US (United States) Code. Title 26. Subtitle A: Income Taxes. Chapter 1: Normal taxes and surtaxes

Codificación normativa de EEUU (Estados Unidos). Legislación federal estadounidense # Internal revenue code

  • Enviado por: El remitente no desea revelar su nombre
  • Idioma: inglés
  • País: Estados Unidos Estados Unidos
  • 243 páginas
publicidad

-SOURCE-

(Added Pub. L. 94-12, title II, Sec. 204(a), Mar. 29, 1975, 89

Stat. 30, Sec. 43; amended Pub. L. 94-164, Sec. 2(c), Dec. 23,

1975, 89 Stat. 971; Pub. L. 94-455, title IV, Sec. 401(c)(1)(B),

(2), Oct. 4, 1976, 90 Stat. 1557; Pub. L. 95-600, title I, Secs.

104(a)-(e), 105(a), Nov. 6, 1978, 92 Stat. 2772, 2773; Pub. L.

95-615, Sec. 202(g)(5), formerly Sec. 202(f)(5), Nov. 8, 1978, 92

Stat. 3100, renumbered Sec. 202(g)(5) and amended Pub. L. 96-222,

title I, Secs. 101(a)(1), (2)(E), 108(a)(1)(A), Apr. 1, 1980, 94

Stat. 194, 195, 223; Pub. L. 97-34, title I, Secs. 111(b)(2),

112(b)(3), Aug. 13, 1981, 95 Stat. 194, 195; Pub. L. 98-21, title

I, Sec. 124(c)(4)(B), Apr. 20, 1983, 97 Stat. 91; renumbered Sec.

32 and amended Pub. L. 98-369, div. A, title IV, Secs. 423(c)(3),

471(c), title X, Sec. 1042(a)-(d)(2), July 18, 1984, 98 Stat. 801,

826, 1043; Pub. L. 99-514, title I, Secs. 104(b)(1)(B),

111(a)-(d)(1), title XII, Sec. 1272(d)(4), title XIII, Sec.

1301(j)(8), Oct. 22, 1986, 100 Stat. 2104, 2107, 2594, 2658; Pub.

L. 100-647, title I, Secs. 1001(c), 1007(g)(12), Nov. 10, 1988, 102

Stat. 3350, 3436; Pub. L. 101-508, title XI, Secs. 11101(d)(1)(B),

11111(a), (b), (e), Nov. 5, 1990, 104 Stat. 1388-405, 1388-408,

1388-412, 1388-413; Pub. L. 103-66, title XIII, Sec.

13131(a)-(d)(1), Aug. 10, 1993, 107 Stat. 433-435; Pub. L. 103-465,

title VII, Secs. 721(a), 722(a), 723(a), 742(a), Dec. 8, 1994, 108

Stat. 5002, 5003, 5010; Pub. L. 104-7, Sec. 4(a), Apr. 11, 1995,

109 Stat. 95; Pub. L. 104-193, title IV, Sec. 451(a), (b), title

IX, Secs. 909(a), (b), 910(a), (b), Aug. 22, 1996, 110 Stat. 2276,

2277, 2351, 2352; Pub. L. 105-34, title I, Sec. 101(b), title III,

Sec. 312(d)(2), title X, Sec. 1085(a)(1), (b)-(d), Aug. 5, 1997,

111 Stat. 798, 840, 955, 956; Pub. L. 105-206, title VI, Secs.

6003(b), 6010(p)(1), (2), 6021(a), (b), July 22, 1998, 112 Stat.

791, 816, 817, 823, 824; Pub. L. 106-170, title IV, Sec. 412(a),

Dec. 17, 1999, 113 Stat. 1917; Pub. L. 107-16, title II, Sec.

201(c)(3), title III, Sec. 303(a)-(f), (h), June 7, 2001, 115 Stat.

47, 55-57; Pub. L. 107-147, title IV, Sec. 416(a)(1), Mar. 9, 2002,

116 Stat. 55.)

-STATAMEND-

EARNED INCOME TAXABLE CREDIT ADJUSTMENT FOR TAXABLE YEARS BEGINNING

IN 2003

For adjustment of earned income tax credit under this section for

taxable years beginning in 2003, see section 3.06 of Revenue

Procedure 2002-70, set out as a note under section 1 of this title.

AMENDMENT OF SECTION

For termination of amendment by section 901 of Pub. L. 107-16,

see Effective and Termination Dates of 2001 Amendment note below.

-REFTEXT-

REFERENCES IN TEXT

The Social Security Act, referred to in subsecs. (c)(2)(B)(v) and

(m), is act Aug. 14, 1935, ch. 531, 49 Stat. 620, as amended. Part

A of title IV of the Act is classified generally to part A (Sec.

601 et seq.) of subchapter IV of chapter 7 of Title 42, The Public

Health and Welfare. Sections 205(c)(2)(B)(i) and 407(d)(4), (7) of

the Act are classified to sections 405(c)(2)(B)(i) and 607(d)(4),

(7), respectively, of Title 42. For complete classification of this

Act to the Code, see section 1305 of Title 42 and Tables.

The United States Housing Act of 1937, referred to in subsec.

(l)(1), is act Sept. 1, 1937, ch. 896, as revised generally by Pub.

L. 93-383, title II, Sec. 201(a), Aug. 22, 1974, 88 Stat. 653,

which is classified generally to chapter 8 (Sec. 1437 et seq.) of

Title 42, The Public Health and Welfare. For complete

classification of this Act to the Code, see Short Title note under

section 1437 of Title 42 and Tables.

The Housing Act of 1949, referred to in subsec. (l)(2), is act

July 15, 1949, ch. 338, 63 Stat. 413, as amended. Title V of the

Act is classified generally to subchapter III (Sec. 1471 et seq.)

of chapter 8A of Title 42. For complete classification of this Act

to the Code, see Short Title note set out under section 1441 of

Title 42 and Tables.

Section 101 of the Housing and Urban Development Act of 1965,

referred to in subsec. (l)(3), is section 101 of Pub. L. 89-117,

title I, Aug. 10, 1965, 79 Stat. 451, which enacted section 1701s

of Title 12, Banks and Banking, and amended sections 1451 and 1465

of Title 42.

Sections 221(d)(3), 235, and 236 of the National Housing Act,

referred to in subsec. (l)(4), are classified to sections

1715l(d)(3), 1715z, and 1715z-1, respectively, of Title 12.

The Food Stamp Act of 1977, referred to in subsec. (l)(5), is

Pub. L. 88-525, Aug. 31, 1964, 78 Stat. 703, as amended, which is

classified generally to chapter 51 (Sec. 2011 et seq.) of Title 7,

Agriculture. For complete classification of this Act to the Code,

see Short Title note set out under section 2011 of Title 7 and

Tables.

-MISC1-

PRIOR PROVISIONS

A prior section 32 was renumbered section 33 of this title.

AMENDMENTS

2002 - Subsec. (g)(2). Pub. L. 107-147 substituted "part" for

"subpart".

2001 - Subsec. (a)(2)(B). Pub. L. 107-16, Secs. 303(d)(1), 901,

temporarily struck out "modified" before "adjusted gross income".

See Effective and Termination Dates of 2001 Amendment note below.

Subsec. (b)(2). Pub. L. 107-16, Secs. 303(a)(1), 901, temporarily

reenacted par. heading without change, designated existing

provisions as subpar. (A), inserted subpar. heading, substituted

"Subject to subparagraph (B), the earned" for "The earned", and

added subpar. (B). See Effective and Termination Dates of 2001

Amendment note below.

Subsec. (c)(1)(C). Pub. L. 107-16, Secs. 303(f), 901, temporarily

amended heading and text of subpar. (C) generally. Prior to

amendment, text read as follows: "If 2 or more individuals would

(but for this subparagraph and after application of subparagraph

(B)) be treated as eligible individuals with respect to the same

qualifying child for taxable years beginning in the same calendar

year, only the individual with the highest modified adjusted gross

income for such taxable years shall be treated as an eligible

individual with respect to such qualifying child." See Effective

and Termination Dates of 2001 Amendment note below.

Subsec. (c)(2)(A)(i). Pub. L. 107-16, Secs. 303(b), 901,

temporarily inserted ", but only if such amounts are includible in

gross income for the taxable year" after "other employee

compensation". See Effective and Termination Dates of 2001

Amendment note below.

Subsec. (c)(3)(A)(ii). Pub. L. 107-16, Secs. 303(e)(2)(B), 901,

temporarily struck out "except as provided in subparagraph

(B)(iii)," before "who has". See Effective and Termination Dates of

2001 Amendment note below.

Subsec. (c)(3)(B)(i). Pub. L. 107-16, Secs. 303(e)(1), 901,

temporarily reenacted heading, introductory provisions, and subcl.

(III) of cl. (i) without change and amended subcls. (I) and (II)

generally. Prior to amendment, subcls. (I) and (II) read as

follows:

"(I) a son or daughter of the taxpayer, or a descendant of

either,

"(II) a stepson or stepdaughter of the taxpayer, or."

See Effective and Termination Dates of 2001 Amendment note below.

Subsec. (c)(3)(B)(iii). Pub. L. 107-16, Secs. 303(e)(2)(A), 901,

temporarily reenacted heading without change and amended text

generally. Prior to amendment, text read as follows: "For purposes

of clause (i)(III), the term 'eligible foster child' means an

individual not described in clause (i)(I) or (II) who -

"(I) is a brother, sister, stepbrother, or stepsister of the

taxpayer (or a descendant of any such relative) or is placed with

the taxpayer by an authorized placement agency,

"(II) the taxpayer cares for as the taxpayer's own child, and

"(III) has the same principal place of abode as the taxpayer

for the taxpayer's entire taxable year."

See Effective and Termination Dates of 2001 Amendment note below.

Subsec. (c)(3)(E). Pub. L. 107-16, Secs. 303(h), 901, temporarily

substituted "subparagraph (A)(ii)" for "subparagraphs (A)(ii) and

(B)(iii)(II)". See Effective and Termination Dates of 2001

Amendment note below.

Subsec. (c)(5). Pub. L. 107-16, Secs. 303(d)(2)(A), 901,

temporarily struck out heading and text of par. (5), which defined

"modified adjusted gross income" as meaning adjusted gross income

without regard to certain described amounts and increased by

certain described amounts. See Effective and Termination Dates of

2001 Amendment note below.

Subsec. (f)(2)(B). Pub. L. 107-16, Secs. 303(d)(2)(B), 901,

temporarily struck out "modified" before "adjusted gross income" in

two places. See Effective and Termination Dates of 2001 Amendment

note below.

Subsec. (h). Pub. L. 107-16, Secs. 303(c), 901, temporarily

struck out heading and text of subsec. (h). Text read as follows:

"The credit allowed under this section for the taxable year shall

be reduced by the amount of tax imposed by section 55 (relating to

alternative minimum tax) with respect to such taxpayer for such

taxable year." See Effective and Termination Dates of 2001

Amendment note below.

Subsec. (j)(1)(B). Pub. L. 107-16, Secs. 303(a)(2), 901,

temporarily amended subpar. (B) generally. Prior to amendment,

subpar. (B) read as follows: "the cost-of-living adjustment

determined under section 1(f)(3) for the calendar year in which the

taxable year begins, determined by substituting 'calendar year

1995' for 'calendar year 1992' in subparagraph (B) thereof." See

Effective and Termination Dates of 2001 Amendment note below.

Subsec. (j)(2)(A). Pub. L. 107-16, Secs. 303(a)(3), 901,

temporarily substituted "subsection (b)(2)(A) (after being

increased under subparagraph (B) thereof)" for "subsection (b)(2)".

See Effective and Termination Dates of 2001 Amendment note below.

Subsec. (n). Pub. L. 107-16, Secs. 201(c)(3), 901, temporarily

struck out heading and text of subsec. (n), which had increased

credit allowable under this section in the case of a taxpayer with

respect to whom a child tax credit is allowed under section 24(a),

described amount of increase, and set forth provisions relating to

coordination with other credits allowable under this part. See

Effective and Termination Dates of 2001 Amendment note below.

1999 - Subsec. (c)(3)(B)(iii). Pub. L. 106-170 added subcl. (I)

and redesignated former subcls. (I) and (II) as (II) and (III),

respectively.

1998 - Subsec. (c)(1)(F). Pub. L. 105-206, Sec. 6021(a), added

introductory provisions and struck out former introductory

provisions which read as follows: "The term 'eligible individual'

does not include any individual who does not include on the return

of tax for the taxable year - ".

Subsec. (c)(1)(G). Pub. L. 105-206, Sec. 6021(b)(2), added

subpar. (G).

Subsec. (c)(2)(B)(v). Pub. L. 105-206, Sec. 6010(p)(2), inserted

"shall be taken into account" before ", but only".

Subsec. (c)(3)(A)(ii) to (iv). Pub. L. 105-206, Sec. 6021(b)(3),

inserted "and" at end of cl. (ii), substituted a period for ", and"

at end of cl. (iii), and struck out cl. (iv) which read as follows:

"with respect to whom the taxpayer meets the identification

requirements of subparagraph (D)".

Subsec. (c)(3)(D)(i). Pub. L. 105-206, Sec. 6021(b)(1), reenacted

heading without change and amended text of cl. (i) generally. Prior

to amendment, text read as follows: "The requirements of this

subparagraph are met if the taxpayer includes the name, age, and

TIN of each qualifying child (without regard to this subparagraph)

on the return of tax for the taxable year."

Subsec. (c)(5)(A). Pub. L. 105-206, Sec. 6010(p)(1)(A), inserted

"and increased by the amounts described in subparagraph (C)" before

period at end.

Subsec. (c)(5)(B). Pub. L. 105-206, Sec. 6010(p)(1)(B), (C),

inserted "or" at end of cl. (iii) and substituted cl. (iv)(III) and

concluding provisions for former cls. (iv)(III), (v), (vi), and

concluding provisions which read as follows:

"(III) other trades or businesses

"(v) interest received or accrued during the taxable year which

is exempt from tax imposed by this chapter, and

"(vi) amounts received as a pension or annuity, and any

distributions or payments received from an individual retirement

plan, by the taxpayer during the taxable year to the extent not

included in gross income.

For purposes of clause (iv), there shall not be taken into account

items which are attributable to a trade or business which consists

of the performance of services by the taxpayer as an employee.

Clause (vi) shall not include any amount which is not includible in

gross income by reason of section 402(c), 403(a)(4), 403(b),

408(d)(3), (4), or (5), or 457(e)(10)."

Subsec. (c)(5)(C). Pub. L. 105-206, Sec. 6010(p)(1)(C), added

subpar. (C).

Subsecs. (m), (n). Pub. L. 105-206, Sec. 6003(b), redesignated

subsec. (m), relating to supplemental child credit, as (n) and

amended text generally. Prior to amendment, text read as follows:

"(1) In general. - In the case of a taxpayer with respect to whom

a credit is allowed under section 24 for the taxable year, there

shall be allowed as a credit under this section an amount equal to

the supplemental child credit (if any) determined for such taxpayer

for such taxable year under paragraph (2). Such credit shall be in

addition to the credit allowed under subsection (a).

"(2) Supplemental child credit. - For purposes of this

subsection, the supplemental child credit is an amount equal to the

excess (if any) of -

"(A) the amount determined under section 24(d)(1)(A), over

"(B) the amount determined under section 24(d)(1)(B).

The amounts referred to in subparagraphs (A) and (B) shall be

determined as if section 24(d) applied to all taxpayers.

"(3) Coordination with section 24. - The amount of the credit

under section 24 shall be reduced by the amount of the credit

allowed under this subsection."

1997 - Subsec. (c)(2)(B)(v). Pub. L. 105-34, Sec. 1085(c), added

cl. (v).

Subsec. (c)(4). Pub. L. 105-34, Sec. 312(d)(2), struck out "(as

defined in section 1034(h)(3)" after "serving on extended active

duty" and inserted at end "For purposes of the preceding sentence,

the term 'extended active duty' means any period of active duty

pursuant to a call or order to such duty for a period in excess of

90 days or for an indefinite period."

Subsec. (c)(5)(B). Pub. L. 105-34, Sec. 1085(d)(4), inserted at

end of concluding provisions "Clause (vi) shall not include any

amount which is not includible in gross income by reason of section

402(c), 403(a)(4), 403(b), 408(d)(3), (4), or (5), or 457(e)(10)."

Subsec. (c)(5)(B)(iv). Pub. L. 105-34, Sec. 1085(b), substituted

"75 percent" for "50 percent" in introductory provisions.

Subsec. (c)(5)(B)(v), (vi). Pub. L. 105-34, Sec. 1085(d)(1)-(3),

added cls. (v) and (vi).

Subsec. (k). Pub. L. 105-34, Sec. 1085(a)(1), added subsec. (k).

Former subsec. (k) redesignated (l).

Subsec. (l). Pub. L. 105-34, Sec. 1085(a)(1), redesignated

subsec. (k) as (l). Former subsec. (l) redesignated (m).

Subsec. (m). Pub. L. 105-34, Sec. 1085(a)(1), redesignated

subsec. (l) as (m) relating to identification numbers.

Pub. L. 105-34, Sec. 101(b), added subsec. (m) relating to

supplemental child credit.

1996 - Subsec. (a)(2)(B). Pub. L. 104-193, Sec. 910(a), inserted

"modified" before "adjusted gross income".

Subsec. (b)(2). Pub. L. 104-193, Sec. 909(a)(3), reenacted

heading without change and amended text generally. Prior to

amendment, text consisted of subpars. (A) and (B) setting out

tables for determining the earned income amount for taxable years

beginning after 1994 and for taxable years beginning in 1994.

Subsec. (c)(1)(C). Pub. L. 104-193, Sec. 910(a), inserted

"modified" before "adjusted gross income".

Subsec. (c)(1)(F). Pub. L. 104-193, Sec. 451(a), added subpar.

(F).

Subsec. (c)(5). Pub. L. 104-193, Sec. 910(b), added par. (5).

Subsec. (f)(2)(B). Pub. L. 104-193, Sec. 910(a), inserted

"modified" before "adjusted gross income" in two places.

Subsec. (i)(1). Pub. L. 104-193, Sec. 909(a)(1), substituted

"$2,200" for "$2,350".

Subsec. (i)(2). Pub. L. 104-193, Sec. 909(b), added subpars. (D)

and (E) and concluding provisions.

Subsec. (j). Pub. L. 104-193, Sec. 909(a)(2), reenacted heading

without change and amended text generally. Prior to amendment, text

read as follows:

"(1) In general. - In the case of any taxable year beginning

after 1994, each dollar amount contained in subsection (b)(2)(A)

shall be increased by an amount equal to -

"(A) such dollar amount, multiplied by

"(B) the cost-of-living adjustment determined under section

1(f)(3), for the calendar year in which the taxable year begins,

by substituting 'calendar year 1993' for 'calendar year 1992'.

"(2) Rounding. - If any dollar amount after being increased under

paragraph (1) is not a multiple of $10, such dollar amount shall be

rounded to the nearest multiple of $10 (or, if such dollar amount

is a multiple of $5, such dollar amount shall be increased to the

next higher multiple of $10)."

Subsec. (l). Pub. L. 104-193, Sec. 451(b), added subsec. (l).

1995 - Subsecs. (i) to (k). Pub. L. 104-7 added subsec. (i) and

redesignated former subsecs. (i) and (j) as (j) and (k),

respectively.

1994 - Subsec. (c)(1)(E). Pub. L. 103-465, Sec. 722(a), added

subpar. (E).

Subsec. (c)(2)(B)(iv). Pub. L. 103-465, Sec. 723(a), added cl.

(iv).

Subsec. (c)(3)(D)(i). Pub. L. 103-465, Sec. 742(a), amended

heading and text of cl. (i) generally. Prior to amendment, text

read as follows: "The requirements of this subparagraph are met if

-

"(I) the taxpayer includes the name and age of each qualifying

child (without regard to this subparagraph) on the return of tax

for the taxable year, and

"(II) in the case of an individual who has attained the age of

1 year before the close of the taxpayer's taxable year, the

taxpayer includes the taxpayer identification number of such

individual on such return of tax for such taxable year."

Subsec. (c)(4). Pub. L. 103-465, Sec. 721(a), added par. (4).

1993 - Subsec. (a). Pub. L. 103-66, Sec. 13131(a), amended

heading and text of subsec. (a) generally. Prior to amendment, text

read as follows: "In the case of an eligible individual, there

shall be allowed as a credit against the tax imposed by this

subtitle for the taxable year an amount equal to the sum of -

"(1) the basic earned income credit, and

"(2) the health insurance credit."

Subsec. (b). Pub. L. 103-66, Sec. 13131(a), substituted

"Percentages and amounts" for "Computation of credit" in heading

and amended text generally. Prior to amendment, text related to

method of computation of both earned income credit and health

insurance credit.

Subsec. (c)(1)(A). Pub. L. 103-66, Sec. 13131(b), amended heading

and text of subpar. (A) generally. Prior to amendment, text read as

follows: "The term 'eligible individual' means any individual who

has a qualifying child for the taxable year."

Subsec. (c)(3)(D)(ii). Pub. L. 103-66, Sec. 13131(d)(1),

redesignated cl. (iii) as (ii), substituted "clause (i)" for

"clause (i) or (ii)", and struck out heading and text of former cl.

(ii). Text read as follows: "In the case of any taxpayer with

respect to which the health insurance credit is allowed under

subsection (a)(2), the Secretary may require a taxpayer to include

an insurance policy number or other adequate evidence of insurance

in addition to any information required to be included in clause

(i)."

Subsec. (i)(1). Pub. L. 103-66, Sec. 13131(c)(1), added par. (1)

and struck out text and heading of former par. (1). Text read as

follows: "In the case of any taxable year beginning after the

applicable calendar year, each dollar amount referred to in

paragraph (2)(B) shall be increased by an amount equal to -

"(A) such dollar amount, multiplied by

"(B) the cost-of-living adjustment determined under section

1(f)(3), for the calendar year in which the taxable year begins,

by substituting 'calendar year 1984' for 'calendar year 1989' in

subparagraph (B) thereof."

Subsec. (i)(2), (3). Pub. L. 103-66, Sec. 13131(c), redesignated

par. (3) as (2) and struck out former par. (2) which defined terms

for purposes of the inflation adjustment in par. (1).

1990 - Subsec. (a). Pub. L. 101-508, Sec. 11111(a), amended

subsec. (a) generally. Prior to amendment, subsec. (a) read as

follows: "In the case of an eligible individual, there is allowed

as a credit against the tax imposed by this subtitle for the

taxable year an amount equal to 14 percent of so much of the earned

income for the taxable year as does not exceed $5,714."

Subsec. (b). Pub. L. 101-508, Sec. 11111(a), substituted heading

for one which read "Limitation" and amended subsec. (b) generally.

Prior to amendment, subsec. (b) read as follows: "The amount of the

credit allowable to a taxpayer under subsection (a) for any taxable

year shall not exceed the excess (if any) of -

"(1) the maximum credit allowable under subsection (a) to any

taxpayer, over

"(2) 10 percent of so much of the adjusted gross income (or, if

greater, the earned income) of the taxpayer for the taxable year

as exceeds $9,000.

In the case of any taxable year beginning in 1987, paragraph (2)

shall be applied by substituting '$6,500' for '$9,000'."

Subsec. (c). Pub. L. 101-508, Sec. 11111(a), amended subsec. (c)

generally, inserting "and special rules" in heading and

substituting present provisions for provisions defining "eligible

individual" and "earned income".

Subsec. (i)(1)(B). Pub. L. 101-508, Sec. 11101(d)(1)(B),

substituted "1989" for "1987".

Subsec. (i)(2)(A). Pub. L. 101-508, Sec. 11111(e)(1), (2),

substituted "clause (i) of subparagraph (B)" for "clause (i) or

(ii) of subparagraph (B)" in cl. (i) and "clause (ii)" for "clause

(iii)" in cl. (ii).

Subsec. (i)(2)(B). Pub. L. 101-508, Sec. 11111(e)(3), amended

subpar. (B) generally. Prior to amendment, subpar. (B) read as

follows: "The dollar amounts referred to in this subparagraph are -

"(i) the $5,714 amount contained in subsection (a),

"(ii) the $6,500 amount contained in the last sentence of

subsection (b), and

"(iii) the $9,000 amount contained in subsection (b)(2)."

Subsec. (j). Pub. L. 101-508, Sec. 11111(b), added subsec. (j).

1988 - Subsec. (h). Pub. L. 100-647, Sec. 1007(g)(12), struck out

"for taxpayers other than corporations" after "alternative minimum

tax".

Subsec. (i)(3). Pub. L. 100-647, Sec. 1001(c), amended par. (3)

generally. Prior to amendment, par. (3) read as follows: "If any

increase determined under paragraph (1) is not a multiple of $10,

such increase shall be rounded to the nearest multiple of $10 (or,

if such increase is a multiple of $5, such increase shall be

increased to the next higher multiple of $10)."

1986 - Subsec. (a). Pub. L. 99-514, Sec. 111(a), substituted "14

percent" for "11 percent" and "$5,714" for "$5,000".

Subsec. (b). Pub. L. 99-514, Sec. 111(b), amended subsec. (b)

generally. Prior to amendment, subsec. (b) read as follows: "The

amount of the credit allowable to a taxpayer under subsection (a)

for any taxable year shall not exceed the excess (if any) of -

"(1) $550, over

"(2) 12 2/9 percent of so much of the adjusted gross income

(or, if greater, the earned income) of the taxpayer for the

taxable year as exceeds $6,500."

Subsec. (c)(1)(A)(i). Pub. L. 99-514, Sec. 1301(j)(8),

substituted "section 7703" for "section 143".

Pub. L. 99-514, Sec. 104(b)(1)(B), substituted "section

151(c)(3)" for "section 151(e)(3)".

Subsec. (c)(1)(C). Pub. L. 99-514, Sec. 1272(d)(4), struck out

"or 931" after "911" in heading, and amended text generally. Prior

to amendment, text read as follows: "The term 'eligible individual'

does not include an individual who, for the taxable year, claims

the benefits of -

"(i) section 911 (relating to citizens or residents of the

United States living abroad),

"(ii) section 931 (relating to income from sources within

possessions of the United States)."

Subsec. (d). Pub. L. 99-514, Sec. 1301(j)(8), substituted

"section 7703" for "section 143".

Subsec. (f)(2)(A), (B). Pub. L. 99-514, Sec. 111(d)(1), added

subpars. (A) and (B) and struck out former subpars. (A) and (B)

which read as follows:

"(A) for earned income between $0 and $11,000, and

"(B) for adjusted gross income between $6,500 and $11,000."

Subsec. (i). Pub. L. 99-514, Sec. 111(c), added subsec. (i).

1984 - Pub. L. 98-369, Sec. 471(c), renumbered section 43 of this

title as this section.

Subsec. (a). Pub. L. 98-369, Sec. 1042(a), substituted "11

percent" for "10 percent".

Subsec. (b)(1). Pub. L. 98-369, Sec. 1042(d)(1), substituted

"$550" for "$500".

Subsec. (b)(2). Pub. L. 98-369, Sec. 1042(b), substituted "12 2/9

percent" for "12.5 percent" and "$6,500" for "$6,000".

Subsec. (c)(1)(A)(i). Pub. L. 98-369, Sec. 423(c)(3)(A), inserted

"or would be so entitled but for paragraph (2) or (4) of section

152(e)".

Subsec. (c)(1)(B). Pub. L. 98-369, Sec. 423(c)(3)(B), substituted

"as the individual for more than one-half of the taxable year" for

"as the individual".

Subsec. (f)(2)(A). Pub. L. 98-369, Sec. 1042(d)(2), substituted

"between $0 and $11,000" for "between $0 and $10,000".

Subsec. (f)(2)(B). Pub. L. 98-369, Sec. 1042(d)(2), substituted

"between $6,500 and $11,000" for "between $6,000 and $10,000".

Subsec. (h). Pub. L. 98-369, Sec. 1042(c), added subsec. (h).

1983 - Subsec. (c)(2)(A)(ii). Pub. L. 98-21 inserted before

period at end ", but such net earnings shall be determined with

regard to the deduction allowed to the taxpayer by section 164(f)".

1981 - Subsec. (c)(1)(C). Pub. L. 97-34 struck out reference to

section 913 in heading, substituted "relating to citizens or

residents of the United States living abroad" for "relating to

income earned by individuals in certain camps outside the United

States" in cl. (i), struck out cl. (ii) which made reference to

section 913, and redesignated cl. (iii) as (ii).

1980 - Subsec. (c)(1)(C). Pub. L. 96-222, Sec. 101(a)(1), in

heading substituted "who claims benefit of section 911, 913, or

931" for "entitled to exclude income under section 911" and in text

substituted "claims the benefits of" for "is entitled to exclude

any amounts from gross income under" and inserted reference to

section 913 (relating to deduction for certain expenses of living

abroad).

Subsecs. (g), (h). Pub. L. 96-222, Sec. 101(a)(2)(E),

redesignated subsec. (h) as (g).

1978 - Subsec. (a). Pub. L. 95-600, Sec. 104(a), substituted

"subtitle" for "chapter" and "$5,000" for "$4,000".

Subsec. (b). Pub. L. 95-600, Sec. 104(b), substituted provision

limiting the allowable credit to an amount not to exceed the excess

of $500 over 12.5 percent of so much of the adjusted gross income

for the taxable year as exceeds $6,000 for provision limiting the

allowable credit to an amount reduced by 10 percent of so much of

the adjusted gross income for the taxable year as exceeds $4,000.

Subsec. (c)(1). Pub. L. 95-600, Sec. 104(e), amended par. (1)

generally, substituting in definition of eligible individual one

who is married and is entitled to a deduction under section 151 for

a child, provided the child has the same principal abode as the

individual and the abode is in the United States, is a surviving

spouse, or is a head of household, provided the household is in the

United States for one who maintains a household in the United

States which is the principal abode of that individual and a child

of that individual who meets the requirements of section

151(e)(1)(B) or a child of that individual who is disabled within

the meaning of section 72(m)(7) and to whom the individual is

entitled to claim a deduction under section 151.

Subsec. (c)(1)(C). Pub. L. 95-615, Sec. 202(f)(5), which directed

the amendment of subsec. (c)(1)(B) by substituting "(relating to

income earned by employees in certain camps)" for "(relating to

earned income from sources without the United States)", was

executed to subsec. (c)(1)(C) to reflect the probable intent of

Congress and the general amendment of subsec. (c)(1) by Pub. L.

95-600 which enacted provisions formerly contained in subsec.

(c)(1)(B) in subsec. (c)(1)(C).

Subsec. (c)(2)(B). Pub. L. 95-600, Sec. 104(d), redesignated cls.

(ii) to (iv) as (i) to (iii), respectively. Former cl. (i), which

provided that amounts be taken into account only if includible in

the gross income of the taxpayer for the taxable year, was struck

out.

Subsec. (f). Pub. L. 95-600, Sec. 104(c), added subsec. (f).

Subsec. (h). Pub. L. 95-600, Sec. 105(a), added subsec. (h).

1976 - Subsec. (a). Pub. L. 94-455, Sec. 401(c)(1)(B),

substituted "is allowed" for "shall be allowed" and struck out

provisions relating to the application of the six-month rule.

Subsec. (b). Pub. L. 94-455, Sec. 401(c)(1)(B), struck out

provisions relating to the application of the six-month rule.

Subsec. (c)(1)(A). Pub. L. 94-455, Sec. 401(c)(2), among other

changes, substituted "section 44A(f)(1)" for "section 214(b)(3)"

and "if such child meets the requirements of section 151(e)(1)(B)"

for "with respect to whom he is entitled to claim a deduction under

section 151(e)(1)(B)" and inserted reference to a child of that

individual who is disabled (within the meaning of section 72(m)(7))

and with respect to whom that individual is entitled to claim a

deduction under section 151.

1975 - Subsec. (a). Pub. L. 94-164 designated existing provisions

as par. (1) and added par. (2).

Subsec. (b). Pub. L. 94-164 designated existing provisions as

par. (1) and added par. (2).

EFFECTIVE DATE OF 2002 AMENDMENT

Pub. L. 107-147, title IV, Sec. 416(a)(2), Mar. 9, 2002, 116

Stat. 55, provided that: "The amendment made by this subsection

[amending this section] shall take effect as if included in section

474 of the Tax Reform Act of 1984 [Pub. L. 98-369]."

EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT

Amendment by section 201(c)(3) of Pub. L. 107-16 applicable to

taxable years beginning after Dec. 31, 2000, see section 201(e)(1)

of Pub. L. 107-16, set out as a note under section 24 of this

title.

Pub. L. 107-16, title III, Sec. 303(i), June 7, 2001, 115 Stat.

57, provided that:

"(1) In general. - Except as provided in paragraph (2), the

amendments made by this section [amending this section and section

6213 of this title] shall apply to taxable years beginning after

December 31, 2001.

"(2) Subsection (g). - The amendment made by subsection (g)

[amending section 6213 of this title] shall take effect on January

1, 2004."

Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or

limitation years beginning after Dec. 31, 2010, and the Internal

Revenue Code of 1986 to be applied and administered to such years

as if such amendment had never been enacted, see section 901 of

Pub. L. 107-16, set out as a note under section 1 of this title.

EFFECTIVE DATE OF 1999 AMENDMENT

Pub. L. 106-170, title IV, Sec. 412(b), Dec. 17, 1999, 113 Stat.

1917, provided that: "The amendments made by this section [amending

this section] shall apply to taxable years beginning after December

31, 1999."

EFFECTIVE DATE OF 1998 AMENDMENT

Pub. L. 105-206, title VI, Sec. 6021(c), July 22, 1998, 112 Stat.

824, provided that:

"(1) Eligible individuals. - The amendment made by subsection (a)

[amending this section] shall take effect as if included in the

amendments made by section 451 of the Personal Responsibility and

Work Opportunity Reconciliation Act of 1996 [Pub. L. 104-193].

"(2) Qualifying children. - The amendments made by subsection (b)

[amending this section] shall take effect as if included in the

amendments made by section 11111 of Revenue Reconciliation Act of

1990 [Pub. L. 101-508]."

Amendment by sections 6003(b) and 6010(p)(1), (2) of Pub. L.

105-206 effective, except as otherwise provided, as if included in

the provisions of the Taxpayer Relief Act of 1997, Pub. L. 105-34,

to which such amendment relates, see section 6024 of Pub. L.

105-206, set out as a note under section 1 of this title.

EFFECTIVE DATE OF 1997 AMENDMENT

Amendment by section 101(b) of Pub. L. 105-34 applicable to

taxable years beginning after Dec. 31, 1997, see section 101(e) of

Pub. L. 105-34, set out as an Effective Date note under section 24

of this title.

Amendment by section 312(d)(2) of Pub. L. 105-34 applicable to

sales and exchanges after May 6, 1997, with certain exceptions, see

section 312(d) of Pub. L. 105-34, set out as a note under section

121 of this title.

Section 1085(e) of Pub. L. 105-34 provided that:

"(1) The amendments made by subsection (a) [amending this section

and sections 6213 and 6695 of this title] shall apply to taxable

years beginning after December 31, 1996.

"(2) The amendments made by subsections (b), (c), and (d)

[amending this section] shall apply to taxable years beginning

after December 31, 1997."

EFFECTIVE DATE OF 1996 AMENDMENT

Section 451(d) of Pub. L. 104-193 provided that: "The amendments

made by this section [amending this section and section 6213 of

this title] shall apply with respect to returns the due date for

which (without regard to extensions) is more than 30 days after the

date of the enactment of this Act [Aug. 22, 1996]."

Section 909(c) of Pub. L. 104-193 provided that:

"(1) In general. - Except as provided in paragraph (2), the

amendments made by this section [amending this section] shall apply

to taxable years beginning after December 31, 1995.

"(2) Advance payment individuals. - In the case of any individual

who on or before June 26, 1996, has in effect an earned income

eligibility certificate for the individual's taxable year beginning

in 1996, the amendments made by this section shall apply to taxable

years beginning after December 31, 1996."

Section 910(c) of Pub. L. 104-193 provided that:

"(1) In general. - Except as provided in paragraph (2), the

amendments made by this section [amending this section] shall apply

to taxable years beginning after December 31, 1995.

"(2) Advance payment individuals. - In the case of any individual

who on or before June 26, 1996, has in effect an earned income

eligibility certificate for the individual's taxable year beginning

in 1996, the amendments made by this section shall apply to taxable

years beginning after December 31, 1996."

EFFECTIVE DATE OF 1995 AMENDMENT

Section 4(b) of Pub. L. 104-7 provided that: "The amendments made

by this section [amending this section] shall apply to taxable

years beginning after December 31, 1995."

EFFECTIVE DATE OF 1994 AMENDMENT

Section 721(d)(1) of Pub. L. 103-465 provided that: "The

amendment made by subsection (a) [amending this section] shall

apply to taxable years beginning after December 31, 1994."

Section 722(b) of Pub. L. 103-465 provided that: "The amendment

made by subsection (a) [amending this section] shall apply to

taxable years beginning after December 31, 1994."

Section 723(b) of Pub. L. 103-465 provided that: "The amendment

made by subsection (a) [amending this section] shall apply to

taxable years beginning after December 31, 1993."

Section 742(c) of Pub. L. 103-465 provided that:

"(1) In general. - Except as provided in paragraph (2), the

amendments made by this section [amending this section and section

6109 of this title] shall apply to returns for taxable years

beginning after December 31, 1994.

"(2) Exception. - The amendments made by this section shall not

apply to -

"(A) returns for taxable years beginning in 1995 with respect

to individuals who are born after October 31, 1995, and

"(B) returns for taxable years beginning in 1996 with respect

to individuals who are born after November 30, 1996."

EFFECTIVE DATE OF 1993 AMENDMENT

Section 13131(e) of Pub. L. 103-66 provided that: "The amendments

made by this section [amending this section and sections 162, 213,

and 3507 of this title] shall apply to taxable years beginning

after December 31, 1993."

EFFECTIVE DATE OF 1990 AMENDMENT

Amendment by section 11101(d)(1)(B) of Pub. L. 101-508 applicable

to taxable years beginning after Dec. 31, 1990, see section

11101(e) of Pub. L. 101-508, set out as a note under section 1 of

this title.

Section 11111(f) of Pub. L. 101-508 provided that: "The

amendments made by this section [amending this section and sections

162, 213, and 3507 of this title] shall apply to taxable years

beginning after December 31, 1990."

EFFECTIVE DATE OF 1988 AMENDMENT

Amendment by Pub. L. 100-647 effective, except as otherwise

provided, as if included in the provision of the Tax Reform Act of

1986, Pub. L. 99-514, to which such amendment relates, see section

1019(a) of Pub. L. 100-647, set out as a note under section 1 of

this title.

EFFECTIVE DATE OF 1986 AMENDMENT

Amendment by sections 104(b)(1)(B) and 111(a)-(d)(1) of Pub. L.

99-514 applicable to taxable years beginning after Dec. 31, 1986,

see section 151(a) of Pub. L. 99-514, set out as a note under

section 1 of this title.

Amendment by section 1272(d)(4) of Pub. L. 99-514 applicable to

taxable years beginning after Dec. 31, 1986, with certain

exceptions and qualifications, see section 1277 of Pub. L. 99-514,

set out as a note under section 931 of this title.

Amendment by section 1301(j)(8) of Pub. L. 99-514 applicable to

bonds issued after Aug. 15, 1986, except as otherwise provided, see

sections 1311 to 1318 of Pub. L. 99-514, set out as an Effective

Date; Transitional Rules note under section 141 of this title.

EFFECTIVE DATE OF 1984 AMENDMENT

Amendment by section 423(c)(3) of Pub. L. 98-369 applicable to

taxable years beginning after Dec. 31, 1984, see section 423(d) of

Pub. L. 98-369, set out as a note under section 2 of this title.

Section 1042(e) of Pub. L. 98-369 provided that: "The amendments

made by this section [amending sections 32 and 3507 of this title]

shall apply to taxable years beginning after December 31, 1984."

EFFECTIVE DATE OF 1983 AMENDMENT

Amendment by Pub. L. 98-21 applicable to taxable years beginning

after Dec. 31, 1989, see section 124(d)(2) of Pub. L. 98-21, set

out as a note under section 1401 of this title.

EFFECTIVE DATE OF 1981 AMENDMENT

Amendment by Pub. L. 97-34 applicable with respect to taxable

years beginning after Dec. 31, 1981, see section 115 of Pub. L.

97-34, set out as a note under section 911 of this title.

EFFECTIVE DATE OF 1980 AMENDMENT

Section 101(b)(1)(A) of Pub. L. 96-222 provided that: "The

amendment made by subsection (a)(1) [amending this section] shall

apply to taxable years beginning after December 31, 1977."

Section 201 of Pub. L. 96-222 provided that: "Except as otherwise

provided in title I, any amendment made by title I [see Tables for

classification] shall take effect as if it had been included in the

provision of the Revenue Act of 1978 [Pub. L. 95-600, see Tables

for classification] to which such amendment relates."

EFFECTIVE DATE OF 1978 AMENDMENT

Section 104(f) of Pub. L. 95-600 provided that: "The amendments

made by this section [amending this section] shall apply to taxable

years beginning after December 31, 1978."

Section 105(g)(1) of Pub. L. 95-600 provided that: "The

amendments made by subsections (a) and (d) [amending this section

and section 6012 of this title] shall apply to taxable years

beginning after December 31, 1978."

EFFECTIVE DATE OF 1978 AMENDMENT; ELECTION OF PRIOR LAW

Amendment by Pub. L. 95-615 applicable to taxable years beginning

after Dec. 31, 1977, with provision for election of prior law, see

section 209 of Pub. L. 95-615, set out as a note under section 911

of this title.

EFFECTIVE AND TERMINATION DATES OF 1976 AMENDMENT

Section 401(e) of Pub. L. 94-455, as amended by Pub. L. 95-30,

title I, Sec. 103(c), May 23, 1977, 91 Stat. 139; Pub. L. 95-600,

title I, Sec. 103(b), Nov. 6, 1978, 92 Stat. 2771, provided that:

"The amendments made by subsection (a) [amending sections 43 [now

32] and 6096 of this title] shall apply to taxable years ending

after December 31, 1975, and shall cease to apply to taxable years

ending after December 31, 1978. The amendments made by subsection

(c) [amending this section] shall apply to taxable years ending

after December 31, 1975. The amendments made by subsection (b)

[amending sections 141 and 6012 of this title] shall apply to

taxable years ending after December 31, 1975. The amendments made

by subsection (d) [amending section 3402 of this title] shall apply

to wages paid after September 14, 1976."

EFFECTIVE AND TERMINATION DATES OF 1975 AMENDMENTS

Section 2(g) of Pub. L. 94-164, as amended by Pub. L. 94-455,

Sec. 402(b), provided that: "The amendments made by this section

[amending sections 43 [now 32], 141, 3402, and 6012 of this title

and provisions set out as notes under sections 42 and 43 [now 32]

of this title] (other than by subsection (d) [enacting provisions

set out as a note under this section]) apply to taxable years

ending after December 31, 1975, and before January 1, 1978.

Subsection (d) applies to taxable years ending after December 31,

1975."

Section 209(b) of Pub. L. 94-12, as amended by Pub. L. 94-164,

Sec. 2(f), Dec. 23, 1975, 89 Stat. 972; Pub. L. 94-455, title IV,

Sec. 401(c)(1)(A), Oct. 4, 1976, 90 Stat. 1557; Pub. L. 95-30,

title I, Sec. 103(b), May 23, 1977, 91 Stat. 139; Pub. L. 95-600,

title I, Sec. 103(a), Nov. 6, 1978, 92 Stat. 2771, provided that:

"The amendments made by section 204 [enacting this section and

amending sections 6201 and 6401 of this title] shall apply to

taxable years beginning after December 31, 1974."

PROGRAM TO INCREASE PUBLIC AWARENESS

Secretary of the Treasury, or Secretary's delegate, to establish

taxpayer awareness program to inform taxpaying public of

availability of earned income credit and child health insurance

under this section, see section 11114 of Pub. L. 101-508, set out

as a note under section 21 of this title.

EMPLOYEE NOTIFICATION

Section 111(e) of Pub. L. 99-514 provided that: "The Secretary of

the Treasury is directed to require, under regulations, employers

to notify any employee who has not had any tax withheld from wages

(other than an employee whose wages are exempt from withholding

pursuant to section 3402(n) of the Internal Revenue Code of 1986)

that such employee may be eligible for a refund because of the

earned income credit."

DISREGARD OF REFUND FOR DETERMINATION OF ELIGIBILITY FOR FEDERAL

BENEFITS OR ASSISTANCE

Section 2(d) of Pub. L. 94-164, as amended by Pub. L. 94-455,

title IV, Sec. 402(a), Oct. 4, 1976, 90 Stat. 1558; Pub. L. 95-600,

title I, Sec. 105(f), Nov. 6, 1978, 92 Stat. 2776; Pub. L. 99-514,

Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "Any refund

of Federal income taxes made to any individual by reason of section

43 [now 32] of the Internal Revenue Code of 1986 [formerly I.R.C.

1954] (relating to earned income credit), and any payment made by

an employer under section 3507 of such Code (relating to advance

payment of earned income credit) shall not be taken into account in

any year ending before 1980 as income or receipts for purposes of

determining the eligibility, for the month in which such refund is

made or any month thereafter of such individual or any other

individual for benefits or assistance, or the amount or extent of

benefits or assistance, under any Federal program or under any

State or local program financed in whole or in part with Federal

funds, but only if such individual (or the family unit of which he

is a member) is a recipient of benefits or assistance under such a

program for the month before the month in which such refund is

made."

[Section 105(g)(3) of Pub. L. 95-600 provided that: "Subsection

(f) [amending section 2(d) of Pub. L. 94-164, set out above] shall

take effect on the date of enactment of this Act [Nov. 6, 1978]."]

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 24, 86, 129, 151, 995,

3507, 6051, 6211, 6213, 6695 of this title; title 2 section 905;

title 42 sections 502, 653, 1382a, 1382b.

-End-

-CITE-

26 USC Sec. 33 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter A - Determination of Tax Liability

PART IV - CREDITS AGAINST TAX

Subpart C - Refundable Credits

-HEAD-

Sec. 33. Tax withheld at source on nonresident aliens and foreign

corporations

-STATUTE-

There shall be allowed as a credit against the tax imposed by

this subtitle the amount of tax withheld at source under subchapter

A of chapter 3 (relating to withholding of tax on nonresident

aliens and on foreign corporations).

-SOURCE-

(Aug. 16, 1954, ch. 736, 68A Stat. 13, Sec. 32; renumbered Sec. 33

and amended Pub. L. 98-369, div. A, title IV, Secs. 471(c), 474(j),

July 18, 1984, 98 Stat. 826, 832.)

-MISC1-

PRIOR PROVISIONS

A prior section 33 was renumbered section 27 of this title.

AMENDMENTS

1984 - Pub. L. 98-369, Sec. 471(c), renumbered section 32 of this

title as this section.

Pub. L. 98-369, Sec. 474(j), amended section generally, striking

out "and on tax-free covenant bonds" after "foreign corporations"

in section catchline, and, in text, substituting "as a credit

against the tax imposed by this subtitle" for "as credits against

the tax imposed by this chapter", and striking out designation

"(1)" before "the amount of tax withheld", and ", and (2) the

amount of tax withheld at source under subchapter B of chapter 3

(relating to interest on tax-free covenant bonds)" after "on

foreign corporations)".

EFFECTIVE DATE OF 1984 AMENDMENT

Section 475(b) of Pub. L. 98-369 provided that: "The amendments

made by subsections (j) and (r)(29) [amending this section and

sections 12, 164, 1441, 1442, 6049, and 7701 of this title and

repealing section 1451 of this title] shall not apply with respect

to obligations issued before January 1, 1984."

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 874, 882, 1446, 6211,

6401 of this title.

-End-

-CITE-

26 USC Sec. 34 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter A - Determination of Tax Liability

PART IV - CREDITS AGAINST TAX

Subpart C - Refundable Credits

-HEAD-

Sec. 34. Certain uses of gasoline and special fuels

-STATUTE-

(a) General rule

There shall be allowed as a credit against the tax imposed by

this subtitle for the taxable year an amount equal to the sum of

the amounts payable to the taxpayer -

(1) under section 6420 with respect to gasoline used during the

taxable year on a farm for farming purposes (determined without

regard to section 6420(g)),

(2) under section 6421 with respect to gasoline used during the

taxable year (A) otherwise than as a fuel in a highway vehicle or

(B) in vehicles while engaged in furnishing certain public

passenger land transportation service (determined without regard

to section 6421(i)),(!1) and

(3) under section 6427 with respect to fuels used for

nontaxable purposes or resold during the taxable year (determined

without regard to section 6427(k)).

(b) Exception

Credit shall not be allowed under subsection (a) for any amount

payable under section 6421 or 6427, if a claim for such amount is

timely filed and, under section 6421(i) or 6427(k), is payable

under such section.

-SOURCE-

(Added Pub. L. 89-44, title VIII, 809(c), June 21, 1965, 79 Stat.

167, Sec. 39; amended Pub. L. 91-258, title II, Sec. 207(c), May

21, 1970, 84 Stat. 248; Pub. L. 94-455, title XIX, Secs.

1901(a)(3), 1906(b)(8), (9), Oct. 4, 1976, 90 Stat. 1764, 1834;

Pub. L. 94-530, Sec. 1(c)(1), Oct. 17, 1976, 90 Stat. 2487; Pub. L.

95-599, title V, Sec. 505(c)(1), Nov. 6, 1978, 92 Stat. 2760; Pub.

L. 95-618, title II, Sec. 233(b)(2)(C), Nov. 9, 1978, 92 Stat.

3191; Pub. L. 96-223, title II, Sec. 232(d)(4)(A), Apr. 2, 1980, 94

Stat. 278; Pub. L. 97-424, title V, Sec. 515(b)(6)(A)-(C), Jan. 6,

1983, 96 Stat. 2181; renumbered Sec. 34 and amended Pub. L. 98-369,

div. A, title IV, Sec. 471(c), title IX, Sec. 911(d)(2)(A), July

18, 1984, 98 Stat. 826, 1006; Pub. L. 99-514, title XVII, Sec.

1703(e)(2)(F), title XVIII, Sec. 1877(a), Oct. 22, 1986, 100 Stat.

2778, 2902; Pub. L. 100-647, title I, Sec. 1017(c)(2), Nov. 10,

1988, 102 Stat. 3576; Pub. L. 104-188, title I, Sec. 1606(b)(1),

Aug. 20, 1996, 110 Stat. 1839; Pub. L. 105-206, title VI, Sec.

6023(24)(B), July 22, 1998, 112 Stat. 826.)

-REFTEXT-

REFERENCES IN TEXT

Section 6421(i), referred to in subsec. (a)(2), was repealed by

Pub. L. 103-66, title XIII, Sec. 13241(f)(7), Aug. 10, 1993, 107

Stat. 512.

-MISC1-

PRIOR PROVISIONS

A prior section 34, acts Aug. 16, 1954, ch. 736, 68A Stat. 13;

June 25, 1959, Pub. L. 86-69, Sec. 3(a)(1), 73 Stat. 139; Sept. 14,

1960, Pub. L. 86-779, Sec. 10(e), 74 Stat. 1009; Feb. 26, 1964,

Pub. L. 88-272, title II, Sec. 201(a), 78 Stat. 31, related to

dividends received by individuals, prior to repeal by Pub. L.

88-272, title II, Sec. 201(b), Feb. 26, 1964, 78 Stat. 31,

effective with respect to dividends received after Dec. 31, 1964.

AMENDMENTS

1998 - Subsec. (b). Pub. L. 105-206 substituted "section 6421(i)"

for "section 6421(j)".

1996 - Subsec. (a)(3). Pub. L. 104-188 amended par. (3)

generally. Prior to amendment, par. (3) read as follows: "under

section 6427 -

"(A) with respect to fuels used for nontaxable purposes or

resold, or

"(B) with respect to any qualified diesel-powered highway

vehicle purchased (or deemed purchased under section 6427(g)(6)),

during the taxable year (determined without regard to section

6427(k))."

1988 - Subsec. (b). Pub. L. 100-647 substituted "section 6421(j)

or 6427(k)" for "section 6421(i) or 6427(j)".

1986 - Subsec. (a)(3). Pub. L. 99-514, Sec. 1877(a), amended par.

(3) generally. Prior to amendment, par. (3) read as follows: "under

section 6427 with respect to fuels used for nontaxable purposes or

resold during the taxable year (determined without regard to

section 6427(j))."

Pub. L. 99-514, Sec. 1703(e)(2)(F), substituted "6427(k)" for

"6427(j)".

1984 - Pub. L. 98-369, Sec. 471(c), renumbered section 39 of this

title as this section.

Subsec. (a)(3). Pub. L. 98-369, Sec. 911(d)(2)(A), which directed

the amendment of par. (4) by substituting "6427(j)" for "6427(i)"

was executed to par. (3) to reflect the probable intent of Congress

and the redesignation of par. (4) as (3) by Pub. L. 97-424.

Subsec. (b). Pub. L. 98-369, Sec. 911(d)(2)(A), substituted

"6427(j)" for "6427(i)".

1983 - Pub. L. 97-424, Sec. 515(b)(6)(C), substituted "and

special fuels" for ", special fuels, and lubricating oil" after

"gasoline" in section catchline.

