Subchapter O—Gain or Loss on Disposition of Property
Amendments
1995—
1990—
1981—
1976—
1962—
1956—Act May 9, 1956, ch. 240, §10(b),
PART I—DETERMINATION OF AMOUNT OF AND RECOGNITION OF GAIN OR LOSS
Amendments
1976—
Part Referred to in Other Sections
This part is referred to in
§1001. Determination of amount of and recognition of gain or loss
(a) Computation of gain or loss
The gain from the sale or other disposition of property shall be the excess of the amount realized therefrom over the adjusted basis provided in section 1011 for determining gain, and the loss shall be the excess of the adjusted basis provided in such section for determining loss over the amount realized.
(b) Amount realized
The amount realized from the sale or other disposition of property shall be the sum of any money received plus the fair market value of the property (other than money) received. In determining the amount realized—
(1) there shall not be taken into account any amount received as reimbursement for real property taxes which are treated under section 164(d) as imposed on the purchaser, and
(2) there shall be taken into account amounts representing real property taxes which are treated under section 164(d) as imposed on the taxpayer if such taxes are to be paid by the purchaser.
(c) Recognition of gain or loss
Except as otherwise provided in this subtitle, the entire amount of the gain or loss, determined under this section, on the sale or exchange of property shall be recognized.
(d) Installment sales
Nothing in this section shall be construed to prevent (in the case of property sold under contract providing for payment in installments) the taxation of that portion of any installment payment representing gain or profit in the year in which such payment is received.
(e) Certain term interests
(1) In general
In determining gain or loss from the sale or other disposition of a term interest in property, that portion of the adjusted basis of such interest which is determined pursuant to section 1014, 1015, or 1041 (to the extent that such adjusted basis is a portion of the entire adjusted basis of the property) shall be disregarded.
(2) Term interest in property defined
For purposes of paragraph (1), the term "term interest in property" means—
(A) a life interest in property,
(B) an interest in property for a term of years, or
(C) an income interest in a trust.
(3) Exception
Paragraph (1) shall not apply to a sale or other disposition which is a part of a transaction in which the entire interest in property is transferred to any person or persons.
(Aug. 16, 1954, ch. 736,
Amendments
1993—Subsec. (f).
1984—Subsec. (e)(1).
1980—Subsec. (e)(1).
1978—Subsec. (e)(1).
1976—Subsec. (c).
1969—Subsec. (e).
Subsec. (f).
Effective Date of 1993 Amendment
Amendment by
Effective Date of 1984 Amendment
Amendment by
Effective Date of 1980 Amendment and Revival of Prior Law
Amendment by
Effective Date of 1978 Amendment
Amendment by
Effective Date of 1976 Amendment
Amendment by
Effective Date of 1969 Amendment
Amendment by section 231(c)(2) of
Section 516(d) of
"(1) The amendment made by subsection (a) [amending this section] shall apply to sales or other dispositions after October 9, 1969.
"(2) The amendment made by subsection (b) [amending
"(3) The amendments made by subsection (c) [enacting section 1253 and amending
Repeals
Cross References
Gain or loss to shareholders in corporate liquidations, see
Installment method of accounting, see
Recognition of gain or loss on transfer of obsolete vessels under Merchant Marine Act, see
Section Referred to in Other Sections
This section is referred to in
[§1002. Repealed. Pub. L. 94–455, title XIX, §1901(b)(28)(B)(i), Oct. 4, 1976, 90 Stat. 1799 ]
Section, act Aug. 16, 1954, ch. 736,
Effective Date of Repeal
Repeal effective for taxable years beginning after Dec. 31, 1976, see section 1901(d) of
PART II—BASIS RULES OF GENERAL APPLICATION
Amendments
1980—
1978—
1976—
1964—
Cross References
Basis of transferee partner's interest, see
Part Referred to in Other Sections
This part is referred to in
§1011. Adjusted basis for determining gain or loss
(a) General rule
The adjusted basis for determining the gain or loss from the sale or other disposition of property, whenever acquired, shall be the basis (determined under section 1012 or other applicable sections of this subchapter and subchapters C (relating to corporate distributions and adjustments), K (relating to partners and partnerships), and P (relating to capital gains and losses)), adjusted as provided in section 1016.
(b) Bargain sale to a charitable organization
If a deduction is allowable under section 170 (relating to charitable contributions) by reason of a sale, then the adjusted basis for determining the gain from such sale shall be that portion of the adjusted basis which bears the same ratio to the adjusted basis as the amount realized bears to the fair market value of the property.
(Aug. 16, 1954, ch. 736,
Amendments
1969—
Effective Date of 1969 Amendment
Amendment by
Cross References
Bad debt deduction determined by reference to adjusted basis provided in this section, see
Basis for determining gain or loss on new vessel acquired in exchange for obsolete vessel under Merchant Marine Act, see
Computation of gain or loss by reference to adjusted basis provided in this section, see
Cost depletion basis as the adjusted basis provided in this section, see
Loss deduction determined by reference to adjusted basis provided in this section, see
Section Referred to in Other Sections
This section is referred to in
§1012. Basis of property—cost
The basis of property shall be the cost of such property, except as otherwise provided in this subchapter and subchapters C (relating to corporate distributions and adjustments), K (relating to partners and partnerships), and P (relating to capital gains and losses). The cost of real property shall not include any amount in respect of real property taxes which are treated under section 164(d) as imposed on the taxpayer.
(Aug. 16, 1954, ch. 736,
Cross References
Involuntary conversions, see
Section Referred to in Other Sections
This section is referred to in
§1013. Basis of property included in inventory
If the property should have been included in the last inventory, the basis shall be the last inventory value thereof.
(Aug. 16, 1954, ch. 736,
Cross References
Capital assets as not including property includible in inventory if on hand at close of taxable year, see
Character of gain or loss on disposition by distributee partner of inventory items, see
General rules for inventories, see
Inventory carryovers, see
LIFO inventories, generally, see
Property includible within inventories as not property used in trade or business, see
§1014. Basis of property acquired from a decedent
(a) In general
Except as otherwise provided in this section, the basis of property in the hands of a person acquiring the property from a decedent or to whom the property passed from a decedent shall, if not sold, exchanged, or otherwise disposed of before the decedent's death by such person, be—
(1) the fair market value of the property at the date of the decedent's death,
(2) in the case of an election under either section 2032 or section 811(j) of the Internal Revenue Code of 1939 where the decedent died after October 21, 1942, its value at the applicable valuation date prescribed by those sections,
(3) in the case of an election under section 2032A, its value determined under such section, or
(4) to the extent of the applicability of the exclusion described in section 2031(c), the basis in the hands of the decedent.
(b) Property acquired from the decedent
For purposes of subsection (a), the following property shall be considered to have been acquired from or to have passed from the decedent:
(1) Property acquired by bequest, devise, or inheritance, or by the decedent's estate from the decedent;
(2) Property transferred by the decedent during his lifetime in trust to pay the income for life to or on the order or direction of the decedent, with the right reserved to the decedent at all times before his death to revoke the trust;
(3) In the case of decedents dying after December 31, 1951, property transferred by the decedent during his lifetime in trust to pay the income for life to or on the order or direction of the decedent with the right reserved to the decedent at all times before his death to make any change in the enjoyment thereof through the exercise of a power to alter, amend, or terminate the trust;
(4) Property passing without full and adequate consideration under a general power of appointment exercised by the decedent by will;
(5) In the case of decedents dying after August 26, 1937, property acquired by bequest, devise, or inheritance or by the decedent's estate from the decedent, if the property consists of stock or securities of a foreign corporation, which with respect to its taxable year next preceding the date of the decedent's death was, under the law applicable to such year, a foreign personal holding company. In such case, the basis shall be the fair market value of such property at the date of the decedent's death or the basis in the hands of the decedent, whichever is lower;
(6) In the case of decedents dying after December 31, 1947, property which represents the surviving spouse's one-half share of community property held by the decedent and the surviving spouse under the community property laws of any State, or possession of the United States or any foreign country, if at least one-half of the whole of the community interest in such property was includible in determining the value of the decedent's gross estate under
(7) In the case of decedents dying after October 21, 1942, and on or before December 31, 1947, such part of any property, representing the surviving spouse's one-half share of property held by a decedent and the surviving spouse under the community property laws of any State, or possession of the United States or any foreign country, as was included in determining the value of the gross estate of the decedent, if a tax under
(8) In the case of decedents dying after December 31, 1950, and before January 1, 1954, property which represents the survivor's interest in a joint and survivor's annuity if the value of any part of such interest was required to be included in determining the value of decedent's gross estate under section 811 of the Internal Revenue Code of 1939;
(9) In the case of decedents dying after December 31, 1953, property acquired from the decedent by reason of death, form of ownership, or other conditions (including property acquired through the exercise or non-exercise of a power of appointment), if by reason thereof the property is required to be included in determining the value of the decedent's gross estate under
(A) annuities described in section 72;
(B) property to which paragraph (5) would apply if the property had been acquired by bequest; and
(C) property described in any other paragraph of this subsection.
(10) Property includible in the gross estate of the decedent under section 2044 (relating to certain property for which marital deduction was previously allowed). In any such case, the last 3 sentences of paragraph (9) shall apply as if such property were described in the first sentence of paragraph (9).
(c) Property representing income in respect of a decedent
This section shall not apply to property which constitutes a right to receive an item of income in respect of a decedent under section 691.
(d) Special rule with respect to DISC stock
If stock owned by a decedent in a DISC or former DISC (as defined in section 992(a)) acquires a new basis under subsection (a), such basis (determined before the application of this subsection) shall be reduced by the amount (if any) which would have been included in gross income under section 995(c) as a dividend if the decedent had lived and sold the stock at its fair market value on the estate tax valuation date. In computing the gain the decedent would have had if he had lived and sold the stock, his basis shall be determined without regard to the last sentence of section 996(e)(2) (relating to reductions of basis of DISC stock). For purposes of this subsection, the estate tax valuation date is the date of the decedent's death or, in the case of an election under section 2032, the applicable valuation date prescribed by that section.
(e) Appreciated property acquired by decedent by gift within 1 year of death
(1) In general
In the case of a decedent dying after December 31, 1981, if—
(A) appreciated property was acquired by the decedent by gift during the 1-year period ending on the date of the decedent's death, and
(B) such property is acquired from the decedent by (or passes from the decedent to) the donor of such property (or the spouse of such donor),
the basis of such property in the hands of such donor (or spouse) shall be the adjusted basis of such property in the hands of the decedent immediately before the death of the decedent.
(2) Definitions
For purposes of paragraph (1)—
(A) Appreciated property
The term "appreciated property" means any property if the fair market value of such property on the day it was transferred to the decedent by gift exceeds its adjusted basis.
(B) Treatment of certain property sold by estate
In the case of any appreciated property described in subparagraph (A) of paragraph (1) sold by the estate of the decedent or by a trust of which the decedent was the grantor, rules similar to the rules of paragraph (1) shall apply to the extent the donor of such property (or the spouse of such donor) is entitled to the proceeds from such sale.
(Aug. 16, 1954, ch. 736,
References in Text
Section 811 of the Internal Revenue Code of 1939, referred to in subsecs. (a)(2) and (b)(6), (8), was classified to section 811 of former Title 26, Internal Revenue Code. For table of comparisons of the 1939 Code to the 1986 Code, see Table I preceding
Revenue Act of 1948, referred to in subsec. (b)(7), is act Apr. 2, 1948, ch. 168,
The Internal Revenue Code of 1939, referred to in subsec. (b)(9), is act Feb. 10, 1939, ch. 2,
Amendments
1997—Subsec. (a).
1983—Subsec. (b)(10).
1981—Subsec. (e).
1980—Subsec. (a)(3).
Subsec. (d).
1978—Subsec. (a).
Subsec. (d).
1976—Subsec. (b)(6), (7).
Subsec. (d).
1971—Subsec. (d).
1958—Subsec. (d).
Effective Date of 1997 Amendment
Section 508(e)(1) of
Effective Date of 1983 Amendment
Amendment by
Effective Date of 1981 Amendment
Section 425(b) of
Effective Date of 1980 Amendments and Revival of Prior Law
Amendment by
Amendment by
Effective Date of 1978 Amendment
Section 702(c)(10) of
Effective Date of 1976 Amendment
Amendment by section 1901(c)(8) of
Amendment by section 2005(a)(1) of
Effective Date of 1971 Amendment
Amendment by
Effective Date of 1958 Amendment
Amendment by
Repeals
Election of Carryover Basis Rules by Certain Estates
Section Referred to in Other Sections
This section is referred to in
§1015. Basis of property acquired by gifts and transfers in trust
(a) Gifts after December 31, 1920
If the property was acquired by gift after December 31, 1920, the basis shall be the same as it would be in the hands of the donor or the last preceding owner by whom it was not acquired by gift, except that if such basis (adjusted for the period before the date of the gift as provided in section 1016) is greater than the fair market value of the property at the time of the gift, then for the purpose of determining loss the basis shall be such fair market value. If the facts necessary to determine the basis in the hands of the donor or the last preceding owner are unknown to the donee, the Secretary shall, if possible, obtain such facts from such donor or last preceding owner, or any other person cognizant thereof. If the Secretary finds it impossible to obtain such facts, the basis in the hands of such donor or last preceding owner shall be the fair market value of such property as found by the Secretary as of the date or approximate date at which, according to the best information that the Secretary is able to obtain, such property was acquired by such donor or last preceding owner.
(b) Transfer in trust after December 31, 1920
If the property was acquired after December 31, 1920, by a transfer in trust (other than by a transfer in trust by a gift, bequest, or devise), the basis shall be the same as it would be in the hands of the grantor increased in the amount of gain or decreased in the amount of loss recognized to the grantor on such transfer under the law applicable to the year in which the transfer was made.
(c) Gift or transfer in trust before January 1, 1921
If the property was acquired by gift or transfer in trust on or before December 31, 1920, the basis shall be the fair market value of such property at the time of such acquisition.
(d) Increased basis for gift tax paid
(1) In general
If—
(A) the property is acquired by gift on or after September 2, 1958, the basis shall be the basis determined under subsection (a), increased (but not above the fair market value of the property at the time of the gift) by the amount of gift tax paid with respect to such gift, or
(B) the property was acquired by gift before September 2, 1958, and has not been sold, exchanged, or otherwise disposed of before such date, the basis of the property shall be increased on such date by the amount of gift tax paid with respect to such gift, but such increase shall not exceed an amount equal to the amount by which the fair market value of the property at the time of the gift exceeded the basis of the property in the hands of the donor at the time of the gift.
