stock acquired before the disposition of the converted property shall be considered to have been acquired for the purpose of replacing such converted property unless held by the taxpayer on the date of such disposition; and
(ii) the taxpayer shall be considered to have purchased property or stock only if, but for the provisions of subsection (b) of this section, the unadjusted basis of such property or stock would be its cost within the meaning of section 1012.
(B) Period within which property must be replaced
The period referred to in subparagraph (A) shall be the period beginning with the date of the disposition of the converted property, or the earliest date of the threat or imminence of requisition or condemnation of the converted property, whichever is the earlier, and ending—
(i) 2 years after the close of the first taxable year in which any part of the gain upon the conversion is realized, or
(ii) subject to such terms and conditions as may be specified by the Secretary, at the close of such later date as the Secretary may designate on application by the taxpayer. Such application shall be made at such time and in such manner as the Secretary may by regulations prescribe.
(C) Time for assessment of deficiency attributable to gain upon conversion
If a taxpayer has made the election provided in subparagraph (A), then—
(i) the statutory period for the assessment of any deficiency, for any taxable year in which any part of the gain on such conversion is realized, attributable to such gain shall not expire prior to the expiration of 3 years from the date the Secretary is notified by the taxpayer (in such manner as the Secretary may by regulations prescribe) of the replacement of the converted property or of an intention not to replace, and
(ii) such deficiency may be assessed before the expiration of such 3–year period notwithstanding the provisions of section 6212(c) or the provisions of any other law or rule of law which would otherwise prevent such assessment.
(D) Time for assessment of other deficiencies attributable to election
If the election provided in subparagraph (A) is made by the taxpayer and such other property or such stock was purchased before the beginning of the last taxable year in which any part of the gain upon such conversion is realized, any deficiency, to the extent resulting from such election, for any taxable year ending before such last taxable year may be assessed (notwithstanding the provisions of section 6212(c) or 6501 or the provisions of any other law or rule of law which would otherwise prevent such assessment) at any time before the expiration of the period within which a deficiency for such last taxable year may be assessed.
(E) Definitions
For purposes of this paragraph—
(i) Control
The term "control" means the ownership of stock possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote and at least 80 percent of the total number of shares of all other classes of stock of the corporation.
(ii) Disposition of the converted property
The term "disposition of the converted property" means the destruction, theft, seizure, requisition, or condemnation of the converted property, or the sale or exchange of such property under threat or imminence of requisition or condemnation.
(b) Basis of property acquired through involuntary conversion
If the property was acquired, after February 28, 1913, as the result of a compulsory or involuntary conversion described in subsection (a)(1) or section 112(f)(2) of the Internal Revenue Code of 1939, the basis shall be the same as in the case of the property so converted, decreased in the amount of any money received by the taxpayer which was not expended in accordance with the provisions of law (applicable to the year in which such conversion was made) determining the taxable status of the gain or loss upon such conversion, and increased in the amount of gain or decreased in the amount of loss to the taxpayer recognized upon such conversion under the law applicable to the year in which such conversion was made. This subsection shall not apply in respect of property acquired as a result of a compulsory or involuntary conversion of property used by the taxpayer as his principal residence if the destruction, theft, seizure, requisition, or condemnation of such residence, or the sale or exchange of such residence under threat or imminence thereof, occurred after December 31, 1950, and before January 1, 1954. In the case of property purchased by the taxpayer in a transaction described in subsection (a)(3) which resulted in the nonrecognition of any part of the gain realized as the result of a compulsory or involuntary conversion, the basis shall be the cost of such property decreased in the amount of the gain not so recognized; and if the property purchased consists of more than one piece of property, the basis determined under this sentence shall be allocated to the purchased properties in proportion to their respective costs.
(c) Property sold pursuant to reclamation laws
For purposes of this subtitle, if property lying within an irrigation project is sold or otherwise disposed of in order to conform to the acreage limitation provisions of Federal reclamation laws, such sale or disposition shall be treated as an involuntary conversion to which this section applies.
(d) Livestock destroyed by disease
For purposes of this subtitle, if livestock are destroyed by or on account of disease, or are sold or exchanged because of disease, such destruction or such sale or exchange shall be treated as an involuntary conversion to which this section applies.
(e) Livestock sold on account of drought
For purposes of this subtitle, the sale or exchange of livestock (other than poultry) held by a taxpayer for draft, breeding, or dairy purposes in excess of the number the taxpayer would sell if he followed his usual business practices shall be treated as an involuntary conversion to which this section applies if such livestock are sold or exchanged by the taxpayer solely on account of drought.
(f) Replacement of livestock with other farm property where there has been environmental contamination
For purposes of subsection (a), if, because of soil contamination or other environmental contamination, it is not feasible for the taxpayer to reinvest the proceeds from compulsorily or involuntarily converted livestock in property similar or related in use to the livestock so converted, other property (including real property) used for farming purposes shall be treated as property similar or related in service or use to the livestock so converted.
(g) Condemnation of real property held for productive use in trade or business or for investment
(1) Special rule
For purposes of subsection (a), if real property (not including stock in trade or other property held primarily for sale) held for productive use in trade or business or for investment is (as the result of its seizure, requisition, or condemnation, or threat or imminence thereof) compulsorily or involuntarily converted, property of a like kind to be held either for productive use in trade or business or for investment shall be treated as property similar or related in service or use to the property so converted.
(2) Limitations
Paragraph (1) shall not apply to the purchase of stock in the acquisition of control of a corporation described in subsection (a)(2)(A).
(3) Election to treat outdoor advertising displays as real property
(A) In general
A taxpayer may elect, at such time and in such manner as the Secretary may prescribe, to treat property which constitutes an outdoor advertising display as real property for purposes of this chapter. The election provided by this subparagraph may not be made with respect to any property with respect to which an election under section 179(a) (relating to election to expense certain depreciable business assets) is in effect.
(B) Election
An election made under subparagraph (A) may not be revoked without the consent of the Secretary.
(C) Outdoor advertising display
For purposes of this paragraph, the term "outdoor advertising display" means a rigidly assembled sign, display, or device permanently affixed to the ground or permanently attached to a building or other inherently permanent structure constituting, or used for the display of, a commercial or other advertisement to the public.
(D) Character of replacement property
For purposes of this subsection, an interest in real property purchased as replacement property for a compulsorily or involuntarily converted outdoor advertising display defined in subparagraph (C) (and treated by the taxpayer as real property) shall be considered property of a like kind as the property converted without regard to whether the taxpayer's interest in the replacement property is the same kind of interest the taxpayer held in the converted property.
(4) Special rule
In the case of a compulsory or involuntary conversion described in paragraph (1), subsection (a)(2)(B)(i) shall be applied by substituting "3 years" for "2 years".