Subsec. (a)(2) to (4). Pub. L. 97-424, Sec. 515(b)(6)(A),

inserted "and" at end of par. (2), redesignated par. (4) as (3),

and struck out former (3) which referred to amounts payable to the

taxpayer under section 6424 with respect to lubricating oil used

during the taxable year for certain nontaxable purposes (determined

without regard to section 6424(f)).

Subsec. (b). Pub. L. 97-424, Sec. 515(b)(6)(B)(i), substituted

"6421 or 6427" for "6421, 6424, or 6427" after "amount payable

under".

Pub. L. 97-424, Sec. 515(b)(6)(B)(ii), substituted "6421(i) or

6427(i)" for "6421(i), 6424(f), or 6427(i)" after "and, under".

1980 - Subsec. (a)(4). Pub. L. 96-223 substituted "6427(i)" for

"6427(h)".

Subsec. (b). Pub. L. 96-223 substituted "6427(i)" for "6427(h)".

1978 - Subsec. (a)(3). Pub. L. 95-618 substituted "for certain

nontaxable purposes" for "otherwise than in a highway motor

vehicle".

Subsec. (a)(4). Pub. L. 95-599 substituted "6427(h)" for

"6427(g)".

Subsec. (b). Pub. L. 95-599 substituted "6427(h)" for "6427(g)".

1976 - Subsec. (a)(1). Pub. L. 94-455, Sec. 1906(b)(8),

substituted "6420(g)" for "6420(h)".

Subsec. (a)(3). Pub. L. 94-455, Sec. 1906(b)(9), substituted

"6424(f)" for "6424(g)".

Subsec. (a)(4). Pub. L. 94-530 substituted "6427(g)" for

"6427(f)".

Subsec. (b). Pub. L. 94-530, which directed the amendment of

subsec. (c) by substituting "6427(g)" for "6427(f)", was executed

to subsec. (b) to reflect the probable intent of Congress and the

redesignation of subsec. (c) as (b) by Pub. L. 94-455.

Pub. L. 94-455, Sec. 1901(a)(3), redesignated subsec. (c) as (b)

and substituted "section 6421(i), 6424(f), or 6427(f), is payable"

for "section 6421(i), 6424(g) or 6427(f) is payable". Former

subsec. (b), relating to determination of taxpayers first taxable

year with respect to tax credit for certain uses of gasoline and

lubricating oil, was struck out.

Subsec. (c). Pub. L. 94-455, Sec. 1901(a)(3), redesignated

subsec. (c) as (b).

1970 - Pub. L. 91-258, Sec. 207(c)(1), inserted reference to

special fuels in section catchline.

Subsec. (a)(4). Pub. L. 91-258, Sec. 207(c)(2), added par. (4).

Subsec. (c). Pub. L. 91-258, Sec. 207(c)(3), (4), inserted

references to sections 6427 and 6427(f), respectively.

EFFECTIVE DATE OF 1998 AMENDMENT

Pub. L. 105-206, title VI, Sec. 6023(32), July 22, 1998, 112

Stat. 826, provided that: "The amendments made by this section

[amending this section and sections 45A, 59, 72, 142, 501, 512,

543, 871, 1017, 1250, 3121, 3401, 4092, 4221, 4222, 4973, 4975,

6039, 6050R, 6103, 6416, 6421, 6427, 6501, 7434, 7702B, 7872, and

9502 of this title] shall take effect on the date of the enactment

of this Act [July 22, 1998]."

EFFECTIVE DATE OF 1996 AMENDMENT

Section 1606(c) of Pub. L. 104-188 provided that: "The amendments

made by this section [amending this section and section 6427 of

this title] shall apply to vehicles purchased after the date of the

enactment of this Act [Aug. 20, 1996]."

EFFECTIVE DATE OF 1988 AMENDMENT

Amendment by Pub. L. 100-647 effective, except as otherwise

provided, as if included in the provision of the Tax Reform Act of

1986, Pub. L. 99-514, to which such amendment relates, see section

1019(a) of Pub. L. 100-647, set out as a note under section 1 of

this title.

EFFECTIVE DATE OF 1986 AMENDMENT

Amendment by section 1703(e)(2)(F) of Pub. L. 99-514 applicable

to gasoline removed (as defined in section 4082 of this title as

amended by section 1703 of Pub. L. 99-514) after Dec. 31, 1987, see

section 1703(h) of Pub. L. 99-514 set out as a note under section

4081 of this title.

Amendment by section 1877(a) of Pub. L. 99-514 effective, except

as otherwise provided, as if included in the provisions of the Tax

Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment

relates, see section 1881 of Pub. L. 99-514, set out as a note

under section 48 of this title.

EFFECTIVE DATE OF 1984 AMENDMENT

Amendment by section 911(d)(2)(A) of Pub. L. 98-369 effective

Aug. 1, 1984, see section 911(e) of Pub. L. 98-369, set out as a

note under section 6427 of this title.

EFFECTIVE DATE OF 1983 AMENDMENT

Section 515(c) of Pub. L. 97-424 provided that: "The amendments

made by this section [amending sections 39 [now 34], 874, 882,

4101, 4102, 4221, 4222, 6201, 6206, 6416, 6421, 6504, 6675, 7210,

7603 to 7605, 7609, and 7610 of this title and repealing sections

4091 to 4094 and 6424 of this title] shall apply with respect to

articles sold after the date of the enactment of this Act [Jan. 6,

1983]."

EFFECTIVE DATE OF 1980 AMENDMENT

Amendment by Pub. L. 96-223 effective on Jan. 1, 1979, see

section 232(h)(2) of Pub. L. 96-223, set out as a note under

section 6427 of this title.

EFFECTIVE DATE OF 1978 AMENDMENTS

Section 233(d) of Pub. L. 95-618 provided that: "The amendments

made by this section [amending sections 39 [now 34], 4041, 4221,

4483, 6416, 6421, 6424, 6427, 6504, and 6675 of this title and

amending a provision set out as a note under section 120 of Title

23, Highways] shall take effect on the first day of the first

calendar month which begins more than 10 days after the date of the

enactment of this Act [Nov. 9, 1978]."

Amendment by Pub. L. 95-599 effective Jan. 1, 1979, see section

505(d) of Pub. L. 95-599, set out as a note under section 6427 of

this title.

EFFECTIVE DATE OF 1976 AMENDMENTS

Amendment by Pub. L. 94-530 effective on Oct. 1, 1976, see

section 1(d) of Pub. L. 94-530, set out as a note under section

4041 of this title.

Amendment by section 1901(a)(3) of Pub. L. 94-455 applicable with

respect to taxable years beginning after Dec. 31, 1976, see section

1901(d) of Pub. L. 94-455, set out as a note under section 2 of

this title.

Amendment by section 1906(b)(8), (9) of Pub. L. 94-455, to take

effect on Feb. 1, 1977, see section 1906(d) of Pub. L. 94-455, set

out as a note under section 6013 of this title.

EFFECTIVE DATE OF 1970 AMENDMENT

Amendment by Pub. L. 91-258 applicable with respect to taxable

years ending after June 30, 1970, see section 211(b) of Pub. L.

91-258, set out as a note under section 4041 of this title.

EFFECTIVE DATE

Section applicable to taxable years beginning on or after July 1,

1965, see section 809(f) of Pub. L. 89-44, set out as an Effective

Date of 1965 Amendment note under section 6420 of this title.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 774, 874, 882, 995, 1366,

1374, 1375, 1503, 4682, 6211, 6213, 6420, 6421, 6427, 9502, 9503,

9508 of this title.

-FOOTNOTE-

(!1) See References in Text note below.

-End-

-CITE-

26 USC Sec. 35 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter A - Determination of Tax Liability

PART IV - CREDITS AGAINST TAX

Subpart C - Refundable Credits

-HEAD-

Sec. 35. Health insurance costs of eligible individuals

-STATUTE-

(a) In general

In the case of an individual, there shall be allowed as a credit

against the tax imposed by subtitle A an amount equal to 65 percent

of the amount paid by the taxpayer for coverage of the taxpayer and

qualifying family members under qualified health insurance for

eligible coverage months beginning in the taxable year.

(b) Eligible coverage month

For purposes of this section -

(1) In general

The term "eligible coverage month" means any month if -

(A) as of the first day of such month, the taxpayer -

(i) is an eligible individual,

(ii) is covered by qualified health insurance, the premium

for which is paid by the taxpayer,

(iii) does not have other specified coverage, and

(iv) is not imprisoned under Federal, State, or local

authority, and

(B) such month begins more than 90 days after the date of the

enactment of the Trade Act of 2002.

(2) Joint returns

In the case of a joint return, the requirements of paragraph

(1)(A) shall be treated as met with respect to any month if at

least 1 spouse satisfies such requirements.

(c) Eligible individual

For purposes of this section -

(1) In general

The term "eligible individual" means -

(A) an eligible TAA recipient,

(B) an eligible alternative TAA recipient, and

(C) an eligible PBGC pension recipient.

(2) Eligible TAA recipient

The term "eligible TAA recipient" means, with respect to any

month, any individual who is receiving for any day of such month

a trade readjustment allowance under chapter 2 of title II of the

Trade Act of 1974 or who would be eligible to receive such

allowance if section 231 of such Act were applied without regard

to subsection (a)(3)(B) of such section. An individual shall

continue to be treated as an eligible TAA recipient during the

first month that such individual would otherwise cease to be an

eligible TAA recipient by reason of the preceding sentence.

(3) Eligible alternative TAA recipient

The term "eligible alternative TAA recipient" means, with

respect to any month, any individual who -

(A) is a worker described in section 246(a)(3)(B) of the

Trade Act of 1974 who is participating in the program

established under section 246(a)(1) of such Act, and

(B) is receiving a benefit for such month under section

246(a)(2) of such Act.

An individual shall continue to be treated as an eligible

alternative TAA recipient during the first month that such

individual would otherwise cease to be an eligible alternative

TAA recipient by reason of the preceding sentence.

(4) Eligible PBGC pension recipient

The term "eligible PBGC pension recipient" means, with respect

to any month, any individual who -

(A) has attained age 55 as of the first day of such month,

and

(B) is receiving a benefit for such month any portion of

which is paid by the Pension Benefit Guaranty Corporation under

title IV of the Employee Retirement Income Security Act of

1974.

(d) Qualifying family member

For purposes of this section -

(1) In general

The term "qualifying family member" means -

(A) the taxpayer's spouse, and

(B) any dependent of the taxpayer with respect to whom the

taxpayer is entitled to a deduction under section 151(c).

Such term does not include any individual who has other specified

coverage.

(2) Special dependency test in case of divorced parents, etc.

If paragraph (2) or (4) of section 152(e) applies to any child

with respect to any calendar year, in the case of any taxable

year beginning in such calendar year, such child shall be treated

as described in paragraph (1)(B) with respect to the custodial

parent (within the meaning of section 152(e)(1)) and not with

respect to the noncustodial parent.

(e) Qualified health insurance

For purposes of this section -

(1) In general

The term "qualified health insurance" means any of the

following:

(A) Coverage under a COBRA continuation provision (as defined

in section 9832(d)(1)).

(B) State-based continuation coverage provided by the State

under a State law that requires such coverage.

(C) Coverage offered through a qualified State high risk pool

(as defined in section 2744(c)(2) of the Public Health Service

Act).

(D) Coverage under a health insurance program offered for

State employees.

(E) Coverage under a State-based health insurance program

that is comparable to the health insurance program offered for

State employees.

(F) Coverage through an arrangement entered into by a State

and -

(i) a group health plan (including such a plan which is a

multiemployer plan as defined in section 3(37) of the

Employee Retirement Income Security Act of 1974),

(ii) an issuer of health insurance coverage,

(iii) an administrator, or

(iv) an employer.

(G) Coverage offered through a State arrangement with a

private sector health care coverage purchasing pool.

(H) Coverage under a State-operated health plan that does not

receive any Federal financial participation.

(I) Coverage under a group health plan that is available

through the employment of the eligible individual's spouse.

(J) In the case of any eligible individual and such

individual's qualifying family members, coverage under

individual health insurance if the eligible individual was

covered under individual health insurance during the entire

30-day period that ends on the date that such individual became

separated from the employment which qualified such individual

for -

(i) in the case of an eligible TAA recipient, the allowance

described in subsection (c)(2),

(ii) in the case of an eligible alternative TAA recipient,

the benefit described in subsection (c)(3)(B), or

(iii) in the case of any eligible PBGC pension recipient,

the benefit described in subsection (c)(4)(B).

For purposes of this subparagraph, the term "individual health

insurance" means any insurance which constitutes medical care

offered to individuals other than in connection with a group

health plan and does not include Federal- or State-based health

insurance coverage.

(2) Requirements for state-based coverage

(A) In general

The term "qualified health insurance" does not include any

coverage described in subparagraphs (B) through (H) of

paragraph (1) unless the State involved has elected to have

such coverage treated as qualified health insurance under this

section and such coverage meets the following requirements:

(i) Guaranteed issue

Each qualifying individual is guaranteed enrollment if the

individual pays the premium for enrollment or provides a

qualified health insurance costs credit eligibility

certificate described in section 7527 and pays the remainder

of such premium.

(ii) No imposition of preexisting condition exclusion

No pre-existing condition limitations are imposed with

respect to any qualifying individual.

(iii) Nondiscriminatory premium

The total premium (as determined without regard to any

subsidies) with respect to a qualifying individual may not be

greater than the total premium (as so determined) for a

similarly situated individual who is not a qualifying

individual.

(iv) Same benefits

Benefits under the coverage are the same as (or

substantially similar to) the benefits provided to similarly

situated individuals who are not qualifying individuals.

(B) Qualifying individual

For purposes of this paragraph, the term "qualifying

individual" means -

(i) an eligible individual for whom, as of the date on

which the individual seeks to enroll in the coverage

described in subparagraphs (B) through (H) of paragraph (1),

the aggregate of the periods of creditable coverage (as

defined in section 9801(c)) is 3 months or longer and who,

with respect to any month, meets the requirements of clauses

(iii) and (iv) of subsection (b)(1)(A); and

(ii) the qualifying family members of such eligible

individual.

(3) Exception

The term "qualified health insurance" shall not include -

(A) a flexible spending or similar arrangement, and

(B) any insurance if substantially all of its coverage is of

excepted benefits described in section 9832(c).

(f) Other specified coverage

For purposes of this section, an individual has other specified

coverage for any month if, as of the first day of such month -

(1) Subsidized coverage

(A) In general

Such individual is covered under any insurance which

constitutes medical care (except insurance substantially all of

the coverage of which is of excepted benefits described in

section 9832(c)) under any health plan maintained by any

employer (or former employer) of the taxpayer or the taxpayer's

spouse and at least 50 percent of the cost of such coverage

(determined under section 4980B) is paid or incurred by the

employer.

(B) Eligible alternative TAA recipients

In the case of an eligible alternative TAA recipient, such

individual is either -

(i) eligible for coverage under any qualified health

insurance (other than insurance described in subparagraph

(A), (B), or (F) of subsection (e)(1)) under which at least

50 percent of the cost of coverage (determined under section

4980B(f)(4)) is paid or incurred by an employer (or former

employer) of the taxpayer or the taxpayer's spouse, or

(ii) covered under any such qualified health insurance

under which any portion of the cost of coverage (as so

determined) is paid or incurred by an employer (or former

employer) of the taxpayer or the taxpayer's spouse.

(C) Treatment of cafeteria plans

For purposes of subparagraphs (A) and (B), the cost of

coverage shall be treated as paid or incurred by an employer to

the extent the coverage is in lieu of a right to receive cash

or other qualified benefits under a cafeteria plan (as defined

in section 125(d)).

(2) Coverage under Medicare, Medicaid, or SCHIP

Such individual -

(A) is entitled to benefits under part A of title XVIII of

the Social Security Act or is enrolled under part B of such

title, or

(B) is enrolled in the program under title XIX or XXI of such

Act (other than under section 1928 of such Act).

(3) Certain other coverage

Such individual -

(A) is enrolled in a health benefits plan under chapter 89 of

title 5, United States Code, or

(B) is entitled to receive benefits under chapter 55 of title

10, United States Code.

(g) Special rules

(1) Coordination with advance payments of credit

With respect to any taxable year, the amount which would (but

for this subsection) be allowed as a credit to the taxpayer under

subsection (a) shall be reduced (but not below zero) by the

aggregate amount paid on behalf of such taxpayer under section

7527 for months beginning in such taxable year.

(2) Coordination with other deductions

Amounts taken into account under subsection (a) shall not be

taken into account in determining any deduction allowed under

section 162(l) or 213.

(3) MSA distributions

Amounts distributed from an Archer MSA (as defined in section

220(d)) shall not be taken into account under subsection (a).

(4) Denial of credit to dependents

No credit shall be allowed under this section to any individual

with respect to whom a deduction under section 151 is allowable

to another taxpayer for a taxable year beginning in the calendar

year in which such individual's taxable year begins.

(5) Both spouses eligible individuals

The spouse of the taxpayer shall not be treated as a qualifying

family member for purposes of subsection (a), if -

(A) the taxpayer is married at the close of the taxable year,

(B) the taxpayer and the taxpayer's spouse are both eligible

individuals during the taxable year, and

(C) the taxpayer files a separate return for the taxable

year.

(6) Marital status; certain married individuals living apart

Rules similar to the rules of paragraphs (3) and (4) of section

21(e) shall apply for purposes of this section.

(7) Insurance which covers other individuals

For purposes of this section, rules similar to the rules of

section 213(d)(6) shall apply with respect to any contract for

qualified health insurance under which amounts are payable for

coverage of an individual other than the taxpayer and qualifying

family members.

(8) Treatment of payments

For purposes of this section -

(A) Payments by Secretary

Payments made by the Secretary on behalf of any individual

under section 7527 (relating to advance payment of credit for

health insurance costs of eligible individuals) shall be

treated as having been made by the taxpayer on the first day of

the month for which such payment was made.

(B) Payments by taxpayer

Payments made by the taxpayer for eligible coverage months

shall be treated as having been made by the taxpayer on the

first day of the month for which such payment was made.

(9) Regulations

The Secretary may prescribe such regulations and other guidance

as may be necessary or appropriate to carry out this section,

section 6050T, and section 7527.

-SOURCE-

(Added Pub. L. 107-210, div. A, title II, Sec. 201(a), Aug. 6,

2002, 116 Stat. 954.)

-REFTEXT-

REFERENCES IN TEXT

The date of the enactment of the Trade Act of 2002, referred to

in subsec. (b)(1)(B), is the date of enactment of Pub. L. 107-210,

which was approved Aug. 6, 2002.

The Trade Act of 1974, referred to in subsec. (c)(2), (3), is

Pub. L. 93-618, Jan. 3, 1975, 88 Stat. 1978, as amended. Chapter 2

of title II of the Act is classified generally to part 2 (Sec. 2271

et seq.) of subchapter II of chapter 12 of Title 19, Customs

Duties. Sections 231 and 246 of the Act are classified to sections

2291 and 2318 of Title 19, respectively. For complete

classification of this Act to the Code, see section 2101 of Title

19 and Tables.

The Employee Retirement Income Security Act of 1974, referred to

in subsecs. (c)(4)(B) and (e)(1)(F)(i), is Pub. L. 93-406, Sept. 2,

1974, 88 Stat. 829, as amended. Title IV of the Act is classified

principally to subchapter III (Sec. 1301 et seq.) of chapter 18 of

Title 29, Labor. Section 3(37) of the Act is classified to section

1002(37) of Title 29. For complete classification of this Act to

the Code, see Short Title note set out under section 1001 of Title

29 and Tables.

Section 2744(c)(2) of the Public Health Service Act, referred to

in subsec. (e)(1)(C), is classified to section 300gg-44(c)(2) of

Title 42, The Public Health and Welfare.

The Social Security Act, referred to in subsec. (f)(2), is act

Aug. 14, 1935, ch. 531, 49 Stat. 620, as amended. Parts A and B of

title XVIII of the Act are classified generally to parts A (Sec.

1395c et seq.) and B (Sec. 1395j et seq.), respectively, of

subchapter XVIII of chapter 7 of Title 42, The Public Health and

Welfare. Titles XIX and XXI of the Act are classified generally to

subchapters XIX (Sec. 1396 et seq.) and XXI (Sec. 1397aa et seq.),

respectively, of chapter 7 of Title 42. Section 1928 of the Act is

classified to section 1396s of Title 42. For complete

classification of this Act to the Code, see section 1305 of Title

42 and Tables.

-MISC1-

PRIOR PROVISIONS

A prior section 35 was renumbered section 36 of this title.

Another prior section 35, acts Aug. 16, 1954, ch. 736, 68A Stat.

14; Sept. 2, 1958, Pub. L. 85-866, title I, Sec. 41(b), 72 Stat.

1639; Feb. 26, 1964, Pub. L. 88-272, title II, Sec. 201(d)(2), 78

Stat. 32, related to partially tax-exempt interest received by

individuals, prior to repeal by Pub. L. 94-455, title XIX, Sec.

1901(a)(2), Oct. 4, 1976, 90 Stat. 1764, effective with respect to

taxable years beginning after Dec. 31, 1976.

EFFECTIVE DATE

Pub. L. 107-210, div. A, title II, Sec. 201(d), Aug. 6, 2002, 116

Stat. 960, provided that:

"(1) In general. - Except as provided in paragraph (2), the

amendments made by this section [enacting this section and section

300gg-45 of Title 42, The Public Health and Welfare, amending

section 1324 of Title 31, Money and Finance, and renumbering former

section 35 of this title as section 36 of this title] shall apply

to taxable years beginning after December 31, 2001.

"(2) State high risk pools. - The amendment made by subsection

(b) [enacting section 300gg-45 of Title 42] shall take effect on

the date of the enactment of this Act [Aug. 6, 2002]."

CONSTRUCTION

Nothing in title II of Pub. L. 107-210 or the amendments by that

title, other than provisions relating to COBRA continuation

coverage and reporting requirements, to be construed as creating a

new mandate on any party regarding health insurance coverage, see

section 203(f) of Pub. L. 107-210, set out as a Construction of

2002 Amendment note under section 2918 of Title 29, Labor.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 4980B, 7527 of this

title; title 19 section 2318; title 29 sections 1165, 2918; title

31 section 1324; title 42 section 300bb-5.

-End-

-CITE-

26 USC Sec. 36 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter A - Determination of Tax Liability

PART IV - CREDITS AGAINST TAX

Subpart C - Refundable Credits

-HEAD-

Sec. 36. Overpayments of tax

-STATUTE-

For credit against the tax imposed by this subtitle for

overpayments of tax, see section 6401.

-SOURCE-

(Aug. 16, 1954, ch. 736, 68A Stat. 16, Sec. 38; renumbered Sec. 39,

Pub. L. 87-834, Sec. 2(a), Oct. 16, 1962, 76 Stat. 962; renumbered

Sec. 40, Pub. L. 89-44, title VIII, Sec. 809(c), June 21, 1965, 79

Stat. 167; renumbered Sec. 42, Pub. L. 92-178, title VI, Sec.

601(a), Dec. 10, 1971, 85 Stat. 553; renumbered Sec. 43, Pub. L.

94-12, title II, Sec. 203(a), Mar. 29, 1975, 89 Stat. 29;

renumbered Sec. 44, Pub. L. 94-12, title II, Sec. 204(a), Mar. 29,

1975, 89 Stat. 30; renumbered Sec. 45, Pub. L. 94-12, title II,

Sec. 208(a), Mar. 29, 1975, 89 Stat. 32; renumbered Sec. 35, Pub.

L. 98-369, div. A, title IV, Sec. 471(c), July 18, 1984, 98 Stat.

826; renumbered Sec. 36, Pub. L. 107-210, div. A, title II, Sec.

201(a), Aug. 6, 2002, 116 Stat. 954.)

-MISC1-

PRIOR PROVISIONS

A prior section 36, acts Aug. 16, 1954, ch. 736, 68A Stat. 15;

Oct. 4, 1976, Pub. L. 94-455, title V, Sec. 501(b)(2), title X,

Sec. 1011(c), title XIX, Sec. 1901(b)(1)(A), 90 Stat. 1558, 1611,

1790, directed that credits provided by section 32 not be allowed

if an individual elects under section 144 to take standard

deduction, prior to repeal by Pub. L. 95-30, title I, Secs.

101(d)(3), 106(a), May 23, 1977, 91 Stat. 133, 141, applicable to

taxable years beginning after Dec. 31, 1976.

-End-

-CITE-

26 USC Subpart D - Business Related Credits 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter A - Determination of Tax Liability

PART IV - CREDITS AGAINST TAX

Subpart D - Business Related Credits

-HEAD-

SUBPART D - BUSINESS RELATED CREDITS

-MISC1-

Sec.

38. General business credit.

39. Carryback and carryforward of unused credits.

40. Alcohol used as fuel.

41. Credit for increasing research activities.

41.(!1) Employee stock ownership credit.

42. Low-income housing credit.

43. Enhanced oil recovery credit.

44. Expenditures to provide access to disabled

individuals.

45. Electricity produced from certain renewable resources.

45A. Indian employment credit.

45B. Credit for portion of employer social security taxes

paid with respect to employee cash tips.

45C. Clinical testing expenses for certain drugs for rare

diseases or conditions.

45D. New markets tax credit.

45E. Small employer pension plan startup costs.

45F. Employer-provided child care credit.

AMENDMENTS

2001 - Pub. L. 107-16, title VI, Sec. 619(c)(3), June 7, 2001,

115 Stat. 110, which directed the addition of item 45E at the end

of subpart D analysis, was executed by adding the item before item

45F, to reflect the probable intent of Congress.

Pub. L. 107-16, title II, Sec. 205(b)(2), June 7, 2001, 115 Stat.

53, added item 45F.

2000 - Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec. 121(d)], Dec.

21, 2000, 114 Stat. 2763, 2763A-610, added item 45D.

1996 - Pub. L. 104-188, title I, Sec. 1205(a)(3)(B), Aug. 20,

1996, 110 Stat. 1775, added item 45C.

1993 - Pub. L. 103-66, title XIII, Secs. 13322(e), 13443(c), Aug.

10, 1993, 107 Stat. 563, 569, added items 45A and 45B.

1992 - Pub. L. 102-486, title XIX, Sec. 1914(d), Oct. 24, 1992,

106 Stat. 3023, added item 45.

1990 - Pub. L. 101-508, title XI, Secs. 11511(c)(1), 11611(d),

Nov. 5, 1990, 104 Stat. 1388-485, 1388-503, added items 43 and 44.

1986 - Pub. L. 99-514, title II, Secs. 231(d)(3)(K), 252(d), Oct.

22, 1986, 100 Stat. 2180, 2205, added item 41 relating to credit

for increasing research activities and item 42.

1984 - Pub. L. 98-369, div. A, title IV, Sec. 471(b), July 18,

1984, 98 Stat. 826, added subpart D heading and analysis of

sections for subpart D, consisting of items 38 (new), 39 (new), 40

(formerly 44E), and 41 (formerly 44G). Former subpart D was

redesignated F.

-SECREF-

SUBPART REFERRED TO IN OTHER SECTIONS

This subpart is referred to in sections 53, 469, 6401 of this

title.

-FOOTNOTE-

(!1) Section 41 repealed by Pub. L. 99-514 without corresponding

amendment of subpart analysis.

-End-

-CITE-

26 USC Sec. 38 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter A - Determination of Tax Liability

PART IV - CREDITS AGAINST TAX

Subpart D - Business Related Credits

-HEAD-

Sec. 38. General business credit

-STATUTE-

(a) Allowance of credit

There shall be allowed as a credit against the tax imposed by

this chapter for the taxable year an amount equal to the sum of -

(1) the business credit carryforwards carried to such taxable

year,

(2) the amount of the current year business credit, plus

(3) the business credit carrybacks carried to such taxable

year.

(b) Current year business credit

For purposes of this subpart, the amount of the current year

business credit is the sum of the following credits determined for

the taxable year:

(1) the investment credit determined under section 46,

(2) the work opportunity credit determined under section 51(a),

(3) the alcohol fuels credit determined under section 40(a),

(4) the research credit determined under section 41(a),

(5) the low-income housing credit determined under section

42(a),

(6) the enhanced oil recovery credit under section 43(a),

(7) in the case of an eligible small business (as defined in

section 44(b)), the disabled access credit determined under

section 44(a),

(8) the renewable electricity production credit under section

45(a),

(9) the empowerment zone employment credit determined under

section 1396(a),

(10) the Indian employment credit as determined under section

45A(a),

(11) the employer social security credit determined under

section 45B(a),

(12) the orphan drug credit determined under section 45C(a),

(13) the new markets tax credit determined under section

45D(a),

(14) in the case of an eligible employer (as defined in section

45E(c)), the small employer pension plan startup cost credit

determined under section 45E(a), plus

(15) the employer-provided child care credit determined under

section 45F(a).

(c) Limitation based on amount of tax

(1) In general

The credit allowed under subsection (a) for any taxable year

shall not exceed the excess (if any) of the taxpayer's net income

tax over the greater of -

(A) the tentative minimum tax for the taxable year, or

(B) 25 percent of so much of the taxpayer's net regular tax

liability as exceeds $25,000.

For purposes of the preceding sentence, the term "net income tax"

means the sum of the regular tax liability and the tax imposed by

section 55, reduced by the credits allowable under subparts A and

B of this part, and the term "net regular tax liability" means

the regular tax liability reduced by the sum of the credits

allowable under subparts A and B of this part.

(2) Empowerment zone employment credit may offset 25 percent of

minimum tax

(A) In general

In the case of the empowerment zone employment credit credit

-

(i) this section and section 39 shall be applied separately

with respect to such credit, and

(ii) for purposes of applying paragraph (1) to such credit

-

(I) 75 percent of the tentative minimum tax shall be

substituted for the tentative minimum tax under

subparagraph (A) thereof, and

(II) the limitation under paragraph (1) (as modified by

subclause (I)) shall be reduced by the credit allowed under

subsection (a) for the taxable year (other than the

empowerment zone employment credit or the New York Liberty

Zone business employee credit).

(B) Empowerment zone employment credit

For purposes of this paragraph, the term "empowerment zone

employment credit" means the portion of the credit under

subsection (a) which is attributable to the credit determined

under section 1396 (relating to empowerment zone employment

credit).

(3) Special rules for New York Liberty Zone business employee

credit

(A) In general

In the case of the New York Liberty Zone business employee

credit -

(i) this section and section 39 shall be applied separately

with respect to such credit, and

(ii) in applying paragraph (1) to such credit -

(I) the tentative minimum tax shall be treated as being

zero, and

(II) the limitation under paragraph (1) (as modified by

subclause (I)) shall be reduced by the credit allowed under

subsection (a) for the taxable year (other than the New

York Liberty Zone business employee credit).

(B) New York Liberty Zone business employee credit

For purposes of this subsection, the term "New York Liberty

Zone business employee credit" means the portion of work

opportunity credit under section 51 determined under section

1400L(a).

(4) Special rules

(A) Married individuals

In the case of a husband or wife who files a separate return,

the amount specified under subparagraph (B) of paragraph (1)

shall be $12,500 in lieu of $25,000. This subparagraph shall

not apply if the spouse of the taxpayer has no business credit

carryforward or carryback to, and has no current year business

credit for, the taxable year of such spouse which ends within

or with the taxpayer's taxable year.

(B) Controlled groups

In the case of a controlled group, the $25,000 amount

specified under subparagraph (B) of paragraph (1) shall be

reduced for each component member of such group by apportioning

$25,000 among the component members of such group in such

manner as the Secretary shall by regulations prescribe. For

purposes of the preceding sentence, the term "controlled group"

has the meaning given to such term by section 1563(a).

(C) Limitations with respect to certain persons

In the case of a person described in subparagraph (A) or (B)

of section 46(e)(1) (as in effect on the day before the date of

the enactment of the Revenue Reconciliation Act of 1990), the

$25,000 amount specified under subparagraph (B) of paragraph

(1) shall equal such person's ratable share (as determined

under section 46(e)(2) (as so in effect) of such amount.

(D) Estates and trusts

In the case of an estate or trust, the $25,000 amount

specified under subparagraph (B) of paragraph (1) shall be

reduced to an amount which bears the same ratio to $25,000 as

the portion of the income of the estate or trust which is not

allocated to beneficiaries bears to the total income of the

estate or trust.

(d) Ordering rules

For purposes of any provision of this title where it is necessary

to ascertain the extent to which the credits determined under any

section referred to in subsection (b) are used in a taxable year or

as a carryback or carryforward -

(1) In general

The order in which such credits are used shall be determined on

the basis of the order in which they are listed in subsection (b)

as of the close of the taxable year in which the credit is used.

(2) Components of investment credit

The order in which the credits listed in section 46 are used

shall be determined on the basis of the order in which such

credits are listed in section 46 as of the close of the taxable

year in which the credit is used.

(3) Credits no longer listed

For purposes of this subsection -

(A) the credit allowable by section 40, as in effect on the

day before the date of the enactment of the Tax Reform Act of

1984, (relating to expenses of work incentive programs) and the

credit allowable by section 41(a), as in effect on the day

before the date of the enactment of the Tax Reform Act of 1986,

(relating to employee stock ownership credit) shall be treated

as referred to in that order after the last paragraph of

subsection (b), and

(B) the credit determined under section 46 -

(i) to the extent attributable to the employee plan

percentage (as defined in section 46(a)(2)(E) as in effect on

the day before the date of the enactment of the Tax Reform

Act of 1984) shall be treated as a credit listed after

paragraph (1) of section 46, and

(ii) to the extent attributable to the regular percentage

(as defined in section 46(b)(1) as in effect on the day

before the date of the enactment of the Revenue

Reconciliation Act of 1990) shall be treated as the first

credit listed in section 46.

-SOURCE-

(Added and amended Pub. L. 98-369, div. A, title IV, Sec. 473,

title VI, Sec. 612(e)(1), July 18, 1984, 98 Stat. 827, 912; Pub. L.

99-514, title II, Secs. 221(a), 231(d)(1), (3)(B), 252(b), title

VII, Sec. 701(c)(4), title XI, Sec. 1171(b)(1), (2), Oct. 22, 1986,

100 Stat. 2173, 2178, 2179, 2205, 2341, 2513; Pub. L. 100-647,

title I, Secs. 1002(e)(8)(A), 1007(g)(2), (8), Nov. 10, 1988, 102

Stat. 3368, 3434, 3435; Pub. L. 101-508, title XI, Secs.

11511(b)(1), 11611(b)(1), 11813(b)(2), Nov. 5, 1990, 104 Stat.

1388-485, 1388-503, 1388-551; Pub. L. 102-486, title XIX, Sec.

1914(b), Oct. 24, 1992, 106 Stat. 3023; Pub. L. 103-66, title XIII,

Secs. 13302(a)(1), (c)(1), 13322(a), 13443(b)(1), Aug. 10, 1993,

107 Stat. 555, 559, 569; Pub. L. 104-188, title I, Secs.

1201(e)(1), 1205(a)(2), 1702(e)(4), Aug. 20, 1996, 110 Stat. 1772,

1775, 1870; Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec.

121(b)(1)], Dec. 21, 2000, 114 Stat. 2763, 2763A-609; Pub. L.

107-16, title II, Sec. 205(b)(1), title VI, Sec. 619(b), June 7,

2001, 115 Stat. 53, 110; Pub. L. 107-147, title III, Sec.

301(b)(1), (2), title IV, Sec. 411(d)(2), Mar. 9, 2002, 116 Stat.

39, 46.)

-STATAMEND-

AMENDMENT OF SECTION

For termination of amendment by section 901 of Pub. L. 107-16,

see Effective and Termination Dates of 2001 Amendment note below.

-REFTEXT-

REFERENCES IN TEXT

For reference to section 51 of this title, referred to in subsec.

(b), treated as including reference to section 51A of this title,

see section 51A(d)(2) of this title.

The date of the enactment of the Revenue Reconciliation Act of

1990, referred to in subsecs. (c)(4)(C) and (d)(3)(B)(ii), is the

date of enactment of Pub. L. 101-508, which was approved Nov. 5,

1990.

The date of the enactment of the Tax Reform Act of 1984, referred

to in subsec. (d)(3)(A), (B)(i), is the date of enactment of Pub.

L. 98-369, which was approved July 18, 1984.

The date of the enactment of the Tax Reform Act of 1986, referred

to in subsec. (d)(3)(A), is the date of enactment of Pub. L.

99-514, which was approved Oct. 22, 1986.

-MISC1-

PRIOR PROVISIONS

A prior section 38, added Pub. L. 87-834, Sec. 2(a), Oct. 16,

1962, 76 Stat. 962; amended Pub. L. 94-455, title XIX, Sec.

1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834, related to investment

in certain depreciable property, prior to repeal by Pub. L. 98-369,

div. A, title IV, Sec. 474(m)(1), July 18, 1984, 98 Stat. 833.

Another prior section 38 was renumbered section 36 of this title.

AMENDMENTS

2002 - Subsec. (b)(15). Pub. L. 107-147, Sec. 411(d)(2),

substituted "45F(a)" for "45F".

Subsec. (c)(2)(A)(ii)(II). Pub. L. 107-147, Sec. 301(b)(2),

inserted "or the New York Liberty Zone business employee credit"

after "employment credit".

Subsec. (c)(3), (4). Pub. L. 107-147, Sec. 301(b)(1), added par.

(3) and redesignated former par. (3) as (4).

2001 - Subsec. (b)(12). Pub. L. 107-16, Secs. 619(b), 901,

temporarily struck out "plus" at end. See Effective and Termination

Dates of 2001 Amendment note below.

Subsec. (b)(13). Pub. L. 107-16, Secs. 619(b), 901, temporarily

substituted ", plus" for period at end. See Effective and

Termination Dates of 2001 Amendment note below.

Pub. L. 107-16, Secs. 205(b)(1), 901, temporarily struck out

"plus" at end. See Effective and Termination Dates of 2001

Amendment note below.

Subsec. (b)(14). Pub. L. 107-16, Secs. 619(b), 901, temporarily

added par. (14). See Effective and Termination Dates of 2001

Amendment note below.

Pub. L. 107-16, Secs. 205(b)(1), 901, temporarily substituted ",

plus" for period at end. See Effective and Termination Dates of

2001 Amendment note below.

Subsec. (b)(15). Pub. L. 107-16, Secs. 205(b)(1), 901,

temporarily added par. (15). See Effective and Termination Dates of

2001 Amendment note below.

2000 - Subsec. (b)(13). Pub. L. 106-554 added par. (13).

1996 - Subsec. (b)(2). Pub. L. 104-188, Sec. 1201(e)(1),

substituted "work opportunity credit" for "targeted jobs credit".

Subsec. (b)(12). Pub. L. 104-188, Sec. 1205(a)(2), added par.

(12).

Subsec. (c)(2)(C). Pub. L. 104-188, Sec. 1702(e)(4), amended

subpar. (C), as in effect on day before date of enactment of the

Revenue Reconciliation Act of 1990 (title XI of Pub. L. 101-508,

approved Nov. 5, 1990), by inserting before period at end of first

sentence "and without regard to the deduction under section 56(h)".

1993 - Subsec. (b)(7). Pub. L. 103-66, Sec. 13302(a)(1), struck

out "plus" at end.

Subsec. (b)(8). Pub. L. 103-66, Sec. 13322(a), which directed

amendment of par. (8) by striking "plus" at end, was executed by

striking "and" at end to reflect the probable intent of Congress.

Pub. L. 103-66, Sec. 13302(a)(1), substituted ", and" for period

at end.

Subsec. (b)(9). Pub. L. 103-66, Sec. 13443(b)(1), struck out

"plus" at end.

Pub. L. 103-66, Sec. 13322(a), substituted ", plus" for period at

end.

Pub. L. 103-66, Sec. 13302(a)(1), added par. (9).

Subsec. (b)(10). Pub. L. 103-66, Sec. 13443(b)(1), substituted ",

plus" for period at end.

Pub. L. 103-66, Sec. 13322(a), added par. (10).

Subsec. (b)(11). Pub. L. 103-66, Sec. 13443(b)(1), added par.

(11).

Subsec. (c)(2), (3). Pub. L. 103-66, Sec. 13302(c)(1), added par.

(2) and redesignated former par. (2) as (3).

1992 - Subsec. (b)(6) to (8). Pub. L. 102-486 struck out "plus"

at end of par. (6), substituted "; plus" for period at end of par.

(7), and added par. (8).

1990 - Subsec. (b)(1). Pub. L. 101-508, Sec. 11813(b)(2)(A),

substituted "section 46" for "section 46(a)".

Subsec. (b)(4). Pub. L. 101-508, Sec. 11511(b)(1), struck out

"plus" at end.

Subsec. (b)(5). Pub. L. 101-508, Sec. 11611(b)(1), struck out

"plus" at end.

Pub. L. 101-508, Sec. 11511(b)(1), substituted ", plus" for

period at end.

Subsec. (b)(6). Pub. L. 101-508, Sec. 11611(b)(1), substituted ",

plus" for period at end.

Pub. L. 101-508, Sec. 11511(b)(1), added par. (6).

Subsec. (b)(7). Pub. L. 101-508, Sec. 11611(b)(1), added par.

(7).

Subsec. (c)(2). Pub. L. 101-508, Sec. 11813(b)(2)(B),

redesignated par. (3) as (2) and struck out former par. (2) which

permitted an offset of regular investment tax credit against 25

percent of minimum tax.

Subsec. (c)(2)(C). Pub. L. 101-508, Sec. 11813(b)(2)(C), inserted

"(as in effect on the day before the date of the enactment of the

Revenue Reconciliation Act of 1990)" after "46(e)(1)" and "(as so

in effect)" after "46(e)(2)".

Subsec. (c)(3). Pub. L. 101-508, Sec. 11813(b)(2)(B),

redesignated par. (3) as (2).

Subsec. (d). Pub. L. 101-508, Sec. 11813(b)(2)(D)(i), substituted

"any provision" for "sections 46(f), 47(a), 196(a), and any other

provision" in introductory provisions.

Subsec. (d)(2). Pub. L. 101-508, Sec. 11813(b)(2)(D)(ii), amended

par. (2) generally. Prior to amendment, par. (2) read as follows:

"The order in which credits attributable to a percentage referred

to in section 46(a) are used shall be determined on the basis of

the order in which such percentages are listed in section 46(a) as

of the close of the taxable year in which the credit is used."

Subsec. (d)(3)(B). Pub. L. 101-508, Sec. 11813(b)(2)(D)(iii),

amended subpar. (B) generally. Prior to amendment, subpar. (B) read

as follows: "the employee plan percentage (as defined in section

46(a)(2)(E), as in effect on the day before the date of the

enactment of the Tax Reform Act of 1984) shall be treated as

referred to after section 46(a)(2)."

1988 - Subsec. (c). Pub. L. 100-647, Sec. 1007(g)(2), amended

pars. (1) to (3) generally, substituting pars. (1) and (2) for

former pars. (1) to (3), redesignating former par. (4) as (3), and

substituting "subparagraph (B) of paragraph (1)" for "subparagraphs

(A) and (B) of paragraph (1)" in subpars. (A), (B), (C), and (D).

Pub. L. 100-647, Sec. 1007(g)(8), made technical correction to

directory language of Pub. L. 99-514, Sec. 701(c)(4), see 1986

Amendment note below.

Subsec. (d). Pub. L. 100-647, Sec. 1002(e)(8)(A), substituted

"Ordering rules" for "Special rules for certain regulated

companies" in heading and amended text generally. Prior to

amendment, text read as follows: "In the case of any taxpayer to

which section 46(f) applies, for purposes of sections 46(f), 47(a),

and 196(a) and any other provision of this title where it is

necessary to ascertain the extent to which the credits determined

under section 40(a), 41(a), 42(a), 46(a), or 51(a) are used in a

taxable year or as a carryback or carryforward, the order in which

such credits are used shall be determined on the basis of the order

in which they are listed in subsection (b)."

1986 - Subsec. (b)(4). Pub. L. 99-514, Sec. 231(d)(1), added par.

(4).

Pub. L. 99-514, Sec. 1171(b)(1), struck out former par. (4) which

read as follows: "the employee stock ownership credit determined

under section 41(a)".

Subsec. (b)(5). Pub. L. 99-514, Sec. 252(b)(1), added par. (5).

Subsec. (c). Pub. L. 99-514, Sec. 701(c)(4), as amended by Pub.

L. 100-647, Sec. 1007(g)(8), added pars. (1) to (3), redesignated

former par. (3) as (4), and struck out former par. (1) "In general"

which provided: "The credit allowed under subsection (a) for any

taxable year shall not exceed the sum of -

"(A) so much of the taxpayer's net tax liability for the

taxable year as does not exceed $25,000, plus

"(B) 75 percent of so much of the taxpayer's net tax liability

for the taxable year as exceeds $25,000."

and former par. (2) "Net tax liability", which provided: "For

purposes of paragraph (1), the term 'net tax liability' means the

tax liability (as defined in section 26(b)), reduced by the sum of

the credits allowable under subparts A and B of this part."

Subsec. (c)(1)(B). Pub. L. 99-514, Sec. 221(a), substituted "75

percent" for "85 percent".

Subsec. (d). Pub. L. 99-514, Sec. 252(b)(2), inserted "42(a),".

Pub. L. 99-514, Sec. 1171(b)(2), substituted "and 196(a)" for

"196(a), and 404(i)" and struck out "41(a)," after "40(a)".

Pub. L. 99-514, Sec. 231(d)(3)(B), inserted "41(a)," after

"40(a),".

1984 - Subsec. (c)(2). Pub. L. 98-369, Sec. 612(e)(1),

substituted "section 26(b)" for "section 25(b)".

EFFECTIVE DATE OF 2002 AMENDMENT

Pub. L. 107-147, title III, Sec. 301(b)(3), Mar. 9, 2002, 116

Stat. 40, provided that: "The amendments made by this subsection

[amending this section] shall apply to taxable years ending after

December 31, 2001."

Amendment by section 411(d)(2) of Pub. L. 107-147 effective as if

included in the provisions of the Economic Growth and Tax Relief

Reconciliation Act of 2001, Pub. L. 107-16, to which such amendment

relates, see section 411(x) of Pub. L. 107-147, set out as a note

under section 25B of this title.

EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT

Pub. L. 107-16, title II, Sec. 205(c), June 7, 2001, 115 Stat.

53, provided that: "The amendments made by this section [enacting

section 45F of this title and amending this section and section

1016 of this title] shall apply to taxable years beginning after

December 31, 2001."

Pub. L. 107-16, title VI, Sec. 619(d), June 7, 2001, 115 Stat.

110, as amended by Pub. L. 107-147, title IV, Sec. 411(n)(2), Mar.

9, 2002, 116 Stat. 48, provided that: "The amendments made by this

section [enacting section 45E of this title and amending this

section and sections 39 and 196 of this title] shall apply to costs

paid or incurred in taxable years beginning after December 31,

2001, with respect to qualified employer plans first effective

after such date."

Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or

limitation years beginning after Dec. 31, 2010, and the Internal

Revenue Code of 1986 to be applied and administered to such years

as if such amendment had never been enacted, see section 901 of

Pub. L. 107-16, set out as a note under section 1 of this title.

EFFECTIVE DATE OF 2000 AMENDMENT

Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec. 121(e)], Dec. 21,

2000, 114 Stat. 2763, 2763A-610, provided that: "The amendments

made by this section [enacting section 45D of this title, amending

this section and sections 39 and 196 of this title, and enacting

provisions set out as notes under section 45D of this title] shall

apply to investments made after December 31, 2000."

EFFECTIVE DATE OF 1996 AMENDMENT

Section 1201(g) of Pub. L. 104-188 provided that: "The amendments

made by this section [amending this section and sections 41, 45A,

51, 196, and 1396 of this title] shall apply to individuals who

begin work for the employer after September 30, 1996."

Amendment by section 1205(a)(2) of Pub. L. 104-188 applicable to

amounts paid or incurred in taxable years ending after June 30,

1996, see section 1205(e) of Pub. L. 104-188, set out as a note

under section 29 of this title.

Section 1702(i) of Pub. L. 104-188 provided that: "Except as

otherwise expressly provided, any amendment made by this section

[amending this section, sections 50, 56, 59, 143, 151, 168, 172,

179, 243, 280F, 341, 424, 460, 613A, 805, 832, 861, 897, 1248,

1250, 1367, 1504, 2701, 2702, 2704, 4093, 4975, 5041, 5061, 5354,

6038A, 6302, 6416, 6427, 6501, 6503, 6621, 6724, and 7012 of this

title, and provisions set out as a note under section 42 of this

title] shall take effect as if included in the provision of the

Revenue Reconciliation Act of 1990 [Pub. L. 101-508, title XI] to

which such amendment relates."

EFFECTIVE DATE OF 1993 AMENDMENT

Section 13303 of Pub. L. 103-66 provided that: "The amendments

made by this part [part I (Secs. 13301-13303) of subchapter C of

chapter 1 of title XIII of Pub. L. 103-66, enacting sections 1391

to 1394 and 1396 to 1397D of this title and amending this section

and sections 39, 51, 196, 280C, and 381 of this title] shall take

effect on the date of the enactment of this Act [Aug. 10, 1993]."

Section 13322(f) of Pub. L. 103-66 provided that: "The amendments

made by this section [enacting section 45A of this title and

amending this section and sections 39, 196, and 280C of this title]

shall apply to wages paid or incurred after December 31, 1993."

Section 13443(d) of Pub. L. 103-66, as amended by Pub. L.

104-188, title I, Sec. 1112(a)(2), Aug. 20, 1996, 110 Stat. 1759,

provided that: "The amendments made by this section [enacting

section 45B of this title and amending this section and section 39

of this title] shall apply with respect to taxes paid after

December 31, 1993, with respect to services performed before, on,

or after such date."

EFFECTIVE DATE OF 1992 AMENDMENT

Section 1914(e) of Pub. L. 102-486 provided that: "The amendments

made by this section [enacting section 45 of this title and

amending this section and section 39 of this title] shall apply to

taxable years ending after December 31, 1992."

EFFECTIVE DATE OF 1990 AMENDMENT

Amendment by section 11511(b)(1) of Pub. L. 101-508 applicable to

costs paid or incurred in taxable years beginning after Dec. 31,

1990, see section 11511(d)(1) of Pub. L. 101-508, set out as an

Effective Date note under section 43 of this title.

Section 11611(e) of Pub. L. 101-508 provided that:

"(1) In general. - Except as provided in paragraph (2), the

amendments made by this section [enacting section 44 of this title

and amending this section and sections 39 and 190 of this title]

shall apply to expenditures paid or incurred after the date of the

enactment of this Act [Nov. 5, 1990].

"(2) Subsection (c). - The amendment made by subsection (c)

[amending section 190 of this title] shall apply to taxable years

beginning after the date of the enactment of this Act."

Amendment by section 11813(b)(2) of Pub. L. 101-508 applicable to

property placed in service after Dec. 31, 1990, but not applicable

to any transition property (as defined in section 49(e) of this

title), any property with respect to which qualified progress

expenditures were previously taken into account under section 46(d)

of this title, and any property described in section 46(b)(2)(C) of

this title, as such sections were in effect on Nov. 4, 1990, see

section 11813(c) of Pub. L. 101-508, set out as a note under

section 29 of this title.

EFFECTIVE DATE OF 1988 AMENDMENT

Section 1002(e)(8)(C) of Pub. L. 100-647 provided that: "The

amendments made by this paragraph [amending this section and

section 49 of this title] shall apply to taxable years beginning

after December 31, 1983, and to carrybacks from such years."

Amendment by section 1007(g)(2), (8) of Pub. L. 100-647

effective, except as otherwise provided, as if included in the

provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which

such amendment relates, see section 1019(a) of Pub. L. 100-647, set

out as a note under section 1 of this title.

EFFECTIVE DATE OF 1986 AMENDMENT

Section 221(b) of Pub. L. 99-514 provided that: "The amendment

made by subsection (a) [amending this section] shall apply to

taxable years beginning after December 31, 1985."

Amendment by section 231(d)(1), (3)(B) of Pub. L. 99-514

applicable to taxable years beginning after Dec. 31, 1985, see

section 231(g) of Pub. L. 99-514, set out as a note under section

41 of this title.

Amendment by section 252(b) of Pub. L. 99-514 applicable to

buildings placed in service after Dec. 31, 1986, in taxable years

ending after such date, see section 252(e) of Pub. L. 99-514, set

out as an Effective Date note under section 42 of this title.

Amendment by section 701(c)(4) of Pub. L. 99-514 applicable to

taxable years beginning after Dec. 31, 1986, with certain

exceptions and qualifications, see section 701(f) of Pub. L.

99-514, set out as an Effective Date note under section 55 of this

title.

Section 1171(c) of Pub. L. 99-514 provided that:

"(1) In general. - Except as provided in paragraph (2), the

amendments made by this section [amending this section and sections

56, 108, 401, and 404 of this title and repealing sections 41 and

6699 of this title] shall apply to compensation paid or accrued

after December 31, 1986, in taxable years ending after such date.

"(2) Sections 404(i) and 6699 to continue to apply to pre-1987

credits. - The provisions of sections 404(i) and 6699 of the

Internal Revenue Code of 1986 shall continue to apply with respect

to credits under section 41 of such Code attributable to

compensation paid or accrued before January 1, 1987 (or under

section 38 of such Code with respect to qualified investment before

January 1, 1983)."

EFFECTIVE DATE OF 1984 AMENDMENT

Amendment by Pub. L. 98-369 applicable to interest paid or

accrued after December 31, 1984, on indebtedness incurred after

December 31, 1984, see section 612(g) of Pub. L. 98-369, set out as

an Effective Date note under section 25 of this title.

