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

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EFFECTIVE DATE OF 1984 AMENDMENT

Amendment by section 474(r)(4) 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 624(c) of Pub. L. 98-369, as amended by Pub. L. 99-514,

title XVIII, Sec. 1867(a), Oct. 22, 1986, 100 Stat. 2888, provided

that:

"(1) In general. - Except as otherwise provided in this

subsection, the amendments made by this section [amending this

section and section 103A of this title] shall apply with respect to

bonds issued after December 31, 1984.

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

apply to obligations issued for the Essex County New Jersey

Resource Recovery Project authorized by the Port Authority of New

York and New Jersey on November 10, 1983, as part of an agreement

approved by Essex County, New Jersey, on July 7, 1981, and approved

by the State of New Jersey on December 31, 1981. The aggregate face

amount of bonds to which this paragraph applies shall not exceed

$350,000,000."

Section 626(b) of Pub. L. 98-369, as amended by Pub. L. 99-514,

Sec. 2, title XIII, Sec. 1317(22), title XVIII, Sec. 1869(c)(5),

Oct. 22, 1986, 100 Stat. 2095, 2698, 2890; Pub. L. 100-647, title

I, Sec. 1013(g)(24), Nov. 10, 1988, 102 Stat. 3554, provided that:

"(1) In general. - Except as otherwise provided in this

subsection the amendment made by subsection (a) [amending this

section] shall apply to obligations issued after the date of

enactment of this Act [July 18, 1984].

"(2) Exceptions for certain student loan programs. -

"(A) In general. - The amendments made by this section

[amending this section] shall not apply to obligations issued by

a program described in the following table to the extent the

aggregate face amount of such obligations does not exceed the

amount of allowable obligations specified in the following table

with respect to such program:

Program Amount of

Allowable

Obligations

--------------------------------------------------------------------

Colorado Student Obligation Bond Authority $60 million

Connecticut Higher Education Supplementary Loan $15.5

Authority million

District of Columbia $50 million

Illinois Higher Education Authority $70 million

State of Iowa $16 million

Louisiana Public Facilities Authority $75 million

Maine Health and Higher Education Facilities $5 million

Authority

Maryland Higher Education Supplemental Loan Progra $24 million

Massachusetts College Student Loan Authority $90 million

Minnesota Higher Education Coordinating Board $60 million

New Hampshire Higher Education and Health $39 million

Facilities Authority

New York Dormitory Authority $120 million

Pennsylvania Higher Education Assistance Agency $300 million

Georgia Private Colleges and University Authority $31 million

Wisconsin State Building Commission $60 million

South Dakota Health and Educational Facilities $6 million

Authority

--------------------------------------------------------------------

"(B) Pennsylvania higher education assistance agency. -

Subparagraph (A) shall apply to obligations issued by the

Pennsylvania Higher Education Assistance Agency only if such

obligations are issued solely for the purpose of refunding

student loan bonds outstanding on March 15, 1984.

"(3) Certain tax-exempt mortgage subsidy bonds. - For purposes of

applying section 103(o) of the Internal Revenue Code of 1986

[formerly I.R.C. 1954], the term 'consumer loan bond' shall not

include any mortgage subsidy bond (within the meaning of section

103A(b) of such Code) to which the amendments made by section 1102

of the Mortgage Subsidy Bond Tax Act of 1980 [enacting section 103A

of this title] do not apply.

"(4) Refunding exception. - The amendments made by this section

[amending this section] shall not apply to any obligation or series

of obligations the proceeds of which are used exclusively to refund

obligations issued before March 15, 1984, except that -

"(A) the amount of the refunding obligations may not exceed 101

percent of the aggregate face amount of the refunded obligations,

and

"(B) the maturity date of any refunding obligation may not be

later than the date which is 17 years after the date on which the

refunded obligation was issued (or, in the case of a series of

refundings, the date on which the original obligation was

issued).

"(5) Exception for certain established programs. - The amendments

made by this section [amending this section] shall not apply to any

obligation substantially all of the proceeds of which are used to

carry out a program established under State law which has been in

effect in substantially the same form during the 30-year period

ending on the date of enactment of this Act [July 18, 1984], but

only if such proceeds are used to make loans or to fund similar

obligations -

"(A) in the same manner in which,

"(B) in the same (or lesser) amount per participant, and

"(C) for the same purposes for which,

such program was operated on March 15, 1984. This subparagraph

shall not apply to obligations issued on or after March 15, 1987.

"(6) Certain bonds for renewable energy property. - The

amendments made by this section [amending this section] shall not

apply to any obligations described in section 243 of the Crude Oil

Windfall Profit Tax Act of 1980 [Pub. L. 96-223, set out as a note

below].

"(7) Exception for certain downtown redevelopment project. - The

amendments made by this section [amending this section] shall not

apply to any obligation which is issued as part of an issue 95

percent or more of the proceeds of which are to be used to provide

a project to acquire and redevelop a downtown area if -

"(A) on August 15, 1985, a downtown redevelopment authority

adopted a resolution to issue obligations for such project,

"(B) before September 26, 1985, the city expended, or entered

into binding contracts to expend, more than $10,000,000 in

connection with such project, and

"(C) the State supreme court issued a ruling regarding the

proposed financing structure for such project on December 11,

1985.

The aggregate face amount of obligations to which this paragraph

applies shall not exceed $85,000,000 and such obligations must be

issued before January 1, 1992."

Section 631 of Pub. L. 98-369, as amended by Pub. L. 99-514, Sec.

2, title XIII, Secs. 1316(j), 1317(43), title XVIII, Sec.

1872(a)-(c)(1), Oct. 22, 1986, 100 Stat. 2095, 2670, 2708, 2891,

2892; Pub. L. 100-647, title I, Sec. 1013(f)(8), (g)(40), Nov. 10,

1988, 102 Stat. 3549, 3557, provided that:

"(a) Private Activity Bond Cap. -

"(1) In general. - Except as otherwise provided in this

subsection, the amendment made by section 621 [amending this

section] shall apply to obligations issued after December 31,

1983.

"(2) Inducement resolution before june 19, 1984. - The

amendment made by section 621 shall not apply to any issue of

obligations if -

"(A) there was an inducement resolution (or other comparable

preliminary approval) for the issue before June 19, 1984, and

"(B) the issue is issued before January 1, 1985.

"(3) Certain projects preliminarily approved before october 19,

1983, given approval. - If -

"(A) there was an inducement resolution (or other comparable

preliminary approval) for a project before October 19, 1983, by

any issuing authority,

"(B) a substantial user of such project notifies the issuing

authority within 30 days after the date of the enactment of

this Act [July 18, 1984] that it intends to claim its rights

under this paragraph, and

"(C) construction of such project began before October 19,

1983, or the substantial user was under a binding contract on

such date to incur significant expenditures with respect to

such project,

such issuing authority shall allocate its share of the limitation

under section 103(n) of such Code for the calendar year during

which the obligations were to be issued pursuant to such

resolution (or other approval) first to such project. If the

amount of obligations required by all projects which meet the

requirements of the preceding sentence exceeds the issuing

authority's share of the limitation under section 103(n) of such

Code, priority under the preceding sentence shall be provided

first to those projects for which substantial expenditures were

incurred before October 19, 1983. If any issuing authority fails

to meet the requirements of this paragraph, the limitation under

section 103(n) of such Code for the issuing authority for the

calendar year following such failure shall be reduced by the

amount of obligations with respect to which such failure

occurred.

"(3) [(4)] Exception for certain bonds for a convention center

and resource recovery project. - In the case of any city, if -

"(A) the city council of such city authorized a feasibility

study for a convention center on June 10, 1982, and

"(B) on November 4, 1983, a municipal authority acting for

such city accepted a proposal for the construction of a

facility that is capable of generating steam and electricity

through the combustion of municipal waste,

the amendment made by section 621 shall not apply to any issue,

issued during 1984, 1985, 1986, or 1987 and substantially all of

the proceeds of which are to be used to finance the convention

center (or access ramps and parking facilities therefor)

described in subparagraph (A) or the facility described in

subparagraph (B).

"(b) Property Financed With Tax-Exempt Bonds Required To Be

Depreciated on Straight-Line Basis. -

"(1) In general. - Except as otherwise provided in this

section, the amendments made by section 628(b) [amending section

168 of this title] shall apply to property placed in service

after December 31, 1983, to the extent such property is financed

by the proceeds of an obligation (including a refunding

obligation) issued after October 18, 1983.

"(2) Exceptions. -

"(A) Construction or binding agreement. - The amendments made

by section 628(b) shall not apply with respect to facilities -

"(i) the original use of which commences with the taxpayer

and the construction, reconstruction, or rehabilitation of

which began before October 19, 1983, or

"(ii) with respect to which a binding contract to incur

significant expenditures was entered into before October 19,

1983.

"(B) Refunding. -

"(i) In general. - Except as provided in clause (ii), in

the case of property placed in service after December 31,

1983, which is financed by the proceeds of an obligation

which is issued solely to refund another obligation which was

issued before October 19, 1983, the amendments made by

section 628(b) shall apply only with respect to an amount

equal to the basis in such property which has not been

recovered before the date such refunded obligation is issued.

"(ii) Significant expenditures. - In the case of facilities

the original use of which commences with the taxpayer and

with respect to which significant expenditures are made

before January 1, 1984, the amendments made by section 628(b)

shall not apply with respect to such facilities to the extent

such facilities are financed by the proceeds of an obligation

issued solely to refund another obligation which was issued

before October 19, 1983.

"(C) Facilities. - In the case of an inducement resolution or

other comparable preliminary approval adopted by an issuing

authority before October 19, 1983, for purposes of applying

subparagraphs (A)(i) and (B)(ii) with respect to obligations

described in such resolution, the term 'facilities' means the

facilities described in such resolution.

"(c) Other Provisions Relating to Tax-Exempt Bonds. -

"(1) In general. - Except as otherwise provided in this

subtitle, the amendments made by sections 622, 623, 627, and

628(c), (d), and (e) (and the provisions of sections 625(c),

628(f), and 629(b)) [amending this section and enacting

provisions set out as notes under this section] shall apply to

obligations issued after December 31, 1983.

"(2) Obligations invested in federally insured deposits. -

Notwithstanding any other provision of this section, clause (ii)

of section 103(h)(2)(B) of the Internal Revenue Code of 1986

[formerly I.R.C. 1954] (as amended by this subtitle) shall apply

to obligations issued after April 14, 1983; except that such

clause shall not apply to any obligation issued pursuant to a

binding contract in effect on March 4, 1983.

"(3) Exceptions. -

"(A) Construction or binding agreement. - The amendments (and

provisions) referred to in paragraph (1) shall not apply to

obligations with respect to facilities -

"(i) the original use of which commences with the taxpayer

and the construction, reconstruction, or rehabilitation of

which began before October 19, 1983, and was completed on or

after such date,

"(ii) the original use of which commences with the taxpayer

and with respect to which a binding contract to incur

significant expenditures for construction, reconstruction, or

rehabilitation was entered into before October 19, 1983, and

some of such expenditures are incurred on or after such date,

or

"(iii) acquired after October 19, 1983, pursuant to a

binding contract entered into on or before such date.

"(B) Facilities. - Subparagraph (C) of subsection (b)(2)

shall apply for purposes of subparagraph (A) of this paragraph.

"(C) Exception. - Subparagraph (A) shall not apply with

respect to the amendment made by section 628(e) and the

provisions of sections 628(f) and 629(b) [amending this section

and enacting provisions set out as notes under this section].

"(4) Repeal of advance refunding of qualified public

facilities. - The amendment made by section 628(g) [amending this

section] shall apply to refunding obligations issued after the

date of the enactment of this Act [July 18, 1984]; except that if

substantially all the proceeds of the refunded issue were used to

provide airports or docks, such amendment shall only apply to

refunding obligations issued after December 31, 1984. In the case

of refunding obligations not to exceed $100,000,000 issued after

October 21, 1986, by Dade County, Florida, for the purpose of

advance refunding its Aviation Revenue Bonds (Series J), the

first sentence of this paragraph shall be applied by substituting

'the date which is 1 year after the date of the enactment of the

Technical and Miscellaneous Revenue Act of 1988 [Nov. 10, 1988]'

for 'December 31, 1984' and the amendments made by section 1301

of the Tax Reform Act of 1986 [section 1301 of Pub. L. 99-514,

enacting sections 141 to 150 and 7703 of this title, amending

this section and sections 2, 22, 25, 32, 86, 105, 152, 153, 163,

194, 269A, 414, 879, 1398, 3402, 4701, 4940, 4942, 4988, 6362,

6652, and 7871 of this title, repealing section 103A of this

title, enacting provisions set out as notes under sections 141

and 148 of this title, and amending provisions set out as a note

under section 103A of this title] shall not apply. In the case of

refunding obligations not exceeding $100,000,000 issued by the

Alabama State Docks Department, the first sentence of this

paragraph shall be applied by substituting 'December 31, 1987'

for 'December 31, 1984' and the Internal Revenue Code of 1986

shall be applied without regard to section 149(d)(2)..[sic]

"(5) Special rule for health club facilities. - In the case of

any health club facility, with respect to the amendment made by

section 627(c) [amending this section] -

"(A) paragraph (1) shall be applied by substituting 'April

12, 1984' for 'December 31, 1983', and

"(B) paragraph (3) shall be applied by substituting 'April

13, 1984' for 'October 19, 1983' each place it appears.

"(d) Provisions of This Subtitle Not To Apply to Certain

Property. - The amendments made by this subtitle [sections 621-632

of Pub. L. 98-369, amending this section and sections 103A and 168

of this title and enacting provisions set out as notes under this

section] shall not apply to any property (and shall not apply to

obligations issued to finance such property) if such property is

described in any of the following paragraphs:

"(1) Any property described in paragraph (5), (6), or (7) of

section 31(g) of this Act [set out as an Effective Date of 1984

Amendment note under section 168 of this title].

"(2) Any property described in paragraph (4), (8), or (17) of

section 31(g) of this Act [set out as an Effective Date of 1984

Amendment note under section 168 of this title] but only if the

obligation is issued before January 1, 1985, and only if before

June 19, 1984, the issuer had evidenced an intent to issue

obligations exempt from taxation under the Internal Revenue Code

of 1986 in connection with such property.

"(3) Any property described in paragraph (3) of section 216(b)

of the Tax Equity and Fiscal Responsibility Act of 1982 [set out

as an Effective Date of 1982 Amendment note under section 168 of

this title].

"(4) Any solid waste disposal facility described in section

103(b)(4)(E) of the Internal Revenue Code of 1986 if -

"(A) a State public authority created pursuant to State

legislation which took effect on June 18, 1973, took formal

action before October 19, 1983, to commit development funds for

such facility.

"(B) such authority issues obligations for any such facility

before January 1, 1987, and

"(C) expenditures have been made for the development of any

such facility before October 19, 1983.

"(5) Any solid waste disposal facility described in section

103(b)(4)(E) of the Internal Revenue Code of 1986 [formerly

I.R.C. 1954] if -

"(A) a city government, by resolutions adopted on April 10,

1980, and December 27, 1982, took formal action to authorize

the submission of a proposal for a feasibility study for such

facility and to authorize the presentation to the Department of

the Army (U.S. Army Missile Command) of a proposed agreement to

jointly pursue construction and operation of such facility,

"(B) such city government (or a public authority on its

behalf) issues obligations for such facility before January 1,

1988, and

"(C) expenditures have been made for the development of such

facility before October 19, 1983. Notwithstanding the foregoing

provisions of this subsection, the amendments made by section

624 [amending sections 103 and 103A of this title and enacting

provisions set out as a note under this section] (relating to

arbitrage) shall apply to obligations issued to finance

property described in paragraph (5).

"(e) Determination of Significant Expenditure. -

"(1) In general. - For purposes of this section, the term

'significant expenditures' means expenditures which equal or

exceed the lesser of -

"(A) $15,000,000, or

"(B) 20 percent of the estimated cost of the facilities.

"(2) Certain grants treated as expenditures. - For purposes of

paragraph (1), the amount of any UDAG grant preliminarily

approved on May 5, 1981, or April 4, 1983, shall be treated as an

expenditure with respect to the facility for which such grant was

so approved.

"(f) Exceptions for Certain Other Amendments. - If -

"(1) there was an inducement resolution (or other comparable

preliminary approval) for an issue before June 19, 1984, by any

issuing authority, and

"(2) such issue is issued before January 1, 1985, the following

amendments shall not apply:

"(A) the amendments made by section 623 [amending this

section],

"(B) the amendments made by subsections (a) and (b) of

section 627 [amending this section] (except to the extent such

amendments relate to farm land),

"(C) in the case of a race track, the amendment made by

section 627(c) [amending this section], and

"(D) the amendments made by section 628(c) [amending this

section]."

[Section 1872(a)(2)(B) of Pub. L. 99-514 provided that the

amendment of section 631(c)(3) of Pub. L. 98-369, set out above,

made by section 1872(a)(2)(B) of Pub. L. 99-514 is effective with

respect to obligations issued after Mar. 28, 1985.]

EFFECTIVE DATE OF 1983 AMENDMENT

For effective date of amendment by Pub. L. 97-473, see section

204(2) of Pub. L. 97-473, set out as an Effective Date note under

section 7871 of this title.

EFFECTIVE DATE OF 1982 AMENDMENT

Section 214(f) of Pub. L. 97-248 provided that:

"(1) Composite issues; small issue exemption. - The amendments

made by subsections (a) and (b) [amending this section] shall apply

to obligations issued after the date of the enactment of this Act

[Sept. 3, 1982].

"(2) Termination. - The amendment made by subsection (c)

[amending this section] shall take effect on the date of the

enactment of this Act [Sept. 3, 1982].

"(3) Research expenditures. - The amendment made by subsection

(d) [amending this section] shall apply with respect to

expenditures made after the date of the enactment of this Act

[Sept. 3, 1982].

"(4) Certain facilities. - The amendment made by subsection (e)

[amending this section] shall apply to obligations issued after

December 31, 1982."

Section 215(c) of Pub. L. 97-248 provided that:

"(1) Public approval. - The amendment made by subsection (a)

[amending this section] shall apply to obligations issued after

December 31, 1982, other than obligations issued solely to refund

any obligation which -

"(A) was issued before July 1, 1982, and

"(B) has a maturity which does not exceed 3 years.

"(2) Information reporting. - The amendments made by subsection

(b) [amending this section] shall apply to obligations issued after

December 31, 1982 (including any obligation issued to refund an

obligation issued before such date)."

Section 217(e) of Pub. L. 97-248, as amended by Pub. L. 98-369,

div. A, title VII, Sec. 712(h), July 18, 1984, 98 Stat. 947; Pub.

L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:

"The amendments made by this section [amending this section] shall

apply to obligations issued after the date of the enactment of this

Act [Sept. 3, 1982]. For purposes of applying section

168(f)(8)(D)(v) of the Internal Revenue Code of 1986 [formerly

I.R.C. 1954], the amendments made by subsection (c) [amending this

section] shall apply to agreements entered into after the date of

the enactment of this Act."

Section 219(b) of Pub. L. 97-248 provided that: "The amendment

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

obligations issued after December 31, 1982."

Section 221(d) of Pub. L. 97-248 provided that:

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

amendments made by this section [amending this section and section

1104 of Pub. L. 96-499, formerly set out as a note under section

103A of this title] shall apply to obligations issued after the

date of the enactment of this Act [Sept. 3, 1982].

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

apply with respect to any obligation to which the amendments made

by section 1103 of the Mortgage Subsidy Bond Tax Act of 1980

[section 1103 of Pub. L. 96-499, amending this section] do not

apply by reason of section 1104 of such Act [section 1104 of Pub.

L. 96-499, formerly set out as a note under section 103A of this

title]."

Section 310(d) of Pub. L. 97-248, as amended by Pub. L. 97-448,

title III, Sec. 306(b)(2), 96 Stat. 2405; Pub. L. 98-216, Sec.

6(b), Feb. 14, 1984, 98 Stat. 8; Pub. L. 99-514, Sec. 2, Oct. 22,

1986, 100 Stat. 2095, provided that:

"(1) In general. - Except as otherwise provided in this

subsection, the amendments made by this section [enacting section

4701 of this title and section 757c-5 of former Title 31, Money and

Finance, and amending this section and sections 103A, 163, 165,

312, and 1232 of this title] shall apply to obligations issued

after December 31, 1982.

"(2) [Repealed. Pub. L. 98-216, Sec. 6(b), Feb. 14, 1984, 98

Stat. 8.]

"(3) Exception for certain warrants, etc. - The amendments made

by subsection (b) [enacting section 4701 of this title and amending

this section and sections 163, 165, 312, and 1232 of this title]

shall not apply to any obligations issued after December 31, 1982,

on the exercise of a warrant or the conversion of a convertible

obligation if such warrant or obligation was offered or sold

outside the United States without registration under the Securities

Act of 1933 [15 U.S.C. 77a et seq.] and was issued before August

10, 1982. A rule similar to the rule of the preceding sentence

shall also apply in the case of any regulations issued under

section 163(f)(2)(C) of the Internal Revenue Code of 1986 [formerly

I.R.C. 1954] (as added by this section) except that the date on

which such regulations take effect shall be substituted for 'August

10, 1982'.

"(4) [Repealed. Pub. L. 98-216, Sec. 6(b), Feb. 14, 1984, 98

Stat. 8.]"

EFFECTIVE DATE OF 1981 AMENDMENT

Section 811(c) of Pub. L. 97-34 provided that: "The amendments

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

obligations issued after the date of the enactment of this Act

[Aug. 13, 1981]."

Section 812(b)(1) of Pub. L. 97-34 provided that: "The amendment

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

obligations issued after December 31, 1980."

EFFECTIVE DATE OF 1980 AMENDMENTS

For effective date of amendment by Pub. L. 96-499, see section

1104 of Pub. L. 96-499, set out as an Effective Date note under

section 103A of this title.

Section 241(d) of Pub. L. 96-223 provided that: "The amendments

made by subsection (a) [amending this section] and the provisions

of subsections (b) and (c) [set out as notes under this section]

shall apply with respect to obligations issued after October 18,

1979."

Section 242(c) of Pub. L. 96-223 provided that: "The amendments

made by subsection (a) [amending this section] and the provisions

of subsection (b) [set out as a note under this section] shall

apply with respect to obligations issued after October 18, 1979."

Section 244(b) of Pub. L. 96-223 provided that: "The amendments

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

obligations issued on or after October 18, 1979."

EFFECTIVE DATE OF 1978 AMENDMENTS

Section 201(c) of Pub. L. 95-339 provided that: "The amendments

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

taxable years ending after the date of the enactment of this Act

[Aug. 8, 1978]."