(2) Amount of tax paid with respect to gift
For purposes of paragraph (1), the amount of gift tax paid with respect to any gift is an amount which bears the same ratio to the amount of gift tax paid under
(3) Gifts treated as made one-half by each spouse
For purposes of paragraph (1), where the donor and his spouse elected, under section 2513 to have the gift considered as made one-half by each, the amount of gift tax paid with respect to such gift under
(4) Treatment as adjustment to basis
For purposes of section 1016(b), an increase in basis under paragraph (1) shall be treated as an adjustment under section 1016(a).
(5) Application to gifts before 1955
With respect to any property acquired by gift before 1955, references in this subsection to any provision of this title shall be deemed to refer to the corresponding provision of the Internal Revenue Code of 1939 or prior revenue laws which was effective for the year in which such gift was made.
(6) Special rule for gifts made after December 31, 1976
(A) In general
In the case of any gift made after December 31, 1976, the increase in basis provided by this subsection with respect to any gift for the gift tax paid under
(i) the net appreciation in value of the gift, bears to
(ii) the amount of the gift.
(B) Net appreciation
For purposes of paragraph (1), the net appreciation in value of any gift is the amount by which the fair market value of the gift exceeds the donor's adjusted basis immediately before the gift.
(e) Gifts between spouses
In the case of any property acquired by gift in a transfer described in section 1041(a), the basis of such property in the hands of the transferee shall be determined under section 1041(b)(2) and not this section.
(Aug. 16, 1954, ch. 736,
References in Text
Section 2521, referred to in subsec. (d)(2), was repealed by
The Internal Revenue Code of 1939, referred to in subsec. (d)(5), is act Feb. 10, 1939, ch. 2,
Amendments
1984—Subsec. (e).
1981—Subsec. (d)(2).
1976—Subsec. (a).
Subsec. (d)(1)(A), (B).
Subsec. (d)(6).
1970—Subsec. (d)(2).
1958—Subsec. (d).
Effective Date of 1984 Amendment
Amendment by
Effective Date of 1981 Amendment
Amendment by
Effective Date of 1976 Amendment
Amendment by section 1901(a)(122) of
Section 2005(f) of
"(1) Except as provided in paragraph (2), the amendments made by this section [enacting
"(2) The amendment made by subsection (c) [amending this section] shall apply to gifts made after December 31, 1976."
Effective Date of 1970 Amendment
Amendment by
Effective Date of 1958 Amendment
Amendment by
Cross References
Basis of property after erroneous treatment of a prior transaction, see
Gift tax, see
Gifts specifically excluded from gross income, see
Valuation of gifts, see
Section Referred to in Other Sections
This section is referred to in
§1016. Adjustments to basis
(a) General rule
Proper adjustment in respect of the property shall in all cases be made—
(1) for expenditures, receipts, losses, or other items, properly chargeable to capital account, but no such adjustment shall be made—
(A) for taxes or other carrying charges described in section 266, or
(B) for expenditures described in section 173 (relating to circulation expenditures),
for which deductions have been taken by the taxpayer in determining taxable income for the taxable year or prior taxable years;
(2) in respect of any period since February 28, 1913, for exhaustion, wear and tear, obsolescence, amortization, and depletion, to the extent of the amount—
(A) allowed as deductions in computing taxable income under this subtitle or prior income tax laws, and
(B) resulting (by reason of the deductions so allowed) in a reduction for any taxable year of the taxpayer's taxes under this subtitle (other than
but not less than the amount allowable under this subtitle or prior income tax laws. Where no method has been adopted under section 167 (relating to depreciation deduction), the amount allowable shall be determined under the straight line method. Subparagraph (B) of this paragraph shall not apply in respect of any period since February 28, 1913, and before January 1, 1952, unless an election has been made under section 1020 (as in effect before the date of the enactment of the Tax Reform Act of 1976). Where for any taxable year before the taxable year 1932 the depletion allowance was based on discovery value or a percentage of income, then the adjustment for depletion for such year shall be based on the depletion which would have been allowable for such year if computed without reference to discovery value or a percentage of income;
(3) in respect of any period—
(A) before March 1, 1913,
(B) since February 28, 1913, during which such property was held by a person or an organization not subject to income taxation under this chapter or prior income tax laws,
(C) since February 28, 1913, and before January 1, 1958, during which such property was held by a person subject to tax under part I of subchapter L (or the corresponding provisions of prior income tax laws), to the extent that paragraph (2) does not apply, and
(D) since February 28, 1913, during which such property was held by a person subject to tax under part II 1 of subchapter L (or the corresponding provisions of prior income tax laws), to the extent that paragraph (2) does not apply,
for exhaustion, wear and tear, obsolescence, amortization, and depletion, to the extent sustained;
(4) in the case of stock (to the extent not provided for in the foregoing paragraphs) for the amount of distributions previously made which, under the law applicable to the year in which the distribution was made, either were tax-free or were applicable in reduction of basis (not including distributions made by a corporation which was classified as a personal service corporation under the provisions of the Revenue Act of 1918 (
(5) in the case of any bond (as defined in section 171(d)) the interest on which is wholly exempt from the tax imposed by this subtitle, to the extent of the amortizable bond premium disallowable as a deduction pursuant to section 171(a)(2), and in the case of any other bond (as defined in section 171(d)) to the extent of the deductions allowable pursuant to section 171(a)(1) (or the amount applied to reduce interest payments under section 171(e)(2)) with respect thereto;
(6) in the case of any municipal bond (as defined in section 75(b)), to the extent provided in section 75(a)(2);
(7) in the case of a residence the acquisition of which resulted, under section 1034 (as in effect on the day before the date of the enactment of the Taxpayer Relief Act of 1997), in the nonrecognition of any part of the gain realized on the sale, exchange, or involuntary conversion of another residence, to the extent provided in section 1034(e) (as so in effect);
(8) in the case of property pledged to the Commodity Credit Corporation, to the extent of the amount received as a loan from the Commodity Credit Corporation and treated by the taxpayer as income for the year in which received pursuant to section 77, and to the extent of any deficiency on such loan with respect to which the taxpayer has been relieved from liability;
(9) for amounts allowed as deductions as deferred expenses under section 616(b) (relating to certain expenditures in the development of mines) and resulting in a reduction of the taxpayer's taxes under this subtitle, but not less than the amounts allowable under such section for the taxable year and prior years;
[(10) Repealed.
(11) for deductions to the extent disallowed under section 268 (relating to sale of land with unharvested crops), notwithstanding the provisions of any other paragraph of this subsection;
(12) to the extent provided in section 28(h) of the Internal Revenue Code of 1939 in the case of amounts specified in a shareholder's consent made under section 28 of such code;
(13) to the extent provided in section 551(e) in the case of the stock of United States shareholders in a foreign personal holding company;
(14) for amounts allowed as deductions as deferred expenses under section 174(b)(1) (relating to research and experimental expenditures) and resulting in a reduction of the taxpayers' taxes under this subtitle, but not less than the amounts allowable under such section for the taxable year and prior years;
(15) for deductions to the extent disallowed under section 272 (relating to disposal of coal or domestic iron ore), notwithstanding the provisions of any other paragraph of this subsection;
(16) in the case of any evidence of indebtedness referred to in section 811(b) (relating to amortization of premium and accrual of discount in the case of life insurance companies), to the extent of the adjustments required under section 811(b) (or the corresponding provisions of prior income tax laws) for the taxable year and all prior taxable years;
(17) to the extent provided in section 1367 in the case of stock of, and indebtedness owed to, shareholders of an S corporation;
(18) to the extent provided in section 961 in the case of stock in controlled foreign corporations (or foreign corporations which were controlled foreign corporations) and of property by reason of which a person is considered as owning such stock;
(19) to the extent provided in section 50(c), in the case of expenditures with respect to which a credit has been allowed under section 38;
(20) for amounts allowed as deductions under section 59(e) (relating to optional 10-year writeoff of certain tax preferences);
(21) to the extent provided in section 1059 (relating to reduction in basis for extraordinary dividends);
(22) in the case of qualified replacement property the acquisition of which resulted under section 1042 in the nonrecognition of any part of the gain realized on the sale or exchange of any property, to the extent provided in section 1042(d),2
(23) in the case of property the acquisition of which resulted under section 1043, 1044, or 1045 in the nonrecognition of any part of the gain realized on the sale of other property, to the extent provided in section 1043(c), 1044(d), or 1045(b)(4), as the case may be,2
(24) to the extent provided in section 179A(e)(6)(A),2
(25) to the extent provided in section 30(d)(1),2
(26) to the extent provided in sections 23(g) and 137(e),2 and
(27) in the case of a residence with respect to which a credit was allowed under section 1400C, to the extent provided in section 1400C(h).
(b) Substituted basis
Whenever it appears that the basis of property in the hands of the taxpayer is a substituted basis, then the adjustments provided in subsection (a) shall be made after first making in respect of such substituted basis proper adjustments of a similar nature in respect of the period during which the property was held by the transferor, donor, or grantor, or during which the other property was held by the person for whom the basis is to be determined. A similar rule shall be applied in the case of a series of substituted bases.
(c) Increase in basis of property on which additional estate tax is imposed
(1) Tax imposed with respect to entire interest
If an additional estate tax is imposed under section 2032A(c)(1) with respect to any interest in property and the qualified heir makes an election under this subsection with respect to the imposition of such tax, the adjusted basis of such interest shall be increased by an amount equal to the excess of—
(A) the fair market value of such interest on the date of the decedent's death (or the alternate valuation date under section 2032, if the executor of the decedent's estate elected the application of such section), over
(B) the value of such interest determined under section 2032A(a).
(2) Partial dispositions
(A) In general
In the case of any partial disposition for which an election under this subsection is made, the increase in basis under paragraph (1) shall be an amount—
(i) which bears the same ratio to the increase which would be determined under paragraph (1) (without regard to this paragraph) with respect to the entire interest, as
(ii) the amount of the tax imposed under section 2032A(c)(1) with respect to such disposition bears to the adjusted tax difference attributable to the entire interest (as determined under section 2032A(c)(2)(B)).
(B) Partial disposition
For purposes of subparagraph (A), the term "partial disposition" means any disposition or cessation to which subsection (c)(2)(D), (h)(1)(B), or (i)(1)(B) of section 2032A applies.
(3) Time adjustment made
Any increase in basis under this subsection shall be deemed to have occurred immediately before the disposition or cessation resulting in the imposition of the tax under section 2032A(c)(1).
(4) Special rule in the case of substituted property
If the tax under section 2032A(c)(1) is imposed with respect to qualified replacement property (as defined in section 2032A(h)(3)(B)) or qualified exchange property (as defined in section 2032A(i)(3)), the increase in basis under paragraph (1) shall be made by reference to the property involuntarily converted or exchanged (as the case may be).
(5) Election
(A) In general
An election under this subsection shall be made at such time and in such manner as the Secretary shall by regulations prescribe. Such an election, once made, shall be irrevocable.
(B) Interest on recaptured amount
If an election is made under this subsection with respect to any additional estate tax imposed under section 2032A(c)(1), for purposes of section 6601 (relating to interest on underpayments), the last date prescribed for payment of such tax shall be deemed to be the last date prescribed for payment of the tax imposed by section 2001 with respect to the estate of the decedent (as determined for purposes of section 6601).
(d) Reduction in basis of automobile on which gas guzzler tax was imposed
If—
(1) the taxpayer acquires any automobile with respect to which a tax was imposed by section 4064, and
(2) the use of such automobile by the taxpayer begins not more than 1 year after the date of the first sale for ultimate use of such automobile,
the basis of such automobile shall be reduced by the amount of the tax imposed by section 4064 with respect to such automobile. In the case of importation, if the date of entry or withdrawal from warehouse for consumption is later than the date of the first sale for ultimate use, such later date shall be substituted for the date of such first sale in the preceding sentence.
(e) Cross reference
For treatment of separate mineral interests as one property, see section 614.
(Aug. 16, 1954, ch. 736,
References in Text
Section 1020, referred to in subsec. (a)(2), was repealed by
The Tax Reform Act of 1976, referred to in subsec. (a)(2), is
Part II of subchapter L, referred to in subsec. (a)(3)(D), was repealed and part III of subchapter L was redesignated as part II by
The Revenue Act of 1918 (
The Revenue Act of 1921 (
Section 218 of the Revenue Act of 1918 or 1921, referred to in subsec. (a)(4), was not classified to the Code.
The date of the enactment of the Taxpayer Relief Act of 1997, referred to in subsec. (a)(7), is the date of enactment of
Section 28 of the Internal Revenue Code of 1939, referred to in subsec. (a)(12), was classified to section 28 of former Title 26, Internal Revenue Code. Section 28 was repealed by
Amendments
1997—Subsec. (a)(7).
Subsec. (a)(23).
Subsec. (a)(27).
1996—Subsec. (a)(20).
Subsec. (a)(26).
1993—Subsec. (a)(19) to (23).
Subsec. (a)(24).
Subsec. (a)(25), (26).
Subsec. (e).
"(1) For treatment of certain expenses incident to the purchase of a residence which were deducted as moving expenses by the taxpayer or his spouse under section 217(a), see section 217(e).
"(2) For treatment of separate mineral interests as one property, see section 614."
1992—Subsec. (a)(25), (26).
1990—Subsec. (a)(2).
Subsec. (a)(20).
Subsec. (a)(21) to (25).
1989—Subsec. (a)(25).
1988—Subsec. (a)(5).
Subsec. (a)(21) to (26).
"(23) to the extent provided in section 48(q) in the case of expenditures with respect to which a credit has been allowed under section 38;
"(24) for amounts allowed as deductions under section 59(d) (relating to optional 10-year writeoff of certain tax preferences);
"(25) to the extent provided in section 1059 (relating to reduction in basis for extraordinary dividends); and
"(26) in the case of qualified replacement property, the acquisition of which resulted under section 1042 in the nonrecognition of any part of the gain realized on the sale or exchange of any property, to the extent provided in section 1042(c)."
Former pars. (21) and (22) had been struck out previously.
1986—Subsec. (a).
Subsec. (a)(24).
1984—Subsec. (a)(17).
Subsec. (a)(21).
Subsec. (a)(26).
Subsec. (a)(27).
Subsec. (b).
1982—Subsec. (a)(18).
Subsec. (a)(24).
Subsec. (a)(25).
1981—Subsec. (a)(24).
Subsec. (c).
1980—Subsec. (a)(22).
Subsec. (a)(23).
Subsec. (c).
1978—Subsec. (a)(21).
Subsec. (a)(23).
Subsec. (c).
Subsec. (d).
Subsec. (e).
1976—Subsec. (a)(2).