EFFECTIVE DATE

Section applicable to taxable years beginning after Dec. 31,

1983, and to carrybacks from such years, see section 475(a) of Pub.

L. 98-369, set out as an Effective Date of 1984 Amendment note

under section 21 of this title.

SAVINGS PROVISION

For provisions that nothing in amendment by section 11813(b)(2)

of Pub. L. 101-508 be construed to affect treatment of certain

transactions occurring, property acquired, or items of income,

loss, deduction, or credit taken into account prior to Nov. 5,

1990, for purposes of determining liability for tax for periods

ending after Nov. 5, 1990, see section 11821(b) of Pub. L. 101-508,

set out as a note under section 29 of this title.

CREDIT FOR CONTRIBUTIONS TO CERTAIN COMMUNITY DEVELOPMENT

CORPORATIONS

Section 13311 of Pub. L. 103-66, as amended by Pub. L. 104-188,

title I, Sec. 1703(n)(13), Aug. 20, 1996, 110 Stat. 1877, provided

that:

"(a) In General. - For purposes of section 38 of the Internal

Revenue Code of 1986, the current year business credit shall

include the credit determined under this section.

"(b) Determination of Credit. - The credit determined under this

section for each taxable year in the credit period with respect to

any qualified CDC contribution made by the taxpayer is an amount

equal to 5 percent of such contribution.

"(c) Credit Period. - For purposes of this section, the credit

period with respect to any qualified CDC contribution is the period

of 10 taxable years beginning with the taxable year during which

such contribution was made.

"(d) Qualified CDC Contribution. - For purposes of this section -

"(1) In general. - The term 'qualified CDC contribution' means

any transfer of cash -

"(A) which is made to a selected community development

corporation during the 5-year period beginning on the date such

corporation was selected for purposes of this section,

"(B) the amount of which is available for use by such

corporation for at least 10 years,

"(C) which is to be used by such corporation for qualified

low-income assistance within its operational area, and

"(D) which is designated by such corporation for purposes of

this section.

"(2) Limitations on amount designated. - The aggregate amount

of contributions to a selected community development corporation

which may be designated by such corporation shall not exceed

$2,000,000.

"(e) Selected Community Development Corporations. -

"(1) In general. - For purposes of this section, the term

'selected community development corporation' means any

corporation -

"(A) which is described in section 501(c)(3) of such Code and

exempt from tax under section 501(a) of such Code,

"(B) the principal purposes of which include promoting

employment of, and business opportunities for, low-income

individuals who are residents of the operational area, and

"(C) which is selected by the Secretary of Housing and Urban

Development for purposes of this section.

"(2) Only 20 corporations may be selected. - The Secretary of

Housing and Urban Development may select 20 corporations for

purposes of this section, subject to the availability of eligible

corporations. Such selections may be made only before July 1,

1994. At least 8 of the operational areas of the corporations

selected must be rural areas (as defined by section 1393(a)(2) of

such Code).

"(3) Operational areas must have certain characteristics. - A

corporation may be selected for purposes of this section only if

its operational area meets the following criteria:

"(A) The area meets the size requirements under section

1392(a)(3).

"(B) The unemployment rate (as determined by the appropriate

available data) is not less than the national unemployment

rate.

"(C) The median family income of residents of such area does

not exceed 80 percent of the median gross income of residents

of the jurisdiction of the local government which includes such

area.

"(f) Qualified Low-Income Assistance. - For purposes of this

section, the term 'qualified low-income assistance' means

assistance -

"(1) which is designed to provide employment of, and business

opportunities for, low-income individuals who are residents of

the operational area of the community development corporation,

and

"(2) which is approved by the Secretary of Housing and Urban

Development."

APPLICABILITY OF CERTAIN AMENDMENTS BY PUBLIC LAW 99-514 IN

RELATION TO TREATY OBLIGATIONS OF UNITED STATES

For applicability of amendment by section 701(c)(4) of Pub. L.

99-514 notwithstanding any treaty obligation of the United States

in effect on Oct. 22, 1986, with provision that for such purposes

any amendment by title I of Pub. L. 100-647 be treated as if it had

been included in the provision of Pub. L. 99-514 to which such

amendment relates, see section 1012(aa)(2), (4) of Pub. L. 100-647,

set out as a note under section 861 of this title.

EFFECTIVE 15-YEAR CARRYBACK OF EXISTING CARRYFORWARDS OF STEEL

COMPANIES

Section 212 of Pub. L. 99-514, as amended by Pub. L. 100-647,

title I, Sec. 1002(f), Nov. 10, 1988, 102 Stat. 3369, provided

that:

"(a) General Rule. - If a qualified corporation makes an election

under this section for its 1st taxable year beginning after

December 31, 1986, with respect to any portion of its existing

carryforwards, the amount determined under subsection (b) shall be

treated as a payment against the tax imposed by chapter 1 of the

Internal Revenue Code of 1986 made by such corporation on the last

day prescribed by law (without regard to extensions) for filing its

return of tax under chapter 1 of such Code for such 1st taxable

year.

"(b) Amount. - For purposes of subsection (a), the amount

determined under this subsection shall be the lesser of -

"(1) 50 percent of the portion of the corporation's existing

carryforwards to which the election under subsection (a) applies,

or

"(2) the corporation's net tax liability for the carryback

period.

"(c) Corporation Making Election May Not Use Same Amounts Under

Section 38. - In the case of a qualified corporation which makes an

election under subsection (a), the portion of such corporation's

existing carryforwards to which such an election applies shall not

be taken into account under section 38 of the Internal Revenue Code

of 1986 for any taxable year beginning after December 31, 1986.

"(d) Net Tax Liability for Carryback Period. - For purposes of

this section -

"(1) In general. - A corporation's net tax liability for the

carryback period is the aggregate of such corporation's net tax

liability for taxable years in the carryback period.

"(2) Net tax liability. - The term 'net tax liability' means,

with respect to any taxable year, the amount of the tax imposed

by chapter 1 of the Internal Revenue Code of 1954 [now 1986] for

such taxable year, reduced by the sum of the credits allowable

under part IV of subchapter A of such chapter 1 (other than

section 34 thereof). For purposes of the preceding sentence, any

tax treated as not imposed by chapter 1 of such Code under

section 26(b)(2) of such Code shall not be treated as tax imposed

by such chapter 1.

"(3) Carryback period. - The term 'carryback period' means the

period -

"(A) which begins with the corporation's 15th taxable year

preceding the 1st taxable year from which there is an unused

credit included in such corporation's existing carryforwards

(but in no event shall such period begin before the

corporation's 1st taxable year ending after December 31, 1961),

and

"(B) which ends with the corporation's last taxable year

beginning before January 1, 1986.

"(e) No Recomputation of Minimum Tax, Etc. - Nothing in this

section shall be construed to affect -

"(1) the amount of the tax imposed by section 56 of the

Internal Revenue Code of 1986, or

"(2) the amount of any credit allowable under such Code,

for any taxable year in the carryback period.

"(f) Reinvestment Requirement. -

"(1) In general. - Any amount determined under this section

must be committed to reinvestment in, and modernization of the

steel industry through investment in modern plant and equipment,

research and development, and other appropriate projects, such as

working capital for steel operations and programs for the

retraining of steel workers.

"(2) Special rule. - In the case of the LTV Corporation, in

lieu of the requirements of paragraph (1) -

"(A) such corporation shall place such refund in a separate

account; and

"(B) amounts in such separate account -

"(i) shall only be used by the corporation -

"(I) to purchase an insurance policy which provides that, in

the event the corporation becomes involved in a title 11 or

similar case (as defined in section 368(a)(3)(A) of the

Internal Revenue Code of 1954 [now 1986]), the insurer will

provide life and health insurance coverage during the 1-year

period beginning on the date when the corporation receives

the refund to any individual with respect to whom the

corporation would (but for such involvement) have been

obligated to provide such coverage the coverage provided by

the insurer will be identical to the coverage which the

corporation would (but for such involvement) have been

obligated to provide, and provides that the payment of

insurance premiums will not be required during such 1-year

period to keep such policy in force, or

"(II) directly in connection with the trade or business of the

corporation in the manufacturer or production of steel; and

"(ii) shall be used (or obligated) for purposes described

in clause (i) not later than 3 months after the corporation

receives the refund.

"(3) In the case of a qualified corporation, no offset to any

refund under this section may be made by reason of any tax

imposed by section 4971 of the Internal Revenue Code of 1986 (or

any interest or penalty attributable to any such tax), and the

date on which any such refund is to be paid shall be determined

without regard to such corporation's status under title 11,

United States Code.

"(g) Definitions. - For purposes of this section -

"(1) Qualified corporation. -

"(A) In general. - The term 'qualified corporation' means any

corporation which is described in section 806(b) of the Steel

Import Stabilization Act [19 U.S.C. 2253 note] and a company

which was incorporated on February 11, 1983, in Michigan.

"(B) Certain predecessors included. - In the case of any

qualified corporation which has carryforward attributable to a

predecessor corporation described in such section 806(b), the

qualified corporation and the predecessor corporation shall be

treated as 1 corporation for purposes of subsections (d) and

(e).

"(2) Existing carryforwards. - The term 'existing carryforward'

means the aggregate of the amounts which -

"(A) are unused business credit carryforwards to the

taxpayer's 1st taxable year beginning after December 31, 1986

(determined without regard to the limitations of section 38(c)

and any reduction under section 49 of the Internal Revenue Code

of 1986), and

"(B) are attributable to the amount of the regular investment

credit determined for periods before January 1, 1986, under

section 46(a)(1) of such Code (relating to regular percentage),

or any corresponding provision of prior law, determined on the

basis that the regular investment credit was used first.

"(3) Special rule for restructuring. - In the case of any

corporation, any restructuring shall not limit, increase, or

otherwise affect the benefits which would have been available

under this section but for such restructuring.

"(h) Tentative Refunds. - Rules similar to the rules of section

6425 of the Internal Revenue Code of 1986 shall apply to any

overpayment resulting from the application of this section."

EFFECTIVE 15-YEAR CARRYBACK OF EXISTING CARRYFORWARDS OF QUALIFIED

FARMERS

Section 213 of Pub. L. 99-514, as amended by Pub. L. 100-647,

title I, Sec. 1002(g), Nov. 10, 1988, 102 Stat. 3369, provided

that:

"(a) General Rule. - If a taxpayer who is a qualified farmer

makes an election under this section for its 1st taxable year

beginning after December 31, 1986, with respect to any portion of

its existing carryforwards, the amount determined under subsection

(b) shall be treated as a payment against the tax imposed by

chapter 1 of the Internal Revenue Code of 1986 made by such

taxpayer on the last day prescribed by law (without regard to

extensions) for filing its return of tax under chapter 1 of such

Code for such 1st taxable year.

"(b) Amount. - For purposes of subsection (a), the amount

determined under this subsection shall be equal to the smallest of

-

"(1) 50 percent of the portion of the taxpayer's existing

carryforwards to which the election under subsection (a) applies,

"(2) the taxpayer's net tax liability for the carryback period

(within the meaning of section 212(d) of this Act [set out as a

note above]), or

"(3) $750.

"(c) Taxpayer Making Election May Not Use Same Amounts Under

Section 38. - In the case of a qualified farmer who makes an

election under subsection (a), the portion of such farmer's

existing carryforwards to which such an election applies shall not

be taken into account under section 38 of the Internal Revenue Code

of 1986 for any taxable year beginning after December 31, 1986.

"(d) No Recomputation of Minimum Tax, Etc. - Nothing in this

section shall be construed to affect -

"(1) the amount of the tax imposed by section 56 of the

Internal Revenue Code of 1954 [now 1986], or

"(2) the amount of any credit allowable under such Code,

for any taxable year in the carryback period (within the meaning of

section 212(d)(3) of this Act [set out as a note above]).

"(e) Definitions and Special Rules. - For purposes of this

section -

"(1) Qualified farmer. - The term 'qualified farmer' means any

taxpayer who, during the 3-taxable year period preceding the

taxable year for which an election is made under subsection (a),

derived 50 percent or more of the taxpayer's gross income from

the trade or business of farming.

"(2) Existing carryforward. - The term 'existing carryforward'

means the aggregate of the amounts which -

"(A) are unused business credit carryforwards to the

taxpayer's 1st taxable year beginning after December 31, 1986

(determined without regard to the limitations of section 38(c)

of the Internal Revenue Code of 1986), and

"(B) are attributable to the amount of the investment credit

determined for periods before January 1, 1986, under section

46(a) of such Code (or any corresponding provision of prior

law) with respect to section 38 property which was used by the

taxpayer in the trade or business of farming, determined on the

basis that such credit was used first.

"(3) Farming. - The term 'farming' has the meaning given such

term by section 2032A(e)(4) and (5) of such Code."

TREATMENT OF INVESTMENT TAX CREDITS WITH RESPECT TO CERTAIN PUBLIC

UTILITIES

For provisions requiring different applications of subsec. (c) of

this section to certain public utilities by making substitutions in

the percentages of the tentative minimum tax referred to in subsec.

(c)(3)(A)(ii), (B), under certain circumstances, see section

701(f)(6) of Pub. L. 99-514, set out as an Effective Date note

under section 55 of this title.

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 [Secs. 1101-1147 and 1171-1177] or

title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an

amendment to any plan, such plan amendment shall not be required to

be made before the first plan year beginning on or after Jan. 1,

1989, see section 1140 of Pub. L. 99-514, as amended, set out as a

note under section 401 of this title.

TRANSITION RULES

Section 1177 of subtitle C (Secs. 1171-1177) of title XI of Pub.

L. 99-514, as amended by Pub. L. 100-647, title I, Sec.

1011B(l)(1), (2), Nov. 10, 1988, 102 Stat. 3493, provided that:

"(a) Section 1171. - The amendments made by section 1171

[amending this section and sections 56, 108, 401, and 404 of this

title and repealing sections 41 and 6699 of this title] shall not

apply in the case of a tax credit employee stock ownership plan if

-

"(1) such plan was favorably approved on September 23, 1983, by

employees, and

"(2) not later than January 11, 1984, the employer of such

employees was 100 percent owned by such plan.

"(b) Subtitle Not To Apply to Certain Newspaper. - The amendments

made by section 1175 [amending section 401 of this title] shall not

apply to any daily newspaper -

"(1) which was first published on December 17, 1855, and which

began publication under its current name in 1954, and

"(2) which is published in a constitutional home rule city

(within the meaning of section 146(d)(3)(C) of the Internal

Revenue Code of 1986) which has a population of less than

2,500,000."

Section 1011B(l)(3) of Pub. L. 100-647 provided that: "If any

newspaper corporation described in section 1177(b) of the Reform

Act [section 1177(b) of Pub. L. 99-514, set out above], as amended

by this subsection, pays in cash a dividend within 60 days after

the date of the enactment of this Act [Nov. 10, 1988] to the

corporation's employee stock ownership plans and if a corporate

resolution declaring such dividend was adopted before November 30,

1987, and such resolution specifies that such dividend shall be

contingent upon passage by the Congress of technical corrections,

then such dividend (to the extent the aggregate amount so paid does

not exceed $3,500,000) shall be treated as if it had been declared

and paid in 1987 for all purposes of the Internal Revenue Code of

1986."

ACCOUNTING FOR INVESTMENT CREDIT IN CERTAIN FINANCIAL REPORTS AND

REPORTS TO FEDERAL AGENCIES

Pub. L. 92-178, title I, Sec. 101(c), Dec. 10, 1971, 85 Stat.

499, as amended by Pub. L. 98-369, div. A, title IV, Sec. 450(a),

July 18, 1984, 98 Stat. 818; Pub. L. 99-514, Sec. 2, Oct. 22, 1986,

100 Stat. 2095, provided that:

"(1) In general. - It was the intent of Congress in enacting,

in the Revenue Act of 1962 [see Short Title of 1962 Amendment

note set out under section 1 of this title], the investment

credit allowed by section 38 of the Internal Revenue Code of 1986

[formerly I.R.C. 1954], and it is the intent of the Congress in

restoring that credit in this Act [section 50 of this title], to

provide an incentive for modernization and growth of private

industry. Accordingly, notwithstanding any other provision of

law, on and after the date of the enactment of this Act [Dec. 10,

1971] -

"(A) no taxpayer shall be required to use, for purposes of

financial reports subject to the jurisdiction of any Federal

agency or reports made to any Federal agency, any particular

method of accounting for the credit allowed by such section 38

[this section], and

"(B) a taxpayer shall disclose, in any such report, the

method of accounting for such credit used by him for purposes

of such report.

"(2) Exceptions. - Paragraph (1) shall not apply to taxpayers

who are subject to the provisions of section 46(e) of the

Internal Revenue Code of 1986 (as added by section 105(c) of this

Act) or to section 203(e) of the Revenue Act of 1964 (as modified

by section 105(e) of this Act) [set out as note below]."

[Section 450(b) of Pub. L. 98-369 provided that: "The amendments

made by this section [amending this note] shall take effect as if

included in the Revenue Act of 1971."]

TREATMENT OF INVESTMENT CREDIT BY FEDERAL REGULATORY AGENCIES

Pub. L. 88-272, title II, Sec. 203(e), Feb. 26, 1964, 78 Stat.

35, as amended by Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat.

2095, provided that: "It was the intent of the Congress in

providing an investment credit under section 38 of the Internal

Revenue Code of 1986 [formerly I.R.C. 1954] and it is the intent of

the Congress in repealing the reduction in basis required by

section 48(g) of such Code to provide an incentive for

modernization and growth of private industry (including that

portion thereof which is regulated). Accordingly, Congress does not

intend that any agency or instrumentality of the United States

having jurisdiction with respect to a taxpayer shall, without the

consent of the taxpayer, use -

"(1) in the case of public utility property (as defined in

section 46(c)(3)(B) of the Internal Revenue Code of 1986, more

than a proportionate part (determined with reference to the

average useful life of the property with respect to which the

credit was allowed) of the credit against tax allowed for any

taxable year by section 38 of such Code, or

"(2) in the case of any other property, any credit against tax

allowed by section 38 of such Code,

to reduce such taxpayer's Federal income taxes for the purpose of

establishing the cost of service of the taxpayer or to accomplish a

similar result by any other method."

Section 203(e) of Pub. L. 88-272, not applicable to public

utility property to which section 46(e) of this title applies, see

section 105(e) of Pub. L. 92-178, set out as a note under section

46 of this title.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 29, 39, 40, 41, 42, 43,

44, 45, 45A, 45B, 45C, 45D, 45E, 45F, 46, 49, 50, 51, 51A, 52, 55,

108, 179, 196, 280C, 381, 877, 1016, 1274A, 1351, 1396, 4612 of

this title.

-End-

-CITE-

26 USC Sec. 39 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter A - Determination of Tax Liability

PART IV - CREDITS AGAINST TAX

Subpart D - Business Related Credits

-HEAD-

Sec. 39. Carryback and carryforward of unused credits

-STATUTE-

(a) In general

(1) 1-year carryback and 20-year carryforward

If the sum of the business credit carryforwards to the taxable

year plus the amount of the current year business credit for the

taxable year exceeds the amount of the limitation imposed by

subsection (c) of section 38 for such taxable year (hereinafter

in this section referred to as the "unused credit year"), such

excess (to the extent attributable to the amount of the current

year business credit) shall be -

(A) a business credit carryback to each of the 1 taxable

years (!1) preceding the unused credit year, and

(B) a business credit carryforward to each of the 20 taxable

years following the unused credit year,

and, subject to the limitations imposed by subsections (b) and

(c), shall be taken into account under the provisions of section

38(a) in the manner provided in section 38(a).

(2) Amount carried to each year

(A) Entire amount carried to first year

The entire amount of the unused credit for an unused credit

year shall be carried to the earliest of the 21 taxable years

to which (by reason of paragraph (1)) such credit may be

carried.

(B) Amount carried to other 20 years

The amount of the unused credit for the unused credit year

shall be carried to each of the other 20 taxable years to the

extent that such unused credit may not be taken into account

under section 38(a) for a prior taxable year because of the

limitations of subsections (b) and (c).

(b) Limitation on carrybacks

The amount of the unused credit which may be taken into account

under section 38(a)(3) for any preceding taxable year shall not

exceed the amount by which the limitation imposed by section 38(c)

for such taxable year exceeds the sum of -

(1) the amounts determined under paragraphs (1) and (2) of

section 38(a) for such taxable year, plus

(2) the amounts which (by reason of this section) are carried

back to such taxable year and are attributable to taxable years

preceding the unused credit year.

(c) Limitation on carryforwards

The amount of the unused credit which may be taken into account

under section 38(a)(1) for any succeeding taxable year shall not

exceed the amount by which the limitation imposed by section 38(c)

for such taxable year exceeds the sum of the amounts which, by

reason of this section, are carried to such taxable year and are

attributable to taxable years preceding the unused credit year.

(d) Transitional rules

(1) No carryback of enhanced oil recovery credit before 1991

No portion of the unused business credit for any taxable year

which is attributable to the credit determined under section

43(a) (relating to enhanced oil recovery credit) may be carried

to a taxable year beginning before January 1, 1991.

(2) No carryback of section 44 credit before enactment

No portion of the unused business credit for any taxable year

which is attributable to the disabled access credit determined

under section 44 may be carried to a taxable year ending before

the date of the enactment of section 44.

(3) No carryback of renewable electricity production credit

before effective date

No portion of the unused business credit for any taxable year

which is attributable to the credit determined under section 45

(relating to electricity produced from certain renewable

resources) may be carried back to any taxable year ending before

January 1, 1993 (before January 1, 1994, to the extent such

credit is attributable to wind as a qualified energy resource).

(4) Empowerment zone employment credit

No portion of the unused business credit which is attributable

to the credit determined under section 1396 (relating to

empowerment zone employment credit) may be carried to any taxable

year ending before January 1, 1994.

(5) No carryback of section 45A credit before enactment

No portion of the unused business credit for any taxable year

which is attributable to the Indian employment credit determined

under section 45A may be carried to a taxable year ending before

the date of the enactment of section 45A.

(6) No carryback of section 45B credit before enactment

No portion of the unused business credit for any taxable year

which is attributable to the employer social security credit

determined under section 45B may be carried back to a taxable

year ending before the date of the enactment of section 45B.

(7) No carryback of section 45C credit before July 1, 1996

No portion of the unused business credit for any taxable year

which is attributable to the orphan drug credit determined under

section 45C may be carried back to a taxable year ending before

July 1, 1996.

(8) No carryback of DC Zone credits before effective date

No portion of the unused business credit for any taxable year

which is attributable to the credits allowable under subchapter U

by reason of section 1400 may be carried back to a taxable year

ending before the date of the enactment of section 1400.

(9) No carryback of new markets tax credit before January 1, 2001

No portion of the unused business credit for any taxable year

which is attributable to the credit under section 45D may be

carried back to a taxable year ending before January 1, 2001.

(10) No carryback of small employer pension plan startup cost

credit before January 1, 2002

No portion of the unused business credit for any taxable year

which is attributable to the small employer pension plan startup

cost credit determined under section 45E may be carried back to a

taxable year beginning before January 1, 2002.

-SOURCE-

(Added Pub. L. 98-369, div. A, title IV, Sec. 473, July 18, 1984,

98 Stat. 828; amended Pub. L. 99-514, title II, Sec.

231(d)(3)(C)(i), title XVIII, Sec. 1846, Oct. 22, 1986, 100 Stat.

2179, 2856; Pub. L. 100-647, title I, Sec. 1002(l)(26), Nov. 10,

1988, 102 Stat. 3381; Pub. L. 101-508, title XI, Secs. 11511(b)(2),

11611(b)(2), 11801(a)(2), Nov. 5, 1990, 104 Stat. 1388-485,

1388-503, 1388-520; Pub. L. 102-486, title XIX, Sec. 1914(c), Oct.

24, 1992, 106 Stat. 3023; Pub. L. 103-66, title XIII, Secs.

13302(a)(2), 13322(d), 13443(b)(2), Aug. 10, 1993, 107 Stat. 555,

563, 569; Pub. L. 104-188, title I, Secs. 1205(c), 1703(n)(1), Aug.

20, 1996, 110 Stat. 1775, 1877; Pub. L. 105-34, title VII, Sec.

701(b)(1), title X, Sec. 1083(a), Aug. 5, 1997, 111 Stat. 869, 951;

Pub. L. 105-206, title VI, Sec. 6010(n), July 22, 1998, 112 Stat.

816; Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec. 121(b)(2)], Dec.

21, 2000, 114 Stat. 2763, 2763A-610; Pub. L. 107-16, title VI, Sec.

619(c)(1), June 7, 2001, 115 Stat. 110.)

-STATAMEND-

AMENDMENT OF SECTION

For termination of amendment by section 901 of Pub. L. 107-16,

see Effective and Termination Dates of 2001 Amendment note below.

-REFTEXT-

REFERENCES IN TEXT

The date of the enactment of section 44, referred to in subsec.

(d)(2), means the date of the enactment of Pub. L. 101-508, which

was approved Nov. 5, 1990.

The date of the enactment of section 45A, referred to in subsec.

(d)(5), means the date of the enactment of Pub. L. 103-66, which

was approved Aug. 10, 1993.

The date of the enactment of section 45B, referred to in subsec.

(d)(6), means the date of the enactment of Pub. L. 103-66, which

was approved Aug. 10, 1993.

The date of the enactment of section 1400, referred to in subsec.

(d)(8), means the date of enactment of Pub. L. 105-34, which was

approved Aug. 5, 1997.

-MISC1-

PRIOR PROVISIONS

A prior section 39 was renumbered section 34 of this title.

Another prior section 39 was renumbered section 36 of this title.

AMENDMENTS

2001 - Subsec. (d)(10). Pub. L. 107-16, Secs. 619(c)(1), 901,

temporarily added par. (10). See Effective and Termination Dates of

2001 Amendment note below.

2000 - Subsec. (d)(9). Pub. L. 106-554 added par. (9).

1998 - Subsec. (a)(2). Pub. L. 105-206 amended Pub. L. 105-34,

Sec. 1083(a)(2). See 1997 Amendment note below.

1997 - Subsec. (a)(1). Pub. L. 105-34, Sec. 1083(a)(1),

substituted "1-year" for "3-year" and "20-year" for "15-year" in

heading, "1 taxable" for "3 taxable" in subpar. (A), and "20

taxable" for "15 taxable" in subpar. (B).

Subsec. (a)(2). Pub. L. 105-34, Sec. 1083(a)(2), as amended by

Pub. L. 105-206, Sec. 6010(n), in subpar. (A), substituted "21

taxable" for "18 taxable", and in subpar. (B), substituted "20

years" for "17 years" in heading and "20 taxable" for "17 taxable"

in text.

Subsec. (d)(8). Pub. L. 105-34, Sec. 701(b)(1), added par. (8).

1996 - Subsec. (d)(5). Pub. L. 104-188, Sec. 1703(n)(1)(A),

substituted "45A" for "45" in heading.

Subsec. (d)(6). Pub. L. 104-188, Sec. 1703(n)(1)(B), substituted

"45B" for "45" in heading.

Subsec. (d)(7). Pub. L. 104-188, Sec. 1205(c), added par. (7).

1993 - Subsec. (d)(4). Pub. L. 103-66, Sec. 13302(a)(2), added

par. (4).

Subsec. (d)(5). Pub. L. 103-66, Sec. 13322(d), added par. (5).

Subsec. (d)(6). Pub. L. 103-66, Sec. 13443(b)(2), added par. (6).

1992 - Subsec. (d). Pub. L. 102-486 redesignated par. (5),

relating to carryback of enhanced oil recovery credit, as (1),

redesignated par. (5), relating to carryback of section 44 credit,

as (2), and added par. (3).

1990 - Subsec. (d)(1) to (4). Pub. L. 101-508, Sec. 11801(a)(2),

struck out par. (1) which related to carryforwards from an unused

credit year which did not expire before first taxable year

beginning after Dec. 31, 1983, par. (2) which related to carrybacks

in determining amount allowable as credit including net tax

liability, par. (3) which related to similar rules for research

credit under section 30, and par. (4) which provided for no

carryback of low-income housing credit before 1987.

Subsec. (d)(5). Pub. L. 101-508, Sec. 11611(b)(2), added par. (5)

relating to carryback of section 44 credit.

Pub. L. 101-508, Sec. 11511(b)(2), added par. (5) relating to

carryback of enhanced oil recovery credit.

1988 - Subsec. (d)(4). Pub. L. 100-647 added par. (4).

1986 - Subsec. (d)(1)(A). Pub. L. 99-514, Sec. 1846(1), inserted

"(as in effect before the enactment of the Tax Reform Act of

1984)".

Subsec. (d)(2)(B). Pub. L. 99-514, Sec. 1846(2), substituted "as

defined in section 26(b)" for "as so defined in section 25(b)".

Subsec. (d)(3). Pub. L. 99-514, Sec. 231(d)(3)(C)(i), added par.

(3).

EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT

Amendment by Pub. L. 107-16 applicable to costs paid or incurred

in taxable years beginning after Dec. 31, 2001, with respect to

qualified employer plans first effective after such date, see

section 619(d) of Pub. L. 107-16, as amended, set out as a note

under section 38 of this title.

Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or

limitation years beginning after Dec. 31, 2010, and the Internal

Revenue Code of 1986 to be applied and administered to such years

as if such amendment had never been enacted, see section 901 of

Pub. L. 107-16, set out as a note under section 1 of this title.

EFFECTIVE DATE OF 2000 AMENDMENT

Amendment by Pub. L. 106-554 applicable to investments made after

Dec. 31, 2000, see Sec. 1(a)(7) [title I, Sec. 121(e)] of Pub. L.

106-554, set out as a note under section 38 of this title.

EFFECTIVE DATE OF 1998 AMENDMENT

Amendment by Pub. L. 105-206 effective, except as otherwise

provided, as if included in the provisions of the Taxpayer Relief

Act of 1997, Pub. L. 105-34, to which such amendment relates, see

section 6024 of Pub. L. 105-206, set out as a note under section 1

of this title.

EFFECTIVE DATE OF 1997 AMENDMENT

Section 701(d) of Pub. L. 105-34 provided that: "Except as

provided in subsection (c) [amending table of subchapters for this

chapter], the amendments made by this section [enacting subchapter

W of this chapter and amending this section and section 1016 of

this title] shall take effect on the date of the enactment of this

Act [Aug. 5, 1997]."

Section 1083(b) of Pub. L. 105-34 provided that: "The amendments

made by this section [amending this section] shall apply to credits

arising in taxable years beginning after December 31, 1997."

EFFECTIVE DATE OF 1996 AMENDMENT

Amendment by section 1205(c) of Pub. L. 104-188 applicable to

amounts paid or incurred in taxable years ending after June 30,

1996, see section 1205(e) of Pub. L. 104-188, set out as a note

under section 29 of this title.

Section 1703(o) of Pub. L. 104-188 provided that: "Any amendment

made by this section [amending this section and sections 40, 59,

108, 117, 135, 143, 163, 904, 956A, 958, 1017, 1044, 1201, 1245,

1297, 1394, 1397B, 1561, 4001, 6033, 6427, 6501, 6655, and 9502 of

this title, renumbering section 6714 of this title as section 6715,

and amending provisions set out as notes under sections 38, 42,

197, and 1258 of this title and section 401 of Title 42, The Public

Health and Welfare] shall take effect as if included in the

provision of the Revenue Reconciliation Act of 1993 [Pub. L.

103-66, title XIII, ch. I, Secs. 13001-13444] to which such

amendment relates."

EFFECTIVE DATE OF 1993 AMENDMENT

Amendment by section 13322(d) of Pub. L. 103-66 applicable to

wages paid or incurred after Dec. 31, 1993, see section 13322(f) of

Pub. L. 103-66, set out as a note under section 38 of this title.

Amendment by section 13443(b)(2) of Pub. L. 103-66 applicable

with respect to taxes paid after Dec. 31, 1993, with respect to

services performed before, on, or after such date, see section

13443(d) of Pub. L. 103-66, as amended, set out as a note under

section 38 of this title.

EFFECTIVE DATE OF 1992 AMENDMENT

Amendment by Pub. L. 102-486 applicable to taxable years ending

after Dec. 31, 1992, see section 1914(e) of Pub. L. 102-486, set

out as a note under section 38 of this title.

EFFECTIVE DATE OF 1990 AMENDMENT

Amendment by section 11511(b)(2) of Pub. L. 101-508 applicable to

costs paid or incurred in taxable years beginning after Dec. 31,

1990, see section 11511(d)(1) of Pub. L. 101-508, set out as an

Effective Date note under section 43 of this title.

Amendment by section 11611(b)(2) of Pub. L. 101-508 applicable to

expenditures paid or incurred after Nov. 5, 1990, see section

11611(e)(1) of Pub. L. 101-508, set out as a note under section 38

of this title.

EFFECTIVE DATE OF 1988 AMENDMENT

Amendment by Pub. L. 100-647 effective, except as otherwise

provided, as if included in the provision of the Tax Reform Act of

1986, Pub. L. 99-514, to which such amendment relates, see section

1019(a) of Pub. L. 100-647, set out as a note under section 1 of

this title.

EFFECTIVE DATE OF 1986 AMENDMENT

Amendment by section 231(d)(3)(C)(i) of Pub. L. 99-514 applicable

to taxable years beginning after Dec. 31, 1985, see section 231(g)

of Pub. L. 99-514, set out as a note under section 41 of this

title.

Amendment by section 1846 of Pub. L. 99-514 effective, except as

otherwise provided, as if included in the provisions of the Tax

Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment

relates, see section 1881 of Pub. L. 99-514, set out as a note

under section 48 of this title.

EFFECTIVE DATE

Section applicable to taxable years beginning after Dec. 31,

1983, and to carrybacks from such years, see section 475(a) of Pub.

L. 98-369, set out as an Effective Date of 1984 Amendment note

under section 21 of this title.

SAVINGS PROVISION

For provisions that nothing in amendment by section 11801(a)(2)

of Pub. L. 101-508 be construed to affect treatment of certain

transactions occurring, property acquired, or items of income,

loss, deduction, or credit taken into account prior to Nov. 5,

1990, for purposes of determining liability for tax for periods

ending after Nov. 5, 1990, see section 11821(b) of Pub. L. 101-508,

set out as a note under section 29 of this title.

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 [Secs. 1101-1147 and 1171-1177] or

title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an

amendment to any plan, such plan amendment shall not be required to

be made before the first plan year beginning on or after Jan. 1,

1989, see section 1140 of Pub. L. 99-514, as amended, set out as a

note under section 401 of this title.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 38, 40, 41, 42, 45A, 45D,

45F, 48, 50, 196, 383, 1374, 6411, 6511 of this title.

-FOOTNOTE-

(!1) So in original.

-End-

-CITE-

26 USC Sec. 40 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter A - Determination of Tax Liability

PART IV - CREDITS AGAINST TAX

Subpart D - Business Related Credits

-HEAD-

Sec. 40. Alcohol used as fuel

-STATUTE-

(a) General rule

For purposes of section 38, the alcohol fuels credit determined

under this section for the taxable year is an amount equal to the

sum of -

(1) the alcohol mixture credit, plus

(2) the alcohol credit, plus

(3) in the case of an eligible small ethanol producer, the

small ethanol producer credit.

(b) Definition of alcohol mixture credit, alcohol credit, and small

ethanol producer credit

For purposes of this section, and except as provided in

subsection (h) -

(1) Alcohol mixture credit

(A) In general

The alcohol mixture credit of any taxpayer for any taxable

year is 60 cents for each gallon of alcohol used by the

taxpayer in the production of a qualified mixture.

(B) Qualified mixture

The term "qualified mixture" means a mixture of alcohol and

gasoline or of alcohol and a special fuel which -

(i) is sold by the taxpayer producing such mixture to any

person for use as a fuel, or

(ii) is used as a fuel by the taxpayer producing such

mixture.

(C) Sale or use must be in trade or business, etc.

Alcohol used in the production of a qualified mixture shall

be taken into account -

(i) only if the sale or use described in subparagraph (B)

is in a trade or business of the taxpayer, and

(ii) for the taxable year in which such sale or use occurs.

(D) Casual off-farm production not eligible

No credit shall be allowed under this section with respect to

any casual off-farm production of a qualified mixture.

(2) Alcohol credit

(A) In general

The alcohol credit of any taxpayer for any taxable year is 60

cents for each gallon of alcohol which is not in a mixture with

gasoline or a special fuel (other than any denaturant) and

which during the taxable year -

(i) is used by the taxpayer as a fuel in a trade or

business, or

(ii) is sold by the taxpayer at retail to a person and

placed in the fuel tank of such person's vehicle.

(B) User credit not to apply to alcohol sold at retail

No credit shall be allowed under subparagraph (A)(i) with

respect to any alcohol which was sold in a retail sale

described in subparagraph (A)(ii).

(3) Smaller credit for lower proof alcohol

In the case of any alcohol with a proof which is at least 150

but less than 190, paragraphs (1)(A) and (2)(A) shall be applied

by substituting "45 cents" for "60 cents".

(4) Small ethanol producer credit

(A) In general

The small ethanol producer credit of any eligible small

ethanol producer for any taxable year is 10 cents for each

gallon of qualified ethanol fuel production of such producer.

(B) Qualified ethanol fuel production

For purposes of this paragraph, the term "qualified ethanol

fuel production" means any alcohol which is ethanol which is

produced by an eligible small ethanol producer, and which

during the taxable year -

(i) is sold by such producer to another person -

(I) for use by such other person in the production of a

qualified mixture in such other person's trade or business

(other than casual off-farm production),

(II) for use by such other person as a fuel in a trade or

business, or

(III) who sells such ethanol at retail to another person

and places such ethanol in the fuel tank of such other

person, or

(ii) is used or sold by such producer for any purpose

described in clause (i).

(C) Limitation

The qualified ethanol fuel production of any producer for any

taxable year shall not exceed 15,000,000 gallons.

(D) Additional distillation excluded

The qualified ethanol fuel production of any producer for any

taxable year shall not include any alcohol which is purchased

by the producer and with respect to which such producer

increases the proof of the alcohol by additional distillation.

(5) Adding of denaturants not treated as mixture

The adding of any denaturant to alcohol shall not be treated as

the production of a mixture.

(c) Coordination with exemption from excise tax

The amount of the credit determined under this section with

respect to any alcohol shall, under regulations prescribed by the

Secretary, be properly reduced to take into account any benefit

provided with respect to such alcohol solely by reason of the

application of subsection (b)(2), (k), or (m) of section 4041,

section 4081(c), or section 4091(c).

(d) Definitions and special rules

For purposes of this section -

(1) Alcohol defined

(A) In general

The term "alcohol" includes methanol and ethanol but does not

include -

(i) alcohol produced from petroleum, natural gas, or coal

(including peat), or

(ii) alcohol with a proof of less than 150.

(B) Determination of proof

The determination of the proof of any alcohol shall be made

without regard to any added denaturants.

(2) Special fuel defined

The term "special fuel" includes any liquid fuel (other than

gasoline) which is suitable for use in an internal combustion

engine.

(3) Mixture or alcohol not used as a fuel, etc.

(A) Mixtures

If -

(i) any credit was determined under this section with

respect to alcohol used in the production of any qualified

mixture, and

(ii) any person -

(I) separates the alcohol from the mixture, or

(II) without separation, uses the mixture other than as a

fuel,

then there is hereby imposed on such person a tax equal to 60

cents a gallon (45 cents in the case of alcohol with a proof

less than 190) for each gallon of alcohol in such mixture.

(B) Alcohol

If -

(i) any credit was determined under this section with

respect to the retail sale of any alcohol, and

(ii) any person mixes such alcohol or uses such alcohol

other than as a fuel,

then there is hereby imposed on such person a tax equal to 60

cents a gallon (45 cents in the case of alcohol with a proof

less than 190) for each gallon of such alcohol.

(C) Producer credit

If -

(i) any credit was determined under subsection (a)(3), and

(ii) any person does not use such fuel for a purpose

described in subsection (b)(4)(B),

then there is hereby imposed on such person a tax equal to 10

cents a gallon for each gallon of such alcohol.

(D) Applicable laws

All provisions of law, including penalties, shall, insofar as

applicable and not inconsistent with this section, apply in

respect of any tax imposed under subparagraph (A), (B), or (C)

as if such tax were imposed by section 4081 and not by this

chapter.

(4) Volume of alcohol

For purposes of determining -

(A) under subsection (a) the number of gallons of alcohol

with respect to which a credit is allowable under subsection

(a), or

(B) under section 4041(k) or 4081(c) the percentage of any

mixture which consists of alcohol,

the volume of alcohol shall include the volume of any denaturant

(including gasoline) which is added under any formulas approved

by the Secretary to the extent that such denaturants do not

exceed 5 percent of the volume of such alcohol (including

denaturants).

(5) Pass-thru in the case of estates and trusts

Under regulations prescribed by the Secretary, rules similar to

the rules of subsection (d) of section 52 shall apply.

(e) Termination

(1) In general

This section shall not apply to any sale or use -

(A) for any period after December 31, 2007, or

(B) for any period before January 1, 2008, during which the

rates of tax under section 4081(a)(2)(A) are 4.3 cents per

gallon.

(2) No carryovers to certain years after expiration

If this section ceases to apply for any period by reason of

paragraph (1), no amount attributable to any sale or use before

the first day of such period may be carried under section 39 by

reason of this section (treating the amount allowed by reason of

this section as the first amount allowed by this subpart) to any

taxable year beginning after the 3-taxable-year period beginning

with the taxable year in which such first day occurs.

(f) Election to have alcohol fuels credit not apply

(1) In general

A taxpayer may elect to have this section not apply for any

taxable year.

(2) Time for making election

An election under paragraph (1) for any taxable year may be

made (or revoked) at any time before the expiration of the 3-year

period beginning on the last date prescribed by law for filing

the return for such taxable year (determined without regard to

extensions).

(3) Manner of making election

An election under paragraph (1) (or revocation thereof) shall

be made in such manner as the Secretary may by regulations

prescribe.

(g) Definitions and special rules for eligible small ethanol

producer credit

For purposes of this section -

(1) Eligible small ethanol producer

The term "eligible small ethanol producer" means a person who,

at all times during the taxable year, has a productive capacity

for alcohol (as defined in subsection (d)(1)(A) without regard to

clauses (i) and (ii)) not in excess of 30,000,000 gallons.

(2) Aggregration (!1) rule

For purposes of the 15,000,000 gallon limitation under

subsection (b)(4)(C) and the 30,000,000 gallon limitation under

paragraph (1), all members of the same controlled group of

corporations (within the meaning of section 267(f)) and all

persons under common control (within the meaning of section 52(b)

but determined by treating an interest of more than 50 percent as

a controlling interest) shall be treated as 1 person.

(3) Partnership, S corporations, and other pass-thru entities

In the case of a partnership, trust, S corporation, or other

pass-thru entity, the limitations contained in subsection

(b)(4)(C) and paragraph (1) shall be applied at the entity level

and at the partner or similar level.

(4) Allocation

For purposes of this subsection, in the case of a facility in

which more than 1 person has an interest, productive capacity

shall be allocated among such persons in such manner as the

Secretary may prescribe.

(5) Regulations

The Secretary may prescribe such regulations as may be

necessary -

(A) to prevent the credit provided for in subsection (a)(3)

from directly or indirectly benefiting any person with a direct

or indirect productive capacity of more than 30,000,000 gallons

of alcohol during the taxable year, or

(B) to prevent any person from directly or indirectly

benefiting with respect to more than 15,000,000 gallons during

the taxable year.

(h) Reduced credit for ethanol blenders

(1) In general

In the case of any alcohol mixture credit or alcohol credit

with respect to any sale or use of alcohol which is ethanol

during calendar years 2001 through 2007 -

(A) subsections (b)(1)(A) and (b)(2)(A) shall be applied by

substituting "the blender amount" for "60 cents",

(B) subsection (b)(3) shall be applied by substituting "the

low-proof blender amount" for "45 cents" and "the blender

amount" for "60 cents", and

(C) subparagraphs (A) and (B) of subsection (d)(3) shall be

applied by substituting "the blender amount" for "60 cents" and

"the low-proof blender amount" for "45 cents".

(2) Amounts

For purposes of paragraph (1), the blender amount and the

low-proof blender amount shall be determined in accordance with

the following table:

In the case of any sale The blender The low-proof

or use during calendar amount is: blender amount

year: is:

--------------------------------------------------------------------

2001 or 2002 53 cents 39.26 cents

2003 or 2004 52 cents 38.52 cents

2005, 2006, or 2007 51 cents 37.78 cents.

--------------------------------------------------------------------

-SOURCE-

(Added Pub. L. 96-223, title II, Sec. 232(b)(1), Apr. 2, 1980, 94

Stat. 273, Sec. 44E; amended Pub. L. 97-34, title II Sec.

207(c)(3), Aug. 13, 1981, 95 Stat. 225; Pub. L. 97-354, Sec.

5(a)(2), Oct. 19, 1982, 96 Stat. 1692; Pub. L. 97-424, title V,

Sec. 511(b)(2), (d)(3), Jan. 6, 1983, 96 Stat. 2170, 2171;

renumbered Sec. 40 and amended Pub. L. 98-369, div. A, title IV,

Secs. 471(c), 474(k), title IX, Secs. 912(c), (f), 913(b), July 18,

1984, 98 Stat. 826, 832, 1007, 1008; Pub. L. 100-203, title X, Sec.

10502(d)(1), Dec. 22, 1987, 101 Stat. 1330-444; Pub. L. 101-508,

title XI, Sec. 11502(a)-(f), Nov. 5, 1990, 104 Stat. 1388-480 to

1388-482; Pub. L. 104-188, title I, Sec. 1703(j), Aug. 20, 1996,

110 Stat. 1876; Pub. L. 105-178, title IX, Sec. 9003(a)(3), (b)(1),

June 9, 1998, 112 Stat. 502.)

-MISC1-

PRIOR PROVISIONS

A prior section 40, added Pub. L. 92-178, title VI, Sec. 601(a),

Dec. 10, 1971, 85 Stat. 553; amended Pub. L. 94-455, title XIX,

Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834, related to

allowance as a credit of expenses of work incentive programs, prior

to repeal by Pub. L. 98-369, div. A, title IV, Sec. 474(m)(1), July

18, 1984, 98 Stat. 833.

Another prior section 40 was renumbered section 36 of this title.

AMENDMENTS

1998 - Subsec. (e)(1). Pub. L. 105-178, Sec. 9003(a)(3),

substituted "December 31, 2007" for "December 31, 2000" in subpar.

(A) and "January 1, 2008" for "January 1, 2001" in subpar. (B).

Subsec. (h). Pub. L. 105-178, Sec. 9003(b)(1), reenacted heading

without change and amended text of subsec. (h) generally. Prior to

amendment, text read as follows: "In the case of any alcohol

mixture credit or alcohol credit with respect to any alcohol which

is ethanol -

"(1) subsections (b)(1)(A) and (b)(2)(A) shall be applied by

substituting '54 cents' for '60 cents';

"(2) subsection (b)(3) shall be applied by substituting '40

cents' for '45 cents' and '54 cents' for '60 cents'; and

"(3) subparagraphs (A) and (B) of subsection (d)(3) shall be

applied by substituting '54 cents' for '60 cents' and '40 cents'

for '45 cents'."

1996 - Subsec. (e)(1)(B). Pub. L. 104-188 amended subpar. (B)

generally. Prior to amendment, subpar. (B) read as follows: "for

any period before January 1, 2001, during which the Highway Trust

Fund financing rate under section 4081(a)(2) is not in effect."

1990 - Subsec. (a)(2). Pub. L. 101-508, Sec. 11502(a)(1),

substituted ", plus" for period at end.

Subsec. (a)(3). Pub. L. 101-508, Sec. 11502(a)(2), added par.

(3).

Subsec. (b). Pub. L. 101-508, Sec. 11502(e)(2), which directed

the insertion of ", and except as provided in subsection (h)" in

introductory provisions without specifying the location of such

insertion, was executed after "section" to reflect the probable

intent of Congress.

Pub. L. 101-508, Sec. 11502(b)(3), substituted ", alcohol credit,

and small ethanol producer credit" for "and alcohol credit" in

heading.

Subsec. (b)(4), (5). Pub. L. 101-508, Sec. 11502(b)(1), (2),

added par. (4) and redesignated former par. (4) as (5).

Subsec. (d)(3)(C), (D). Pub. L. 101-508, Sec. 11502(d)(1), (2),

added subpar. (C), redesignated former subpar. (C) as (D), and

substituted "subparagraph (A), (B), or (C)" for "subparagraph (A)

or (B)".

Subsec. (e). Pub. L. 101-508, Sec. 11502(f), amended subsec. (e)

generally, substituting present provisions for provisions

prohibiting the applicability of this section to any sale or use

after Dec. 31, 1992, and prohibiting carryovers to any taxable year

beginning after Dec. 31, 1994.

Subsec. (g). Pub. L. 101-508, Sec. 11502(c), added subsec. (g).

Subsec. (h). Pub. L. 101-508, Sec. 11502(e)(1), added subsec.

(h).

1987 - Subsec. (c). Pub. L. 100-203 substituted ", section

4081(c), or section 4091(c)" for "or section 4081(c)".

1984 - Pub. L. 98-369, Sec. 471(c), renumbered section 44E of

this title as this section.

Subsec. (a). Pub. L. 98-369, Sec. 474(k)(1), substituted "For

purposes of section 38, the alcohol fuels credit determined under

this section for the taxable year is an amount equal to the sum of"

for "There shall be allowed as a credit against the tax imposed by

this chapter for the taxable year an amount equal to the sum of" in

introductory provisions.

Subsec. (b)(1)(A), (2)(A). Pub. L. 98-369, Sec. 912(c)(1),

substituted "60 cents" for "50 cents".

Subsec. (b)(3). Pub. L. 98-369, Sec. 912(c), substituted "45

cents" for "37.5 cents" and "60 cents" for "50 cents".

Subsec. (c). Pub. L. 98-369, Sec. 913(b), substituted "(b)(2),

(k), or (m)" for "(b)(2) or (k)".

Pub. L. 98-369, Sec. 474(k)(2), substituted "the credit

determined under this section" for "the credit allowable under this

section".

Subsec. (d)(1)(A)(i). Pub. L. 98-369, Sec. 912(f), substituted

"coal (including peat)" for "coal".

Subsec. (d)(3)(A). Pub. L. 98-369, Sec. 912(c), substituted "60

cents" for "50 cents" and "45 cents" for "37.5 cents".

Subsec. (d)(3)(A)(i). Pub. L. 98-369, Sec. 474(k)(3), substituted

"credit was determined" for "credit was allowable".

Subsec. (d)(3)(B). Pub. L. 98-369, Sec. 912(c), substituted "60

cents" for "50 cents" and "45 cents" for "37.5 cents".

Subsec. (d)(3)(B)(i). Pub. L. 98-369, Sec. 474(k)(3), substituted

"credit was determined" for "credit was allowable".

Subsec. (e). Pub. L. 98-369, Sec. 474(k)(4), redesignated subsec.

(f) as (e). Former subsec. (e), which had placed a limitation based

on the amount of tax, was struck out.

Subsec. (e)(2). Pub. L. 98-369, Sec. 474(k)(5), substituted

"section 39 by reason of this section (treating the amount allowed

by reason of this section as the first amount allowed by this

subpart)" for "subsection (e)(2)".

Subsec. (f). Pub. L. 98-369, Sec. 474(k)(6), added subsec. (f).

Former subsec. (f) redesignated (e).

1983 - Subsec. (b)(1)(A), (2)(A). Pub. L. 97-424, Sec.

511(d)(3)(A), substituted "50 cents" for "40 cents".

Subsec. (b)(3). Pub. L. 97-424, Sec. 511(d)(3), substituted "50

cents" for "40 cents" and "37.5 cents" for "30 cents".

Subsec. (c). Pub. L. 97-424, Sec. 511(b)(2), substituted

"subsection (b)(2) or (k) of section 4041 or section 4081(c)" for

"section 4041(k) or 4081(c)" after "reason of the application of".

Subsec. (d)(3)(A), (B). Pub. L. 97-424, Sec. 511(d)(3),

substituted "50 cents" for "40 cents" and "37.5 cents" for "30

cents".

1982 - Subsec. (d)(5). Pub. L. 97-354 substituted "Pass-thru in

the case of estates and trusts" for "Pass-through in the case of

subchapter S corporations, etc." in par. heading, and substituted

provisions relating to the applicability of rules similar to rules

of subsec. (d) of section 52 for provisions relating to the

applicability of rules similar to rules of subsecs. (d) and (e) of

section 52.

1981 - Subsec. (e)(2)(A). Pub. L. 97-34 substituted "15" for "7"

in two places, and "14" for "6" in one place.

EFFECTIVE DATE OF 1998 AMENDMENT

Pub. L. 105-178, title IX, Sec. 9003(b)(3), June 9, 1998, 112

Stat. 503, provided that: "The amendments made by this subsection

[amending this section and sections 4041, 4081, and 4091 of this

title] shall take effect on January 1, 2001."

EFFECTIVE DATE OF 1996 AMENDMENT

Amendment by Pub. L. 104-188 effective as if included in the

provision of the Revenue Reconciliation Act of 1993, Pub. L.

103-66, Secs. 13001-13444, to which such amendment relates, see

section 1703(o) of Pub. L. 104-188, set out as a note under section

39 of this title.