(h) Special rules for principal residences damaged by Presidentially declared disasters
(1) In general
If the taxpayer's principal residence or any of its contents is compulsorily or involuntarily converted as a result of a Presidentially declared disaster—
(A) Treatment of insurance proceeds
(i) Exclusion for unscheduled personal property
No gain shall be recognized by reason of the receipt of any insurance proceeds for personal property which was part of such contents and which was not scheduled property for purposes of such insurance.
(ii) Other proceeds treated as common fund
In the case of any insurance proceeds (not described in clause (i)) for such residence or contents—
(I) such proceeds shall be treated as received for the conversion of a single item of property, and
(II) any property which is similar or related in service or use to the residence so converted (or contents thereof) shall be treated for purposes of subsection (a)(2) as property similar or related in service or use to such single item of property.
(B) Extension of replacement period
Subsection (a)(2)(B) shall be applied with respect to any property so converted by substituting "4 years" for "2 years".
(2) Presidentially declared disaster
For purposes of this subsection, the term "Presidentially declared disaster" means any disaster which, with respect to the area in which the residence is located, resulted in a subsequent determination by the President that such area warrants assistance by the Federal Government under the Disaster Relief and Emergency Assistance Act.
(3) Principal residence
For purposes of this subsection, the term "principal residence" has the same meaning as when used in section 1034, except that such term shall include a residence not treated as a principal residence solely because the taxpayer does not own the residence.
(i) Cross references
(1) For determination of the period for which the taxpayer has held property involuntarily converted, see section 1223.
(2) For treatment of gains from involuntary conversions as capital gains in certain cases, see section 1231(a).
(3) For one-time exclusion from gross income of gain from involuntary conversion of principal residence by individual who has attained age 55, see section 121.
(Aug. 16, 1954, ch. 736,
References in Text
Section 112 of the Internal Revenue Code of 1939, referred to in subsec. (b), was classified to section 112 of former Title, 26, Internal Revenue Code. Section 112 was repealed by
The Disaster Relief and Emergency Assistance Act, referred to in subsec. (h)(2), is
Amendments
1993—Subsecs. (h), (i).
1990—Subsec. (g)(3)(A).
1984—Subsec. (g)(3)(A).
1981—Subsec. (g)(3)(A).
1978—Subsec. (a)(2)(A)(ii).
Subsecs. (f), (g).
Subsec. (h).
1976—Subsec. (a)(2), (3).
Subsec. (b).
Subsecs. (c) to (e).
Subsec. (f).
Subsecs. (g), (h).
1969—Subsec. (a)(3)(B).
1964—Subsec. (h)(3).
1958—Subsec. (a)(2).
Subsecs. (g), (h).
1956—Subsecs. (f), (g). Act June 29, 1956, added subsec. (f) and redesignated former subsec. (f) as (g).
Effective Date of 1993 Amendment
Section 13431(b) of
Effective Date of 1990 Amendment
Amendment by
Effective Date of 1984 Amendment
Amendment by
Effective Date of 1981 Amendment
Amendment by
Effective Date of 1978 Amendment
Amendment by section 404(c)(4) of
Section 542(b) of
Amendment by section 703(j)(5) of
Effective Date of 1976 Amendment
Amendment by section 1901(a)(128) of
Section 2127(b) of
Section 2140(b) of
Effective Date of 1969 Amendment
Section 915(b) of
Effective Date of 1964 Amendment
Amendment by
Effective Date of 1958 Amendment
Amendment by
Effective Date of 1956 Amendment
Section 5(b) of act June 29, 1956, provided that: "The amendment made by this section [amending this section] shall apply with respect to taxable years ending after December 31, 1955, but only in the case of sales and exchanges of livestock after December 31, 1955."
Savings Provision
For provisions that nothing in amendment by
Cross References
Gain from sale or exchange to effectuate policies of F.C.C., see
Gain or loss from involuntary conversion, see
Holding period of property, see
Section Referred to in Other Sections
This section is referred to in
§1034. Rollover of gain on sale of principal residence
(a) Nonrecognition of gain
If property (in this section called "old residence") used by the taxpayer as his principal residence is sold by him and, within a period beginning 2 years before the date of such sale and ending 2 years after such date, property (in this section called "new residence") is purchased and used by the taxpayer as his principal residence, gain (if any) from such sale shall be recognized only to the extent that the taxpayer's adjusted sales price (as defined in subsection (b)) of the old residence exceeds the taxpayer's cost of purchasing the new residence.
(b) Adjusted sales price defined
(1) In general
For purposes of this section, the term "adjusted sales price" means the amount realized, reduced by the aggregate of the expenses for work performed on the old residence in order to assist in its sale.
(2) Limitations
The reduction provided in paragraph (1) applies only to expenses—
(A) for work performed during the 90-day period ending on the day on which the contract to sell the old residence is entered into;
(B) which are paid on or before the 30th day after the date of the sale of the old residence; and
(C) which are—
(i) not allowable as deductions in computing taxable income under section 63 (defining taxable income), and
(ii) not taken into account in computing the amount realized from the sale of the old residence.
(c) Rules for application of section
For purposes of this section:
(1) An exchange by the taxpayer of his residence for other property shall be treated as a sale of such residence, and the acquisition of a residence on the exchange of property shall be treated as a purchase of such residence.
(2) A residence any part of which was constructed or reconstructed by the taxpayer shall be treated as purchased by the taxpayer. In determining the taxpayer's cost of purchasing a residence, there shall be included only so much of his cost as is attributable to the acquisition, construction, reconstruction, and improvements made which are properly chargeable to capital account, during the period specified in subsection (a).
(3) If a residence is purchased by the taxpayer before the date of his sale of the old residence, the purchased residence shall not be treated as his new residence if sold or otherwise disposed of by him before the date of the sale of the old residence.
(4) If the taxpayer, during the period described in subsection (a), purchases more than one residence which is used by him as his principal residence at some time within 2 years after the date of the sale of the old residence, only the last of such residences so used by him after the date of such sale shall constitute the new residence. If a principal residence is sold in a sale to which subsection (d)(2) applies within 2 years after the sale of the old residence, for purposes of applying the preceding sentence with respect to the old residence, the principal residence so sold shall be treated as the last residence used during such 2-year period.
(d) Limitation
(1) In general
Subsection (a) shall not apply with respect to the sale of the taxpayer's residence if within 2 years before the date of such sale the taxpayer sold at a gain other property used by him as his principal residence, and any part of such gain was not recognized by reason of subsection (a).
(2) Subsequent sale connected with commencing work at new place
Paragraph (1) shall not apply with respect to the sale of the taxpayer's residence if—
(A) such sale was in connection with the commencement of work by the taxpayer as an employee or as a self-employed individual at a new principal place of work, and
(B) if the residence so sold is treated as the former residence for purposes of section 217 (relating to moving expenses), the taxpayer would satisfy the conditions of subsection (c) of section 217 (as modified by the other subsections of such section).