Section 331(c) of Pub. L. 95-600 provided that:

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

section] shall apply to -

"(A) obligations issued after December 31, 1978, in taxable

years ending after such date, and

"(B) capital expenditures made after December 31, 1978, with

respect to obligations issued before January 1, 1979.

"(2) The amendment made by subsection (b) [amending this section]

shall apply to -

"(A) obligations issued after September 30, 1979, in taxable

years ending after such date, and

"(B) capital expenditures made after September 30, 1979, with

respect to obligations issued after such date."

Section 332(b) of Pub. L. 95-600 provided that: "The amendment

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

taxable years ending after April 30, 1968, but only with respect to

obligations issued after such date."

Section 333(b) of Pub. L. 95-600 provided that: "The amendment

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

obligations issued after the date of the enactment of this Act

[Nov. 6, 1978] in taxable years ending after such date."

Section 334(c) of Pub. L. 95-600 provided that: "The amendments

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

obligations issued after the date of the enactment of this Act

[Nov. 6, 1978]."

Section 703(q)(2) of Pub. L. 95-600 provided that: "The

amendments made by paragraph (1) [amending this section] shall

apply with respect to payments made by the Commissioner of

Education after December 31, 1976."

Amendment by section 703(j)(1) of Pub. L. 95-600 effective on

Oct. 4, 1976, see section 703(r) of Pub. L. 95-600, set out as a

note under section 46 of this title.

EFFECTIVE DATE OF 1976 AMENDMENT

Amendment by section 1901(a)(17), (b)(8)(B) of Pub. L. 94-455

applicable with respect to taxable years ending after Oct. 4, 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)(13)(A) of Pub. L. 94-455 effective

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

a note under section 6013 of this title.

Section 2105(d) of Pub. L. 94-455 provided that: "The amendments

made by this section [amending this section] apply to obligations

issued on or after the date of the enactment of this Act [Oct. 4,

1976]."

Amendment by section 2137(d) of Pub. L. 94-455 applicable to

taxable years beginning after Dec. 31, 1975, see section 2137(e) of

Pub. L. 94-455, set out as a note under section 852 of this title.

EFFECTIVE DATE OF 1975 AMENDMENTS

Section 301(b) of Pub. L. 94-182 provided that: "The amendment

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

obligations issued after the date of the enactment of this Act

[Dec. 31, 1975]."

Section 7(b) of Pub. L. 94-164 provided that: "The amendments

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

obligations issued after the date of enactment of this Act [Dec.

23, 1975]."

EFFECTIVE DATE OF 1971 AMENDMENT

Section 315(c) of Pub. L. 92-178 provided that: "The amendments

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

respect to obligations issued after January 1, 1969. The amendment

made by subsection (b) [amending this section] shall apply with

respect to expenditures incurred after the date of the enactment of

this Act [Dec. 10, 1971]."

EFFECTIVE DATE OF 1969 AMENDMENT

Section 601(b) of Pub. L. 91-172 provided that: "The amendments

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

respect to obligations issued after October 9, 1969."

EFFECTIVE DATE OF 1968 AMENDMENT

Section 401(b) of Pub. L. 90-634 provided that: "The amendment

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

respect to obligations issued after the date of the enactment of

this Act [Oct. 24, 1968]."

Section 107(b)(1) of Pub. L. 90-364 provided that: "Except as

provided by paragraph (2) [set out as a note below], the amendment

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

taxable years ending after April 30, 1968, but only with respect to

obligations issued after such date."

-TRANS-

TRANSFER OF FUNCTIONS

Functions of Commissioner of Education transferred to Secretary

of Education by section 3441(a)(1) of Title 20, Education.

-MISC2-

COORDINATION OF CERTAIN AMENDMENTS MADE BY PUB. L. 97-424 AND PUB.

L. 97-473

Section 722(b) of Pub. L. 98-369 provided that: "For purposes of

applying the amendments made by section 547 of the Highway Revenue

Act of 1982 [Pub. L. 97-424, amending this section] and the

amendment made by section 202(b)(2) of Public Law 97-473 [amending

this section], Public Law 97-473 shall be deemed to have been

enacted immediately before the Highway Revenue Act of 1982."

VALIDATION OF SINKING FUND REGULATIONS

Section 1013(a)(35) of Pub. L. 100-647 provided that:

"(A) Treasury Regulation section 1.103-13(g) (1979) is hereby

enacted into positive law.

"(B)(i) Except as provided in clause (ii), subparagraph (A) shall

apply to obligations sold after May 2, 1978, and to which such

regulation was provided to apply.

"(ii) Treasury Regulation section 1.103-13(g) (1979) as enacted

into positive law by subparagraph (A) shall cease to apply to the

extent hereafter modified by the Secretary of the Treasury or his

delegate by regulations."

BONDS ISSUED TO REFUND SUBSECTION (O)(3) OBLIGATIONS

Section 1013(c)(15) of Pub. L. 100-647 provided that: "A bond

issued to refund an obligation described in section 103(o)(3) of

the Internal Revenue Code of 1954 (as in effect on the day before

the date of the enactment of the Tax Reform Act of 1986 [Oct. 22,

1986]) shall not be treated as described in section 144(b) of the

1986 Code unless it is described in section 144(b)(1)(A) of the

1986 Code."

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.

TREATMENT OF CERTAIN GUARANTEES BY FARMERS HOME ADMINISTRATION

Section 1865(b) of Pub. L. 99-514 provided that: "An obligation

shall not be treated as federally guaranteed for purposes of

section 103(h) of the Internal Revenue Code of 1954 [now 1986] by

reason of a guarantee by the Farmers Home Administration if -

"(1) such guarantee is pursuant to a commitment made by the

Farmers Home Administration before July 1, 1984, and

"(2) such obligation is issued to finance a convention center

project in Carbondale, Illinois."

TREATMENT OF CERTAIN OBLIGATIONS USED TO FINANCE SOLID WASTE

DISPOSAL FACILITY

Section 1865(c) of Pub. L. 99-514 provided that:

"(1) In general. - Any obligation which is part of an issue a

substantial portion of the proceeds of which is to be used to

finance a solid waste disposal facility described in paragraph (2)

shall not, for purposes of section 103(h) of the Internal Revenue

Code of 1954 [now 1986], be treated as an obligation which is

federally guaranteed by reason of the sale of fuel, steam,

electricity, or other forms of usable energy to the Federal

Government or any agency or instrumentality thereof.

"(2) Solid waste disposal facility. - A solid waste disposal

facility is described in this paragraph if such facility is

described in section 103(b)(4)(E) of such Code and -

"(A) if -

"(i) a public State authority created pursuant to State

legislation which took effect on July 1, 1980, took formal

action before October 19, 1983, to commit development funds for

such facility,

"(ii) such authority issues obligations for such facility

before January 1, 1988, and

"(iii) expenditures have been made for the development of

such facility before October 19, 1983,

"(B) if -

"(i) such facility is operated by the South Eastern Public

Service Authority of Virginia, and

"(ii) on December 20, 1984, the Internal Revenue Service

issued a ruling concluding that a portion of the obligations

with respect to such facility would not be treated as federally

guaranteed under section 103(h) of such Code by reason of the

transitional rule contained in section 631(c)(3)(A)(i) of the

Tax Reform Act of 1984 [section 631(c)(3)(A)(i) of Pub. L.

98-369, set out as a note above],

"(C) if -

"(i) a political subdivision of a State took formal action on

April 1, 1980, to commit development funds for such facility,

"(ii) such facility has a contract to sell steam to a naval

base,

"(iii) such political subdivision issues obligations for such

facility before January 1, 1988, and

"(iv) expenditures have been made for the development of such

facility before October 19, 1983, or

"(D) if -

"(i) such facility is a thermal transfer facility,

"(ii) is to be built and operated by the Elk Regional

Resource Authority, and

"(iii) is to be on land leased from the United States Air

Force at Arnold Engineering Development Center near Tullahoma,

Tennessee.

"(3) Limitations. -

"(A) In the case of a solid waste disposal facility described

in paragraph (2)(A), the aggregate face amount of obligations to

which paragraph (1) applies shall not exceed $65,000,000.

"(B) In the case of a solid waste disposal facility described

in paragraph (2)(B), the aggregate face amount of obligations to

which paragraph (1) applies shall not exceed $20,000,000. Such

amount shall be in addition to the amount permitted under the

Internal Revenue Service ruling referred to in paragraph

(2)(B)(ii).

"(C) In the case of a solid waste disposal facility described

in paragraph (2)(C), the aggregate face amount of obligations to

which paragraph (1) applies shall not exceed $75,000,000.

"(D) In the case of a solid waste disposal facility described

in paragraph (2)(D), the aggregate face amount of obligations to

which paragraph (1) applies shall not exceed $25,000,000."

TRANSITIONAL RULE FOR LIMIT ON SMALL ISSUE EXCEPTION

Section 1866 of Pub. L. 99-514, as amended by Pub. L. 100-647,

title I, Sec. 1018(m)(1)-(4), Nov. 10, 1988, 102 Stat. 3584,

provided that: "The amendment made by section 623 of the Tax Reform

Act of 1984 [section 623 of Pub. L. 98-369, amending this section]

shall not apply to any obligation (or series of obligations) issued

to refund another tax-exempt IDB to which the amendment made by

such section 623 did not apply if -

"(1) the average maturity of the issue of which the refunding

obligation is a part does not exceed the average maturity of the

obligations to be refunded by such issue,

"(2) the amount of the refunding obligation does not exceed the

amount of the refunded obligation, and

"(3) the proceeds of the refunding obligation are used to

redeem the refunded obligation not later than 90 days after the

date of the issuance of the refunding obligation.

For purposes of the preceding sentence, the term 'tax-exempt IDB'

means any industrial development bond (as defined in section 103(b)

of the Internal Revenue Code of 1954 [now 1986]) the interest on

which is exempt from tax under section 103(a) of such Code. For

purposes of paragraph (1), average maturity shall be determined in

accordance with subsection (b)(14)(B)(i) of such Code."

[Section 1018(m)(5) of Pub. L. 100-647 provided that: "A

refunding obligation issued before July 1, 1987, shall be treated

as meeting the requirement of paragraph (1) of section 1866 of the

Reform Act [Pub. L. 99-514, set out above] if such obligation met

the requirement of such paragraph as enacted by the Reform Act

[Pub. L. 99-514]."]

EXCEPTION FROM 1984 AMENDMENT FOR DOWNTOWN MUSKOGEE REVITALIZATION

PROJECT

Section 1867(b) of Pub. L. 99-514 provided that: "The amendment

made by section 624 of the Tax Reform Act of 1984 [amending

sections 103 and 103A of this title and enacting provisions set out

as a note under this section] shall not apply to obligations issued

with respect to the Downtown Muskogee Revitalization Project for

which a UDAG grant was preliminarily approved on May 5, 1981, if -

"(1) such obligation is issued before January 1, 1986, or

"(2) such obligation is issued after such date to provide

additional financing for such project except that the aggregate

amount of obligations to which this subsection applies shall not

exceed $10,000,000."

TRANSITIONAL RULES

Section 1869(c)(1)-(4) of Pub. L. 99-514, as amended by Pub. L.

100-647, title I, Sec. 1018(n), Nov. 10, 1988, 102 Stat. 3584,

provided that:

"(1) Treatment of certain obligations issued by the city of

baltimore. - Obligations issued by the city of Baltimore, Maryland,

after June 30, 1985, shall not be treated as private loan bonds for

purposes of section 103(o) of the Internal Revenue Code of 1954

[now 1986] (or as private activity bonds for purposes of section

103 and part IV of subchapter A of chapter 1 of the Internal

Revenue Code of 1986, as amended by title XIII of this Act

[sections 1301 to 1318 of Pub. L. 99-514]) by reason of the use of

a portion of the proceeds of such obligations to finance or

refinance temporary advances made by the city of Baltimore in

connection with loans to persons who are not exempt persons (within

the meaning of section 103(b)(3) of such Code) if -

"(A) such obligations are not industrial development bonds

(within the meaning of section 103(b)(2) of the Internal Revenue

Code of 1954 [now 1986]),

"(B) the portion of the proceeds of such obligations so used is

attributable to debt approved by voter referendum on or before

November 2, 1982,

"(C) the loans to such nonexempt persons were approved by the

Board of Estimates of the city of Baltimore on or before October

19, 1983, and

"(D) the aggregate amount of such temporary advances financed

or refinanced by such obligations does not exceed $27,000,000.

"(2) White pine power project. - The amendment made by section

626(a) of the Tax Reform Act of 1984 [section 626(a) of Pub. L.

98-369, amending this section] shall not apply to any obligation

issued during 1984 to provide financing for the White Pine Power

Project in Nevada.

"(3) Tax increment bonds. - The amendment made by section 626(a)

of the Tax Reform Act of 1984 shall not apply to any tax increment

financing obligation issued before August 16, 1986, if -

"(A) substantially all of the proceeds of the issue are to be

used to finance -

"(i) sewer, street, lighting, or other governmental

improvements to real property,

"(ii) the acquisition of any interest in real property (by a

governmental unit having the power to exercise eminent domain),

the preparation of such property for new use, or the transfer

of such interest to a private developer, or

"(iii) payments of reasonable relocation costs of prior users

of such real property,

"(B) all of the activities described in subparagraph (A) are

pursuant to a redevelopment plan adopted by the issuing authority

before the issuance of such issue,

"(C) repayment of such issue is secured exclusively by pledges

of that portion of any increase in real property tax revenues (or

their equivalent) attributable to the redevelopment resulting

from the issue (or similar issues), and

"(D) none of the property described in subparagraph (A) is

subject to a real property or other tax based on a rate or

valuation method which differs from the rate and valuation method

applicable to any other similar property located within the

jurisdiction of the issuing authority.

"(4) Eastern maine electric cooperative. - The amendment made by

section 626(a) of the Tax Reform Act of 1984 shall not apply to

obligations issued by Massachusetts Municipal Wholesale Electric

Company Project No. 6 if -

"(A) such obligation is issued before January 1, 1986,

"(B) such obligation is issued after such date to refund a

prior obligation for such project, except that the aggregate

amount of obligations to which this subparagraph applies shall

not exceed $100,000,000, or

"(C) such obligation is issued after such date to provide

additional financing for such project except that the aggregate

amount of obligations to which this subparagraph applies shall

not exceed $45,000,000.

Subparagraph (B) shall not apply to any obligation issued for the

advance refunding of any obligation."

TREATMENT OF OBLIGATIONS TO FINANCE ST. JOHNS RIVER POWER PARK

Section 1869(c)(6) of Pub. L. 99-514 provided that:

"(A) In general. - The amendment made by section 626(a) of the

Tax Reform Act of 1984 [section 626(a) of Pub. L. 98-369, amending

this section] shall not apply to any obligation issued to finance

the project described in subparagraph (B) if -

"(i) such obligation is issued before September 27, 1985,

"(ii) such obligation is issued after such date to refund a

prior tax exemption obligation for such project, the amount of

such obligation does not exceed the outstanding amount of the

refunded obligation, and such prior tax exempt obligation is

retired not later than the date 30 days after the issuance of the

refunding obligation, or

"(iii) such obligation is issued after such date to provide

additional financing for such project except that the aggregate

amount of obligations to which this clause applies shall not

exceed $150,000,000.

Clause (ii) shall not apply to any obligation issued for the

advance refunding of any obligation.

"(B) Description of project. - The project described in this

subparagraph in the St. Johns River Power Park system in Florida

which was authorized by legislation enacted by the Florida

Legislature in February of 1982."

CERTAIN PUBLIC UTILITIES TREATED AS EXEMPTED PERSONS UNDER SECTION

103(B); SPECIAL RULES FOR CERTAIN RAILROADS

Section 629 of Pub. L. 98-369, as amended by Pub. L. 99-514, Sec.

2, title XIII, Sec. 1316(g)(8)(B), Oct. 22, 1986, 100 Stat. 2095,

2670, provided that:

"(a) Certain Public Utilities. - For purposes of applying section

103(b)(3) of the Internal Revenue Code [of 1986] with respect to -

"(1) any obligations issued after the date of enactment of this

Act [July 18, 1984], and

"(2) any obligations issued after December 31, 1969, which were

treated as obligations described in section 103(a) of such Code

on the day on which such obligations were issued,

the term 'exempt person' shall include a regulated public utility

having any customer service area within a State served by a public

power authority which was required as a condition of a Federal

Power Commission license specified by an Act of Congress enacted

prior to the enactment of section 107 of the Revenue and

Expenditure Control Act of 1968 (Public Law 90-364) [June 28, 1968]

to contract to sell power to one such utility and which is

authorized by State law to sell power to other such utilities, but

only with respect to the purchase by any such utility and resale to

its customers of any output of any electrical generation facility

or any portion thereof or any use of any electrical transmission

facility or any portion thereof financed by such power authority

and owned by it or by such State, and provided that by agreement

between such power authority and any such utility there shall be no

markup in the resale price charged by such utility of that

component of the resale price which represents the price paid by

such utility for such output or use. The preceding sentence shall

be applied by inserting 'and a rural electric cooperative utility'

after 'regulated public utility' but only if not more than 1

percent of the load of the public power authority is sold to such

rural electric cooperative utility.

"(b) Certain Railroads. - Section 103(b)(1) of the Internal

Revenue Code of 1986 [formerly I.R.C. 1954] shall not apply to any

obligation which is described in section 103(b)(6)(A) of such Code

if -

"(1) substantially all of the proceeds of such obligation are

used to acquire railroad track and right-of-way from a railroad

involved in a title 11 or similar proceeding (within the meaning

of section 368(a)(3)(A) of such Code), and

"(2) the Federal Railroad Administration provides joint

financing for such acquisitions.

"(c) Special Rules for Subsection (a). -

"(1) Obligations subject to cap. - Any obligation described in

subsection (a) shall be treated as a private activity bond for

purposes of section 103(n) of the Internal Revenue Code of 1986.

"(2) Limitation on amount of obligations to which subsection

(a)(1) applies - The aggregate amount of obligations to which

subsection (a)(1) applies shall not exceed $911,000,000.

"(3) Limitation on purposes. - Subsection (a)(1) shall only

apply to obligations issued as part of an issue substantially all

the proceeds of which are used to provide 1 or more of the

following:

"(A) Cable facilities.

"(B) Small hydroelectric facilities.

"(C) The acquisition of an interest in an electrical

generating facility.

"(D) Improvements to existing generating facilities.

"(E) Transmission lines.

"(F) Electric generating facilities."

TREATMENT OF CERTAIN RESIDENTIAL REAL PROPERTY AS RESIDENTIAL

RENTAL PROPERTY

Treatment of Pub. L. 98-369, Sec. 631(d)(3), residential real

property as residential rental property, see section 1809(a)(4)(C)

of Pub. L. 99-514, set out as a note under section 168 of this

title.

PUBLIC APPROVAL REQUIREMENT IN THE CASE OF PUBLIC AIRPORT

Section 628(f) of Pub. L. 98-369, as amended by Pub. L. 99-514,

Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "If -

"(1) the proceeds of any issue are to be used to finance a

facility or facilities located on a public airport, and

"(2) the governmental unit issuing such obligations is the

owner or operator of such airport,

such governmental unit shall be deemed to be the only governmental

unit having jurisdiction over such airport for purposes of

subsection (k) of section 103 of the Internal Revenue Code of 1986

[formerly I.R.C. 1954] (relating to public approval for industrial

development bonds)."

SMALL ISSUE LIMIT IN CASE OF CERTAIN URBAN DEVELOPMENT ACTION

GRANTS

Section 628(h) of Pub. L. 98-369, as amended by Pub. L. 99-514,

Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "In the case

of any obligation issued on December 11, 1981, section 103(b)(6)(I)

of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] shall

be applied by substituting '$15,000,000' for '$10,000,000' if -

"(1) such obligation is part of an issue,

"(2) substantially all of the proceeds of such issue are used

to provide facilities with respect to which an urban development

action grant under section 119 of the Housing and Community

Development Act of 1974 [42 U.S.C. 5318] was preliminarily

approved by the Secretary of Housing and Urban Development on

January 10, 1980, and

"(3) the Secretary of Housing and Urban Development determines,

at the time such grant is approved, that the amount of such grant

will equal or exceed 5 percent of the total capital expenditures

incurred with respect to such facilities."

STUDENT LOAN BONDS

Section 625 of Pub. L. 98-369, as amended by Pub. L. 99-514, Sec.

2, title XVIII, Sec. 1868, Oct. 22, 1986, 100 Stat. 2095, 2888,

provided that:

"(a) Arbitrage Regulations. -

"(1) In general. - The Secretary shall prescribe regulations

which specify the circumstances under which a qualified student

loan bond shall be treated as an arbitrage bond for purposes of

section 103 of the Internal Revenue Code of 1986 [formerly I.R.C.

1954]. Such regulations may provide that -

"(A) paragraphs (4) and (5) of section 103(c) of such Code

shall not apply, and

"(B) rules similar to section 103(c)(6) shall apply,

to qualified student loan bonds.

"(2) Definitions. - For purposes of this subsection -

"(A) Qualified student loan bond. - The term 'qualified

student loan bond' has the meaning given to such term by

section 103(o)(3) of the Internal Revenue Code of 1986 (as

amended by this Act).

"(B) Arbitrage bond. - The term 'arbitrage bond' has the

meaning given to such term by section 103(c)(2).

"(3) Effective date. -

"(A) In general. - Except as otherwise provided in this

paragraph, any regulations prescribed by the Secretary under

paragraph (1) shall apply to obligations issued after the

qualified date.

"(B) Qualified date. -

"(i) In general. - For purposes of this paragraph, the term

'qualified date' means the earlier of -

"(I) the date on which the Higher Education Act of 1965 [20

U.S.C. 1001 et seq.] expires, or

"(II) the date, after the date of enactment of this Act [July

18, 1984], on which the Higher Education Act of 1965 is

reauthorized.

"(ii) Publication of regulations. - Notwithstanding clause

(i), the qualified date shall not be a date which is prior to

the date that is 6 months after the date on which the

regulations prescribed under paragraph (1) are published in

the Federal Register.

"(C) Refunding obligations. - Regulations prescribed by the

Secretary under paragraph (1) shall not apply to any obligation

(or series of refunding obligations) issued exclusively to

refund any qualified student loan bond which was issued before

the qualified date, except that the requirements of

subparagraphs (A) and (B) of section 626(b)(4) of this Act [set

out in Effective Date of 1984 Amendment note above] must be met

with respect to such refunding.

"(D) Fulfillment of commitments. - Regulations prescribed by

the Secretary under paragraph (1) shall not apply to any

obligations which are needed to fulfill written commitments to

acquire or finance student loans which are originated after

June 30, 1984, and before the qualified date, but only if -

"(i) such commitments are binding on the qualified date,

and

"(ii) the amount of such commitments is consistent with

practices of the issuer which were in effect on March 15,

1984, with respect to establishing secondary markets for

student loans.