Subsec. (a)(10).
Subsec. (a)(13).
Subsec. (a)(19).
Subsec. (a)(20).
Subsec. (a)(21).
Subsec. (a)(22).
Subsec. (a)(23).
1969—Subsec. (a)(22).
Subsec. (a)(10).
Subsec. (c).
1964—Subsec. (a)(15).
Subsec. (a)(19).
Subsec. (a)(21).
1962—Subsec. (a)(3)(D).
Subsec. (a)(19).
Subsec. (a)(20).
1959—Subsec. (a)(3)(C).
Subsec. (a)(17).
1958—Subsec. (a)(6).
Subsec. (a)(18).
1956—Subsec. (a)(16). Act June 29, 1956, added par. (16).
Effective Date of 1997 Amendment
Amendment by section 312(d)(6) of
Section 313(c) of
Amendment by section 701(b)(2) of
Effective Date of 1996 Amendment
Amendment by section 1807(c)(5) of
Effective Date of 1993 Amendment
Section 13114(d) of
Amendment by section 13213(a)(2)(F) of
Amendment by section 13261(f)(3) of
Effective Date of 1992 Amendment
Amendment by
Effective Date of 1990 Amendment
Amendment by section 11812(b)(10) of
Amendment by section 11813(b)(19) of
Effective Date of 1989 Amendment
Section 502(c) of
Effective Date of 1988 Amendment
Amendment by section 1006(j)(1)(B) of
Amendment by section 1018(u)(22) of
Effective Date of 1986 Amendment
Amendment by section 241(b)(2) of
Amendment by section 701(e)(4)(D) of
Amendment by section 1303(b)(3) of
Effective Date of 1984 Amendment
Amendment by section 43(a)(2) of
Amendment by section 53(d)(3) of
Amendment by section 211(b)(14) of
Amendment by section 474(r)(23) of
Amendment by section 541(b)(2) of
Effective Date of 1982 Amendments
Amendment by
Amendment by section 201(c)(2) of
Amendment by section 205(a)(5)(B) of
Effective Date of 1981 Amendment
Amendment by section 212(d)(2)(G) of
Amendment by section 421(g) of
Effective Date of 1980 Amendments and Revival of Prior Law
Amendment by section 401(a) of
Amendment by
Effective Date of 1978 Amendments
Section 101(c) of
Amendment by section 201(b) of
Amendment by section 601(b)(3) of
Amendment by section 702(r)(3) of
Section 4(d) of
Effective Date of 1976 Amendment
Amendment by section 1901(a)(123), (b)(1)(F)(ii), (21)(G), (29)(A) of
Section 1901(b)(30)(B) of
Amendment by section 2005(a)(3) of
Effective Date of 1969 Amendment
Amendment by section 231(c)(3) of
Amendment by section 504(c)(4) of
Amendment by section 516(c)(2)(B) of
Effective Date of 1964 Amendment
Amendment by section 203(a)(3)(C) of
Amendment by section 225(j)(2) of
Amendment by section 227(b)(5) of
Effective Date of 1962 Amendment
Amendment by section 2(f) of
Amendment by section 8(g)(2) of
Amendment by section 12(b)(1) of
Effective Date of 1959 Amendment
Amendment by
Effective Date of 1958 Amendment
Amendment by section 2(b) of
Amendment by section 64(d)(2) of
Repeals
Section 2005(a)(3) of
Savings Provision
For provisions that nothing in amendment by
Applicability of Certain Amendments by Pub. L. 99–514 in Relation to Treaty Obligations of United States
For applicability of amendment by section 701(e)(4)(D) 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
Change From Retirement to Straight Line Method of Computing Depreciation in Certain Cases
Section 94 of
"(a)
"(b)
"(c)
"(d)
"(1)
"(A)
"(B)
The adjustment determined under this paragraph shall be allocated (in the manner prescribed by the Secretary) among all retirement-straight line property held by the taxpayer on his 1956 adjustment date.
"(2)
"(A) sold, or
"(B) with respect to which a deduction was allowed for Federal income tax purposes by reason of casualty or 'abnormal' retirement in the nature of special obsolescence,
if such sale occurred in, or such deduction was allowed for, a period on or after the changeover date and before the taxpayer's 1956 adjustment date.
"(3)
This subsection shall apply only with respect to taxable years beginning after December 31, 1955.
"(e)
"(1)
"(2)
This subsection shall not apply in determining adjusted basis for purposes of section 437(c) of the Internal Revenue Code of 1939. This subsection shall apply only with respect to taxable years beginning on or after the changeover date and before the taxpayer's 1956 adjustment date.
"(f)
"(1)
"(2)
"(g)
"(1)
"(2)
"(3)
"(4) 1956
"(5)
"(6) The term 'Secretary' means the Secretary of the Treasury or his delegate.
"(7) The term 'Commissioner' means the Commissioner of Internal Revenue."
Cross References
Adjusted basis for determining gain or loss, see
Distribution of proceeds of loan insured by United States, effect on earnings and profits, see
Property acquired—
Before March 1, 1913, subject to adjustment provided in this section, see
By gift, adjustment of basis for period antedating gift, see
Section Referred to in Other Sections
This section is referred to in
1 See References in Text note below.
2 So in original. The comma probably should be a semicolon.
§1017. Discharge of indebtedness
(a) General rule
If—
(1) an amount is excluded from gross income under subsection (a) of section 108 (relating to discharge of indebtedness), and
(2) under subsection (b)(2)(E), (b)(5), or (c)(1) of section 108, any portion of such amount is to be applied to reduce basis,
then such portion shall be applied in reduction of the basis of any property held by the taxpayer at the beginning of the taxable year following the taxable year in which the discharge occurs.
(b) Amount and properties determined under regulations
(1) In general
The amount of reduction to be applied under subsection (a) (not in excess of the portion referred to in subsection (a)), and the particular properties the bases of which are to be reduced, shall be determined under regulations prescribed by the Secretary.
(2) Limitation in title 11 case or insolvency
In the case of a discharge to which subparagraph (A) or (B) of section 108(a)(1) applies, the reduction in basis under subsection (a) of this section shall not exceed the excess of—
(A) the aggregate of the bases of the property held by the taxpayer immediately after the discharge, over
(B) the aggregate of the liabilities of the taxpayer immediately after the discharge.
The preceding sentence shall not apply to any reduction in basis by reason of an election under section 108(b)(5).
(3) Certain reductions may only be made in the basis of depreciable property
(A) In general
Any amount which under subsection (b)(5) or (c)(1) of section 108 is to be applied to reduce basis shall be applied only to reduce the basis of depreciable property held by the taxpayer.
(B) Depreciable property
For purposes of this section, the term "depreciable property" means any property of a character subject to the allowance for depreciation, but only if a basis reduction under subsection (a) will reduce the amount of depreciation or amortization which otherwise would be allowable for the period immediately following such reduction.
(C) Special rule for partnership interests
For purposes of this section, any interest of a partner in a partnership shall be treated as depreciable property to the extent of such partner's proportionate interest in the depreciable property held by such partnership. The preceding sentence shall apply only if there is a corresponding reduction in the partnership's basis in depreciable property with respect to such partner.
(D) Special rule in case of affiliated group
For purposes of this section, if—
(i) a corporation holds stock in another corporation (hereinafter in this subparagraph referred to as the "subsidiary"), and
(ii) such corporations are members of the same affiliated group which file a consolidated return under section 1501 for the taxable year in which the discharge occurs,
then such stock shall be treated as depreciable property to the extent that such subsidiary consents to a corresponding reduction in the basis of its depreciable property.
(E) Election to treat certain inventory as depreciable property
(i) In general
At the election of the taxpayer, for purposes of this section, the term "depreciable property" includes any real property which is described in section 1221(a)(1).
(ii) Election
An election under clause (i) shall be made on the taxpayer's return for the taxable year in which the discharge occurs or at such other time as may be permitted in regulations prescribed by the Secretary. Such an election, once made, may be revoked only with the consent of the Secretary.
(F) Special rules for qualified real property business indebtedness
In the case of any amount which under section 108(c)(1) is to be applied to reduce basis—
(i) depreciable property shall only include depreciable real property for purposes of subparagraphs (A) and (C),
(ii) subparagraph (E) shall not apply, and
(iii) in the case of property taken into account under section 108(c)(2)(B), the reduction with respect to such property shall be made as of the time immediately before disposition if earlier than the time under subsection (a).
(4) Special rules for qualified farm indebtedness
(A) In general
Any amount which under subsection (b)(2)(E) of section 108 is to be applied to reduce basis and which is attributable to an amount excluded under subsection (a)(1)(C) of section 108—
(i) shall be applied only to reduce the basis of qualified property held by the taxpayer, and
(ii) shall be applied to reduce the basis of qualified property in the following order:
(I) First the basis of qualified property which is depreciable property.
(II) Second the basis of qualified property which is land used or held for use in the trade or business of farming.
(III) Then the basis of other qualified property.
(B) Qualified property
For purposes of this paragraph, the term "qualified property" has the meaning given to such term by section 108(g)(3)(C).
(C) Certain rules made applicable
Rules similar to the rules of subparagraphs (C), (D), and (E) of paragraph (3) shall apply for purposes of this paragraph and section 108(g).
(c) Special rules
(1) Reduction not to be made in exempt property
In the case of an amount excluded from gross income under section 108(a)(1)(A), no reduction in basis shall be made under this section in the basis of property which the debtor treats as exempt property under
(2) Reductions in basis not treated as dispositions
For purposes of this title, a reduction in basis under this section shall not be treated as a disposition.
(d) Recapture of reductions
(1) In general
For purposes of sections 1245 and 1250—
(A) any property the basis of which is reduced under this section and which is neither section 1245 property nor section 1250 property shall be treated as section 1245 property, and
(B) any reduction under this section shall be treated as a deduction allowed for depreciation.
(2) Special rule for section 1250
For purposes of section 1250(b), the determination of what would have been the depreciation adjustments under the straight line method shall be made as if there had been no reduction under this section.
(Aug. 16, 1954, ch. 736,
Amendments
1999—Subsec. (b)(3)(E)(i).
1998—Subsec. (a)(2).
1996—Subsec. (b)(4)(A).
1993—Subsec. (a)(2).
Subsec. (b)(3)(A).
Subsec. (b)(3)(F).
1990—Subsec. (b)(4)(C).
1988—Subsec. (b)(4).
"(A) first to reduce the tax attributes described in section 108(b)(2) (other than subparagraph (D) thereof),
"(B) then to reduce basis of property other than property described in subparagraph (C), and
"(C) then to reduce the basis of land used or held for use in the trade or business of farming."
1986—Subsec. (a)(2).
Subsec. (b)(3)(A).
Subsec. (b)(4).
1980—
1976—
Effective Date of 1999 Amendment
Amendment by
Effective Date of 1996 Amendment
Amendment by
Effective Date of 1993 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 405(b) of
Amendment by section 822(b)(4), (5) of
Effective Date of 1980 Amendment
Amendment by
Cross References
Rules and regulations, see
Section Referred to in Other Sections
This section is referred to in
[§1018. Repealed. Pub. L. 96–589, §6(h)(1), Dec. 24, 1980, 94 Stat. 3410 ]
Section, acts Aug. 16, 1954, ch. 736,
Effective Date of Repeal
Repeal effective Oct. 1, 1979, but not to apply to proceedings under Title 11, Bankruptcy, commenced before Oct. 1, 1979, see section 7(e) of
§1019. Property on which lessee has made improvements
Neither the basis nor the adjusted basis of any portion of real property shall, in the case of the lessor of such property, be increased or diminished on account of income derived by the lessor in respect of such property and excludable from gross income under section 109 (relating to improvements by lessee on lessor's property). If an amount representing any part of the value of real property attributable to buildings erected or other improvements made by a lessee in respect of such property was included in gross income of the lessor for any taxable year beginning before January 1, 1942, the basis of each portion of such property shall be properly adjusted for the amount so included in gross income.
(Aug. 16, 1954, ch. 736,
[§1020. Repealed. Pub. L. 94–455, title XIX, §1901(a)(125), Oct. 4, 1976, 90 Stat. 1784 ]
Section, act Aug. 16, 1954, ch. 736,
§1021. Sale of annuities
In case of the sale of an annuity contract, the adjusted basis shall in no case be less than zero.
(Aug. 16, 1954, ch. 736,
Cross References
Annuities, see
Section Referred to in Other Sections
This section is referred to in
[§1022. Repealed. Pub. L. 94–455, title XIX, §1901(a)(126)(A), Oct. 4, 1976, 90 Stat. 1784 ]
Section, added
A prior section 1022, act Aug. 16, 1954, ch. 736,
Effective Date of Repeal
Section 1901(a)(126)(B) provided that: "The repeal made by subparagraph (A) [repealing this section] shall apply with respect to stock or securities acquired from a decedent dying after the date of the enactment of this Act [Oct. 4, 1976]."
§1023. Cross references
(1) For certain distributions by a corporation which are applied in reduction of basis of stock, see section 301(c)(2).
(2) For basis in case of construction of new vessels, see section 511 of the Merchant Marine Act, 1936, as amended (
(Aug. 16, 1954, ch. 736,
References in Text
Section 511 of the Merchant Marine Act, 1936, referred to in par. (1), is classified to
Prior Provisions
A prior section 1023, added
Amendments
1980—
1976—Par. (4).
Effective Date of 1980 Amendments and Revival of Prior Law
Amendment by
Section 401(b) of
Section 401(e) of
Effective Date of 1976 Amendment
Amendment by section 1901(a)(127) of
Repeals
[§1024. Renumbered §1023]
PART III—COMMON NONTAXABLE EXCHANGES
Amendments
1997—
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 (as determined under section 357(d)) a liability of the taxpayer, such assumption 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 rules for foreign real and personal property
For purposes of this section—
(1) Real property
Real property located in the United States and real property located outside the United States are not property of a like kind.
(2) Personal property
(A) In general
Personal property used predominantly within the United States and personal property used predominantly outside the United States are not property of a like kind.
(B) Predominant use
Except as provided in subparagraph 1 (C) and (D), the predominant use of any property shall be determined based on—
(i) in the case of the property relinquished in the exchange, the 2-year period ending on the date of such relinquishment, and
(ii) in the case of the property acquired in the exchange, the 2-year period beginning on the date of such acquisition.
(C) Property held for less than 2 years
Except in the case of an exchange which is part of a transaction (or series of transactions) structured to avoid the purposes of this subsection—
(i) only the periods the property was held by the person relinquishing the property (or any related person) shall be taken into account under subparagraph (B)(i), and
(ii) only the periods the property was held by the person acquiring the property (or any related person) shall be taken into account under subparagraph (B)(ii).