(e) Basis of new residence
Where the purchase of a new residence results, under subsection (a) or under section 112 (n) of the Internal Revenue Code of 1939, in the nonrecognition of gain on the sale of an old residence, in determining the adjusted basis of the new residence as of any time following the sale of the old residence, the adjustments to basis shall include a reduction by an amount equal to the amount of the gain not so recognized on the sale of the old residence. For this purpose, the amount of the gain not so recognized on the sale of the old residence includes only so much of such gain as is not recognized by reason of the cost, up to such time, of purchasing the new residence.
(f) Tenant-stockholder in a cooperative housing corporation
For purposes of this section, section 1016 (relating to adjustments to basis), and section 1223 (relating to holding period), references to property used by the taxpayer as his principal residence, and references to the residence of a taxpayer, shall include stock held by a tenant-stockholder (as defined in section 216, relating to deduction for amounts representing taxes and interest paid to a cooperative housing corporation) in a cooperative housing corporation (as defined in such section) if—
(1) in the case of stock sold, the house or apartment which the taxpayer was entitled to occupy as such stockholder was used by him as his principal residence, and
(2) in the case of stock purchased, the taxpayer used as his principal residence the house or apartment which he was entitled to occupy as such stockholder.
(g) Husband and wife
If the taxpayer and his spouse, in accordance with regulations which shall be prescribed by the Secretary pursuant to this subsection, consent to the application of paragraph (2) of this subsection, then—
(1) for purposes of this section—
(A) the taxpayer's adjusted sales price of the old residence is the adjusted sales price (of the taxpayer, or of the taxpayer and his spouse) of the old residence, and
(B) the taxpayer's cost of purchasing the new residence is the cost (to the taxpayer, his spouse, or both) of purchasing the new residence (whether held by the taxpayer, his spouse, or the taxpayer and his spouse); and
(2) so much of the gain on the sale of the old residence as is not recognized solely by reason of this subsection, and so much of the adjustment under subsection (e) to the basis of the new residence as results solely from this subsection shall be allocated between the taxpayer and his spouse as provided in such regulations.
This subsection shall apply only if the old residence and the new residence are each used by the taxpayer and his spouse as their principal residence. In case the taxpayer and his spouse do not consent to the application of paragraph (2) of this subsection then the recognition of gain on the sale of the old residence shall be determined under this section without regard to the rules provided in this subsection. For purposes of this subsection, except to the extent provided in regulations, in the case of an individual who dies after the date of the sale of the old residence and is married on the date of death, consent to the application of paragraph (2) by such individual's spouse and use of the new residence as the principal residence of such spouse shall be treated as consent and use by such individual.
(h) Members of Armed Forces
(1) In general
The running of any period of time specified in subsection (a) or (c) (other than the 2 years referred to in subsection (c)(4)) shall be suspended during any time that the taxpayer (or his spouse if the old residence and the new residence are each used by the taxpayer and his spouse as their principal residence) serves on extended active duty with the Armed Forces of the United States after the date of the sale of the old residence, except that any such period of time as so suspended shall not extend beyond the date 4 years after the date of the sale of the old residence.
(2) Members stationed outside the United States or required to reside in Government quarters
In the case of any taxpayer who, during any period of time the running of which is suspended by paragraph (1)—
(A) is stationed outside of the United States, or
(B) after returning from a tour of duty outside of the United States and pursuant to a determination by the Secretary of Defense that adequate off-base housing is not available at a remote base site, is required to reside in on-base Government quarters,
any such period of time as so suspended shall not expire before the day which is 1 year after the last day described in subparagraph (A) or (B), as the case may be, except that any such period of time as so suspended shall not extend beyond the date which is 8 years after the date of the sale of the old residence.
(3) Extended active duty defined
For purposes of this subsection, the term "extended active duty" means any period of active duty pursuant to a call or order to such duty for a period in excess of 90 days or for an indefinite period.
(ii) 1 Special rule for condemnation
In the case of the seizure, requisition, or condemnation of a residence, or the sale or exchange of a residence under threat or imminence thereof, the provisions of this section, in lieu of section 1033 (relating to involuntary conversions), shall be applicable if the taxpayer so elects. If such election is made, such seizure, requisition, or condemnation shall be treated as the sale of the residence. Such election shall be made at such time and in such manner as the Secretary shall prescribe by regulations.
(j) Statute of limitations
If the taxpayer during a taxable year sells at a gain property used by him as his principal residence, then—
(1) the statutory period for the assessment of any deficiency attributable to any part of such gain 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 by regulations prescribe) of—
(A) the taxpayer's cost of purchasing the new residence which the taxpayer claims results in nonrecognition of any part of such gain,
(B) the taxpayer's intention not to purchase a new residence within the period specified in subsection (a), or
(C) a failure to make such purchase within such period; and
(2) 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) Individual whose tax home is outside the United States
The running of any period of time specified in subsection (a) or (c) (other than the 2 years referred to in subsection (c)(4)) shall be suspended during any time that the taxpayer (or his spouse if the old residence and the new residence are each used by the taxpayer and his spouse as their principal residence) has a tax home (as defined in section 911(d)(3)) outside the United States after the date of the sale of the old residence; except that any such period of time as so suspended shall not extend beyond the date 4 years after the date of the sale of the old residence.
(l) Cross reference
For one-time exclusion from gross income of gain from sale of principal residence by individual who has attained age 55, see section 121.
(Aug. 16, 1954, ch. 736,
References in Text
Section 112 of the Internal Revenue Code of 1939, referred to in subsec. (e), was classified to section 112 of former Title 26, Internal Revenue Code. Section 112 was repealed by
Amendments
1988—Subsec. (g).
1986—Subsec. (h)(2).
1984—Subsec. (h).
1981—Subsec. (a).
Subsec. (c)(4).
Subsec. (c)(5).
Subsecs. (d)(1), (h), (k).
1978—
Subsec. (c)(4).
Subsec. (d).
Subsec. (k).
Subsec. (l).
1977—Subsec. (b)(2)(C)(i).
1976—Subsec. (a).
Subsec. (b)(3).
Subsec. (d).
Subsec. (g).
Subsec. (i).
Subsec. (j).
1975—Subsecs. (a), (c)(4).
Subsec. (c)(5).
Subsecs. (d), (h).
1964—Subsec. (k).
1958—Subsec. (i)(2), (3).
Effective Date of 1988 Amendment
Section 6002(b) of
Effective Date of 1986 Amendment
Amendment by
Effective Date of 1984 Amendment
Section 1053(b) of
Effective Date of 1981 Amendment
Section 122(c) of
"(1) after July 20, 1981, or
"(2) on or before such date, if the rollover period under such section (determined without regard to the amendments made by this section) expires on or after such date.