"(b) Arbitrage Limitation on Student Loan Bonds Which Are Not

Qualified Student Loan Bonds. - Under regulations prescribed by the

Secretary of the Treasury or his delegate, any student loan bond

(other than a qualified student loan bond) issued after December

31, 1985, shall be treated as an obligation not described in

subsection (a)(1) or (2) of section 103 of the Internal Revenue

Code of 1986 unless the issue of which such obligation is a part

meets requirements similar to those of sections 103(c)(6) and

103A(i) of such Code.

"(c) Issuance of Student Loan Bonds Which Are Not Tax-Exempt. -

Any issuer who may issue obligations described in section 103(a) of

the Internal Revenue Code of 1986 may elect to issue student loan

bonds which are not described in such section 103(a) of such Code

without prejudice to -

"(1) the status of any other obligations issued, or to be

issued, by such issuer as obligations described in section 103(a)

of such Code, or

"(2) the status of the issuer as an organization exempt from

taxation under such Code.

"(d) Federal Executive Branch Jurisdiction Over Tax-Exempt

Status. - For purposes of Federal law, any determination by the

executive branch of the Federal Government of whether interest on

any obligation is exempt from taxation under the Internal Revenue

Code of 1986 shall be exclusively within the jurisdiction of the

Department of the Treasury.

"(e) Study on Tax-Exempt Student Loan Bonds. -

"(1) In general. - The Comptroller General of the United States

and the Director of the Congressional Budget Office, shall

conduct studies of -

"(A) the appropriate role of tax-exempt bonds which are

issued in connection with the guaranteed student loan program

and the PLUS program established under the Higher Education Act

of 1965 [20 U.S.C. 1001 et seq.], and

"(B) the appropriate arbitrage rules for such bonds.

"(2) Report. - The Comptroller General of the United States and

the Director of the Congressional Budget Office, shall submit to

the Committee on Finance and the Committee on Labor and Human

Resources of the Senate and the Committee on Ways and Means and

the Committee on Education and Labor of the House of

Representatives reports on the studies conducted under paragraph

(1) by no later than 9 months after the date of enactment of this

Act [July 18, 1984]."

OBLIGATIONS ISSUED TO PROVIDE SOLID WASTE-ENERGY PRODUCING

FACILITIES

Section 241(b) of Pub. L. 96-223, as amended by Pub. L. 99-514,

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

"(1) General rule. - For purposes of section 103 of the Internal

Revenue Code of 1986 [formerly I.R.C. 1954], any obligation issued

by an authority for 2 or more political subdivisions of a State

which is part of an issue substantially all of the proceeds of

which are to be used to provide solid waste-energy producing

facilities shall be treated as an obligation of a political

subdivision of a State which meets the requirements of section

103(b)(4)(E) of such Code (relating to solid waste disposal, etc.,

facilities). Nothing in the preceding sentence shall be construed

to override the limitations of section 103(c) of such Code

(relating to arbitrage bonds).

"(2) Solid waste-energy producing facilities. - For purposes of

paragraph (1), the term 'solid waste-energy producing facilities'

means any solid waste disposal facility and any facility for the

production of steam and electrical energy if -

"(A) substantially all of the fuel for the facility producing

steam and electrical energy is derived from solid waste from such

solid waste disposal facility,

"(B) both such solid waste disposal facility and the facility

producing steam and electrical energy are owned and operated by

the authority referred to in paragraph (1), and

"(C) all of the electrical energy and steam produced by the

facility for producing steam and electricity which is not used by

such facility is sold, for purposes other than resale, to an

agency or instrumentality of the United States.

"(3) Solid waste disposal facility. - For purposes of paragraph

(2), the term 'solid waste disposal facility' means any solid waste

disposal facility within the meaning of section 103(b)(4)(E) of the

Internal Revenue Code of 1986 (determined without regard to section

103(g) of such Code).

"(4) Obligations must be in registered form. - This subsection

shall not apply to any obligation which is not issued in registered

form."

ALCOHOL-PRODUCING FACILITIES

Section 241(c) of Pub. L. 96-223, as amended by Pub. L. 99-514,

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

"(1) In general. - Subparagraph (C) of section 103(g)(3) of the

Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as added by

subsection (a)) shall not apply to any facility for the production

of alcohol from solid waste if -

"(A) substantially all of the solid waste derived feedstock for

such facility is produced at a facility which -

"(i) went into full production in 1977,

"(ii) is located within the limits of a city, and

"(iii) is located in the same metropolitan area as the

alcohol-producing facility, and

"(B) before March 1, 1980, there were negotiations between a

governmental body and an organization described in section

501(c)(3) of the Internal Revenue Code of 1986 with respect to

the utilization of a special process for the production of

alcohol at such alcohol-producing facility.

"(2) Limitation. - The aggregate amount of obligations which may

be issued by reason of paragraph (1) with respect to any project

shall not exceed $30,000,000.

"(3) Termination. - This subsection shall not apply to

obligations issued after December 31, 1985."

HYDROELECTRIC GENERATING FACILITIES

Section 242(b) of Pub. L. 96-223, as amended by Pub. L. 99-514,

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

"(1) In general. - For purposes of section 103(b)(4)(H) of the

Internal Revenue Code of 1986 [formerly I.R.C. 1954] (relating to

qualified hydroelectric generating facilities), in the case of a

hydroelectric generating facility described in paragraph (2) -

"(A) the facility shall be treated as a qualified hydroelectric

generating facility (as defined in section 103(b)(8)(A) of such

Code) without regard to clause (ii) of section 48(l)(13)(B) of

such Code (relating to maximum generating capacity), and

"(B) the fraction referred to in subparagraph (C) of section

103(b)(8) of such Code shall be deemed to be 1.

"(2) Facilities to which paragraph (1) applies. - A facility is

described in this paragraph if -

"(A) it would be a qualified hydroelectric generating facility

(as defined in section 103(b)(8)(A) of such Code) if clause (ii)

of section 48(l)(13)(B) did not apply,

"(B) it constitutes an expansion of generating capacity at an

existing hydroelectric generating facility,

"(C) such facility is located at 1 of 2 dams located in the

same county where -

"(i) the rated capacity of the hydroelectric generating

facilities at each such dam on October 18, 1979, was more than

750 megawatts,

"(ii) the construction of the first such dam began in 1956,

power at such first dam was first generated in 1959, and full

power production at such first dam began in 1961, and

"(iii) the construction of the second such dam began in 1959,

power at such second dam was first generated in 1963, and full

power production at such second dam began in 1964,

"(D) acquisition or construction of the existing facility

referred to in subparagraph (B) was financed with the proceeds of

an obligation described in section 103(a)(1) of such Code,

"(E) the existing facility is owned and operated by a State,

political subdivision of a State, or agency or instrumentality of

any of the foregoing,

"(F) no more than 60 percent of the electric power and energy

produced by such existing facility and of the qualified

hydroelectric generating facility is to be sold to anyone other

than an exempt person (within the meaning of section 103(b)(3) of

such Code), and

"(G) the agency of the State in which the facility is located

which has jurisdiction over water rights had granted, before

October 18, 1979, a water right under which expanded power and

energy generating capacity for the facility was contemplated."

STATE OBLIGATIONS FOR RENEWABLE ENERGY PROPERTY

Section 243 of Pub. L. 96-223, as amended by Pub. L. 99-514, Sec.

2, Oct. 22, 1986, 100 Stat. 2095, provided that:

"(a) Certain State Obligations for Renewable Energy Property. -

"(1) In general. - Paragraph (1) of subsection (b) of section

103 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]

shall not apply to any obligation issued as part of an issue

substantially all of the proceeds of which are to be used to

provide renewable energy property, if -

"(A) the obligations are general obligations of a State,

"(B) the authority for the issuance of the obligations

requires that taxes be levied in sufficient amount to provide

for the payment of principal and interest on such obligations,

"(C) the amount of such obligations, when added to the sum of

the amounts of all such obligations previously issued by the

State which are outstanding, does not exceed the smaller of -

"(i) $500,000,000 or

"(ii) one-half of 1 percent of the value of all property in

the State,

"(D) such obligations are issued pursuant to a program to

provide financing for small scale energy projects which was

established by a State the legislature of which, before October

18, 1979, approved a constitutional amendment to provide for

such a program, and

"(E) such obligations meet the requirements of paragraph (1)

of section 103(h) of the Internal Revenue Code of 1986.

"(2) Renewable energy property. - For purposes of this

subsection, the term 'renewable energy property' means property

used to produce energy (including heat, electricity, and

substitute fuels) from renewable energy sources (including wind,

solar, and geothermal energy, waste heat, biomass, and water).

"(b) Effective Date. - Subsection (a) shall apply with respect to

obligations issued after the date of enactment of this Act [Apr. 2,

1980]."

DISPOSITION OF AMOUNTS GENERATED BY ADVANCE REFUNDING OF CERTAIN

GOVERNMENTAL OBLIGATIONS

Section 337 of Pub. L. 95-600, as amended by Pub. L. 96-222,

title I, Sec. 103(a)(8), Apr. 1, 1980, 94 Stat. 212; Pub. L.

99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:

"(a) General Rule. - The payment to a charitable organization of

a refund profit held in a trust fund or escrow arrangement, or held

by an underwriter or other person under a qualified agreement in

accordance with that agreement -

"(1) shall not cause the refunding obligations out of which the

refund profit arose to be treated as arbitrage bonds (within the

meaning of section 103(c) of the Internal Revenue Code of 1986

[formerly I.R.C. 1954]) and

"(2) may be paid without penalty imposed on the issuer of such

obligations.

"(b) Rule for Governments Which Have Already Paid Arbitrage

Profits to the United States. - In the case of a State or local

government which, before January 1, 1977 -

"(1) requested in writing a rule by the Internal Revenue

Service with respect to the tax consequences of paying refund

profit to charitable organizations,

"(2) failed to receive a favorable ruling and did not pay the

refund profit to a charitable organization, and

which accounted to the United States for refund profit by direct

payment to the United States, or by the purchase of low-interest

United States obligations, the Secretary of the Treasury shall pay,

out of any amounts in the Treasury not otherwise appropriated, an

amount equal to the refund profit for which the State or local

government has accounted to the United States. Amounts paid to a

State or local government under this subsection shall be

distributed to such charitable organizations within 90 days after

the date on which the payment is received by the State or local

government in the same manner as if the refund profit had not been

paid to the United States and met the requirements of subsection

(a).

"(c) Definitions. - For purposes of this section -

"(1) Refund profit. - The term 'Refund profit' means interest,

profit, or other amounts generated by, or arising out of, the

advance refunding, before September 24, 1976, of an obligation of

a State or local government described in section 103 of such

Code.

"(2) Charitable organization. - The term 'charitable

organization' means an organization described in section

501(c)(3) of such Code and exempt from taxation under section

501(a) of such Code other than an organization described in

section 509(a) of such Code.

"(3) Qualified agreement. - The term 'qualified agreement'

means an agreement (whether or not enforceable) which provides

for, or contemplates, the payment of refund profit to one or more

charitable organizations.

"(4) Low-interest united states obligations. - The term

'low-interest United States obligations' means United States

obligations which bear an interest rate lower than the highest

rate of interest borne by public debt securities generally

available for purchase at the time such obligations were

purchased."

TRANSITIONAL PROVISIONS FOR INDUSTRIAL DEVELOPMENT BONDS ISSUED

BEFORE JANUARY 1, 1969

Section 107(b)(2) of Pub. L. 90-364, as amended by Pub. L.

99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:

"Section 103(c)(1) of the Internal Revenue Code of 1986 [formerly

I.R.C. 1954], as amended by subsection (a) [subsec. (b)(1),

formerly subsec. (c)(1) of this section], shall not apply with

respect to any obligation issued before January 1, 1969, if before

May 1, 1968 -

"(A) the issuance of the obligation (or the project in

connection with which the proceeds of the obligations are to be

used) was authorized or approved by the governing body of the

governmental unit issuing the obligation or by the voters of such

governmental unit;

"(B) in connection with the issuance of such obligation or with

the use of the proceeds to be derived from the sale of such

obligation or the property to be acquired or improved with such

proceeds, a governmental unit has made a significant financial

commitment;

"(C) any person (other than a governmental unit) who will use

the proceeds to be derived from the sale of such obligation or

the property to be acquired or improved with such proceeds has

expended (or has entered into a binding contract to expend) for

purposes which are related to the use of such proceeds or

property, an amount equal to or in excess of 20 percent of such

proceeds; or

"(D) in the case of an obligation issued in conjunction with a

project where financial assistance will be provided by a

governmental agency concerned with economic development, such

agency has approved the project or an application for financial

assistance is pending."

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 29, 42, 45, 45D, 48, 57,

142, 143, 144, 145, 148, 149, 150, 168, 265, 465, 593, 643, 646,

667, 772, 811, 832, 834, 842, 851, 871, 1275, 1276, 1278, 1400L,

4940, 4942, 6049, 7478, 7518, 7701, 7871 of this title; title 7

section 608c; title 12 sections 1441a, 1831q; title 15 sections

77c, 78c; title 16 sections 839f, 2708; title 19 section 2345;

title 45 section 1207; title 46 App. section 1177; title 48

sections 1574, 1670.

-End-

-CITE-

26 USC [Sec. 103A 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter B - Computation of Taxable Income

PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

-HEAD-

[Sec. 103A. Repealed. Pub. L. 99-514, title XIII, Sec. 1301(j)(1),

Oct. 22, 1986, 100 Stat. 2657]

-MISC1-

Section, added Pub. L. 96-499, title XI, Sec. 1102(a), Dec. 5,

1980, 94 Stat. 2660; amended Pub. L. 96-595, Sec. 5(a), (b), Dec.

24, 1980, 94 Stat. 3467; Pub. L. 97-248, title II, Sec. 220(a)-(e),

title III, Sec. 310(c)(3), (4), Sept. 3, 1982, 96 Stat. 475, 476,

599; Pub. L. 98-369, div. A, title I, Sec. 42(a)(2), title VI,

Secs. 611(a)-(c), 612(b), 624(b)(1), July 18, 1984, 98 Stat. 556,

901-903, 911, 924; Pub. L. 99-514, title XVIII, Sec. 1861, Oct. 22,

1986, 100 Stat. 2883, related to mortgage subsidy bonds. See

section 143 of this title.

EFFECTIVE DATE OF REPEAL

Repeal 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.

-End-

-CITE-

26 USC Sec. 104 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter B - Computation of Taxable Income

PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

-HEAD-

Sec. 104. Compensation for injuries or sickness

-STATUTE-

(a) In general

Except in the case of amounts attributable to (and not in excess

of) deductions allowed under section 213 (relating to medical,

etc., expenses) for any prior taxable year, gross income does not

include -

(1) amounts received under workmen's compensation acts as

compensation for personal injuries or sickness;

(2) the amount of any damages (other than punitive damages)

received (whether by suit or agreement and whether as lump sums

or as periodic payments) on account of personal physical injuries

or physical sickness;

(3) amounts received through accident or health insurance (or

through an arrangement having the effect of accident or health

insurance) for personal injuries or sickness (other than amounts

received by an employee, to the extent such amounts (A) are

attributable to contributions by the employer which were not

includible in the gross income of the employee, or (B) are paid

by the employer);

(4) amounts received as a pension, annuity, or similar

allowance for personal injuries or sickness resulting from active

service in the armed forces of any country or in the Coast and

Geodetic Survey or the Public Health Service, or as a disability

annuity payable under the provisions of section 808 of the

Foreign Service Act of 1980; and

(5) amounts received by an individual as disability income

attributable to injuries incurred as a direct result of a

terroristic or military action (as defined in section 692(c)(2)).

For purposes of paragraph (3), in the case of an individual who is,

or has been, an employee within the meaning of section 401(c)(1)

(relating to self-employed individuals), contributions made on

behalf of such individual while he was such an employee to a trust

described in section 401(a) which is exempt from tax under section

501(a), or under a plan described in section 403(a), shall, to the

extent allowed as deductions under section 404, be treated as

contributions by the employer which were not includible in the

gross income of the employee. For purposes of paragraph (2),

emotional distress shall not be treated as a physical injury or

physical sickness. The preceding sentence shall not apply to an

amount of damages not in excess of the amount paid for medical care

(described in subparagraph (A) or (B) of section 213(d)(1))

attributable to emotional distress.

(b) Termination of application of subsection (a)(4) in certain

cases

(1) In general

Subsection (a)(4) shall not apply in the case of any individual

who is not described in paragraph (2).

(2) Individuals to whom subsection (a)(4) continues to apply

An individual is described in this paragraph if -

(A) on or before September 24, 1975, he was entitled to

receive any amount described in subsection (a)(4),

(B) on September 24, 1975, he was a member of any

organization (or reserve component thereof) referred to in

subsection (a)(4) or under a binding written commitment to

become such a member,

(C) he receives an amount described in subsection (a)(4) by

reason of a combat-related injury, or

(D) on application therefor, he would be entitled to receive

disability compensation from the Veterans' Administration.

(3) Special rules for combat-related injuries

For purposes of this subsection, the term "combat-related

injury" means personal injury or sickness -

(A) which is incurred -

(i) as a direct result of armed conflict,

(ii) while engaged in extrahazardous service, or

(iii) under conditions simulating war; or

(B) which is caused by an instrumentality of war.

In the case of an individual who is not described in subparagraph

(A) or (B) of paragraph (2), except as provided in paragraph (4),

the only amounts taken into account under subsection (a)(4) shall

be the amounts which he receives by reason of a combat-related

injury.

(4) Amount excluded to be not less than veterans' disability

compensation

In the case of any individual described in paragraph (2), the

amounts excludable under subsection (a)(4) for any period with

respect to any individual shall not be less than the maximum

amount which such individual, on application therefor, would be

entitled to receive as disability compensation from the Veterans'

Administration.

(c) Application of prior law in certain cases

The phrase "(other than punitive damages)" shall not apply to

punitive damages awarded in a civil action -

(1) which is a wrongful death action, and

(2) with respect to which applicable State law (as in effect on

September 13, 1995 and without regard to any modification after

such date) provides, or has been construed to provide by a court

of competent jurisdiction pursuant to a decision issued on or

before September 13, 1995, that only punitive damages may be

awarded in such an action.

This subsection shall cease to apply to any civil action filed on

or after the first date on which the applicable State law ceases to

provide (or is no longer construed to provide) the treatment

described in paragraph (2).

(d) Cross references

(1) For exclusion from employee's gross income of employer

contributions to accident and health plans, see section 106.

(2) For exclusion of part of disability retirement pay from

the application of subsection (a)(4) of this section, see

section 1403 of title 10, United States Code (relating to

career compensation laws).

-SOURCE-

(Aug. 16, 1954, ch. 736, 68A Stat. 30; Pub. L. 86-723, Sec. 51,

Sept. 8, 1960, 74 Stat. 847; Pub. L. 87-792, Sec. 7(d), Oct. 10,

1962, 76 Stat. 829; Pub. L. 94-455, title V, Sec. 505(b), (e)(1),

title XIX, Sec. 1901(a)(18), Oct. 4, 1976, 90 Stat. 1567, 1568,

1766; Pub. L. 96-465, title II, Sec. 2206(e)(1), Oct. 17, 1980, 94

Stat. 2162; Pub. L. 97-473, title I, Sec. 101(a), Jan. 14, 1983, 96

Stat. 2605; Pub. L. 101-239, title VII, Sec. 7641(a), Dec. 19,

1989, 103 Stat. 2379; Pub. L. 104-188, title I, Sec. 1605(a)-(c),

Aug. 20, 1996, 110 Stat. 1838; Pub. L. 104-191, title III, Sec.

311(b), Aug. 21, 1996, 110 Stat. 2053; Pub. L. 107-134, title I,

Sec. 113(a), Jan. 23, 2002, 115 Stat. 2435.)

-REFTEXT-

REFERENCES IN TEXT

Section 808 of the Foreign Service Act of 1980, referred to in

subsec. (a)(4), is Pub. L. 96-465, title I, Sec. 808, Oct. 17,

1980, 94 Stat. 2110, which is classified to section 4048 of Title

22, Foreign Relations and Intercourse.

-MISC1-

AMENDMENTS

2002 - Subsec. (a)(5). Pub. L. 107-134 substituted "a terroristic

or military action (as defined in section 692(c)(2))." for "a

violent attack which the Secretary of State determines to be a

terrorist attack and which occurred while such individual was an

employee of the United States engaged in the performance of his

official duties outside the United States."

1996 - Subsec. (a). Pub. L. 104-188, Sec. 1605(b), in closing

provisions, substituted "For purposes of paragraph (2), emotional

distress shall not be treated as a physical injury or physical

sickness. The preceding sentence shall not apply to an amount of

damages not in excess of the amount paid for medical care

(described in subparagraph (A) or (B) of section 213(d)(1))

attributable to emotional distress." for "Paragraph (2) shall not

apply to any punitive damages in connection with a case not

involving physical injury or physical sickness."

Subsec. (a)(2). Pub. L. 104-188, Sec. 1605(a), amended par. (2)

generally. Prior to amendment, par. (2) read as follows: "the

amount of any damages received (whether by suit or agreement and

whether as lump sums or as periodic payments) on account of

personal injuries or sickness;".

Subsec. (a)(3). Pub. L. 104-191 inserted "(or through an

arrangement having the effect of accident or health insurance)"

after "accident or health insurance".

Subsecs. (c), (d). Pub. L. 104-188, Sec. 1605(c), added subsec.

(c) and redesignated former subsec. (c) as (d).

1989 - Subsec. (a). Pub. L. 101-239 inserted at end "Paragraph

(2) shall not apply to any punitive damages in connection with a

case not involving physical injury or physical sickness."

1983 - Subsec. (a)(2). Pub. L. 97-473 substituted "whether by

suit or agreement and whether as lump sums or as periodic payments"

for "whether by suit or agreement".

1980 - Subsec. (a)(4). Pub. L. 96-465 substituted reference to

section 808 of the Foreign Service Act of 1980 for reference to

section 831 of the Foreign Service Act of 1946.

1976 - Subsec. (a)(4). Pub. L. 94-455, Sec. 1901(a)(18)(A),

struck out "; 60 Stat. 1021" after "(22 U.S.C. 1081".

Subsec. (a)(5). Pub. L. 94-455, Sec. 505(e)(1), added par. (5).

Subsecs. (b), (c). Pub. L. 94-455, Sec. 505(b), added subsec.

(b), redesignated former subsec. (b) as (c) and, as so

redesignated, Sec. 1901(a)(18)(B), substituted "1403 of title 10,

United States Code (relating to career compensation laws)" for

"402(h) of the Career Compensation Act of 1949 (37 U.S.C. 272(h))".