(D) Special rule for certain property
Property described in any subparagraph of section 168(g)(4) shall be treated as used predominantly in the United States.
(Aug. 16, 1954, ch. 736,
Amendments
1999—Subsec. (d).
1997—Subsec. (h).
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 1999 Amendment
Amendment by
Effective Date of 1997 Amendment
Section 1052(b) of
"(1)
"(2)
"(A) it provides for a sale in lieu of an exchange, or
"(B) the property to be acquired as replacement property was not identified under such contract before June 9, 1997."
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
1 So in original. Probably should be "subparagraphs".
§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
(1) Conversions described in subsection (a)(1)
If the property was acquired as the result of a compulsory or involuntary conversion described in subsection (a)(1), the basis shall be the same as in the case of the property so converted—
(A) 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
(B) 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.
(2) Conversions described in subsection (a)(2)
In the case of property purchased by the taxpayer in a transaction described in subsection (a)(2) 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 1 piece of property, the basis determined under this sentence shall be allocated to the purchased properties in proportion to their respective costs.
(3) Property held by corporation the stock of which is replacement property
(A) In general
If the basis of stock in a corporation is decreased under paragraph (2), an amount equal to such decrease shall also be applied to reduce the basis of property held by the corporation at the time the taxpayer acquired control (as defined in subsection (a)(2)(E)) of such corporation.
(B) Limitation
Subparagraph (A) shall not apply to the extent that it would (but for this subparagraph) require a reduction in the aggregate adjusted bases of the property of the corporation below the taxpayer's adjusted basis of the stock in the corporation (determined immediately after such basis is decreased under paragraph (2)).
(C) Allocation of basis reduction
The decrease required under subparagraph (A) shall be allocated—
(i) first to property which is similar or related in service or use to the converted property,
(ii) second to depreciable property (as defined in section 1017(b)(3)(B)) not described in clause (i), and
(iii) then to other property.
(D) Special rules
(i) Reduction not to exceed adjusted basis of property
No reduction in the basis of any property under this paragraph shall exceed the adjusted basis of such property (determined without regard to such reduction).
(ii) Allocation of reduction among properties
If more than 1 property is described in a clause of subparagraph (C), the reduction under this paragraph shall be allocated among such property in proportion to the adjusted bases of such property (as so determined).
(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, flood, or other weather-related conditions
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, flood, or other weather-related conditions.
(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 property damaged by Presidentially declared disasters
(1) Principal residences
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) Trade or business and investment property
If a taxpayer's property held for productive use in a trade or business or for investment is compulsorily or involuntarily converted as a result of a Presidentially declared disaster, tangible property of a type held for productive use in a trade or business shall be treated for purposes of subsection (a) as property similar or related in service or use to the property so converted.
(3) 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 property 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.
(4) Principal residence
For purposes of this subsection, the term "principal residence" has the same meaning as when used in section 121, except that such term shall include a residence not treated as a principal residence solely because the taxpayer does not own the residence.
(i) Replacement property must be acquired from unrelated person in certain cases
(1) In general
If the property which is involuntarily converted is held by a taxpayer to which this subsection applies, subsection (a) shall not apply if the replacement property or stock is acquired from a related person. The preceding sentence shall not apply to the extent that the related person acquired the replacement property or stock from an unrelated person during the period applicable under subsection (a)(2)(B).
(2) Taxpayers to which subsection applies
This subsection shall apply to—
(A) a C corporation,
(B) a partnership in which 1 or more C corporations own, directly or indirectly (determined in accordance with section 707(b)(3)), more than 50 percent of the capital interest, or profits interest, in such partnership at the time of the involuntary conversion, and
(C) any other taxpayer if, with respect to property which is involuntarily converted during the taxable year, the aggregate of the amount of realized gain on such property on which there is realized gain exceeds $100,000.
In the case of a partnership, subparagraph (C) shall apply with respect to the partnership and with respect to each partner. A similar rule shall apply in the case of an S corporation and its shareholders.
(3) Related person
For purposes of this subsection, a person is related to another person if the person bears a relationship to the other person described in section 267(b) or 707(b)(1).
(j) Sales or exchanges to implement microwave relocation policy
(1) In general
For purposes of this subtitle, if a taxpayer elects the application of this subsection to a qualified sale or exchange, such sale or exchange shall be treated as an involuntary conversion to which this section applies.
(2) Qualified sale or exchange
For purposes of paragraph (1), the term "qualified sale or exchange" means a sale or exchange before January 1, 2000, which is certified by the Federal Communications Commission as having been made by a taxpayer in connection with the relocation of the taxpayer from the 1850–1990MHz spectrum by reason of the Federal Communications Commission's reallocation of that spectrum for use for personal communications services. The Commission shall transmit copies of certifications under this paragraph to the Secretary.
(k) 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 exclusion from gross income of gain from involuntary conversion of principal residence, see section 121.
(Aug. 16, 1954, ch. 736,
References in Text
The Disaster Relief and Emergency Assistance Act, referred to in subsec. (h)(3), is
Amendments
1997—Subsec. (e).
Subsec. (h)(4).
Subsec. (i).
"(1)
"(A) a C corporation, or
"(B) a partnership in which 1 or more C corporations own, directly or indirectly (determined in accordance with section 707(b)(3)), more than 50 percent of the capital interest, or profits interest, in such partnership at the time of the involuntary conversion,
subsection (a) shall not apply if the replacement property or stock is acquired from a related person. The preceding sentence shall not apply to the extent that the related person acquired the replacement property or stock from an unrelated person during the period described in subsection (a)(2)(B).
"(2)
Subsec. (k)(3).
1996—Subsec. (b).
Subsec. (h).
Subsec. (h)(1).
Subsec. (h)(2).
Subsec. (h)(3).
Subsec. (h)(4).
1995—Subsec. (i).
Subsec. (j).
Subsec. (k).
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 1997 Amendment
Amendment by section 312(d)(1), (7) of
Amendment by section 913(b) of
Section 1087(b) of
Effective Date of 1996 Amendment
Section 1119(d)(1) of
Section 1610(b) of
Effective Date of 1995 Amendment
Section 3(a)(2) of
Section 3(b)(2) of
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. Repealed. Pub. L. 105–34, title III, §312(b), Aug. 5, 1997, 111 Stat. 839 ]
Section, acts Aug. 16, 1954, ch. 736,
Effective Date of Repeal
Repeal applicable to sales and exchanges after May 6, 1997, with certain exceptions, see section 312(d) of
§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) Exchanges involving foreign persons
To the extent provided in regulations, subsection (a) shall not apply to any exchange having the effect of transferring property to any person other than a United States person.
(d) 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,
Codification
Another section 1131(b) of
Amendments
1997—Subsecs. (c), (d).
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) Nonqualified preferred stock not treated as stock
For purposes of this section, nonqualified preferred stock (as defined in section 351(g)(2)) shall be treated as property other than stock.
(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
1997—Subsecs. (b), (c).
Effective Date of 1997 Amendment
Amendment by
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 gain was not recognized under section 121 (relating to gain on sale of principal residence); and
(2) within 1 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 section 121, the resale of such property shall be treated as a part of the transaction constituting the original sale of such property.
[(f) Repealed. Pub. L. 104–188, title I, §1616(b)(12), Aug. 20, 1996, 110 Stat. 1857 ]
(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
Amendments
1997—Subsec. (e).
"(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."
1996—Subsec. (f).
"(f)
1980—Subsec. (g).
1978—Subsec. (e)(1)(A).
Subsec. (e)(1)(B).
1976—Subsec. (e).
Effective Date of 1997 Amendment
Amendment by
Effective Date of 1996 Amendment
Amendment by
Effective Date of 1980 Amendment
Section 6(c) of
Effective Date of 1978 Amendment
Amendment by section 404(c)(6) of
Section 405(d) 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 C 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)(C)) 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, 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.
(g) Application of section to sales of stock in agricultural refiners and processors to eligible farm cooperatives
(1) In general
This section shall apply to the sale of stock of a qualified refiner or processor to an eligible farmers' cooperative.
(2) Qualified refiner or processor
For purposes of this subsection, the term "qualified refiner or processor" means a domestic corporation—
(A) substantially all of the activities of which consist of the active conduct of the trade or business of refining or processing agricultural or horticultural products, and
(B) which, during the 1-year period ending on the date of the sale, purchases more than one-half of such products to be refined or processed from—
(i) farmers who make up the eligible farmers' cooperative which is purchasing stock in the corporation in a transaction to which this subsection is to apply, or
(ii) such cooperative.
(3) Eligible farmers' cooperative
For purposes of this section, the term "eligible farmers' cooperative" means an organization to which part I of subchapter T applies and which is engaged in the marketing of agricultural or horticultural products.
(4) Special rules
In applying this section to a sale to which paragraph (1) applies—
(A) the eligible farmers' cooperative shall be treated in the same manner as a cooperative described in subsection (b)(1)(B),
(B) subsection (b)(2) shall be applied by substituting "100 percent" for "30 percent" each place it appears,
(C) the determination as to whether any stock in the domestic corporation is a qualified security shall be made without regard to whether the stock is an employer security or to subsection (c)(1)(A), and
(D) paragraphs (2)(D) and (7) of subsection (c) shall not apply.
(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
1997—Subsec. (g).
1996—Subsec. (c)(1)(A).
Subsec. (c)(1)(B)(ii).
Subsec. (c)(4)(A)(i).
Subsec. (c)(4)(B)(ii)(I).
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 1997 Amendment
Section 968(b) of
Effective Date of 1996 Amendment
Amendment by section 1316(d)(3) of
Amendment by section 1311(b)(3) of
Amendment by section 1616(b)(13) of
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
Line Item Veto
Section 968 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
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 taxpayer shall be considered to have purchased any property if, but for subsection (d), the unadjusted basis of such property would be its cost within the meaning of section 1012.
(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), was classified to
Amendments
1996—Subsec. (c)(2).
Effective Date of 1996 Amendment
Amendment by
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
§1045. Rollover of gain from qualified small business stock to another qualified small business stock
(a) Nonrecognition of gain
In the case of any sale of qualified small business stock held by a taxpayer other than a corporation for more than 6 months and with respect to which such 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 qualified small business stock 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 title.
(b) Definitions and special rules
For purposes of this section—
(1) Qualified small business stock
The term "qualified small business stock" has the meaning given such term by section 1202(c).
(2) Purchase
A taxpayer shall be treated as having purchased any property if, but for paragraph (3), the unadjusted basis of such property in the hands of the taxpayer would be its cost (within the meaning of section 1012).
(3) 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 qualified small business stock which is purchased by the taxpayer during the 60-day period described in subsection (a).
(4) Holding period
For purposes of determining whether the nonrecognition of gain under subsection (a) applies to stock which is sold—
(A) the taxpayer's holding period for such stock and the stock referred to in subsection (a)(1) shall be determined without regard to section 1223, and
(B) only the first 6 months of the taxpayer's holding period for the stock referred to in subsection (a)(1) shall be taken into account for purposes of applying section 1202(c)(2).
(5) Certain rules to apply
Rules similar to the rules of subsections (f), (g), (h), (i), (j), and (k) of section 1202 shall apply.
(Added
Amendments
1998—Subsec. (a).
Subsec. (b)(5).
Effective Date of 1998 Amendment
Amendment by
Effective Date
Section applicable to sales after Aug. 5, 1997, see section 313(c) of
Section Referred to in Other Sections
This section is referred to in
PART IV—SPECIAL RULES
Amendments
1997—
1986—
1984—
1978—
1976—
1963—
1960—
§1051. Property acquired during affiliation
In the case of property acquired by a corporation, during a period of affiliation, from a corporation with which it was affiliated, the basis of such property, after such period of affiliation, shall be determined, in accordance with regulations prescribed by the Secretary, without regard to inter-company transactions in respect of which gain or loss was not recognized. For purposes of this section, the term "period of affiliation" means the period during which such corporations were affiliated (determined in accordance with the law applicable thereto) but does not include any taxable year beginning on or after January 1, 1922, unless a consolidated return was made, nor any taxable year after the taxable year 1928.
(Aug. 16, 1954, ch. 736,
Amendments
1976—
Effective Date of 1976 Amendment
Amendment by section 1901(a)(131) of
§1052. Basis established by the Revenue Act of 1932 or 1934 or by the Internal Revenue Code of 1939
(a) Revenue Act of 1932
If the property was acquired, after February 28, 1913, in any taxable year beginning before January 1, 1934, and the basis thereof, for purposes of the Revenue Act of 1932 was prescribed by section 113(a)(6), (7), or (9) of such Act (
(b) Revenue Act of 1934
If the property was acquired, after February 28, 1913, in any taxable year beginning before January 1, 1936, and the basis thereof, for purposes of the Revenue Act of 1934, was prescribed by section 113(a)(6), (7), or (8) of such Act (
(c) Internal Revenue Code of 1939
If the property was acquired, after February 28, 1913, in a transaction to which the Internal Revenue Code of 1939 applied, and the basis thereof, for purposes of the Internal Revenue Code of 1939, was prescribed by section 113(a)(6), (7), (8), (13), (15), (18), (19), or (23) of such code, then for purposes of this subtitle the basis shall be the same as the basis therein prescribed in the Internal Revenue Code of 1939.
(Aug. 16, 1954, ch. 736,
References in Text
Revenue Act of 1932, referred to in section catchline and subsec. (a), is act June 6, 1932, ch. 209,
Revenue Act of 1934, referred to in section catchline and subsec. (b), is act May 10, 1934, ch. 277,
The Internal Revenue Code of 1939, referred to in section catchline and subsec. (c), is act Feb. 10, 1939, ch. 2,
Section 113 of the Internal Revenue Code of 1939, referred to in subsec. (c), was classified to section 113 of former Title 26, Internal Revenue Code. Section 113 was repealed by
Cross References
Basis of—
Property contributed to partnership, see
Property received in corporate liquidations, see
Stock and stock rights acquired in corporate distributions, see
Basis to—
Corporations in corporate organizations and reorganizations, see
Distributees in corporate organizations and reorganizations, see
Partner of distributed property other than money, see
Exchange of property held for productive use or investment, basis, see
Section Referred to in Other Sections
This section is referred to in
§1053. Property acquired before March 1, 1913
In the case of property acquired before March 1, 1913, if the basis otherwise determined under this subtitle, adjusted (for the period before March 1, 1913) as provided in section 1016, is less than the fair market value of the property as of March 1, 1913, then the basis for determining gain shall be such fair market value. In determining the fair market value of stock in a corporation as of March 1, 1913, due regard shall be given to the fair market value of the assets of the corporation as of that date.