Notwithstanding the preceding sentence, the taxpayer may elect to have the amendments made by this section [amending this section] not apply to any old residence sold or exchanged on or before August 13, 1981. Such an election shall be made at such time and in such manner as the Secretary of the Treasury or his delegate shall by regulations prescribe."
Amendment by section 112(b)(4) of
Effective Date of 1978 Amendment
Amendment by section 404(c)(5) of
Section 405(d) of
Effective Date of 1978 Amendment; Election of Prior Law
Amendment by
Effective Date of 1977 Amendment
Amendment by
Effective Date of 1976 Amendment
Amendment by section 1901(a)(129) of
Effective Date of 1975 Amendments
Section 209(e) of
Section 6(c) of
Effective Date of 1964 Amendment
Amendment by
Effective Date of 1958 Amendment
Amendment by
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
Nonrecognition of Gain on Sale of Principal Residence
"(a)
"(1) who sold his principal residence (within the meaning of section 1034 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]) in 1977,
"(2) who purchased property on which to construct a new principal residence (within the meaning of such section)—
"(A) the construction of which commenced during such year, and
"(B) the construction of which was terminated before completion,
"(3) who brought an action, and obtained a judgment, against the builder who commenced construction of the new residence but failed to complete it,
"(4) who suspended construction of such residence so that the partially constructed residence could be used as evidence in connection with the prosecution of the builder (without regard to whether it was so used), and
"(5) who failed to meet the requirements of such section with respect to occupancy of the new principal residence because of such suspension of construction,
the Secretary of the Treasury, in the administration of section 1034(c) of the Internal Revenue Code of 1986 (relating to rules for application of section 1034), shall apply paragraph (5) of such section as if '5 years' were substituted for '2 years' where it appears in the last sentence of such paragraph.
"(b)
Cross References
Adjustments to basis, see
Notice of deficiency, see
Section Referred to in Other Sections
This section is referred to in
1 So in original. Probably should be "(i)".
§1035. Certain exchanges of insurance policies
(a) General rules
No gain or loss shall be recognized on the exchange of—
(1) a contract of life insurance for another contract of life insurance or for an endowment or annuity contract; or
(2) a contract of endowment insurance (A) for another contract of endowment insurance which provides for regular payments beginning at a date not later than the date payments would have begun under the contract exchanged, or (B) for an annuity contract; or
(3) an annuity contract for an annuity contract.
(b) Definitions
For the purpose of this section—
(1) Endowment contract
A contract of endowment insurance is a contract with an insurance company which depends in part on the life expectancy of the insured, but which may be payable in full in a single payment during his life.
(2) Annuity contract
An annuity contract is a contract to which paragraph (1) applies but which may be payable during the life of the annuitant only in installments.
(3) Life insurance contract
A contract of life insurance is a contract to which paragraph (1) applies but which is not ordinarily payable in full during the life of the insured.
(c) Cross references
(1) For rules relating to recognition of gain or loss where an exchange is not solely in kind, see subsections (b) and (c) of section 1031.
(2) For rules relating to the basis of property acquired in an exchange described in subsection (a), see subsection (d) of section 1031.
(Aug. 16, 1954, ch. 736,
Amendments
1986—Subsec. (b)(1).
1984—Subsec. (b)(1).
Effective Date of 1986 Amendment
Amendment by
Effective Date of 1984 Amendment
Amendment by section 211(b)(5) of
Section 224(b) of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Section Referred to in Other Sections
This section is referred to in
§1036. Stock for stock of same corporation
(a) General rule
No gain or loss shall be recognized if common stock in a corporation is exchanged solely for common stock in the same corporation, or if preferred stock in a corporation is exchanged solely for preferred stock in the same corporation.
(b) Cross references
(1) For rules relating to recognition of gain or loss where an exchange is not solely in kind, see subsections (b) and (c) of section 1031.
(2) For rules relating to the basis of property acquired in an exchange described in subsection (a), see subsection (d) of section 1031.
(Aug. 16, 1954, ch. 736,
Cross References
Exchange of stock and securities in certain reorganizations, see
Section Referred to in Other Sections
This section is referred to in
§1037. Certain exchanges of United States obligations
(a) General rule
When so provided by regulations promulgated by the Secretary in connection with the issue of obligations of the United States, no gain or loss shall be recognized on the surrender to the United States of obligations of the United States issued under
(b) Application of original issue discount rules
(1) Exchanges involving obligations issued at a discount
In any case in which gain has been realized but not recognized because of the provisions of subsection (a) (or so much of section 1031(b) as relates to subsection (a) of this section), to the extent such gain is later recognized by reason of a disposition or redemption of an obligation received in an exchange subject to such provisions, the first sentence of section 1271(c)(2) shall apply to such gain as though the obligation disposed of or redeemed were the obligation surrendered to the Government in the exchange rather than the obligation actually disposed of or redeemed. For purposes of this paragraph and subpart A of part V of subchapter P, if the obligation surrendered in the exchange is a nontransferable obligation described in subsection (a) or (c) of section 454—
(A) the aggregate amount considered, with respect to the obligation surrendered, as ordinary income shall not exceed the difference between the issue price and the stated redemption price which applies at the time of the exchange, and
(B) the issue price of the obligation received in the exchange shall be considered to be the stated redemption price of the obligation surrendered in the exchange, increased by the amount of other consideration (if any) paid to the United States as a part of the exchange.
(2) Exchanges of transferable obligations issued at not less than par
In any case in which subsection (a) (or so much of section 1031(b) or (c) as relates to subsection (a) of this section) has applied to the exchange of a transferable obligation which was issued at not less than par for another transferable obligation, the issue price of the obligation received from the Government in the exchange shall be considered for purposes of applying subpart A of part V of subchapter P to be the same as the issue price of the obligation surrendered to the Government in the exchange, increased by the amount of other consideration (if any) paid to the United States as a part of the exchange.
(c) Cross references
(1) For rules relating to the recognition of gain or loss in a case where subsection (a) would apply except for the fact that the exchange was not made solely for other obligations of the United States, see subsections (b) and (c) of section 1031.
(2) For rules relating to the basis of obligations of the United States acquired in an exchange for other obligations described in subsection (a), see subsection (d) of section 1031.
(Added
Amendments
1984—Subsec. (b).
Subsec. (b)(1).
Subsec. (b)(2).
1983—Subsec. (a).
1976—Subsec. (b)(1).
Effective Date of 1984 Amendment
Amendment by
Effective Date of 1976 Amendment
Amendment by
Effective Date
Section 203 of
Section Referred to in Other Sections
This section is referred to in
§1038. Certain reacquisitions of real property
(a) General rule
If—
(1) a sale of real property gives rise to indebtedness to the seller which is secured by the real property sold, and
(2) the seller of such property reacquires such property in partial or full satisfaction of such indebtedness,
then, except as provided in subsections (b) and (d), no gain or loss shall result to the seller from such reacquisition, and no debt shall become worthless or partially worthless as a result of such reacquisition.