1962 - Subsec. (a). Pub. L. 87-792 inserted sentence requiring

contributions made on behalf of an individual who is, or has been,

an employee within the meaning of section 401(c)(1), while he was

such an employee to a trust which is exempt from tax, or under a

plan described in section 403(a), to be treated as contributions by

the employer which were not includible in the gross income of the

employee.

1960 - Subsec. (a)(4). Pub. L. 86-723 provided for exclusion from

gross income of amounts received as a disability annuity payable

under the provisions of section 831 of the Foreign Service Act of

1946, as amended.

-CHANGE-

CHANGE OF NAME

Reference to Veterans' Administration deemed to refer to

Department of Veterans Affairs pursuant to section 10 of Pub. L.

100-527, set out as a Department of Veterans Affairs Act note under

section 301 of Title 38, Veterans' Benefits.

Coast and Geodetic Survey consolidated with National Weather

Bureau in 1965 to form Environmental Science Services

Administration by Reorg. Plan No. 2 of 1965, eff. July 13, 1965, 30

FR 8819, 79 Stat. 1318. Environmental Science Services

Administration abolished in 1970 and its personnel, property,

records, etc., transferred to National Oceanic and Atmospheric

Administration by Reorg. Plan No. 4 of 1970, eff. Oct. 3, 1970, 35

FR 15627, 84 Stat. 2090. By order of Acting Associate Administrator

of National Oceanic and Atmospheric Administration, 35 FR 19249,

Dec. 19, 1970, Coast and Geodetic Survey redesignated National

Ocean Survey. See notes under section 311 of Title 15, Commerce and

Trade.

-MISC2-

EFFECTIVE DATE OF 2002 AMENDMENT

Pub. L. 107-134, title I, Sec. 113(c), Jan. 23, 2002, 115 Stat.

2435, provided that: "The amendments made by this section [amending

this section and section 692 of this title] shall apply to taxable

years ending on or after September 11, 2001."

EFFECTIVE DATE OF 1996 AMENDMENTS

Section 311(c) of Pub. L. 104-191 provided that: "The amendments

made by this section [amending this section and section 162 of this

title] shall apply to taxable years beginning after December 31,

1996."

Section 1605(d) 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] shall apply

to amounts received after the date of the enactment of this Act

[Aug. 20, 1996], in taxable years ending after such date.

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

apply to any amount received under a written binding agreement,

court decree, or mediation award in effect on (or issued on or

before) September 13, 1995."

EFFECTIVE DATE OF 1989 AMENDMENT

Section 7641(b) of Pub. L. 101-239 provided that:

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

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

apply to amounts received after July 10, 1989, in taxable years

ending after such date.

"(2) Exception. - The amendment made by subsection (a) shall not

apply to any amount received -

"(A) under any written binding agreement, court decree, or

mediation award in effect on (or issued on or before) July 10,

1989, or

"(B) pursuant to any suit filed on or before July 10, 1989."

EFFECTIVE DATE OF 1980 AMENDMENT

Amendment by Pub. L. 96-465 effective Feb. 15, 1981, except as

otherwise provided, see section 2403 of Pub. L. 96-465, set out as

an Effective Date note under section 3901 of Title 22, Foreign

Relations and Intercourse.

EFFECTIVE DATE OF 1976 AMENDMENT

Amendment by section 505(b) of Pub. L. 94-455 applicable to

taxable years beginning after Dec. 31, 1975, see section 508 of

Pub. L. 94-455, set out as a note under section 3 of this title.

Section 505(e)(2) of Pub. L. 94-455 provided that: "The

amendments made by this subsection [amending this section] shall

apply to taxable years beginning after December 31, 1976."

Amendment by section 1901(a)(18)(A) 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.

EFFECTIVE DATE OF 1962 AMENDMENT

Amendment by Pub. L. 87-792 applicable to taxable years beginning

after Dec. 31, 1962, see section 8 of Pub. L. 87-792, set out as a

note under section 22 of this title.

EFFECTIVE DATE OF 1960 AMENDMENT

Section 56(e) of Pub. L. 86-723 provided that: "The amendment

made by section 51 of this Act [amending this section] shall be

effective with respect to taxable years ending after the date of

enactment of this Act [Sept. 8, 1960]."

-TRANS-

TRANSFER OF FUNCTIONS

Secretary of Health, Education, and Welfare redesignated

Secretary of Health and Human Services by section 3508 of Title 20,

Education.

Functions of Public Health Service, Surgeon General of Public

Health Service, and all other officers and employees of Public

Health Service, and functions of all agencies of or in Public

Health Service transferred to Secretary of Health, Education, and

Welfare by 1966 Reorg. Plan No. 3, 31 F.R. 8855, 80 Stat. 1610,

effective June 25, 1966, set out in the Appendix to Title 5,

Government Organization and Employees.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 22, 105, 130, 5891, 6051,

7701 of this title; title 10 section 1403.

-End-

-CITE-

26 USC Sec. 105 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter B - Computation of Taxable Income

PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

-HEAD-

Sec. 105. Amounts received under accident and health plans

-STATUTE-

(a) Amounts attributable to employer contributions

Except as otherwise provided in this section, amounts received by

an employee through accident or health insurance for personal

injuries or sickness shall be included in gross income to the

extent such amounts (1) are attributable to contributions by the

employer which were not includible in the gross income of the

employee, or (2) are paid by the employer.

(b) Amounts expended for medical care

Except in the case of amounts attributable to (and not in excess

of) deductions allowed under section 213 (relating to medical,

etc., expenses) for any prior taxable year, gross income does not

include amounts referred to in subsection (a) if such amounts are

paid, directly or indirectly, to the taxpayer to reimburse the

taxpayer for expenses incurred by him for the medical care (as

defined in section 213(d)) of the taxpayer, his spouse, and his

dependents (as defined in section 152). Any child to whom section

152(e) applies shall be treated as a dependent of both parents for

purposes of this subsection.

(c) Payments unrelated to absence from work

Gross income does not include amounts referred to in subsection

(a) to the extent such amounts -

(1) constitute payment for the permanent loss or loss of use of

a member or function of the body, or the permanent disfigurement,

of the taxpayer, his spouse, or a dependent (as defined in

section 152), and

(2) are computed with reference to the nature of the injury

without regard to the period the employee is absent from work.

[(d) Repealed. Pub. L. 98-21, title I, Sec. 122(b), Apr. 20, 1983,

97 Stat. 87]

(e) Accident and health plans

For purposes of this section and section 104 -

(1) amounts received under an accident or health plan for

employees, and

(2) amounts received from a sickness and disability fund for

employees maintained under the law of a State or the District of

Columbia,

shall be treated as amounts received through accident or health

insurance.

(f) Rules for application of section 213

For purposes of section 213(a) (relating to medical, dental,

etc., expenses) amounts excluded from gross income under subsection

(c) or (d) shall not be considered as compensation (by insurance or

otherwise) for expenses paid for medical care.

(g) Self-employed individual not considered an employee

For purposes of this section, the term "employee" does not

include an individual who is an employee within the meaning of

section 401(c)(1) (relating to self-employed individuals).

(h) Amount paid to highly compensated individuals under a

discriminatory self-insured medical expense reimbursement plan

(1) In general

In the case of amounts paid to a highly compensated individual

under a self-insured medical reimbursement plan which does not

satisfy the requirements of paragraph (2) for a plan year,

subsection (b) shall not apply to such amounts to the extent they

constitute an excess reimbursement of such highly compensated

individual.

(2) Prohibition of discrimination

A self-insured medical reimbursement plan satisfies the

requirements of this paragraph only if -

(A) the plan does not discriminate in favor of highly

compensated individuals as to eligibility to participate; and

(B) the benefits provided under the plan do not discriminate

in favor of participants who are highly compensated

individuals.

(3) Nondiscriminatory eligibility classifications

(A) In general

A self-insured medical reimbursement plan does not satisfy

the requirements of subparagraph (A) of paragraph (2) unless

such plan benefits -

(i) 70 percent or more of all employees, or 80 percent or

more of all the employees who are eligible to benefit under

the plan if 70 percent or more of all employees are eligible

to benefit under the plan; or

(ii) such employees as qualify under a classification set

up by the employer and found by the Secretary not to be

discriminatory in favor of highly compensated individuals.

(B) Exclusion of certain employees

For purposes of subparagraph (A), there may be excluded from

consideration -

(i) employees who have not completed 3 years of service;

(ii) employees who have not attained age 25;

(iii) part-time or seasonal employees;

(iv) employees not included in the plan who are included in

a unit of employees covered by an agreement between employee

representatives and one or more employers which the Secretary

finds to be a collective bargaining agreement, if accident

and health benefits were the subject of good faith bargaining

between such employee representatives and such employer or

employers; and

(v) employees who are nonresident aliens and who receive no

earned income (within the meaning of section 911(d)(2)) from

the employer which constitutes income from sources within the

United States (within the meaning of section 861(a)(3)).

(4) Nondiscriminatory benefits

A self-insured medical reimbursement plan does not meet the

requirements of subparagraph (B) of paragraph (2) unless all

benefits provided for participants who are highly compensated

individuals are provided for all other participants.

(5) Highly compensated individual defined

For purposes of this subsection, the term "highly compensated

individual" means an individual who is -

(A) one of the 5 highest paid officers,

(B) a shareholder who owns (with the application of section

318) more than 10 percent in value of the stock of the

employer, or

(C) among the highest paid 25 percent of all employees (other

than employees described in paragraph (3)(B) who are not

participants).

(6) Self-insured medical reimbursement plan

The term "self-insured medical reimbursement plan" means a plan

of an employer to reimburse employees for expenses referred to in

subsection (b) for which reimbursement is not provided under a

policy of accident and health insurance.

(7) Excess reimbursement of highly compensated individual

For purposes of this section, the excess reimbursement of a

highly compensated individual which is attributable to a

self-insured medical reimbursement plan is -

(A) in the case of a benefit available to highly compensated

individuals but not to all other participants (or which

otherwise fails to satisfy the requirements of paragraph

(2)(B)), the amount reimbursed under the plan to the employee

with respect to such benefit, and

(B) in the case of benefits (other than benefits described in

subparagraph (A) (!1) paid to a highly compensated individual

by a plan which fails to satisfy the requirements of paragraph

(2), the total amount reimbursed to the highly compensated

individual for the plan year multiplied by a fraction -

(i) the numerator of which is the total amount reimbursed

to all participants who are highly compensated individuals

under the plan for the plan year, and

(ii) the denominator of which is the total amount

reimbursed to all employees under the plan for such plan

year.

In determining the fraction under subparagraph (B), there shall

not be taken into account any reimbursement which is attributable

to a benefit described in subparagraph (A).

(8) Certain controlled groups, etc.

All employees who are treated as employed by a single employer

under subsection (b), (c), or (m) of section 414 shall be treated

as employed by a single employer for purposes of this section.

(9) Regulations

The Secretary shall prescribe such regulations as may be

necessary to carry out the provisions of this section.

(10) Time of inclusion

Any amount paid for a plan year that is included in income by

reason of this subsection shall be treated as received or accrued

in the taxable year of the participant in which the plan year

ends.

(i) Sick pay under Railroad Unemployment Insurance Act

Notwithstanding any other provision of law, gross income includes

benefits paid under section 2(a) of the Railroad Unemployment

Insurance Act for days of sickness; except to the extent such

sickness (as determined in accordance with standards prescribed by

the Railroad Retirement Board) is the result of on-the-job injury.

-SOURCE-

(Aug. 16, 1954, ch. 736, 68A Stat. 30; Pub. L. 87-792, Sec. 7(e),

Oct. 10, 1962, 76 Stat. 829; Pub. L. 88-272, title II, Sec. 205(a),

Feb. 26, 1964, 78 Stat. 38; Pub. L. 94-455, title V, Sec. 505(a),

title XIX, Sec. 1901(c)(2), Oct. 4, 1976, 90 Stat. 1566, 1803; Pub.

L. 95-600, title III, Sec. 366(a), title VII, Sec. 701(c)(1), Nov.

6, 1978, 92 Stat. 2855, 2899; Pub. L. 96-222, title I, Sec.

103(a)(13)(B), (C), Apr. 1, 1980, 94 Stat. 213; Pub. L. 96-605,

title II, Sec. 201(b)(1), Dec. 28, 1980, 94 Stat. 3527; Pub. L.

96-613, Sec. 5(b)(1), Dec. 28, 1980, 94 Stat. 3581; Pub. L. 97-34,

title I, Secs. 103(c)(2), 111(b)(4), Aug. 13, 1981, 95 Stat. 188,

194; Pub. L. 97-248, title II, Sec. 202(b)(3)(C), Sept. 3, 1982, 96

Stat. 421; Pub. L. 98-21, title I, Sec. 122(b), Apr. 20, 1983, 97

Stat. 87; Pub. L. 98-76, title II, Sec. 241(a), Aug. 12, 1983, 97

Stat. 430; Pub. L. 98-369, div. A, title IV, Sec. 423(b)(2), July

18, 1984, 98 Stat. 800; Pub. L. 99-514, title XI, Sec. 1151(c)(2),

title XIII, Sec. 1301(j)(9), Oct. 22, 1986, 100 Stat. 2503, 2658;

Pub. L. 101-140, title II, Sec. 203(a)(1), Nov. 8, 1989, 103 Stat.

830.)

-REFTEXT-

REFERENCES IN TEXT

Section 2(a) of the Railroad Unemployment Insurance Act, referred

to in subsec. (i), is classified to section 352(a) of Title 45,

Railroads.

-MISC1-

AMENDMENTS

1989 - Subsecs. (h), (i). Pub. L. 101-140 amended subsecs. (h)

and (i) to read as if amendments by Pub. L. 99-514, Sec.

1151(c)(2), had not been enacted, see 1986 Amendment note below.

1986 - Subsec. (d)(5)(C). Pub. L. 99-514, Sec. 1301(j)(9), which

directed that subpar. (C) be amended by substituting "section

7703(a)" for "section 143(a)", could not be executed because

subsec. (d) was previously repealed by Pub. L. 98-21. See 1983

Amendment note below.

Subsecs. (h), (i). Pub. L. 99-514, Sec. 1151(c)(2), redesignated

subsec. (i) as (h) and struck out former subsec. (h) which related

to amount paid to highly compensated individuals under a

discriminatory self-insured medical expense reimbursement plan.

1984 - Subsec. (b). Pub. L. 98-369 inserted "Any child to whom

section 152(e) applies shall be treated as a dependent of both

parents for purposes of this subsection."

1983 - Subsec. (d). Pub. L. 98-21 struck out subsec. (d) which

provided that no deduction or credit would be allowed with respect

to any expenditure which is properly associated with any amount

excluded from gross income under subsec. (a).

Subsec. (i). Pub. L. 98-76 added subsec. (i).

1982 - Subsec. (b). Pub. L. 97-248 substituted "section 213(d)"

for "section 213(e)".

1981 - Subsec. (d)(3). Pub. L. 97-34, Sec. 103(c)(2), substituted

"this subsection and section 221" for "this subsection" in

parenthetical provision.

Subsec. (h)(3)(B)(v). Pub. L. 97-34, Sec. 111(b)(4), substituted

"section 911(d)(2)" for "section 911(b)".

1980 - Subsec. (h)(3)(A). Pub. L. 96-222, Sec. 103(a)(13)(B),

substituted "highly compensated individuals" for "highly

compensated participants".

Subsec. (h)(7)(A). Pub. L. 96-222, Sec. 103(a)(13)(C),

substituted "highly compensated individuals but not to all other

participants (or which otherwise fails to satisfy the requirements

of paragraph (2)(B))" for "a highly compensated individual but not

to a broad cross-section of employees".

Subsec. (h)(8). Pub. L. 96-613 and Pub. L. 96-605 made identical

amendments by substituting in heading "controlled groups, etc." for

"controlled groups", and by substituting in text "subsection (b),

(c), or (m) of section 414" for "subsection (b) or (c) of section

414".

1978 - Subsec. (d)(4). Pub. L. 95-600, Sec. 701 (c)(1),

redesignated par. (5) as (4). Former par. (4) redesignated (5)(A)

and (C).

Subsec. (d)(5). Pub. L. 95-600, Sec. 701(c)(1), added heading and

subpar. (B), redesignated former par. (4) as subpars. (A) and (C),

adding subpar. (C) heading and substituting "section 143(a)" for

"section 143"; and redesignated former par. (6) as subpar. (D),

inserting "defined" in heading.

Subsec. (d)(6), (7). Pub. L. 95-600, Sec. 701(c)(1), redesignated

par. (7) as (6). Former par. (6) redesignated (5)(D).

Subsec. (h). Pub. L. 95-600, Sec. 366(a), added subsec. (h).

1976 - Subsec. (d). Pub. L. 94-455, Sec. 505(a), substituted

provisions relating to an exclusion of up to $5,200 a year for

taxpayers retiring on disability prior to age 65; dollar-for-dollar

phase out of exclusion for adjusted annual gross income (including

disability income) in excess of $15,000; requirement that married

couple must file joint return; defined "permanent and total

disability" and "joint return"; and inserted special rule for

coordination with section 72 of this title for provisions relating

to wage continuation plans.

Subsec. (e)(2). Pub. L. 94-455, Sec. 1901(c)(2), struck out "a

territory" after "of a State".

1964 - Subsec. (d). Pub. L. 88-272 substituted provisions stating

that "The preceding sentence shall not apply to amounts

attributable to the first 30" days if the amounts exceed 75 percent

of regular weekly wages, and if they do not exceed said 75 percent,

the first sentence of this subsection shall not apply to the extent

the amounts exceed $75 weekly and shall not apply to amounts

attributable to the first 7 calendar days unless the employee is

hospitalized for injury or sickness for at least 1 day in such

period, for provisions stating that said "preceding sentence" did

not apply in cases of sickness, to amounts attributable to the

first 7 days unless the employee was hospitalized for sickness for

at least 1 day during such period.

1962 - Subsec. (g). Pub. L. 87-792 added subsec. (g).

EFFECTIVE DATE OF 1989 AMENDMENT

Amendment by Pub. L. 101-140 effective as if included in section

1151 of Pub. L. 99-514, see section 203(c) of Pub. L. 101-140, set

out as a note under section 79 of this title.

EFFECTIVE DATE OF 1986 AMENDMENT

Amendment by section 1151(c)(2) of Pub. L. 99-514 applicable,

with certain qualifications and exceptions, to years beginning

after Dec. 31, 1988, see section 1151(k) of Pub. L. 99-514, as

amended, set out as a note under section 79 of this title.

Amendment by section 1301(j)(9) 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 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.

EFFECTIVE DATE OF 1983 AMENDMENTS

Section 241(b) of Pub. L. 98-76 provided that: "The amendment

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

amounts received after December 31, 1983, in taxable years ending

after such date."

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

after Dec. 31, 1983, except that if an individual's annuity

starting date was deferred under subsec. (d)(6) as in effect the

day before Apr. 20, 1983, such deferral shall end on the first day

of such individual's first taxable year beginning after Dec. 31,

1983, see section 122(d) of Pub. L. 98-21 set out as a note under

section 22 of this title.

EFFECTIVE DATE OF 1982 AMENDMENT

Amendment by Pub. L. 97-248 applicable to taxable years beginning

after Dec. 31, 1983, see section 202(c) of Pub. L. 97-248, set out

as a note under section 213 of this title.

EFFECTIVE DATE OF 1981 AMENDMENT

Amendment by Pub. L. 97-34 applicable to taxable years beginning

after Dec. 31, 1981, see sections 103(d) and 115 of Pub. L. 97-34,

set out as notes under sections 62 and 911, respectively, of this

title.

EFFECTIVE DATE OF 1980 AMENDMENTS

Amendments by Pub. L. 96-605 and 96-613 applicable to years

ending after Nov. 30, 1980, except in the case of a plan in

existence on Nov. 30, 1980, where amendments applicable to plan

years beginning after Nov. 30, 1980, see section 201(c) of Pub. L.

96-605 and section 5(c) of Pub. L. 96-613, set out as a note under

section 414 of this title.

Amendment by Pub. L. 96-222 effective, except as otherwise

provided, as if it had been included in the provisions of the

Revenue Act of 1978, Pub. L. 95-600, to which such amendment

relates, see section 201 of Pub. L. 96-222, set out as a note under

section 32 of this title.

EFFECTIVE DATE OF 1978 AMENDMENT

Section 366(b) of Pub. L. 95-600, as amended by Pub. L. 96-222,

title I, Sec. 103(a)(13)(D), Apr. 1, 1980, 94 Stat. 213, provided

that: "The amendment made by this section [amending this section]

shall apply to amounts reimbursed after December 31, 1979. For

purposes of applying such amendment, there shall not be taken into

account any amount reimbursed before January 1, 1980."

Section 701(c)(3) of Pub. L. 95-600, as amended by Pub. L.

99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:

"(A) The amendments made by paragraphs (1) and (2)(A) [amending

this section and provisions set out as a note under this section]

shall take effect as if included in section 105(d) of the Internal

Revenue Code of 1986 [formerly I.R.C. 1954] as such section was

amended by section 505(a) of the Tax Reform Act of 1976.

"(B) The amendments made by paragraph (2)(B) [amending provisions

set out as notes under this section] shall take effect as if

included in section 301 of the Tax Reduction and Simplification Act

of 1977 [Pub. L. 95-30, title III, Sec. 301, May 23, 1977, 91 Stat.

152]."

EFFECTIVE DATE OF 1976 AMENDMENT

Section 505(f) of Pub. L. 94-455, as added by Pub. L. 95-30,

title III, Sec. 301(a), May 23, 1977, 91 Stat. 151, provided that:

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

apply to taxable years beginning after December 31, 1976."

Amendment by section 1901(c)(2) 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.

EFFECTIVE DATE OF 1964 AMENDMENT

Section 205(b) of Pub. L. 88-272 provided that: "The amendment

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

amounts attributable to periods of absence commencing after

December 31, 1963."

EFFECTIVE DATE OF 1962 AMENDMENT

Amendment by Pub. L. 87-792 applicable to taxable years beginning

after Dec. 31, 1962, see section 8 of Pub. L. 87-792, set out as a

note under section 22 of this title.

NONENFORCEMENT OF AMENDMENT MADE BY SECTION 1151 OF PUB. L. 99-514

FOR FISCAL YEAR 1990

No monies appropriated by Pub. L. 101-136 to be used to implement

or enforce section 1151 of Pub. L. 99-514 or the amendments made by

such section, see section 528 of Pub. L. 101-136, set out as a note

under section 89 of this title.

REVOCATION OF ELECTION

Pub. L. 95-30, title III, Sec. 301(c), May 23, 1977, 91 Stat.

151, as amended by Pub. L. 95-600, title VII, Sec. 701(c)(2)(B),

Nov. 6, 1978, 92 Stat. 2900; Pub. L. 99-514, Sec. 2, Oct. 22, 1986,

100 Stat. 2095, provided that: "Any election made under section

105(d)(6) of the Internal Revenue Code of 1986 [formerly I.R.C.