(Aug. 16, 1954, ch. 736,
Amendments
1958—
Effective Date of 1958 Amendment
Amendment by
Cross References
Basis—
Adjustments to, see
Cost, see
Distributed property other than money in partnerships, see
Distributees in certain corporate organization or reorganization, see
Exchange not solely in kind, see
Gift or transfer in trust before Jan. 1, 1921, see
Gifts after Dec. 31, 1920, see
Property acquired after Feb. 28, 1913, see
Property acquired from decedent, see
Property included in inventory, see
Property received in corporate liquidations, see
Stock and stock right acquired in corporate distributions, see
Transfer in trust after Dec. 31, 1920, see
Fair market value of property received as amount realized on gain, see
§1054. Certain stock of Federal National Mortgage Association
In the case of a share of stock issued pursuant to section 303(c) of the Federal National Mortgage Association Charter Act (
(Added
Prior Provisions
A prior section 1054 was renumbered
Effective Date
Section applicable with respect to taxable years beginning after Dec. 31, 1959, see section 8(d) of
§1055. Redeemable ground rents
(a) Character
For purposes of this subtitle—
(1) a redeemable ground rent shall be treated as being in the nature of a mortgage, and
(2) real property held subject to liabilities under a redeemable ground rent shall be treated as held subject to liabilities under a mortgage.
(b) Application of subsection (a)
(1) In general
Subsection (a) shall take effect on the day after the date of the enactment of this section and shall apply with respect to taxable years ending after such date of enactment.
(2) Basis of holder
In determining the basis of real property held subject to liabilities under a redeemable ground rent, subsection (a) shall apply whether such real property was acquired before or after the enactment of this section.
(3) Basis of reserved redeemable ground rent
In the case of a redeemable ground rent reserved or created on or before the date of the enactment of this section in connection with a transfer of the right to hold real property subject to liabilities under such ground rent, the basis of such ground rent after such date in the hands of the person who reserved or created the ground rent shall be the amount taken into account in respect of such ground rent for Federal income tax purposes as consideration for the disposition of such real property. If no such amount was taken into account, such basis shall be determined as if this section had not been enacted.
(c) Redeemable ground rent defined
For purposes of this subtitle, the term "redeemable ground rent" means only a ground rent with respect to which—
(1) there is a lease of land which is assignable by the lessee without the consent of the lessor and which (together with periods for which the lease may be renewed at the option of the lessee) is for a term in excess of 15 years,
(2) the leaseholder has a present or future right to terminate, and to acquire the entire interest of the lessor in the land, by payment of a determined or determinable amount, which right exists by virtue of State or local law and not because of any private agreement or privately created condition, and
(3) the lessor's interest in the land is primarily a security interest to protect the rental payments to which the lessor is entitled under the lease.
(d) Cross reference
For treatment of rentals under redeemable ground rents as interest, see section 163(c).
(Added
References in Text
Date of the enactment of this section, referred to in subsec. (b)(1), (3), means Apr. 10, 1963, the date of approval of
Prior Provisions
A prior section 1055 was renumbered
Effective Date
Section 2 of
Section Referred to in Other Sections
This section is referred to in
§1056. Basis limitation for player contracts transferred in connection with the sale of a franchise
(a) General rule
If a franchise to conduct any sports enterprise is sold or exchanged, and if, in connection with such sale or exchange, there is a transfer of a contract for the services of an athlete, the basis of such contract in the hands of the transferee shall not exceed the sum of—
(1) the adjusted basis of such contract in the hands of the transferor immediately before the transfer, plus
(2) the gain (if any) recognized by the transferor on the transfer of such contract.
(b) Exceptions
Subsection (a) shall not apply—
(1) to an exchange described in section 1031 (relating to exchange of property held for productive use or investment), and
(2) to property in the hands of a person acquiring the property from a decedent or to whom the property passed from a decedent (within the meaning of section 1014(a)).
(c) Transferor required to furnish certain information
Under regulations prescribed by the Secretary, the transfer shall, at the times and in the manner provided in such regulations, furnish to the Secretary and to the transferee the following information:
(1) the amount which the transferor believes to be the adjusted basis referred to in paragraph (1) of subsection (a),
(2) the amount which the transferor believes to be the gain referred to in paragraph (2) of subsection (a), and
(3) any subsequent modification of either such amount.
To the extent provided in such regulations, the amounts furnished pursuant to the preceding sentence shall be binding on the transferor and on the transferee.
(d) Presumption as to amount allocable to player contracts
In the case of any sale or exchange described in subsection (a), it shall be presumed that not more than 50 percent of the consideration is allocable to contracts for the services of athletes unless it is established to the satisfaction of the Secretary that a specified amount in excess of 50 percent is properly allocable to such contracts. Nothing in the preceding sentence shall give rise to a presumption that an allocation of less than 50 percent of the consideration to contracts for the services of athletes is a proper allocation.
(Added
Prior Provisions
A prior section 1056 was renumbered
Amendments
1986—Subsec. (a).
Effective Date of 1986 Amendment
Amendment by
Effective Date
Section 212(a)(3) of
[§1057. Repealed. Pub. L. 105–34, title XI, §1131(c)(2), Aug. 5, 1997, 111 Stat. 980 ]
Section, added
A prior section 1057 was renumbered
§1058. Transfers of securities under certain agreements
(a) General rule
In the case of a taxpayer who transfers securities (as defined in section 1236(c)) pursuant to an agreement which meets the requirements of subsection (b), no gain or loss shall be recognized on the exchange of such securities by the taxpayer for an obligation under such agreement, or on the exchange of rights under such agreement by that taxpayer for securities identical to the securities transferred by that taxpayer.
(b) Agreement requirements
In order to meet the requirements of this subsection, an agreement shall—
(1) provide for the return to the transferor of securities identical to the securities transferred;
(2) require that payments shall be made to the transferor of amounts equivalent to all interest, dividends, and other distributions which the owner of the securities is entitled to receive during the period beginning with the transfer of the securities by the transferor and ending with the transfer of identical securities back to the transferor;
(3) not reduce the risk of loss or opportunity for gain of the transferor of the securities in the securities transferred; and
(4) meet such other requirements as the Secretary may by regulation prescribe.
(c) Basis
Property acquired by a taxpayer described in subsection (a), in a transaction described in that subsection, shall have the same basis as the property transferred by that taxpayer.
(Added
Prior Provisions
A prior section 1058 was renumbered
Effective Date
Section applicable with respect to amounts received after Dec. 31, 1976, as payments with respect to securities loans (as defined in
Section Referred to in Other Sections
This section is referred to in
§1059. Corporate shareholder's basis in stock reduced by nontaxed portion of extraordinary dividends
(a) General rule
If any corporation receives any extraordinary dividend with respect to any share of stock and such corporation has not held such stock for more than 2 years before the dividend announcement date—
(1) Reduction in basis
The basis of such corporation in such stock shall be reduced (but not below zero) by the nontaxed portion of such dividends.
(2) Amounts in excess of basis
If the nontaxed portion of such dividends exceeds such basis, such excess shall be treated as gain from the sale or exchange of such stock for the taxable year in which the extraordinary dividend is received.
(b) Nontaxed portion
For purposes of this section—
(1) In general
The nontaxed portion of any dividend is the excess (if any) of—
(A) the amount of such dividend, over
(B) the taxable portion of such dividend.
(2) Taxable portion
The taxable portion of any dividend is—
(A) the portion of such dividend includible in gross income, reduced by
(B) the amount of any deduction allowable with respect to such dividend under section 243, 244, or 245.
(c) Extraordinary dividend defined
For purposes of this section—
(1) In general
The term "extraordinary dividend" means any dividend with respect to a share of stock if the amount of such dividend equals or exceeds the threshold percentage of the taxpayer's adjusted basis in such share of stock.
(2) Threshold percentage
The term "threshold percentage" means—
(A) 5 percent in the case of stock which is preferred as to dividends, and
(B) 10 percent in the case of any other stock.
(3) Aggregation of dividends
(A) Aggregation within 85-day period
All dividends—
(i) which are received by the taxpayer (or a person described in subparagraph (C)) with respect to any share of stock, and
(ii) which have ex-dividend dates within the same period of 85 consecutive days,
shall be treated as 1 dividend.
(B) Aggregation within 1 year where dividends exceed 20 percent of adjusted basis
All dividends—
(i) which are received by the taxpayer (or a person described in subparagraph (C)) with respect to any share of stock, and
(ii) which have ex-dividend dates during the same period of 365 consecutive days,
shall be treated as extraordinary dividends if the aggregate of such dividends exceeds 20 percent of the taxpayer's adjusted basis in such stock (determined without regard to this section).
(C) Substituted basis transactions
In the case of any stock, a person is described in this subparagraph if—
(i) the basis of such stock in the hands of such person is determined in whole or in part by reference to the basis of such stock in the hands of the taxpayer, or
(ii) the basis of such stock in the hands of the taxpayer is determined in whole or in part by reference to the basis of such stock in the hands of such person.
(4) Fair market value determination
If the taxpayer establishes to the satisfaction of the Secretary the fair market value of any share of stock as of the day before the ex-dividend date, the taxpayer may elect to apply paragraphs (1) and (3) by substituting such value for the taxpayer's adjusted basis.
(d) Special rules
For purposes of this section—
(1) Time for reduction
Any reduction in basis under subsection (a)(1) shall be treated as occurring at the beginning of the ex-dividend date of the extraordinary dividend to which the reduction relates.
(2) Distributions in kind
To the extent any dividend consists of property other than cash, the amount of such dividend shall be treated as the fair market value of such property (as of the date of the distribution) reduced as provided in section 301(b)(2).
(3) Determination of holding period
For purposes of determining the holding period of stock under subsection (a), rules similar to the rules of paragraphs (3) and (4) of section 246(c) shall apply; except that "2 years" shall be substituted for the number of days specified in subparagraph (B) 1 of section 246(c)(3).
(4) Ex-dividend date
The term "ex-dividend date" means the date on which the share of stock becomes ex-dividend.
(5) Dividend announcement date
The term "dividend announcement date" means, with respect to any dividend, the date on which the corporation declares, announces, or agrees to the amount or payment of such dividend, whichever is the earliest.
(6) Exception where stock held during entire existence of corporation
(A) In general
Subsection (a) shall not apply to any extraordinary dividend with respect to any share of stock of a corporation if—
(i) such stock was held by the taxpayer during the entire period such corporation was in existence, and
(ii) except as provided in regulations, no earnings and profits of such corporation were attributable to transfers of property from (or earnings and profits of) a corporation which is not a qualified corporation.
(B) Qualified corporation
For purposes of subparagraph (A), the term "qualified corporation" means any corporation (including a predecessor corporation)—
(i) with respect to which the taxpayer holds directly or indirectly during the entire period of such corporation's existence at least the same ownership interest as the taxpayer holds in the corporation distributing the extraordinary dividend, and
(ii) which has no earnings and profits—
(I) which were earned by, or
(II) which are attributable to gain on property which accrued during a period the corporation holding the property was,
a corporation not described in clause (i).
(C) Application of paragraph
This paragraph shall not apply to any extraordinary dividend to the extent such application is inconsistent with the purposes of this section.
(e) Special rules for certain distributions
(1) Treatment of partial liquidations and certain redemptions
Except as otherwise provided in regulations—
(A) Redemptions
In the case of any redemption of stock—
(i) which is part of a partial liquidation (within the meaning of section 302(e)) of the redeeming corporation,
(ii) which is not pro rata as to all shareholders, or
(iii) which would not have been treated (in whole or in part) as a dividend if—
(I) any options had not been taken into account under section 318(a)(4), or
(II) section 304(a) had not applied,
any amount treated as a dividend with respect to such redemption shall be treated as an extraordinary dividend to which paragraphs (1) and (2) of subsection (a) apply without regard to the period the taxpayer held such stock. In the case of a redemption described in clause (iii), only the basis in the stock redeemed shall be taken into account under subsection (a).
(B) Reorganizations, etc.
An exchange described in section 356 which is treated as a dividend shall be treated as a redemption of stock for purposes of applying subparagraph (A).
(2) Qualifying dividends
(A) In general
Except as provided in regulations, the term "extraordinary dividend" does not include any qualifying dividend (within the meaning of section 243).
(B) Exception
Subparagraph (A) shall not apply to any portion of a dividend which is attributable to earnings and profits which—
(i) were earned by a corporation during a period it was not a member of the affiliated group, or
(ii) are attributable to gain on property which accrued during a period the corporation holding the property was not a member of the affiliated group.
(3) Qualified preferred dividends
(A) In general
In the case of 1 or more qualified preferred dividends with respect to any share of stock—
(i) this section shall not apply to such dividends if the taxpayer holds such stock for more than 5 years, and
(ii) if the taxpayer disposes of such stock before it has been held for more than 5 years, the aggregate reduction under subsection (a)(1) with respect to such dividends shall not be greater than the excess (if any) of—
(I) the qualified preferred dividends paid with respect to such stock during the period the taxpayer held such stock, over
(II) the qualified preferred dividends which would have been paid during such period on the basis of the stated rate of return.
(B) Rate of return
For purposes of this paragraph—
(i) Actual rate of return
The actual rate of return shall be the rate of return for the period for which the taxpayer held the stock, determined—
(I) by only taking into account dividends during such period, and
(II) by using the lesser of the adjusted basis of the taxpayer in such stock or the liquidation preference of such stock.
(ii) Stated rate of return
The stated rate of return shall be the annual rate of the qualified preferred dividend payable with respect to any share of stock (expressed as a percentage of the amount described in clause (i)(II)).
(C) Definitions and special rules
For purposes of this paragraph—
(i) Qualified preferred dividend
The term "qualified preferred dividend" means any fixed dividend payable with respect to any share of stock which—
(I) provides for fixed preferred dividends payable not less frequently than annually, and
(II) is not in arrears as to dividends at the time the taxpayer acquires the stock.
Such term shall not include any dividend payable with respect to any share of stock if the actual rate of return on such stock exceeds 15 percent.
(ii) Holding period
In determining the holding period for purposes of subparagraph (A)(ii), subsection (d)(3) shall be applied by substituting "5 years" for "2 years".
(f) Treatment of dividends on certain preferred stock
(1) In general
Any dividend with respect to disqualified preferred stock shall be treated as an extraordinary dividend to which paragraphs (1) and (2) of subsection (a) apply without regard to the period the taxpayer held the stock.