(b) Amount of gain resulting
(1) In general
In the case of a reacquisition of real property to which subsection (a) applies, gain shall result from such reacquisition to the extent that—
(A) the amount of money and the fair market value of other property (other than obligations of the purchaser) received, prior to such reacquisition, with respect to the sale of such property, exceeds
(B) the amount of the gain on the sale of such property returned as income for periods prior to such reacquisition.
(2) Limitation
The amount of gain determined under paragraph (1) resulting from a reacquisition during any taxable year beginning after the date of the enactment of this section shall not exceed the amount by which the price at which the real property was sold exceeded its adjusted basis, reduced by the sum of—
(A) the amount of the gain on the sale of such property returned as income for periods prior to the reacquisition of such property, and
(B) the amount of money and the fair market value of other property (other than obligations of the purchaser received with respect to the sale of such property) paid or transferred by the seller in connection with the reacquisition of such property.
For purposes of this paragraph, the price at which real property is sold is the gross sales price reduced by the selling commissions, legal fees, and other expenses incident to the sale of such property which are properly taken into account in determining gain or loss on such sale.
(3) Gain recognized
Except as provided in this section, the gain determined under this subsection resulting from a reacquisition to which subsection (a) applies shall be recognized, notwithstanding any other provision of this subtitle.
(c) Basis of reacquired real property
If subsection (a) applies to the reacquisition of any real property, the basis of such property upon such reacquisition shall be the adjusted basis of the indebtedness to the seller secured by such property (determined as of the date of reacquisition), increased by the sum of—
(1) the amount of the gain determined under subsection (b) resulting from such reacquisition, and
(2) the amount described in subsection (b)(2)(B).
If any indebtedness to the seller secured by such property is not discharged upon the reacquisition of such property, the basis of such indebtedness shall be zero.
(d) Indebtedness treated as worthless prior to reacquisition
If, prior to a reacquisition of real property to which subsection (a) applies, the seller has treated indebtedness secured by such property as having become worthless or partially worthless—
(1) such seller shall be considered as receiving, upon the reacquisition of such property, an amount equal to the amount of such indebtedness treated by him as having become worthless, and
(2) the adjusted basis of such indebtedness shall be increased (as of the date of reacquisition) by an amount equal to the amount so considered as received by such seller.
(e) Principal residences
If—
(1) subsection (a) applies to a reacquisition of real property with respect to the sale of which—
(A) an election under section 121 (relating to one-time exclusion of gain from sale of principal residence by individual who has attained age 55) is in effect, or
(B) gain was not recognized under section 1034 (relating to rollover of gain on sale of principal residence); and
(2) within one year after the date of the reacquisition of such property by the seller, such property is resold by him,
then, under regulations prescribed by the Secretary, subsections (b), (c), and (d) of this section shall not apply to the reacquisition of such property and, for purposes of applying sections 121 and 1034, the resale of such property shall be treated as a part of the transaction constituting the original sale of such property.
(f) Reacquisitions by domestic building and loan associations
This section shall not apply to a reacquisition of real property by an organization described in section 593(a) (relating to domestic building and loan associations, etc.).
(g) Acquisition by estate, etc., of seller
Under regulations prescribed by the Secretary, if an installment obligation is indebtedness to the seller which is described in subsection (a), and if such obligation is, in the hands of the taxpayer, an obligation with respect to which section 691(a)(4)(B) applies, then—
(1) for purposes of subsection (a), acquisition of real property by the taxpayer shall be treated as reacquisition by the seller, and
(2) the basis of the real property acquired by the taxpayer shall be increased by an amount equal to the deduction under section 691(c) which would (but for this subsection) have been allowable to the taxpayer with respect to the gain on the exchange of the obligation for the real property.
(Added
Codification
Section 405(c)(3) of
Amendments
1980—Subsec. (g).
1978—Subsec. (e)(1)(A).
Subsec. (e)(1)(B).
1976—Subsec. (e).
Effective Date of 1980 Amendment
Section 6(c) of
Effective Date of 1978 Amendment
Amendment by section 404(c)(6) of
Amendment by section 405(c)(3) of
Effective Date; Election To Apply to Taxable Years Beginning After Dec. 31, 1957
Section 2(c) of
"(1) The amendments made by this section [enacting this section] shall apply to taxable years beginning after the date of the enactment of this Act [Sept. 2, 1964].
"(2) If the taxpayer makes an election under this paragraph, the amendments made by this section [enacting this section] shall also apply to taxable years beginning after December 31, 1957, except that such amendments shall not apply with respect to any reacquisition of real property in a taxable year for which the assessment of a deficiency, or the credit or refund of an overpayment, is prevented on the date of the enactment of this Act [Sept. 2, 1964] by the operation of any law or rule of law. An election under this paragraph shall be made within one year after the date of the enactment of this Act and shall be made in such form and manner as the Secretary of the Treasury or his delegate shall prescribe by regulations.
"(3) If an election is made by the taxpayer under paragraph (2), and if the assessment of a deficiency, or the credit or refund of an overpayment, for any taxable year to which such election applies is not prevented on the date of the enactment of this Act [Sept. 2, 1964] by the operation of any law or rule of law—
"(A) the period within which a deficiency for such taxable year may be assessed (to the extent such deficiency is attributable to the application of the amendments made by this section) shall not expire prior to one year after the date of such election; and
"(B) the period within which a claim for credit or refund of an overpayment for such taxable year may be filed (to the extent such overpayment is attributable to the application of such amendments) shall not expire prior to one year after the date of such election.
No interest shall be payable with respect to any deficiency attributable to the application of such amendments, and no interest shall be allowed with respect to any credit or refund of any overpayment attributable to the application of such amendments, for any period prior to the date of the enactment of this Act. An election by a taxpayer under paragraph (2) shall be deemed a consent to the application of this paragraph."
[§1039. Repealed. Pub. L. 101–508, title XI, §11801(a)(33), Nov. 5, 1990, 104 Stat. 1388–521 ]
Section, added
Savings Provision
For provisions that nothing in repeal by
§1040. Transfer of certain farm, etc., real property
(a) General rule
If the executor of the estate of any decedent transfers to a qualified heir (within the meaning of section 2032A(e)(1)) any property with respect to which an election was made under section 2032A, then gain on such transfer shall be recognized to the estate only to the extent that, on the date of such transfer, the fair market value of such property exceeds the value of such property for purposes of
(b) Similar rule for certain trusts
To the extent provided in regulations prescribed by the Secretary, a rule similar to the rule provided in subsection (a) shall apply where the trustee of a trust (any portion of which is included in the gross estate of the decedent) transfers property with respect to which an election was made under section 2032A.