1954] or under section 505(d) of the Tax Reform Act of 1976 [set

out below] for a taxable year beginning in 1976 may be revoked (in

such manner as may be prescribed by regulations) at any time before

the expiration of the period for assessing a deficiency with

respect to such taxable year (determined without regard to

subsection (d) of this section) [set out below]."

PERIOD FOR ASSESSING DEFICIENCY

Pub. L. 95-30, title III, Sec. 301(d), May 23, 1977, 91 Stat.

152, provided that: "In the case of any revocation made under

subsection (c) [set out above], the period for assessing a

deficiency with respect to any taxable year affected by the

revocation shall not expire before the date which is 1 year after

the date of the making of the revocation, and, notwithstanding any

law or rule of law, such deficiency, to the extent attributable to

such revocation, may be assessed at any time during such 1-year

period."

EFFECTIVE DATE OF CHANGES IN EXCLUSION FOR SICK PAY

Pub. L. 95-30, title III, Sec. 301(e), May 23, 1977, 91 Stat.

152, as amended by Pub. L. 95-600, title VII, Sec. 701(c)(2)(B),

Nov. 6, 1978, 92 Stat. 2900; Pub. L. 99-514, Sec. 2, Oct. 22, 1986,

100 Stat. 2095, provided that: "The amendments made by this section

[enacting and amending provisions set out as notes under this

section] shall take effect on October 4, 1976, but shall not apply

-

"(1) with respect to any taxpayer who makes or has made an

election under section 105(d)(6) of the Internal Revenue Code of

1986 [formerly I.R.C. 1954] or under section 505(d) of the Tax

Reform Act of 1976 [set out below] (as such sections were in

effect before the enactment of this Act [May 23, 1977]) for a

taxable year beginning in 1976, if such election is not revoked

under subsection (c) of this section [set out above], and

"(2) with respect to any taxpayer (other than a taxpayer

described in paragraph (1)) who has an annuity starting date at

the beginning of a taxable year beginning in 1976 by reason of

the amendments made by section 505 of the Tax Reform Act of 1976

[amending this section and section 104 of this title and enacting

provisions set out as notes under this section] (as in effect

before the enactment of this Act [May 23, 1977]), unless such

person elects (in such manner as the Secretary of the Treasury or

his delegate may by regulations prescribe) to have such

amendments apply."

SPECIAL RULE FOR EXISTING PERMANENT AND TOTAL DISABILITY CASES

Section 505(c) of Pub. L. 94-455, as amended by Pub. L. 95-30,

title III, Sec. 301(b)(1), (2), May 23, 1977, 91 Stat. 151; Pub. L.

95-600, title VII, Sec. 701(c)(2)(A), Nov. 6, 1978, 92 Stat. 2900;

Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided

that: "In the case of any individual who -

"(1) retired before January 1, 1977,

"(2) either retired on disability or was entitled to retire on

disability, and

"(3) on January 1, 1976, or January 1, 1977, was permanently

and totally disabled (within the meaning of section 105(d)(4) of

the Internal Revenue Code of 1986 [formerly I.R.C. 1954]),

such individual shall be deemed to have met the requirements of

section 105(d)(1)(B) of such Code (as amended by subsection (a) of

this section)."

SPECIAL RULE FOR COORDINATION WITH SECTION 72 OF THIS TITLE

Section 505(d) of Pub. L. 94-455, as amended by Pub. L. 95-30,

title III, Sec. 301(b)(3)-(5), May 23, 1977, 91 Stat. 151; Pub. L.

99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "In

the case of an individual who -

"(1) retired on disability before January 1, 1977, and

"(2) on December 31, 1975, or December 31, 1976, was entitled

to exclude any amount with respect to such retirement disability

from gross income under section 105(d) of the Internal Revenue

Code of 1986 [formerly I.R.C. 1954],

for purposes of section 72 the annuity starting date shall not be

deemed to occur before the beginning of the taxable year in which

the taxpayer attains age 65, or before the beginning of an earlier

taxable year for which the taxpayer makes an irrevocable election

not to seek the benefits of such section 105(d) for such year and

all subsequent years."

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 22, 51A, 213, 3401,

6039D, 7701, 7871 of this title.

-FOOTNOTE-

(!1) So in original. Probably should be followed by a closing

parenthesis.

-End-

-CITE-

26 USC Sec. 106 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter B - Computation of Taxable Income

PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

-HEAD-

Sec. 106. Contributions by employer to accident and health plans

-STATUTE-

(a) General rule

Except as otherwise provided in this section, gross income of an

employee does not include employer-provided coverage under an

accident or health plan.

(b) Contributions to Archer MSAs

(1) In general

In the case of an employee who is an eligible individual,

amounts contributed by such employee's employer to any Archer MSA

of such employee shall be treated as employer-provided coverage

for medical expenses under an accident or health plan to the

extent such amounts do not exceed the limitation under section

220(b)(1) (determined without regard to this subsection) which is

applicable to such employee for such taxable year.

(2) No constructive receipt

No amount shall be included in the gross income of any employee

solely because the employee may choose between the contributions

referred to in paragraph (1) and employer contributions to

another health plan of the employer.

(3) Special rule for deduction of employer contributions

Any employer contribution to an Archer MSA, if otherwise

allowable as a deduction under this chapter, shall be allowed

only for the taxable year in which paid.

(4) Employer MSA contributions required to be shown on return

Every individual required to file a return under section 6012

for the taxable year shall include on such return the aggregate

amount contributed by employers to the Archer MSAs of such

individual or such individual's spouse for such taxable year.

(5) MSA contributions not part of COBRA coverage

Paragraph (1) shall not apply for purposes of section 4980B.

(6) Definitions

For purposes of this subsection, the terms "eligible

individual" and "Archer MSA" have the respective meanings given

to such terms by section 220.

(7) Cross reference

For penalty on failure by employer to make comparable

contributions to the Archer MSAs of comparable employees, see

section 4980E.

(c) Inclusion of long-term care benefits provided through flexible

spending arrangements

(1) In general

Effective on and after January 1, 1997, gross income of an

employee shall include employer-provided coverage for qualified

long-term care services (as defined in section 7702B(c)) to the

extent that such coverage is provided through a flexible spending

or similar arrangement.

(2) Flexible spending arrangement

For purposes of this subsection, a flexible spending

arrangement is a benefit program which provides employees with

coverage under which -

(A) specified incurred expenses may be reimbursed (subject to

reimbursement maximums and other reasonable conditions), and

(B) the maximum amount of reimbursement which is reasonably

available to a participant for such coverage is less than 500

percent of the value of such coverage.

In the case of an insured plan, the maximum amount reasonably

available shall be determined on the basis of the underlying

coverage.

-SOURCE-

(Aug. 16, 1954, ch. 736, 68A Stat. 32; Pub. L. 99-272, title X,

Sec. 10001(b), Apr. 7, 1986, 100 Stat. 223; Pub. L. 99-514, title

XI, Secs. 1114(b)(1), 1151(j)(2), Oct. 22, 1986, 100 Stat. 2450,

2508; Pub. L. 100-647, title I, Sec. 1018(t)(7)(A), title III, Sec.

3011(b)(1), Nov. 10, 1988, 102 Stat. 3589, 3624; Pub. L. 101-239,

title VII, Sec. 7862(c)(1)(A), Dec. 19, 1989, 103 Stat. 2432; Pub.

L. 104-191, title III, Secs. 301(c)(1), 321(c)(2), Aug. 21, 1996,

110 Stat. 2048, 2058; Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec.

202(a)(2), (b)(2)(A), (6), (10)], Dec. 21, 2000, 114 Stat. 2763,

2763A-628, 2763A-629.)

-REFTEXT-

REFERENCES IN TEXT

COBRA, referred to in the heading for subsec. (b)(5), probably

means the Consolidated Omnibus Budget Reconciliation Act of 1985,

Pub. L. 99-272, Apr. 7, 1986, 100 Stat. 82, as amended. For

complete classification of this Act to the Code, see Tables.

-MISC1-

AMENDMENTS

2000 - Subsec. (b). Pub. L. 106-554 Sec. 1(a)(7) [title II, Sec.

202(b)(6)], substituted "Archer MSAs" for "medical savings

accounts" in heading.

Subsec. (b)(1). Pub. L. 106-554 Sec. 1(a)(7) [title II, Sec.

202(a)(2)], substituted "Archer MSA" for "medical savings account".

Subsec. (b)(3). Pub. L. 106-554 Sec. 1(a)(7) [title II, Sec.

202(b)(10)], substituted "an Archer MSA" for "a Archer MSA".

Pub. L. 106-554 Sec. 1(a)(7) [title II, Sec. 202(a)(2)],

substituted "Archer MSA" for "medical savings account".

Subsec. (b)(4). Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec.

202(b)(2)(A)], substituted "Archer MSAs" for "medical savings

accounts".

Subsec. (b)(6). Pub. L. 106-554 Sec. 1(a)(7) [title II, Sec.

202(a)(2)], substituted "Archer MSA" for "medical savings account".

Subsec. (b)(7). Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec.

202(b)(2)(A)], substituted "Archer MSAs" for "medical savings

accounts".

1996 - Pub. L. 104-191, Sec. 301(c)(1), amended text generally.

Prior to amendment, text read as follows: "Gross income of an

employee does not include employer-provided coverage under an

accident or health plan."

Subsec. (c). Pub. L. 104-191, Sec. 321(c)(2), added subsec. (c).

1989 - Subsec. (b)(2). Pub. L. 101-239 amended subsec. (b)(2) as

it existed prior to general amendment by Pub. L. 100-647 by

striking out the last sentence which read as follows: "Under

regulations, rules similar to the rules of subsections (a) and (b)

of section 52 (relating to employers under common control) shall

apply for purposes of subparagraph (A)." See Effective Date of 1989

Amendment note below.

1988 - Pub. L. 100-647, Sec. 3011(b)(1), amended section

generally, substituting a single undesignated par. for former

subsec. (a) providing that gross income does not include

employer-provided coverage under an accident or health plan and

subsec. (b) providing for an exception for highly compensated

individuals where a plan fails to provide certain continuation

coverage.

Subsec. (b)(1). Pub. L. 100-647, Sec. 1018(t)(7)(A), substituted

"any employer-provided coverage" for "any amount contributed by an

employer" and "under a group" for "to a group".

1986 - Pub. L. 99-272 designated existing provisions as subsec.

(a) and added subsec. (a) heading and subsec. (b).

Subsec. (a). Pub. L. 99-514, Sec. 1151(j)(2), amended subsec. (a)

generally. Prior to amendment, subsec. (a) read as follows: "Gross

income does not include contributions by the employer to accident

or health plans for compensation (through insurance or otherwise)

to his employees for personal injuries or sickness."

Subsec. (b)(1). Pub. L. 99-514, Sec. 1114(b)(1), substituted

"highly compensated employee (within the meaning of section

414(q))" for "highly compensated individual (within the meaning of

section 105(h)(5))".

EFFECTIVE DATE OF 1996 AMENDMENT

Amendment by section 301(c)(1) of Pub. L. 104-191 applicable to

taxable years beginning after Dec. 31, 1996, see section 301(j) of

Pub. L. 104-191, set out as a note under section 62 of this title.

Amendment by section 321(c)(2) of Pub. L. 104-191 applicable to

contracts issued after Dec. 31, 1996, see section 321(f) of Pub. L.

104-191, set out as an Effective Date note under section 7702B of

this title.

EFFECTIVE DATE OF 1989 AMENDMENT

Section 7862(c)(1)(C) of Pub. L. 101-239 provided that: "The

amendments made by this paragraph [amending this section and

section 1161 of Title 29, Labor] shall apply to years beginning

after December 31, 1986."

Section 7863 of Pub. L. 101-239 provided that: "Except as

otherwise provided in this subpart any amendment made by this

subpart [subpart A (Secs. 7861-7863) of part V of title VII of Pub.

L. 101-239, amending this section and sections 162, 411, 417, and

4980B of this title and sections 1052 to 1055, 1161, 1162, 1167,

1398, and 1461 of Title 29, Labor, enacting provisions set out as

notes under this section and sections 162, 417, 1167, 4980, and

4980B of this title, and amending provisions set out as notes under

sections 401 and 411 of this title and sections 1001 and 1054 of

Title 29], shall take effect as if included in the provision of the

Reform Act [Pub. L. 99-514] to which such amendment relates."

EFFECTIVE DATE OF 1988 AMENDMENT

Amendment by section 1018(t)(7)(A) 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 3011(b)(1) of Pub. L. 100-647 applicable to

taxable years beginning after Dec. 31, 1988, but not applicable to

any plan for any plan year to which section 162(k) of this title

(as in effect on the day before Nov. 10, 1988) did not apply by

reason of section 10001(e)(2) of Pub. L. 99-272, see section

3011(d) of Pub. L. 100-647, set out as a note under section 162 of

this title.

EFFECTIVE DATE OF 1986 AMENDMENTS

Amendment by section 1114(b)(1) of Pub. L. 99-514 applicable to

years beginning after Dec. 31, 1986, see section 1114(c)(1) of Pub.

L. 99-514, set out as a note under section 414 of this title.

Amendment by section 1151(j)(2) of Pub. L. 99-514 applicable,

with certain qualifications and exceptions, to years beginning

after Dec. 31, 1988, see section 1151(k) of Pub. L. 99-514, as

amended, set out as a note under section 79 of this title.

Section 10001(e) of Pub. L. 99-272 provided that:

"(1) General rule. - The amendments made by this section

[amending this section and section 162 of this title] shall apply

to plan years beginning on or after July 1, 1986.

"(2) Special rule for collective bargaining agreements. - In the

case of a group health plan maintained pursuant to one or more

collective bargaining agreements between employee representatives

and one or more employers ratified before the date of the enactment

of this Act [Apr. 7, 1986], the amendments made by this section

shall not apply to plan years beginning before the later of -

"(A) the date on which the last of the collective bargaining

agreements relating to the plan terminates (determined without

regard to any extension thereof agreed to after the date of the

enactment of this Act), or

"(B) January 1, 1987.

For purposes of subparagraph (A), any plan amendment made pursuant

to a collective bargaining agreement relating to the plan which

amends the plan solely to conform to any requirement added by this

section shall not be treated as a termination of such collective

bargaining agreement."

REGULATIONS

Secretary of the Treasury or his delegate to issue before Feb. 1,

1988, final regulations to carry out amendments made by section

1114 of Pub. L. 99-514, see section 1141 of Pub. L. 99-514, set out

as a note under section 401 of this title.

NONENFORCEMENT OF AMENDMENT MADE BY SECTION 1151 OF PUB. L. 99-514

FOR FISCAL YEAR 1990

No monies appropriated by Pub. L. 101-136 to be used to implement

or enforce section 1151 of Pub. L. 99-514 or the amendments made by

such section, see section 528 of Pub. L. 101-136, set out as a note

under section 89 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 51A, 104, 125, 220, 414,

3231, 3306, 3401, 4973, 6039D, 7701 of this title; title 29 section

1167.

-End-

-CITE-

26 USC Sec. 107 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter B - Computation of Taxable Income

PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

-HEAD-

Sec. 107. Rental value of parsonages

-STATUTE-

In the case of a minister of the gospel, gross income does not

include -

(1) the rental value of a home furnished to him as part of his

compensation; or

(2) the rental allowance paid to him as part of his

compensation, to the extent used by him to rent or provide a home

and to the extent such allowance does not exceed the fair rental

value of the home, including furnishings and appurtenances such

as a garage, plus the cost of utilities.

-SOURCE-

(Aug. 16, 1954, ch. 736, 68A Stat. 32; Pub. L. 107-181, Sec. 2(a),

May 20, 2002, 116 Stat. 583.)

-MISC1-

AMENDMENTS

2002 - Par. (2). Pub. L. 107-181 inserted "and to the extent such

allowance does not exceed the fair rental value of the home,

including furnishings and appurtenances such as a garage, plus the

cost of utilities" before period at end.

EFFECTIVE DATE OF 2002 AMENDMENT

Pub. L. 107-181, Sec. 2(b), May 20, 2002, 116 Stat. 583, provided

that:

"(1) In general. - The amendment made by this section [amending

this section] shall apply to taxable years beginning after December

31, 2001.

"(2) Returns positions. - The amendment made by this section also

shall apply to any taxable year beginning before January 1, 2002,

for which the taxpayer -

"(A) on a return filed before April 17, 2002, limited the

exclusion under section 107 of the Internal Revenue Code of 1986

as provided in such amendment, or

"(B) filed a return after April 16, 2002.

"(3) Other years before 2002. - Except as provided in paragraph

(2), notwithstanding any prior regulation, revenue ruling, or other

guidance issued by the Internal Revenue Service, no person shall be

subject to the limitations added to section 107 of such Code by

this Act for any taxable year beginning before January 1, 2002."

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 265, 1402 of this title;

title 42 section 411.

-End-

-CITE-

26 USC Sec. 108 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter B - Computation of Taxable Income

PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

-HEAD-

Sec. 108. Income from discharge of indebtedness

-STATUTE-

(a) Exclusion from gross income

(1) In general

Gross income does not include any amount which (but for this

subsection) would be includible in gross income by reason of the

discharge (in whole or in part) of indebtedness of the taxpayer

if -

(A) the discharge occurs in a title 11 case,

(B) the discharge occurs when the taxpayer is insolvent,

(C) the indebtedness discharged is qualified farm

indebtedness, or

(D) in the case of a taxpayer other than a C corporation, the

indebtedness discharged is qualified real property business

indebtedness.

(2) Coordination of exclusions

(A) Title 11 exclusion takes precedence

Subparagraphs (B), (C), and (D) of paragraph (1) shall not

apply to a discharge which occurs in a title 11 case.

(B) Insolvency exclusion takes precedence over qualified farm

exclusion and qualified real property business exclusion

Subparagraphs (C) and (D) of paragraph (1) shall not apply to

a discharge to the extent the taxpayer is insolvent.

(3) Insolvency exclusion limited to amount of insolvency

In the case of a discharge to which paragraph (1)(B) applies,

the amount excluded under paragraph (1)(B) shall not exceed the

amount by which the taxpayer is insolvent.

(b) Reduction of tax attributes

(1) In general

The amount excluded from gross income under subparagraph (A),

(B), or (C) of subsection (a)(1) shall be applied to reduce the

tax attributes of the taxpayer as provided in paragraph (2).

(2) Tax attributes affected; order of reduction

Except as provided in paragraph (5), the reduction referred to

in paragraph (1) shall be made in the following tax attributes in

the following order:

(A) NOL

Any net operating loss for the taxable year of the discharge,

and any net operating loss carryover to such taxable year.

(B) General business credit

Any carryover to or from the taxable year of a discharge of

an amount for purposes for determining the amount allowable as

a credit under section 38 (relating to general business

credit).

(C) Minimum tax credit

The amount of the minimum tax credit available under section

53(b) as of the beginning of the taxable year immediately

following the taxable year of the discharge.

(D) Capital loss carryovers

Any net capital loss for the taxable year of the discharge,

and any capital loss carryover to such taxable year under

section 1212.

(E) Basis reduction

(i) In general

The basis of the property of the taxpayer.

(ii) Cross reference

For provisions for making the reduction described in clause

(i), see section 1017.

(F) Passive activity loss and credit carryovers

Any passive activity loss or credit carryover of the taxpayer

under section 469(b) from the taxable year of the discharge.

(G) Foreign tax credit carryovers

Any carryover to or from the taxable year of the discharge

for purposes of determining the amount of the credit allowable

under section 27.

(3) Amount of reduction

(A) In general

Except as provided in subparagraph (B), the reductions

described in paragraph (2) shall be one dollar for each dollar

excluded by subsection (a).

(B) Credit carryover reduction

The reductions described in subparagraphs (B), (C), and (G)

shall be 33 1/3 cents for each dollar excluded by subsection

(a). The reduction described in subparagraph (F) in any passive

activity credit carryover shall be 33 1/3 cents for each

dollar excluded by subsection (a).

(4) Ordering rules

(A) Reductions made after determination of tax for year

The reductions described in paragraph (2) shall be made after

the determination of the tax imposed by this chapter for the

taxable year of the discharge.

(B) Reductions under subparagraph (A) or (D) of paragraph (2)

The reductions described in subparagraph (A) or (D) of

paragraph (2) (as the case may be) shall be made first in the

loss for the taxable year of the discharge and then in the

carryovers to such taxable year in the order of the taxable

years from which each such carryover arose.

(C) Reductions under subparagraphs (B) and (G) of paragraph (2)

The reductions described in subparagraphs (B) and (G) of

paragraph (2) shall be made in the order in which carryovers

are taken into account under this chapter for the taxable year

of the discharge.

(5) Election to apply reduction first against depreciable

property

(A) In general

The taxpayer may elect to apply any portion of the reduction

referred to in paragraph (1) to the reduction under section

1017 of the basis of the depreciable property of the taxpayer.

(B) Limitation

The amount to which an election under subparagraph (A)

applies shall not exceed the aggregate adjusted bases of the

depreciable property held by the taxpayer as of the beginning

of the taxable year following the taxable year in which the

discharge occurs.

(C) Other tax attributes not reduced

Paragraph (2) shall not apply to any amount to which an

election under this paragraph applies.

(c) Treatment of discharge of qualified real property business

indebtedness

(1) Basis reduction

(A) In general

The amount excluded from gross income under subparagraph (D)

of subsection (a)(1) shall be applied to reduce the basis of

the depreciable real property of the taxpayer.

(B) Cross reference

For provisions making the reduction described in subparagraph

(A), see section 1017.

(2) Limitations

(A) Indebtedness in excess of value

The amount excluded under subparagraph (D) of subsection

(a)(1) with respect to any qualified real property business

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

(i) the outstanding principal amount of such indebtedness

(immediately before the discharge), over

(ii) the fair market value of the real property described

in paragraph (3)(A) (as of such time), reduced by the

outstanding principal amount of any other qualified real

property business indebtedness secured by such property (as

of such time).

(B) Overall limitation

The amount excluded under subparagraph (D) of subsection

(a)(1) shall not exceed the aggregate adjusted bases of

depreciable real property (determined after any reductions

under subsections (b) and (g)) held by the taxpayer immediately

before the discharge (other than depreciable real property

acquired in contemplation of such discharge).

(3) Qualified real property business indebtedness

The term "qualified real property business indebtedness" means

indebtedness which -

(A) was incurred or assumed by the taxpayer in connection

with real property used in a trade or business and is secured

by such real property,

(B) was incurred or assumed before January 1, 1993, or if

incurred or assumed on or after such date, is qualified

acquisition indebtedness, and

(C) with respect to which such taxpayer makes an election to

have this paragraph apply.