(2) Disqualified preferred stock
For purposes of this subsection, the term "disqualified preferred stock" means any stock which is preferred as to dividends if—
(A) when issued, such stock has a dividend rate which declines (or can reasonably be expected to decline) in the future,
(B) the issue price of such stock exceeds its liquidation rights or its stated redemption price, or
(C) such stock is otherwise structured—
(i) to avoid the other provisions of this section, and
(ii) to enable corporate shareholders to reduce tax through a combination of dividend received deductions and loss on the disposition of the stock.
(g) Regulations
The Secretary shall prescribe such regulations as may be appropriate to carry out the purposes of this section, including regulations—
(1) providing for the application of this section in the case of stock dividends, stock splits, reorganizations, and other similar transactions, in the case of stock held by pass-thru entities, and in the case of consolidated groups, and
(2) providing that the rules of subsection (f) shall apply in the case of stock which is not preferred as to dividends in cases where stock is structured to avoid the purposes of this section.
(Added
References in Text
Prior Provisions
A prior section 1059 was renumbered
Amendments
1998—Subsec. (g)(1).
1997—Subsec. (a)(2).
Subsec. (d)(1).
"(A)
"(B)
Subsec. (d)(3).
Subsec. (e)(1).
"(A) part of a partial liquidation (within the meaning of section 302(e)) of the redeeming corporation, or
"(B) not pro rata as to all shareholders,
any amount treated as a dividend under section 301 with respect to such redemption shall be treated as an extraordinary dividend to which paragraphs (1) and (2) of subsection (a) apply without regard to the period the taxpayer held such stock."
Subsec. (e)(1)(A)(iii).
1989—Subsecs. (f), (g).
1988—Subsec. (d)(5).
Subsec. (d)(6).
"(A) such stock was held by the taxpayer during the entire period such corporation (and any precedessor [sic] corporation) was in existence,
"(B) except as provided in regulations, the only earnings and profits of such corporation were earnings and profits accumulated by such corporation (or any predecessor corporation) during such period, and
"(C) the application of this paragraph to such dividend is not inconsistent with the purposes of this section."
Subsec. (d)(7).
Subsec. (e)(1).
Subsec. (e)(2).
Subsec. (e)(3)(A).
"(i) only if the actual rate of return of the taxpayer on the stock with respect to which such dividend was paid exceeds 15 percent, or
"(ii) if clause (i) does not apply, and the taxpayer disposes of such stock before the taxpayer has held such stock for more than 5 years, only to the extent the actual rate of return exceeds the stated rate of return."
Subsec. (e)(3)(B).
Subsec. (e)(3)(B)(ii).
Subsec. (e)(3)(C)(i).
Subsec. (f).
1986—Subsec. (a).
"(1) receives an extraordinary dividend with respect to any share of stock, and
"(2) sells or otherwise disposes of such stock before such stock has been held for more than 1 year,
the basis of such corporation in such stock shall be reduced by the nontaxed portion of such dividend. If the nontaxed portion of such dividend exceeds such basis, such excess shall be treated as gain from the sale or exchange of such stock."
Subsec. (c)(1).
Subsec. (c)(4).
Subsec. (d)(1).
Subsec. (d)(3).
Subsec. (d)(6).
Subsec. (d)(7).
Subsecs. (e), (f).
Effective Date of 1998 Amendment
Amendment by
Effective Date of 1997 Amendment
Section 1011(d) of
"(1)
"(2)
"(A) a written binding contract in effect on May 3, 1995, and at all times thereafter before such distribution, or
"(B) a tender offer outstanding on May 3, 1995.
"(3)
Amendment by section 1013(b) of
Effective Date of 1989 Amendment
Section 7206(b) of
"(1)
"(2)
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Section 614(f) of
"(1)
"(2)
"(3)
Effective Date
Section 53(e) of
"(1)
"(2)
"(3)
"(A)
"(B)
"(i) term loans made after July 18, 1984, and
"(ii) demand loans outstanding after July 18, 1984 (other than any loan outstanding on July 18, 1984, and repaid before September 18, 1984).
"(C)
"(D)
Section Referred to in Other Sections
This section is referred to in
1 See References in Text note below.
§1059A. Limitation on taxpayer's basis or inventory cost in property imported from related persons
(a) In general
If any property is imported into the United States in a transaction (directly or indirectly) between related persons (within the meaning of section 482), the amount of any costs—
(1) which are taken into account in computing the basis or inventory cost of such property by the purchaser, and
(2) which are also taken into account in computing the customs value of such property,
shall not, for purposes of computing such basis or inventory cost for purposes of this chapter, be greater than the amount of such costs taken into account in computing such customs value.
(b) Customs value; import
For purposes of this section—
(1) Customs value
The term "customs value" means the value taken into account for purposes of determining the amount of any customs duties or any other duties which may be imposed on the importation of any property.
(2) Import
Except as provided in regulations, the term "import" means the entering, or withdrawal from warehouse, for consumption.
(Added
Effective Date
Section 1248(c) of
§1060. Special allocation rules for certain asset acquisitions
(a) General rule
In the case of any applicable asset acquisition, for purposes of determining both—
(1) the transferee's basis in such assets, and
(2) the gain or loss of the transferor with respect to such acquisition,
the consideration received for such assets shall be allocated among such assets acquired in such acquisition in the same manner as amounts are allocated to assets under section 338(b)(5). If in connection with an applicable asset acquisition, the transferee and transferor agree in writing as to the allocation of any consideration, or as to the fair market value of any of the assets, such agreement shall be binding on both the transferee and transferor unless the Secretary determines that such allocation (or fair market value) is not appropriate.
(b) Information required to be furnished to Secretary
Under regulations, the transferor and transferee in an applicable asset acquisition shall, at such times and in such manner as may be provided in such regulations, furnish to the Secretary the following information:
(1) The amount of the consideration received for the assets which is allocated to section 197 intangibles.
(2) Any modification of the amount described in paragraph (1).
(3) Any other information with respect to other assets transferred in such acquisition as the Secretary deems necessary to carry out the provisions of this section.
(c) Applicable asset acquisition
For purposes of this section, the term "applicable asset acquisition" means any transfer (whether directly or indirectly)—
(1) of assets which constitute a trade or business, and
(2) with respect to which the transferee's basis in such assets is determined wholly by reference to the consideration paid for such assets.
A transfer shall not be treated as failing to be an applicable asset acquisition merely because section 1031 applies to a portion of the assets transferred.
(d) Treatment of certain partnership transactions
In the case of a distribution of partnership property or a transfer of an interest in a partnership—
(1) the rules of subsection (a) shall apply but only for purposes of determining the value of section 197 intangibles for purposes of applying section 755, and
(2) if section 755 applies, such distribution or transfer (as the case may be) shall be treated as an applicable asset acquisition for purposes of subsection (b).
(e) Information required in case of certain transfers of interests in entities
(1) In general
If—
(A) a person who is a 10-percent owner with respect to any entity transfers an interest in such entity, and
(B) in connection with such transfer, such owner (or a related person) enters into an employment contract, covenant not to compete, royalty or lease agreement, or other agreement with the transferee,
such owner and the transferee shall, at such time and in such manner as the Secretary may prescribe, furnish such information as the Secretary may require.
(2) 10-percent owner
For purposes of this subsection—
(A) In general
The term "10-percent owner" means, with respect to any entity, any person who holds 10 percent or more (by value) of the interests in such entity immediately before the transfer.
(B) Constructive ownership
Section 318 shall apply in determining ownership of stock in a corporation. Similar principles shall apply in determining the ownership of interests in any other entity.
(3) Related person
For purposes of this subsection, the term "related person" means any person who is related (within the meaning of section 267(b) or 707(b)(1)) to the 10-percent owner.
(f) Cross reference
For provisions relating to penalties for failure to file a return required by this section, see section 6721.
(Added
Prior Provisions
A prior section 1060 was renumbered
Amendments
1993—Subsec. (b)(1).
Subsec. (d)(1).
1990—Subsec. (a).
Subsecs. (e), (f).
1988—Subsec. (b)(3).
Subsec. (d).
Subsec. (e).
Effective Date of 1993 Amendment
Amendment by
Effective Date of 1990 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Section 641(c) of
Section Referred to in Other Sections
This section is referred to in
§1061. Cross references
(1) For nonrecognition of gain in connection with the transfer of obsolete vessels to the Maritime Administration under section 510 of the Merchant Marine Act, 1936, see subsection (e) of that section, as amended August 4, 1939 (
(2) For recognition of gain or loss in connection with the construction of new vessels, see section 511 of such Act, as amended (
(3) For nonrecognition of gain in connection with vessels exchanged with the Maritime Administration under section 8 of the Merchant Ship Sales Act of 1946, see subsection (a) 1 of that section (
(Aug. 16, 1954, ch. 736,
References in Text
Subsection (a) of section 8 of the Merchant Ship Sales Act of 1946, referred to in par. (3), which was classified to
Amendments
1986—
Pars. (1), (2).
1 See References in Text note below.
[PART V—REPEALED]
[§1071. Repealed. Pub. L. 104–7, §2(a), Apr. 11, 1995, 109 Stat. 93 ]
Section, acts Aug. 16, 1954, ch. 736,
Effective Date of Repeal
Section 2(d) of
"(1)
"(A) sales and exchanges on or after January 17, 1995, and
"(B) sales and exchanges before such date if the FCC tax certificate with respect to such sale or exchange is issued on or after such date.
"(2)
"(A)
"(B)
"(i)
"(ii)
"(3)
PART VI—EXCHANGES IN OBEDIENCE TO S.E.C. ORDERS
§1081. Nonrecognition of gain or loss on exchanges or distributions in obedience to orders of S.E.C.
(a) Exchanges of stock or securities only
No gain or loss shall be recognized to the transferor if stock or securities in a corporation which is a registered holding company or a majority-owned subsidiary company are transferred to such corporation or to an associate company thereof which is a registered holding company or a majority-owned subsidiary company solely in exchange for stock or securities (other than stock or securities which are nonexempt property), and the exchange is made by the transferee corporation in obedience to an order of the Securities and Exchange Commission.
(b) Exchanges and sales of property by corporations
(1) General rule
No gain shall be recognized to a transferor corporation which is a registered holding company or an associate company of a registered holding company, if such corporation, in obedience to an order of the Securities and Exchange Commission, transfers property in exchange for property, and such order recites that such exchange by the transferor corporation is necessary or appropriate to the integration or simplification of the holding company system of which the transferor corporation is a member. Any gain, to the extent that it cannot be applied in reduction of basis under section 1082(a)(2), shall be recognized.
(2) Nonexempt property
If any such property so received is nonexempt property, gain shall be recognized unless such nonexempt property or an amount equal to the fair market value of such property at the time of the transfer is, within 24 months of the transfer, under regulations prescribed by the Secretary, and in accordance with an order of the Securities and Exchange Commission, expended for property other than nonexempt property or is invested as a contribution to the capital, or as paid-in surplus, of another corporation, and such order recites that such expenditure or investment by the transferor corporation is necessary or appropriate to the integration or simplification of the holding company system of which the transferor corporation is a member. If the fair market value of such nonexempt property at the time of the transfer exceeds the amount expended and the amount invested, as required in the preceding sentence, the gain, if any, to the extent of such excess, shall be recognized.
(3) Cancellation or redemption of stock or securities
For purposes of this subsection, a distribution in cancellation or redemption (except a distribution having the effect of a dividend) of the whole or a part of the transferor's own stock (not acquired on the transfer) and a payment in complete or partial retirement or cancellation of securities representing indebtedness of the transferor or a complete or partial retirement or cancellation of such securities which is a part of the consideration for the transfer shall be considered an expenditure for property other than nonexempt property, and if, on the transfer, a liability of the transferor is assumed, or property of the transferor is transferred subject to a liability, the amount of such liability shall be considered to be an expenditure by the transferor for property other than nonexempt property.
(4) Consents
This subsection shall not apply unless the transferor corporation consents, at such time and in such manner as the Secretary may by regulations prescribe to the regulations prescribed under section 1082(a)(2) in effect at the time of filing its return for the taxable year in which the transfer occurs.
(c) Distribution of stock or securities only
If there is distributed, in obedience to an order of the Securities and Exchange Commission, to a shareholder in a corporation which is a registered holding company or a majority-owned subsidiary company, stock or securities (other than stock or securities which are nonexempt property), without the surrender by such shareholder of stock or securities in such corporation, no gain to the distributee from the receipt of the stock or securities so distributed shall be recognized.
(d) Transfers within system group
(1) General rule
No gain or loss shall be recognized to a corporation which is a member of a system group—
(A) if such corporation transfers property to another corporation which is a member of the same system group in exchange for other property, and the exchange by each corporation is made in obedience to an order of the Securities and Exchange Commission, or
(B) if there is distributed to such corporation as a shareholder in a corporation which is a member of the same system group, property, without the surrender by such shareholder of stock or securities in the corporation making the distribution, and the distribution is made and received in obedience to an order of the Securities and Exchange Commission.
If an exchange by or a distribution to a corporation with respect to which no gain or loss is recognized under any of the provisions of this paragraph may also be considered to be within the provisions of subsection (a), (b), or (c), then the provisions of this paragraph only shall apply.
(2) Sales of stock or securities
If the property received on an exchange which is within any of the provisions of paragraph (1) consists in whole or in part of stock or securities issued by the corporation from which such property was received, and if in obedience to an order of the Securities and Exchange Commission such stock or securities (other than stock which is not preferred as to both dividends and assets) are sold and the proceeds derived therefrom are applied in whole or in part in the retirement or cancellation of stock or of securities of the recipient corporation outstanding at the time of such exchange, no gain or loss shall be recognized to the recipient corporation on the sale of the stock or securities with respect to which such order was made; except that if any part of the proceeds derived from the sale of such stock or securities is not so applied, or if the amount of such proceeds is in excess of the fair market value of such stock or securities at the time of such exchange, the gain, if any, shall be recognized, but in an amount not in excess of the proceeds which are not so applied, or in an amount not more than the amount by which the proceeds derived from such sale exceed such fair market value, whichever is the greater.
(e) Exchanges not solely in kind
(1) General rule
If an exchange (not within any of the provisions of subsection (d)) would be within the provisions of subsection (a) if it were not for the fact that property received in exchange consists not only of property permitted by such subsection to be received without the recognition of gain or loss, 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, and the loss, if any, to the recipient shall not be recognized.
(2) Distribution treated as dividend
If an exchange is within the provisions of paragraph (1) and if it includes a distribution which has the effect of the distribution of a taxable dividend, then there shall be taxed as a dividend to each distributee such an amount of the gain recognized under such paragraph as is not in excess of his ratable share of the undistributed earnings and profits of the corporation accumulated after February 28, 1913. The remainder, if any, of the gain recognized under paragraph (1) shall be taxed as a gain from the exchange of property.