(c) Basis of property acquired in transfer described in subsection (a) or (b)
The basis of property acquired in a transfer with respect to which gain realized is not recognized by reason of subsection (a) or (b) shall be the basis of such property immediately before the transfer increased by the amount of the gain recognized to the estate or trust on the transfer.
(Added
Amendments
1983—Subsec. (a).
Subsec. (c).
1981—
Subsec. (a).
Subsec. (b).
"(1) by reason of the death of the decedent, a qualified heir has a right to receive from a trust a specific dollar amount which is the equivalent of a pecuniary bequest, and
"(2) the trustee of the trust satisfies such right with property with respect to which an election was made under section 2032A".
1980—
1978—Subsec. (a).
Effective Date of 1983 Amendment
Amendment by
Effective Date of 1981 Amendment
Amendment by
Effective Date of 1980 Amendments
Amendment by
Section 105(a)(5)(B) of
Effective Date of 1978 Amendment
Amendment by
Effective Date
Section applicable in respect of decedents dying after Dec. 31, 1976, see section 2005(f)(1) of
Section Referred to in Other Sections
This section is referred to in
§1041. Transfers of property between spouses or incident to divorce
(a) General rule
No gain or loss shall be recognized on a transfer of property from an individual to (or in trust for the benefit of)—
(1) a spouse, or
(2) a former spouse, but only if the transfer is incident to the divorce.
(b) Transfer treated as gift; transferee has transferor's basis
In the case of any transfer of property described in subsection (a)—
(1) for purposes of this subtitle, the property shall be treated as acquired by the transferee by gift, and
(2) the basis of the transferee in the property shall be the adjusted basis of the transferor.
(c) Incident to divorce
For purposes of subsection (a)(2), a transfer of property is incident to the divorce if such transfer—
(1) occurs within 1 year after the date on which the marriage ceases, or
(2) is related to the cessation of the marriage.
(d) Special rule where spouse is nonresident alien
Subsection (a) shall not apply if the spouse (or former spouse) of the individual making the transfer is a nonresident alien.
(e) Transfers in trust where liability exceeds basis
Subsection (a) shall not apply to the transfer of property in trust to the extent that—
(1) the sum of the amount of the liabilities assumed, plus the amount of the liabilities to which the property is subject, exceeds
(2) the total of the adjusted basis of the property transferred.
Proper adjustment shall be made under subsection (b) in the basis of the transferee in such property to take into account gain recognized by reason of the preceding sentence.
(Added
Amendments
1988—Subsec. (d).
1986—Subsec. (e).
Effective Date of 1988 Amendment
Section 1018(l)(3) of
Effective Date of 1986 Amendment
Amendment by
Effective Date
Section 421(d) of
"(1)
"(2)
"(3)
"(4)
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Section Referred to in Other Sections
This section is referred to in
§1042. Sales of stock to employee stock ownership plans or certain cooperatives
(a) Nonrecognition of gain
If—
(1) the taxpayer or executor elects in such form as the Secretary may prescribe the application of this section with respect to any sale of qualified securities,
(2) the taxpayer purchases qualified replacement property within the replacement period, and
(3) the requirements of subsection (b) are met with respect to such sale,
then the gain (if any) on such sale which would be recognized as long-term capital gain shall be recognized only to the extent that the amount realized on such sale exceeds the cost to the taxpayer of such qualified replacement property.
(b) Requirements to qualify for nonrecognition
A sale of qualified securities meets the requirements of this subsection if—
(1) Sale to employee organizations
The qualified securities are sold to—
(A) an employee stock ownership plan (as defined in section 4975(e)(7)), or
(B) an eligible worker-owned cooperative.
(2) Plan must hold 30 percent of stock after sale
The plan or cooperative referred to in paragraph (1) owns (after application of section 318(a)(4)), immediately after the sale, at least 30 percent of—
(A) each class of outstanding stock of the corporation (other than stock described in section 1504(a)(4)) which issued the qualified securities, or
(B) the total value of all outstanding stock of the corporation (other than stock described in section 1504(a)(4)).
(3) Written statement required
(A) In general
The taxpayer files with the Secretary the written statement described in subparagraph (B).
(B) Statement
A statement is described in this subparagraph if it is a verified written statement of—
(i) the employer whose employees are covered by the plan described in paragraph (1), or
(ii) any authorized officer of the cooperative described in paragraph (l),
consenting to the application of sections 4978 and 4979A with respect to such employer or cooperative.
(4) 3-year holding period
The taxpayer's holding period with respect to the qualified securities is at least 3 years (determined as of the time of the sale).
(c) Definitions; special rules
For purposes of this section—
(1) Qualified securities
The term "qualified securities" means employer securities (as defined in section 409(l)) which—
(A) are issued by a domestic corporation that has no stock outstanding that is readily tradable on an established securities market, and
(B) were not received by the taxpayer in—
(i) a distribution from a plan described in section 401(a), or
(ii) a transfer pursuant to an option or other right to acquire stock to which section 83, 422, or 423 applied (or to which section 422 or 424 (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990) applied).
(2) Eligible worker-owned cooperative
The term "eligible worker-owned cooperative" means any organization—
(A) to which part I of subchapter T applies,
(B) a majority of the membership of which is composed of employees of such organization,
(C) a majority of the voting stock of which is owned by members,
(D) a majority of the board of directors of which is elected by the members on the basis of 1 person 1 vote, and
(E) a majority of the allocated earnings and losses of which are allocated to members on the basis of—
(i) patronage,
(ii) capital contributions, or
(iii) some combination of clauses (i) and (ii).
(3) Replacement period
The term "replacement period" means the period which begins 3 months before the date on which the sale of qualified securities occurs and which ends 12 months after the date of such sale.
(4) Qualified replacement property
(A) In general
The term "qualified replacement property" means any security issued by a domestic operating corporation which—
(i) did not, for the taxable year preceding the taxable year in which such security was purchased, have passive investment income (as defined in section 1362(d)(3)(D)) in excess of 25 percent of the gross receipts of such corporation for such preceding taxable year, and
(ii) is not the corporation which issued the qualified securities which such security is replacing or a member of the same controlled group of corporations (within the meaning of section 1563(a)(1)) as such corporation.
For purposes of clause (i), income which is described in section 954(c)(3) (as in effect immediately before the Tax Reform Act of 1986) shall not be treated as passive investment income.
(B) Operating corporation
For purposes of this paragraph—
(i) In general
The term "operating corporation" means a corporation more than 50 percent of the assets of which were, at the time the security was purchased or before the close of the replacement period, used in the active conduct of the trade or business.
(ii) Financial institutions and insurance companies
The term "operating corporation" shall include—
(I) any financial institution described in section 581 or 593, and
(II) an insurance company subject to tax under subchapter L.