Such term shall not include qualified farm indebtedness.

Indebtedness under subparagraph (B) shall include indebtedness

resulting from the refinancing of indebtedness under subparagraph

(B) (or this sentence), but only to the extent it does not exceed

the amount of the indebtedness being refinanced.

(4) Qualified acquisition indebtedness

For purposes of paragraph (3)(B), the term "qualified

acquisition indebtedness" means, with respect to any real

property described in paragraph (3)(A), indebtedness incurred or

assumed to acquire, construct, reconstruct, or substantially

improve such property.

(5) Regulations

The Secretary shall issue such regulations as are necessary to

carry out this subsection, including regulations preventing the

abuse of this subsection through cross-collateralization or other

means.

(d) Meaning of terms; special rules relating to certain provisions

(1) Indebtedness of taxpayer

For purposes of this section, the term "indebtedness of the

taxpayer" means any indebtedness -

(A) for which the taxpayer is liable, or

(B) subject to which the taxpayer holds property.

(2) Title 11 case

For purposes of this section, the term "title 11 case" means a

case under title 11 of the United States Code (relating to

bankruptcy), but only if the taxpayer is under the jurisdiction

of the court in such case and the discharge of indebtedness is

granted by the court or is pursuant to a plan approved by the

court.

(3) Insolvent

For purposes of this section, the term "insolvent" means the

excess of liabilities over the fair market value of assets. With

respect to any discharge, whether or not the taxpayer is

insolvent, and the amount by which the taxpayer is insolvent,

shall be determined on the basis of the taxpayer's assets and

liabilities immediately before the discharge.

[(4) Repealed. Pub. L. 99-514, title VIII, Sec. 822(b)(3)(A),

Oct. 22, 1986, 100 Stat. 2373]

(5) Depreciable property

The term "depreciable property" has the same meaning as when

used in section 1017.

(6) Certain provisions to be applied at partner level

In the case of a partnership, subsections (a), (b), (c), and

(g) shall be applied at the partner level.

(7) Special rules for S corporation

(A) Certain provisions to be applied at corporate level

In the case of an S corporation, subsections (a), (b), (c),

and (g) shall be applied at the corporate level, including by

not taking into account under section 1366(a) any amount

excluded under subsection (a) of this section.

(B) Reduction in carryover of disallowed losses and deductions

In the case of an S corporation, for purposes of subparagraph

(A) of subsection (b)(2), any loss or deduction which is

disallowed for the taxable year of the discharge under section

1366(d)(1) shall be treated as a net operating loss for such

taxable year. The preceding sentence shall not apply to any

discharge to the extent that subsection (a)(1)(D) applies to

such discharge.

(C) Coordination with basis adjustments under section

1367(b)(2)

For purposes of subsection (e)(6), a shareholder's adjusted

basis in indebtedness of an S corporation shall be determined

without regard to any adjustments made under section

1367(b)(2).

(8) Reductions of tax attributes in title 11 cases of individuals

to be made by estate

In any case under chapter 7 or 11 of title 11 of the United

States Code to which section 1398 applies, for purposes of

paragraphs (1) and (5) of subsection (b) the estate (and not the

individual) shall be treated as the taxpayer. The preceding

sentence shall not apply for purposes of applying section 1017 to

property transferred by the estate to the individual.

(9) Time for making election, etc.

(A) Time

An election under paragraph (5) of subsection (b) or under

paragraph (3)(C) of subsection (c) shall be made on the

taxpayer's return for the taxable year in which the discharge

occurs or at such other time as may be permitted in regulations

prescribed by the Secretary.

(B) Revocation only with consent

An election referred to in subparagraph (A), once made, may

be revoked only with the consent of the Secretary.

(C) Manner

An election referred to in subparagraph (A) shall be made in

such manner as the Secretary may by regulations prescribe.

(10) Cross reference

For provision that no reduction is to be made in the basis of

exempt property of an individual debtor, see section

1017(c)(1).

(e) General rules for discharge of indebtedness (including

discharges not in title 11 cases or insolvency)

For purposes of this title -

(1) No other insolvency exception

Except as otherwise provided in this section, there shall be no

insolvency exception from the general rule that gross income

includes income from the discharge of indebtedness.

(2) Income not realized to extent of lost deductions

No income shall be realized from the discharge of indebtedness

to the extent that payment of the liability would have given rise

to a deduction.

(3) Adjustments for unamortized premium and discount

The amount taken into account with respect to any discharge

shall be properly adjusted for unamortized premium and

unamortized discount with respect to the indebtedness discharged.

(4) Acquisition of indebtedness by person related to debtor

(A) Treated as acquisition by debtor

For purposes of determining income of the debtor from

discharge of indebtedness, to the extent provided in

regulations prescribed by the Secretary, the acquisition of

outstanding indebtedness by a person bearing a relationship to

the debtor specified in section 267(b) or 707(b)(1) from a

person who does not bear such a relationship to the debtor

shall be treated as the acquisition of such indebtedness by the

debtor. Such regulations shall provide for such adjustments in

the treatment of any subsequent transactions involving the

indebtedness as may be appropriate by reason of the application

of the preceding sentence.

(B) Members of family

For purposes of this paragraph, sections 267(b) and 707(b)(1)

shall be applied as if section 267(c)(4) provided that the

family of an individual consists of the individual's spouse,

the individual's children, grandchildren, and parents, and any

spouse of the individual's children or grandchildren.

(C) Entities under common control treated as related

For purposes of this paragraph, two entities which are

treated as a single employer under subsection (b) or (c) of

section 414 shall be treated as bearing a relationship to each

other which is described in section 267(b).

(5) Purchase-money debt reduction for solvent debtor treated as

price reduction

If -

(A) the debt of a purchaser of property to the seller of such

property which arose out of the purchase of such property is

reduced,

(B) such reduction does not occur -

(i) in a title 11 case, or

(ii) when the purchaser is insolvent, and

(C) but for this paragraph, such reduction would be treated

as income to the purchaser from the discharge of indebtedness,

then such reduction shall be treated as a purchase price

adjustment.

(6) Indebtedness contributed to capital

Except as provided in regulations, for purposes of determining

income of the debtor from discharge of indebtedness, if a debtor

corporation acquires its indebtedness from a shareholder as a

contribution to capital -

(A) section 118 shall not apply, but

(B) such corporation shall be treated as having satisfied the

indebtedness with an amount of money equal to the shareholder's

adjusted basis in the indebtedness.

(7) Recapture of gain on subsequent sale of stock

(A) In general

If a creditor acquires stock of a debtor corporation in

satisfaction of such corporation's indebtedness, for purposes

of section 1245 -

(i) such stock (and any other property the basis of which

is determined in whole or in part by reference to the

adjusted basis of such stock) shall be treated as section

1245 property,

(ii) the aggregate amount allowed to the creditor -

(I) as deductions under subsection (a) or (b) of section

166 (by reason of the worthlessness or partial

worthlessness of the indebtedness), or

(II) as an ordinary loss on the exchange,

shall be treated as an amount allowed as a deduction for

depreciation, and

(iii) an exchange of such stock qualifying under section

354(a), 355(a), or 356(a) shall be treated as an exchange to

which section 1245(b)(3) applies.

The amount determined under clause (ii) shall be reduced by the

amount (if any) included in the creditor's gross income on the

exchange.

(B) Special rule for cash basis taxpayers

In the case of any creditor who computes his taxable income

under the cash receipts and disbursements method, proper

adjustment shall be made in the amount taken into account under

clause (ii) of subparagraph (A) for any amount which was not

included in the creditor's gross income but which would have

been included in such gross income if such indebtedness had

been satisfied in full.

(C) Stock of parent corporation

For purposes of this paragraph, stock of a corporation in

control (within the meaning of section 368(c)) of the debtor

corporation shall be treated as stock of the debtor

corporation.

(D) Treatment of successor corporation

For purposes of this paragraph, the term "debtor corporation"

includes a successor corporation.

(E) Partnership rule

Under regulations prescribed by the Secretary, rules similar

to the rules of the foregoing subparagraphs of this paragraph

shall apply with respect to the indebtedness of a partnership.

(8) Indebtedness satisfied by corporation's stock

For purposes of determining income of a debtor from discharge

of indebtedness, if a debtor corporation transfers stock to a

creditor in satisfaction of its indebtedness, such corporation

shall be treated as having satisfied the indebtedness with an

amount of money equal to the fair market value of the stock.

(9) Discharge of indebtedness income not taken into account in

determining whether entity meets REIT qualifications

Any amount included in gross income by reason of the discharge

of indebtedness shall not be taken into account for purposes of

paragraphs (2) and (3) of section 856(c).

(10) Indebtedness satisfied by issuance of debt instrument

(A) In general

For purposes of determining income of a debtor from discharge

of indebtedness, if a debtor issues a debt instrument in

satisfaction of indebtedness, such debtor shall be treated as

having satisfied the indebtedness with an amount of money equal

to the issue price of such debt instrument.

(B) Issue price

For purposes of subparagraph (A), the issue price of any debt

instrument shall be determined under sections 1273 and 1274.

For purposes of the preceding sentence, section 1273(b)(4)

shall be applied by reducing the stated redemption price of any

instrument by the portion of such stated redemption price which

is treated as interest for purposes of this chapter.

(f) Student loans

(1) In general

In the case of an individual, gross income does not include any

amount which (but for this subsection) would be includible in

gross income by reason of the discharge (in whole or in part) of

any student loan if such discharge was pursuant to a provision of

such loan under which all or part of the indebtedness of the

individual would be discharged if the individual worked for a

certain period of time in certain professions for any of a broad

class of employers.

(2) Student loan

For purposes of this subsection, the term "student loan" means

any loan to an individual to assist the individual in attending

an educational organization described in section 170(b)(1)(A)(ii)

made by -

(A) the United States, or an instrumentality or agency

thereof,

(B) a State, territory, or possession of the United States,

or the District of Columbia, or any political subdivision

thereof,

(C) a public benefit corporation -

(i) which is exempt from taxation under section 501(c)(3),

(ii) which has assumed control over a State, county, or

municipal hospital, and

(iii) whose employees have been deemed to be public

employees under State law, or

(D) any educational organization described in section

170(b)(1)(A)(ii) if such loan is made -

(i) pursuant to an agreement with any entity described in

subparagraph (A), (B), or (C) under which the funds from

which the loan was made were provided to such educational

organization, or

(ii) pursuant to a program of such educational organization

which is designed to encourage its students to serve in

occupations with unmet needs or in areas with unmet needs and

under which the services provided by the students (or former

students) are for or under the direction of a governmental

unit or an organization described in section 501(c)(3) and

exempt from tax under section 501(a).

The term "student loan" includes any loan made by an educational

organization described in section 170(b)(1)(A)(ii) or by an

organization exempt from tax under section 501(a) to refinance a

loan to an individual to assist the individual in attending any

such educational organization but only if the refinancing loan is

pursuant to a program of the refinancing organization which is

designed as described in subparagraph (D)(ii).

(3) Exception for discharges on account of services performed for

certain lenders

Paragraph (1) shall not apply to the discharge of a loan made

by an organization described in paragraph (2)(D) if the discharge

is on account of services performed for either such organization.

(g) Special rules for discharge of qualified farm indebtedness

(1) Discharge must be by qualified person

(A) In general

Subparagraph (C) of subsection (a)(1) shall apply only if the

discharge is by a qualified person.

(B) Qualified person

For purposes of subparagraph (A), the term "qualified person"

has the meaning given to such term by section 49(a)(1)(D)(iv);

except that such term shall include any Federal, State, or

local government or agency or instrumentality thereof.

(2) Qualified farm indebtedness

For purposes of this section, indebtedness of a taxpayer shall

be treated as qualified farm indebtedness if -

(A) such indebtedness was incurred directly in connection

with the operation by the taxpayer of the trade or business of

farming, and

(B) 50 percent or more of the aggregate gross receipts of the

taxpayer for the 3 taxable years preceding the taxable year in

which the discharge of such indebtedness occurs is attributable

to the trade or business of farming.

(3) Amount excluded cannot exceed sum of tax attributes and

business and investment assets

(A) In general

The amount excluded under subparagraph (C) of subsection

(a)(1) shall not exceed the sum of -

(i) the adjusted tax attributes of the taxpayer, and

(ii) the aggregate adjusted bases of qualified property

held by the taxpayer as of the beginning of the taxable year

following the taxable year in which the discharge occurs.

(B) Adjusted tax attributes

For purposes of subparagraph (A), the term "adjusted tax

attributes" means the sum of the tax attributes described in

subparagraphs (A), (B), (C), (D), (F), and (G) of subsection

(b)(2) determined by taking into account $3 for each $1 of the

attributes described in subparagraphs (B), (C), and (G) of

subsection (b)(2) and the attribute described in subparagraph

(F) of subsection (b)(2) to the extent attributable to any

passive activity credit carryover.

(C) Qualified property

For purposes of this paragraph, the term "qualified property"

means any property which is used or is held for use in a trade

or business or for the production of income.

(D) Coordination with insolvency exclusion

For purposes of this paragraph, the adjusted basis of any

qualified property and the amount of the adjusted tax

attributes shall be determined after any reduction under

subsection (b) by reason of amounts excluded from gross income

under subsection (a)(1)(B).

-SOURCE-

(Aug. 16, 1954, ch. 736, 68A Stat. 32; June 29, 1956, ch. 463, Sec.

5, 70 Stat. 403; Pub. L. 88-496, Sec. 1(a), June 8, 1960, 74 Stat.

164; Pub. L. 94-455, title XIX, Secs. 1906(b)(13)(A),

1951(b)(2)(A), Oct. 4, 1976, 90 Stat. 1834, 1836; Pub. L. 96-589,

Sec. 2(a), Dec. 24, 1980, 94 Stat. 3389; Pub. L. 97-354, Sec. 3(e),

Oct. 19, 1982, 96 Stat. 1689; Pub. L. 97-448, title I, Sec.

102(h)(1), title III, Sec. 304(d), Jan. 12, 1983, 96 Stat. 2372,

2398; Pub. L. 98-369, div. A, title I, Sec. 59(a), (b)(1), title

IV, Sec. 474(r)(5), title VII, Sec. 721(b)(2), title X, Sec.

1076(a), July 18, 1984, 98 Stat. 576, 839, 966, 1053; Pub. L.

99-514, title I, Sec. 104(b)(2), title II, Sec. 231(d)(3)(D), title

IV, Sec. 405(a), title VI, Sec. 621(e)(1), title VIII, Secs.

805(c)(2)-(4), 822(a), (b)(1)-(3), title XI, Sec. 1171(b)(4), title

XVIII, Sec. 1847(b)(7), Oct. 22, 1986, 100 Stat. 2105, 2179, 2224,

2266, 2362, 2373, 2513, 2856; Pub. L. 100-647, title I, Sec.

1004(a)(1)-(4), (6), Nov. 10, 1988, 102 Stat. 3385, 3387; Pub. L.

101-508, title XI, Secs. 11325(a)(1), (b), 11813(b)(6), Nov. 5,

1990, 104 Stat. 1388-466, 1388-551; Pub. L. 103-66, title XIII,

Secs. 13150(a)-(c)(5), 13226(a)(1), (2)(B), (b)(1)-(3), Aug. 10,

1993, 107 Stat. 446-448, 487, 488; Pub. L. 104-188, title I, Sec.

1703(n)(2), Aug. 20, 1996, 110 Stat. 1877; Pub. L. 105-34, title

II, Sec. 225(a), Aug. 5, 1997, 111 Stat. 820; Pub. L. 105-206,

title VI, Sec. 6004(f), July 22, 1998, 112 Stat. 795; Pub. L.

107-147, title IV, Sec. 402(a), Mar. 9, 2002, 116 Stat. 40.)

-MISC1-

AMENDMENTS

2002 - Subsec. (d)(7)(A). Pub. L. 107-147 inserted ", including

by not taking into account under section 1366(a) any amount

excluded under subsection (a) of this section" before period at

end.

1998 - Subsec. (f)(2). Pub. L. 105-206, Sec. 6004(f)(1), amended

concluding provisions generally. Prior to amendment, concluding

provisions read as follows: "The term 'student loan' includes any

loan made by an educational organization so described or by an

organization exempt from tax under section 501(a) to refinance a

loan meeting the requirements of the preceding sentence."

Subsec. (f)(3). Pub. L. 105-206, Sec. 6004(f)(2), struck out "(or

by an organization described in paragraph (2)(E) from funds

provided by an organization described in paragraph (2)(D))" after

"paragraph (2)(D)".

1997 - Subsec. (f)(2). Pub. L. 105-34, Sec. 225(a)(1), added

subpar. (D) and concluding provisions and struck out former subpar.

(D) which read as follows: "any educational organization so

described pursuant to an agreement with any entity described in

subparagraph (A), (B), or (C) under which the funds from which the

loan was made were provided to such educational organization."

Subsec. (f)(2)(B). Pub. L. 105-34, Sec. 225(a)(1), struck out

"or" at end.

Subsec. (f)(3). Pub. L. 105-34, Sec. 225(a)(2), added par. (3).

1996 - Subsec. (d)(9)(A). Pub. L. 104-188 substituted "paragraph

(3)(C)" for "paragraph (3)(B)".

1993 - Subsec. (a)(1)(D). Pub. L. 103-66, Sec. 13150(a), added

subpar. (D).

Subsec. (a)(2)(A). Pub. L. 103-66, Sec. 13150(c)(1), substituted

", (C), and (D)" for "and (C)".

Subsec. (a)(2)(B). Pub. L. 103-66, Sec. 13150(c)(2), amended

heading and text of subpar. (B) generally. Prior to amendment, text

read as follows: "Subparagraph (C) of paragraph (1) shall not apply

to a discharge to the extent the taxpayer is insolvent."

Subsec. (b)(2)(C) to (E). Pub. L. 103-66, Sec. 13226(b)(1), added

subpar. (C) and redesignated former subpars. (C) and (D) as (D) and

(E), respectively. Former subpar. (E) redesignated (F).

Subsec. (b)(2)(F). Pub. L. 103-66, Sec. 13226(b)(2), added

subpar. (F). Former subpar. (F) redesignated (G).

Pub. L. 103-66, Sec. 13226(b)(1), redesignated subpar. (E) as

(F).

Subsec. (b)(2)(G). Pub. L. 103-66, Sec. 13226(b)(2), redesignated

subpar. (F) as (G).

Subsec. (b)(3)(B). Pub. L. 103-66, Sec. 13226(b)(3)(A), amended

heading and text of subpar. (B) generally. Prior to amendment, text

read as follows: "The reductions described in subparagraphs (B) and

(E) of paragraph (2) shall be 33 1/3 cents for each dollar

excluded by subsection (a)."

Subsec. (b)(4)(B). Pub. L. 103-66, Sec. 13226(b)(3)(B),

substituted "(D)" for "(C)" in heading and text.

Subsec. (b)(4)(C). Pub. L. 103-66, Sec. 13226(b)(3)(C),

substituted "(G)" for "(E)" in heading and text.

Subsec. (c). Pub. L. 103-66, Sec. 13150(b), added subsec. (c).

Subsec. (d). Pub. L. 103-66, Sec. 13150(c)(3)(B), substituted

"certain provisions" for "subsections (a), (b) and (g)" in heading.

Subsec. (d)(6), (7)(A). Pub. L. 103-66, Sec. 13150(c)(3)(A), (C),

substituted "Certain provisions" for "Subsections (a), (b) and (g)"

in heading and "subsections (a), (b), (c), and (g)" for

"subsections (a), (b), and (g)" in text.

Subsec. (d)(7)(B). Pub. L. 103-66, Sec. 13150(c)(4), inserted at

end "The preceding sentence shall not apply to any discharge to the

extent that subsection (a)(1)(D) applies to such discharge."

Subsec. (d)(9)(A). Pub. L. 103-66, Sec. 13150(c)(5), inserted "or

under paragraph (3)(B) of subsection (c)" after "subsection (b)".

Subsec. (e)(6). Pub. L. 103-66, Sec. 13226(a)(2)(B), substituted

"Except as provided in regulations, for" for "For".

Subsec. (e)(8). Pub. L. 103-66, Sec. 13226(a)(1)(B), amended

heading and text of par. (8) generally. Prior to amendment, text

read as follows: "For purposes of determining income of the debtor

from discharge of indebtedness, the stock for debt exception shall

not apply -

"(A) to the issuance of nominal or token shares, or

"(B) with respect to an unsecured creditor, where the ratio of

the value of the stock received by such unsecured creditor to the

amount of his indebtedness cancelled or exchanged for stock in

the workout is less than 50 percent of a similar ratio computed

for all unsecured creditors participating in the workout.

Any stock which is disqualified stock (as defined in paragraph

(10)(B)(ii)) shall not be treated as stock for purposes of this

paragraph."

Subsec. (e)(10), (11). Pub. L. 103-66, Sec. 13226(a)(1)(A),

redesignated par. (11) as (10) and struck out former par. (10)

which related to satisfaction of indebtedness by transfer of

corporation's stock.

Subsec. (g)(3)(B). Pub. L. 103-66, Sec. 13226(b)(3)(D),

substituted "subparagraphs (A), (B), (C), (D), (F), and (G)" for

"subparagraphs (A), (B), (C), and (E)" and "subparagraphs (B), (C),

and (G)" for "subparagraphs (B) and (E)" and inserted before period

at end "and the attribute described in subparagraph (F) of

subsection (b)(2) to the extent attributable to any passive

activity credit carryover".

1990 - Subsec. (e)(8). Pub. L. 101-508, Sec. 11325(b)(2),

inserted provision at end that any stock which is a disqualified

stock, as so defined, not be treated as stock for purposes of this

paragraph.

Subsec. (e)(10)(B). Pub. L. 101-508, Sec. 11325(b)(1),

substituted heading for one which read: "Exception for title 11

cases and insolvent debtors" and amended text generally. Prior to

amendment, text read as follows: "Subparagraph (A) shall not apply

in the case of a debtor in a title 11 case or to the extent the

debtor is insolvent."

Subsec. (e)(11). Pub. L. 101-508, Sec. 11325(a)(1), added par.

(11).

Subsec. (g)(1)(B). Pub. L. 101-508, Sec. 11813(b)(6), substituted

"section 49(a)(1)(D)(iv)" for "section 46(c)(8)(D)(iv)".

1988 - Subsec. (a)(1)(C). Pub. L. 100-647, Sec. 1004(a)(1), added

subpar. (C).

Subsec. (a)(2). Pub. L. 100-647, Sec. 1004(a)(2), amended par.

(2) generally. Prior to amendment, par. (2) read as follows:

"Subparagraph (B) of paragraph (1) shall not apply to a discharge

which occurs in a title 11 case."