(f) Conditions for application of section
The provisions of this section shall not apply to an exchange, expenditure, investment, distribution, or sale unless—
(1) the order of the Securities and Exchange Commission in obedience to which such exchange, expenditure, investment, distribution, or sale was made recites that such exchange, expenditure, investment, distribution, or sale is necessary or appropriate to effectuate the provisions of section 11(b) of the Public Utility Holding Company Act of 1935 (
(2) such order specifies and itemizes the stock and securities and other property which are ordered to be acquired, transferred, received, or sold on such exchange, acquisition, expenditure, distribution, or sale, and, in the case of an investment, the investment to be made, and
(3) such exchange, acquisition, expenditure, investment, distribution, or sale was made in obedience to such order, and was completed within the time prescribed therefor.
(g) Nonapplication of other provisions
If an exchange or distribution made in obedience to an order of the Securities and Exchange Commission is within any of the provisions of this part and may also be considered to be within any of the other provisions of this subchapter or subchapter C (sec. 301 and following, relating to corporate distributions and adjustments), then the provisions of this part only shall apply.
(Aug. 16, 1954, ch. 736,
Amendments
1976—Subsec. (b)(2), (4).
Subsec. (c).
Subsec. (f).
Subsec. (g).
Effective Date of 1976 Amendment
Amendment by section 1901(a)(132) of
Section Referred to in Other Sections
This section is referred to in
§1082. Basis for determining gain or loss
(a) Exchanges generally
(1) Exchanges subject to the provisions of section 1081(a) or (e)
If the property was acquired on an exchange subject to the provisions of section 1081(a) or (e), or the corresponding provisions of prior internal revenue laws, the basis shall be the same as in the case 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 under the law applicable to the year in which the exchange was made. If the property so acquired consisted in part of the type of property permitted by section 1081(a) to be received without the recognition of gain or loss, and in part of nonexempt 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 nonexempt property (other than money) an amount equivalent to its fair market value at the date of the exchange. This subsection shall not apply to property acquired by a corporation by the issuance of its stock or securities as the consideration in whole or in part for the transfer of the property to it.
(2) Exchanges subject to the provisions of section 1081(b)
The gain not recognized on a transfer by reason of section 1081(b) or the corresponding provisions of prior internal revenue laws shall be applied to reduce the basis for determining gain or loss on sale or exchange of the following categories of property in the hands of the transferor immediately after the transfer, and property acquired within 24 months after such transfer by an expenditure or investment to which section 1081(b) relates on account of the acquisition of which gain is not recognized under such subsection, in the following order:
(A) property of a character subject to the allowance for depreciation under section 167;
(B) property (not described in subparagraph (A)) with respect to which a deduction for amortization is allowable under section 169;
(C) property with respect to which a deduction for depletion is allowable under section 611 but not allowable under section 613;
(D) stock and securities of corporations not members of the system group of which the transferor is a member (other than stock or securities of a corporation of which the transferor is a subsidiary);
(E) securities (other than stock) of corporations which are members of the system group of which the transferor is a member (other than securities of the transferor or of a corporation of which the transferor is a subsidiary);
(F) stock of corporations which are members of the system group of which the transferor is a member (other than stock of the transferor or of a corporation of which the transferor is a subsidiary);
(G) all other remaining property of the transferor (other than stock or securities of the transferor or of a corporation of which the transferor is a subsidiary).
The manner and amount of the reduction to be applied to particular property within any of the categories described in subparagraphs (A) to (G), inclusive, shall be determined under regulations prescribed by the Secretary.
(3) Basis in case of pre-1942 acquisition
Notwithstanding the provisions of paragraph (1) or (2), if the property was acquired in a taxable year beginning before January 1, 1942, in any manner described in section 372 of the Internal Revenue Code of 1939 before its amendment by the Revenue Act of 1942, the basis shall be that prescribed in such section (before its amendment by such Act) with respect to such property.
(b) Transfers to corporations
If, in connection with a transfer subject to the provisions of section 1081(a), (b), or (e) or the corresponding provisions of prior internal revenue laws, the property was acquired by a corporation, either as paid-in surplus or as a contribution to capital, or in consideration for stock or securities issued by the corporation receiving the property (including cases where part of the consideration for the transfer of such property to the corporation consisted of property or money in addition to such stock or securities), then the basis shall be the same as it would be in the hands of the transferor, increased in the amount of gain or decreased in the amount of loss recognized to the transferor on such transfer under the law applicable to the year in which the transfer was made.
(c) Distributions of stock or securities
If the stock or securities were received in a distribution subject to the provisions of section 1081(c) or the corresponding provisions of prior internal revenue laws, then the basis in the case of the stock in respect of which the distribution was made shall be apportioned, under regulations prescribed by the Secretary, between such stock and the stock or securities distributed.
(d) Transfers within system group
If the property was acquired by a corporation which is a member of a system group on a transfer or distribution described in section 1081(d)(1), then the basis shall be the same as it would be in the hands of the transferor; except that if such property is stock or securities issued by the corporation from which such stock or securities were received and they were issued—
(1) as the sole consideration for the property transferred to such corporation, then the basis of such stock or securities shall be either—
(A) the same as in the case of the property transferred therefor, or
(B) the fair market value of such stock or securities at the time of their receipt, whichever is the lower; or
(2) as part consideration for the property transferred to such corporation, then the basis of such stock or securities shall be either—
(A) an amount which bears the same ratio to the basis of the property transferred as the fair market value of such stock or securities at the time of their receipt bears to the total fair market value of the entire consideration received, or
(B) the fair market value of such stock or securities at the time of their receipt, whichever is the lower.
(Aug. 16, 1954, ch. 736,
References in Text
Section 372 of the Internal Revenue Code of 1939 before its amendment by the Revenue Act of 1942, referred to in subsec. (a)(3), was classified to section 372 of former Title 26, Internal Revenue Code. Section 372 was repealed by
The Revenue Act of 1942, referred to in subsec. (a)(3), is act Oct. 21, 1942, ch. 619,
Amendments
1990—Subsec. (a)(2)(B).
1986—Subsec. (a)(2)(B).
1981—Subsec. (a)(2)(B).
1976—Subsec. (a)(2).
Subsec. (c). Pub. L. §1906(b)(13)(A), struck out "or his delegate" after "Secretary".
1971—Subsec. (a)(2)(B).
1969—Subsec. (a)(2)(B).
Effective Date of 1986 Amendment
Amendment by
Effective Date of 1981 Amendment
Amendment by
Effective Date of 1976 Amendment
Amendment by section 1901(b)(11)(C) of
Amendment by section 1951(c)(2)(B) of
Amendment by section 2124(a)(3)(C) of
Effective Date of 1971 Amendment
Amendment by
Effective Date of 1969 Amendment
Amendment by
Savings Provision
For provisions that nothing in amendment by
Section Referred to in Other Sections
This section is referred to in
§1083. Definitions
(a) Order of Securities and Exchange Commission
For purposes of this part, the term "order of the Securities and Exchange Commission" means an order issued after May 28, 1938, by the Securities and Exchange Commission which requires, authorizes, permits, or approves transactions described in such order to effectuate section 11(b) of the Public Utility Holding Company Act of 1935 (
(b) Registered holding company; holding company system; associate company
For purposes of this part, the terms "registered holding company", "holding company system", and "associate company" shall have the meanings assigned to them by section 2 of the Public Utility Holding Company Act of 1935 (
(c) Majority-owned subsidiary company
For purposes of this part, the term "majority-owned subsidiary company" of a registered holding company means a corporation, stock of which, representing in the aggregate more than 50 percent of the total combined voting power of all classes of stock of such corporation entitled to vote (not including stock which is entitled to vote only on default or nonpayment of dividends or other special circumstances) is owned wholly by such registered holding company, or partly by such registered holding company and partly by one or more majority-owned subsidiary companies thereof, or by one or more majority-owned subsidiary companies of such registered holding company.
(d) System group
For purposes of this part, the term "system group" means one or more chains of corporations connected through stock ownership with a common parent corporation if—
(1) at least 90 percent of each class of the stock (other than (A) stock which is preferred as to both dividends and assets, and (B) stock which is limited and preferred as to dividends but which is not preferred as to assets but only if the total value of such stock is less than 1 percent of the aggregate value of all classes of stock which are not preferred as to both dividends and assets) of each of the corporations (except the common parent corporation) is owned directly by one or more of the other corporations; and
(2) the common parent corporation owns directly at least 90 percent of each class of the stock (other than stock, which is preferred as to both dividends and assets) of at least one of the other corporations; and
(3) each of the corporations is either a registered holding company or a majority-owned subsidiary company.
(e) Nonexempt property
For purposes of this part, the term "nonexempt property" means—
(1) any consideration in the form of evidences of indebtedness owed by the transferor or a cancellation or assumption of debts or other liabilities of the transferor (including a continuance of encumbrances subject to which the property was transferred);
(2) short-term obligations (including notes, drafts, bills of exchange, and bankers' acceptances) having a maturity at the time of issuance of not exceeding 24 months, exclusive of days of grace;
(3) securities issued or guaranteed as to principal or interest by a government or subdivision thereof (including those issued by a corporation which is an instrumentality of a government or subdivision thereof);
(4) stock or securities which were acquired from a registered holding company or an associate company of a registered holding company which acquired such stock or securities after February 28, 1938, unless such stock or securities (other than obligations described as nonexempt property in paragraph (1), (2), or (3)) were acquired in obedience to an order of the Securities and Exchange Commission or were acquired with the authorization or approval of the Securities and Exchange Commission under any section of the Public Utility Holding Company Act of 1935 (
(5) money, and the right to receive money not evidenced by a security other than an obligation described as nonexempt property in paragraph (2) or (3).
(f) Stock or securities
For purposes of this part, the term "stock or securities" means shares of stock in any corporation, certificates of stock or interest in any corporation, notes, bonds, debentures, and evidences of indebtedness (including any evidence of an interest in or right to subscribe to or purchase any of the foregoing).
(Aug. 16, 1954, ch. 736,
Amendments
1976—Subsec. (a).
Subsec. (b).
Subsec. (e)(4).
Effective Date of 1976 Amendment
Amendment by
PART VII—WASH SALES; STRADDLES
Amendments
1981—
§1091. Loss from wash sales of stock or securities
(a) Disallowance of loss deduction
In the case of any loss claimed to have been sustained from any sale or other disposition of shares of stock or securities where it appears that, within a period beginning 30 days before the date of such sale or disposition and ending 30 days after such date, the taxpayer has acquired (by purchase or by an exchange on which the entire amount of gain or loss was recognized by law), or has entered into a contract or option so to acquire, substantially identical stock or securities, then no deduction shall be allowed under section 165 unless the taxpayer is a dealer in stock or securities and the loss is sustained in a transaction made in the ordinary course of such business. For purposes of this section, the term "stock or securities" shall, except as provided in regulations, include contracts or options to acquire or sell stock or securities.
(b) Stock acquired less than stock sold
If the amount of stock or securities acquired (or covered by the contract or option to acquire) is less than the amount of stock or securities sold or otherwise disposed of, then the particular shares of stock or securities the loss from the sale or other disposition of which is not deductible shall be determined under regulations prescribed by the Secretary.
(c) Stock acquired not less than stock sold
If the amount of stock or securities acquired (or covered by the contract or option to acquire) is not less than the amount of stock or securities sold or otherwise disposed of, then the particular shares of stock or securities the acquisition of which (or the contract or option to acquire which) resulted in the nondeductibility of the loss shall be determined under regulations prescribed by the Secretary.
(d) Unadjusted basis in case of wash sale of stock
If the property consists of stock or securities the acquisition of which (or the contract or option to acquire which) resulted in the nondeductibility (under this section or corresponding provisions of prior internal revenue laws) of the loss from the sale or other disposition of substantially identical stock or securities, then the basis shall be the basis of the stock or securities so sold or disposed of, increased or decreased, as the case may be, by the difference, if any, between the price at which the property was acquired and the price at which such substantially identical stock or securities were sold or otherwise disposed of.
(e) Certain short sales of stock or securities
Rules similar to the rules of subsection (a) shall apply to any loss realized on the closing of a short sale of stock or securities if, within a period beginning 30 days before the date of such closing and ending 30 days after such date—
(1) substantially identical stock or securities were sold, or
(2) another short sale of substantially identical stock or securities was entered into.
(Aug. 16, 1954, ch. 736,
Amendments
1988—Subsec. (a).
1984—Subsec. (a).
Subsec. (e).
1976—
Effective Date of 1988 Amendment
Section 5075(b) of
Effective Date of 1984 Amendment
Section 106(c) of
"(1)
"(2)
Cross References
Losses between related taxpayers, see
Losses deductible from gross income by corporations and individuals, see
Section Referred to in Other Sections
This section is referred to in
§1092. Straddles
(a) Recognition of loss in case of straddles, etc.
(1) Limitation on recognition of loss
(A) In general
Any loss with respect to 1 or more positions shall be taken into account for any taxable year only to the extent that the amount of such loss exceeds the unrecognized gain (if any) with respect to 1 or more positions which were offsetting positions with respect to 1 or more positions from which the loss arose.
(B) Carryover of loss
Any loss which may not be taken into account under subparagraph (A) for any taxable year shall, subject to the limitations under subparagraph (A), be treated as sustained in the succeeding taxable year.
(2) Special rule for identified straddles
(A) In general
In the case of any straddle which is an identified straddle as of the close of any taxable year—
(i) paragraph (1) shall not apply for such taxable year, and
(ii) any loss with respect to such straddle shall be treated as sustained not earlier than the day on which all of the positions making up the straddle are disposed of.
(B) Identified straddle
The term "identified straddle" means any straddle—
(i) which is clearly identified on the taxpayer's records as an identified straddle before the earlier of—
(I) the close of the day on which the straddle is acquired, or
(II) such time as the Secretary may prescribe by regulations.
(ii) all of the original positions of which (as identified by the taxpayer) are acquired on the same day and with respect to which—
(I) all of such positions are disposed of on the same day during the taxable year, or
(II) none of such positions has been disposed of as of the close of the taxable year, and
(iii) which is not part of a larger straddle.
(3) Unrecognized gain
For purposes of this subsection—
(A) In general
The term "unrecognized gain" means—
(i) in the case of any position held by the taxpayer as of the close of the taxable year, the amount of gain which would be taken into account with respect to such position if such position were sold on the last business day of such taxable year at its fair market value, and
(ii) in the case of any position with respect to which, as of the close of the taxable year, gain has been realized but not recognized, the amount of gain so realized.