(C) Controlling and controlled corporations treated as 1 corporation
(i) In general
For purposes of applying this paragraph, if—
(I) the corporation issuing the security owns stock representing control of 1 or more other corporations,
(II) 1 or more other corporations own stock representing control of the corporation issuing the security, or
(III) both,
then all such corporations shall be treated as 1 corporation.
(ii) Control
For purposes of clause (i), the term "control" has the meaning given such term by section 304(c). In determining control, there shall be disregarded any qualified replacement property of the taxpayer with respect to the section 1042 sale being tested.
(D) Security defined
For purposes of this paragraph, the term "security" has the meaning given such term by section 165(g)(2), except that such term shall not include any security issued by a government or political subdivision thereof.
(5) Securities sold by underwriter
No sale of securities by an underwriter to an employee stock ownership plan or eligible worker-owned cooperative in the ordinary course of his trade or business as an underwriter, whether or not guaranteed, shall be treated as a sale for purposes of subsection (a).
(6) Time for filing election
An election under subsection (a) shall be filed not later than the last day prescribed by law (including extensions thereof) for filing the return of tax imposed by this chapter for the taxable year in which the sale occurs.
(7) Section not to apply to gain of C corporation
Subsection (a) shall not apply to any gain on the sale of any qualified securities which is includible in the gross income of any C corporation.
(d) Basis of qualified replacement property
The basis of the taxpayer in qualified replacement property purchased by the taxpayer during the replacement period shall be reduced by the amount of gain not recognized by reason of such purchase and the application of subsection (a). If more than one item of qualified replacement property is purchased, the basis of each of such items shall be reduced by an amount determined by multiplying the total gain not recognized by reason of such purchase and the application of subsection (a) by a fraction—
(1) the numerator of which is the cost of such item of property, and
(2) the denominator of which is the total cost of all such items of property.
Any reduction in basis under this subsection shall not be taken into account for purposes of section 1278(a)(2)(A)(ii) (relating to definition of market discount).
(e) Recapture of gain on disposition of qualified replacement property
(1) In general
If a taxpayer disposes of any qualified replacement property, then, notwithstanding any other provision of this title, gain (if any) shall be recognized to the extent of the gain which was not recognized under subsection (a) by reason of the acquisition by such taxpayer of such qualified replacement property.
(2) Special rule for corporations controlled by the taxpayer
If—
(A) a corporation issuing qualified replacement property disposes of a substantial portion of its assets other than in the ordinary course of its trade or business, and
(B) any taxpayer owning stock representing control (within the meaning of section 304(c)) of such corporation at the time of such disposition holds any qualified replacement property of such corporation at such time,
then the taxpayer shall be treated as having disposed of such qualified replacement property at such time.
(3) Recapture not to apply in certain cases
Paragraph (1) shall not apply to any transfer of qualified replacement property—
(A) in any reorganization (within the meaning of section 368) unless the person making the election under subsection (a)(1) owns stock representing control in the acquiring or acquired corporation and such property is substituted basis property in the hands of the transferee,
(B) by reason of the death of the person making such election,
(C) by gift, or
(D) in any transaction to which section 1042(a) applies.
(f) Statute of limitations
If any gain is realized by the taxpayer on the sale or exchange of any qualified securities and there is in effect an election under subsection (a) with respect to such gain, then—
(1) the statutory period for the assessment of any deficiency with respect to such gain 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 by regulations prescribe) of—
(A) the taxpayer's cost of purchasing qualified replacement property which the taxpayer claims results in nonrecognition of any part of such gain,
(B) the taxpayer's intention not to purchase qualified replacement property within the replacement period, or
(C) a failure to make such purchase within the replacement period, and
(2) 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.
(Added
References in Text
The date of the enactment of the Revenue Reconciliation Act of 1990, referred to in subsec. (c)(1)(B)(ii), is the date of enactment of
The Tax Reform Act of 1986, referred to in subsec. (c)(4)(A), is
Amendments
1990—Subsec. (c)(1)(B)(ii).
1989—Subsec. (b)(4).
1988—Subsec. (b)(3), (4).
Subsec. (c)(4)(A).
Subsec. (c)(4)(B)(i).
1986—
Subsec. (a).
Subsec. (b)(2).
Subsec. (b)(3).
Subsec. (b)(3)(B).
Subsec. (b)(4).
Subsec. (c).
Subsec. (c)(1).
Subsec. (c)(4).
Subsec. (c)(5).
Subsec. (c)(7).
Subsec. (d).
Subsecs. (e), (f).
Effective Date of 1989 Amendment
Section 7303(b) of
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 1854(a)(1), (2)(A), (4), (5)(A), (7), (10), (11) of
Amendment by section 1854(a)(3)(B) of
Section 1854(a)(6)(B)–(D) of
"(B) The amendment made by subparagraph (A) [amending this section] shall apply to sales after March 28, 1985, except that such amendment shall not apply to sales made before July 1, 1985, if made pursuant to a binding contract in effect on March 28, 1985, and at all times thereafter.
"(C) The amendment made by subparagraph (A) shall not apply to any sale occurring on December 20, 1985, with respect to which—
"(i) a commitment letter was issued by a bank on October 31, 1984, and
"(ii) a final purchase agreement was entered into on November 5, 1985.
"(D) In the case of a sale on September 27, 1985, with respect to which a preliminary commitment letter was issued by a bank on April 10, 1985, and with respect to which a commitment letter was issued by a bank on June 28, 1985, the amendment made by subparagraph (A) shall apply but such sale shall be treated as having occurred on September 27, 1986."
Section 1854(a)(8)(B) of
Amendment by section 1854(a)(9)(B) of
Amendment by section 1854(f)(3)(B) of
Effective Date
Section 541(c) of
Savings Provision
For provisions that nothing in amendment by
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
Ownership of Stock Options as Ownership of Stock; Employee Ownership of Stock After Sale
Section 1854(a)(2)(B) of
"(i) The requirement that section 1042(b) of the Internal Revenue Code of 1954 [now 1986] shall be applied with regard to section 318(a)(4) of such Code shall apply to sales after May 6, 1986.
"(ii) In the case of sales after July 18, 1984, and before the date of the enactment of this Act [Oct. 22, 1986], paragraph (2) of section 1042(b) of such Code shall apply as if it read as follows:
" '(2)
Replacement Period for Certain Securities
Section 1854(a)(5)(B) of
"(i) before January 1, 1987, the taxpayer acquired any security (as defined in section 165(g)(2) of the Internal Revenue Code of 1954 [now 1986]) issued by a domestic corporation or by any State or political subdivision thereof,
"(ii) the taxpayer treated such security as qualified replacement property for purposes of section 1042 of such Code, and
"(iii) such property does not meet the requirements of section 1042(c)(4) of such Code (as amended by subparagraph (A)),
then, with respect to so much of any gain which the taxpayer treated as not recognized under section 1042(a) by reason of the acquisition of such property, the replacement period for purposes of such section shall not expire before January 1, 1987."