EFFECTIVE DATE OF 1990 AMENDMENT

Section 11502(h) of Pub. L. 101-508 provided that:

"(1) Except as provided in paragraph (2), the amendments made by

this section [amending this section] shall apply to alcohol

produced, and sold or used, in taxable years beginning after

December 31, 1990.

"(2) The amendments made by subsection (g) [amending provisions

not classified to the Code] shall apply to articles entered or

withdrawn from warehouse on or after January 1, 1991."

EFFECTIVE DATE OF 1987 AMENDMENT

Section 10502(e) of Pub. L. 100-203 provided that: "The

amendments made by this section [enacting sections 4091 to 4093 of

this title, amending this section and sections 4041, 4081, 4101,

4221, 6206, 6416, 6421, 6427, 6652, 9502, 9503, and 9508 of this

title, and enacting provisions set out as notes under sections 4091

and 9502 of this title] shall apply to sales after March 31, 1988."

EFFECTIVE DATE OF 1984 AMENDMENT

Amendment by section 474(k) of Pub. L. 98-369 applicable to

taxable years beginning after Dec. 31, 1983, and to carrybacks from

such years, see section 475(a) of Pub. L. 98-369, set out as a note

under section 21 of this title.

Section 912(g) of Pub. L. 98-369 provided that: "The amendments

made by this section [amending this section and sections 4041,

4081, and 6427 of this title] shall take effect on January 1,

1985."

Amendment by section 913(b) of Pub. L. 98-369 effective Aug. 1,

1984, see section 913(c) of Pub. L. 98-369, set out as a note under

section 4041 of this title.

EFFECTIVE DATE OF 1983 AMENDMENT

Amendments by section 511(b)(2), (d)(3) of Pub. L. 97-424

effective Apr. 1, 1983, see section 511(h) of Pub. L. 97-424, set

out as a note under section 4041 of this title.

EFFECTIVE DATE OF 1982 AMENDMENT

Amendment by Pub. L. 97-354 applicable to taxable years beginning

after Dec. 31, 1982, see section 6(a) of Pub. L. 97-354, set out as

an Effective Date note under section 1361 of this title.

EFFECTIVE DATE OF 1981 AMENDMENT

Amendment by Pub. L. 97-34 applicable to unused credit years

ending after Sept. 30, 1980, see section 209(c)(2)(C) of Pub. L.

97-34, set out as an Effective Date note under section 168 of this

title.

EFFECTIVE DATE

Section 232(h)(1), (4) of Pub. L. 96-223, as amended by Pub. L.

97-448, title II, Sec. 202(e), Jan. 12, 1983, 96 Stat. 2396,

provided that:

"(1) The amendments made by subsections (b) and (c) [enacting

sections 44E [now 40] and 86 of this title and amending sections

55, 381, 383, 4081, and 6096 of this title] shall apply to sales or

uses after September 30, 1980, in taxable years ending after such

date.

"(4) Notwithstanding paragraph (1), the provisions of section

44E(d)(4)(B) [now 40(d)(4)(B)] of such Code, as added by this

section, shall take effect on April 2, 1980."

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 38, 87, 196, 4041, 6501

of this title.

-FOOTNOTE-

(!1) So in original. Probably should be "Aggregation".

-End-

-CITE-

26 USC Sec. 41 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter A - Determination of Tax Liability

PART IV - CREDITS AGAINST TAX

Subpart D - Business Related Credits

-HEAD-

Sec. 41. Credit for increasing research activities

-STATUTE-

(a) General rule

For purposes of section 38, the research credit determined under

this section for the taxable year shall be an amount equal to the

sum of -

(1) 20 percent of the excess (if any) of -

(A) the qualified research expenses for the taxable year,

over

(B) the base amount, and

(2) 20 percent of the basic research payments determined under

subsection (e)(1)(A).

(b) Qualified research expenses

For purposes of this section -

(1) Qualified research expenses

The term "qualified research expenses" means the sum of the

following amounts which are paid or incurred by the taxpayer

during the taxable year in carrying on any trade or business of

the taxpayer -

(A) in-house research expenses, and

(B) contract research expenses.

(2) In-house research expenses

(A) In general

The term "in-house research expenses" means -

(i) any wages paid or incurred to an employee for qualified

services performed by such employee,

(ii) any amount paid or incurred for supplies used in the

conduct of qualified research, and

(iii) under regulations prescribed by the Secretary, any

amount paid or incurred to another person for the right to

use computers in the conduct of qualified research.

Clause (iii) shall not apply to any amount to the extent that

the taxpayer (or any person with whom the taxpayer must

aggregate expenditures under subsection (f)(1)) receives or

accrues any amount from any other person for the right to use

substantially identical personal property.

(B) Qualified services

The term "qualified services" means services consisting of -

(i) engaging in qualified research, or

(ii) engaging in the direct supervision or direct support

of research activities which constitute qualified research.

If substantially all of the services performed by an individual

for the taxpayer during the taxable year consists of services

meeting the requirements of clause (i) or (ii), the term

"qualified services" means all of the services performed by

such individual for the taxpayer during the taxable year.

(C) Supplies

The term "supplies" means any tangible property other than -

(i) land or improvements to land, and

(ii) property of a character subject to the allowance for

depreciation.

(D) Wages

(i) In general

The term "wages" has the meaning given such term by section

3401(a).

(ii) Self-employed individuals and owner-employees

In the case of an employee (within the meaning of section

401(c)(1)), the term "wages" includes the earned income (as

defined in section 401(c)(2)) of such employee.

(iii) Exclusion for wages to which work opportunity credit

applies

The term "wages" shall not include any amount taken into

account in determining the work opportunity credit under

section 51(a).

(3) Contract research expenses

(A) In general

The term "contract research expenses" means 65 percent of any

amount paid or incurred by the taxpayer to any person (other

than an employee of the taxpayer) for qualified research.

(B) Prepaid amounts

If any contract research expenses paid or incurred during any

taxable year are attributable to qualified research to be

conducted after the close of such taxable year, such amount

shall be treated as paid or incurred during the period during

which the qualified research is conducted.

(C) Amounts paid to certain research consortia

(i) In general

Subparagraph (A) shall be applied by substituting "75

percent" for "65 percent" with respect to amounts paid or

incurred by the taxpayer to a qualified research consortium

for qualified research on behalf of the taxpayer and 1 or

more unrelated taxpayers. For purposes of the preceding

sentence, all persons treated as a single employer under

subsection (a) or (b) of section 52 shall be treated as

related taxpayers.

(ii) Qualified research consortium

The term "qualified research consortium" means any

organization which -

(I) is described in section 501(c)(3) or 501(c)(6) and is

exempt from tax under section 501(a),

(II) is organized and operated primarily to conduct

scientific research, and

(III) is not a private foundation.

(4) Trade or business requirement disregarded for in-house

research expenses of certain startup ventures

In the case of in-house research expenses, a taxpayer shall be

treated as meeting the trade or business requirement of paragraph

(1) if, at the time such in-house research expenses are paid or

incurred, the principal purpose of the taxpayer in making such

expenditures is to use the results of the research in the active

conduct of a future trade or business -

(A) of the taxpayer, or

(B) of 1 or more other persons who with the taxpayer are

treated as a single taxpayer under subsection (f)(1).

(c) Base amount

(1) In general

The term "base amount" means the product of -

(A) the fixed-base percentage, and

(B) the average annual gross receipts of the taxpayer for the

4 taxable years preceding the taxable year for which the credit

is being determined (hereinafter in this subsection referred to

as the "credit year").

(2) Minimum base amount

In no event shall the base amount be less than 50 percent of

the qualified research expenses for the credit year.

(3) Fixed-base percentage

(A) In general

Except as otherwise provided in this paragraph, the

fixed-base percentage is the percentage which the aggregate

qualified research expenses of the taxpayer for taxable years

beginning after December 31, 1983, and before January 1, 1989,

is of the aggregate gross receipts of the taxpayer for such

taxable years.

(B) Start-up companies

(i) Taxpayers to which subparagraph applies

The fixed-base percentage shall be determined under this

subparagraph if -

(I) the first taxable year in which a taxpayer had both

gross receipts and qualified research expenses begins after

December 31, 1983, or

(II) there are fewer than 3 taxable years beginning after

December 31, 1983, and before January 1, 1989, in which the

taxpayer had both gross receipts and qualified research

expenses.

(ii) Fixed-base percentage

In a case to which this subparagraph applies, the

fixed-base percentage is -

(I) 3 percent for each of the taxpayer's 1st 5 taxable

years beginning after December 31, 1993, for which the

taxpayer has qualified research expenses,

(II) in the case of the taxpayer's 6th such taxable year,

1/6 of the percentage which the aggregate qualified

research expenses of the taxpayer for the 4th and 5th such

taxable years is of the aggregate gross receipts of the

taxpayer for such years,

(III) in the case of the taxpayer's 7th such taxable

year, 1/3 of the percentage which the aggregate qualified

research expenses of the taxpayer for the 5th and 6th such

taxable years is of the aggregate gross receipts of the

taxpayer for such years,

(IV) in the case of the taxpayer's 8th such taxable year,

1/2 of the percentage which the aggregate qualified

research expenses of the taxpayer for the 5th, 6th, and 7th

such taxable years is of the aggregate gross receipts of

the taxpayer for such years,

(V) in the case of the taxpayer's 9th such taxable year,

2/3 of the percentage which the aggregate qualified

research expenses of the taxpayer for the 5th, 6th, 7th,

and 8th such taxable years is of the aggregate gross

receipts of the taxpayer for such years,

(VI) in the case of the taxpayer's 10th such taxable

year, 5/6 of the percentage which the aggregate qualified

research expenses of the taxpayer for the 5th, 6th, 7th,

8th, and 9th such taxable years is of the aggregate gross

receipts of the taxpayer for such years, and

(VII) for taxable years thereafter, the percentage which

the aggregate qualified research expenses for any 5 taxable

years selected by the taxpayer from among the 5th through

the 10th such taxable years is of the aggregate gross

receipts of the taxpayer for such selected years.

(iii) Treatment of de minimis amounts of gross receipts and

qualified research expenses

The Secretary may prescribe regulations providing that de

minimis amounts of gross receipts and qualified research

expenses shall be disregarded under clauses (i) and (ii).

(C) Maximum fixed-base percentage

In no event shall the fixed-base percentage exceed 16

percent.

(D) Rounding

The percentages determined under subparagraphs (A) and

(B)(ii) shall be rounded to the nearest 1/100th of 1 percent.

(4) Election of alternative incremental credit

(A) In general

At the election of the taxpayer, the credit determined under

subsection (a)(1) shall be equal to the sum of -

(i) 2.65 percent of so much of the qualified research

expenses for the taxable year as exceeds 1 percent of the

average described in subsection (c)(1)(B) but does not exceed

1.5 percent of such average,

(ii) 3.2 percent of so much of such expenses as exceeds 1.5

percent of such average but does not exceed 2 percent of such

average, and

(iii) 3.75 percent of so much of such expenses as exceeds 2

percent of such average.

(B) Election

An election under this paragraph shall apply to the taxable

year for which made and all succeeding taxable years unless

revoked with the consent of the Secretary.

(5) Consistent treatment of expenses required

(A) In general

Notwithstanding whether the period for filing a claim for

credit or refund has expired for any taxable year taken into

account in determining the fixed-base percentage, the qualified

research expenses taken into account in computing such

percentage shall be determined on a basis consistent with the

determination of qualified research expenses for the credit

year.

(B) Prevention of distortions

The Secretary may prescribe regulations to prevent

distortions in calculating a taxpayer's qualified research

expenses or gross receipts caused by a change in accounting

methods used by such taxpayer between the current year and a

year taken into account in computing such taxpayer's fixed-base

percentage.

(6) Gross receipts

For purposes of this subsection, gross receipts for any taxable

year shall be reduced by returns and allowances made during the

taxable year. In the case of a foreign corporation, there shall

be taken into account only gross receipts which are effectively

connected with the conduct of a trade or business within the

United States, the Commonwealth of Puerto Rico, or any possession

of the United States.

(d) Qualified research defined

For purposes of this section -

(1) In general

The term "qualified research" means research -

(A) with respect to which expenditures may be treated as

expenses under section 174,

(B) which is undertaken for the purpose of discovering

information -

(i) which is technological in nature, and

(ii) the application of which is intended to be useful in

the development of a new or improved business component of

the taxpayer, and

(C) substantially all of the activities of which constitute

elements of a process of experimentation for a purpose

described in paragraph (3).

Such term does not include any activity described in paragraph

(4).

(2) Tests to be applied separately to each business component

For purposes of this subsection -

(A) In general

Paragraph (1) shall be applied separately with respect to

each business component of the taxpayer.

(B) Business component defined

The term "business component" means any product, process,

computer software, technique, formula, or invention which is to

be -

(i) held for sale, lease, or license, or

(ii) used by the taxpayer in a trade or business of the

taxpayer.

(C) Special rule for production processes

Any plant process, machinery, or technique for commercial

production of a business component shall be treated as a

separate business component (and not as part of the business

component being produced).

(3) Purposes for which research may qualify for credit

For purposes of paragraph (1)(C) -

(A) In general

Research shall be treated as conducted for a purpose

described in this paragraph if it relates to -

(i) a new or improved function,

(ii) performance, or

(iii) reliability or quality.

(B) Certain purposes not qualified

Research shall in no event be treated as conducted for a

purpose described in this paragraph if it relates to style,

taste, cosmetic, or seasonal design factors.

(4) Activities for which credit not allowed

The term "qualified research" shall not include any of the

following:

(A) Research after commercial production

Any research conducted after the beginning of commercial

production of the business component.

(B) Adaptation of existing business components

Any research related to the adaptation of an existing

business component to a particular customer's requirement or

need.

(C) Duplication of existing business component

Any research related to the reproduction of an existing

business component (in whole or in part) from a physical

examination of the business component itself or from plans,

blueprints, detailed specifications, or publicly available

information with respect to such business component.

(D) Surveys, studies, etc.

Any -

(i) efficiency survey,

(ii) activity relating to management function or technique,

(iii) market research, testing, or development (including

advertising or promotions),

(iv) routine data collection, or

(v) routine or ordinary testing or inspection for quality

control.

(E) Computer software

Except to the extent provided in regulations, any research

with respect to computer software which is developed by (or for

the benefit of) the taxpayer primarily for internal use by the

taxpayer, other than for use in -

(i) an activity which constitutes qualified research

(determined with regard to this subparagraph), or

(ii) a production process with respect to which the

requirements of paragraph (1) are met.

(F) Foreign research

Any research conducted outside the United States, the

Commonwealth of Puerto Rico, or any possession of the United

States.

(G) Social sciences, etc.

Any research in the social sciences, arts, or humanities.

(H) Funded research

Any research to the extent funded by any grant, contract, or

otherwise by another person (or governmental entity).

(e) Credit allowable with respect to certain payments to qualified

organizations for basic research

For purposes of this section -

(1) In general

In the case of any taxpayer who makes basic research payments

for any taxable year -

(A) the amount of basic research payments taken into account

under subsection (a)(2) shall be equal to the excess of -

(i) such basic research payments, over

(ii) the qualified organization base period amount, and

(B) that portion of such basic research payments which does

not exceed the qualified organization base period amount shall

be treated as contract research expenses for purposes of

subsection (a)(1).

(2) Basic research payments defined

For purposes of this subsection -

(A) In general

The term "basic research payment" means, with respect to any

taxable year, any amount paid in cash during such taxable year

by a corporation to any qualified organization for basic

research but only if -

(i) such payment is pursuant to a written agreement between

such corporation and such qualified organization, and

(ii) such basic research is to be performed by such

qualified organization.

(B) Exception to requirement that research be performed by the

organization

In the case of a qualified organization described in

subparagraph (C) or (D) of paragraph (6), clause (ii) of

subparagraph (A) shall not apply.

(3) Qualified organization base period amount

For purposes of this subsection, the term "qualified

organization base period amount" means an amount equal to the sum

of -

(A) the minimum basic research amount, plus

(B) the maintenance-of-effort amount.

(4) Minimum basic research amount

For purposes of this subsection -

(A) In general

The term "minimum basic research amount" means an amount

equal to the greater of -

(i) 1 percent of the average of the sum of amounts paid or

incurred during the base period for -

(I) any in-house research expenses, and

(II) any contract research expenses, or

(ii) the amounts treated as contract research expenses

during the base period by reason of this subsection (as in

effect during the base period).

(B) Floor amount

Except in the case of a taxpayer which was in existence

during a taxable year (other than a short taxable year) in the

base period, the minimum basic research amount for any base

period shall not be less than 50 percent of the basic research

payments for the taxable year for which a determination is

being made under this subsection.

(5) Maintenance-of-effort amount

For purposes of this subsection -

(A) In general

The term "maintenance-of-effort amount" means, with respect

to any taxable year, an amount equal to the excess (if any) of

-

(i) an amount equal to -

(I) the average of the nondesignated university

contributions paid by the taxpayer during the base period,

multiplied by

(II) the cost-of-living adjustment for the calendar year

in which such taxable year begins, over

(ii) the amount of nondesignated university contributions

paid by the taxpayer during such taxable year.

(B) Nondesignated university contributions

For purposes of this paragraph, the term "nondesignated

university contribution" means any amount paid by a taxpayer to

any qualified organization described in paragraph (6)(A) -

(i) for which a deduction was allowable under section 170,

and

(ii) which was not taken into account -

(I) in computing the amount of the credit under this

section (as in effect during the base period) during any

taxable year in the base period, or

(II) as a basic research payment for purposes of this

section.

(C) Cost-of-living adjustment defined

(i) In general

The cost-of-living adjustment for any calendar year is the

cost-of-living adjustment for such calendar year determined

under section 1(f)(3), by substituting "calendar year 1987"

for "calendar year 1992" in subparagraph (B) thereof.

(ii) Special rule where base period ends in a calendar year

other than 1983 or 1984

If the base period of any taxpayer does not end in 1983 or

1984, section 1(f)(3)(B) shall, for purposes of this

paragraph, be applied by substituting the calendar year in

which such base period ends for 1992. Such substitution shall

be in lieu of the substitution under clause (i).

(6) Qualified organization

For purposes of this subsection, the term "qualified

organization" means any of the following organizations:

(A) Educational institutions

Any educational organization which -

(i) is an institution of higher education (within the

meaning of section 3304(f)), and

(ii) is described in section 170(b)(1)(A)(ii).

(B) Certain scientific research organizations

Any organization not described in subparagraph (A) which -

(i) is described in section 501(c)(3) and is exempt from

tax under section 501(a),

(ii) is organized and operated primarily to conduct

scientific research, and

(iii) is not a private foundation.

(C) Scientific tax-exempt organizations

Any organization which -

(i) is described in -

(I) section 501(c)(3) (other than a private foundation),

or

(II) section 501(c)(6),

(ii) is exempt from tax under section 501(a),

(iii) is organized and operated primarily to promote

scientific research by qualified organizations described in

subparagraph (A) pursuant to written research agreements, and

(iv) currently expends -

(I) substantially all of its funds, or

(II) substantially all of the basic research payments

received by it,

for grants to, or contracts for basic research with, an

organization described in subparagraph (A).

(D) Certain grant organizations

Any organization not described in subparagraph (B) or (C)

which -

(i) is described in section 501(c)(3) and is exempt from

tax under section 501(a) (other than a private foundation),

(ii) is established and maintained by an organization

established before July 10, 1981, which meets the

requirements of clause (i),

(iii) is organized and operated exclusively for the purpose

of making grants to organizations described in subparagraph

(A) pursuant to written research agreements for purposes of

basic research, and

(iv) makes an election, revocable only with the consent of

the Secretary, to be treated as a private foundation for

purposes of this title (other than section 4940, relating to

excise tax based on investment income).

(7) Definitions and special rules

For purposes of this subsection -

(A) Basic research

The term "basic research" means any original investigation

for the advancement of scientific knowledge not having a

specific commercial objective, except that such term shall not

include -

(i) basic research conducted outside of the United States,

and

(ii) basic research in the social sciences, arts, or

humanities.

(B) Base period

The term "base period" means the 3-taxable-year period ending

with the taxable year immediately preceding the 1st taxable

year of the taxpayer beginning after December 31, 1983.

(C) Exclusion from incremental credit calculation

For purposes of determining the amount of credit allowable

under subsection (a)(1) for any taxable year, the amount of the

basic research payments taken into account under subsection

(a)(2) -

(i) shall not be treated as qualified research expenses

under subsection (a)(1)(A), and

(ii) shall not be included in the computation of base

amount under subsection (a)(1)(B).

(D) Trade or business qualification

For purposes of applying subsection (b)(1) to this

subsection, any basic research payments shall be treated as an

amount paid in carrying on a trade or business of the taxpayer

in the taxable year in which it is paid (without regard to the

provisions of subsection (b)(3)(B)).

(E) Certain corporations not eligible

The term "corporation" shall not include -

(i) an S corporation,

(ii) a personal holding company (as defined in section

542), or

(iii) a service organization (as defined in section

414(m)(3)).

(f) Special rules

For purposes of this section -

(1) Aggregation of expenditures

(A) Controlled group of corporations

In determining the amount of the credit under this section -

(i) all members of the same controlled group of

corporations shall be treated as a single taxpayer, and

(ii) the credit (if any) allowable by this section to each

such member shall be its proportionate shares of the

qualified research expenses and basic research payments

giving rise to the credit.

(B) Common control

Under regulations prescribed by the Secretary, in determining

the amount of the credit under this section -

(i) all trades or businesses (whether or not incorporated)

which are under common control shall be treated as a single

taxpayer, and

(ii) the credit (if any) allowable by this section to each

such person shall be its proportionate shares of the

qualified research expenses and basic research payments

giving rise to the credit.

The regulations prescribed under this subparagraph shall be

based on principles similar to the principles which apply in

the case of subparagraph (A).

(2) Allocations

(A) Pass-thru in the case of estates and trusts

Under regulations prescribed by the Secretary, rules similar

to the rules of subsection (d) of section 52 shall apply.

(B) Allocation in the case of partnerships

In the case of partnerships, the credit shall be allocated

among partners under regulations prescribed by the Secretary.

(3) Adjustments for certain acquisitions, etc.

Under regulations prescribed by the Secretary -

(A) Acquisitions

If, after December 31, 1983, a taxpayer acquires the major

portion of a trade or business of another person (hereinafter

in this paragraph referred to as the "predecessor") or the

major portion of a separate unit of a trade or business of a

predecessor, then, for purposes of applying this section for

any taxable year ending after such acquisition, the amount of

qualified research expenses paid or incurred by the taxpayer

during periods before such acquisition shall be increased by so

much of such expenses paid or incurred by the predecessor with

respect to the acquired trade or business as is attributable to

the portion of such trade or business or separate unit acquired

by the taxpayer, and the gross receipts of the taxpayer for

such periods shall be increased by so much of the gross

receipts of such predecessor with respect to the acquired trade

or business as is attributable to such portion.

(B) Dispositions

If, after December 31, 1983 -

(i) a taxpayer disposes of the major portion of any trade

or business or the major portion of a separate unit of a

trade or business in a transaction to which subparagraph (A)

applies, and

(ii) the taxpayer furnished the acquiring person such

information as is necessary for the application of

subparagraph (A),

then, for purposes of applying this section for any taxable

year ending after such disposition, the amount of qualified

research expenses paid or incurred by the taxpayer during

periods before such disposition shall be decreased by so much

of such expenses as is attributable to the portion of such

trade or business or separate unit disposed of by the taxpayer,

and the gross receipts of the taxpayer for such periods shall

be decreased by so much of the gross receipts as is

attributable to such portion.

(C) Certain reimbursements taken into account in determining

fixed-base percentage

If during any of the 3 taxable years following the taxable

year in which a disposition to which subparagraph (B) applies

occurs, the disposing taxpayer (or a person with whom the

taxpayer is required to aggregate expenditures under paragraph

(1)) reimburses the acquiring person (or a person required to

so aggregate expenditures with such person) for research on

behalf of the taxpayer, then the amount of qualified research

expenses of the taxpayer for the taxable years taken into

account in computing the fixed-base percentage shall be

increased by the lesser of -

(i) the amount of the decrease under subparagraph (B) which

is allocable to taxable years so taken into account, or

(ii) the product of the number of taxable years so taken

into account, multiplied by the amount of the reimbursement

described in this subparagraph.

(4) Short taxable years

In the case of any short taxable year, qualified research

expenses and gross receipts shall be annualized in such

circumstances and under such methods as the Secretary may

prescribe by regulation.

(5) Controlled group of corporations

The term "controlled group of corporations" has the same

meaning given to such term by section 1563(a), except that -

(A) "more than 50 percent" shall be substituted for "at least

80 percent" each place it appears in section 1563(a)(1), and

(B) the determination shall be made without regard to

subsections (a)(4) and (e)(3)(C) of section 1563.

(g) Special rule for pass-thru of credit

In the case of an individual who -

(1) owns an interest in an unincorporated trade or business,

(2) is a partner in a partnership,

(3) is a beneficiary of an estate or trust, or

(4) is a shareholder in an S corporation,

the amount determined under subsection (a) for any taxable year

shall not exceed an amount (separately computed with respect to

such person's interest in such trade or business or entity) equal

to the amount of tax attributable to that portion of a person's

taxable income which is allocable or apportionable to the person's

interest in such trade or business or entity. If the amount

determined under subsection (a) for any taxable year exceeds the

limitation of the preceding sentence, such amount may be carried to

other taxable years under the rules of section 39; except that the

limitation of the preceding sentence shall be taken into account in

lieu of the limitation of section 38(c) in applying section 39.

(h) Termination

(1) In general

This section shall not apply to any amount paid or incurred -

(A) after June 30, 1995, and before July 1, 1996, or

(B) after June 30, 2004.

(2) Computation of base amount

In the case of any taxable year with respect to which this

section applies to a number of days which is less than the total

number of days in such taxable year, the base amount with respect

to such taxable year shall be the amount which bears the same

ratio to the base amount for such year (determined without regard

to this paragraph) as the number of days in such taxable year to

which this section applies bears to the total number of days in

such taxable year.

-SOURCE-

(Added Pub. L. 97-34, title II, Sec. 221(a), Aug. 13, 1981, 95

Stat. 241, Sec. 44F; amended Pub. L. 97-354, Sec. 5(a)(3), Oct. 19,

1982, 96 Stat. 1692; Pub. L. 97-448, title I, Sec. 102(b)(2), Jan.

12, 1983, 96 Stat. 2372; renumbered Sec. 30 and amended Pub. L.

98-369, div. A, title IV, Secs. 471(c), 474(i)(1), title VI, Sec.

612(e)(1), July 18, 1984, 98 Stat. 826, 831, 912; renumbered Sec.

41 and amended Pub. L. 99-514, title II, Sec. 231(a)(1), (b), (c),

(d)(2), (3)(C)(ii), (e), title XVIII, Sec. 1847(b)(1), Oct. 22,

1986, 100 Stat. 2173, 2175, 2178-2180, 2856; Pub. L. 100-647, title

I, Sec. 1002(h)(1), title IV, Secs. 4007(a), 4008(b)(1), Nov. 10,

1988, 102 Stat. 3370, 3652; Pub. L. 101-239, title VII, Secs.

7110(a)(1), (b), (b)[(c)], 7814(e)(2)(C), Dec. 19, 1989, 103 Stat.

2322, 2323, 2325, 2414; Pub. L. 101-508, title XI, Secs.

11101(d)(1)(C), 11402(a), Nov. 5, 1990, 104 Stat. 1388-405,

1388-473; Pub. L. 102-227, title I, Sec. 102(a), Dec. 11, 1991, 105

Stat. 1686; Pub. L. 103-66, title XIII, Secs. 13111(a)(1),

13112(a), (b), 13201(b)(3)(C), Aug. 10, 1993, 107 Stat. 420, 421,

459; Pub. L. 104-188, title I, Secs. 1201(e)(1), (4), 1204(a)-(d),

Aug. 20, 1996, 110 Stat. 1772-1774; Pub. L. 105-34, title VI, Sec.

601(a), (b)(1), Aug. 5, 1997, 111 Stat. 861; Pub. L. 105-277, div.

J, title I, Sec. 1001(a), Oct. 21, 1998, 112 Stat. 2681-888; Pub.

L. 106-170, title V, Sec. 502(a)(1), (b)(1), (c)(1), Dec. 17, 1999,

113 Stat. 1919.)

-MISC1-

PRIOR PROVISIONS

A prior section 41, added Pub. L. 97-34, title III, Sec. 331(a),

Aug. 13, 1981, 95 Stat. 289, Sec. 44G; amended Pub. L. 97-448,

title I, Sec. 103(g)(1), Jan. 12, 1983, 96 Stat. 2379; renumbered

Sec. 41 and amended Pub. L. 98-369, div. A, title I, Sec. 14, title

IV, Secs. 471(c), 474(l), 491(e)(2), (3), July 18, 1984, 98 Stat.

505, 826, 833, 852, 853, related to employee stock ownership

credit, prior to repeal by Pub. L. 99-514, title XI, Sec. 1171(a),

Oct. 22, 1986, 100 Stat. 2513, applicable to compensation paid or

accrued after Dec. 31, 1986, in taxable years ending after such

date, except as otherwise provided, see section 1171(c) of Pub. L.

99-514, set out as an Effective Date of 1986 Amendment note under

section 38 of this title. For transition rules relating to such

repeal, see section 1177 of Pub. L. 99-514, set out as a Transition

Rules note under section 38 of this title.

Another prior section 41 was renumbered section 24 of this title.

AMENDMENTS

1999 - Subsec. (c)(4)(A)(i). Pub. L. 106-170, Sec. 502(b)(1)(A),

substituted "2.65 percent" for "1.65 percent".

Subsec. (c)(4)(A)(ii). Pub. L. 106-170, Sec. 502(b)(1)(B),

substituted "3.2 percent" for "2.2 percent".

Subsec. (c)(4)(A)(iii). Pub. L. 106-170, Sec. 502(b)(1)(C),

substituted "3.75 percent" for "2.75 percent".

Subsecs. (c)(6), (d)(4)(F). Pub. L. 106-170, Sec. 502(c)(1),

inserted ", the Commonwealth of Puerto Rico, or any possession of

the United States" before period at end.

Subsec. (h)(1). Pub. L. 106-170, Sec. 502(a)(1)(B), struck out

concluding provisions which read as follows: "Notwithstanding the

preceding sentence, in the case of a taxpayer making an election

under subsection (c)(4) for its first taxable year beginning after

June 30, 1996, and before July 1, 1997, this section shall apply to

amounts paid or incurred during the 36-month period beginning with

the first month of such year. The 36 months referred to in the

preceding sentence shall be reduced by the number of full months

after June 1996 (and before the first month of such first taxable

year) during which the taxpayer paid or incurred any amount which

is taken into account in determining the credit under this

section."

Subsec. (h)(1)(B). Pub. L. 106-170, Sec. 502(a)(1)(A),

substituted "June 30, 2004" for "June 30, 1999".

1998 - Subsec. (h)(1). Pub. L. 105-277 substituted "June 30,

1999" for "June 30, 1998" in subpar. (B) and substituted "36-month"

for "24-month" and "36 months" for "24 months" in concluding

provisions.

1997 - Subsec. (c)(4)(B). Pub. L. 105-34, Sec. 601(b)(1), amended

heading and text of subpar. (B) generally. Prior to amendment, text

read as follows: "An election under this paragraph may be made only

for the first taxable year of the taxpayer beginning after June 30,

1996. Such an election shall apply to the taxable year for which

made and all succeeding taxable years unless revoked with the

consent of the Secretary."

Subsec. (h)(1). Pub. L. 105-34, Sec. 601(a), substituted "June

30, 1998" for "May 31, 1997" in subpar. (B) and "during the

24-month period beginning with the first month of such year. The 24

months referred to in the preceding sentence shall be reduced by

the number of full months after June 1996 (and before the first

month of such first taxable year) during which the taxpayer paid or

incurred any amount which is taken into account in determining the

credit under this section." for "during the first 11 months of such

taxable year." in concluding provisions.

1996 - Subsec. (b)(2)(D)(iii). Pub. L. 104-188, Sec. 1201(e)(1),

(4), substituted "work opportunity credit" for "targeted jobs

credit" in heading and text.

Subsec. (b)(3)(C). Pub. L. 104-188, Sec. 1204(d), added subpar.

(C).

Subsec. (c)(3)(B)(i). Pub. L. 104-188, Sec. 1204(b), reenacted

heading without change and amended text generally. Prior to

amendment, text read as follows: "The fixed-base percentage shall

be determined under this subparagraph if there are fewer than 3

taxable years beginning after December 31, 1983, and before January

1, 1989, in which the taxpayer had both gross receipts and

qualified research expenses."

Subsec. (c)(4) to (6). Pub. L. 104-188, Sec. 1204(c), added par.

(4) and redesignated former pars. (4) and (5) as (5) and (6),

respectively.

Subsec. (h). Pub. L. 104-188, Sec. 1204(a), reenacted heading

without change and amended text generally. Prior to amendment, text

read as follows:

"(1) In general. - This section shall not apply to any amount

paid or incurred after June 30, 1995.

"(2) Computation of base amount. - In the case of any taxable

year which begins before July 1, 1995, and ends after June 30,

1995, the base amount with respect to such taxable year shall be

the amount which bears the same ratio to the base amount for such

year (determined without regard to this paragraph) as the number of

days in such taxable year before July 1, 1995, bears to the total

number of days in such taxable year."

1993 - Subsec. (c)(3)(B)(ii). Pub. L. 103-66, Sec. 13112(a),

amended heading and text of cl. (ii) generally. Prior to amendment,

text read as follows: "In a case to which this subparagraph

applies, the fixed-base percentage is 3 percent."

Subsec. (c)(3)(B)(iii). Pub. L. 103-66, Sec. 13112(b)(1),

substituted "clauses (i) and (ii)" for "clause (i)".

Subsec. (c)(3)(D). Pub. L. 103-66, Sec. 13112(b)(2), substituted

"subparagraphs (A) and (B)(ii)" for "subparagraph (A)".

Subsec. (e)(5)(C). Pub. L. 103-66, Sec. 13201(b)(3)(C),

substituted "1992" for "1989" in cls. (i) and (ii).

Subsec. (h). Pub. L. 103-66, Sec. 13111(a)(1), substituted "June

30, 1995" for "June 30, 1992" in pars. (1) and (2) and "July 1,

1995" for "July 1, 1992" in two places in par. (2).

1991 - Subsec. (h). Pub. L. 102-227 substituted "June 30, 1992"

for "December 31, 1991" in pars. (1) and (2), and "July 1, 1992"

for "January 1, 1992" in two places in par. (2).

1990 - Subsec. (e)(5)(C)(i). Pub. L. 101-508, Sec.

11101(d)(1)(C)(i), inserted before period at end ", by substituting

'calendar year 1987' for 'calendar year 1989' in subparagraph (B)

thereof".

Subsec. (e)(5)(C)(ii). Pub. L. 101-508, Sec. 11101(d)(1)(C)(ii),

(iii), substituted "1989" for "1987" and inserted at end "Such

substitution shall be in lieu of the substitution under clause

(i)."

Subsec. (h). Pub. L. 101-508, Sec. 11402(a), substituted

"December 31, 1991" for "December 31, 1990" wherever appearing and

"January 1, 1992" for "January 1, 1991" wherever appearing.

1989 - Subsec. (a)(1)(B). Pub. L. 101-239, Sec. 7110(b)(2)(A),

amended subpar. (B) generally. Prior to amendment, subpar. (B) read

as follows: "the base period research expenses, and".

Subsec. (b)(4). Pub. L. 101-239, Sec. 7110(b)[(c)], added par.

(4).

Subsec. (c). Pub. L. 101-239, Sec. 7110(b)(1), substituted "Base

amount" for "Base period research expenses" in heading and amended

text generally, substituting pars. (1) to (5) for former pars. (1)

to (3) which defined "base period research expenses" and "base

period" and prescribed minimum base period research expenses.

Subsec. (e)(7)(C)(ii). Pub. L. 101-239, Sec. 7110(b)(2)(B),

substituted "base amount" for "base period research expenses".

Subsec. (f)(1). Pub. L. 101-239, Sec. 7110(b)(2)(C), substituted

"proportionate shares of the qualified research expenses and basic

research payments" for "proportionate share of the increase in

qualified research expenses" in subpars. (A)(ii) and (B)(ii).

Subsec. (f)(3)(A). Pub. L. 101-239, Sec. 7110(b)(2)(D),

substituted "December 31, 1983" for "June 30, 1980" and inserted

before period at end ", and the gross receipts of the taxpayer for

such periods shall be increased by so much of the gross receipts of

such predecessor with respect to the acquired trade or business as

is attributable to such portion".

Subsec. (f)(3)(B). Pub. L. 101-239, Sec. 7110(b)(2)(E),

substituted "December 31, 1983" for "June 30, 1980" in introductory

provisions and inserted before period at end ", and the gross

receipts of the taxpayer for such periods shall be decreased by so

much of the gross receipts as is attributable to such portion".

Subsec. (f)(3)(C). Pub. L. 101-239, Sec. 7110(b)(2)(F),

substituted "Certain reimbursements taken into account in

determining fixed-base percentage" for "Increase in base period" in

heading, "for the taxable years taken into account in computing the

fixed-base percentage shall be increased by the lesser of" for "for

the base period for such taxable year shall be increased by the

lesser of" in introductory provisions, and new cls. (i) and (ii)

for former cls. (i) and (ii) which read as follows:

"(i) the amount of the decrease under subparagraph (B) which is

allocable to such base period, or

"(ii) the product of the number of years in the base period,

multiplied by the amount of the reimbursement described in this

subparagraph."

Subsec. (f)(4). Pub. L. 101-239, Sec. 7110(b)(2)(G), inserted

"and gross receipts" after "qualified research expenses".

Subsec. (h). Pub. L. 101-239, Sec. 7814(e)(2)(C), redesignated

subsec. (i) as (h) and struck out former subsec. (h) which related

to election, time for election, and manner of election by taxpayer

to have research credit not apply for a taxable year.

Subsec. (h)(1). Pub. L. 101-239, Sec. 7110(a)(1)(A), substituted

"December 31, 1990" for "December 31, 1989".

Subsec. (h)(2). Pub. L. 101-239, Sec. 7110(a)(1), substituted

"January 1, 1991" for "January 1, 1990" in two places and

substituted "December 31, 1990" for "December 31, 1989".

Pub. L. 101-239, Sec. 7110(b)(2)(H), substituted "base amount"

for "base period expenses" in heading and "the base amount with

respect to such taxable year shall be the amount which bears the

same ratio to the base amount for such year (determined without

regard to this paragraph)" for "any amount for any base period with

respect to such taxable year shall be the amount which bears the

same ratio to such amount for such base period" in text.

Subsec. (i). Pub. L. 101-239, Sec. 7814(e)(2)(C), redesignated

subsec. (i) as (h).

1988 - Subsec. (g). Pub. L. 100-647, Sec. 1002(h)(1), inserted at

end "If the amount determined under subsection (a) for any taxable

year exceeds the limitation of the preceding sentence, such amount

may be carried to other taxable years under the rules of section

39; except that the limitation of the preceding sentence shall be

taken into account in lieu of the limitation of section 38(c) in

applying section 39."

Subsec. (h). Pub. L. 100-647, Sec. 4008(b)(1), added subsec. (h).

Former subsec. (h) redesignated (i).

Subsec. (i). Pub. L. 100-647, Sec. 4008(b)(1), redesignated

former subsec. (h) as (i).

Pub. L. 100-647, Sec. 4007(a), substituted "1989" and "1990" for

"1988" and "1989", respectively, wherever appearing in subsec. (h),

prior to redesignation as subsec. (i) by Pub. L. 100-647, Sec.

4008(b)(1).

1986 - Pub. L. 99-514, Sec. 231(d)(2), renumbered section 30 of

this title as this section.

Subsec. (a). Pub. L. 99-514, Sec. 231(c)(1), amended subsec. (a)

generally. Prior to amendment, subsec. (a) read as follows: "There

shall be allowed as a credit against the tax imposed by this

chapter for the taxable year an amount equal to 25 percent of the

excess (if any) of -

"(1) the qualified research expenses for the taxable year, over

"(2) the base period research expenses."

Subsec. (b)(2)(A)(iii). Pub. L. 99-514, Sec. 231(e), amended cl.

(iii) generally. Prior to amendment, cl. (iii) read as follows:

"any amount paid or incurred to another person for the right to use

personal property in the conduct of qualified research."

Subsec. (b)(2)(D)(iii). Pub. L. 99-514, Sec. 1847(b)(1),

substituted "targeted jobs credit" for "new jobs or WIN credit" in

heading.

Subsec. (d). Pub. L. 99-514, Sec. 231(b), inserted "defined" in

heading and amended text generally. Prior to amendment, text read

as follows: "For purposes of this section the term 'qualified

research' has the same meaning as the term research or experimental

has under section 174, except that such term shall not include -

"(1) qualified research conducted outside the United States,

"(2) qualified research in the social sciences or humanities,

and

"(3) qualified research to the extent funded by any grant,

contract, or otherwise by another person (or any governmental

entity)."

Subsec. (e). Pub. L. 99-514, Sec. 231(c)(2), amended subsec. (e)

generally, substituting "Credit allowable with respect to certain

payments to qualified organizations for basic research" for "Credit

available with respect to certain basic research by colleges,

universities, and certain research organizations" in heading, and

restating and expanding provisions of former pars. (1) to (4) into

new pars. (1) to (7).

Subsec. (g). Pub. L. 99-514, Sec. 231(d)(3)(C)(ii), amended

subsec. (g) generally, substituting provisions relating to special

rule for pass-thru of credit for provisions relating to limitation

on amount of credit for research based on amount of tax liability.

Subsec. (h). Pub. L. 99-514, Sec. 231(a)(1), added subsec. (h).

1984 - Pub. L. 98-369, Sec. 471(c), renumbered section 44F of

this title as this section.

Subsec. (b)(2)(D)(iii). Pub. L. 98-369, Sec. 474(i)(1)(A),

substituted "in determining the targeted jobs credit under section

51(a)" for "in computing the credit under section 40 or 44B".

Subsec. (g)(1)(A). Pub. L. 98-369, Sec. 612(e)(1), substituted

"section 26(b)" for "section 25(b)".

Pub. L. 98-369, Sec. 474(i)(1)(B), amended subpar. (A) generally,

substituting "shall not exceed the taxpayer's tax liability for the

taxable year (as defined in section 25(b)), reduced by the sum of

the credits allowable under subpart A and sections 27, 28, and 29"

for "shall not exceed the amount of the tax imposed by this chapter

reduced by the sum of the credits allowable under a section of this

part having a lower number or letter designation than this section,

other than the credits allowable by sections 31, 39, and 43. For

purposes of the preceding sentence, the term 'tax imposed by this

chapter' shall not include any tax treated as not imposed by this

chapter under the last sentence of section 53(a)".

1983 - Subsec. (b)(2)(A). Pub. L. 97-448 inserted provision that

cl. (iii) would not apply to any amount to the extent that the

taxpayer (or any person with whom the taxpayer must aggregate

expenditures under subsection (f)(1)) received or accrued any

amount from any other person for the right to use substantially

identical personal property.

1982 - Subsec. (f)(2)(A). Pub. L. 97-354, Sec. 5(a)(3)(A),

substituted "Pass-thru in the case of estates and trusts" for

"Pass-through in the case of subchapter S corporations, etc." in

subpar. heading, and substituted provisions relating to the

applicability of rules similar to rules of subsec. (d) of section

52 for provisions relating to the applicability of rules similar to

rules of subsecs. (d) and (e) of section 52.

Subsec. (g)(1)(B)(iv). Pub. L. 97-354, Sec. 5(a)(3)(B),

substituted "an S corporation" for "an electing small business

corporation (within the meaning of section 1371(b))".

EFFECTIVE DATE OF 1999 AMENDMENT

Pub. L. 106-170, title V, Sec. 502(a)(3), Dec. 17, 1999, 113

Stat. 1919, provided that: "The amendments made by this subsection

[amending this section and section 45C of this title] shall apply

to amounts paid or incurred after June 30, 1999."

Pub. L. 106-170, title V, Sec. 502(b)(2), Dec. 17, 1999, 113

Stat. 1919, provided that: "The amendments made by this subsection

[amending this section] shall apply to taxable years beginning

after June 30, 1999."

Pub. L. 106-170, title V, Sec. 502(c)(3), Dec. 17, 1999, 113

Stat. 1920, provided that: "The amendments made by this subsection

[amending this section and section 280C of this title] shall apply

to amounts paid or incurred after June 30, 1999."

EFFECTIVE DATE OF 1998 AMENDMENT

Pub. L. 105-277, div. J, title I, Sec. 1001(c), Oct. 21, 1998,

112 Stat. 2681-888, provided that: "The amendments made by this

section [amending this section and section 45C of this title] shall

apply to amounts paid or incurred after June 30, 1998."

EFFECTIVE DATE OF 1997 AMENDMENT

Section 601(c) of Pub. L. 105-34 provided that: "The amendments

made by this section [amending this section and section 45C of this

title] shall apply to amounts paid or incurred after May 31, 1997."

EFFECTIVE DATE OF 1996 AMENDMENT

Amendment by section 1201(e)(1), (4) of Pub. L. 104-188

applicable to individuals who begin work for the employer after

Sept. 30, 1996, see section 1201(g) of Pub. L. 104-188, set out as

a note under section 38 of this title.

Section 1204(f) of Pub. L. 104-188 provided that:

"(1) In general. - Except as provided in paragraph (2), the

amendments made by this section [amending this section and section

28 [now 45C] of this title] shall apply to taxable years ending

after June 30, 1996.

"(2) Subsections (c) and (d). - The amendments made by

subsections (c) and (d) [amending this section] shall apply to

taxable years beginning after June 30, 1996.

"(3) Estimated tax. - The amendments made by this section shall

not be taken into account under section 6654 or 6655 of the

Internal Revenue Code of 1986 (relating to failure to pay estimated

tax) in determining the amount of any installment required to be

paid for a taxable year beginning in 1997."

EFFECTIVE DATE OF 1993 AMENDMENT

Amendment by section 13111(a)(1) of Pub. L. 103-66 applicable to

taxable years ending after June 30, 1992, see section 13111(c) of

Pub. L. 103-66, set out as a note under section 45C of this title.

Section 13112(c) of Pub. L. 103-66 provided that: "The amendments

made by this section [amending this section] shall apply to taxable

years beginning after December 31, 1993."

Amendment by section 13201(b)(3)(C) of Pub. L. 103-66 applicable

to taxable years beginning after Dec. 31, 1992, see section

13201(c) of Pub. L. 103-66, set out as a note under section 1 of

this title.

EFFECTIVE DATE OF 1991 AMENDMENT

Amendment by Pub. L. 102-227 applicable to taxable years ending

after Dec. 31, 1991, see section 102(c) of Pub. L. 102-227, set out

as a note under section 45C of this title.

EFFECTIVE DATE OF 1990 AMENDMENT

Amendment by section 11101(d)(1)(C) of Pub. L. 101-508 applicable

to taxable years beginning after Dec. 31, 1990, see section

11101(e) of Pub. L. 101-508, set out as a note under section 1 of

this title.

Amendment by section 11402(a) of Pub. L. 101-508 applicable to

taxable years beginning after Dec. 31, 1989, see section 11402(c)

of Pub. L. 101-508, set out as a note under section 45C of this

title.

EFFECTIVE DATE OF 1989 AMENDMENT

Section 7110(e) of Pub. L. 101-239 provided that: "The amendments

made by this section [amending this section and sections 28, 174,

196, and 280C of this title] (other than subsection (a) [amending

this section and section 28 of this title]) shall apply to taxable

years beginning after December 31, 1989."

Amendment by section 7814(e)(2)(C) of Pub. L. 101-239 effective,

except as otherwise provided, as if included in the provision of

the Technical and Miscellaneous Revenue Act of 1988, Pub. L.

100-647, to which such amendment relates, see section 7817 of Pub.

L. 101-239, set out as a note under section 1 of this title.

EFFECTIVE DATE OF 1988 AMENDMENT

Amendment by section 1002(h)(1) of Pub. L. 100-647 effective,

except as otherwise provided, as if included in the provision of

the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment

relates, see section 1019(a) of Pub. L. 100-647, set out as a note

under section 1 of this title.

Section 4008(d) of Pub. L. 100-647 provided that: "The amendments

made by this section [amending this section and sections 28, 196,

280C, and 6501 of this title] shall apply to taxable years

beginning after December 31, 1988."

EFFECTIVE DATE OF 1986 AMENDMENT

Section 231(g) of Pub. L. 99-514 provided that:

"(1) In general. - Except as provided in this subsection (2), the

amendments made by this section [amending this section and sections

28, 38, 39, 108, 170, 280C, 381, 936, 6411, and 6511 of this title,

renumbering former section 30 of this title as this section, and

enacting and amending provisions set out as notes under this

section] shall apply to taxable years beginning after December 31,

1985.

"(2) Subsection (a). - The amendments made by subsection (a)

[amending this section and provisions set out as a note under this

section] shall apply to taxable years ending after December 31,

1985.

"(3) Basic research. - Section 41(a)(2) of the Internal Revenue

Code of 1986 (as added by this section), and the amendments made by

subsection (c)(2) [amending this section], shall apply to taxable

years beginning after December 31, 1986."

Amendment by section 1847(b)(1) of Pub. L. 99-514 effective,

except as otherwise provided, as if included in the provisions of

the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such

amendment relates, see section 1881 of Pub. L. 99-514, set out as a

note under section 48 of this title.

EFFECTIVE DATE OF 1984 AMENDMENT

Amendment by section 474(i)(1) of Pub. L. 98-369 applicable to

taxable years beginning after Dec. 31, 1983, and to carrybacks from

such years, see section 475(a) of Pub. L. 98-369, set out as a note

under section 21 of this title.

Amendment by section 612(e)(1) of Pub. L. 98-369 applicable to

interest paid or accrued after Dec. 31, 1984, on indebtedness

incurred after Dec. 31, 1984, see section 612(g) of Pub. L. 98-369,

set out as an Effective Date note under section 25 of this title.

EFFECTIVE DATE OF 1983 AMENDMENT

Section 102(h)(2) of Pub. L. 97-448 provided that the amendment

made by that section is effective only with respect to amounts paid

or incurred after March 31, 1982.

EFFECTIVE DATE OF 1982 AMENDMENT

Amendment by Pub. L. 97-354 applicable to taxable years beginning

after Dec. 31, 1982, see section 6(a) of Pub. L. 97-354, set out as

an Effective Date note under section 1361 of this title.

EFFECTIVE DATE

Section 221(d) of Pub. L. 97-34, as amended by Pub. L. 99-514,

Sec. 2, title II, Sec. 231(a)(2), Oct. 22, 1986, 100 Stat. 2095,

2173, provided that:

"(1) In general. - The amendments made by this section [enacting

this section of amending sections 55, 381, 383, 6096, 6411, and

6511 of this title] shall apply to amounts paid or incurred after

June 30, 1981.

"(2) Transitional rule. -

"(A) In general. - If, with respect to the first taxable year

to which the amendments made by this section apply and which ends

in 1981 or 1982, the taxpayer may only take into account

qualified research expenses paid or incurred during a portion of

such taxable year, the amount of the qualified research expenses

taken into account for the base period of such taxable year shall

be the amount which bears the same ratio to the total qualified

research expenses for such base period as the number of months in

such portion of such taxable year bears to the total number of

months in such taxable year.

"(B) Definitions. - For purposes of the preceding sentence, the

terms 'qualified research expenses' and 'base period' have the

meanings given to such terms by section 44F [now 41] of the

Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as added by

this section)."

SPECIAL RULE FOR CREDIT ATTRIBUTABLE TO SUSPENSION PERIODS

Pub. L. 106-170, title V, Sec. 502(d), Dec. 17, 1999, 113 Stat.

1920, provided that:

"(1) In general. - For purposes of the Internal Revenue Code of

1986, the credit determined under section 41 of such Code which is

otherwise allowable under such Code -

"(A) shall not be taken into account prior to October 1, 2000,

to the extent such credit is attributable to the first suspension

period; and

"(B) shall not be taken into account prior to October 1, 2001,

to the extent such credit is attributable to the second

suspension period.

On or after the earliest date that an amount of credit may be taken

into account, such amount may be taken into account through the

filing of an amended return, an application for expedited refund,

an adjustment of estimated taxes, or other means allowed by such

Code.

"(2) Suspension periods. - For purposes of this subsection -

"(A) the first suspension period is the period beginning on

July 1, 1999, and ending on September 30, 2000; and

"(B) the second suspension period is the period beginning on

October 1, 2000, and ending on September 30, 2001.

"(3) Expedited refunds. -

"(A) In general. - If there is an overpayment of tax with

respect to a taxable year by reason of paragraph (1), the

taxpayer may file an application for a tentative refund of such

overpayment. Such application shall be in such manner and form,

and contain such information, as the Secretary may prescribe.

"(B) Deadline for applications. - Subparagraph (A) shall apply

only to an application filed before the date which is 1 year

after the close of the suspension period to which the application

relates.

"(C) Allowance of adjustments. - Not later than 90 days after

the date on which an application is filed under this paragraph,

the Secretary shall -

"(i) review the application;

"(ii) determine the amount of the overpayment; and

"(iii) apply, credit, or refund such overpayment,

in a manner similar to the manner provided in section 6411(b) of

such Code.

"(D) Consolidated returns. - The provisions of section 6411(c)

of such Code shall apply to an adjustment under this paragraph in

such manner as the Secretary may provide.