(B) Reporting of gain
(i) In general
Each taxpayer shall disclose to the Secretary, at such time and in such manner and form as the Secretary may prescribe by regulations—
(I) each position (whether or not part of a straddle) with respect to which, as of the close of the taxable year, there is unrecognized gain, and
(II) the amount of such unrecognized gain.
(ii) Reports not required in certain cases
Clause (i) shall not apply—
(I) to any position which is part of an identified straddle,
(II) to any position which, with respect to the taxpayer, is property described in paragraph (1) or (2) of section 1221(a) or to any position which is part of a hedging transaction (as defined in section 1256(e)), or
(III) with respect to any taxable year if no loss on a position (including a regulated futures contract) has been sustained during such taxable year or if the only loss sustained on such position is a loss described in subclause (II).
(b) Regulations
(1) In general
The Secretary shall prescribe such regulations with respect to gain or loss on positions which are a part of a straddle as may be appropriate to carry out the purposes of this section and section 263(g). To the extent consistent with such purposes, such regulations shall include rules applying the principles of subsections (a) and (d) of section 1091 and of subsections (b) and (d) of section 1233.
(2) Regulations relating to mixed straddles
(A) Elective provisions in lieu of section 1233(d) principles
The regulations prescribed under paragraph (1) shall provide that—
(i) the taxpayer may offset gains and losses from positions which are part of mixed straddles—
(I) by straddle-by-straddle identification, or
(II) by the establishment (with respect to any class of activities) of a mixed straddle account for which gains and losses would be recognized (and offset) on a periodic basis,
(ii) such offsetting will occur before the application of section 1256, and section 1256(a)(3) will only apply to net gain or net loss attributable to section 1256 contracts, and
(iii) the principles of section 1233(d) shall not apply with respect to any straddle identified under clause (i)(I) or part of an account established under clause (i)(II).
(B) Limitation on net gain or net loss from mixed straddle account
In the case of any mixed straddle account referred to in subparagraph (A)(i)(II)—
(i) Not more than 50 percent of net gain may be treated as long-term capital gain
In no event shall more than 50 percent of the net gain from such account for any taxable year be treated as long-term capital gain.
(ii) Not more than 40 percent of net loss may be treated as short-term capital loss
In no event shall more than 40 percent of the net loss from such account for any taxable year be treated as short-term capital loss.
(C) Authority to treat certain positions as mixed straddles
The regulations prescribed under paragraph (1) may treat as a mixed straddle positions not described in section 1256(d)(4).
(D) Timing and character authority
The regulations prescribed under paragraph (1) shall include regulations relating to the timing and character of gains and losses in case of straddles where at least 1 position is ordinary and at least 1 position is capital.
(c) Straddle defined
For purposes of this section—
(1) In general
The term "straddle" means offsetting positions with respect to personal property.
(2) Offsetting positions
(A) In general
A taxpayer holds offsetting positions with respect to personal property if there is a substantial diminution of the taxpayer's risk of loss from holding any position with respect to personal property by reason of his holding 1 or more other positions with respect to personal property (whether or not of the same kind).
(B) One side larger than other side
If 1 or more positions offset only a portion of 1 or more other positions, the Secretary shall by regulations prescribe the method for determining the portion of such other positions which is to be taken into account for purposes of this section.
(C) Special rule for identified straddles
In the case of any position which is not part of an identified straddle (within the meaning of subsection (a)(2)(B)), such position shall not be treated as offsetting with respect to any position which is part of an identified straddle.
(3) Presumption
(A) In general
For purposes of paragraph (2), 2 or more positions shall be presumed to be offsetting if—
(i) the positions are in the same personal property (whether established in such property or a contract for such property),
(ii) the positions are in the same personal property, even though such property may be in a substantially altered form,
(iii) the positions are in debt instruments of a similar maturity or other debt instruments described in regulations prescribed by the Secretary,
(iv) the positions are sold or marketed as offsetting positions (whether or not such positions are called a straddle, spread, butterfly, or any similar name),
(v) the aggregate margin requirement for such positions is lower than the sum of the margin requirements for each such position (if held separately), or
(vi) there are such other factors (or satisfaction of subjective or objective tests) as the Secretary may by regulations prescribe as indicating that such positions are offsetting.
For purposes of the preceding sentence, 2 or more positions shall be treated as described in clause (i), (ii), (iii), or (vi) only if the value of 1 or more of such positions ordinarily varies inversely with the value of 1 or more other such positions.
(B) Presumption may be rebutted
Any presumption established pursuant to subparagraph (A) may be rebutted.
(4) Exception for certain straddles consisting of qualified covered call options and the optioned stock
(A) In general
If—
(i) all the offsetting positions making up any straddle consist of 1 or more qualified covered call options and the stock to be purchased from the taxpayer under such options, and
(ii) such straddle is not part of a larger straddle,
such straddle shall not be treated as a straddle for purposes of this section and section 263(g).
(B) Qualified covered call option defined
For purposes of subparagraph (A), the term "qualified covered call option" means any option granted by the taxpayer to purchase stock held by the taxpayer (or stock acquired by the taxpayer in connection with the granting of the option) but only if—
(i) such option is traded on a national securities exchange which is registered with the Securities and Exchange Commission or other market which the Secretary determines has rules adequate to carry out the purposes of this paragraph,
(ii) such option is granted more than 30 days before the day on which the option expires,
(iii) such option is not a deep-in-the-money option,
(iv) such option is not granted by an options dealer (within the meaning of section 1256(g)(8)) in connection with his activity of dealing in options, and
(v) gain or loss with respect to such option is not ordinary income or loss.
(C) Deep-in-the-money option
For purposes of subparagraph (B), the term "deep-in-the-money option" means an option having a strike price lower than the lowest qualified bench mark.
(D) Lowest qualified bench mark
(i) In general
Except as otherwise provided in this subparagraph, for purposes of subparagraph (C), the term "lowest qualified bench mark" means the highest available strike price which is less than the applicable stock price.
(ii) Special rule where option is for period more than 90 days and strike price exceeds $50
In the case of an option—
(I) which is granted more than 90 days before the date on which such option expires, and
(II) with respect to which the strike price is more than $50,
the lowest qualified bench mark is the second highest available strike price which is less than the applicable stock price.
(iii) 85 percent rule where applicable stock price $25 or less
If—
(I) the applicable stock price is $25 or less, and
(II) but for this clause, the lowest qualified bench mark would be less than 85 percent of the applicable stock price,
the lowest qualified bench mark shall be treated as equal to 85 percent of the applicable stock price.
(iv) Limitation where applicable stock price $150 or less
If—
(I) the applicable stock price is $150 or less, and
(II) but for this clause, the lowest qualified bench mark would be less than the applicable stock price reduced by $10,
the lowest qualified bench mark shall be treated as equal to the applicable stock price reduced by $10.
(E) Special year-end rule
Subparagraph (A) shall not apply to any straddle for purposes of section 1092(a) if—
(i) the qualified covered call options referred to in such subparagraph are closed or the stock is disposed of at a loss during any taxable year,
(ii) gain on disposition of the stock to be purchased from the taxpayer under such options or gains on such options are includible in gross income for a later taxable year, and
(iii) such stock or option was not held by the taxpayer for 30 days or more after the closing of such options or the disposition of such stock.
For purposes of the preceding sentence, the rules of paragraphs (3) (other than subparagraph (B) 1 thereof) and (4) of section 246(c) shall apply in determining the period for which the taxpayer holds the stock.
(F) Strike price
For purposes of this paragraph, the term "strike price" means the price at which the option is exercisable.
(G) Applicable stock price
For purposes of subparagraph (D), the term "applicable stock price" means, with respect to any stock for which an option has been granted—
(i) the closing price of such stock on the most recent day on which such stock was traded before the date on which such option was granted, or
(ii) the opening price of such stock on the day on which such option was granted, but only if such price is greater than 110 percent of the price determined under clause (i).
(H) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this paragraph. Such regulations may include modifications to the provisions of this paragraph which are appropriate to take account of changes in the practices of option exchanges or to prevent the use of options for tax avoidance purposes.
(d) Definitions and special rules
For purposes of this section—
(1) Personal property
The term "personal property" means any personal property of a type which is actively traded.
(2) Position
The term "position" means an interest (including a futures or forward contract or option) in personal property.
(3) Special rules for stock
For purposes of paragraph (1)—
(A) In general
Except as provided in subparagraph (B), the term "personal property" does not include stock. The preceding sentence shall not apply to any interest in stock.
(B) Exceptions
The term "personal property" includes—
(i) any stock which is part of a straddle at least 1 of the offsetting positions of which is—
(I) an option with respect to such stock or substantially identical stock or securities, or
(II) under regulations, a position with respect to substantially similar or related property (other than stock), and
(ii) any stock of a corporation formed or availed of to take positions in personal property which offset positions taken by any shareholder.
(C) Special rules
(i) For purposes of subparagraph (B), subsection (c) and paragraph (4) shall be applied as if stock described in clause (i) or (ii) of subparagraph (B) were personal property.
(ii) For purposes of determining whether subsection (e) applies to any transaction with respect to stock described in clause (ii) of subparagraph (B), all includible corporations of an affiliated group (within the meaning of section 1504(a)) shall be treated as 1 taxpayer.
(4) Positions held by related persons, etc.
(A) In general
In determining whether 2 or more positions are offsetting, the taxpayer shall be treated as holding any position held by a related person.
(B) Related person
For purposes of subparagraph (A), a person is a related person to the taxpayer if with respect to any period during which a position is held by such person, such person—
(i) is the spouse of the taxpayer, or
(ii) files a consolidated return (within the meaning of section 1501) with the taxpayer for any taxable year which includes a portion of such period.
(C) Certain flowthrough entities
If part or all of the gain or loss with respect to a position held by a partnership, trust, or other entity would properly be taken into account for purposes of this chapter by a taxpayer, then, except to the extent otherwise provided in regulations, such position shall be treated as held by the taxpayer.
(5) Special rule for section 1256 contracts
(A) General rule
In the case of a straddle at least 1 (but not all) of the positions of which are section 1256 contracts, the provisions of this section shall apply to any section 1256 contract and any other position making up such straddle.
(B) Special rule for identified straddles
For purposes of subsection (a)(2) (relating to identified straddles), subparagraph (A) and section 1256(a)(4) shall not apply to a straddle all of the offsetting positions of which consist of section 1256 contracts.
(6) Section 1256 contract
The term "section 1256 contract" has the meaning given such term by section 1256(b).
(7) Special rules for foreign currency
(A) Position to include interest in certain debt
For purposes of paragraph (2), an obligor's interest in a nonfunctional currency denominated debt obligation is treated as a position in the nonfunctional currency.
(B) Actively traded requirement
For purposes of paragraph (1), foreign currency for which there is an active interbank market is presumed to be actively traded.
(e) Exception for hedging transactions
This section shall not apply in the case of any hedging transaction (as defined in section 1256(e)).
(f) Treatment of gain or loss and suspension of holding period where taxpayer grantor of qualified covered call option
If a taxpayer holds any stock and grants a qualified covered call option to purchase such stock with a strike price less than the applicable stock price—
(1) Treatment of loss
Any loss with respect to such option shall be treated as long-term capital loss if, at the time such loss is realized, gain on the sale or exchange of such stock would be treated as long-term capital gain.
(2) Suspension of holding period
The holding period of such stock shall not include any period during which the taxpayer is the grantor of such option.
(g) Cross reference
For provision requiring capitalization of certain interest and carrying charges where there is a straddle, see section 263(g).
(Added
References in Text
Amendments
1999—Subsec. (a)(3)(B)(ii)(II).
1997—Subsec. (f)(2).
1988—Subsec. (b)(2)(D).
1986—Subsec. (c)(4)(E).
Subsec. (d)(3)(A).
Subsec. (d)(5), (6).
Subsec. (d)(7).
1984—Subsec. (a)(2)(B)(i).
Subsec. (b).
Subsec. (c)(4).
Subsec. (d)(1).
Subsec. (d)(2).
Subsec. (d)(3), (4).
Subsec. (d)(5).
Subsec. (d)(6).
Subsecs. (f), (g).
1983—Subsec. (a)(1)(A).
Subsec. (a)(3).
Subsec. (a)(3)(A).
Subsec. (a)(3)(B)(i)(I).
Subsec. (a)(3)(B)(i)(II).
Subsec. (c)(2)(C).
Subsec. (d)(4).
Effective Date of 1999 Amendment
Amendment by
Effective Date of 1997 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Section 331(b) of
Amendment by section 1261(b) of
Amendment by section 1808(c) of
Effective Date of 1984 Amendment
Section 101(e) of
"(1)
"(2)
"(3)
"(4)
Amendment by section 102(e)(2) of
Section 103(b), (c) of
"(b)
"(c)
Section 107(e) of
Effective Date of 1983 Amendment
Amendment by
Effective Date
Section 508 of title V of
"(a)
"(b)
"(1)
"(2)
"(c)
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
Treatment of Certain Losses on Straddles Entered Into Before Effective Date of Economic Recovery Tax Act of 1981
Section 108 of
"(a)
"(1) which were entered into before 1982 and form part of a straddle, and
"(2) to which the amendments made by title V of the Economic Recovery Tax Act of 1981 [
any loss from such disposition shall be allowed for the taxable year of the disposition if such loss is incurred in a trade or business, or if such loss is incurred in a transaction entered into for profit though not connected with a trade or business.
"(b)
"(c)
"(d)
"(e)
"(f)
"(1) at any time before January 1, 1982, was an individual described in section 1402(i)(2)(B) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as added by this subtitle), or
"(2) was a member of the family (within the meaning of section 704(e)(3) of such Code) of an individual described in paragraph (1) to the extent such member engaged in commodities trading through an organization the members of which consisted solely of—
"(A) 1 or more individuals described in paragraph (1), and
"(B) 1 or more members of the families (as so defined) of such individuals.
"(g)
"(h)
Section Referred to in Other Sections
This section is referred to in
1 See References in Text note below.
[PART VIII—REPEALED]
[§§1101 to 1103. Repealed. Pub. L. 101–508, title XI, §11801(a)(34), Nov. 5, 1990, 104 Stat. 1388–521 ]
Section 1101, added May 9, 1956, ch. 240, §10(a),
Section 1102, added May 9, 1956, ch. 240, §10(a),
Section 1103, added May 9, 1956, ch. 240, §10(a),
Savings Provision
For provisions that nothing in repeal by
[PART IX—REPEALED]
[§1111. Repealed. Pub. L. 94–455, title XIX, §1901(a)(134), Oct. 4, 1976, 90 Stat. 1786 ]
Section, added