Section Referred to in Other Sections
This section is referred to in
§1043. Sale of property to comply with conflict-of-interest requirements
(a) Nonrecognition of gain
If an eligible person sells any property pursuant to a certificate of divestiture, at the election of the taxpayer, gain from such sale shall be recognized only to the extent that the amount realized on such sale exceeds the cost (to the extent not previously taken into account under this subsection) of any permitted property purchased by the taxpayer during the 60-day period beginning on the date of such sale.
(b) Definitions
For purposes of this section—
(1) Eligible person
The term "eligible person" means—
(A) an officer or employee of the executive branch of the Federal Government, but does not mean a special Government employee as defined in
(B) any spouse or minor or dependent child whose ownership of any property is attributable under any statute, regulation, rule, or executive order referred to in paragraph (2) to a person referred to in subparagraph (A).
(2) Certificate of divestiture
The term "certificate of divestiture" means any written determination—
(A) that states that divestiture of specific property is reasonably necessary to comply with any Federal conflict of interest statute, regulation, rule, or executive order (including
(B) that has been issued by the President or the Director of the Office of Government Ethics, and
(C) that identifies the specific property to be divested.
(3) Permitted property
The term "permitted property" means any obligation of the United States or any diversified investment fund approved by regulations issued by the Office of Government Ethics.
(4) Purchase
The taxpayer shall be considered to have purchased any permitted property if, but for subsection (c), the unadjusted basis of such property would be its cost within the meaning of section 1012.
(5) Special rule for trusts
For purposes of this section, the trustee of a trust shall be treated as an eligible person with respect to property which is held in the trust if—
(A) any person referred to in paragraph (1)(A) has a beneficial interest in the principal or income of the trust, or
(B) any person referred to in paragraph (1)(B) has a beneficial interest in the principal or income of the trust and such interest is attributable under any statute, regulation, rule, or executive order referred to in paragraph (2) to a person referred to in paragraph (1)(A).
(c) Basis adjustments
If gain from the sale of any property is not recognized by reason of subsection (a), such gain shall be applied to reduce (in the order acquired) the basis for determining gain or loss of any permitted property which is purchased by the taxpayer during the 60-day period described in subsection (a).
(Added
Amendments
1990—Subsec. (a).
Subsec. (b)(5).
Effective Date of 1990 Amendments
Section 11703(a)(2) of
Section 6(a)(3) of
Effective Date
Section applicable to sales after Nov. 30, 1989, see section 502(c) of
Property Sold Before June 19, 1990
Section 6(a)(2) of
"(A) For purposes of section 1043 of such Code—
"(i) any property sold before June 19, 1990, shall be treated as sold pursuant to a certificate of divestiture (as defined in subsection (b)(2) thereof) if such a certificate is issued with respect to such sale before such date, and
"(ii) in any such case, the 60-day period referred to in subsection (a) thereof shall not expire before the end of the 60-day period beginning on the date on which the certificate of divestiture was issued.
"(B) Notwithstanding subparagraph (A), section 1043 of such Code shall not apply to any sale before April 19, 1990, unless—
"(i) the sale was made in order to comply with an ethics agreement or pursuant to specific direction from the appropriate agency or confirming committee, and
"(ii) the justification for the sale meets the criteria set forth in subsection (b)(2)(A) thereof as implemented by the interim regulations implementing such section 1043, published on April 18, 1990."
Section Referred to in Other Sections
This section is referred to in
§1044. Rollover of publicly traded securities gain into specialized small business investment companies
(a) Nonrecognition of gain
In the case of the sale of any publicly traded securities with respect to which the taxpayer elects the application of this section, gain from such sale shall be recognized only to the extent that the amount realized on such sale exceeds—
(1) the cost of any common stock or partnership interest in a specialized small business investment company purchased by the taxpayer during the 60-day period beginning on the date of such sale, reduced by
(2) any portion of such cost previously taken into account under this section.
This section shall not apply to any gain which is treated as ordinary income for purposes of this subtitle.
(b) Limitations
(1) Limitation on individuals
In the case of an individual, the amount of gain which may be excluded under subsection (a) for any taxable year shall not exceed the lesser of—
(A) $50,000, or
(B) $500,000, reduced by the amount of gain excluded under subsection (a) for all preceding taxable years.
(2) Limitation on C corporations
In the case of a C corporation, the amount of gain which may be excluded under subsection (a) for any taxable year shall not exceed the lesser of—
(A) $250,000, or
(B) $1,000,000, reduced by the amount of gain excluded under subsection (a) for all preceding taxable years.
(3) Special rules for married individuals
For purposes of this subsection—
(A) Separate returns
In the case of a separate return by a married individual, paragraph (1) shall be applied by substituting "$25,000" for "$50,000" and "$250,000" for "$500,000".
(B) Allocation of gain
In the case of any joint return, the amount of gain excluded under subsection (a) for any taxable year shall be allocated equally between the spouses for purposes of applying this subsection to subsequent taxable years.
(C) Marital status
For purposes of this subsection, marital status shall be determined under section 7703.
(4) Special rules for C corporation
For purposes of this subsection—
(A) all corporations which are members of the same controlled group of corporations (within the meaning of section 52(a)) shall be treated as 1 taxpayer, and
(B) any gain excluded under subsection (a) by a predecessor of any C corporation shall be treated as having been excluded by such C corporation.
(c) Definitions and special rules
For purposes of this section—
(1) Publicly traded securities
The term "publicly traded securities" means securities which are traded on an established securities market.
(2) Purchase
The term "purchase" has the meaning given such term by section 1043(b)(4).
(3) Specialized small business investment company
The term "specialized small business investment company" means any partnership or corporation which is licensed by the Small Business Administration under section 301(d) of the Small Business Investment Act of 1958 (as in effect on May 13, 1993).
(4) Certain entities not eligible
This section shall not apply to any estate, trust, partnership, or S corporation.
(d) Basis adjustments
If gain from any sale is not recognized by reason of subsection (a), such gain shall be applied to reduce (in the order acquired) the basis for determining gain or loss of any common stock or partnership interest in any specialized small business investment company which is purchased by the taxpayer during the 60-day period described in subsection (a). This subsection shall not apply for purposes of section 1202.
(Added
References in Text
Section 301(d) of the Small Business Investment Act of 1958, referred to in subsec. (c)(3), is classified to
Effective Date
Section applicable to sales on or after Aug. 10, 1993, in taxable years ending on or after such date, see section 13114(d) of
Section Referred to in Other Sections
This section is referred to in