Subsec. (b). Pub. L. 100-647, Sec. 1004(a)(3), struck out "in

title 11 case or insolvency" after "Reduction of tax attributes" in

heading and substituted "subparagraph (A), (B), or (C)" for

"subparagraph (A) or (B)" in text of par. (1).

Subsec. (d). Pub. L. 100-647, Sec. 1004(a)(6)(B), which directed

amendment of subsec. (d) heading by substituting "subsections (a),

(b), and (g)" for "subsections (a), and (b)", was executed by

making the substitution for "subsections (a) and (b)" as the

probable intent of Congress.

Subsec. (d)(6). Pub. L. 100-647, Sec. 1004(a)(6)(A), (C),

substituted "Subsections (a), (b), and (g)" for "Subsections (a)

and (b)" in heading and "subsections (a), (b), and (g)" for

"subsections (a) and (b)" in text.

Subsec. (d)(7)(A). Pub. L. 100-647, Sec. 1004(a)(6)(A), (C),

substituted "Subsections (a), (b), and (g)" for "Subsections (a)

and (b)" in heading and "subsections (a), (b), and (g)" for

"subsections (a) and (b)" in text.

Subsec. (g). Pub. L. 100-647, Sec. 1004(a)(4), substituted

"indebtedness" for "indebtedness of solvent farmers" in heading and

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

"(1) In general. - For purposes of this section and section 1017,

the discharge by a qualified person of qualified farm indebtedness

of a taxpayer who is not insolvent at the time of the discharge

shall be treated in the same manner as if the discharge had

occurred when the taxpayer was insolvent.

"(2) Qualified farm indebtedness. - For purposes of this

subsection, indebtedness of a taxpayer shall be treated as

qualified farm indebtedness if -

"(A) such indebtedness was incurred directly in connection with

the operation by the taxpayer of the trade or business of

farming, and

"(B) 50 percent or more of the average annual gross receipts of

the taxpayer for the 3 taxable years preceding the taxable year

in which the discharge of such indebtedness occurs is

attributable to the trade or business of farming.

"(3) Qualified person. - For purposes of this subsection, the

term 'qualified person' means a person described in section

46(c)(8)(D)(iv)."

1986 - Subsec. (a)(1)(C). Pub. L. 99-514, Sec. 822(a), struck out

subpar. (C) relating to exclusion from gross income if the

indebtedness discharged is qualified business indebtedness.

Subsec. (a)(2). Pub. L. 99-514, Sec. 822(b)(1), substituted

"Subparagraph (B) of paragraph (1)" for "Subparagraphs (B) and (C)

of paragraph (1)" in subpar. (A), struck out subpar. (A)

designation and heading, and struck out subpar. (B) providing that

insolvency exclusion takes precedence over qualified business

exclusion.

Subsec. (b)(2)(B). Pub. L. 99-514, Sec. 231(d)(3)(D), substituted

"General business credit" for "Research credit and general business

credit" in heading and amended text, as amended by this Act (Pub.

L. 99-514, Sec. 1171(b)(4) (see below)), generally. Prior to

amendment, text read as follows: "Any carryover to or from the

taxable year of a discharge of an amount for purposes of

determining the amount allowable as a credit under -

"(i) section 30 (relating to credit for increasing research

activities), or

"(ii) section 38 (relating to general business credit).

For purposes of this subparagraph, there shall not be taken into

account any portion of a carryover which is attributable to the

employee stock ownership credit determined under section 41."

Pub. L. 99-514, Sec. 1171(b)(4), struck out last sentence which

had been eliminated by the general amendment of subpar. (B) by Pub.

L. 99-514, Sec. 231(d)(3)(D). See above.

Subsec. (b)(2)(E). Pub. L. 99-514, Sec. 1847(b)(7), substituted

"section 27" for "section 33".

Subsec. (b)(3). Pub. L. 99-514, Sec. 104(b)(2), substituted "33

1/3 cents" for "50 cents".

Subsec. (c). Pub. L. 99-514, Sec. 822(b)(2), struck out subsec.

(c) relating to tax treatment of discharge of qualified business

indebtedness.

Subsec. (d). Pub. L. 99-514, Sec. 822(b)(3)(B), struck out

reference to subsec. (c) in heading.

Subsec. (d)(4). Pub. L. 99-514, Sec. 822(b)(3)(A), struck out

par. (4) relating to treatment of indebtedness as qualified

business indebtedness.

Subsec. (d)(6), (7)(A). Pub. L. 99-514, Sec. 822(b)(3)(B), struck

out reference to subsec. (c) in heading and text.

Subsec. (d)(7)(B). Pub. L. 99-514, Sec. 822(b)(3)(C), struck out

"The preceding sentence shall not apply to any discharge to the

extent that subsection (a)(1)(C) applies to such discharge."

Subsec. (d)(9)(A). Pub. L. 99-514, Sec. 822(b)(3)(D), struck out

"under paragraph (4) of this subsection or" after "An election".

Subsec. (e)(7)(A)(ii)(I). Pub. L. 99-514, Sec. 805(c)(2),

substituted "subsection (a) or (b) of section 166" for "subsection

(a), (b), or (c) of section 166".

Subsec. (e)(7)(B) to (D). Pub. L. 99-514, Sec. 805(c)(3),

redesignated subpars. (C) to (E) as (B) to (D), respectively, and

struck out former subpar. (B) which related to taxpayers on reserve

method.

Subsec. (e)(7)(E), (F). Pub. L. 99-514, Sec. 805(c)(3), (4),

redesignated subpar. (F) as (E) and substituted "the foregoing

subparagraphs" for "subparagraphs (A), (B), (C), (D), and (E)".

Former subpar. (E) redesignated (D).

Subsec. (e)(10)(C). Pub. L. 99-514, Sec. 621(e), repealed the

amendment by Pub. L. 98-369, Sec. 59(b)(1), which had added subpar.

(C) creating an exception for transfers in certain workouts of the

satisfaction of indebtedness by corporation's stock. See 1984

Amendment note below.

Subsec. (g). Pub. L. 99-514, Sec. 405(a), added subsec. (g).

1984 - Subsec. (b)(2)(B). Pub. L. 98-369, Sec. 474(r)(5),

substituted provisions relating to research credits and general

business credits covering carryovers to or from the taxable year of

a discharge of an amount for purposes of determining the amount

allowable as a credit under section 30 (relating to credit for

increasing research activities), or section 38 (relating to general

business credit), and directing that there shall not be taken into

account any portion of a carryover which is attributable to the

employee stock ownership credit determined under section 41 for

former provisions covering carryovers to or from the taxable year

of the discharge of an amount for purposes of determining the

amount of a credit allowable under section 38 (relating to

investment in certain depreciable property), section 40 (relating

to expenses of work incentive programs), section 44B (relating to

credit for employment of certain new employees), section 44E

(relating to alcohol used as a fuel), or section 44F (relating to

credit for increasing research activities), and directing that, for

purposes of clause (i), there could not be taken into account any

portion of a carryover which was attributable to the employee plan

credit (within the meaning of section 48(o)(3)).

Subsec. (d)(6). Pub. L. 98-369, Sec. 721(b)(2), struck out "or S

corporation shareholder level" in heading and second sentence which

provided that "In the case of an S corporation, subsections (a),

(b), and (c) shall apply at the shareholder level.". See par.

(7)(A).

Subsec. (d)(7) to (10). Pub. L. 98-369, Sec. 721(b)(2), added

par. (7) and redesignated former pars. (7) to (9) as (8) to (10),

respectively.

Subsec. (e)(10). Pub. L. 98-369, Sec. 59(a), added par. (10).

Subsec. (e)(10)(C). Pub. L. 98-369, Sec. 59(b)(1), which added

subpar. (C), effective as if included in the amendments made by

section 806(e) and (f) of Pub. L. 94-455, was repealed by Pub. L.

99-514, Sec. 621(e), (f)(2), eff. Jan. 1, 1986, with certain

exceptions, see Effective Date of 1986 Amendment note below.

Subsec. (f). Pub. L. 98-369, Sec. 1076(a), added subsec. (f).

1983 - Subsec. (b)(2)(B)(v). Pub. L. 97-448, Sec. 102(h)(1),

added cl. (v).

Subsec. (e)(7)(A)(iii). Pub. L. 97-448, Sec. 304(d), added cl.

(iii).

1982 - Subsec. (d)(6). Pub. L. 97-354 inserted "or S corporation

shareholder level" in heading and inserted "In the case of an S

corporation, subsections (a), (b), and (c) shall be applied at the

shareholder level."

1980 - Pub. L. 96-589 completely revised and expanded provisions

by specifying the types of indebtedness and by setting out

priorities among the exclusions, to reflect the revision of Title

11, Bankruptcy, in 1978.

1976 - Pub. L. 94-455, Sec. 1951(b)(2)(A), struck out "(a)

Special rule of exclusion. - " after "Income from discharge of

indebtedness" and struck out subsec. (b) which related to

discharge, cancellation, or modification of indebtedness of certain

railroad corporations.

Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out "or his delegate"

after "Secretary".

1960 - Subsec. (b). Pub. L. 86-496 provided that if the

discharge, cancellation, or modification of any indebtedness is

effected pursuant to a court order in a receivership proceeding or

in a proceeding under section 77 of the Bankruptcy Act, commenced

before Jan. 1, 1960, then no amount is to be included in gross

income with respect to it, and struck out provisions which made

subsection inapplicable to discharges occurring in a taxable year

beginning after Dec. 31, 1957.

1956 - Subsec. (b). Act June 29, 1956, substituted "December 31,

1957" for "December 31, 1955".

EFFECTIVE DATE OF 2002 AMENDMENT

Pub. L. 107-147, title IV, Sec. 402(b), Mar. 9, 2002, 116 Stat.

40, provided that:

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

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

to discharges of indebtedness after October 11, 2001, in taxable

years ending after such date.

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

apply to any discharge of indebtedness before March 1, 2002,

pursuant to a plan of reorganization filed with a bankruptcy court

on or before October 11, 2001."

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 225(b) of Pub. L. 105-34 provided that: "The amendments

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

discharges of indebtedness after the date of the enactment of this

Act [Aug. 5, 1997]."

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 1993 AMENDMENT

Section 13150(d) of Pub. L. 103-66 provided that: "The amendments

made by this section [amending this section and sections 703 and

1017 of this title] shall apply to discharges after December 31,

1992, in taxable years ending after such date."

Section 13226(a)(3) of Pub. L. 103-66 provided that:

"(A) In general. - Except as otherwise provided in this

paragraph, the amendments made by this subsection [amending this

section and section 382 of this title] shall apply to stock

transferred after December 31, 1994, in satisfaction of any

indebtedness.

"(B) Exception for title 11 cases. - The amendments made by this

subsection shall not apply to stock transferred in satisfaction of

any indebtedness if such transfer is in a title 11 or similar case

(as defined in section 368(a)(3)(A) of the Internal Revenue Code of

1986) which was filed on or before December 31, 1993."

Section 13226(b)(4) of Pub. L. 103-66 provided that: "The

amendments made by this subsection [amending this section] shall

apply to discharges of indebtedness in taxable years beginning

after December 31, 1993."

EFFECTIVE DATE OF 1990 AMENDMENT

Section 11325(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 section

1275 of this title] shall apply to debt instruments issued, and

stock transferred, after October 9, 1990, in satisfaction of any

indebtedness.

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

apply to any debt instrument issued, or stock transferred, in

satisfaction of any indebtedness if such issuance or transfer (as

the case may be) -

"(A) is in a title 11 or similar case (as defined in section

368(a)(3)(A) of the Internal Revenue Code of 1986) which was

filed on or before October 9, 1990,

"(B) is pursuant to a written binding contract in effect on

October 9, 1990, and at all times thereafter before such issuance

or transfer,

"(C) is pursuant to a transaction which was described in

documents filed with the Securities and Exchange Commission on or

before October 9, 1990, or

"(D) is pursuant to a transaction -

"(i) the material terms of which were described in a written

public announcement on or before October 9, 1990,

"(ii) which was the subject of a prior filing with the

Securities and Exchange Commission, and

"(iii) which is the subject of a subsequent filing with the

Securities and Exchange Commission before January 1, 1991."

Amendment by section 11813(b)(6) 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

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 104(b)(2) 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 231(d)(3)(D) 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.

Section 405(c) of Pub. L. 99-514 provided that: "The amendments

made by this section [amending this section and section 1017 of

this title] shall apply to discharges of indebtedness occurring

after April 9, 1986, in taxable years ending after such date."

Repeal by section 621(e)(1) of Pub. L. 99-514 of amendment by

section 59(b)(1) of Pub. L. 99-369, which was effective as if

included in the amendments made by section 806(e) and (f) of Pub.

L. 94-455, effective Jan. 1, 1986, with certain exceptions, see

section 621(f)(2) of Pub. L. 99-514, set out as a note under

section 382 of this title.

Amendment by section 805(c)(2), (4) of Pub. L. 99-514 applicable

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

changes required in method of accounting, see section 805(d) of

Pub. L. 99-514, set out as a note under section 166 of this title.

Section 822(c) of Pub. L. 99-514 provided that: "The amendments

made by this section [amending this section and section 1017 of

this title] shall apply to discharges after December 31, 1986."

Amendment by section 1171(b)(4) of Pub. L. 99-514 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 a note under section 38 of

this title.

Amendment by section 1847(b)(7) 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

Section 59(b)(2) of Pub. L. 98-369 provided that: "The amendment

made by paragraph (1) [amending this section] shall take effect as

if it had been included in the amendments made by subsections (e)

and (f) of section 806 of the Tax Reform Act of 1976 [Pub. L.

94-455]." See Effective Date of 1976 Amendment note set out under

section 382 of this title.

Section 59(b)[(c)] of Pub. L. 98-369 provided that:

"(1) In general. - Except as otherwise provided in this

subsection, the amendment made by subsection (a) [amending this

section] shall apply to transfers after the date of the enactment

of this Act [July 18, 1984] in taxable years ending after such

date.

"(2) Transitional rule. - The amendment made by subsection (a)

shall not apply to the transfer by a corporation of its stock in

exchange for debt of the corporation after the date of the

enactment of this Act if such transfer is -

"(A) pursuant to a written contract requiring such transfer

which was binding on the corporation at all times on June 7,

1984, and at all times after such date but only if the transfer

takes place before January 1, 1985, and only if the transferee

held the debt at all times on June 7, 1984, or

"(B) pursuant to the exercise of an option to exchange debt for

stock but only if such option was in effect at all times on June

7, 1984, and at all times after such date and only if at all

times on June 7, 1984, the option and the debt were held by the

same person.

"(3) Certain transfers to controlling shareholder. - The

amendment made by subsection (a) shall not apply to any transfer

before January 1, 1985, by a corporation of its stock in exchange

for debt of such corporation if -

"(A) such transfer is to another corporation which at all times

on June 7, 1984, owned 75 percent or more of the total value of

the stock of the corporation making such transfer, and

"(B) immediately after such transfer, the transferee

corporation owns 80 percent or more of the total value of the

stock of the transferor corporation.

"(4) Certain transfers pursuant to debt restructure agreement. -

The amendment made by subsection (a) shall not apply to the

transfer by a corporation of its stock in exchange for debt of the

corporation after the date of the enactment of this Act and before

January 1, 1985, if -

"(A) such transfer is covered by a debt restructure agreement

entered into by the corporation during November 1983, and

"(B) such agreement was specified in a registration statement

filed with the Securities and Exchange Commission by the

corporation on March 7, 1984."

Amendment by section 474(r)(5) 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 721(b) of Pub. L. 98-369 applicable to

contributions to capital after Dec. 31, 1980, in taxable years

ending after such date, see section 721(y)(2) of Pub. L. 98-369,

set out as a note under section 1361 of this title.

Section 1076(b) of Pub. L. 98-369 provided that: "The amendments

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

discharges of indebtedness made on or after January 1, 1983."

EFFECTIVE DATE OF 1983 AMENDMENT

Amendment by title I of Pub. L. 97-448 effective, except as

otherwise provided, as if it had been included in the provision of

the Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such

amendment relates, see section 109 of Pub. L. 97-448, set out as a

note under section 1 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 1980 AMENDMENT

Section 7 of Pub. L. 96-589, as amended by Pub. L. 99-514, Sec.

2, Oct. 22, 1986, 100 Stat. 2095, provided that:

"(a) For Section 2 (Relating to Tax Treatment of Discharge of

Indebtedness). -

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

amendments made by section 2 [amending this section and sections

111, 118, 382, 703 and 1017 of this title] shall apply to any

transaction which occurs after December 31, 1980, other than a

transaction which occurs in a proceeding in a bankruptcy case or

similar judicial proceeding (or in a proceeding under the

Bankruptcy Act) [Title 11, Bankruptcy] commencing on or before

December 31, 1980.

"(2) Transitional rule. - In the case of any discharge of

indebtedness to which subparagraph (A) or (B) of section

108(a)(1) of the Internal Revenue Code of 1986 [formerly I.R.C.

1954] (relating to exclusion from gross income), as amended by

section 2, applies and which occurs before January 1, 1982, or

which occurs in a proceeding in a bankruptcy case or similar

judicial proceedings commencing before January 1, 1982, then -

"(A) section 108(b)(2) of the such Code (relating to

reduction of tax attributes), as so amended, shall be applied

without regard to subparagraphs (A), (B), (C), and (E) thereof,

and

"(B) the basis of any property shall not be reduced under

section 1017 of such Code (relating to reduction in basis in

connection with discharges of indebtedness), as so amended,

below the fair market value of such property on the date the

debt is discharged.

"(b) For Section 3 (Relating to Rules Relating to Title 11 Cases

for Individuals). - The amendments made by section 3 [enacting

sections 1398 and 1399 of this title and amending sections 443,

6012 and 6103 of this title] shall apply to any bankruptcy case

commencing more than 90 days after the date of the enactment of

this Act [Dec. 24, 1980].

"(c) For Section 4 (Relating to Corporate Reorganization

Provisions). -

"(1) In general. - The amendments made by section 4 [enacting

section 370 of this title and amending sections 354, 355, 357,

368 and 381 of this title] shall apply to any bankruptcy case or

similar judicial proceeding commencing after December 31, 1980.

"(2) Exchanges of property for accrued interest. - The

amendments made by subsection (e) of section 4 [amending sections

354 and 355 of this title] (relating to treatment of property

attributable to accrued interest) shall also apply to any

exchange -

"(A) which occurs after December 31, 1980, and

"(B) which does not occur in a bankruptcy case or similar

judicial proceeding (or in a proceeding under the Bankruptcy

Act) commenced on or before December 31, 1980.

"(d) For Section 5 (Relating to Miscellaneous Corporate

Amendments). -

"(1) For subsection (a) (relating to exemption from personal

holding company tax). - The amendments made by subsection (a) of

section 5 [amending section 542 of this title] shall apply to any

bankruptcy case or similar judicial proceeding commenced after

December 31, 1980.

"(2) For subsection (b) (relating to repeal of special

treatment for certain railroad redemptions). - The amendments

made by subsection (b) of section 5 [amending section 302 of this

title] shall apply to stock which is issued after December 31,

1980 (other than stock issued pursuant to a plan of

reorganization approved on or before that date).

"(3) For subsection (c) (relating to application of 12-month

liquidation rule). - The amendment made by subsection (c) of

section 5 [amending section 337 of this title] shall apply to any

bankruptcy case or similar judicial proceeding commenced after

December 31, 1980.

"(4) For subsection (d) (relating to permitting bankruptcy

estate to be subchapter s shareholder). - The amendment made by

subsection (d) of section 5 [amending section 1371 of this title]

shall apply to any bankruptcy case commenced on or after October

1, 1979.

"(5) For subsection (e) (relating to certain transfers to

controlled corporations). - The amendments made by subsection (e)

of section 5 [amending section 351 of this title] shall apply as

provided in subsection (a) of this section.

"(6) For subsection (f) (relating to effect of debt discharge

on earnings and profits). - The amendment made by subsection (f)

of section 5 [amending section 312 of this title] shall apply as

provided in subsection (a) of this section.

"(e) For Section 6 (Relating to Changes in Tax Procedures). - The

amendments made by section 6 [enacting sections 6658 and 7464 of

this title, amending sections 128, 354, 422, 1023, 3302, 6012,

6036, 6155, 6161, 6212, 6213, 6216, 6326 [now 6327], 6404, 6503,

6512, 6532, 6871, 6872, 6873, 7430, and 7508 of this title,

repealing section 1018 of this title, and redesignating former

section 7464 of this title as 7465] shall take effect on October 1,

1979, but shall not apply to any proceeding under the Bankruptcy

Act [Title 11] commenced before October 1, 1979.

"(f) Election To Substitute September 30, 1979, for December 31,

1980. -

"(1) In general. - The debtor (or debtors) in a bankruptcy case

or similar judicial proceeding may (with the approval of the

court) elect to apply subsections (a), (c), and (d) by

substituting 'September 30, 1979' for 'December 31, 1980' each

place it appears in such subsections.

"(2) Effect of election. - Any election made under paragraph

(1) with respect to any proceeding shall apply to all parties to

the proceeding.

"(3) Revocation only with consent. - Any election under this

subsection may be revoked only with the consent of the Secretary

of the Treasury or his delegate.

"(4) Time and manner of election. - Any election under this

subsection shall be made at such time, and in such manner, as the

Secretary of the Treasury or his delegate may by regulations

prescribe.

"(g) Definitions. - For purposes of this section -

"(1) Bankruptcy case. - The term 'bankruptcy case' means any

case under title 11 of the United States Code (as recodified by

Public Law 95-598).

"(2) Similar judicial proceeding. - The term 'similar judicial

proceeding' means a receivership, foreclosure, or similar

proceeding in a Federal or State court (as modified by section

368(a)(3)(D) of the Internal Revenue Code of 1986)."

EFFECTIVE DATE OF 1976 AMENDMENT

Amendment by section 1951(b)(2)(A) of Pub. L. 94-455 applicable

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

section 1951(d) of Pub. L. 94-455, set out as a note under section

72 of this title.

EFFECTIVE DATE OF 1960 AMENDMENT

Section 1(b) of Pub. L. 86-496 provided that: "The amendment made

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

years ending after December 31, 1959, but only with respect to

discharges occurring after such date."

SAVINGS PROVISION

For provisions that nothing in amendment by section 11813 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.

Section 1951(b)(2)(B) of Pub. L. 94-455 provided that: "If any

discharge, cancellation, or modification of indebtedness of a

railroad corporation occurs in a taxable year beginning after

December 31, 1976, pursuant to an order of a court in a proceeding

referred to in section 108(b)(A) or (B) which commenced before

January 1, 1960, then, notwithstanding the amendments made by

subparagraph (A) [amending this section] the provisions of

subsection (b) of section 108 shall be considered as not repealed

with respect to such discharge, cancellation, or modification of

indebtedness."