"(4) Credit attributable to suspension period. -

"(A) In general. - For purposes of this subsection, in the case

of a taxable year which includes a portion of the suspension

period, the amount of credit determined under section 41 of such

Code for such taxable year which is attributable to such period

is the amount which bears the same ratio to the amount of credit

determined under such section 41 for such taxable year as the

number of months in the suspension period which are during such

taxable year bears to the number of months in such taxable year.

"(B) Waiver of estimated tax penalties. - No addition to tax

shall be made under section 6654 or 6655 of such Code for any

period before July 1, 1999, with respect to any underpayment of

tax imposed by such Code to the extent such underpayment was

created or increased by reason of subparagraph (A).

"(5) Secretary. - For purposes of this subsection, the term

'Secretary' means the Secretary of the Treasury (or such

Secretary's delegate)."

SPECIAL RULES FOR TAXABLE YEARS BEGINNING BEFORE OCT. 1, 1990, AND

ENDING AFTER SEPT. 30, 1990

Section 7110(a)(2) of Pub. L. 101-239, which set forth the method

of determining the amount treated as qualified research expenses

for taxable years beginning before Oct. 1, 1990, and ending after

Sept. 30, 1990, was repealed by Pub. L. 101-508, title XI, Sec.

11402(b)(1), Nov. 5, 1990, 104 Stat. 1388-473.

[Section 1702(d)(1) of Pub. L. 104-188 provided that:

"Notwithstanding section 11402(c) of the Revenue Reconciliation Act

of 1990 [Pub. L. 101-508, set out as a note under section 45C of

this title], the amendment made by section 11402(b)(1) of such Act

[repealing section 7110(a)(2) of Pub. L. 101-239, formerly set out

as a note above] shall apply to taxable years ending after December

31, 1989."]

STUDY AND REPORT ON CREDIT PROVIDED BY THIS SECTION

Section 4007(b) of Pub. L. 100-647 directed Comptroller General

of United States to conduct a study of credit provided by 26 U.S.C.

41 and submit a report of the study not later than Dec. 31, 1989,

to Committee on Ways and Means of House of Representatives and

Committee on Finance of Senate.

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 [Secs. 1101-1147 and 1171-1177] or

title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an

amendment to any plan, such plan amendment shall not be required to

be made before the first plan year beginning on or after Jan. 1,

1989, see section 1140 of Pub. L. 99-514, as amended, set out as a

note under section 401 of this title.

NEW SECTION 41 TREATED AS CONTINUATION OF OLD SECTION 44F

Section 474(i)(2) of Pub. L. 98-369 provided that: "For purposes

of determining -

"(A) whether any excess credit under old section 44F [now 41]

for a taxable year beginning before January 1, 1984, is allowable

as a carryover under new section 30 [now 41], and

"(B) the period during which new section 30 [now 41] is in

effect,

new section 30 [now 41] shall be treated as a continuation of old

section 44F (and shall apply only to the extent old section 44F

would have applied)."

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 30A, 38, 45C, 144, 170,

196, 197, 280C, 409, 936, 1202 of this title.

-End-

-CITE-

26 USC Sec. 42 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter A - Determination of Tax Liability

PART IV - CREDITS AGAINST TAX

Subpart D - Business Related Credits

-HEAD-

Sec. 42. Low-income housing credit

-STATUTE-

(a) In general

For purposes of section 38, the amount of the low-income housing

credit determined under this section for any taxable year in the

credit period shall be an amount equal to -

(1) the applicable percentage of

(2) the qualified basis of each qualified low-income building.

(b) Applicable percentage: 70 percent present value credit for

certain new buildings; 30 percent present value credit for

certain other buildings

For purposes of this section -

(1) Building placed in service during 1987

In the case of any qualified low-income building placed in

service by the taxpayer during 1987, the term "applicable

percentage" means -

(A) 9 percent for new buildings which are not federally

subsidized for the taxable year, or

(B) 4 percent for -

(i) new buildings which are federally subsidized for the

taxable year, and

(ii) existing buildings.

(2) Buildings placed in service after 1987

(A) In general

In the case of any qualified low-income building placed in

service by the taxpayer after 1987, the term "applicable

percentage" means the appropriate percentage prescribed by the

Secretary for the earlier of -

(i) the month in which such building is placed in service,

or

(ii) at the election of the taxpayer -

(I) the month in which the taxpayer and the housing

credit agency enter into an agreement with respect to such

building (which is binding on such agency, the taxpayer,

and all successors in interest) as to the housing credit

dollar amount to be allocated to such building, or

(II) in the case of any building to which subsection

(h)(4)(B) applies, the month in which the tax-exempt

obligations are issued.

A month may be elected under clause (ii) only if the election

is made not later than the 5th day after the close of such

month. Such an election, once made, shall be irrevocable.

(B) Method of prescribing percentages

The percentages prescribed by the Secretary for any month

shall be percentages which will yield over a 10-year period

amounts of credit under subsection (a) which have a present

value equal to -

(i) 70 percent of the qualified basis of a building

described in paragraph (1)(A), and

(ii) 30 percent of the qualified basis of a building

described in paragraph (1)(B).

(C) Method of discounting

The present value under subparagraph (B) shall be determined

-

(i) as of the last day of the 1st year of the 10-year

period referred to in subparagraph (B),

(ii) by using a discount rate equal to 72 percent of the

average of the annual Federal mid-term rate and the annual

Federal long-term rate applicable under section 1274(d)(1) to

the month applicable under clause (i) or (ii) of subparagraph

(A) and compounded annually, and

(iii) by assuming that the credit allowable under this

section for any year is received on the last day of such

year.

(3) Cross references

(A) For treatment of certain rehabilitation expenditures as

separate new buildings, see subsection (e).

(B) For determination of applicable percentage for increases

in qualified basis after the 1st year of the credit period, see

subsection (f)(3).

(C) For authority of housing credit agency to limit

applicable percentage and qualified basis which may be taken

into account under this section with respect to any building,

see subsection (h)(7).

(c) Qualified basis; qualified low-income building

For purposes of this section -

(1) Qualified basis

(A) Determination

The qualified basis of any qualified low-income building for

any taxable year is an amount equal to -

(i) the applicable fraction (determined as of the close of

such taxable year) of

(ii) the eligible basis of such building (determined under

subsection (d)(5)).

(B) Applicable fraction

For purposes of subparagraph (A), the term "applicable

fraction" means the smaller of the unit fraction or the floor

space fraction.

(C) Unit fraction

For purposes of subparagraph (B), the term "unit fraction"

means the fraction -

(i) the numerator of which is the number of low-income

units in the building, and

(ii) the denominator of which is the number of residential

rental units (whether or not occupied) in such building.

(D) Floor space fraction

For purposes of subparagraph (B), the term "floor space

fraction" means the fraction -

(i) the numerator of which is the total floor space of the

low-income units in such building, and

(ii) the denominator of which is the total floor space of

the residential rental units (whether or not occupied) in

such building.

(E) Qualified basis to include portion of building used to

provide supportive services for homeless

In the case of a qualified low-income building described in

subsection (i)(3)(B)(iii), the qualified basis of such building

for any taxable year shall be increased by the lesser of -

(i) so much of the eligible basis of such building as is

used throughout the year to provide supportive services

designed to assist tenants in locating and retaining

permanent housing, or

(ii) 20 percent of the qualified basis of such building

(determined without regard to this subparagraph).

(2) Qualified low-income building

The term "qualified low-income building" means any building -

(A) which is part of a qualified low-income housing project

at all times during the period -

(i) beginning on the 1st day in the compliance period on

which such building is part of such a project, and

(ii) ending on the last day of the compliance period with

respect to such building, and

(B) to which the amendments made by section 201(a) of the Tax

Reform Act of 1986 apply.

Such term does not include any building with respect to which

moderate rehabilitation assistance is provided, at any time

during the compliance period, under section 8(e)(2) (!1) of the

United States Housing Act of 1937 (other than assistance under

the McKinney-Vento Homeless Assistance Act (as in effect on the

date of the enactment of this sentence)).

(d) Eligible basis

For purposes of this section -

(1) New buildings

The eligible basis of a new building is its adjusted basis as

of the close of the 1st taxable year of the credit period.

(2) Existing buildings

(A) In general

The eligible basis of an existing building is -

(i) in the case of a building which meets the requirements

of subparagraph (B), its adjusted basis as of the close of

the 1st taxable year of the credit period, and

(ii) zero in any other case.

(B) Requirements

A building meets the requirements of this subparagraph if -

(i) the building is acquired by purchase (as defined in

section 179(d)(2)),

(ii) there is a period of at least 10 years between the

date of its acquisition by the taxpayer and the later of -

(I) the date the building was last placed in service, or

(II) the date of the most recent nonqualified substantial

improvement of the building,

(iii) the building was not previously placed in service by

the taxpayer or by any person who was a related person with

respect to the taxpayer as of the time previously placed in

service, and

(iv) except as provided in subsection (f)(5), a credit is

allowable under subsection (a) by reason of subsection (e)

with respect to the building.

(C) Adjusted basis

For purposes of subparagraph (A), the adjusted basis of any

building shall not include so much of the basis of such

building as is determined by reference to the basis of other

property held at any time by the person acquiring the building.

(D) Special rules for subparagraph (B)

(i) Nonqualified substantial improvement

For purposes of subparagraph (B)(ii) -

(I) In general

The term "nonqualified substantial improvement" means any

substantial improvement if section 167(k) (as in effect on

the day before the date of the enactment of the Revenue

Reconciliation Act of 1990) was elected with respect to

such improvement or section 168 (as in effect on the day

before the date of the enactment of the Tax Reform Act of

1986) applied to such improvement.

(II) Date of substantial improvement

The date of a substantial improvement is the last day of

the 24-month period referred to in subclause (III).

(III) Substantial improvement

The term "substantial improvement" means the improvements

added to capital account with respect to the building

during any 24-month period, but only if the sum of the

amounts added to such account during such period equals or

exceeds 25 percent of the adjusted basis of the building

(determined without regard to paragraphs (2) and (3) of

section 1016(a)) as of the 1st day of such period.

(ii) Special rules for certain transfers

For purposes of determining under subparagraph (B)(ii) when

a building was last placed in service, there shall not be

taken into account any placement in service -

(I) in connection with the acquisition of the building in

a transaction in which the basis of the building in the

hands of the person acquiring it is determined in whole or

in part by reference to the adjusted basis of such building

in the hands of the person from whom acquired,

(II) by a person whose basis in such building is

determined under section 1014(a) (relating to property

acquired from a decedent),

(III) by any governmental unit or qualified nonprofit

organization (as defined in subsection (h)(5)) if the

requirements of subparagraph (B)(ii) are met with respect

to the placement in service by such unit or organization

and all the income from such property is exempt from

Federal income taxation,

(IV) by any person who acquired such building by

foreclosure (or by instrument in lieu of foreclosure) of

any purchase-money security interest held by such person if

the requirements of subparagraph (B)(ii) are met with

respect to the placement in service by such person and such

building is resold within 12 months after the date such

building is placed in service by such person after such

foreclosure, or

(V) of a single-family residence by any individual who

owned and used such residence for no other purpose than as

his principal residence.

(iii) Related person, etc.

(I) Application of section 179

For purposes of subparagraph (B)(i), section 179(d) shall

be applied by substituting "10 percent" for "50 percent" in

section (!2) 267(b) and 707(b) and in section 179(b)(7).

(II) Related person

For purposes of subparagraph (B)(iii), a person

(hereinafter in this subclause referred to as the "related

person") is related to any person if the related person

bears a relationship to such person specified in section

267(b) or 707(b)(1), or the related person and such person

are engaged in trades or businesses under common control

(within the meaning of subsections (a) and (b) of section

52). For purposes of the preceding sentence, in applying

section 267(b) or 707(b)(1), "10 percent" shall be

substituted for "50 percent".

(3) Eligible basis reduced where disproportionate standards for

units

(A) In general

Except as provided in subparagraph (B), the eligible basis of

any building shall be reduced by an amount equal to the portion

of the adjusted basis of the building which is attributable to

residential rental units in the building which are not

low-income units and which are above the average quality

standard of the low-income units in the building.

(B) Exception where taxpayer elects to exclude excess costs

(i) In general

Subparagraph (A) shall not apply with respect to a

residential rental unit in a building which is not a

low-income unit if -

(I) the excess described in clause (ii) with respect to

such unit is not greater than 15 percent of the cost

described in clause (ii)(II), and

(II) the taxpayer elects to exclude from the eligible

basis of such building the excess described in clause (ii)

with respect to such unit.

(ii) Excess

The excess described in this clause with respect to any

unit is the excess of -

(I) the cost of such unit, over

(II) the amount which would be the cost of such unit if

the average cost per square foot of low-income units in the

building were substituted for the cost per square foot of

such unit.

The Secretary may by regulation provide for the determination

of the excess under this clause on a basis other than square

foot costs.

(4) Special rules relating to determination of adjusted basis

For purposes of this subsection -

(A) In general

Except as provided in subparagraphs (B) and (C), the adjusted

basis of any building shall be determined without regard to the

adjusted basis of any property which is not residential rental

property.

(B) Basis of property in common areas, etc., included

The adjusted basis of any building shall be determined by

taking into account the adjusted basis of property (of a

character subject to the allowance for depreciation) used in

common areas or provided as comparable amenities to all

residential rental units in such building.

(C) Inclusion of basis of property used to provide services for

certain nontenants

(i) In general

The adjusted basis of any building located in a qualified

census tract (as defined in paragraph (5)(C)) shall be

determined by taking into account the adjusted basis of

property (of a character subject to the allowance for

depreciation and not otherwise taken into account) used

throughout the taxable year in providing any community

service facility.

(ii) Limitation

The increase in the adjusted basis of any building which is

taken into account by reason of clause (i) shall not exceed

10 percent of the eligible basis of the qualified low-income

housing project of which it is a part. For purposes of the

preceding sentence, all community service facilities which

are part of the same qualified low-income housing project

shall be treated as one facility.

(iii) Community service facility

For purposes of this subparagraph, the term "community

service facility" means any facility designed to serve

primarily individuals whose income is 60 percent or less of

area median income (within the meaning of subsection

(g)(1)(B)).

(D) No reduction for depreciation

The adjusted basis of any building shall be determined

without regard to paragraphs (2) and (3) of section 1016(a).

(5) Special rules for determining eligible basis

(A) Eligible basis reduced by Federal grants

If, during any taxable year of the compliance period, a grant

is made with respect to any building or the operation thereof

and any portion of such grant is funded with Federal funds

(whether or not includible in gross income), the eligible basis

of such building for such taxable year and all succeeding

taxable years shall be reduced by the portion of such grant

which is so funded.

(B) Eligible basis not to include expenditures where section

167(k) elected

The eligible basis of any building shall not include any

portion of its adjusted basis which is attributable to amounts

with respect to which an election is made under section 167(k)

(as in effect on the day before the date of the enactment of

the Revenue Reconciliation Act of 1990).

(C) Increase in credit for buildings in high cost areas

(i) In general

In the case of any building located in a qualified census

tract or difficult development area which is designated for

purposes of this subparagraph -

(I) in the case of a new building, the eligible basis of

such building shall be 130 percent of such basis determined

without regard to this subparagraph, and

(II) in the case of an existing building, the

rehabilitation expenditures taken into account under

subsection (e) shall be 130 percent of such expenditures

determined without regard to this subparagraph.

(ii) Qualified census tract

(I) In general

The term "qualified census tract" means any census tract

which is designated by the Secretary of Housing and Urban

Development and, for the most recent year for which census

data are available on household income in such tract,

either in which 50 percent or more of the households have

an income which is less than 60 percent of the area median

gross income for such year or which has a poverty rate of

at least 25 percent. If the Secretary of Housing and Urban

Development determines that sufficient data for any period

are not available to apply this clause on the basis of

census tracts, such Secretary shall apply this clause for

such period on the basis of enumeration districts.

(II) Limit on MSA's designated

The portion of a metropolitan statistical area which may

be designated for purposes of this subparagraph shall not

exceed an area having 20 percent of the population of such

metropolitan statistical area.

(III) Determination of areas

For purposes of this clause, each metropolitan

statistical area shall be treated as a separate area and

all nonmetropolitan areas in a State shall be treated as 1

area.

(iii) Difficult development areas

(I) In general

The term "difficult development areas" means any area

designated by the Secretary of Housing and Urban

Development as an area which has high construction, land,

and utility costs relative to area median gross income.

(II) Limit on areas designated

The portions of metropolitan statistical areas which may

be designated for purposes of this subparagraph shall not

exceed an aggregate area having 20 percent of the

population of such metropolitan statistical areas. A

comparable rule shall apply to nonmetropolitan areas.

(iv) Special rules and definitions

For purposes of this subparagraph -

(I) population shall be determined on the basis of the

most recent decennial census for which data are available,

(II) area median gross income shall be determined in

accordance with subsection (g)(4),

(III) the term "metropolitan statistical area" has the

same meaning as when used in section 143(k)(2)(B), and

(IV) the term "nonmetropolitan area" means any county (or

portion thereof) which is not within a metropolitan

statistical area.

(6) Credit allowable for certain federally-assisted buildings

acquired during 10-year period described in paragraph

(2)(B)(ii)

(A) In general

On application by the taxpayer, the Secretary (after

consultation with the appropriate Federal official) may waive

paragraph (2)(B)(ii) with respect to any federally-assisted

building if the Secretary determines that such waiver is

necessary -

(i) to avert an assignment of the mortgage secured by

property in the project (of which such building is a part) to

the Department of Housing and Urban Development or the

Farmers Home Administration, or

(ii) to avert a claim against a Federal mortgage insurance

fund (or such Department or Administration) with respect to a

mortgage which is so secured.

The preceding sentence shall not apply to any building

described in paragraph (7)(B).

(B) Federally-assisted building

For purposes of subparagraph (A), the term

"federally-assisted building" means any building which is

substantially assisted, financed, or operated under -

(i) section 8 of the United States Housing Act of 1937,

(ii) section 221(d)(3) or 236 of the National Housing Act,

or

(iii) section 515 of the Housing Act of 1949,

as such Acts are in effect on the date of the enactment of the

Tax Reform Act of 1986.

(C) Low-income buildings where mortgage may be prepaid

A waiver may be granted under subparagraph (A) (without

regard to any clause thereof) with respect to a

federally-assisted building described in clause (ii) or (iii)

of subparagraph (B) if -

(i) the mortgage on such building is eligible for

prepayment under subtitle B of the Emergency Low Income

Housing Preservation Act of 1987 or under section 502(c) of

the Housing Act of 1949 at any time within 1 year after the

date of the application for such a waiver,

(ii) the appropriate Federal official certifies to the

Secretary that it is reasonable to expect that, if the waiver

is not granted, such building will cease complying with its

low-income occupancy requirements, and

(iii) the eligibility to prepay such mortgage without the

approval of the appropriate Federal official is waived by all

persons who are so eligible and such waiver is binding on all

successors of such persons.

(D) Buildings acquired from insured depository institutions in

default

A waiver may be granted under subparagraph (A) (without

regard to any clause thereof) with respect to any building

acquired from an insured depository institution in default (as

defined in section 3 of the Federal Deposit Insurance Act) or

from a receiver or conservator of such an institution.

(E) Appropriate Federal official

For purposes of subparagraph (A), the term "appropriate

Federal official" means -

(i) the Secretary of Housing and Urban Development in the

case of any building described in subparagraph (B) by reason

of clause (i) or (ii) thereof, and

(ii) the Secretary of Agriculture in the case of any

building described in subparagraph (B) by reason of clause

(iii) thereof.

(7) Acquisition of building before end of prior compliance period

(A) In general

Under regulations prescribed by the Secretary, in the case of

a building described in subparagraph (B) (or interest therein)

which is acquired by the taxpayer -

(i) paragraph (2)(B) shall not apply, but

(ii) the credit allowable by reason of subsection (a) to

the taxpayer for any period after such acquisition shall be

equal to the amount of credit which would have been allowable

under subsection (a) for such period to the prior owner

referred to in subparagraph (B) had such owner not disposed

of the building.

(B) Description of building

A building is described in this subparagraph if -

(i) a credit was allowed by reason of subsection (a) to any

prior owner of such building, and

(ii) the taxpayer acquired such building before the end of

the compliance period for such building with respect to such

prior owner (determined without regard to any disposition by

such prior owner).

(e) Rehabilitation expenditures treated as separate new building

(1) In general

Rehabilitation expenditures paid or incurred by the taxpayer

with respect to any building shall be treated for purposes of

this section as a separate new building.

(2) Rehabilitation expenditures

For purposes of paragraph (1) -

(A) In general

The term "rehabilitation expenditures" means amounts

chargeable to capital account and incurred for property (or

additions or improvements to property) of a character subject

to the allowance for depreciation in connection with the

rehabilitation of a building.

(B) Cost of acquisition, etc,(!3) not included

Such term does not include the cost of acquiring any building

(or interest therein) or any amount not permitted to be taken

into account under paragraph (3) or (4) of subsection (d).

(3) Minimum expenditures to qualify

(A) In general

Paragraph (1) shall apply to rehabilitation expenditures with

respect to any building only if -

(i) the expenditures are allocable to 1 or more low-income

units or substantially benefit such units, and

(ii) the amount of such expenditures during any 24-month

period meets the requirements of whichever of the following

subclauses requires the greater amount of such expenditures:

(I) The requirement of this subclause is met if such

amount is not less than 10 percent of the adjusted basis of

the building (determined as of the 1st day of such period

and without regard to paragraphs (2) and (3) of section

1016(a)).

(II) The requirement of this subclause is met if the

qualified basis attributable to such amount, when divided

by the number of low-income units in the building, is

$3,000 or more.

(B) Exception from 10 percent rehabilitation

In the case of a building acquired by the taxpayer from a

governmental unit, at the election of the taxpayer,

subparagraph (A)(ii)(I) shall not apply and the credit under

this section for such rehabilitation expenditures shall be

determined using the percentage applicable under subsection

(b)(2)(B)(ii).

(C) Date of determination

The determination under subparagraph (A) shall be made as of

the close of the 1st taxable year in the credit period with

respect to such expenditures.

(4) Special rules

For purposes of applying this section with respect to

expenditures which are treated as a separate building by reason

of this subsection -

(A) such expenditures shall be treated as placed in service

at the close of the 24-month period referred to in paragraph

(3)(A), and

(B) the applicable fraction under subsection (c)(1) shall be

the applicable fraction for the building (without regard to

paragraph (1)) with respect to which the expenditures were

incurred.

Nothing in subsection (d)(2) shall prevent a credit from being

allowed by reason of this subsection.

(5) No double counting

Rehabilitation expenditures may, at the election of the

taxpayer, be taken into account under this subsection or

subsection (d)(2)(A)(i) but not under both such subsections.

(6) Regulations to apply subsection with respect to group of

units in building

The Secretary may prescribe regulations, consistent with the

purposes of this subsection, treating a group of units with

respect to which rehabilitation expenditures are incurred as a

separate new building.

(f) Definition and special rules relating to credit period

(1) Credit period defined

For purposes of this section, the term "credit period" means,

with respect to any building, the period of 10 taxable years

beginning with -

(A) the taxable year in which the building is placed in

service, or

(B) at the election of the taxpayer, the succeeding taxable

year,

but only if the building is a qualified low-income building as of

the close of the 1st year of such period. The election under

subparagraph (B), once made, shall be irrevocable.

(2) Special rule for 1st year of credit period

(A) In general

The credit allowable under subsection (a) with respect to any

building for the 1st taxable year of the credit period shall be

determined by substituting for the applicable fraction under

subsection (c)(1) the fraction -

(i) the numerator of which is the sum of the applicable

fractions determined under subsection (c)(1) as of the close

of each full month of such year during which such building

was in service, and

(ii) the denominator of which is 12.

(B) Disallowed 1st year credit allowed in 11th year

Any reduction by reason of subparagraph (A) in the credit

allowable (without regard to subparagraph (A)) for the 1st

taxable year of the credit period shall be allowable under

subsection (a) for the 1st taxable year following the credit

period.

(3) Determination of applicable percentage with respect to

increases in qualified basis after 1st year of credit period

(A) In general

In the case of any building which was a qualified low-income

building as of the close of the 1st year of the credit period,

if -

(i) as of the close of any taxable year in the compliance

period (after the 1st year of the credit period) the

qualified basis of such building exceeds

(ii) the qualified basis of such building as of the close

of the 1st year of the credit period,

the applicable percentage which shall apply under subsection

(a) for the taxable year to such excess shall be the percentage

equal to 2/3 of the applicable percentage which (after the

application of subsection (h)) would but for this paragraph

apply to such basis.

(B) 1st year computation applies

A rule similar to the rule of paragraph (2)(A) shall apply to

any increase in qualified basis to which subparagraph (A)

applies for the 1st year of such increase.

(4) Dispositions of property

If a building (or an interest therein) is disposed of during

any year for which credit is allowable under subsection (a), such

credit shall be allocated between the parties on the basis of the

number of days during such year the building (or interest) was

held by each. In any such case, proper adjustments shall be made

in the application of subsection (j).

(5) Credit period for existing buildings not to begin before

rehabilitation credit allowed

(A) In general

The credit period for an existing building shall not begin

before the 1st taxable year of the credit period for

rehabilitation expenditures with respect to the building.

(B) Acquisition credit allowed for certain buildings not

allowed a rehabilitation credit

(i) In general

In the case of a building described in clause (ii) -

(I) subsection (d)(2)(B)(iv) shall not apply, and

(II) the credit period for such building shall not begin

before the taxable year which would be the 1st taxable year

of the credit period for rehabilitation expenditures with

respect to the building under the modifications described

in clause (ii)(II).

(ii) Building described

A building is described in this clause if -

(I) a waiver is granted under subsection (d)(6)(C) with

respect to the acquisition of the building, and

(II) a credit would be allowed for rehabilitation

expenditures with respect to such building if subsection

(e)(3)(A)(ii)(I) did not apply and if subsection

(e)(3)(A)(ii)(II) were applied by substituting "$2,000" for

"$3,000".

(g) Qualified low-income housing project

For purposes of this section -

(1) In general

The term "qualified low-income housing project" means any

project for residential rental property if the project meets the

requirements of subparagraph (A) or (B) whichever is elected by

the taxpayer:

(A) 20-50 test

The project meets the requirements of this subparagraph if 20

percent or more of the residential units in such project are

both rent-restricted and occupied by individuals whose income

is 50 percent or less of area median gross income.

(B) 40-60 test

The project meets the requirements of this subparagraph if 40

percent or more of the residential units in such project are

both rent-restricted and occupied by individuals whose income

is 60 percent or less of area median gross income.

Any election under this paragraph, once made, shall be

irrevocable. For purposes of this paragraph, any property shall

not be treated as failing to be residential rental property

merely because part of the building in which such property is

located is used for purposes other than residential rental

purposes.

(2) Rent-restricted units

(A) In general

For purposes of paragraph (1), a residential unit is

rent-restricted if the gross rent with respect to such unit

does not exceed 30 percent of the imputed income limitation

applicable to such unit. For purposes of the preceding

sentence, the amount of the income limitation under paragraph

(1) applicable for any period shall not be less than such

limitation applicable for the earliest period the building

(which contains the unit) was included in the determination of

whether the project is a qualified low-income housing project.

(B) Gross rent

For purposes of subparagraph (A), gross rent -

(i) does not include any payment under section 8 of the

United States Housing Act of 1937 or any comparable rental

assistance program (with respect to such unit or occupants

thereof),

(ii) includes any utility allowance determined by the

Secretary after taking into account such determinations under

section 8 of the United States Housing Act of 1937,

(iii) does not include any fee for a supportive service

which is paid to the owner of the unit (on the basis of the

low-income status of the tenant of the unit) by any

governmental program of assistance (or by an organization

described in section 501(c)(3) and exempt from tax under

section 501(a)) if such program (or organization) provides

assistance for rent and the amount of assistance provided for

rent is not separable from the amount of assistance provided

for supportive services, and

(iv) does not include any rental payment to the owner of

the unit to the extent such owner pays an equivalent amount

to the Farmers' Home Administration under section 515 of the

Housing Act of 1949.

For purposes of clause (iii), the term "supportive service"

means any service provided under a planned program of services

designed to enable residents of a residential rental property

to remain independent and avoid placement in a hospital,

nursing home, or intermediate care facility for the mentally or

physically handicapped. In the case of a single-room occupancy

unit or a building described in subsection (i)(3)(B)(iii), such

term includes any service provided to assist tenants in

locating and retaining permanent housing.

(C) Imputed income limitation applicable to unit

For purposes of this paragraph, the imputed income limitation

applicable to a unit is the income limitation which would apply

under paragraph (1) to individuals occupying the unit if the

number of individuals occupying the unit were as follows:

(i) In the case of a unit which does not have a separate

bedroom, 1 individual.

(ii) In the case of a unit which has 1 or more separate

bedrooms, 1.5 individuals for each separate bedroom.

In the case of a project with respect to which a credit is

allowable by reason of this section and for which financing is

provided by a bond described in section 142(a)(7), the imputed

income limitation shall apply in lieu of the otherwise

applicable income limitation for purposes of applying section

142(d)(4)(B)(ii).

(D) Treatment of units occupied by individuals whose incomes

rise above limit

(i) In general

Except as provided in clause (ii), notwithstanding an

increase in the income of the occupants of a low-income unit

above the income limitation applicable under paragraph (1),

such unit shall continue to be treated as a low-income unit

if the income of such occupants initially met such income

limitation and such unit continues to be rent-restricted.

(ii) Next available unit must be rented to low-income tenant

if income rises above 140 percent of income limit

If the income of the occupants of the unit increases above

140 percent of the income limitation applicable under

paragraph (1), clause (i) shall cease to apply to such unit

if any residential rental unit in the building (of a size

comparable to, or smaller than, such unit) is occupied by a

new resident whose income exceeds such income limitation. In

the case of a project described in section 142(d)(4)(B), the

preceding sentence shall be applied by substituting "170

percent" for "140 percent" and by substituting "any

low-income unit in the building is occupied by a new resident

whose income exceeds 40 percent of area median gross income"

for "any residential unit in the building (of a size

comparable to, or smaller than, such unit) is occupied by a

new resident whose income exceeds such income limitation".

(E) Units where Federal rental assistance is reduced as

tenant's income increases

If the gross rent with respect to a residential unit exceeds

the limitation under subparagraph (A) by reason of the fact

that the income of the occupants thereof exceeds the income

limitation applicable under paragraph (1), such unit shall,

nevertheless, be treated as a rent-restricted unit for purposes

of paragraph (1) if -

(i) a Federal rental assistance payment described in

subparagraph (B)(i) is made with respect to such unit or its

occupants, and

(ii) the sum of such payment and the gross rent with

respect to such unit does not exceed the sum of the amount of

such payment which would be made and the gross rent which

would be payable with respect to such unit if -

(I) the income of the occupants thereof did not exceed

the income limitation applicable under paragraph (1), and

(II) such units were rent-restricted within the meaning

of subparagraph (A).

The preceding sentence shall apply to any unit only if the

result described in clause (ii) is required by Federal statute

as of the date of the enactment of this subparagraph and as of

the date the Federal rental assistance payment is made.

(3) Date for meeting requirements

(A) In general

Except as otherwise provided in this paragraph, a building

shall be treated as a qualified low-income building only if the

project (of which such building is a part) meets the

requirements of paragraph (1) not later than the close of the

1st year of the credit period for such building.

(B) Buildings which rely on later buildings for qualification

(i) In general

In determining whether a building (hereinafter in this

subparagraph referred to as the "prior building") is a

qualified low-income building, the taxpayer may take into

account 1 or more additional buildings placed in service

during the 12-month period described in subparagraph (A) with

respect to the prior building only if the taxpayer elects to

apply clause (ii) with respect to each additional building

taken into account.

(ii) Treatment of elected buildings

In the case of a building which the taxpayer elects to take

into account under clause (i), the period under subparagraph

(A) for such building shall end at the close of the 12-month

period applicable to the prior building.

(iii) Date prior building is treated as placed in service

For purposes of determining the credit period and the

compliance period for the prior building, the prior building

shall be treated for purposes of this section as placed in

service on the most recent date any additional building

elected by the taxpayer (with respect to such prior building)

was placed in service.

(C) Special rule

A building -

(i) other than the 1st building placed in service as part

of a project, and

(ii) other than a building which is placed in service

during the 12-month period described in subparagraph (A) with

respect to a prior building which becomes a qualified

low-income building,

shall in no event be treated as a qualified low-income building

unless the project is a qualified low-income housing project

(without regard to such building) on the date such building is

placed in service.

(D) Projects with more than 1 building must be identified

For purposes of this section, a project shall be treated as

consisting of only 1 building unless, before the close of the

1st calendar year in the project period (as defined in

subsection (h)(1)(F)(ii)), each building which is (or will be)

part of such project is identified in such form and manner as

the Secretary may provide.

(4) Certain rules made applicable

Paragraphs (2) (other than subparagraph (A) thereof), (3), (4),

(5), (6), and (7) of section 142(d), and section 6652(j), shall

apply for purposes of determining whether any project is a

qualified low-income housing project and whether any unit is a

low-income unit; except that, in applying such provisions for

such purposes, the term "gross rent" shall have the meaning given

such term by paragraph (2)(B) of this subsection.

(5) Election to treat building after compliance period as not

part of a project

For purposes of this section, the taxpayer may elect to treat

any building as not part of a qualified low-income housing

project for any period beginning after the compliance period for

such building.

(6) Special rule where de minimis equity contribution

Property shall not be treated as failing to be residential

rental property for purposes of this section merely because the

occupant of a residential unit in the project pays (on a

voluntary basis) to the lessor a de minimis amount to be held

toward the purchase by such occupant of a residential unit in

such project if -

(A) all amounts so paid are refunded to the occupant on the

cessation of his occupancy of a unit in the project, and

(B) the purchase of the unit is not permitted until after the

close of the compliance period with respect to the building in

which the unit is located.

Any amount paid to the lessor as described in the preceding

sentence shall be included in gross rent under paragraph (2) for

purposes of determining whether the unit is rent- restricted.

(7) Scattered site projects

Buildings which would (but for their lack of proximity) be

treated as a project for purposes of this section shall be so

treated if all of the dwelling units in each of the buildings are

rent-restricted (within the meaning of paragraph (2)) residential

rental units.

(8) Waiver of certain de minimis errors and recertifications

On application by the taxpayer, the Secretary may waive -

(A) any recapture under subsection (j) in the case of any de

minimis error in complying with paragraph (1), or

(B) any annual recertification of tenant income for purposes

of this subsection, if the entire building is occupied by

low-income tenants.

(h) Limitation on aggregate credit allowable with respect to

projects located in a State

(1) Credit may not exceed credit amount allocated to building

(A) In general

The amount of the credit determined under this section for

any taxable year with respect to any building shall not exceed

the housing credit dollar amount allocated to such building

under this subsection.

(B) Time for making allocation

Except in the case of an allocation which meets the

requirements of subparagraph (C), (D), (E), or (F), an

allocation shall be taken into account under subparagraph (A)

only if it is made not later than the close of the calendar

year in which the building is placed in service.

(C) Exception where binding commitment

An allocation meets the requirements of this subparagraph if

there is a binding commitment (not later than the close of the

calendar year in which the building is placed in service) by

the housing credit agency to allocate a specified housing

credit dollar amount to such building beginning in a specified

later taxable year.

(D) Exception where increase in qualified basis

(i) In general

An allocation meets the requirements of this subparagraph

if such allocation is made not later than the close of the

calendar year in which ends the taxable year to which it will

1st apply but only to the extent the amount of such

allocation does not exceed the limitation under clause (ii).

(ii) Limitation

The limitation under this clause is the amount of credit

allowable under this section (without regard to this

subsection) for a taxable year with respect to an increase in

the qualified basis of the building equal to the excess of -

(I) the qualified basis of such building as of the close

of the 1st taxable year to which such allocation will

apply, over

(II) the qualified basis of such building as of the close

of the 1st taxable year to which the most recent prior

housing credit allocation with respect to such building

applied.

(iii) Housing credit dollar amount reduced by full allocation

Notwithstanding clause (i), the full amount of the

allocation shall be taken into account under paragraph (2).

(E) Exception where 10 percent of cost incurred

(i) In general

An allocation meets the requirements of this subparagraph

if such allocation is made with respect to a qualified

building which is placed in service not later than the close

of the second calendar year following the calendar year in

which the allocation is made.

(ii) Qualified building

For purposes of clause (i), the term "qualified building"

means any building which is part of a project if the

taxpayer's basis in such project (as of the later of the date

which is 6 months after the date that the allocation was made

or the close of the calendar year in which the allocation is

made) is more than 10 percent of the taxpayer's reasonably

expected basis in such project (as of the close of the second

calendar year referred to in clause (i)). Such term does not

include any existing building unless a credit is allowable

under subsection (e) for rehabilitation expenditures paid or

incurred by the taxpayer with respect to such building for a

taxable year ending during the second calendar year referred

to in clause (i) or the prior taxable year.

(F) Allocation of credit on a project basis

(i) In general

In the case of a project which includes (or will include)

more than 1 building, an allocation meets the requirements of

this subparagraph if -

(I) the allocation is made to the project for a calendar

year during the project period,

(II) the allocation only applies to buildings placed in

service during or after the calendar year for which the

allocation is made, and

(III) the portion of such allocation which is allocated

to any building in such project is specified not later than

the close of the calendar year in which the building is

placed in service.

(ii) Project period

For purposes of clause (i), the term "project period" means

the period -

(I) beginning with the 1st calendar year for which an

allocation may be made for the 1st building placed in

service as part of such project, and

(II) ending with the calendar year the last building is

placed in service as part of such project.

(2) Allocated credit amount to apply to all taxable years ending

during or after credit allocation year

Any housing credit dollar amount allocated to any building for

any calendar year -

(A) shall apply to such building for all taxable years in the

compliance period ending during or after such calendar year,

and

(B) shall reduce the aggregate housing credit dollar amount

of the allocating agency only for such calendar year.

(3) Housing credit dollar amount for agencies

(A) In general

The aggregate housing credit dollar amount which a housing

credit agency may allocate for any calendar year is the portion

of the State housing credit ceiling allocated under this

paragraph for such calendar year to such agency.

(B) State ceiling initially allocated to State housing credit

agencies

Except as provided in subparagraphs (D) and (E), the State

housing credit ceiling for each calendar year shall be

allocated to the housing credit agency of such State. If there

is more than 1 housing credit agency of a State, all such

agencies shall be treated as a single agency.

(C) State housing credit ceiling

The State housing credit ceiling applicable to any State for

any calendar year shall be an amount equal to the sum of -

(i) the unused State housing credit ceiling (if any) of

such State for the preceding calendar year,

(ii) the greater of -

(I) $1.75 ($1.50 for 2001) multiplied by the State

population, or

(II) $2,000,000,

(iii) the amount of State housing credit ceiling returned

in the calendar year, plus

(iv) the amount (if any) allocated under subparagraph (D)

to such State by the Secretary.

For purposes of clause (i), the unused State housing credit

ceiling for any calendar year is the excess (if any) of the sum

of the amounts described in clauses (ii) through (iv) over the

aggregate housing credit dollar amount allocated for such year.

For purposes of clause (iii), the amount of State housing

credit ceiling returned in the calendar year equals the housing

credit dollar amount previously allocated within the State to

any project which fails to meet the 10 percent test under

paragraph (1)(E)(ii) on a date after the close of the calendar

year in which the allocation was made or which does not become

a qualified low-income housing project within the period

required by this section or the terms of the allocation or to

any project with respect to which an allocation is cancelled by

mutual consent of the housing credit agency and the allocation

recipient.

(D) Unused housing credit carryovers allocated among certain

States

(i) In general

The unused housing credit carryover of a State for any

calendar year shall be assigned to the Secretary for

allocation among qualified States for the succeeding calendar

year.

(ii) Unused housing credit carryover

For purposes of this subparagraph, the unused housing

credit carryover of a State for any calendar year is the

excess (if any) of -

(I) the unused State housing credit ceiling for the year

preceding such year, over

(II) the aggregate housing credit dollar amount allocated

for such year.

(iii) Formula for allocation of unused housing credit

carryovers among qualified States

The amount allocated under this subparagraph to a qualified

State for any calendar year shall be the amount determined by

the Secretary to bear the same ratio to the aggregate unused

housing credit carryovers of all States for the preceding

calendar year as such State's population for the calendar

year bears to the population of all qualified States for the

calendar year. For purposes of the preceding sentence,

population shall be determined in accordance with section

146(j).

(iv) Qualified State

For purposes of this subparagraph, the term "qualified

State" means, with respect to a calendar year, any State -

(I) which allocated its entire State housing credit

ceiling for the preceding calendar year, and

(II) for which a request is made (not later than May 1 of

the calendar year) to receive an allocation under clause

(iii).

(E) Special rule for States with constitutional home rule

cities

For purposes of this subsection -

(i) In general

The aggregate housing credit dollar amount for any

constitutional home rule city for any calendar year shall be

an amount which bears the same ratio to the State housing

credit ceiling for such calendar year as -

(I) the population of such city, bears to

(II) the population of the entire State.

(ii) Coordination with other allocations

In the case of any State which contains 1 or more

constitutional home rule cities, for purposes of applying

this paragraph with respect to housing credit agencies in

such State other than constitutional home rule cities, the

State housing credit ceiling for any calendar year shall be

reduced by the aggregate housing credit dollar amounts

determined for such year for all constitutional home rule

cities in such State.

(iii) Constitutional home rule city

For purposes of this paragraph, the term "constitutional

home rule city" has the meaning given such term by section

146(d)(3)(C).

(F) State may provide for different allocation

Rules similar to the rules of section 146(e) (other than

paragraph (2)(B) thereof) shall apply for purposes of this

paragraph.

(G) Population

For purposes of this paragraph, population shall be

determined in accordance with section 146(j).

(H) Cost-of-living adjustment

(i) In general

In the case of a calendar year after 2002, the $2,000,000

and $1.75 amounts in subparagraph (C) shall each be increased

by an amount equal to -

(I) such dollar amount, multiplied by

(II) the cost-of-living adjustment determined under

section 1(f)(3) for such calendar year by substituting

"calendar year 2001" for "calendar year 1992" in

subparagraph (B) thereof.

(ii) Rounding

(I) In the case of the $2,000,000 amount, any increase

under clause (i) which is not a multiple of $5,000 shall be

rounded to the next lowest multiple of $5,000.

(II) In the case of the $1.75 amount, any increase under

clause (i) which is not a multiple of 5 cents shall be

rounded to the next lowest multiple of 5 cents.

(4) Credit for buildings financed by tax-exempt bonds subject to

volume cap not taken into account

(A) In general

Paragraph (1) shall not apply to the portion of any credit

allowable under subsection (a) which is attributable to

eligible basis financed by any obligation the interest on which

is exempt from tax under section 103 if -

(i) such obligation is taken into account under section

146, and

(ii) principal payments on such financing are applied

within a reasonable period to redeem obligations the proceeds

of which were used to provide such financing.

(B) Special rule where 50 percent or more of building is

financed with tax-exempt bonds subject to volume cap

For purposes of subparagraph (A), if 50 percent or more of

the aggregate basis of any building and the land on which the

building is located is financed by any obligation described in

subparagraph (A), paragraph (1) shall not apply to any portion

of the credit allowable under subsection (a) with respect to

such building.

(5) Portion of State ceiling set-aside for certain projects

involving qualified nonprofit organizations

(A) In general

Not more than 90 percent of the State housing credit ceiling

for any State for any calendar year shall be allocated to

projects other than qualified low-income housing projects

described in subparagraph (B).

(B) Projects involving qualified nonprofit organizations

For purposes of subparagraph (A), a qualified low-income

housing project is described in this subparagraph if a

qualified nonprofit organization is to own an interest in the

project (directly or through a partnership) and materially

participate (within the meaning of section 469(h)) in the

development and operation of the project throughout the

compliance period.

(C) Qualified nonprofit organization

For purposes of this paragraph, the term "qualified nonprofit

organization" means any organization if -

(i) such organization is described in paragraph (3) or (4)

of section 501(c) and is exempt from tax under section

501(a),

(ii) such organization is determined by the State housing

credit agency not to be affiliated with or controlled by a

for-profit organization; (!4) and

(iii) 1 of the exempt purposes of such organization

includes the fostering of low-income housing.

(D) Treatment of certain subsidiaries

(i) In general

For purposes of this paragraph, a qualified nonprofit

organization shall be treated as satisfying the ownership and

material participation test of subparagraph (B) if any

qualified corporation in which such organization holds stock

satisfies such test.

(ii) Qualified corporation

For purposes of clause (i), the term "qualified

corporation" means any corporation if 100 percent of the

stock of such corporation is held by 1 or more qualified

nonprofit organizations at all times during the period such

corporation is in existence.

(E) State may not override set-aside

Nothing in subparagraph (F) of paragraph (3) shall be

construed to permit a State not to comply with subparagraph (A)

of this paragraph.

(6) Buildings eligible for credit only if minimum long-term

commitment to low-income housing

(A) In general

No credit shall be allowed by reason of this section with

respect to any building for the taxable year unless an extended

low-income housing commitment is in effect as of the end of

such taxable year.

(B) Extended low-income housing commitment

For purposes of this paragraph, the term "extended low-income

housing commitment" means any agreement between the taxpayer

and the housing credit agency -

(i) which requires that the applicable fraction (as defined

in subsection (c)(1)) for the building for each taxable year

in the extended use period will not be less than the

applicable fraction specified in such agreement and which

prohibits the actions described in subclauses (I) and (II) of

subparagraph (E)(ii),

(ii) which allows individuals who meet the income

limitation applicable to the building under subsection (g)

(whether prospective, present, or former occupants of the

building) the right to enforce in any State court the

requirement and prohibitions of clause (i),

(iii) which prohibits the disposition to any person of any

portion of the building to which such agreement applies

unless all of the building to which such agreement applies is

disposed of to such person,

(iv) which prohibits the refusal to lease to a holder of a

voucher or certificate of eligibility under section 8 of the

United States Housing Act of 1937 because of the status of

the prospective tenant as such a holder,

(v) which is binding on all successors of the taxpayer, and

(vi) which, with respect to the property, is recorded

pursuant to State law as a restrictive covenant.

(C) Allocation of credit may not exceed amount necessary to

support commitment

(i) In general

The housing credit dollar amount allocated to any building

may not exceed the amount necessary to support the applicable

fraction specified in the extended low-income housing

commitment for such building, including any increase in such

fraction pursuant to the application of subsection (f)(3) if

such increase is reflected in an amended low-income housing

commitment.

(ii) Buildings financed by tax-exempt bonds

If paragraph (4) applies to any building the amount of

credit allowed in any taxable year may not exceed the amount

necessary to support the applicable fraction specified in the

extended low-income housing commitment for such building.

Such commitment may be amended to increase such fraction.

(D) Extended use period

For purposes of this paragraph, the term "extended use

period" means the period -

(i) beginning on the 1st day in the compliance period on

which such building is part of a qualified low-income housing

project, and

(ii) ending on the later of -

(I) the date specified by such agency in such agreement,

or

(II) the date which is 15 years after the close of the

compliance period.

(E) Exceptions if foreclosure or if no buyer willing to

maintain low-income status

(i) In general

The extended use period for any building shall terminate -

(I) on the date the building is acquired by foreclosure

(or instrument in lieu of foreclosure) unless the Secretary

determines that such acquisition is part of an arrangement

with the taxpayer a purpose of which is to terminate such

period, or

(II) on the last day of the period specified in

subparagraph (I) if the housing credit agency is unable to

present during such period a qualified contract for the

acquisition of the low-income portion of the building by

any person who will continue to operate such portion as a

qualified low-income building.

Subclause (II) shall not apply to the extent more stringent

requirements are provided in the agreement or in State law.

(ii) Eviction, etc. of existing low-income tenants not

permitted

The termination of an extended use period under clause (i)

shall not be construed to permit before the close of the

3-year period following such termination -

(I) the eviction or the termination of tenancy (other

than for good cause) of an existing tenant of any

low-income unit, or

(II) any increase in the gross rent with respect to such

unit not otherwise permitted under this section.

(F) Qualified contract

For purposes of subparagraph (E), the term "qualified

contract" means a bona fide contract to acquire (within a

reasonable period after the contract is entered into) the

nonlow-income portion of the building for fair market value and

the low-income portion of the building for an amount not less

than the applicable fraction (specified in the extended

low-income housing commitment) of -

(i) the sum of -

(I) the outstanding indebtedness secured by, or with

respect to, the building,

(II) the adjusted investor equity in the building, plus

(III) other capital contributions not reflected in the

amounts described in subclause (I) or (II), reduced by

(ii) cash distributions from (or available for distribution

from) the project.

The Secretary shall prescribe such regulations as may be

necessary or appropriate to carry out this paragraph, including

regulations to prevent the manipulation of the amount

determined under the preceding sentence.

(G) Adjusted investor equity

(i) In general

For purposes of subparagraph (E), the term "adjusted

investor equity" means, with respect to any calendar year,

the aggregate amount of cash taxpayers invested with respect

to the project increased by the amount equal to -

(I) such amount, multiplied by

(II) the cost-of-living adjustment for such calendar

year, determined under section 1(f)(3) by substituting the

base calendar year for "calendar year 1987".

An amount shall be taken into account as an investment in the

project only to the extent there was an obligation to invest

such amount as of the beginning of the credit period and to

the extent such amount is reflected in the adjusted basis of

the project.

(ii) Cost-of-living increases in excess of 5 percent not

taken into account

Under regulations prescribed by the Secretary, if the CPI

for any calendar year (as defined in section 1(f)(4)) exceeds

the CPI for the preceding calendar year by more than 5

percent, the CPI for the base calendar year shall be

increased such that such excess shall never be taken into

account under clause (i).

(iii) Base calendar year

For purposes of this subparagraph, the term "base calendar

year" means the calendar year with or within which the 1st

taxable year of the credit period ends.

(H) Low-income portion

For purposes of this paragraph, the low-income portion of a

building is the portion of such building equal to the

applicable fraction specified in the extended low-income

housing commitment for the building.

(I) Period for finding buyer

The period referred to in this subparagraph is the 1-year

period beginning on the date (after the 14th year of the

compliance period) the taxpayer submits a written request to

the housing credit agency to find a person to acquire the

taxpayer's interest in the low-income portion of the building.

(J) Effect of noncompliance

If, during a taxable year, there is a determination that an

extended low-income housing agreement was not in effect as of

the beginning of such year, such determination shall not apply

to any period before such year and subparagraph (A) shall be

applied without regard to such determination if the failure is

corrected within 1 year from the date of the determination.

(K) Projects which consist of more than 1 building

The application of this paragraph to projects which consist

of more than 1 building shall be made under regulations

prescribed by the Secretary.

(7) Special rules

(A) Building must be located within jurisdiction of credit

agency

A housing credit agency may allocate its aggregate housing

credit dollar amount only to buildings located in the

jurisdiction of the governmental unit of which such agency is a

part.

(B) Agency allocations in excess of limit

If the aggregate housing credit dollar amounts allocated by a

housing credit agency for any calendar year exceed the portion

of the State housing credit ceiling allocated to such agency

for such calendar year, the housing credit dollar amounts so

allocated shall be reduced (to the extent of such excess) for

buildings in the reverse of the order in which the allocations

of such amounts were made.

(C) Credit reduced if allocated credit dollar amount is less

than credit which would be allowable without regard to placed

in service convention, etc.

(i) In general

The amount of the credit determined under this section with

respect to any building shall not exceed the clause (ii)

percentage of the amount of the credit which would (but for

this subparagraph) be determined under this section with

respect to such building.

(ii) Determination of percentage

For purposes of clause (i), the clause (ii) percentage with

respect to any building is the percentage which -

(I) the housing credit dollar amount allocated to such

building bears to

(II) the credit amount determined in accordance with

clause (iii).

(iii) Determination of credit amount

The credit amount determined in accordance with this clause

is the amount of the credit which would (but for this

subparagraph) be determined under this section with respect

to the building if -

(I) this section were applied without regard to

paragraphs (2)(A) and (3)(B) of subsection (f), and

(II) subsection (f)(3)(A) were applied without regard to

"the percentage equal to 2/3 of".

(D) Housing credit agency to specify applicable percentage and

maximum qualified basis

In allocating a housing credit dollar amount to any building,

the housing credit agency shall specify the applicable

percentage and the maximum qualified basis which may be taken

into account under this section with respect to such building.

The applicable percentage and maximum qualified basis so

specified shall not exceed the applicable percentage and

qualified basis determined under this section without regard to

this subsection.

(8) Other definitions

For purposes of this subsection -

(A) Housing credit agency

The term "housing credit agency" means any agency authorized

to carry out this subsection.

(B) Possessions treated as States

The term "State" includes a possession of the United States.

(i) Definitions and special rules

For purposes of this section -

(1) Compliance period

The term "compliance period" means, with respect to any

building, the period of 15 taxable years beginning with the 1st

taxable year of the credit period with respect thereto.

(2) Determination of whether building is federally subsidized

(A) In general

Except as otherwise provided in this paragraph, for purposes

of subsection (b)(1), a new building shall be treated as

federally subsidized for any taxable year if, at any time

during such taxable year or any prior taxable year, there is or

was outstanding any obligation the interest on which is exempt

from tax under section 103, or any below market Federal loan,

the proceeds of which are or were used (directly or indirectly)

with respect to such building or the operation thereof.

(B) Election to reduce eligible basis by balance of loan or

proceeds of obligations

A loan or tax-exempt obligation shall not be taken into

account under subparagraph (A) if the taxpayer elects to

exclude from the eligible basis of the building for purposes of

subsection (d) -

(i) in the case of a loan, the principal amount of such

loan, and

(ii) in the case of a tax-exempt obligation, the proceeds

of such obligation.

(C) Special rule for subsidized construction financing

Subparagraph (A) shall not apply to any tax-exempt obligation

or below market Federal loan used to provide construction

financing for any building if -

(i) such obligation or loan (when issued or made)

identified the building for which the proceeds of such

obligation or loan would be used, and

(ii) such obligation is redeemed, and such loan is repaid,

before such building is placed in service.

(D) Below market Federal loan

For purposes of this paragraph, the term "below market

Federal loan" means any loan funded in whole or in part with

Federal funds if the interest rate payable on such loan is less

than the applicable Federal rate in effect under section

1274(d)(1) (as of the date on which the loan was made). Such

term shall not include any loan which would be a below market

Federal loan solely by reason of assistance provided under

section 106, 107, or 108 of the Housing and Community

Development Act of 1974 (as in effect on the date of the

enactment of this sentence).

(E) Buildings receiving HOME assistance or Native American

housing assistance

(i) In general

Assistance provided under the HOME Investment Partnerships

Act (as in effect on the date of the enactment of this

subparagraph) or the Native American Housing Assistance and

Self-Determination Act of 1996 (25 U.S.C. 4101 et seq.) (as

in effect on October 1, 1997) with respect to any building

shall not be taken into account under subparagraph (D) if 40

percent or more of the residential units in the building are

occupied by individuals whose income is 50 percent or less of

area median gross income. Subsection (d)(5)(C) shall not

apply to any building to which the preceding sentence

applies.

(ii) Special rule for certain high-cost housing areas

In the case of a building located in a city described in

section 142(d)(6), clause (i) shall be applied by

substituting "25 percent" for "40 percent".

(3) Low-income unit

(A) In general

The term "low-income unit" means any unit in a building if -

(i) such unit is rent-restricted (as defined in subsection

(g)(2)), and

(ii) the individuals occupying such unit meet the income

limitation applicable under subsection (g)(1) to the project

of which such building is a part.

(B) Exceptions

(i) In general

A unit shall not be treated as a low-income unit unless the

unit is suitable for occupancy and used other than on a

transient basis.

(ii) Suitability for occupancy

For purposes of clause (i), the suitability of a unit for

occupancy shall be determined under regulations prescribed by

the Secretary taking into account local health, safety, and

building codes.

(iii) Transitional housing for homeless

For purposes of clause (i), a unit shall be considered to

be used other than on a transient basis if the unit contains

sleeping accommodations and kitchen and bathroom facilities

and is located in a building -

(I) which is used exclusively to facilitate the

transition of homeless individuals (within the meaning of

section 103 of the McKinney-Vento Homeless Assistance Act

(42 U.S.C. 11302), as in effect on the date of the

enactment of this clause) to independent living within 24

months, and

(II) in which a governmental entity or qualified

nonprofit organization (as defined in subsection (h)(5))

provides such individuals with temporary housing and

supportive services designed to assist such individuals in

locating and retaining permanent housing.

(iv) Single-room occupancy units

For purposes of clause (i), a single-room occupancy unit

shall not be treated as used on a transient basis merely

because it is rented on a month-by-month basis.

(C) Special rule for buildings having 4 or fewer units

In the case of any building which has 4 or fewer residential

rental units, no unit in such building shall be treated as a

low-income unit if the units in such building are owned by -

(i) any individual who occupies a residential unit in such

building, or

(ii) any person who is related (as defined in subsection

(d)(2)(D)(iii)) to such individual.

(D) Certain students not to disqualify unit

A unit shall not fail to be treated as a low-income unit

merely because it is occupied -

(i) by an individual who is -

(I) a student and receiving assistance under title IV of

the Social Security Act, or

(II) enrolled in a job training program receiving

assistance under the Job Training Partnership Act or under

other similar Federal, State, or local laws, or

(ii) entirely by full-time students if such students are -

(I) single parents and their children and such parents

and children are not dependents (as defined in section 152)

of another individual, or

(II) married and file a joint return.

(E) Owner-occupied buildings having 4 or fewer units eligible

for credit where development plan

(i) In general

Subparagraph (C) shall not apply to the acquisition or

rehabilitation of a building pursuant to a development plan

of action sponsored by a State or local government or a

qualified nonprofit organization (as defined in subsection

(h)(5)(C)).

(ii) Limitation on credit

In the case of a building to which clause (i) applies, the

applicable fraction shall not exceed 80 percent of the unit

fraction.

(iii) Certain unrented units treated as owner-occupied

In the case of a building to which clause (i) applies, any

unit which is not rented for 90 days or more shall be treated

as occupied by the owner of the building as of the 1st day it

is not rented.

(4) New building

The term "new building" means a building the original use of

which begins with the taxpayer.

(5) Existing building

The term "existing building" means any building which is not a

new building.

(6) Application to estates and trusts

In the case of an estate or trust, the amount of the credit

determined under subsection (a) and any increase in tax under

subsection (j) shall be apportioned between the estate or trust

and the beneficiaries on the basis of the income of the estate or

trust allocable to each.

(7) Impact of tenant's right of 1st refusal to acquire property

(A) In general

No Federal income tax benefit shall fail to be allowable to

the taxpayer with respect to any qualified low-income building

merely by reason of a right of 1st refusal held by the tenants

(in cooperative form or otherwise) or resident management

corporation of such building or by a qualified nonprofit

organization (as defined in subsection (h)(5)(C)) or government

agency to purchase the property after the close of the

compliance period for a price which is not less than the

minimum purchase price determined under subparagraph (B).

(B) Minimum purchase price

For purposes of subparagraph (A), the minimum purchase price

under this subparagraph is an amount equal to the sum of -

(i) the principal amount of outstanding indebtedness

secured by the building (other than indebtedness incurred

within the 5-year period ending on the date of the sale to

the tenants), and

(ii) all Federal, State, and local taxes attributable to

such sale.

Except in the case of Federal income taxes, there shall not be

taken into account under clause (ii) any additional tax

attributable to the application of clause (ii).

(j) Recapture of credit

(1) In general

If -

(A) as of the close of any taxable year in the compliance

period, the amount of the qualified basis of any building with

respect to the taxpayer is less than

(B) the amount of such basis as of the close of the preceding

taxable year,

then the taxpayer's tax under this chapter for the taxable year

shall be increased by the credit recapture amount.

(2) Credit recapture amount

For purposes of paragraph (1), the credit recapture amount is

an amount equal to the sum of -

(A) the aggregate decrease in the credits allowed to the

taxpayer under section 38 for all prior taxable years which

would have resulted if the accelerated portion of the credit

allowable by reason of this section were not allowed for all

prior taxable years with respect to the excess of the amount

described in paragraph (1)(B) over the amount described in

paragraph (1)(A), plus

(B) interest at the overpayment rate established under

section 6621 on the amount determined under subparagraph (A)

for each prior taxable year for the period beginning on the due

date for filing the return for the prior taxable year involved.

No deduction shall be allowed under this chapter for interest

described in subparagraph (B).

(3) Accelerated portion of credit

For purposes of paragraph (2), the accelerated portion of the

credit for the prior taxable years with respect to any amount of

basis is the excess of -

(A) the aggregate credit allowed by reason of this section

(without regard to this subsection) for such years with respect

to such basis, over

(B) the aggregate credit which would be allowable by reason

of this section for such years with respect to such basis if

the aggregate credit which would (but for this subsection) have

been allowable for the entire compliance period were allowable

ratably over 15 years.

(4) Special rules

(A) Tax benefit rule

The tax for the taxable year shall be increased under

paragraph (1) only with respect to credits allowed by reason of

this section which were used to reduce tax liability. In the

case of credits not so used to reduce tax liability, the

carryforwards and carrybacks under section 39 shall be

appropriately adjusted.

(B) Only basis for which credit allowed taken into account

Qualified basis shall be taken into account under paragraph

(1)(B) only to the extent such basis was taken into account in

determining the credit under subsection (a) for the preceding

taxable year referred to in such paragraph.

(C) No recapture of additional credit allowable by reason of

subsection (f)(3)

Paragraph (1) shall apply to a decrease in qualified basis

only to the extent such decrease exceeds the amount of

qualified basis with respect to which a credit was allowable

for the taxable year referred to in paragraph (1)(B) by reason

of subsection (f)(3).

(D) No credits against tax

Any increase in tax under this subsection shall not be

treated as a tax imposed by this chapter for purposes of

determining the amount of any credit under this chapter.

(E) No recapture by reason of casualty loss

The increase in tax under this subsection shall not apply to

a reduction in qualified basis by reason of a casualty loss to

the extent such loss is restored by reconstruction or

replacement within a reasonable period established by the

Secretary.

(F) No recapture where de minimis changes in floor space

The Secretary may provide that the increase in tax under this

subsection shall not apply with respect to any building if -

(i) such increase results from a de minimis change in the

floor space fraction under subsection (c)(1), and

(ii) the building is a qualified low-income building after

such change.

(5) Certain partnerships treated as the taxpayer

(A) In general

For purposes of applying this subsection to a partnership to

which this paragraph applies -

(i) such partnership shall be treated as the taxpayer to

which the credit allowable under subsection (a) was allowed,

(ii) the amount of such credit allowed shall be treated as

the amount which would have been allowed to the partnership

were such credit allowable to such partnership,

(iii) paragraph (4)(A) shall not apply, and

(iv) the amount of the increase in tax under this

subsection for any taxable year shall be allocated among the

partners of such partnership in the same manner as such

partnership's taxable income for such year is allocated among

such partners.

(B) Partnerships to which paragraph applies

This paragraph shall apply to any partnership which has 35 or

more partners unless the partnership elects not to have this

paragraph apply.

(C) Special rules

(i) Husband and wife treated as 1 partner

For purposes of subparagraph (B)(i), a husband and wife

(and their estates) shall be treated as 1 partner.

(ii) Election irrevocable

Any election under subparagraph (B), once made, shall be

irrevocable.

(6) No recapture on disposition of building (or interest therein)

where bond posted

In the case of a disposition of a building or an interest

therein, the taxpayer shall be discharged from liability for any

additional tax under this subsection by reason of such

disposition if -

(A) the taxpayer furnishes to the Secretary a bond in an

amount satifactory (!5) to the Secretary and for the period

required by the Secretary, and

(B) it is reasonably expected that such building will

continue to be operated as a qualified low-income building for

the remaining compliance period with respect to such building.

(k) Application of at-risk rules

For purposes of this section -

(1) In general

Except as otherwise provided in this subsection, rules similar

to the rules of section 49(a)(1) (other than subparagraphs

(D)(ii)(II) and (D)(iv)(I) thereof), section 49(a)(2), and

section 49(b)(1) shall apply in determining the qualified basis

of any building in the same manner as such sections apply in

determining the credit base of property.

(2) Special rules for determining qualified person

For purposes of paragraph (1) -

(A) In general

If the requirements of subparagraphs (B), (C), and (D) are

met with respect to any financing borrowed from a qualified

nonprofit organization (as defined in subsection (h)(5)), the

determination of whether such financing is qualified commercial

financing with respect to any qualified low-income building

shall be made without regard to whether such organization -

(i) is actively and regularly engaged in the business of

lending money, or

(ii) is a person described in section 49(a)(1)(D)(iv)(II).

(B) Financing secured by property

The requirements of this subparagraph are met with respect to

any financing if such financing is secured by the qualified

low-income building, except that this subparagraph shall not

apply in the case of a federally assisted building described in

subsection (d)(6)(B) if -

(i) a security interest in such building is not permitted

by a Federal agency holding or insuring the mortgage secured

by such building, and

(ii) the proceeds from the financing (if any) are applied

to acquire or improve such building..(!6)

(C) Portion of building attributable to financing

The requirements of this subparagraph are met with respect to

any financing for any taxable year in the compliance period if,

as of the close of such taxable year, not more than 60 percent

of the eligible basis of the qualified low-income building is

attributable to such financing (reduced by the principal and

interest of any governmental financing which is part of a

wrap-around mortgage involving such financing).

(D) Repayment of principal and interest

The requirements of this subparagraph are met with respect to

any financing if such financing is fully repaid on or before

the earliest of -

(i) the date on which such financing matures,

(ii) the 90th day after the close of the compliance period

with respect to the qualified low-income building, or

(iii) the date of its refinancing or the sale of the

building to which such financing relates.

In the case of a qualified nonprofit organization which is not

described in section 49(a)(1)(D)(iv)(II) with respect to a

building, clause (ii) of this subparagraph shall be applied as

if the date described therein were the 90th day after the

earlier of the date the building ceases to be a qualified

low-income building or the date which is 15 years after the

close of a compliance period with respect thereto.

(3) Present value of financing

If the rate of interest on any financing described in paragraph

(2)(A) is less than the rate which is 1 percentage point below

the applicable Federal rate as of the time such financing is

incurred, then the qualified basis (to which such financing

relates) of the qualified low-income building shall be the

present value of the amount of such financing, using as the

discount rate such applicable Federal rate. For purposes of the

preceding sentence, the rate of interest on any financing shall

be determined by treating interest to the extent of government

subsidies as not payable.

(4) Failure to fully repay

(A) In general

To the extent that the requirements of paragraph (2)(D) are

not met, then the taxpayer's tax under this chapter for the

taxable year in which such failure occurs shall be increased by

an amount equal to the applicable portion of the credit under

this section with respect to such building, increased by an

amount of interest for the period -

(i) beginning with the due date for the filing of the

return of tax imposed by chapter 1 for the 1st taxable year

for which such credit was allowable, and

(ii) ending with the due date for the taxable year in which

such failure occurs,

determined by using the underpayment rate and method under

section 6621.

(B) Applicable portion

For purposes of subparagraph (A), the term "applicable

portion" means the aggregate decrease in the credits allowed to

a taxpayer under section 38 for all prior taxable years which

would have resulted if the eligible basis of the building were

reduced by the amount of financing which does not meet

requirements of paragraph (2)(D).

(C) Certain rules to apply

Rules similar to the rules of subparagraphs (A) and (D) of

subsection (j)(4) shall apply for purposes of this subsection.

(g742l) Certifications and other reports to Secretary

(1) Certification with respect to 1st year of credit period

Following the close of the 1st taxable year in the credit

period with respect to any qualified low-income building, the

taxpayer shall certify to the Secretary (at such time and in such

form and in such manner as the Secretary prescribes) -

(A) the taxable year, and calendar year, in which such

building was placed in service,

(B) the adjusted basis and eligible basis of such building as

of the close of the 1st year of the credit period,

(C) the maximum applicable percentage and qualified basis

permitted to be taken into account by the appropriate housing

credit agency under subsection (h),

(D) the election made under subsection (g) with respect to

the qualified low-income housing project of which such building

is a part, and

(E) such other information as the Secretary may require.

In the case of a failure to make the certification required by

the preceding sentence on the date prescribed therefor, unless it

is shown that such failure is due to reasonable cause and not to

willful neglect, no credit shall be allowable by reason of

subsection (a) with respect to such building for any taxable year

ending before such certification is made.

(2) Annual reports to the Secretary

The Secretary may require taxpayers to submit an information

return (at such time and in such form and manner as the Secretary

prescribes) for each taxable year setting forth -

(A) the qualified basis for the taxable year of each

qualified low-income building of the taxpayer,

(B) the information described in paragraph (1)(C) for the

taxable year, and

(C) such other information as the Secretary may require.

The penalty under section 6652(j) shall apply to any failure to

submit the return required by the Secretary under the preceding

sentence on the date prescribed therefor.

(3) Annual reports from housing credit agencies

Each agency which allocates any housing credit amount to any

building for any calendar year shall submit to the Secretary (at

such time and in such manner as the Secretary shall prescribe) an

annual report specifying -

(A) the amount of housing credit amount allocated to each

building for such year,

(B) sufficient information to identify each such building and

the taxpayer with respect thereto, and

(C) such other information as the Secretary may require.

The penalty under section 6652(j) shall apply to any failure to

submit the report required by the preceding sentence on the date

prescribed therefor.

(m) Responsibilities of housing credit agencies

(1) Plans for allocation of credit among projects

(A) In general

Notwithstanding any other provision of this section, the

housing credit dollar amount with respect to any building shall

be zero unless -

(i) such amount was allocated pursuant to a qualified

allocation plan of the housing credit agency which is

approved by the governmental unit (in accordance with rules

similar to the rules of section 147(f)(2) (other than

subparagraph (B)(ii) thereof)) of which such agency is a

part,

(ii) such agency notifies the chief executive officer (or

the equivalent) of the local jurisdiction within which the

building is located of such project and provides such

individual a reasonable opportunity to comment on the

project,

(iii) a comprehensive market study of the housing needs of

low-income individuals in the area to be served by the

project is conducted before the credit allocation is made and

at the developer's expense by a disinterested party who is

approved by such agency, and

(iv) a written explanation is available to the general

public for any allocation of a housing credit dollar amount

which is not made in accordance with established priorities

and selection criteria of the housing credit agency.

(B) Qualified allocation plan

For purposes of this paragraph, the term "qualified

allocation plan" means any plan -

(i) which sets forth selection criteria to be used to

determine housing priorities of the housing credit agency

which are appropriate to local conditions,

(ii) which also gives preference in allocating housing

credit dollar amounts among selected projects to -

(I) projects serving the lowest income tenants,

(II) projects obligated to serve qualified tenants for

the longest periods, and

(III) projects which are located in qualified census

tracts (as defined in subsection (d)(5)(C)) and the

development of which contributes to a concerted community

revitalization plan, and

(iii) which provides a procedure that the agency (or an

agent or other private contractor of such agency) will follow

in monitoring for noncompliance with the provisions of this

section and in notifying the Internal Revenue Service of such

noncompliance which such agency becomes aware of and in

monitoring for noncompliance with habitability standards

through regular site visits.

(C) Certain selection criteria must be used

The selection criteria set forth in a qualified allocation

plan must include

(i) project location,

(ii) housing needs characteristics,

(iii) project characteristics, including whether the

project includes the use of existing housing as part of a

community revitalization plan,

(iv) sponsor characteristics,

(v) tenant populations with special housing needs,

(vi) public housing waiting lists,

(vii) tenant populations of individuals with children, and

(viii) projects intended for eventual tenant ownership.

(D) Application to bond financed projects

Subsection (h)(4) shall not apply to any project unless the

project satisfies the requirements for allocation of a housing

credit dollar amount under the qualified allocation plan

applicable to the area in which the project is located.

(2) Credit allocated to building not to exceed amount necessary

to assure project feasibility

(A) In general

The housing credit dollar amount allocated to a project shall

not exceed the amount the housing credit agency determines is

necessary for the financial feasibility of the project and its

viability as a qualified low-income housing project throughout

the credit period.

(B) Agency evaluation

In making the determination under subparagraph (A), the

housing credit agency shall consider -

(i) the sources and uses of funds and the total financing

planned for the project,

(ii) any proceeds or receipts expected to be generated by

reason of tax benefits,

(iii) the percentage of the housing credit dollar amount

used for project costs other than the cost of intermediaries,

and

(iv) the reasonableness of the developmental and

operational costs of the project.

Clause (iii) shall not be applied so as to impede the

development of projects in hard-to-develop areas. Such a

determination shall not be construed to be a representation or

warranty as to the feasibility or viability of the project.

(C) Determination made when credit amount applied for and when

building placed in service

(i) In general

A determination under subparagraph (A) shall be made as of

each of the following times:

(I) The application for the housing credit dollar amount.

(II) The allocation of the housing credit dollar amount.

(III) The date the building is placed in service.

(ii) Certification as to amount of other subsidies

Prior to each determination under clause (i), the taxpayer

shall certify to the housing credit agency the full extent of

all Federal, State, and local subsidies which apply (or which

the taxpayer expects to apply) with respect to the building.

(D) Application to bond financed projects

Subsection (h)(4) shall not apply to any project unless the

governmental unit which issued the bonds (or on behalf of which

the bonds were issued) makes a determination under rules

similar to the rules of subparagraphs (A) and (B).

(n) Regulations

The Secretary shall prescribe such regulations as may be

necessary or appropriate to carry out the purposes of this section,

including regulations -

(1) dealing with -

(A) projects which include more than 1 building or only a

portion of a building,

(B) buildings which are placed in service in portions,

(2) providing for the application of this section to short

taxable years,

(3) preventing the avoidance of the rules of this section, and

(4) providing the opportunity for housing credit agencies to

correct administrative errors and omissions with respect to

allocations and record keeping within a reasonable period after

their discovery, taking into account the availability of

regulations and other administrative guidance from the Secretary.

-SOURCE-

(Added Pub. L. 99-514, title II, Sec. 252(a), Oct. 22, 1986, 100

Stat. 2189; amended Pub. L. 99-509, title VIII, Sec. 8072(a), Oct.

21, 1986, 100 Stat. 1964; Pub. L. 100-647, title I, Secs.

1002(l)(1)-(25), (32), 1007(g)(3)(B), title IV, Secs. 4003(a),

(b)(1), (3), 4004(a), Nov. 10, 1988, 102 Stat. 3373-3381, 3435,

3643, 3644; Pub. L. 101-239, title VII, Secs. 7108(a)(1),

(b)-(e)(2), (f)-(m), (n)(2)-(q), 7811(a), 7831(c),

7841(d)(13)-(15), Dec. 19, 1989, 103 Stat. 2306-2321, 2406, 2426,

2429; Pub. L. 101-508, title XI, Secs. 11407(a)(1), (b)(1)-(9),

11701(a)(1)-(3)(A), (4), (5)(A), (6)-(10), 11812(b)(3),

11813(b)(3), Nov. 5, 1990, 104 Stat. 1388-474, 1388-475, 1388-505

to 1388-507, 1388-535, 1388-551; Pub. L. 102-227, title I, Sec.

107(a), Dec. 11, 1991, 105 Stat. 1687; Pub. L. 103-66, title XIII,

Sec. 13142(a)(1), (b)(1)-(5), Aug. 10, 1993, 107 Stat. 437-439;

Pub. L. 104-188, title I, Sec. 1704(t)(53), (64), Aug. 20, 1996,

110 Stat. 1890; Pub. L. 105-206, title VI, Sec. 6004(g)(5), July

22, 1998, 112 Stat. 796; Pub. L. 106-400, Sec. 2, Oct. 30, 2000,

114 Stat. 1675; Pub. L. 106-554, Sec. 1(a)(7) [title I, Secs.

131(a)-(c), 132-136], Dec. 21, 2000, 114 Stat. 2763, 2763A-610 to

2763A-613; Pub. L. 107-147, title IV, Sec. 417(2), (3), Mar. 9,

2002, 116 Stat. 56.)

-STATAMEND-

LOW-INCOME HOUSING CREDIT ADJUSTMENT FOR CALENDAR YEAR 2003

For inflation adjustment of amounts in subsection (h)(3)(C)(ii)

of this section used to calculate the State housing credit ceiling

for low-income housing credit for calendar year 2003, see section

3.07 of Revenue Procedure 2002-70, set out as a note under section

1 of this title.

-REFTEXT-

REFERENCES IN TEXT

Section 8 of the United States Housing Act of 1937, referred to

in subsecs. (c)(2), (d)(6)(B)(i), (g)(2)(B), and (h)(6)(B)(iv), is

classified to section 1437f of Title 42, The Public Health and

Welfare. Section 8(e)(2) of the Act was repealed by Pub. L.

101-625, title II, Sec. 289(b)(1), Nov. 28, 1990, 104 Stat. 4128,

effective Oct. 1, 1991, but to remain in effect with respect to

single room occupancy dwellings as authorized by subchapter IV

(Sec. 11361 et seq.) of chapter 119 of Title 42. See section

12839(b) of Title 42.

The McKinney-Vento Homeless Assistance Act, referred to in

subsec. (c)(2), is Pub. L. 100-77, July 22, 1987, 101 Stat. 482, as

amended, which is classified principally to chapter 119 (Sec. 11301

et seq.) of Title 42, The Public Health and Welfare. For complete

classification of this Act to the Code, see Short Title note set

out under section 11301 of Title 42 and Tables.

The date of the enactment of this sentence, referred to in

subsec. (c)(2), is the date of the enactment of Pub. L. 101-508,

which was approved Nov. 5, 1990.

Section 201(a) of the Tax Reform Act of 1986, referred to in

subsec. (c)(2)(B), is section 201(a) of Pub. L. 99-514, which

amended section 168 of this title generally.

The date of the enactment of the Tax Reform Act of 1986, referred

to in subsec. (d)(2)(D)(i)(I), (6)(B), is the date of enactment of

Pub. L. 99-514, which was approved Oct. 22, 1986.

The date of the enactment of the Revenue Reconciliation Act of

1990, referred to in subsec. (d)(2)(D)(i)(I), (5)(B), is the date

of the enactment of Pub. L. 101-508, which was approved Nov. 5,

1990.

Sections 221(d)(3) and 236 of the National Housing Act, referred

to in subsec. (d)(6)(B)(ii), are classified to sections 1715l(d)(3)

and 1715z-1, respectively, of Title 12, Banks and Banking.

Sections 515 and 502(c) of the Housing Act of 1949, referred to

in subsecs. (d)(6)(B)(iii), (C)(i) and (g)(2)(B)(iv), are

classified to sections 1485 and 1472(c), respectively, of Title 42,

The Public Health and Welfare.

The Emergency Low Income Housing Preservation Act of 1987,

referred to in subsec. (d)(6)(C)(i), now the Low-Income Housing

Preservation and Resident Homeownership Act of 1990, is title II of

Pub. L. 100-242, Feb. 5, 1988, 101 Stat. 1877, as amended. Subtitle

B of title II, which was formerly set out as a note under section

1715l of Title 12, Banks and Banking, and which amended section

1715z-6 of Title 12, was amended generally by Pub. L. 101-625 and

is classified to chapter 42 (Sec. 4101 et seq.) of Title 12. For

complete classification of this Act to the Code, see Short Title

note set out under section 4101 of Title 12 and Tables.

Section 3 of the Federal Deposit Insurance Act, referred to in

subsec. (d)(6)(D), is classified to section 1813 of Title 12.

The date of the enactment of this subparagraph, referred to in

subsec. (g)(2)(E), is the date of enactment of Pub. L. 100-647,

which was approved Nov. 10, 1988.

Sections 106, 107, and 108 of the Housing and Community

Development Act of 1974 (as in effect on the date of the enactment

of this sentence), referred to in subsec. (i)(2)(D), are classified

to sections 5306, 5307, and 5308 of Title 42, The Public Health and

Welfare, as in effect on the date of enactment of Pub. L. 101-239,

which was approved Dec. 19, 1989.

The HOME Investment Partnerships Act (as in effect on the date of

the enactment of this subparagraph), referred to in subsec.

(i)(2)(E)(i), is title II of Pub. L. 101-625, Nov. 28, 1990, 104

Stat. 4094, as in effect on the date of enactment of Pub. L.

103-66, which was approved Aug. 10, 1993. Title II of Pub. L.

101-625 is classified principally to subchapter II (Sec. 12721 et

seq.) of chapter 130 of Title 42. For complete classification of

this Act to the Code, see Short Title note set out under section

12701 of Title 42 and Tables.

The Native American Housing Assistance and Self-Determination Act

of 1996, referred to in subsec. (i)(2)(E)(i), is Pub. L. 104-330,

Oct. 26, 1996, 110 Stat. 4016, as amended, which is classified

principally to chapter 43 (Sec. 4101 et seq.) of Title 25, Indians.

For complete classification of this Act to the Code, see Short

Title note set out under section 4101 of Title 25 and Tables.

The date of the enactment of this clause, referred to in subsec.

(i)(3)(B)(iii)(I), is date of enactment of Pub. L. 101-239, which

was approved Dec. 19, 1989.

The Social Security Act, referred to in subsec. (i)(3)(D)(i)(I),

is act Aug. 14, 1935, ch. 531, 49 Stat. 620, as amended. Title IV

of the Act is classified generally to subchapter IV (Sec. 601 et

seq.) of chapter 7 of Title 42, The Public Health and Welfare. For

complete classification of this Act to the Code, see section 1305

of Title 42 and Tables.

The Job Training Partnership Act, referred to in subsec.

(i)(3)(D)(i)(II), is Pub. L. 97-300, Oct. 13, 1982, 96 Stat. 1322,

which was classified generally to chapter 19 (Sec. 1501 et seq.) of

Title 29, Labor, and was repealed by Pub. L. 105-220, title I, Sec.

199(b)(2), (c)(2)(B), Aug. 7, 1998, 112 Stat. 1059, effective July

1, 2000. Pursuant to section 2940(b) of Title 29, references to a

provision of the Job Training Partnership Act, effective Aug. 7,

1998, are deemed to refer to that provision or the corresponding

provision of the Workforce Investment Act of 1998, Pub. L. 105-220,

Aug. 7, 1998, 112 Stat. 936, and effective July 1, 2000, are deemed

to refer to the corresponding provision of the Workforce Investment

Act of 1998. For complete classification of the Job Training

Partnership Act to the Code, see Tables. For complete

classification of the Workforce Investment Act of 1998 to the Code,

see Short Title note set out under section 9201 of Title 20,

Education, and Tables.

-MISC1-

PRIOR PROVISIONS

A prior section 42, added Pub. L. 94-12, title II, Sec. 203(a),

Mar. 29, 1975, 89 Stat. 29; amended Pub. L. 94-164, Sec. 3(a)(1),

Dec. 23, 1975, 89 Stat. 972; Pub. L. 94-455, title IV, Sec.

401(a)(2)(A), (B), title V, Sec. 503(b)(4), title XIX, Sec.

1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1555, 1562, 1834; Pub. L.

95-30, title I, Sec. 101(c), May 23, 1977, 91 Stat. 132, which

related to general tax credit allowed to individuals in an amount

equal to the greater of (1) 2% of taxable income not exceeding

$9,000 or (2) $35 multiplied by each exemption the taxpayer was

entitled to, expired Dec. 31, 1978, pursuant to the terms of: (1)

Pub. L. 94-12, Sec. 209(a) as amended by Pub. L. 94-164, Sec. 2(e),

set out as an Effective and Termination Dates of 1975 Amendment

note under section 56 of this title; (2) Pub. L. 94-164, Sec. 3(b),

as amended by Pub. L. 94-455, Sec. 401(a)(1) and Pub. L. 95-30,

Sec. 103(a); and (3) Pub. L. 94-455, Sec. 401(e), as amended by

Pub. L. 95-30, Sec. 103(c) and Pub. L. 95-600, title I, Sec.

103(b), Nov. 6, 1978, 92 Stat. 2771, set out as an Effective and

Termination Dates of 1976 Amendment note under section 32 of this

title.

Another prior section 42 was renumbered section 36 of this title.

AMENDMENTS

2002 - Subsec. (h)(3)(C). Pub. L. 107-147, Sec. 417(2),

substituted "the amounts described in clauses (ii) through (iv)

over the aggregate housing credit dollar amount allocated for such

year" for "the amounts described in clauses (ii) and (iii) over the

aggregate housing credit dollar amount allocated for such year" in

concluding provisions.

Subsec. (m)(1)(B)(ii)(II), (III). Pub. L. 107-147, Sec. 417(3),

struck out second "and" at end of subcl. (II) and inserted "and" at

end of subcl. (III).

2000 - Subsec. (c)(2). Pub. L. 106-400 substituted

"McKinney-Vento Homeless Assistance Act" for "Stewart B. McKinney

Homeless Assistance Act" in concluding provisions.

Subsec. (d)(4)(A). Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec.

134(a)(1)], substituted "subparagraphs (B) and (C)" for

"subparagraph (B)".

Subsec. (d)(4)(C), (D). Pub. L. 106-554, Sec. 1(a)(7) [title I,

Sec. 134(a)(2), (3)], added subpar. (C) and redesignated former

subpar. (C) as (D).

Subsec. (d)(5)(C)(ii)(I). Pub. L. 106-554, Sec. 1(a)(7) [title I,

Sec. 135(b)], in first sentence, inserted "either" before "in which

50 percent" and "or which has a poverty rate of at least 25

percent" before period at end.

Subsec. (h)(1)(E)(ii). Pub. L. 106-554, Sec. 1(a)(7) [title I,

Sec. 135(a)(1)], in first sentence, substituted "(as of the later

of the date which is 6 months after the date that the allocation

was made or the close of the calendar year in which the allocation"

for "(as of the close of the calendar year in which the

allocation".

Subsec. (h)(3)(C). Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec.

136(b)], which directed the substitution of "clauses (i) through

(iv)" for "clauses (i) and (iii)" in the first sentence of

concluding provisions, could not be executed because the words

"clauses (i) and (iii)" did not appear subsequent to the amendment

by Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec. 131(c)(1)(B)]. See

below.

Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec. 135(a)(2)], in last

sentence of concluding provisions, substituted "project which fails

to meet the 10 percent test under paragraph (1)(E)(ii) on a date

after the close of the calendar year in which the allocation was

made or which" for "project which".

Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec. 131(c)(1)], in first

sentence of concluding provisions, substituted "clause (i)" for

"clause (ii)" and "clauses (ii)" for "clauses (i)".

Subsec. (h)(3)(C)(i), (ii). Pub. L. 106-554, Sec. 1(a)(7) [title

I, Sec. 131(a)], amended cls. (i) and (ii) generally. Prior to

amendment, cls. (i) and (ii) read as follows:

"(i) $1.25 multiplied by the State population,

"(ii) the unused State housing credit ceiling (if any) of such

State for the preceding calendar year,".

Subsec. (h)(3)(D)(ii). Pub. L. 106-554, Sec. 1(a)(7) [title I,

Sec. 136(a)], substituted "the excess (if any) of - " for "the

excess (if any) of the unused State housing credit ceiling for such

year (as defined in subparagraph (C)(i)) over the excess (if any)

of - " in introductory provisions, added subcls. (I) and (II), and

struck out former subcls. (I) and (II) which read as follows:

"(I) the aggregate housing credit dollar amount allocated for

such year, over

"(II) the sum of the amounts described in clauses (ii) and (iii)

of subparagraph (C)."

Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec. 131(c)(2)],

substituted "subparagraph (C)(i)" for "subparagraph (C)(ii)" in

introductory provisions and "clauses (ii)" for "clauses (i)" in

subcl. (II).

Subsec. (h)(3)(H). Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec.

131(b)], added subpar. (H).

Subsec. (i)(2)(E). Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec.

134(b)(2)], inserted "or Native American housing assistance" after

"HOME assistance" in heading.

Subsec. (i)(2)(E)(i). Pub. L. 106-554, Sec. 1(a)(7) [title I,

Sec. 134(b)(1)], inserted "or the Native American Housing

Assistance and Self-Determination Act of 1996 (25 U.S.C. 4101 et

seq.) (as in effect on October 1, 1997)" after "this

subparagraph)".

Subsec. (i)(3)(B)(iii)(I). Pub. L. 106-400 substituted

"McKinney-Vento Homeless Assistance Act" for "Stewart B. McKinney

Homeless Assistance Act".

Subsec. (m)(1)(A)(iii), (iv). Pub. L. 106-554, Sec. 1(a)(7)

[title I, Sec. 133(a)], added cls. (iii) and (iv).

Subsec. (m)(1)(B)(ii)(III). Pub. L. 106-554, Sec. 1(a)(7) [title

I, Sec. 132(b)], added subcl. (III).

Subsec. (m)(1)(B)(iii). Pub. L. 106-554, Sec. 1(a)(7) [title I,

Sec. 133(b)], inserted "and in monitoring for noncompliance with

habitability standards through regular site visits" before period

at end.

Subsec. (m)(1)(C)(iii). Pub. L. 106-554, Sec. 1(a)(7) [title I,

Sec. 132(a)(1)], inserted ", including whether the project includes

the use of existing housing as part of a community revitalization

plan" before comma at end.

Subsec. (m)(1)(C)(v) to (viii). Pub. L. 106-554, Sec. 1(a)(7)

[title I, Sec. 132(a)(2)], added cls. (v) to (viii) and struck out

former cls. (v) to (vii) which read as follows:

"(v) participation of local tax-exempt organizations,

"(vi) tenant populations with special housing needs, and

"(vii) public housing waiting lists."

1998 - Subsec. (j)(4)(D). Pub. L. 105-206 substituted "this

chapter" for "subpart A, B, D, or G of this part".

1996 - Subsec. (c)(2). Pub. L. 104-188, Sec. 1704(t)(64), struck

out "of 1988" after "Homeless Assistance Act".

Subsec. (d)(5)(B). Pub. L. 104-188, Sec. 1704(t)(53), provided

that section 11812(b)(3) of Pub. L. 101-508 shall be applied by not

executing the amendment therein to the heading of subsec. (d)(5)(B)

of this section. See 1990 Amendment note below.

1993 - Subsec. (g)(8). Pub. L. 103-66, Sec. 13142(b)(3), added

par. (8).

Subsec. (h)(6)(B)(iv) to (vi). Pub. L. 103-66, Sec. 13142(b)(4),

added cl. (iv) and redesignated former cls. (iv) and (v) as (v) and

(vi), respectively.

Subsec. (i)(2)(E). Pub. L. 103-66, Sec. 13142(b)(5), added

subpar. (E).

Subsec. (i)(3)(D). Pub. L. 103-66, Sec. 13142(b)(2), amended

heading and text of subpar. (D) generally. Prior to amendment, text

read as follows: "A unit shall not fail to be treated as a

low-income unit merely because it is occupied by an individual who

is -

"(i) a student and receiving assistance under title IV of the

Social Security Act, or

"(ii) enrolled in a job training program receiving assistance

under the Job Training Partnership Act or under other similar

Federal, State, or local laws."

Subsec. (m)(2)(B)(iv). Pub. L. 103-66, Sec. 13142(b)(1), added

cl. (iv).

Subsec. (o). Pub. L. 103-66, Sec. 13142(a)(1), struck out subsec.

(o) which provided that subsec. (h)(3)(C)(i) would not apply to any

amount allocated after June 30, 1992, and that subsec. (h)(4) would

not apply to any building placed in service after June 30, 1992,

with an exception for bond-financed buildings in progress.

1991 - Subsec. (o)(1). Pub. L. 102-227, Sec. 107(a)(1), struck

out ", for any calendar year after 1991" after "paragraph (2)" in

introductory provisions, inserted "to any amount allocated after

June 30, 1992" before comma at end of subpar. (A), and substituted

"June 30, 1992" for "1991" in subpar. (B).

Subsec. (o)(2). Pub. L. 102-227, Sec. 107(a)(2), substituted

"July 1, 1992" for "1992" in introductory provisions and subpar.

(A), "June 30, 1992" for "December 31, 1991" and "June 30, 1994"

for "December 31, 1993" in subpar. (B), and "July 1, 1994" for

"January 1, 1994" in subpar. (C).

1990 - Subsec. (b)(1). Pub. L. 101-508, Sec. 11701(a)(1)(B),

struck out at end "A building shall not be treated as described in

subparagraph (B) if, at any time during the credit period, moderate

rehabilitation assistance is provided with respect to such building

under section 8(e)(2) of the United States Housing Act of 1937."

Subsec. (c)(2). Pub. L. 101-508, Sec. 11701(a)(1)(A), inserted at

end "Such term does not include any building with respect to which

moderate rehabilitation assistance is provided, at any time during

the compliance period, under section 8(e)(2) of the United States

Housing Act of 1937."

Pub. L. 101-508, Sec. 11407(b)(5)(A), inserted before period at

end of last sentence "(other than assistance under the Stewart B.

McKinney Homeless Assistance Act of 1988 (as in effect on the date

of the enactment of this sentence))".

Subsec. (d)(2)(D)(i)(I). Pub. L. 101-508, Sec. 11812(b)(3),

inserted "(as in effect on the day before the date of the enactment

of the Revenue Reconciliation Act of 1990)" after "section 167(k)."

Subsec. (d)(2)(D)(ii)(V). Pub. L. 101-508, Sec. 11407(b)(8),

added subcl. (V).

Subsec. (d)(5)(B). Pub. L. 101-508, Sec. 11812(b)(3), which

directed the insertion of "(as in effect on the day before the date

of the enactment of the Revenue Reconciliation Act of 1990)" after

"section 167(k)", was executed to the text, and not the heading, of

subpar. (B). See 1996 Amendment note above.

Subsec. (d)(5)(C)(ii)(I). Pub. L. 101-508, Sec. 11407(b)(4),

inserted at end "If the Secretary of Housing and Urban Development

determines that sufficient data for any period are not available to

apply this clause on the basis of census tracts, such Secretary

shall apply this clause for such period on the basis of enumeration

districts."

Pub. L. 101-508, Sec. 11701(a)(2)(B), inserted before period at

end "for such year".

Pub. L. 101-508, Sec. 11701(a)(2)(A), which directed the

insertion of "which is designated by the Secretary of Housing and

Urban Development and, for the most recent year for which census

data are available on household income in such tract," after

"census tract", was executed by making the insertion after "any

census tract" to reflect the probable intent of Congress.

Subsec. (g)(2)(B)(iv). Pub. L. 101-508, Sec. 11407(b)(3), added

cl. (iv).

Subsec. (g)(2)(D)(i). Pub. L. 101-508, Sec. 11701(a)(3)(A),

inserted before period at end "and such unit continues to be

rent-restricted".

Subsec. (g)(2)(D)(ii). Pub. L. 101-508, Sec. 11701(a)(4),

inserted at end "In the case of a project described in section

142(d)(4)(B), the preceding sentence shall be applied by

substituting '170 percent' for '140 percent' and by substituting

'any low-income unit in the building is occupied by a new resident

whose income exceeds 40 percent of area median gross income' for

'any residential unit in the building (of a size comparable to, or

smaller than, such unit) is occupied by a new resident whose income

exceeds such income limitation'."

Subsec. (g)(3)(A). Pub. L. 101-508, Sec. 11701(a)(5)(A),

substituted "the 1st year of the credit period for such building"

for "the 12-month period beginning on the date the building is

placed in service".

Subsec. (h)(3)(C). Pub. L. 101-508, Sec. 11701(a)(6)(A),

substituted "the sum of the amounts described in clauses (i) and

(iii)" for "the amount described in clause (i)" in second sentence.

Subsec. (h)(3)(D)(ii)(II). Pub. L. 101-508, Sec. 11701(a)(6)(B),

substituted "the sum of the amounts described in clauses (i) and

(iii)" for "the amount described in clause (i)".

Subsec. (h)(5)(B). Pub. L. 101-508, Sec. 11407(b)(9)(A), inserted

"own an interest in the project (directly or through a partnership)

and" after "nonprofit organization is to".

Subsec. (h)(5)(C)(i) to (iii). Pub. L. 101-508, Sec.

11407(b)(9)(B), added cl. (ii) and redesignated former cl. (ii) as

(iii).

Subsec. (h)(5)(D)(i). Pub. L. 101-508, Sec. 11407(b)(9)(C),

inserted "ownership and" before "material participation".

Subsec. (h)(6)(B)(i). Pub. L. 101-508, Sec. 11701(a)(7)(A),

inserted before comma at end "and which prohibits the actions

described in subclauses (I) and (II) of subparagraph (E)(ii)".

Subsec. (h)(6)(B)(ii). Pub. L. 101-508, Sec. 11701(a)(7)(B),

substituted "requirement and prohibitions" for "requirement".

Subsec. (h)(6)(B)(iii) to (v). Pub. L. 101-508, Sec.

11701(a)(8)(A), added cl. (iii) and redesignated former cls. (iii)

and (iv) as (iv) and (v), respectively.

Subsec. (h)(6)(E)(i)(I). Pub. L. 101-508, Sec. 11701(a)(9),

inserted before comma "unless the Secretary determines that such

acquisition is part of an arrangement with the taxpayer a purpose

of which is to terminate such period".

Subsec. (h)(6)(E)(ii)(II). Pub. L. 101-508, Sec. 11701(a)(8)(C),

inserted before period at end "not otherwise permitted under this

section".

Subsec. (h)(6)(F). Pub. L. 101-508, Sec. 11701(a)(8)(D), inserted

"the nonlow-income portion of the building for fair market value

and" before "the low-income portion" in introductory provisions.

Subsec. (h)(6)(J) to (L). Pub. L. 101-508, Sec. 11701(a)(8)(B),

redesignated subpars. (K) and (L) as (J) and (K), respectively, and

struck out former subpar. (J) which related to sales of less than

the low-income portions of a building.

Subsec. (i)(3)(D). Pub. L. 101-508, Sec. 11407(b)(6), substituted

"Certain students" for "Students in government-supported job

training programs" in heading and amended text generally. Prior to

amendment, text read as follows: "A unit shall not fail to be

treated as a low-income unit merely because it is occupied by an

individual who is enrolled in a job training program receiving

assistance under the Job Training Partnership Act or under other

similar Federal, State, or local laws."

Subsec. (i)(7). Pub. L. 101-508, Sec. 11701(a)(10), redesignated

par. (8) as (7).

Subsec. (i)(7)(A). Pub. L. 101-508, Sec. 11407(b)(1), substituted

"the tenants (in cooperative form or otherwise) or resident

management corporation of such building or by a qualified nonprofit

organization (as defined in subsection (h)(5)(C)) or government

agency" for "the tenants of such building".

Subsec. (i)(8). Pub. L. 101-508, Sec. 11701(a)(10), redesignated

par. (8) as (7).

Subsec. (k)(1). Pub. L. 101-508, Sec. 11813(b)(3)(A), substituted

"49(a)(1)" for "46(c)(8)", "49(a)(2)" for "46(c)(9)", and

"49(b)(1)" for "47(d)(1)".

Subsec. (k)(2)(A)(ii), (D). Pub. L. 101-508, Sec. 11813(b)(3)(B),

substituted "49(a)(1)(D)(iv)(II)" for "46(c)(8)(D)(iv)(II)".

Subsec. (m)(1)(B)(ii) to (iv). Pub. L. 101-508, Sec.

11407(b)(7)(B), redesignated cls. (iii) and (iv) as (ii) and (iii),

respectively, and struck out former cl. (ii) which read as follows:

"which gives the highest priority to those projects as to which the

highest percentage of the housing credit dollar amount is to be

used for project costs other than the cost of intermediaries unless

granting such priority would impede the development of projects in

hard-to-develop areas,".

Pub. L. 101-508, Sec. 11407(b)(2), amended cl. (iv) generally.

Prior to amendment, cl. (iv) read as follows: "which provides a

procedure that the agency will follow in notifying the Internal

Revenue Service of noncompliance with the provisions of this

section which such agency becomes aware of."

Subsec. (m)(2)(B). Pub. L. 101-508, Sec. 11407(b)(7)(A), added

cl. (iii) and inserted provision that cl. (iii) not be applied so

as to impede the development of projects in hard-to-develop areas.

Subsec. (o)(1). Pub. L. 101-508, Sec. 11407(a)(1)(A), substituted

"1991" for "1990" wherever appearing.

Subsec. (o)(2). Pub. L. 101-508, Sec. 11407(a)(1)(B), added par.

(2) and struck out former par. (2) which read as follows: "For

purposes of paragraph (1)(B), a building shall be treated as placed

in service before 1990 if -

"(A) the bonds with respect to such building are issued before

1990,

"(B) such building is constructed, reconstructed, or

rehabilitated by the taxpayer,

"(C) more than 10 percent of the reasonably anticipated cost of

such construction, reconstruction, or rehabilitation has been

incurred as of January 1, 1990, and some of such cost is incurred

on or after such date, and

"(D) such building is placed in service before January 1,

1992."

1989 - Subsec. (b)(1). Pub. L. 101-239, Sec. 7108(h)(5), inserted

at end "A building shall not be treated as described in

subparagraph (B) if, at any time during the credit period, moderate

rehabilitation assistance is provided with respect to such building

under section 8(e)(2) of the United States Housing Act of 1937."

Subsec. (b)(3)(C). Pub. L. 101-239, Sec. 7108(c)(2), which

directed amendment of subpar. (C) by substituting "subsection

(h)(7)" for "subsection (h)(6))", was executed by substituting

"subsection (h)(7)" for "subsection (h)(6)", as the probable intent

of Congress.

Subsec. (c)(1)(E). Pub. L. 101-239, Sec. 7108(i)(2), added

subpar. (E).

Subsec. (d)(1). Pub. L. 101-239, Sec. 7108(l)(1), inserted "as of

the close of the 1st taxable year of the credit period" before

period at end.

Subsec. (d)(2)(A). Pub. L. 101-239, Sec. 7108(l)(2), substituted

"subparagraph (B), its adjusted basis as of the close of the 1st

taxable year of the credit period, and" for "subparagraph (B), the

sum of -

"(I) the portion of its adjusted basis attributable to its

acquisition cost, plus

"(II) amounts chargeable to capital account and incurred by the

taxpayer (before the close of the 1st taxable year of the credit

period for such building) for property (or additions or

improvements to property) of a character subject to the allowance

for depreciation, and".

Subsec. (d)(2)(B)(iv). Pub. L. 101-239, Sec. 7108(d)(1), added

cl. (iv).

Subsec. (d)(2)(C). Pub. L. 101-239, Sec. 7108(l)(3)(A),

substituted "Adjusted basis" for "Acquisition cost" in heading and

"adjusted basis" for "cost" in text.

Subsec. (d)(5). Pub. L. 101-239, Sec. 7108(l)(3)(B), substituted

"Special rules for determining eligible basis" for "Eligible basis

determined when building placed in service" in heading.

Subsec. (d)(5)(A). Pub. L. 101-239, Sec. 7108(l)(3)(B),

redesignated subpar. (B) as (A) and struck out former subpar. (A)

which read as follows: "Except as provided in subparagraphs (B) and

(C), the eligible basis of any building for the entire compliance

period for such building shall be its eligible basis on the date

such building is placed in service (increased, in the case of an

existing building which meets the requirements of paragraph (2)(B),

by the amounts described in paragraph (2)(A)(i)(II))."

Subsec. (d)(5)(B). Pub. L. 101-239, Sec. 7108(l)(3)(B),

redesignated subpar. (C) as (B). Former subpar. (B) redesignated

(A).

Subsec. (d)(5)(C). Pub. L. 101-239, Sec. 7108(l)(3)(B),

redesignated subpar. (D) as (C). Former subpar. (C) redesignated

(B).

Pub. L. 101-239, Sec. 7811(a)(1), inserted "section" before

"167(k)" in heading.

Subsec. (d)(5)(D). Pub. L. 101-239, Sec. 7108(l)(3)(B),

redesignated subpar. (D) as (C).

Pub. L. 101-239, Sec. 7108(g), added subpar. (D).

Subsec. (d)(6)(A)(i). Pub. L. 101-239, Sec. 7841(d)(13),

substituted "Farmers Home Administration" for "Farmers' Home

Administration".

Subsec. (d)(6)(C) to (E). Pub. L. 101-239, Sec. 7108(f), added

subpars. (C) and (D) and redesignated former subpar. (C) as (E).

Subsec. (d)(7)(A). Pub. L. 101-239, Sec. 7831(c)(6), inserted

"(or interest therein)" after "subparagraph (B)" in introductory

provisions.

Subsec. (d)(7)(A)(ii). Pub. L. 101-239, Sec. 7841(d)(14),

substituted "under subsection (a)" for "under sebsection (a)".

Subsec. (e)(2)(A). Pub. L. 101-239, Sec. 7841(d)(15), substituted

"to capital account" for "to captial account".

Subsec. (e)(3). Pub. L. 101-239, Sec. 7108(d)(3), substituted

"Minimum expenditures to qualify" for "Average of rehabilitation

expenditures must be $2,000 or more" in heading, added subpars. (A)

and (B), redesignated former subpar. (B) as (C), and struck out

former subpar. (A) which read as follows: "Paragraph (1) shall

apply to rehabilitation expenditures with respect to any building

only if the qualified basis attributable to such expenditures

incurred during any 24-month period, when divided by the low-income

units in the building, is $2,000 or more."

Subsec. (e)(5). Pub. L. 101-239, Sec. 7108(l)(3)(C), substituted

"subsection (d)(2)(A)(i)" for "subsection (d)(2)(A)(i)(II)".

Subsec. (f)(4). Pub. L. 101-239, Sec. 7831(c)(4), added par. (4).

Subsec. (f)(5). Pub. L. 101-239, Sec. 7108(d)(2), added par. (5).

Subsec. (g)(2)(A). Pub. L. 101-239, Sec. 7108(e)(2), inserted at

end "For purposes of the preceding sentence, the amount of the

income limitation under paragraph (1) applicable for any period

shall not be less than such limitation applicable for the earliest

period the building (which contains the unit) was included in the

determination of whether the project is a qualified low-income

housing project."

Pub. L. 101-239, Sec. 7108(e)(1)(B), substituted "the imputed

income limitation applicable to such unit" for "the income

limitation under paragraph (1) applicable to individuals occupying

such unit".

Subsec. (g)(2)(B). Pub. L. 101-239, Sec. 7108(h)(2), added cl.

(iii) and concluding provisions which defined "supportive service".

Subsec. (g)(2)(C) to (E). Pub. L. 101-239, Sec. 7108(e)(1)(A),

added subpars. (C) and (D) and redesignated former subpar. (C) as

(E).

Subsec. (g)(3)(D). Pub. L. 101-239, Sec. 7108(m)(3), added

subpar. (D).

Subsec. (g)(4). Pub. L. 101-239, Sec. 7108(n)(2), struck out

"(other than section 142(d)(4)(B)(iii))" after "in applying such

provisions".

Subsec. (g)(7). Pub. L. 101-239, Sec. 7108(h)(3), added par. (7).

Subsec. (h)(1)(B). Pub. L. 101-239, Sec. 7108(m)(2), substituted

"(E), or (F)" for "or (E)".

Subsec. (h)(1)(F). Pub. L. 101-239, Sec. 7108(m)(1), added

subpar. (F).

Subsec. (h)(3)(C) to (G). Pub. L. 101-239, Sec. 7108(b)(1), added

subpars. (C) and (D), redesignated former subpars. (D) to (F) as

(E) to (G), respectively, and struck out former subpar. (C) which

read as follows: "The State housing credit ceiling applicable to

any State for any calendar year shall be an amount equal to $1.25

multiplied by the State population."

Subsec. (h)(4)(B). Pub. L. 101-239, Sec. 7108(j), substituted "50

percent" for "70 percent" in heading and in text.

Subsec. (h)(5)(D)(ii). Pub. L. 101-239, Sec. 7811(a)(2),

substituted "clause (i)" for "clause (ii)".

Subsec. (h)(5)(E). Pub. L. 101-239, Sec. 7108(b)(2)(A),

substituted "subparagraph (F)" for "subparagraph (E)".

Subsec. (h)(6). Pub. L. 101-239, Sec. 7108(c)(1), added par. (6).

Former par. (6) redesignated (7).

Subsec. (h)(6)(B) to (E). Pub. L. 101-239, Sec. 7108(b)(2)(B),

redesignated subpars. (C) to (E) as (B) to (D), respectively, and

struck out former subpar. (B) which provided that the housing

credit dollar amount could not be carried over to any other

calendar year.

Subsec. (h)(7), (8). Pub. L. 101-239, Sec. 7108(c)(1),

redesignated pars. (6) and (7) as (7) and (8), respectively.

Subsec. (i)(2)(D). Pub. L. 101-239, Sec. 7108(k), inserted at end

"Such term shall not include any loan which would be a below market

Federal loan solely by reason of assistance provided under section

106, 107, or 108 of the Housing and Community Development Act of

1974 (as in effect on the date of the enactment of this sentence)."

Subsec. (i)(3)(B). Pub. L. 101-239, Sec. 7108(i)(1), amended

subpar. (B) generally. Prior to amendment, subpar. (B) read as

follows: "A unit shall not be treated as a low-income unit unless

the unit is suitable for occupancy (as determined under regulations

prescribed by the Secretary taking into account local health,

safety, and building codes) and used other than on a transient

basis. For purposes of the preceding sentence, a single-room

occupancy unit shall not be treated as used on a transient basis

merely because it is rented on a month-by-month basis."

Pub. L. 101-239, Sec. 7831(c)(1), inserted "(as determined under

regulations prescribed by the Secretary taking into account local

health, safety, and building codes)" after "suitable for

occupancy".

Pub. L. 101-239, Sec. 7108(h)(1), inserted at end "For purposes

of the preceding sentence, a single-room occupancy unit shall not

be treated as used on a transient basis merely because it is rented

on a month-by-month basis."

Subsec. (i)(3)(D). Pub. L. 101-239, Sec. 7831(c)(2), added

subpar. (D).

Subsec. (i)(3)(E). Pub. L. 101-239, Sec. 7108(h)(4), added

subpar. (E).

Subsec. (i)(6). Pub. L. 101-239, Sec. 7831(c)(3), added par. (6).

Subsec. (i)(8). Pub. L. 101-239, Sec. 7108(q), added par. (8).

Subsec. (k)(2)(D). Pub. L. 101-239, Sec. 7108(o), added provision

at end relating to the applicability of cl. (ii) to qualified

nonprofit organizations not described in section

46(c)(8)(D)(iv)(II) with respect to a building.

Subsec. (l)(1). Pub. L. 101-239, Sec. 7108(p), in introductory

provisions, substituted "Following" for "Not later than the 90th

day following" and inserted "at such time and" before "in such

form".

Subsec. (m). Pub. L. 101-239, Sec. 7108(o), added subsec. (m).

Former subsec. (m) redesignated (n).

Subsec. (m)(4). Pub. L. 101-239, Sec. 7831(c)(5), added par. (4).

Subsec. (n). Pub. L. 101-239, Sec. 7108(o), redesignated subsec.

(m) as (n). Former subsec. (n) redesignated (o).

Pub. L. 101-239, Sec. 7108(a)(1), amended subsec. (n) generally.

Prior to amendment, subsec. (n) read as follows: "The State housing

credit ceiling under subsection (h) shall be zero for any calendar

year after 1989 and subsection (h)(4) shall not apply to any

building placed in service after 1989."

Subsec. (o). Pub. L. 101-239, Sec. 7108(o), redesignated subsec.

(n) as (o).

1988 - Subsec. (b)(2)(A). Pub. L. 100-647, Sec. 1002(l)(1)(A),

substituted "for the earlier of - " for "for the month in which

such building is placed in service" and added cls. (i) and (ii) and

concluding provisions.

Subsec. (b)(2)(C)(ii). Pub. L. 100-647, Sec. 1002(l)(1)(B),

substituted "the month applicable under clause (i) or (ii) of

subparagraph (A)" for "the month in which the building was placed

in service".

Subsec. (b)(3). Pub. L. 100-647, Sec. 1002(l)(9)(B), amended par.

(3) generally. Prior to amendment, par. (3) read as follows: "For

treatment of certain rehabilitation expenditures as separate new

buildings, see subsection (e)."

Subsec. (c)(2)(A). Pub. L. 100-647, Sec. 1002(l)(2)(A), amended

subpar. (A) generally. Prior to amendment, subpar. (A) read as

follows: "which at all times during the compliance period with

respect to such building is part of a qualified low-income housing

project, and".

Subsec. (d)(2)(D)(ii). Pub. L. 100-647, Sec. 1002(l)(3),

substituted "Special rules for certain transfers" for "Special rule

for nontaxable exchanges" in heading and amended text generally.

Prior to amendment, text read as follows: "For purposes of

determining under subparagraph (B)(ii) when a building was last

placed in service, there shall not be taken into account any

placement in service in connection with the acquisition of the

building in a transaction in which the basis of the building in the

hands of the person acquiring it is determined in whole or in part

by reference to the adjusted basis of such building in the hands of

the person from whom aquired [sic]."

Subsec. (d)(3). Pub. L. 100-647, Sec. 1002(l)(4), amended par.

(3) generally. Prior to amendment, par. (3) read as follows: "The

eligible basis of any building shall be reduced by an amount equal

to the portion of the adjusted basis of the building which is

attributable to residential rental units in the building which are

not low-income units and which are above the average quality

standard of the low-income units in the building."

Subsec. (d)(5)(A). Pub. L. 100-647, Sec. 1002(l)(6)(B),

substituted "subparagraphs (B) and (C)" for "subparagraph (B)".

Pub. L. 100-647, Sec. 1002(l)(5), inserted "(increased, in the

case of an existing building which meets the requirements of

paragraph (2)(B), by the amounts described in paragraph

(2)(A)(i)(II))" before period at end.

Subsec. (d)(5)(C). Pub. L. 100-647, Sec. 1002(l)(6)(A), added

subpar. (C).

Subsec. (d)(6)(A)(iii). Pub. L. 100-647, Sec. 1002(l)(7), struck

out cl. (iii) which related to other circumstances of financial

distress.

Subsec. (d)(6)(B)(ii). Pub. L. 100-647, Sec. 1002(l)(8), struck

out "of 1934" after "Act".

Subsec. (f)(1). Pub. L. 100-647, Sec. 1002(l)(2)(B), substituted

"beginning with - " for "beginning with" and subpars. (A) and (B)

and concluding provisions for "the taxable year in which the

building is placed in service or, at the election of the taxpayer,

the succeeding taxable year. Such an election, once made, shall be

irrevocable."

Subsec. (f)(3). Pub. L. 100-647, Sec. 1002(l)(9)(A), amended par.

(3) generally. Prior to amendment, par. (3) "Special rule where

increase in qualified basis after 1st year of credit period" read

as follows:

"(A) Credit increased. - If -

"(i) as of the close of any taxable year in the compliance

period (after the 1st year of the credit period) the qualified

basis of any building exceeds

"(ii) the qualified basis of such building as of the close of

the 1st year of the credit period,

the credit allowable under subsection (a) for the taxable year

(determined without regard to this paragraph) shall be increased by

an amount equal to the product of such excess and the percentage

equal to 2/3 of the applicable percentage for such building.

"(B) 1st year computation applies. - A rule similar to the rule

of paragraph (2)(A) shall apply to the additional credit allowable

by reason of this paragraph for the 1st year in which such

additional credit is allowable."

Subsec. (g)(2)(B)(i). Pub. L. 100-647, Sec. 1002(l)(10), struck

out "Federal" after "comparable".

Subsec. (g)(2)(C). Pub. L. 100-647, Sec. 1002(l)(11), added

subpar. (C).

Subsec. (g)(3). Pub. L. 100-647, Sec. 1002(l)(12), amended par.

(3) generally, substituting subpars. (A) to (C) for former subpars.

(A) and (B).

Subsec. (g)(4). Pub. L. 100-647, Sec. 1002(l)(13), inserted ";

except that, in applying such provisions (other than section

142(d)(4)(B)(iii)) for such purposes, the term 'gross rent' shall

have the meaning given such term by paragraph (2)(B) of this

subsection" before period at end.

Subsec. (g)(6). Pub. L. 100-647, Sec. 1002(l)(32), added par.

(6).

Subsec. (h)(1). Pub. L. 100-647, Sec. 1002(l)(14)(A), amended

par. (1) generally. Prior to amendment, par. (1) read as follows:

"No credit shall be allowed by reason of this section for any

taxable year with respect to any building in excess of the housing

credit dollar amount allocated to such building under this

subsection. An allocation shall be taken into account under the

preceding sentence only if it occurs not later than the earlier of

-

"(A) the 60th day after the close of the taxable year, or

"(B) the close of the calendar year in which such taxable year

ends."

Subsec. (h)(1)(B). Pub. L. 100-647, Sec. 4003(b)(1), substituted

"(C), (D), or (E)" for "(C) or (D)".

Subsec. (h)(1)(E). Pub. L. 100-647, Sec. 4003(a), added subpar.

(E).

Subsec. (h)(4)(A). Pub. L. 100-647, Sec. 1002(l)(15), substituted

"if - " for "and which is taken into account under section 146" and

added cls. (i) and (ii).

Subsec. (h)(5)(D), (E). Pub. L. 100-647, Sec. 1002(l)(16), added

subpar. (D) and redesignated former subpar. (D) as (E).

Subsec. (h)(6)(B)(ii). Pub. L. 100-647, Sec. 1002(l)(14)(B),

struck out cl. (ii) which read as follows:

"(ii) Allocation may not be earlier than year in which building

placed in service. - A housing credit agency may allocate its

housing credit dollar amount for any calendar year only to

buildings placed in service before the close of such calendar

year."

Subsec. (h)(6)(D). Pub. L. 100-647, Sec. 1002(l)(17), amended

subpar. (D) generally. Prior to amendment, subpar. (D) "Credit

allowable determined without regard to averaging convention, etc."

read as follows: "For purposes of this subsection, the credit

allowable under subsection (a) with respect to any building shall

be determined -

"(i) without regard to paragraphs (2)(A) and (3)(B) of

subsection (f), and

"(ii) by applying subsection (f)(3)(A) without regard to 'the

percentage equal to 2/3 of'."

Subsec. (h)(6)(E). Pub. L. 100-647, Sec. 1002(l)(18), added

subpar. (E).

Subsec. (i)(2)(A). Pub. L. 100-647, Sec. 1002(l)(19)(A), inserted

"or any prior taxable year" after "such taxable year" and

substituted "is or was outstanding" for "is outstanding" and "are

or were used" for "are used".

Subsec. (i)(2)(B). Pub. L. 100-647, Sec. 1002(l)(19)(B),

substituted "balance of loan or proceeds of obligations" for

"outstanding balance of loan" in heading and amended text

generally. Prior to amendment, text read as follows: "A loan shall

not be taken into account under subparagraph (A) if the taxpayer

elects to exclude an amount equal to the outstanding balance of

such loan from the eligible basis of the building for purposes of

subsection (d)."

Subsec. (i)(2)(C). Pub. L. 100-647, Sec. 1002(l)(19)(C), added

subpar. (C). Former subpar. (C) redesignated (D).

Subsec. (i)(2)(D). Pub. L. 100-647, Sec. 1002(l)(19)(C), (D),

redesignated former subpar. (C) as (D) and substituted "this

paragraph" for "subparagraph (A)".

Subsec. (j)(4)(D). Pub. L. 100-647, Sec. 1007(g)(3)(B),

substituted "D, or G" for "or D".

Subsec. (j)(4)(F). Pub. L. 100-647, Sec. 1002(l)(20), added

subpar. (F).

Subsec. (j)(5)(B). Pub. L. 100-647, Sec. 4004(a), amended subpar.

(B) generally. Prior to amendment, subpar. (B) read as follows:

"This paragraph shall apply to any partnership -

"(i) more than 1/2 the capital interests, and more than 1/2

the profit interests, in which are owned by a group of 35 or more

partners each of whom is a natural person or an estate, and

"(ii) which elects the application of this paragraph."

Subsec. (j)(5)(B)(i). Pub. L. 100-647, Sec. 1002(l)(21), amended

cl. (i) generally. Prior to amendment, cl. (i) read as follows:

"which has 35 or more partners each of whom is a natural person or

an estate, and".

Subsec. (j)(6). Pub. L. 100-647, Sec. 1002(l)(22), inserted "(or

interest therein)" after "disposition of building" in heading, and

in text inserted "or an interest therein" after "of a building".

Subsec. (k)(2)(B). Pub. L. 100-647, Sec. 1002(l)(23), inserted

before period at end ", except that this subparagraph shall not

apply in the case of a federally assisted building described in

subsection (d)(6)(B) if - " and cls. (i) and (ii).

Subsec. (l). Pub. L. 100-647, Sec. 1002(l)(24)(B), substituted

"Certifications and other reports to Secretary" for "Certifications

to Secretary" in heading.

Subsec. (l)(2), (3). Pub. L. 100-647, Sec. 1002(l)(24)(A), added

par. (2) and redesignated former par. (2) as (3).

Subsec. (n). Pub. L. 100-647, Sec. 4003(b)(3), amended subsec.

(n) generally, substituting a single par. for former pars. (1) and

(2).

Subsec. (n)(1). Pub. L. 100-647, Sec. 1002(l)(25), inserted ",

and, except for any building described in paragraph (2)(B),

subsection (h)(4) shall not apply to any building placed in service

after 1989" after "year after 1989".

1986 - Subsec. (k)(1). Pub. L. 99-509 substituted "subparagraphs

(D)(ii)(II) and (D)(iv)(I)" for "subparagraph (D)(iv)(I)".

EFFECTIVE DATE OF 2000 AMENDMENT

Pub. L. 106-554, Sec. 1(a)(7) [title I, subtitle D, Sec. 131(d)],

Dec. 21, 2000, 114 Stat. 2763, 2763A-611, provided that: "The

amendments made by this section [amending this section] shall apply

to calendar years after 2000."

Pub. L. 106-554, Sec. 1(a)(7) [title I, subtitle D, Sec. 137],

Dec. 21, 2000, 114 Stat. 2763, 2763A-613, provided that: "Except as

otherwise provided in this subtitle [amending this section and

enacting provisions set out above], the amendments made by this

subtitle shall apply to -

"(1) housing credit dollar amounts allocated after December 31,

2000; and

"(2) buildings placed in service after such date to the extent

paragraph (1) of section 42(h) of the Internal Revenue Code of

1986 does not apply to any building by reason of paragraph (4)

thereof, but only with respect to bonds issued after such date."

EFFECTIVE DATE OF 1998 AMENDMENT

Amendment by Pub. L. 105-206 effective, except as otherwise

provided, as if included in the provisions of the Taxpayer Relief

Act of 1997, Pub. L. 105-34, to which such amendment relates, see

section 6024 of Pub. L. 105-206, set out as a note under section 1

of this title.

EFFECTIVE DATE OF 1993 AMENDMENT

Section 13142(a)(2) of Pub. L. 103-66 provided that: "The

amendment made by paragraph (1) [amending this section] shall apply

to periods ending after June 30, 1992."

Section 13142(b)(6) of Pub. L. 103-66, as amended by Pub. L.

104-188, title I, Sec. 1703(b), Aug. 20, 1996, 110 Stat. 1875,

provided that:

"(A) In general. - Except as provided in subparagraphs (B) and

(C), the amendments made by this subsection [amending this section]

shall apply to -

"(i) determinations under section 42 of the Internal Revenue

Code of 1986 with respect to housing credit dollar amounts

allocated from State housing credit ceilings after June 30, 1992,

or

"(ii) buildings placed in service after June 30, 1992, to the

extent paragraph (1) of section 42(h) of such Code does not apply

to any building by reason of paragraph (4) thereof, but only with

respect to bonds issued after such date.

"(B) Full-time students, waiver authority, and prohibited

discrimination. - The amendments made by paragraphs (2), (3), and

(4) [amending this section] shall take effect on the date of the

enactment of this Act [Aug. 10, 1993].

"(C) HOME assistance. - The amendment made by paragraph (5)

[amending this section] shall apply to periods after the date of

the enactment of this Act."

EFFECTIVE DATE OF 1991 AMENDMENT

Section 107(b) of Pub. L. 102-227 provided that: "The amendments

made by this section [amending this section] shall apply to

calendar years after 1991."

EFFECTIVE DATE OF 1990 AMENDMENT

Section 11407(a)(3) of Pub. L. 101-508 provided that: "The

amendments made by this subsection [amending this section and

repealing provisions set out below] shall apply to calendar years

after 1989."

Section 11407(b)(10) of Pub. L. 101-508 provided that:

"(A) In general. - Except as otherwise provided in this

paragraph, the amendments made by this subsection [amending this

section] shall apply to -

"(i) determinations under section 42 of the Internal Revenue

Code of 1986 with respect to housing credit dollar amounts

allocated from State housing credit ceilings for calendar years

after 1990, or

"(ii) buildings placed in service after December 31, 1990, to

the extent paragraph (1) of section 42(h) of such Code does not

apply to any building by reason of paragraph (4) thereof, but

only with respect to bonds issued after such date.

"(B) Tenant rights, etc. - The amendments made by paragraphs (1),

(6), (8), and (9) [amending this section] shall take effect on the

date of the enactment of this Act [Nov. 5, 1990].

"(C) Monitoring. - The amendment made by paragraph (2) [amending

this section] shall take effect on January 1, 1992, and shall apply

to buildings placed in service before, on, or after such date.

"(D) Study. - The Inspector General of the Department of Housing

and Urban Development and the Secretary of the Treasury shall

jointly conduct a study of the effectiveness of the amendment made

by paragraph (5) [amending this section] in carrying out the

purposes of section 42 of the Internal Revenue Code of 1986. The

report of such study shall be submitted not later than January 1,

1993, to the Committee on Ways and Means of the House of

Representatives and the Committee on Finance of the Senate."

Section 11701(a)(3)(B) of Pub. L. 101-508 provided that: "In the

case of a building to which (but for this subparagraph) the

amendment made by subparagraph (A) [amending this section] does not

apply, such amendment shall apply to -

"(i) determinations of qualified basis for taxable years

beginning after the date of the enactment of this Act [Nov. 5,

1990], and

"(ii) determinations of qualified basis for taxable years

beginning on or before such date except that determinations for

such taxable years shall be made without regard to any reduction

in gross rent after August 3, 1990, for any period before August

4, 1990."

Section 11701(n) of Pub. L. 101-508 provided that: "Except as

otherwise provided in this section, any amendment made by this

section [amending this section and sections 148, 163, 172, 403,

1031, 1253, 2056, 4682, 4975, 4978B and 6038 of this title, and

provisions set out as notes under this section and section 2040 of

this title] shall take effect as if included in the provision of

the Revenue Reconciliation Act of 1989 [Pub. L. 101-239, title VII]

to which such amendment relates."

Section 11812(c) of Pub. L. 101-508 provided that:

"(1) In general. - Except as provided in paragraph (2), the

amendments made by this section [amending this section and sections

56, 167, 168, 312, 381, 404, 460, 642, 1016, 1250, and 7701 of this

title] shall apply to property placed in service after the date of

the enactment of this Act [Nov. 5, 1990].

"(2) Exception. - The amendments made by this section shall not

apply to any property to which section 168 of the Internal Revenue

Code of 1986 does not apply by reason of subsection (f)(5) thereof.

"(3) Exception for previously grandfather expenditures. - The

amendments made by this section shall not apply to rehabilitation

expenditures described in section 252(f)(5) of the Tax Reform Act

of 1986 [Pub. L. 99-514] (as added by section 1002(l)(31) of the

Technical and Miscellaneous Revenue Act of 1988 [see Transitional

Rules note below])."

Amendment by section 11813(b)(3) of Pub. L. 101-508 applicable to

property placed in service after Dec. 31, 1990, but not applicable

to any transition property (as defined in section 49(e) of this

title), any property with respect to which qualified progress

expenditures were previously taken into account under section 46(d)

of this title, and any property described in section 46(b)(2)(C) of

this title, as such sections were in effect on Nov. 4, 1990, see

section 11813(c) of Pub. L. 101-508, set out as a note under

section 29 of this title.

EFFECTIVE DATE OF 1989 AMENDMENT

Section 7108(r) of Pub. L. 101-239, as amended by Pub. L.

101-508, title XI, Sec. 11701(a)(11), (12), Nov. 5, 1990, 104 Stat.

1388-507; Pub. L. 104-188, title I, Sec. 1702(g)(5)(A), Aug. 20,

1996, 110 Stat. 1873, provided that:

"(1) In general. - Except as otherwise provided in this

subsection, the amendments made by this section [amending this

section and section 142 of this title] shall apply to

determinations under section 42 of the Internal Revenue Code of

1986 with respect to housing credit dollar amounts allocated from

State housing credit ceilings for calendar years after 1989.

"(2) Buildings not subject to allocation limits. - Except as

otherwise provided in this subsection, to the extent paragraph (1)

of section 42(h) of such Code does not apply to any building by

reason of paragraph (4) thereof, the amendments made by this

section shall apply to buildings placed in service after December

31, 1989.

"(3) One-year carryover of unused credit authority, etc. - The

amendments made by subsection (b) [amending this section] shall

apply to calendar years after 1989, but clauses (ii), (iii), and

(iv) of section 42(h)(3)(C) of such Code (as added by this section)

shall be applied without regard to allocations for 1989 or any

preceding year.

"(4) Additional buildings eligible for waiver of 10-year rule. -

The amendments made by subsection (f) [amending this section] shall

take effect on the date of the enactment of this Act [Dec. 19,

1989].

"(5) Certifications with respect to 1st year of credit period. -

The amendment made by subsection (p) [amending this section] shall

apply to taxable years ending on or after December 31, 1989.

"(6) Certain rules which apply to bonds. - Paragraphs (1)(D) and

(2)(D) of section 42(m) of such Code, as added by this section,

shall apply to obligations issued after December 31, 1989.

"(7) Clarifications. - The amendments made by the following

provisions of this section shall apply as if included in the

amendments made by section 252 of the Tax Reform Act of 1986 [Pub.

L. 99-514, enacting this section and amending sections 38 and 55 of

this title]:

"(A) Paragraph (1) of subsection (h) (relating to units rented

on a monthly basis) [amending this section].

"(B) Subsection (l) (relating to eligible basis for new

buildings to include expenditures before close of 1st year of

credit period) [amending this section].

"(8) Guidance on difficult development areas and posting of bond

to avoid recapture. - Not later than 180 days after the date of the

enactment of this Act [Dec. 19, 1989] -

"(A) the Secretary of Housing and Urban Development shall

publish initial guidance on the designation of difficult

development areas under section 42(d)(5)(C) of such Code, as

added by this section, and

"(B) the Secretary of the Treasury shall publish initial

guidance under section 42(j)(6) of such Code (relating to no

recapture on disposition of building (or interest therein) where

bond posted)."

[Pub. L. 104-188, title I, Sec. 1702(g)(5), Aug. 20, 1996, 110

Stat. 1873, provided that:

["(A) Paragraph (11) of section 11701(a) of the Revenue

Reconciliation Act of 1990 (and the amendment made by such

paragraph) [Pub. L. 101-508, which amended section 7108(r)(2) of

Pub. L. 101-239, set out above, by inserting "but only with respect

to bonds issued after such date" before the period at the end of

such section 7108(r)(2)] are hereby repealed, and section

7108(r)(2) of the Revenue Reconciliation Act of 1989 [Pub. L.

101-239] shall be applied as if such paragraph (and amendment) had

never been enacted.

["(B) Subparagraph (A) shall not apply to any building if the

owner of such building establishes to the satisfaction of the

Secretary of the Treasury or his delegate that such owner

reasonably relied on the amendment made by such paragraph (11)."]

Amendment by section 7811(a) of Pub. L. 101-239 effective, except

as otherwise provided, as if included in the provision of the

Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100-647,

to which such amendment relates, see section 7817 of Pub. L.

101-239, set out as a note under section 1 of this title.

Amendment by section 7831(c) of Pub. L. 101-239 effective as if

included in the provision of the Tax Reform Act of 1986, Pub. L.

99-514, to which such amendment relates, see section 7831(g) of

Pub. L. 101-239, set out as a note under section 1 of this title.

EFFECTIVE DATE OF 1988 AMENDMENT

Amendment by sections 1002(l)(1)-(25), (32) and 1007(g)(3)(B) of

Pub. L. 100-647 effective, except as otherwise provided, as if

included in the provision of the Tax Reform Act of 1986, Pub. L.

99-514, to which such amendment relates, see section 1019(a) of

Pub. L. 100-647, set out as a note under section 1 of this title.

Section 4003(c) of Pub. L. 100-647 provided that: "The amendments

made by this section [amending this section and provisions set out

as a note under section 469 of this title] shall apply to amounts

allocated in calendar years after 1987."

Section 4004(b) of Pub. L. 100-647 provided that:

"(1) In general. - The amendment made by subsection (a) [amending

this section] shall take effect as if included in the amendments

made by section 252 of the Reform Act [section 252 of Pub. L.

99-514, enacting this section and amending sections 38 and 55 of

this title].

"(2) Period for election. - The period for electing not to have

section 42(j)(5) of the 1986 Code apply to any partnership shall

not expire before the date which is 6 months after the date of the

enactment of this Act [Nov. 10, 1988]."

EFFECTIVE DATE OF 1986 AMENDMENT

Section 8072(b) of Pub. L. 99-509 provided that: "The amendment

made by subsection (a) [amending this section] shall take effect as

if included in the amendment made by section 252(a) of the Tax

Reform Act of 1986 [enacting this section]."

EFFECTIVE DATE

Section 252(e) of Pub. L. 99-514 provided that:

"(1) In general. - The amendments made by this section [enacting

this section and amending sections 38 and 55 of this title] shall

apply to buildings placed in service after December 31, 1986, in

taxable years ending after such date.

"(2) Special rule for rehabilitation expenditures. - Subsection

(e) of section 42 of the Internal Revenue Code of 1986 (as added by

this section) shall apply for purposes of paragraph (1)."

SAVINGS PROVISION

For provisions that nothing in amendment by sections 11812(b)(3)

and 11813(b)(3) of Pub. L. 101-508 be construed to affect treatment

of certain transactions occurring, property acquired, or items of

income, loss, deduction, or credit taken into account prior to Nov.

5, 1990, for purposes of determining liability for tax for periods

ending after Nov. 5, 1990, see section 11821(b) of Pub. L. 101-508,

set out as a note under section 29 of this title.

ELECTION TO DETERMINE RENT LIMITATION BASED ON NUMBER OF BEDROOMS

AND DEEP RENT SKEWING

Section 13142(c) of Pub. L. 103-66 provided that:

"(1) In the case of a building to which the amendments made by

subsection (e)(1) or (n)(2) of section 7108 of the Revenue

Reconciliation Act of 1989 [Pub. L. 101-239, amending this section]

did not apply, the taxpayer may elect to have such amendments apply

to such building if the taxpayer has met the requirements of the

procedures described in section 42(m)(1)(B)(iii) of the Internal

Revenue Code of 1986.

"(2) In the case of the amendment made by such subsection (e)(1),

such election shall apply only with respect to tenants first

occupying any unit in the building after the date of the election.

"(3) In the case of the amendment made by such subsection (n)(2),

such election shall apply only if rents of low-income tenants in

such building do not increase as a result of such election.

"(4) An election under this subsection may be made only during

the 180-day period beginning on the date of the enactment of this

Act [Aug. 10, 1993] and, once made, shall be irrevocable."

ELECTION TO ACCELERATE CREDIT INTO 1990

Section 11407(c) of Pub. L. 101-508 provided that:

"(1) In general. - At the election of an individual, the credit

determined under section 42 of the Internal Revenue Code of 1986

for the taxpayer's first taxable year ending on or after October

25, 1990, shall be 150 percent of the amount which would (but for

this paragraph) be so allowable with respect to investments held by

such individual on or before October 25, 1990.

"(2) Reduction in aggregate credit to reflect increased 1990

credit. - The aggregate credit allowable to any person under

section 42 of such Code with respect to any investment for taxable

years after the first taxable year referred to in paragraph (1)

shall be reduced on a pro rata basis by the amount of the increased

credit allowable by reason of paragraph (1) with respect to such

first taxable year. The preceding sentence shall not be construed

to affect whether any taxable year is part of the credit,

compliance, or extended use periods.

"(3) Election. - The election under paragraph (1) shall be made

at the time and in the manner prescribed by the Secretary of the

Treasury or his delegate, and, once made, shall be irrevocable. In

the case of a partnership, such election shall be made by the

partnership."

EXCEPTION TO TIME PERIOD FOR MEETING PROJECT REQUIREMENTS IN ORDER

TO QUALIFY AS LOW-INCOME HOUSING

Section 11701(a)(5)(B) of Pub. L. 101-508 provided that: "In the

case of a building to which the amendment made by subparagraph (A)

[amending this section] does not apply, the period specified in

section 42(g)(3)(A) of the Internal Revenue Code of 1986 (as in

effect before the amendment made by subparagraph (A)) shall not

expire before the close of the taxable year following the taxable

year in which the building is placed in service."

STATE HOUSING CREDIT CEILING FOR CALENDAR YEAR 1990

Section 7108(a)(2) of Pub. L. 101-239 provided that in the case

of calendar year 1990, section 42(h)(3)(C)(i) of the Internal

Revenue Code of 1986 be applied by substituting "$.9375" for

"$1.25", prior to repeal by Pub. L. 101-508, title XI, Sec.

11407(a)(2), (3), Nov. 5, 1990, 104 Stat. 1388-474, applicable to

calendar years after 1989.

TRANSITIONAL RULES

Section 252(f) of Pub. L. 99-514, as amended by Pub. L. 100-647,

title I, Sec. 1002(l)(28)-(31), Nov. 10, 1988, 102 Stat. 3381,

provided that:

"(1) Limitation to non-acrs buildings not to apply to certain

buildings, etc. -

"(A) In general. - In the case of a building which is part of a

project described in subparagraph (B) -

"(i) section 42(c)(2)(B) of the Internal Revenue Code of 1986

(as added by this section) shall not apply,

"(ii) such building shall be treated as not federally

subsidized for purposes of section 42(b)(1)(A) of such Code,

"(iii) the eligible basis of such building shall be treated,

for purposes of section 42(h)(4)(A) of such Code, as if it were

financed by an obligation the interest on which is exempt from

tax under section 103 of such Code and which is taken into

account under section 146 of such Code, and

"(iv) the amendments made by section 803 [enacting section

263A of this title, amending sections 48, 267, 312, 447, 464,

and 471 of this title, and repealing sections 189, 278, and 280

of this title] shall not apply.

"(B) Project described. - A project is described in this

subparagraph if -

"(i) an urban development action grant application with

respect to such project was submitted on September 13, 1984,

"(ii) a zoning commission map amendment related to such

project was granted on July 17, 1985, and

"(iii) the number assigned to such project by the Federal

Housing Administration is 023-36602.

"(C) Additional units eligible for credit. - In the case of a

building to which subparagraph (A) applies and which is part of a

project which meets the requirements of subparagraph (D), for

each low-income unit in such building which is occupied by

individuals whose income is 30 percent or less of area median

gross income, one additional unit (not otherwise a low-income

unit) in such building shall be treated as a low-income unit for

purposes of such section 42.

"(D) Project described. - A project is described in this

subparagraph if -

"(i) rents charged for units in such project are restricted

by State regulations,

"(ii) the annual cash flow of such project is restricted by

State law,

"(iii) the project is located on land owned by or ground

leased from a public housing authority,

"(iv) construction of such project begins on or before

December 31, 1986, and units within such project are placed in

service on or before June 1, 1990, and

"(v) for a 20-year period, 20 percent or more of the

residential units in such project are occupied by individuals

whose income is 50 percent or less of area median gross income.

"(E) Maximum additional credit. - The maximum present value of

additional credits allowable under section 42 of such Code by

reason of subparagraph (C) shall not exceed 25 percent of the

eligible basis of the building.

"(2) Additional allocation of housing credit ceiling. -

"(A) In general. - There is hereby allocated to each housing

credit agency described in subparagraph (B) an additional housing

credit dollar amount determined in accordance with the following

table:

The additional

"For calendar year: allocation is:

1987 $3,900,000

1988 $7,600,000

1989 $1,300,000.

--------------------------------------------------------------------

"(B) Housing credit agencies described. - The housing credit

agencies described in this subparagraph are:

"(i) A corporate governmental agency constituted as a public

benefit corporation and established in 1971 under the

provisions of Article XII of the Private Housing Finance Law of

the State.

"(ii) A city department established on December 20, 1979,

pursuant to chapter XVIII of a municipal code of such city for

the purpose of supervising and coordinating the formation and

execution of projects and programs affecting housing within

such city.

"(iii) The State housing finance agency referred to in

subparagraph (C), but only with respect to projects described

in subparagraph (C).

"(C) Project described. - A project is described in this

subparagraph if such project is a qualified low-income housing

project which -

"(i) receives financing from a State housing finance agency

from the proceeds of bonds issued pursuant to chapter 708 of

the Acts of 1966 of such State pursuant to loan commitments

from such agency made between May 8, 1984, and July 8, 1986,

and

"(ii) is subject to subsidy commitments issued pursuant to a

program established under chapter 574 of the Acts of 1983 of

such State having award dates from such agency between May 31,

1984, and June 11, 1985.

"(D) Special rules. -

"(i) Any building -

"(I) which is allocated any housing credit dollar amount by

a housing credit agency described in clause (iii) of

subparagraph (B), and

"(II) which is placed in service after June 30, 1986, and

before January 1, 1987,

shall be treated for purposes of the amendments made by this

section as placed in service on January 1, 1987.

"(ii) Section 42(c)(2)(B) of the Internal Revenue Code of

1986 shall not apply to any building which is allocated any

housing credit dollar amount by any agency described in

subparagraph (B).

"(E) All units treated as low income units in certain cases. -

In the case of any building -

"(i) which is allocated any housing credit dollar amount by

any agency described in subparagraph (B), and

"(ii) which after the application of subparagraph (D)(ii) is

a qualified low-income building at all times during any taxable

year,

such building shall be treated as described in section

42(b)(1)(B) of such Code and having an applicable fraction for

such year of 1. The preceding sentence shall apply to any

building only to the extent of the portion of the additional

housing credit dollar amount (allocated to such agency under

subparagraph (A)) allocated to such building.

"(3) Certain projects placed in service before 1987. -

"(A) In general. - In the case of a building which is part of a

project described in subparagraph (B) -

"(i) section 42(c)(2)(B) of such Code shall not apply,

"(ii) such building shall be treated as placed in service

during the first calendar year after 1986 and before 1990 in

which such building is a qualified low-income building

(determined after the application of clause (i)), and

"(iii) for purposes of section 42(h) of such Code, such

building shall be treated as having allocated to it a housing

credit dollar amount equal to the dollar amount appearing in

the clause of subparagraph (B) in which such building is

described.

"(B) Project described. - A project is described in this

subparagraph if the code number assigned to such project by the

Farmers' Home Administration appears in the following table:

The housing credit

"The code number is: dollar amount is:

(i) 49284553664 $16,000

(ii) 4927742022446 $22,000

(iii) 49270742276087 $64,000

(iv) 490270742387293 $48,000

(v) 4927074218234 $32,000

(vi) 49270742274019 $36,000

(vii) 51460742345074 $53,000.

--------------------------------------------------------------------

"(C) Determination of adjusted basis. - The adjusted basis of

any building to which this paragraph applies for purposes of

section 42 of such Code shall be its adjusted basis as of the

close of the taxable year ending before the first taxable year of

the credit period for such building.

"(D) Certain rules to apply. - Rules similar to the rules of

subparagraph (E) of paragraph (2) shall apply for purposes of

this paragraph.

"(4) Definitions. - For purposes of this subsection, terms used

in such subsection which are also used in section 42 of the

Internal Revenue Code of 1986 (as added by this section) shall have

the meanings given such terms by such section 42.

"(5) Transitional rule. - In the case of any rehabilitation

expenditures incurred with respect to units located in the

neighborhood strategy area within the community development block

grant program in Ft. Wayne, Indiana -

"(A) the amendments made by this section [enacting this section

and amending sections 38 and 55 of this title] shall not apply,

and

"(B) paragraph (1) of section 167(k) of the Internal Revenue

Code of 1986, shall be applied as if it did not contain the

phrase 'and before January 1, 1987'.

The number of units to which the preceding sentence applies shall

not exceed 150."

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 38, 39, 45D, 55, 469,

772, 774, 1400I of this title; title 12 section 1715z-22; title 15

sections 632, 657d; title 42 sections 1437, 1437f, 1437z-7, 1485,

1490p-2, 12745.

-FOOTNOTE-

(!1) See References in Text note below.

(!2) So in original. Probably should be "sections".

(!3) So in original. Probably should be "etc.,".

(!4) So in original. The semicolon probably should be a comma.

(!5) So in original. Probably should be "satisfactory".

(!6) So in original.

-End-

-CITE-

26 USC Sec. 43 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter A - Determination of Tax Liability

PART IV - CREDITS AGAINST TAX

Subpart D - Business Related Credits

-HEAD-

Sec. 43. Enhanced oil recovery credit

-STATUTE-

(a) General rule

For purposes of section 38, the enhanced oil recovery credit for

any taxable year is an amount equal to 15 percent of the taxpayer's

qualified enhanced oil recovery costs for such taxable year.

(b) Phase-out of credit as crude oil prices increase

(1) In general

The amount of the credit determined under subsection (a) for

any taxable year shall be reduced by an amount which bears the

same ratio to the amount of such credit (determined without

regard to this paragraph) as -

(A) the amount by which the reference price for the calendar

year preceding the calendar year in which the taxable year

begins exceeds $28, bears to

(B) $6.

(2) Reference price

For purposes of this subsection, the term "reference price"

means, with respect to any calendar year, the reference price

determined for such calendar year under section 29(d)(2)(C).

(3) Inflation adjustment

(A) In general

In the case of any taxable year beginning in a calendar year

after 1991, there shall be substituted for the $28 amount under

paragraph (1)(A) an amount equal to the product of -

(i) $28, multiplied by

(ii) the inflation adjustment factor for such calendar

year.

(B) Inflation adjustment factor

The term "inflation adjustment factor" means, with respect to

any calendar year, a fraction the numerator of which is the GNP

implicit price deflator for the preceding calendar year and the

denominator of which is the GNP implicit price deflator for

1990. For purposes of the preceding sentence, the term "GNP

implicit price deflator" means the first revision of the

implicit price deflator for the gross national product as

computed and published by the Secretary of Commerce. Not later

than April 1 of any calendar year, the Secretary shall publish

the inflation adjustment factor for the preceding calendar

year.

(c) Qualified enhanced oil recovery costs

For purposes of this section -

(1) In general

The term "qualified enhanced oil recovery costs" means any of

the following:

(A) Any amount paid or incurred during the taxable year for

tangible property -

(i) which is an integral part of a qualified enhanced oil

recovery project, and

(ii) with respect to which depreciation (or amortization in

lieu of depreciation) is allowable under this chapter.

(B) Any intangible drilling and development costs -

(i) which are paid or incurred in connection with a

qualified enhanced oil recovery project, and

(ii) with respect to which the taxpayer may make an

election under section 263(c) for the taxable year.

(C) Any qualified tertiary injectant expenses (as defined in

section 193(b)) which are paid or incurred in connection with a

qualified enhanced oil recovery project and for which a

deduction is allowable for the taxable year.

(2) Qualified enhanced oil recovery project

For purposes of this subsection -

(A) In general

The term "qualified enhanced oil recovery project" means any

project -

(i) which involves the application (in accordance with

sound engineering principles) of 1 or more tertiary recovery

methods (as defined in section 193(b)(3)) which can

reasonably be expected to result in more than an

insignificant increase in the amount of crude oil which will

ultimately be recovered,

(ii) which is located within the United States (within the

meaning of section 638(1)), and

(iii) with respect to which the first injection of liquids,

gases, or other matter commences after December 31, 1990.

(B) Certification

A project shall not be treated as a qualified enhanced oil

recovery project unless the operator submits to the Secretary

(at such times and in such manner as the Secretary provides) a

certification from a petroleum engineer that the project meets

(and continues to meet) the requirements of subparagraph (A).

(3) At-risk limitation

For purposes of determining qualified enhanced oil recovery

costs, rules similar to the rules of section 49(a)(1), section

49(a)(2), and section 49(b) shall apply.

(4) Special rule for certain gas displacement projects

For purposes of this section, immiscible non-hydrocarbon gas

displacement shall be treated as a tertiary recovery method under

section 193(b)(3).

(d) Other rules

(1) Disallowance of deduction

Any deduction allowable under this chapter for any costs taken

into account in computing the amount of the credit determined

under subsection (a) shall be reduced by the amount of such

credit attributable to such costs.

(2) Basis adjustments

For purposes of this subtitle, if a credit is determined under

this section for any expenditure with respect to any property,

the increase in the basis of such property which would (but for

this subsection) result from such expenditure shall be reduced by

the amount of the credit so allowed.

(e) Election to have credit not apply

(1) In general

A taxpayer may elect to have this section not apply for any

taxable year.

(2) Time for making election

An election under paragraph (1) for any taxable year may be

made (or revoked) at any time before the expiration of the 3-year

period beginning on the last date prescribed by law for filing

the return for such taxable year (determined without regard to

extensions).

(3) Manner of making election

An election under paragraph (1) (or revocation thereof) shall

be made in such manner as the Secretary may by regulations

prescribe.

-SOURCE-

(Added Pub. L. 101-508, title XI, Sec. 11511(a), Nov. 5, 1990, 104

Stat. 1388-483; amended Pub. L. 106-554, Sec. 1(a)(7) [title III,

Sec. 317(a)], Dec. 21, 2000, 114 Stat. 2763, 2763A-645.)

-MISC1-

PRIOR PROVISIONS

A prior section 43 was renumbered section 32 of this title.

Another prior section 43 was renumbered section 36 of this title.

AMENDMENTS

2000 - Subsec. (c)(1)(C). Pub. L. 106-554 inserted "(as defined

in section 193(b))" after "expenses" and struck out "under section

193" after "allowable".

EFFECTIVE DATE OF 2000 AMENDMENT

Pub. L. 106-554, Sec. 1(a)(7) [title III, Sec. 317(b)], Dec. 21,

2000, 114 Stat. 2763, 2763A-645, provided that: "The amendment made

by this section [amending this section] shall take effect as if

included in section 11511 of the Revenue Reconciliation Act of 1990

[Pub. L. 101-508]."

EFFECTIVE DATE

Section 11511(d) of Pub. L. 101-508 provided that:

"(1) In general. - The amendments made by this section [enacting

this section and amending sections 38, 39, 196, and 6501 of this

title] shall apply to costs paid or incurred in taxable years

beginning after December 31, 1990.

"(2) Special rule for significant expansion of projects. - For

purposes of section 43(c)(2)(A)(iii) of the Internal Revenue Code

of 1986 (as added by subsection (a)), any significant expansion

after December 31, 1990, of a project begun before January 1, 1991,

shall be treated as a project with respect to which the first

injection commences after December 31, 1990."

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 29, 38, 39, 196, 6501 of

this title.

-End-

-CITE-

26 USC Sec. 44 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter A - Determination of Tax Liability

PART IV - CREDITS AGAINST TAX

Subpart D - Business Related Credits

-HEAD-

Sec. 44. Expenditures to provide access to disabled individuals

-STATUTE-

(a) General rule

For purposes of section 38, in the case of an eligible small

business, the amount of the disabled access credit determined under

this section for any taxable year shall be an amount equal to 50

percent of so much of the eligible access expenditures for the

taxable year as exceed $250 but do not exceed $10,250.

(b) Eligible small business

For purposes of this section, the term "eligible small business"

means any person if -

(1) either -

(A) the gross receipts of such person for the preceding

taxable year did not exceed $1,000,000, or

(B) in the case of a person to which subparagraph (A) does

not apply, such person employed not more than 30 full-time

employees during the preceding taxable year, and

(2) such person elects the application of this section for the

taxable year.

For purposes of paragraph (1)(B), an employee shall be considered

full-time if such employee is employed at least 30 hours per week

for 20 or more calendar weeks in the taxable year.

(c) Eligible access expenditures

For purposes of this section -

(1) In general

The term "eligible access expenditures" means amounts paid or

incurred by an eligible small business for the purpose of

enabling such eligible small business to comply with applicable

requirements under the Americans With Disabilities Act of 1990

(as in effect on the date of the enactment of this section).

(2) Certain expenditures included

The term "eligible access expenditures" includes amounts paid

or incurred -

(A) for the purpose of removing architectural, communication,

physical, or transportation barriers which prevent a business

from being accessible to, or usable by, individuals with

disabilities,

(B) to provide qualified interpreters or other effective

methods of making aurally delivered materials available to

individuals with hearing impairments,

(C) to provide qualified readers, taped texts, and other

effective methods of making visually delivered materials

available to individuals with visual impairments,

(D) to acquire or modify equipment or devices for individuals

with disabilities, or

(E) to provide other similar services, modifications,

materials, or equipment.

(3) Expenditures must be reasonable

Amounts paid or incurred for the purposes described in

paragraph (2) shall include only expenditures which are

reasonable and shall not include expenditures which are

unnecessary to accomplish such purposes.

(4) Expenses in connection with new construction are not eligible

The term "eligible access expenditures" shall not include

amounts described in paragraph (2)(A) which are paid or incurred

in connection with any facility first placed in service after the

date of the enactment of this section.

(5) Expenditures must meet standards

The term "eligible access expenditures" shall not include any

amount unless the taxpayer establishes, to the satisfaction of

the Secretary, that the resulting removal of any barrier (or the

provision of any services, modifications, materials, or

equipment) meets the standards promulgated by the Secretary with

the concurrence of the Architectural and Transportation Barriers

Compliance Board and set forth in regulations prescribed by the

Secretary.

(d) Definition of disability; special rules

For purposes of this section -

(1) Disability

The term "disability" has the same meaning as when used in the

Americans With Disabilities Act of 1990 (as in effect on the date

of the enactment of this section).

(2) Controlled groups

(A) In general

All members of the same controlled group of corporations

(within the meaning of section 52(a)) and all persons under

common control (within the meaning of section 52(b)) shall be

treated as 1 person for purposes of this section.

(B) Dollar limitation

The Secretary shall apportion the dollar limitation under

subsection (a) among the members of any group described in

subparagraph (A) in such manner as the Secretary shall by

regulations prescribe.

(3) Partnerships and S corporations

In the case of a partnership, the limitation under subsection

(a) shall apply with respect to the partnership and each partner.

A similar rule shall apply in the case of an S corporation and

its shareholders.

(4) Short years

The Secretary shall prescribe such adjustments as may be

appropriate for purposes of paragraph (1) of subsection (b) if

the preceding taxable year is a taxable year of less than 12

months.

(5) Gross receipts

Gross receipts for any taxable year shall be reduced by returns

and allowances made during such year.

(6) Treatment of predecessors

The reference to any person in paragraph (1) of subsection (b)

shall be treated as including a reference to any predecessor.

(7) Denial of double benefit

In the case of the amount of the credit determined under this

section -

(A) no deduction or credit shall be allowed for such amount

under any other provision of this chapter, and

(B) no increase in the adjusted basis of any property shall

result from such amount.

(e) Regulations

The Secretary shall prescribe regulations necessary to carry out

the purposes of this section.

-SOURCE-

(Added Pub. L. 101-508, title XI, Sec. 11611(a), Nov. 5, 1990, 104

Stat. 1388-501.)

-REFTEXT-

REFERENCES IN TEXT

The Americans With Disabilities Act of 1990, referred to in

subsecs. (c)(1) and (d)(1) is Pub. L. 101-336, July 26, 1990, 104

Stat. 327, as amended, which is classified principally to chapter

126 (Sec. 12101 et seq.) of Title 42, The Public Health and

Welfare. For complete classification of this Act to the Code, see

Short Title note set out under section 12101 of Title 42 and

Tables.

The date of the enactment of this section, referred to in

subsecs. (c)(1), (4) and (d)(1), is the date of enactment of Pub.

L. 101-508, which was approved Nov. 5, 1990.

-MISC1-

PRIOR PROVISIONS

A prior section 44, added Pub. L. 94-12, title II, Sec. 208(a),

Mar. 29, 1975, 89 Stat. 32; amended Pub. L. 94-45, title IV, Sec.

401(a), June 30, 1975, 89 Stat. 243; Pub. L. 94-455, title XIX,

Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834, related to

purchase of new principal residence, prior to repeal by Pub. L.

98-369, div. A, title IV, Sec. 474(m)(1), July 18, 1984, 98 Stat.

833, applicable to taxable years beginning after Dec. 31, 1983, and

to carrybacks from such years.

Another prior section 44 was renumbered section 36 of this title.

EFFECTIVE DATE

Section applicable to expenditures paid or incurred after Nov. 5,

1990, see section 11611(e)(1) of Pub. L. 101-508, set out as an

Effective Date of 1990 Amendment note under section 38 of this

title.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 38, 39 of this title.

-End-

-CITE-

26 USC [Sec. 44A 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter A - Determination of Tax Liability

PART IV - CREDITS AGAINST TAX

Subpart D - Business Related Credits

-HEAD-

[Sec. 44A. Renumbered Sec. 21]

-STATUTE-

-End-

-CITE-

26 USC [Sec. 44B 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter A - Determination of Tax Liability

PART IV - CREDITS AGAINST TAX

Subpart D - Business Related Credits

-HEAD-

[Sec. 44B. Repealed. Pub. L. 98-369, div. A, title IV, Sec.

474(m)(1), July 18, 1984, 98 Stat. 833]

-MISC1-

Section, added Pub. L. 95-30, title II, Sec. 202(a), May 23,

1977, 91 Stat. 141; amended Pub. L. 95-600, title III, Sec.

321(b)(1), Nov. 6, 1978, 92 Stat. 2834; Pub. L. 96-222, title I,

Sec. 103(a)(6)(G)(i), (ii), Apr. 1, 1980, 94 Stat. 210, related to

credit for employment of certain new employees.

EFFECTIVE DATE OF REPEAL

Repeal applicable to taxable years beginning after Dec. 31, 1983,

and to carrybacks from such years, see section 475(a) of Pub. L.

98-369, set out as an Effective Date of 1984 Amendment note under

section 21 of this title.

-End-

-CITE-

26 USC [Sec. 44C 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter A - Determination of Tax Liability

PART IV - CREDITS AGAINST TAX

Subpart D - Business Related Credits

-HEAD-

[Sec. 44C. Renumbered Sec. 23]

-STATUTE-

-End-

-CITE-

26 USC [Sec. 44D 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter A - Determination of Tax Liability

PART IV - CREDITS AGAINST TAX

Subpart D - Business Related Credits

-HEAD-

[Sec. 44D. Renumbered Sec. 29]

-STATUTE-

-End-

-CITE-

26 USC [Sec. 44E 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter A - Determination of Tax Liability

PART IV - CREDITS AGAINST TAX

Subpart D - Business Related Credits

-HEAD-

[Sec. 44E. Renumbered Sec. 40]

-STATUTE-

-End-

-CITE-

26 USC [Sec. 44F 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter A - Determination of Tax Liability

PART IV - CREDITS AGAINST TAX

Subpart D - Business Related Credits

-HEAD-

[Sec. 44F. Renumbered Sec. 30]

-STATUTE-

-End-

-CITE-

26 USC [Sec. 44G 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter A - Determination of Tax Liability

PART IV - CREDITS AGAINST TAX

Subpart D - Business Related Credits

-HEAD-

[Sec. 44G. Renumbered Sec. 41]

-STATUTE-

-End-

-CITE-

26 USC [Sec. 44H 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter A - Determination of Tax Liability

PART IV - CREDITS AGAINST TAX

Subpart D - Business Related Credits

-HEAD-

[Sec. 44H. Renumbered Sec. 45C]

-STATUTE-

-End-

-CITE-

26 USC Sec. 45 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter A - Determination of Tax Liability

PART IV - CREDITS AGAINST TAX

Subpart D - Business Related Credits

-HEAD-

Sec. 45. Electricity produced from certain renewable resources

-STATUTE-

(a) General rule

For purposes of section 38, the renewable electricity production

credit for any taxable year is an amount equal to the product of -

(1) 1.5 cents, multiplied by

(2) the kilowatt hours of electricity -

(A) produced by the taxpayer -

(i) from qualified energy resources, and

(ii) at a qualified facility during the 10-year period

beginning on the date the facility was originally placed in

service, and

(B) sold by the taxpayer to an unrelated person during the

taxable year.

(b) Limitations and adjustments

(1) Phaseout of credit

The amount of the credit determined under subsection (a) shall

be reduced by an amount which bears the same ratio to the amount

of the credit (determined without regard to this paragraph) as -

(A) the amount by which the reference price for the calendar

year in which the sale occurs exceeds 8 cents, bears to

(B) 3 cents.

(2) Credit and phaseout adjustment based on inflation

The 1.5 cent amount in subsection (a) and the 8 cent amount in

paragraph (1) shall each be adjusted by multiplying such amount

by the inflation adjustment factor for the calendar year in which

the sale occurs. If any amount as increased under the preceding

sentence is not a multiple of 0.1 cent, such amount shall be

rounded to the nearest multiple of 0.1 cent.

(3) Credit reduced for grants, tax-exempt bonds, subsidized

energy financing, and other credits

The amount of the credit determined under subsection (a) with

respect to any project for any taxable year (determined after the

application of paragraphs (1) and (2)) shall be reduced by the

amount which is the product of the amount so determined for such

year and a fraction -

(A) the numerator of which is the sum, for the taxable year

and all prior taxable years, of -

(i) grants provided by the United States, a State, or a

political subdivision of a State for use in connection with

the project,

(ii) proceeds of an issue of State or local government

obligations used to provide financing for the project the

interest on which is exempt from tax under section 103,

(iii) the aggregate amount of subsidized energy financing

provided (directly or indirectly) under a Federal, State, or

local program provided in connection with the project, and

(iv) the amount of any other credit allowable with respect

to any property which is part of the project, and

(B) the denominator of which is the aggregate amount of

additions to the capital account for the project for the

taxable year and all prior taxable years.

The amounts under the preceding sentence for any taxable year

shall be determined as of the close of the taxable year.

(c) Definitions

For purposes of this section -

(1) Qualified energy resources

The term "qualified energy resources" means -

(A) wind,

(B) closed-loop biomass, and

(C) poultry waste.

(2) Closed-loop biomass

The term "closed-loop biomass" means any organic material from

a plant which is planted exclusively for purposes of being used

at a qualified facility to produce electricity.

(3) Qualified facility

(A) Wind facility

In the case of a facility using wind to produce electricity,

the term "qualified facility" means any facility owned by the

taxpayer which is originally placed in service after December

31, 1993, and before January 1, 2004.

(B) Closed-loop biomass facility

In the case of a facility using closed-loop biomass to

produce electricity, the term "qualified facility" means any

facility owned by the taxpayer which is originally placed in

service after December 31, 1992, and before January 1, 2004.

(C) Poultry waste facility

In the case of a facility using poultry waste to produce

electricity, the term "qualified facility" means any facility

of the taxpayer which is originally placed in service after

December 31, 1999, and before January 1, 2004.

(4) Poultry waste

The term "poultry waste" means poultry manure and litter,

including wood shavings, straw, rice hulls, and other bedding

material for the disposition of manure.

(d) Definitions and special rules

For purposes of this section -

(1) Only production in the United States taken into account

Sales shall be taken into account under this section only with

respect to electricity the production of which is within -

(A) the United States (within the meaning of section 638(1)),

or

(B) a possession of the United States (within the meaning of

section 638(2)).

(2) Computation of inflation adjustment factor and reference

price

(A) In general

The Secretary shall, not later than April 1 of each calendar

year, determine and publish in the Federal Register the

inflation adjustment factor and the reference price for such

calendar year in accordance with this paragraph.

(B) Inflation adjustment factor

The term "inflation adjustment factor" means, with respect to

a calendar year, a fraction the numerator of which is the GDP

implicit price deflator for the preceding calendar year and the

denominator of which is the GDP implicit price deflator for the

calendar year 1992. The term "GDP implicit price deflator"

means the most recent revision of the implicit price deflator

for the gross domestic product as computed and published by the

Department of Commerce before March 15 of the calendar year.

(C) Reference price

The term "reference price" means, with respect to a calendar

year, the Secretary's determination of the annual average

contract price per kilowatt hour of electricity generated from

the same qualified energy resource and sold in the previous

year in the United States. For purposes of the preceding

sentence, only contracts entered into after December 31, 1989,

shall be taken into account.

(3) Production attributable to the taxpayer

In the case of a facility in which more than 1 person has an

ownership interest, except to the extent provided in regulations

prescribed by the Secretary, production from the facility shall

be allocated among such persons in proportion to their respective

ownership interests in the gross sales from such facility.

(4) Related persons

Persons shall be treated as related to each other if such

persons would be treated as a single employer under the

regulations prescribed under section 52(b). In the case of a

corporation which is a member of an affiliated group of

corporations filing a consolidated return, such corporation shall

be treated as selling electricity to an unrelated person if such

electricity is sold to such a person by another member of such

group.

(5) Pass-thru in the case of estates and trusts

Under regulations prescribed by the Secretary, rules similar to

the rules of subsection (d) of section 52 shall apply.

(6) Credit eligibility in the case of government-owned facilities

using poultry waste

In the case of a facility using poultry waste to produce

electricity and owned by a governmental unit, the person eligible

for the credit under subsection (a) is the lessee or the operator

of such facility.

(7) Credit not to apply to electricity sold to utilities under

certain contracts

(A) In general

The credit determined under subsection (a) shall not apply to

electricity -

(i) produced at a qualified facility described in

subsection (c)(3)(A) which is placed in service by the

taxpayer after June 30, 1999, and

(ii) sold to a utility pursuant to a contract originally

entered into before January 1, 1987 (whether or not amended

or restated after that date).

(B) Exception

Subparagraph (A) shall not apply if -

(i) the prices for energy and capacity from such facility

are established pursuant to an amendment to the contract

referred to in subparagraph (A)(ii),

(ii) such amendment provides that the prices set forth in

the contract which exceed avoided cost prices determined at

the time of delivery shall apply only to annual quantities of

electricity (prorated for partial years) which do not exceed

the greater of -

(I) the average annual quantity of electricity sold to

the utility under the contract during calendar years 1994,

1995, 1996, 1997, and 1998, or

(II) the estimate of the annual electricity production

set forth in the contract, or, if there is no such

estimate, the greatest annual quantity of electricity sold

to the utility under the contract in any of the calendar

years 1996, 1997, or 1998, and

(iii) such amendment provides that energy and capacity in

excess of the limitation in clause (ii) may be -

(I) sold to the utility only at prices that do not exceed

avoided cost prices determined at the time of delivery, or

(II) sold to a third party subject to a mutually agreed

upon advance notice to the utility.

For purposes of this subparagraph, avoided cost prices shall be

determined as provided for in 18 CFR 292.304(d)(1) or any

successor regulation.

-SOURCE-

(Added Pub. L. 102-486, title XIX, Sec. 1914(a), Oct. 24, 1992, 106

Stat. 3020; amended Pub. L. 106-170, title V, Sec. 507(a)-(c), Dec.

17, 1999, 113 Stat. 1922; Pub. L. 106-554, Sec. 1(a)(7) [title III,

Sec. 319(1)], Dec. 21, 2000, 114 Stat. 2763, 2763A-646; Pub. L.

107-147, title VI, Sec. 603(a), Mar. 9, 2002, 116 Stat. 59.)

-MISC1-

PRIOR PROVISIONS

A prior section 45 was renumbered section 36 of this title.

AMENDMENTS

2002 - Subsec. (c)(3). Pub. L. 107-147 substituted "2004" for

"2002" in subpars. (A) to (C).

2000 - Subsec. (d)(7)(A)(i). Pub. L. 106-554 substituted

"subsection (c)(3)(A)" for "paragraph (3)(A)".

1999 - Subsec. (c)(1)(C). Pub. L. 106-170, Sec. 507(b)(1), added

subpar. (C).

Subsec. (c)(3). Pub. L. 106-170, Sec. 507(a), reenacted heading

without change and amended text generally. Prior to amendment, text

read as follows: "The term 'qualified facility' means any facility

owned by the taxpayer which is originally placed in service after

December 31, 1993 (December 31, 1992, in the case of a facility

using closed-loop biomass to produce electricity), and before July

1, 1999."

Subsec. (c)(4). Pub. L. 106-170, Sec. 507(b)(2), added par. (4).

Subsec. (d)(6), (7). Pub. L. 106-170, Sec. 507(c), added pars.

(6) and (7).

EFFECTIVE DATE OF 2002 AMENDMENT

Pub. L. 107-147, title VI, Sec. 603(b), Mar. 9, 2002, 116 Stat.

59, provided that: "The amendments made by subsection (a) [amending

this section] shall apply to facilities placed in service after

December 31, 2001."

EFFECTIVE DATE OF 1999 AMENDMENT

Pub. L. 106-170, title V, Sec. 507(d), Dec. 17, 1999, 113 Stat.

1923, provided that: "The amendments made by this section [amending

this section] shall take effect on the date of the enactment of

this Act [Dec. 17, 1999]."

EFFECTIVE DATE

Section applicable to taxable years ending after Dec. 31, 1992,

see section 1914(e) of Pub. L. 102-486, set out as an Effective

Date of 1992 Amendment note under section 38 of this title.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 38, 39 of this title.

-End-

-CITE-

26 USC Sec. 45A 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter A - Determination of Tax Liability

PART IV - CREDITS AGAINST TAX

Subpart D - Business Related Credits

-HEAD-

Sec. 45A. Indian employment credit

-STATUTE-

(a) Amount of credit

For purposes of section 38, the amount of the Indian employment

credit determined under this section with respect to any employer

for any taxable year is an amount equal to 20 percent of the excess

(if any) of -

(1) the sum of -

(A) the qualified wages paid or incurred during such taxable

year, plus

(B) qualified employee health insurance costs paid or

incurred during such taxable year, over

(2) the sum of the qualified wages and qualified employee

health insurance costs (determined as if this section were in

effect) which were paid or incurred by the employer (or any

predecessor) during calendar year 1993.

(b) Qualified wages; qualified employee health insurance costs

For purposes of this section -

(1) Qualified wages

(A) In general

The term "qualified wages" means any wages paid or incurred

by an employer for services performed by an employee while such

employee is a qualified employee.

(B) Coordination with work opportunity credit

The term "qualified wages" shall not include wages

attributable to service rendered during the 1-year period

beginning with the day the individual begins work for the

employer if any portion of such wages is taken into account in

determining the credit under section 51.

(2) Qualified employee health insurance costs

(A) In general

The term "qualified employee health insurance costs" means

any amount paid or incurred by an employer for health insurance

to the extent such amount is attributable to coverage provided

to any employee while such employee is a qualified employee.

(B) Exception for amounts paid under salary reduction

arrangements

No amount paid or incurred for health insurance pursuant to a

salary reduction arrangement shall be taken into account under

subparagraph (A).

(3) Limitation

The aggregate amount of qualified wages and qualified employee

health insurance costs taken into account with respect to any

employee for any taxable year (and for the base period under

subsection (a)(2)) shall not exceed $20,000.

(c) Qualified employee

For purposes of this section -

(1) In general

Except as otherwise provided in this subsection, the term

"qualified employee" means, with respect to any period, any

employee of an employer if -

(A) the employee is an enrolled member of an Indian tribe or

the spouse of an enrolled member of an Indian tribe,

(B) substantially all of the services performed during such

period by such employee for such employer are performed within

an Indian reservation, and

(C) the principal place of abode of such employee while

performing such services is on or near the reservation in which

the services are performed.

(2) Individuals receiving wages in excess of $30,000 not eligible

An employee shall not be treated as a qualified employee for

any taxable year of the employer if the total amount of the wages

paid or incurred by such employer to such employee during such

taxable year (whether or not for services within an Indian

reservation) exceeds the amount determined at an annual rate of

$30,000.

(3) Inflation adjustment

The Secretary shall adjust the $30,000 amount under paragraph

(2) for years beginning after 1994 at the same time and in the

same manner as under section 415(d).

(4) Employment must be trade or business employment

An employee shall be treated as a qualified employee for any

taxable year of the employer only if more than 50 percent of the

wages paid or incurred by the employer to such employee during

such taxable year are for services performed in a trade or

business of the employer. Any determination as to whether the

preceding sentence applies with respect to any employee for any

taxable year shall be made without regard to subsection (e)(2).

(5) Certain employees not eligible

The term "qualified employee" shall not include -

(A) any individual described in subparagraph (A), (B), or (C)

of section 51(i)(1),

(B) any 5-percent owner (as defined in section 416(i)(1)(B)),

and

(C) any individual if the services performed by such

individual for the employer involve the conduct of class I, II,

or III gaming as defined in section 4 of the Indian Gaming

Regulatory Act (25 U.S.C. 2703), or are performed in a building

housing such gaming activity.

(6) Indian tribe defined

The term "Indian tribe" means any Indian tribe, band, nation,

pueblo, or other organized group or community, including any

Alaska Native village, or regional or village corporation, as

defined in, or established pursuant to, the Alaska Native Claims

Settlement Act (43 U.S.C. 1601 et seq.) which is recognized as

eligible for the special programs and services provided by the

United States to Indians because of their status as Indians.

(7) Indian reservation defined

The term "Indian reservation" has the meaning given such term

by section 168(j)(6).

(d) Early termination of employment by employer

(1) In general

If the employment of any employee is terminated by the taxpayer

before the day 1 year after the day on which such employee began

work for the employer -

(A) no wages (or qualified employee health insurance costs)

with respect to such employee shall be taken into account under

subsection (a) for the taxable year in which such employment is

terminated, and

(B) the tax under this chapter for the taxable year in which

such employment is terminated shall be increased by the

aggregate credits (if any) allowed under section 38(a) for

prior taxable years by reason of wages (or qualified employee

health insurance costs) taken into account with respect to such

employee.

(2) Carrybacks and carryovers adjusted

In the case of any termination of employment to which paragraph

(1) applies, the carrybacks and carryovers under section 39 shall

be properly adjusted.

(3) Subsection not to apply in certain cases

(A) In general

Paragraph (1) shall not apply to -

(i) a termination of employment of an employee who

voluntarily leaves the employment of the taxpayer,

(ii) a termination of employment of an individual who

before the close of the period referred to in paragraph (1)

becomes disabled to perform the services of such employment

unless such disability is removed before the close of such

period and the taxpayer fails to offer reemployment to such

individual, or

(iii) a termination of employment of an individual if it is

determined under the applicable State unemployment

compensation law that the termination was due to the

misconduct of such individual.

(B) Changes in form of business

For purposes of paragraph (1), the employment relationship

between the taxpayer and an employee shall not be treated as

terminated -

(i) by a transaction to which section 381(a) applies if the

employee continues to be employed by the acquiring

corporation, or

(ii) by reason of a mere change in the form of conducting

the trade or business of the taxpayer if the employee

continues to be employed in such trade or business and the

taxpayer retains a substantial interest in such trade or

business.

(4) Special rule

Any increase in tax under paragraph (1) shall not be treated as

a tax imposed by this chapter for purposes of -

(A) determining the amount of any credit allowable under this

chapter, and

(B) determining the amount of the tax imposed by section 55.

(e) Other definitions and special rules

For purposes of this section -

(1) Wages

The term "wages" has the same meaning given to such term in

section 51.

(2) Controlled groups

(A) All employers treated as a single employer under section

(a) or (b) of section 52 shall be treated as a single employer

for purposes of this section.

(B) The credit (if any) determined under this section with

respect to each such employer shall be its proportionate share of

the wages and qualified employee health insurance costs giving

rise to such credit.

(3) Certain other rules made applicable

Rules similar to the rules of section 51(k) and subsections

(c), (d), and (e) of section 52 shall apply.

(4) Coordination with nonrevenue laws

Any reference in this section to a provision not contained in

this title shall be treated for purposes of this section as a

reference to such provision as in effect on the date of the

enactment of this paragraph.

(5) Special rule for short taxable years

For any taxable year having less than 12 months, the amount

determined under subsection (a)(2) shall be multiplied by a

fraction, the numerator of which is the number of days in the

taxable year and the denominator of which is 365.

(f) Termination

This section shall not apply to taxable years beginning after

December 31, 2004.

-SOURCE-

(Added Pub. L. 103-66, title XIII, Sec. 13322(b), Aug. 10, 1993,

107 Stat. 559; amended Pub. L. 104-188, title I, Sec. 1201(e)(1),

Aug. 20, 1996, 110 Stat. 1772; Pub. L. 105-206, title VI, Sec.

6023(1), July 22, 1998, 112 Stat. 824; Pub. L. 107-147, title VI,

Sec. 613(a), Mar. 9, 2002, 116 Stat. 61.)

-REFTEXT-

REFERENCES IN TEXT

The Alaska Native Claims Settlement Act, referred to in subsec.

(c)(6), is Pub. L. 92-203, Dec. 18, 1971, 85 Stat. 688, as amended,

which is classified generally to chapter 33 (Sec. 1601 et seq.) of

Title 43, Public Lands. For complete classification of this Act to

the Code, see Short Title note set out under section 1601 of Title

43 and Tables.

The date of the enactment of this paragraph, referred to in

subsec. (e)(4), is the date of enactment of Pub. L. 103-66, which

was approved Aug. 10, 1993.

-MISC1-

AMENDMENTS

2002 - Subsec. (f). Pub. L. 107-147 substituted "December 31,

2004" for "December 31, 2003".

1998 - Subsec. (b)(1)(B). Pub. L. 105-206 substituted "work

opportunity credit" for "targeted jobs credit" in heading.

1996 - Subsec. (b)(1)(B). Pub. L. 104-188, which directed that

subsec. (b)(1)(B) of this section be amended in the text by

substituting "work opportunity credit" for "targeted jobs credit",

could not be executed because the words "targeted jobs credit" did

not appear in the text.

EFFECTIVE DATE OF 1996 AMENDMENT

Amendment by Pub. L. 104-188 applicable to individuals who begin

work for the employer after Sept. 30, 1996, see section 1201(g) of

Pub. L. 104-188, set out as a note under section 38 of this title.

EFFECTIVE DATE

Section applicable to wages paid or incurred after Dec. 31, 1993,

see section 13322(f) of Pub. L. 103-66, set out as an Effective

Date of 1993 Amendment note under section 38 of this title.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 38, 39, 196, 280C of this

title.

-End-

-CITE-

26 USC Sec. 45B 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter A - Determination of Tax Liability

PART IV - CREDITS AGAINST TAX

Subpart D - Business Related Credits

-HEAD-

Sec. 45B. Credit for portion of employer social security taxes paid

with respect to employee cash tips

-STATUTE-

(a) General rule

For purposes of section 38, the employer social security credit

determined under this section for the taxable year is an amount

equal to the excess employer social security tax paid or incurred

by the taxpayer during the taxable year.

(b) Excess employer social security tax

For purposes of this section -

(1) In general

The term "excess employer social security tax" means any tax

paid by an employer under section 3111 with respect to tips

received by an employee during any month, to the extent such tips

-

(A) are deemed to have been paid by the employer to the

employee pursuant to section 3121(q) (without regard to whether

such tips are reported under section 6053), and

(B) exceed the amount by which the wages (excluding tips)

paid by the employer to the employee during such month are less

than the total amount which would be payable (with respect to

such employment) at the minimum wage rate applicable to such

individual under section 6(a)(1) of the Fair Labor Standards

Act of 1938 (determined without regard to section 3(m) of such

Act).

(2) Only tips received for food or beverages taken into account

In applying paragraph (1), there shall be taken into account

only tips received from customers in connection with the

providing, delivering, or serving of food or beverages for

consumption if the tipping of employees delivering or serving

food or beverages by customers is customary.

(c) Denial of double benefit

No deduction shall be allowed under this chapter for any amount

taken into account in determining the credit under this section.

(d) Election not to claim credit

This section shall not apply to a taxpayer for any taxable year

if such taxpayer elects to have this section not apply for such

taxable year.

-SOURCE-

(Added Pub. L. 103-66, title XIII, Sec. 13443(a), Aug. 10, 1993,

107 Stat. 568; amended Pub. L. 104-188, title I, Sec. 1112(a)(1),

(b)(1), Aug. 20, 1996, 110 Stat. 1759.)

-REFTEXT-

REFERENCES IN TEXT

Sections 3(m) and 6(a)(1) of the Fair Labor Standards Act of

1938, referred to in subsec. (b)(1)(B), are classified to sections

203(m) and 206(a)(1), respectively, of Title 29, Labor.

-MISC1-

AMENDMENTS

1996 - Subsec. (b)(1)(A). Pub. L. 104-188, Sec. 1112(a)(1),

inserted "(without regard to whether such tips are reported under

section 6053)" after "section 3121(q)".

Subsec. (b)(2). Pub. L. 104-188, Sec. 1112(b)(1), amended par.

(2) generally. Prior to amendment, par. (2) read as follows: "Only

tips received at food and beverage establishments taken into

account. - In applying paragraph (1), there shall be taken into

account only tips received from customers in connection with the

provision of food or beverages for consumption on the premises of

an establishment with respect to which the tipping of employees

serving food or beverages by customers is customary."

EFFECTIVE DATE OF 1996 AMENDMENT

Section 1112(a)(3) of Pub. L. 104-188 provided that: "The

amendments made by this subsection [amending this section and

provisions set out as a note under section 38 of this title] shall

take effect as if included in the amendments made by, and the

provisions of, section 13443 of the Revenue Reconciliation Act of

1993 [Pub. L. 103-66]."

Section 1112(b)(2) of Pub. L. 104-188 provided that: "The

amendment made by paragraph (1) [amending this section] shall apply

to tips received for services performed after December 31, 1996."

EFFECTIVE DATE

Section applicable with respect to taxes paid after Dec. 31,

1993, with respect to services performed before, on, or after such

date, see section 13443(d) of Pub. L. 103-66, as amended, set out

as an Effective Date of 1993 Amendment note under section 38 of

this title.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 38, 39, 196, 6501 of this

title.

-End-

-CITE-

26 USC Sec. 45C 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter A - Determination of Tax Liability

PART IV - CREDITS AGAINST TAX

Subpart D - Business Related Credits

-HEAD-

Sec. 45C. Clinical testing expenses for certain drugs for rare

diseases or conditions

-STATUTE-

(a) General rule

For purposes of section 38, the credit determined under this

section for the taxable year is an amount equal to 50 percent of

the qualified clinical testing expenses for the taxable year.

(b) Qualified clinical testing expenses

For purposes of this section -

(1) Qualified clinical testing expenses

(A) In general

Except as otherwise provided in this paragraph, the term

"qualified clinical testing expenses" means the amounts which

are paid or incurred by the taxpayer during the taxable year

which would be described in subsection (b) of section 41 if

such subsection were applied with the modifications set forth

in subparagraph (B).

(B) Modifications

For purposes of subparagraph (A), subsection (b) of section

41 shall be applied -

(i) by substituting "clinical testing" for "qualified

research" each place it appears in paragraphs (2) and (3) of

such subsection, and

(ii) by substituting "100 percent" for "65 percent" in

paragraph (3)(A) of such subsection.

(C) Exclusion for amounts funded by grants, etc.

The term "qualified clinical testing expenses" shall not

include any amount to the extent such amount is funded by any

grant, contract, or otherwise by another person (or any

governmental entity).

(D) Special rule

For purposes of this paragraph, section 41 shall be deemed to

remain in effect for periods after June 30, 1995, and before

July 1, 1996, and periods after June 30, 2004.

(2) Clinical testing

(A) In general

The term "clinical testing" means any human clinical testing

-

(i) which is carried out under an exemption for a drug

being tested for a rare disease or condition under section

505(i) of the Federal Food, Drug, and Cosmetic Act (or

regulations issued under such section),

(ii) which occurs -

(I) after the date such drug is designated under section

526 of such Act, and

(II) before the date on which an application with respect

to such drug is approved under section 505(b) of such Act

or, if the drug is a biological product, before the date on

which a license for such drug is issued under section 351

of the Public Health Service Act; (!1) and

(iii) which is conducted by or on behalf of the taxpayer to

whom the designation under such section 526 applies.

(B) Testing must be related to use for rare disease or

condition

Human clinical testing shall be taken into account under

subparagraph (A) only to the extent such testing is related to

the use of a drug for the rare disease or condition for which

it was designated under section 526 of the Federal Food, Drug,

and Cosmetic Act.

(c) Coordination with credit for increasing research expenditures

(1) In general

Except as provided in paragraph (2), any qualified clinical

testing expenses for a taxable year to which an election under

this section applies shall not be taken into account for purposes

of determining the credit allowable under section 41 for such

taxable year.

(2) Expenses included in determining base period research

expenses

Any qualified clinical testing expenses for any taxable year

which are qualified research expenses (within the meaning of

section 41(b)) shall be taken into account in determining base

period research expenses for purposes of applying section 41 to

subsequent taxable years.

(d) Definition and special rules

(1) Rare disease or condition

For purposes of this section, the term "rare disease or

condition" means any disease or condition which -

(A) affects less than 200,000 persons in the United States,

or

(B) affects more than 200,000 persons in the United States

but for which there is no reasonable expectation that the cost

of developing and making available in the United States a drug

for such disease or condition will be recovered from sales in

the United States of such drug.

Determinations under the preceding sentence with respect to any

drug shall be made on the basis of the facts and circumstances as

of the date such drug is designated under section 526 of the

Federal Food, Drug, and Cosmetic Act.

(2) Special limitations on foreign testing

(A) In general

No credit shall be allowed under this section with respect to

any clinical testing conducted outside the United States unless

-

(i) such testing is conducted outside the United States

because there is an insufficient testing population in the

United States, and

(ii) such testing is conducted by a United States person or

by any other person who is not related to the taxpayer to

whom the designation under section 526 of the Federal Food,

Drug, and Cosmetic Act applies.

(B) Special limitation for corporations to which section 936

applies

No credit shall be allowed under this section with respect to

any clinical testing conducted by a corporation to which an

election under section 936 applies.

(3) Certain rules made applicable

Rules similar to the rules of paragraphs (1) and (2) of section

41(f) shall apply for purposes of this section.

(4) Election

This section shall apply to any taxpayer for any taxable year

only if such taxpayer elects (at such time and in such manner as

the Secretary may by regulations prescribe) to have this section

apply for such taxable year.

-SOURCE-

(Added Pub. L. 97-414, Sec. 4(a), Jan. 4, 1983, 96 Stat. 2053, Sec.

44H; renumbered Sec. 28 and amended Pub. L. 98-369, div. A, title

IV, Secs. 471(c), 474(g), title VI, Sec. 612(e)(1), July 18, 1984,

98 Stat. 826, 831, 912; Pub. L. 99-514, title II, Secs.

231(d)(3)(A), 232, title VII, Sec. 701(c)(2), title XII, Sec.

1275(c)(4), title XVIII, Sec. 1879(b)(1), (2), Oct. 22, 1986, 100

Stat. 2178, 2180, 2340, 2599, 2905; Pub. L. 100-647, title I, Sec.

1018(q)(1), title IV, Sec. 4008(c)(1), Nov. 10, 1988, 102 Stat.

3585, 3653; Pub. L. 101-239, title VII, Sec. 7110(a)(3), Dec. 19,

1989, 103 Stat. 2323; Pub. L. 101-508, title XI, Secs. 11402(b)(2),

11411, Nov. 5, 1990, 104 Stat. 1388-473, 1388-479; Pub. L. 102-227,

title I, Secs. 102(b), 111(a), Dec. 11, 1991, 105 Stat. 1686, 1688;

Pub. L. 103-66, title XIII, Sec. 13111(a)(2), (b), Aug. 10, 1993,

107 Stat. 420; renumbered Sec. 45C and amended Pub. L. 104-188,

title I, Secs. 1204(e), 1205(a)(1), (b), (d)(1), (2), Aug. 20,

1996, 110 Stat. 1775, 1776; Pub. L. 105-34, title VI, Secs.

601(b)(2), 604(a), Aug. 5, 1997, 111 Stat. 862, 863; Pub. L.

105-115, title I, Sec. 125(b)(2)(O), Nov. 21, 1997, 111 Stat. 2326;

Pub. L. 105-277, div. J, title I, Sec. 1001(b), Oct. 21, 1998, 112

Stat. 2681-888; Pub. L. 106-170, title V, Sec. 502(a)(2), Dec. 17,

1999, 113 Stat. 1919.)

-REFTEXT-

REFERENCES IN TEXT

Sections 505(b), (i) and 526 of the Federal Food, Drug, and

Cosmetic Act, referred to in subsecs. (b)(2)(A) and (d)(1),

(2)(A)(ii), are classified to sections 355(b), (i) and 360bb,

respectively, of Title 21, Food and Drugs.

Section 351 of the Public Health Service Act, referred to in

subsec. (b)(2)(A)(ii)(II), is classified to section 262 of Title

42, The Public Health and Welfare.

-MISC1-

AMENDMENTS

1999 - Subsec. (b)(1)(D). Pub. L. 106-170 substituted "June 30,

2004" for "June 30, 1999".

1998 - Subsec. (b)(1)(D). Pub. L. 105-277 substituted "June 30,

1999" for "June 30, 1998".

1997 - Subsec. (b)(1)(D). Pub. L. 105-34, Sec. 601(b)(2),

substituted "June 30, 1998" for "May 31, 1997".

Subsec. (b)(2)(A)(ii)(II). Pub. L. 105-115 struck out "or 507"

after "505(b)".

Subsec. (e). Pub. L. 105-34, Sec. 604(a), struck out subsec. (e)

which read as follows:

"(e) Termination. - This section shall not apply to any amount

paid or incurred -

"(1) after December 31, 1994, and before July 1, 1996, or

"(2) after May 31, 1997."

1996 - Pub. L. 104-188, Sec. 1205(a)(1), renumbered section 28 of

this title as this section.

Subsec. (a). Pub. L. 104-188, Sec. 1205(d)(1), substituted "For

purposes of section 38, the credit determined under this section

for the taxable year is" for "There shall be allowed as a credit

against the tax imposed by this chapter for the taxable year".

Subsec. (b)(1)(D). Pub. L. 104-188, Sec. 1204(e), inserted ", and

before July 1, 1996, and periods after May 31, 1997" after "June

30, 1995".

Subsec. (d)(2) to (5). Pub. L. 104-188, Sec. 1205(d)(2),

redesignated pars. (3) to (5) as (2) to (4), respectively, and

struck out former par. (2) which read as follows: "Limitation based

on amount of tax. - The credit allowed by this section for any

taxable year shall not exceed the excess (if any) of -

"(A) the regular tax (reduced by the sum of the credits

allowable under subpart A and section 27), over

"(B) the tentative minimum tax for the taxable year."

Subsec. (e). Pub. L. 104-188, Sec. 1205(b), amended subsec. (e)

generally. Prior to amendment, subsec. (e) read as follows:

"Termination. - This section shall not apply to any amount paid or

incurred after December 31, 1994."

1993 - Subsec. (b)(1)(D). Pub. L. 103-66, Sec. 13111(a)(2),

substituted "June 30, 1995" for "June 30, 1992".

Subsec. (e). Pub. L. 103-66, Sec. 13111(b), substituted "December

31, 1994" for "June 30, 1992".

1991 - Subsec. (b)(1)(D). Pub. L. 102-227, Sec. 102(b),

substituted "June 30, 1992" for "December 31, 1991".

Subsec. (e). Pub. L. 102-227, Sec. 111(a), substituted "June 30,

1992" for "December 31, 1991".

1990 - Subsec. (b)(1)(D). Pub. L. 101-508, Sec. 11402(b)(2),

substituted "December 31, 1991" for "December 31, 1990".

Subsec. (e). Pub. L. 101-508, Sec. 11411, substituted "December

31, 1991" for "December 31, 1990".

1989 - Subsec. (b)(1)(D). Pub. L. 101-239 substituted "1990" for

"1989".

1988 - Subsec. (b)(1)(D). Pub. L. 100-647, Sec. 4008(c)(1),

substituted "1989" for "1988".

Subsec. (b)(2)(A)(ii)(II). Pub. L. 100-647, Sec. 1018(q)(1),

amended subcl. (II) generally. Prior to amendment, subcl. (II) read

as follows: "before the date on which an application with respect

to such drug is approved under section 505(b) of such Act or, if

the drug is a biological product, before the date on which a

license for such drug is issued under section 351 of the Public

Health Services Act, and".

1986 - Subsec. (b)(1). Pub. L. 99-514, Sec. 231(d)(3)(A)(i),

(iv), substituted "41" for "30" in subpars. (A), (B), and (D), and

substituted "1988" for "1985" in subpar. (D).

Subsec. (b)(2)(A)(ii)(I). Pub. L. 99-514, Sec. 1879(b)(1)(A),

substituted "the date such drug" for "the date of such drug".

Subsec. (b)(2)(A)(ii)(II). Pub. L. 99-514, Sec. 1879(b)(1)(B),

inserted "or, if the drug is a biological product, before the date

on which a license for such drug is issued under section 351 of the

Public Health Services Act".

Subsec. (c). Pub. L. 99-514, Sec. 231(d)(3)(A)(i), (ii),

substituted "41" for "30" in pars. (1) and (2) and "41(b)" for

"30(b)" in par. (2).

Subsec. (d)(1). Pub. L. 99-514, Sec. 1879(b)(2), amended par. (1)

generally. Prior to amendment, par. (1) read as follows: "For

purposes of this section, the term 'rare disease or condition'

means any disease or condition which occurs so infrequently in the

United States that there is no reasonable expectation that the cost

of developing and making available in the United States a drug for

such disease or condition will be recovered from sales in the

United States of such drug. Determinations under the preceding

sentence with respect to any drug shall be made on the basis of the

facts and circumstances as of the date such drug is designated

under section 526 of the Federal Food, Drug, and Cosmetic Act."

Subsec. (d)(2). Pub. L. 99-514, Sec. 701(c)(2), amended par. (2)

generally. Prior to amendment, par. (2) read as follows: "The

credit allowed by this section for any taxable year shall not

exceed the taxpayer's tax liability for the taxable year (as

defined in section 26(b)), reduced by the sum of the credits

allowable under subpart A and section 27."

Subsec. (d)(3)(B). Pub. L. 99-514, Sec. 1275(c)(4), struck out

"934(b) or" before "936" in heading and amended text generally.

Prior to amendment, text read as follows: "No credit shall be

allowed under this section with respect to any clinical testing

conducted by a corporation to which section 934(b) applies or to

which an election under section 936 applies."

Subsec. (d)(4). Pub. L. 99-514, Sec. 231(d)(3)(A)(iii),

substituted "section 41(f)" for "section 30(f)".

Subsec. (e). Pub. L. 99-514, Sec. 232, substituted "1990" for

"1987".

1984 - Pub. L. 98-369, Sec. 471(c), renumbered section 44H of

this title as this section.

Subsec. (b)(1)(A), (B), (D). Pub. L. 98-369, Sec. 474(g)(1)(A),

substituted "section 30" for "section 44F".

Subsec. (c)(1). Pub. L. 98-369, Sec. 474(g)(1)(A), substituted

"section 30" for "section 44F".

Subsec. (c)(2). Pub. L. 98-369, Sec. 474(g)(1)(A), (B),

substituted "section 30" for "section 44F" and "section 30(b)" for

"section 44F(b)".

Subsec. (d)(2). Pub. L. 98-369, Sec. 612(e)(1), substituted

"section 26(b)" for "section 25(b)".

Pub. L. 98-369, Sec. 474(g)(2), amended par. (2) generally,

substituting "shall not exceed the taxpayer's tax liability for the

taxable year (as defined in section 25(b), reduced by the sum of

the credits allowable under subpart A and section 27" for "shall

not exceed the amount of the tax imposed by this chapter for the

taxable year reduced by the sum of the credits allowable under a

section of this subpart having a lower number or letter designation

than this section, other than the credits allowable by sections 31,

39, and 43. For purposes of the preceding sentence, the term 'tax

imposed by this chapter' shall not include any tax treated as not

imposed by this chapter under the last sentence of section 53(a)".

Subsec. (d)(4). Pub. L. 98-369, Sec. 474(g)(1)(C), substituted

"section 30(f)" for "section 44F(f)".

EFFECTIVE DATE OF 1999 AMENDMENT

Amendment by Pub. L. 106-170 applicable to amounts paid or

incurred after June 30, 1999, see section 502(a)(3) of Pub. L.

106-170, set out as a note under section 41 of this title.

EFFECTIVE DATE OF 1998 AMENDMENT

Amendment by Pub. L. 105-277 applicable to amounts paid or

incurred after June 30, 1998, see section 1001(c) of Pub. L.

105-277, set out as a note under section 41 of this title.

EFFECTIVE DATE OF 1997 AMENDMENT

Amendment by section 601(b)(2) of Pub. L. 105-34 applicable to

amounts paid or incurred after May 31, 1997, see section 601(c) of

Pub. L. 105-34, set out as a note under section 41 of this title.

Section 604(b) of Pub. L. 105-34 provided that: "The amendment

made by subsection (a) [amending this section] shall apply to

amounts paid or incurred after May 31, 1997."

EFFECTIVE DATE OF 1996 AMENDMENT

Amendment by section 1204(e) of Pub. L. 104-188 applicable to

taxable years ending after June 30, 1996, and not to be taken into

account under section 6654 or 6655 of this title in determining

amount of any installment required to be paid for a taxable year

beginning in 1997, see section 1204(f) of Pub. L. 104-188, set out

as a note under section 41 of this title.

Amendment by section 1205(a)(1), (b), (d)(1), (2) of Pub. L.

104-188 applicable to amounts paid or incurred in taxable years

ending after June 30, 1996, see section 1205(e) of Pub. L. 104-188,

set out as a note under section 29 of this title.

EFFECTIVE DATE OF 1993 AMENDMENT

Section 13111(c) of Pub. L. 103-66 provided that: "The amendments

made by this section [amending this section and section 41 of this

title] shall apply to taxable years ending after June 30, 1992."

EFFECTIVE DATE OF 1991 AMENDMENT

Section 102(c) of Pub. L. 102-227 provided that: "The amendments

made by this section [amending this section and section 41 of this

title] shall apply to taxable years ending after December 31,

1991."

Section 111(b) of Pub. L. 102-227 provided that: "The amendment

made by this section [amending this section] shall apply to taxable

years ending after December 31, 1991."

EFFECTIVE DATE OF 1990 AMENDMENT

Section 11402(c) of Pub. L. 101-508 provided that: "The

amendments made by this section [amending this section and section

41 of this title and repealing provisions set out as a note under

section 41 of this title] shall apply to taxable years beginning

after December 31, 1989."

EFFECTIVE DATE OF 1988 AMENDMENT

Amendment by section 1018(q)(1) of Pub. L. 100-647 effective,

except as otherwise provided, as if included in the provision of

the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment

relates, see section 1019(a) of Pub. L. 100-647, set out as a note

under section 1 of this title.

Amendment by section 4008(c)(1) of Pub. L. 100-647 applicable to

taxable years beginning after Dec. 31, 1988, see section 4008(d) of

Pub. L. 100-647, set out as a note under section 41 of this title.

EFFECTIVE DATE OF 1986 AMENDMENT

Amendment by section 231(d)(3)(A) of Pub. L. 99-514 applicable to

taxable years beginning after Dec. 31, 1985, see section 231(g) of

Pub. L. 99-514, set out as a note under section 41 of this title.

Amendment by section 701(c)(2) of Pub. L. 99-514 applicable to

taxable years beginning after Dec. 31, 1986, with certain

exceptions and qualifications, see section 701(f) of Pub. L.

99-514, set out as an Effective Date note under section 55 of this

title.

Amendment by section 1275(c)(4) of Pub. L. 99-514 applicable to

taxable years beginning after Dec. 31, 1986, with certain

exceptions and qualifications, see section 1277 of Pub. L. 99-514,

set out as a note under section 931 of this title.

Section 1879(b)(3) of Pub. L. 99-514 provided that: "The

amendments made by this subsection [amending this section] shall

apply to amounts paid or incurred after December 31, 1982, in

taxable years ending after such date."

EFFECTIVE DATE OF 1984 AMENDMENT

Amendment by section 474(g) of Pub. L. 98-369 applicable to

taxable years beginning after Dec. 31, 1983, and to carrybacks from

such years, see section 475(a) of Pub. L. 98-369, set out as a note

under section 21 of this title.

Amendment by section 612(e)(1) of Pub. L. 98-369, applicable to

interest paid or accrued after December 31, 1984, on indebtedness

incurred after December 31, 1984, see section 612(g) of Pub. L.

98-369, set out as an Effective Date note under section 25 of this

title.

EFFECTIVE DATE

Section 4(d) of Pub. L. 97-414 provided that: "The amendments

made by this section [enacting this section and amending sections

280C and 6096 of this title] shall apply to amounts paid or

incurred after December 31, 1982, in taxable years ending after

such date."

APPLICABILITY OF CERTAIN AMENDMENTS BY PUBLIC LAW 99-514 IN

RELATION TO TREATY OBLIGATIONS OF UNITED STATES

For applicability of amendment by section 701(c)(2) of Pub. L.

99-514 notwithstanding any treaty obligation of the United States

in effect on Oct. 22, 1986, with provision that for such purposes

any amendment by title I of Pub. L. 100-647 be treated as if it had

been included in the provision of Pub. L. 99-514 to which such

amendment relates, see section 1012(aa)(2), (4) of Pub. L. 100-647,

set out as a note under section 861 of this title.

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 [Secs. 1101-1147 and 1171-1177] or

title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an

amendment to any plan, such plan amendment shall not be required to

be made before the first plan year beginning on or after Jan. 1,

1989, see section 1140 of Pub. L. 99-514, as amended, set out as a

note under section 401 of this title.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 38, 39, 280C of this

title.

-FOOTNOTE-

(!1) So in original. The semicolon probably should be a comma.

-End-

-CITE-

26 USC Sec. 45D 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter A - Determination of Tax Liability

PART IV - CREDITS AGAINST TAX

Subpart D - Business Related Credits

-HEAD-

Sec. 45D. New markets tax credit

-STATUTE-

(a) Allowance of credit

(1) In general

For purposes of section 38, in the case of a taxpayer who holds

a qualified equity investment on a credit allowance date of such

investment which occurs during the taxable year, the new markets

tax credit determined under this section for such taxable year is

an amount equal to the applicable percentage of the amount paid

to the qualified community development entity for such investment

at its original issue.

(2) Applicable percentage

For purposes of paragraph (1), the applicable percentage is -

(A) 5 percent with respect to the first 3 credit allowance

dates, and

(B) 6 percent with respect to the remainder of the credit

allowance dates.

(3) Credit allowance date

For purposes of paragraph (1), the term "credit allowance date"

means, with respect to any qualified equity investment -

(A) the date on which such investment is initially made, and

(B) each of the 6 anniversary dates of such date thereafter.

(b) Qualified equity investment

For purposes of this section -

(1) In general

The term "qualified equity investment" means any equity

investment in a qualified community development entity if -

(A) such investment is acquired by the taxpayer at its

original issue (directly or through an underwriter) solely in

exchange for cash,

(B) substantially all of such cash is used by the qualified

community development entity to make qualified low-income

community investments, and

(C) such investment is designated for purposes of this

section by the qualified community development entity.

Such term shall not include any equity investment issued by a

qualified community development entity more than 5 years after

the date that such entity receives an allocation under subsection

(f). Any allocation not used within such 5-year period may be

reallocated by the Secretary under subsection (f).

(2) Limitation

The maximum amount of equity investments issued by a qualified

community development entity which may be designated under

paragraph (1)(C) by such entity shall not exceed the portion of

the limitation amount allocated under subsection (f) to such

entity.

(3) Safe harbor for determining use of cash

The requirement of paragraph (1)(B) shall be treated as met if

at least 85 percent of the aggregate gross assets of the

qualified community development entity are invested in qualified

low-income community investments.

(4) Treatment of subsequent purchasers

The term "qualified equity investment" includes any equity

investment which would (but for paragraph (1)(A)) be a qualified

equity investment in the hands of the taxpayer if such investment

was a qualified equity investment in the hands of a prior holder.

(5) Redemptions

A rule similar to the rule of section 1202(c)(3) shall apply

for purposes of this subsection.

(6) Equity investment

The term "equity investment" means -

(A) any stock (other than nonqualified preferred stock as

defined in section 351(g)(2)) in an entity which is a

corporation, and

(B) any capital interest in an entity which is a partnership.

(c) Qualified community development entity

For purposes of this section -

(1) In general

The term "qualified community development entity" means any

domestic corporation or partnership if -

(A) the primary mission of the entity is serving, or

providing investment capital for, low-income communities or

low-income persons,

(B) the entity maintains accountability to residents of

low-income communities through their representation on any

governing board of the entity or on any advisory board to the

entity, and

(C) the entity is certified by the Secretary for purposes of

this section as being a qualified community development entity.

(2) Special rules for certain organizations

The requirements of paragraph (1) shall be treated as met by -

(A) any specialized small business investment company (as

defined in section 1044(c)(3)), and

(B) any community development financial institution (as

defined in section 103 of the Community Development Banking and

Financial Institutions Act of 1994 (12 U.S.C. 4702)).

(d) Qualified low-income community investments

For purposes of this section -

(1) In general

The term "qualified low-income community investment" means -

(A) any capital or equity investment in, or loan to, any

qualified active low-income community business,

(B) the purchase from another qualified community development

entity of any loan made by such entity which is a qualified

low-income community investment,

(C) financial counseling and other services specified in

regulations prescribed by the Secretary to businesses located

in, and residents of, low-income communities, and

(D) any equity investment in, or loan to, any qualified

community development entity.

(2) Qualified active low-income community business

(A) In general

For purposes of paragraph (1), the term "qualified active

low-income community business" means, with respect to any

taxable year, any corporation (including a nonprofit

corporation) or partnership if for such year -

(i) at least 50 percent of the total gross income of such

entity is derived from the active conduct of a qualified

business within any low-income community,

(ii) a substantial portion of the use of the tangible

property of such entity (whether owned or leased) is within

any low-income community,

(iii) a substantial portion of the services performed for

such entity by its employees are performed in any low-income

community,

(iv) less than 5 percent of the average of the aggregate

unadjusted bases of the property of such entity is

attributable to collectibles (as defined in section

408(m)(2)) other than collectibles that are held primarily

for sale to customers in the ordinary course of such

business, and

(v) less than 5 percent of the average of the aggregate

unadjusted bases of the property of such entity is

attributable to nonqualified financial property (as defined

in section 1397C(e)).

(B) Proprietorship

Such term shall include any business carried on by an

individual as a proprietor if such business would meet the

requirements of subparagraph (A) were it incorporated.

(C) Portions of business may be qualified active low-income

community business

The term "qualified active low-income community business"

includes any trades or businesses which would qualify as a

qualified active low-income community business if such trades

or businesses were separately incorporated.

(3) Qualified business

For purposes of this subsection, the term "qualified business"

has the meaning given to such term by section 1397C(d); except

that -

(A) in lieu of applying paragraph (2)(B) thereof, the rental

to others of real property located in any low-income community

shall be treated as a qualified business if there are

substantial improvements located on such property, and

(B) paragraph (3) thereof shall not apply.

(e) Low-income community

For purposes of this section -

(1) In general

The term "low-income community" means any population census

tract if -

(A) the poverty rate for such tract is at least 20 percent,

or

(B)(i) in the case of a tract not located within a

metropolitan area, the median family income for such tract does

not exceed 80 percent of statewide median family income, or

(ii) in the case of a tract located within a metropolitan

area, the median family income for such tract does not exceed

80 percent of the greater of statewide median family income or

the metropolitan area median family income.

Subparagraph (B) shall be applied using possessionwide median

family income in the case of census tracts located within a

possession of the United States.

(2) Targeted areas

The Secretary may designate any area within any census tract as

a low-income community if -

(A) the boundary of such area is continuous,

(B) the area would satisfy the requirements of paragraph (1)

if it were a census tract, and

(C) an inadequate access to investment capital exists in such

area.

(3) Areas not within census tracts

In the case of an area which is not tracted for population

census tracts, the equivalent county divisions (as defined by the

Bureau of the Census for purposes of defining poverty areas)

shall be used for purposes of determining poverty rates and

median family income.

(f) National limitation on amount of investments designated

(1) In general

There is a new markets tax credit limitation for each calendar

year. Such limitation is -

(A) $1,000,000,000 for 2001,

(B) $1,500,000,000 for 2002 and 2003,

(C) $2,000,000,000 for 2004 and 2005, and

(D) $3,500,000,000 for 2006 and 2007.

(2) Allocation of limitation

The limitation under paragraph (1) shall be allocated by the

Secretary among qualified community development entities selected

by the Secretary. In making allocations under the preceding

sentence, the Secretary shall give priority to any entity -

(A) with a record of having successfully provided capital or

technical assistance to disadvantaged businesses or

communities, or

(B) which intends to satisfy the requirement under subsection

(b)(1)(B) by making qualified low-income community investments

in 1 or more businesses in which persons unrelated to such

entity (within the meaning of section 267(b) or 707(b)(1)) hold

the majority equity interest.

(3) Carryover of unused limitation

If the new markets tax credit limitation for any calendar year

exceeds the aggregate amount allocated under paragraph (2) for

such year, such limitation for the succeeding calendar year shall

be increased by the amount of such excess. No amount may be

carried under the preceding sentence to any calendar year after

2014.

(g) Recapture of credit in certain cases

(1) In general

If, at any time during the 7-year period beginning on the date

of the original issue of a qualified equity investment in a

qualified community development entity, there is a recapture

event with respect to such investment, then the tax imposed by

this chapter for the taxable year in which such event occurs

shall be increased by the credit recapture amount.

(2) Credit recapture amount

For purposes of paragraph (1), the credit recapture amount is

an amount equal to the sum of -

(A) the aggregate decrease in the credits allowed to the

taxpayer under section 38 for all prior taxable years which

would have resulted if no credit had been determined under this

section with respect to such investment, plus

(B) interest at the underpayment rate established under

section 6621 on the amount determined under subparagraph (A)

for each prior taxable year for the period beginning on the due

date for filing the return for the prior taxable year involved.

No deduction shall be allowed under this chapter for interest

described in subparagraph (B).

(3) Recapture event

For purposes of paragraph (1), there is a recapture event with

respect to an equity investment in a qualified community

development entity if -

(A) such entity ceases to be a qualified community

development entity,

(B) the proceeds of the investment cease to be used as

required of subsection (b)(1)(B), or

(C) such investment is redeemed by such entity.

(4) Special rules

(A) Tax benefit rule

The tax for the taxable year shall be increased under

paragraph (1) only with respect to credits allowed by reason of

this section which were used to reduce tax liability. In the

case of credits not so used to reduce tax liability, the

carryforwards and carrybacks under section 39 shall be

appropriately adjusted.

(B) No credits against tax

Any increase in tax under this subsection shall not be

treated as a tax imposed by this chapter for purposes of

determining the amount of any credit under this chapter or for

purposes of section 55.

(h) Basis reduction

The basis of any qualified equity investment shall be reduced by

the amount of any credit determined under this section with respect

to such investment. This subsection shall not apply for purposes of

sections 1202, 1400B, and 1400F.

(i) Regulations

The Secretary shall prescribe such regulations as may be

appropriate to carry out this section, including regulations -

(1) which limit the credit for investments which are directly

or indirectly subsidized by other Federal tax benefits (including

the credit under section 42 and the exclusion from gross income

under section 103),

(2) which prevent the abuse of the purposes of this section,

(3) which provide rules for determining whether the requirement

of subsection (b)(1)(B) is treated as met,

(4) which impose appropriate reporting requirements, and

(5) which apply the provisions of this section to newly formed

entities.

-SOURCE-

(Added Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec. 121(a)], Dec.

21, 2000, 114 Stat. 2763, 2763A-605.)

-MISC1-

EFFECTIVE DATE

Section applicable to investments made after Dec. 31, 2000, see

Sec. 1(a)(7) [title I, Sec. 121(e)] of Pub. L. 106-554, set out as

a Effective Date of 2000 Amendment note under section 38 of this

title.

GUIDANCE ON ALLOCATION OF NATIONAL LIMITATION

Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec. 121(f)], Dec. 21,

2000, 114 Stat. 2763, 2763A-610, provided that: "Not later than 120

days after the date of the enactment of this Act [Dec. 21, 2000],

the Secretary of the Treasury or the Secretary's delegate shall

issue guidance which specifies -

"(1) how entities shall apply for an allocation under section

45D(f)(2) of the Internal Revenue Code of 1986, as added by this

section;

"(2) the competitive procedure through which such allocations

are made; and

"(3) the actions that such Secretary or delegate shall take to

ensure that such allocations are properly made to appropriate

entities."

AUDIT AND REPORT

Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec. 121(g)], Dec. 21,

2000, 114 Stat. 2763, 2763A-610, provided that: "Not later than

January 31 of 2004, 2007, and 2010, the Comptroller General of the

United States shall, pursuant to an audit of the new markets tax

credit program established under section 45D of the Internal

Revenue Code of 1986 (as added by subsection (a)), report to

Congress on such program, including all qualified community

development entities that receive an allocation under the new

markets credit under such section."

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 38, 39, 196 of this

title.

-End-