EXCLUSION OF CERTAIN CANCELLATIONS OF INDEBTEDNESS

Pub. L. 107-134, title I, Sec. 105, Jan. 23, 2002, 115 Stat.

2432, provided that:

"(a) In General. - For purposes of the Internal Revenue Code of

1986 -

"(1) gross income shall not include any amount which (but for

this section) would be includible in gross income by reason of

the discharge (in whole or in part) of indebtedness of any

taxpayer if the discharge is by reason of the death of an

individual incurred as the result of the terrorist attacks

against the United States on September 11, 2001, or as the result

of illness incurred as a result of an attack involving anthrax

occurring on or after September 11, 2001, and before January 1,

2002; and

"(2) return requirements under section 6050P of such Code shall

not apply to any discharge described in paragraph (1).

"(b) Effective Date. - This section shall apply to discharges

made on or after September 11, 2001, and before January 1, 2002."

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 118, 147, 382, 703, 773,

774, 1017, 1503 of this title.

-End-

-CITE-

26 USC Sec. 109 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter B - Computation of Taxable Income

PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

-HEAD-

Sec. 109. Improvements by lessee on lessor's property

-STATUTE-

Gross income does not include income (other than rent) derived by

a lessor of real property on the termination of a lease,

representing the value of such property attributable to buildings

erected or other improvements made by the lessee.

-SOURCE-

(Aug. 16, 1954, ch. 736, 68A Stat. 33.)

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in section 1019 of this title.

-End-

-CITE-

26 USC Sec. 110 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter B - Computation of Taxable Income

PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

-HEAD-

Sec. 110. Qualified lessee construction allowances for short-term

leases

-STATUTE-

(a) In general

Gross income of a lessee does not include any amount received in

cash (or treated as a rent reduction) by a lessee from a lessor -

(1) under a short-term lease of retail space, and

(2) for the purpose of such lessee's constructing or improving

qualified long-term real property for use in such lessee's trade

or business at such retail space,

but only to the extent that such amount does not exceed the amount

expended by the lessee for such construction or improvement.

(b) Consistent treatment by lessor

Qualified long-term real property constructed or improved in

connection with any amount excluded from a lessee's income by

reason of subsection (a) shall be treated as nonresidential real

property of the lessor (including for purposes of section

168(i)(8)(B)).

(c) Definitions

For purposes of this section -

(1) Qualified long-term real property

The term "qualified long-term real property" means

nonresidential real property which is part of, or otherwise

present at, the retail space referred to in subsection (a) and

which reverts to the lessor at the termination of the lease.

(2) Short-term lease

The term "short-term lease" means a lease (or other agreement

for occupancy or use) of retail space for 15 years or less (as

determined under the rules of section 168(i)(3)).

(3) Retail space

The term "retail space" means real property leased, occupied,

or otherwise used by a lessee in its trade or business of selling

tangible personal property or services to the general public.

(d) Information required to be furnished to Secretary

Under regulations, the lessee and lessor described in subsection

(a) shall, at such times and in such manner as may be provided in

such regulations, furnish to the Secretary -

(1) information concerning the amounts received (or treated as

a rent reduction) and expended as described in subsection (a),

and

(2) any other information which the Secretary deems necessary

to carry out the provisions of this section.

-SOURCE-

(Added Pub. L. 105-34, title XII, Sec. 1213(a), Aug. 5, 1997, 111

Stat. 1000.)

-MISC1-

PRIOR PROVISIONS

A prior section 110, act Aug. 16, 1954, ch. 736, 68A Stat. 33,

related to income taxes paid by lessee corporations, prior to

repeal by Pub. L. 101-508, title XI, Sec. 11801(a)(6), Nov. 5,

1990, 104 Stat. 1388-520.

EFFECTIVE DATE

Section 1213(e) of Pub. L. 105-34 provided that: "The amendments

made by this section [enacting this section and amending sections

168 and 6724 of this title] shall apply to leases entered into

after the date of the enactment of this Act [Aug. 5, 1997]."

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 168, 6724 of this title.

-End-

-CITE-

26 USC Sec. 111 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter B - Computation of Taxable Income

PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

-HEAD-

Sec. 111. Recovery of tax benefit items

-STATUTE-

(a) Deductions

Gross income does not include income attributable to the recovery

during the taxable year of any amount deducted in any prior taxable

year to the extent such amount did not reduce the amount of tax

imposed by this chapter.

(b) Credits

(1) In general

If -

(A) a credit was allowable with respect to any amount for any

prior taxable year, and

(B) during the taxable year there is a downward price

adjustment or similar adjustment,

the tax imposed by this chapter for the taxable year shall be

increased by the amount of the credit attributable to the

adjustment.

(2) Exception where credit did not reduce tax

Paragraph (1) shall not apply to the extent that the credit

allowable for the recovered amount did not reduce the amount of

tax imposed by this chapter.

(3) Exception for investment tax credit and foreign tax credit

This subsection shall not apply with respect to the credit

determined under section 46 and the foreign tax credit.

(c) Treatment of carryovers

For purposes of this section, an increase in a carryover which

has not expired before the beginning of the taxable year in which

the recovery or adjustment takes place shall be treated as reducing

tax imposed by this chapter.

(d) Special rules for accumulated earnings tax and for personal

holding company tax

In applying subsection (a) for the purpose of determining the

accumulated earnings tax under section 531 or the tax under section

541 (relating to personal holding companies) -

(1) any excluded amount under subsection (a) allowed for the

purposes of this subtitle (other than section 531 or section 541)

shall be allowed whether or not such amount resulted in a

reduction of the tax under section 531 or the tax under section

541 for the prior taxable year; and

(2) where any excluded amount under subsection (a) was not

allowable as a deduction for the prior taxable year for purposes

of this subtitle other than of section 531 or section 541 but was

allowable for the same taxable year under section 531 or section

541, then such excluded amount shall be allowable if it did not

result in a reduction of the tax under section 531 or the tax

under section 541.

-SOURCE-

(Aug. 16, 1954, ch. 736, 68A Stat. 33; Pub. L. 94-455, title XIX,

Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 96-589,

Sec. 2(c), Dec. 24, 1980, 94 Stat. 3396; Pub. L. 98-369, div. A,

title I, Sec. 171(a), July 18, 1984, 98 Stat. 698; Pub. L. 99-514,

title XVIII, Sec. 1812(a)(1), (2), Oct. 22, 1986, 100 Stat. 2833.)

-MISC1-

AMENDMENTS

1986 - Subsec. (a). Pub. L. 99-514, Sec. 1812(a)(1), substituted

"did not reduce the amount of tax imposed by this chapter" for "did

not reduce income subject to tax".

Subsec. (c). Pub. L. 99-514, Sec. 1812(a)(2), substituted

"reducing tax imposed by this chapter" for "reducing income subject

to tax or reducing tax imposed by this chapter, as the case may

be".

1984 - Pub. L. 98-369 amended section generally, substituting

provisions relating to recovery of tax benefit items for provisions

relating to recovery of bad debts, prior taxes, and delinquency

amounts.

1980 - Subsec. (d). Pub. L. 96-589 added subsec. (d).

1976 - Subsec. (b)(4). Pub. L. 94-455 struck out "or his

delegate" after "Secretary".

EFFECTIVE DATE OF 1986 AMENDMENT

Amendment by 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

Section 171(c) of Pub. L. 98-369 provided that: "The amendments

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

recovered after December 31, 1983, in taxable years ending after

such date."

EFFECTIVE DATE OF 1980 AMENDMENT

Amendment by Pub. L. 96-589 applicable to transactions which

occur after Dec. 31, 1980, other than transactions which occur in a

proceeding in a bankruptcy case or similar judicial proceeding or

in a proceeding under Title 11 commencing on or after Dec. 31,

1980, with an exception permitting the debtor to make the amendment

applicable to transactions occurring after Sept. 30, 1979, in a

specified manner, see section 7(a)(1), (f) of Pub. L. 96-589, set

out as a note under section 108 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 381, 1351, 1398 of this

title.

-End-

-CITE-

26 USC Sec. 112 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter B - Computation of Taxable Income

PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

-HEAD-

Sec. 112. Certain combat zone compensation of members of the Armed

Forces

-STATUTE-

(a) Enlisted personnel

Gross income does not include compensation received for active

service as a member below the grade of commissioned officer in the

Armed Forces of the United States for any month during any part of

which such member -

(1) served in a combat zone, or

(2) was hospitalized as a result of wounds, disease, or injury

incurred while serving in a combat zone; but this paragraph shall

not apply for any month beginning more than 2 years after the

date of the termination of combatant activities in such zone.

With respect to service in the combat zone designated for purposes

of the Vietnam conflict, paragraph (2) shall not apply to any month

after January 1978.

(b) Commissioned officers

Gross income does not include so much of the compensation as does

not exceed the maximum enlisted amount received for active service

as a commissioned officer in the Armed Forces of the United States

for any month during any part of which such officer -

(1) served in a combat zone, or

(2) was hospitalized as a result of wounds, disease, or injury

incurred while serving in a combat zone; but this paragraph shall

not apply for any month beginning more than 2 years after the

date of the termination of combatant activities in such zone.

With respect to service in the combat zone designated for purposes

of the Vietnam conflict, paragraph (2) shall not apply to any month

after January 1978.

(c) Definitions

For purposes of this section -

(1) The term "commissioned officer" does not include a

commissioned warrant officer.

(2) The term "combat zone" means any area which the President

of the United States by Executive Order designates, for purposes

of this section or corresponding provisions of prior income tax

laws, as an area in which Armed Forces of the United States are

or have (after June 24, 1950) engaged in combat.

(3) Service is performed in a combat zone only if performed on

or after the date designated by the President by Executive Order

as the date of the commencing of combatant activities in such

zone, and on or before the date designated by the President by

Executive Order as the date of the termination of combatant

activities in such zone; except that June 25, 1950, shall be

considered the date of the commencing of combatant activities in

the combat zone designated in Executive Order 10195.

(4) The term "compensation" does not include pensions and

retirement pay.

(5) The term "maximum enlisted amount" means, for any month,

the sum of -

(A) the highest rate of basic pay payable for such month to

any enlisted member of the Armed Forces of the United States at

the highest pay grade applicable to enlisted members, and

(B) in the case of an officer entitled to special pay under

section 310 of title 37, United States Code, for such month,

the amount of such special pay payable to such officer for such

month.

(d) Prisoners of war, etc.

(1) Members of the Armed Forces

Gross income does not include compensation received for active

service as a member of the Armed Forces of the United States for

any month during any part of which such member is in a missing

status (as defined in section 551(2) of title 37, United States

Code) during the Vietnam conflict as a result of such conflict,

other than a period with respect to which it is officially

determined under section 552(c) of such title 37 that he is

officially absent from his post of duty without authority.

(2) Civilian employees

Gross income does not include compensation received for active

service as an employee for any month during any part of which

such employee is in a missing status during the Vietnam conflict

as a result of such conflict. For purposes of this paragraph, the

terms "active service", "employee", and "missing status" have the

respective meanings given to such terms by section 5561 of title

5 of the United States Code.

(3) Period of conflict

For purposes of this subsection, the Vietnam conflict began

February 28, 1961, and ends on the date designated by the

President by Executive order as the date of the termination of

combatant activities in Vietnam. For purposes of this subsection,

an individual is in a missing status as a result of the Vietnam

conflict if immediately before such status began he was

performing service in Vietnam or was performing service in

Southeast Asia in direct support of military operations in

Vietnam.

-SOURCE-

(Aug. 16, 1954, ch. 736, 68A Stat. 34; Pub. L. 89-739, Sec. 1, Nov.

2, 1966, 80 Stat. 1165; Pub. L. 92-279, Sec. 1, Apr. 26, 1972, 86

Stat. 124; Pub. L. 93-597, Sec. 2(a), (b), Jan. 2, 1975, 88 Stat.

1950; Pub. L. 94-569, Sec. 3(b), Oct. 20, 1976, 90 Stat. 2699; Pub.

L. 104-117, Sec. 1(d), Mar. 20, 1996, 110 Stat. 828; Pub. L.

104-188, title I, Sec. 1704(t)(4)(A), Aug. 20, 1996, 110 Stat.

1887.)

-MISC1-

AMENDMENTS

1996 - Pub. L. 104-188 substituted "combat zone compensation" for

"combat pay" in section catchline.

Subsec. (b). Pub. L. 104-117, Sec. 1(d)(1), substituted "the

maximum enlisted amount" for "$500" in introductory provisions.

Subsec. (c)(5). Pub. L. 104-117, Sec. 1(d)(2), added par. (5).

1976 - Subsec. (a). Pub. L. 94-569 substituted "after January

1978" for "beginning more than 2 years after the date of the

enactment of this sentence" after "With respect to service in the

combat zone designated for purposes of the Vietnam conflict,

paragraph (2) shall not apply to any month".

Subsec. (b). Pub. L. 94-569 substituted "after January 1978" for

"beginning more than 2 years after the date of enactment of this

sentence" after "With respect to service in the combat zone

designated for purposes of the Vietnam conflict, paragraph (2)

shall not apply to any month".

1975 - Subsec. (a). Pub. L. 93-597, Sec. 2(a)(3), inserted

provision relating to the applicability of par. (2) with respect to

service in the combat zone designated for purposes of the Vietnam

conflict.

Subsec. (a)(1). Pub. L. 93-597, Sec. 2(a)(1), struck out "during

an induction period" after "served in a combat zone".

Subsec. (a)(2). Pub. L. 93-597, Sec. 2(a)(2), substituted "; but

this paragraph shall not apply for any month beginning more than 2

years after the date of the termination of combatant activities in

such zone" for "during an induction period; but this paragraph

shall not apply for any month during any part of which there are no

combatant activities in any combat zone as determined under

subsection (c)(3) of this section".

Subsec. (b). Pub. L. 93-597, Sec. 2(a)(3), inserted provision

relating to applicability of par. (2) with respect to service in

the combat zone designated for purposes of the Vietnam conflict.

Subsec. (b)(1). Pub. L. 93-597, Sec. 2(a)(1), struck out "during

an induction period" after "served in a combat zone".

Subsec. (b)(2). Pub. L. 93-597, Sec. 2(a)(2), substituted "; but

this paragraph shall not apply for any month beginning more than 2

years after the date of the termination of combatant activities in

such zone" for "during an induction period; but this paragraph

shall not apply for any month during any part of which there are no

combatant activities in any combat zone as determined under

subsection (c)(3) of this section".

Subsec. (c)(5). Pub. L. 93-597, Sec. 2(b), struck out par. (5)

which defined "induction period".

1972 - Subsec. (d). Pub. L. 92-279 added subsec. (d).

1966 - Subsec. (b). Pub. L. 89-739 substituted "$500" for "$200".

EFFECTIVE DATE OF 1975 AMENDMENT

Section 2(c) of Pub. L. 93-597 provided that: "The amendments

made by this section [amending this section] shall take effect on

July 1, 1973."

EFFECTIVE DATE OF 1972 AMENDMENT

Section 3(a)(1) of Pub. L. 92-279 provided that: "The amendment

made by the first section of this Act [amending this section] shall

apply to taxable years ending on or after February 28, 1961."

EFFECTIVE DATE OF 1966 AMENDMENT

Section 2 of Pub. L. 89-739 provided that: "The amendment made by

the first section of this Act [amending this section] shall apply

with respect to compensation received in taxable years ending after

December 31, 1965, for periods of active service after such date."

SENSE OF CONGRESS REGARDING TAX TREATMENT OF MEMBERS RECEIVING

SPECIAL PAY FOR DUTY SUBJECT TO HOSTILE FIRE OR IMMINENT DANGER

Pub. L. 106-398, Sec. 1 [[div. A], title X, Sec. 1089], Oct. 30,

2000, 114 Stat. 1654, 1654A-294, provided that: "It is the sense of

Congress that members of the Armed Forces who receive special pay

under section 310 of title 37, United States Code, for duty subject

to hostile fire or imminent danger should receive the same

treatment under Federal income tax laws as members serving in

combat zones."

SENSE OF CONGRESS REGARDING TREATMENT UNDER INTERNAL REVENUE CODE

OF MEMBERS RECEIVING HOSTILE FIRE OR IMMINENT DANGER SPECIAL PAY

DURING CONTINGENCY OPERATIONS

Pub. L. 106-65, div. A, title VI, Sec. 677, Oct. 5, 1999, 113

Stat. 676, provided that: "It is the sense of Congress that a

member of the Armed Forces who is receiving special pay under

section 310 of title 37, United States Code, while assigned to duty

in support of a contingency operation should be treated under the

Internal Revenue Code of 1986 in the same manner as a member of the

Armed Forces serving in a combat zone (as defined in section 112 of

the Internal Revenue Code of 1986)."

AVAILABILITY OF CERTAIN TAX BENEFITS FOR SERVICES AS PART OF

OPERATION ALLIED FORCE

Pub. L. 106-21, Sec. 1, Apr. 19, 1999, 113 Stat. 34, provided

that:

"(a) General Rule. - For purposes of the following provisions of

the Internal Revenue Code of 1986, a qualified hazardous duty area

shall be treated in the same manner as if it were a combat zone (as

determined under section 112 of such Code):

"(1) Section 2(a)(3) (relating to special rule where deceased

spouse was in missing status).

"(2) Section 112 (relating to the exclusion of certain combat

pay of members of the Armed Forces).

"(3) Section 692 (relating to income taxes of members of Armed

Forces on death).

"(4) Section 2201 (relating to members of the Armed Forces

dying in combat zone or by reason of combat-zone-incurred wounds,

etc.).

"(5) Section 3401(a)(1) (defining wages relating to combat pay

for members of the Armed Forces).

"(6) Section 4253(d) (relating to the taxation of phone service

originating from a combat zone from members of the Armed Forces).

"(7) Section 6013(f)(1) (relating to joint return where

individual is in missing status).

"(8) Section 7508 (relating to time for performing certain acts

postponed by reason of service in combat zone).

"(b) Qualified Hazardous Duty Area. - For purposes of this

section, the term 'qualified hazardous duty area' means any area of

the Federal Republic of Yugoslavia (Serbia/Montenegro), Albania,

the Adriatic Sea, and the northern Ionian Sea (above the 39th

parallel) during the period (which includes the date of the

enactment of this Act [Apr. 19, 1999]) that any member of the Armed

Forces of the United States is entitled to special pay under

section 310 of title 37, United States Code (relating to special

pay: duty subject to hostile fire or imminent danger) for services

performed in such area.

"(c) Special Rule for Section 7508. - Solely for purposes of

applying section 7508 of the Internal Revenue Code of 1986, in the

case of an individual who is performing services as part of

Operation Allied Force outside the United States while deployed

away from such individual's permanent duty station, the term

'qualified hazardous duty area' includes, during the period for

which the entitlement referred to in subsection (b) is in effect,

any area in which such services are performed.

"(d) Effective Dates. -

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

section shall take effect on March 24, 1999.

"(2) Withholding. - Subsection (a)(5) shall apply to

remuneration paid after the date of the enactment of this Act

[Apr. 19, 1999]."

TREATMENT OF CERTAIN INDIVIDUALS PERFORMING SERVICES IN CERTAIN

HAZARDOUS DUTY AREAS; EFFECTIVE DATE

Section 1 of Pub. L. 104-117 provided that:

"(a) General Rule. - For purposes of the following provisions of

the Internal Revenue Code of 1986, a qualified hazardous duty area

shall be treated in the same manner as if it were a combat zone (as

determined under section 112 of such Code):

"(1) Section 2(a)(3) (relating to special rule where deceased

spouse was in missing status).

"(2) Section 112 (relating to the exclusion of certain combat

pay of members of the Armed Forces).

"(3) Section 692 (relating to income taxes of members of Armed

Forces on death).

"(4) Section 2201 (relating to members of the Armed Forces

dying in combat zone or by reason of combat-zone-incurred wounds,

etc.).

"(5) Section 3401(a)(1) (defining wages relating to combat pay

for members of the Armed Forces).

"(6) Section 4253(d) (relating to the taxation of phone service

originating from a combat zone from members of the Armed Forces).

"(7) Section 6013(f)(1) (relating to joint return where

individual is in missing status).

"(8) Section 7508 (relating to time for performing certain acts

postponed by reason of service in combat zone).

"(b) Qualified Hazardous Duty Area. - For purposes of this

section, the term 'qualified hazardous duty area' means Bosnia and

Herzegovina, Croatia, or Macedonia, if as of the date of the

enactment of this section [Mar. 20, 1996] any member of the Armed

Forces of the United States is entitled to special pay under

section 310 of title 37, United States Code (relating to special

pay; duty subject to hostile fire or imminent danger) for services

performed in such country. Such term includes any such country only

during the period such entitlement is in effect. Solely for

purposes of applying section 7508 of the Internal Revenue Code of

1986, in the case of an individual who is performing services as

part of Operation Joint Endeavor outside the United States while

deployed away from such individual's permanent duty station, the

term 'qualified hazardous duty area' includes, during the period

for which such entitlement is in effect, any area in which such

services are performed.

"(c) Exclusion of Combat Pay From Withholding Limited to Amount

Excludable From Gross Income. - [Amended section 3401 of this

title.]

"(d) Increase in Combat Pay Exclusion for Officers to Highest

Amount Applicable to Enlisted Personnel. -

"(1) In general. - [Amended this section.]

"(2) Maximum enlisted amount. - [Amended this section.]

"(e) Effective Date. -

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

provisions of and amendments made by this section shall take

effect on November 21, 1995.

"(2) Withholding. - Subsection (a)(5) and the amendment made by

subsection (c) shall apply to remuneration paid after the date of

the enactment of this Act [Mar. 20, 1996]."

REFUND OR CREDIT OF OVERPAYMENT; APPLICABLE PERIOD

Section 3(a)(2), (3) of Pub. L. 92-279, as amended by Pub. L.

99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:

"(2) If refund or credit of any overpayment for any taxable year

resulting from the application of the amendment made by the first

section of this Act [amending this section] (including interest,

additions to the tax, and additional amounts) is prevented at any

time before the expiration of the applicable period specified in

paragraph (3) by the operation of any law or rule of law, such

refund or credit of such overpayment may, nevertheless, be made or

allowed if claim therefor is filed before the expiration of such

applicable period.

"(3) For purposes of paragraph (2), the applicable period for any

individual with respect to any compensation is the period ending on

whichever of the following days is the later:

"(A) the day which is one year after the date of the enactment

of this Act [Apr. 26, 1972], or

"(B) the day which is 2 years after the date on which it is

determined that the individual's missing status (within the

meaning of section 112(d) of the Internal Revenue Code of 1986

[formerly I.R.C. 1954]) has terminated for purposes of such

section 112."

-EXEC-

EX. ORD. NO. 10585. TERMINATION OF COMBATANT ACTIVITIES IN KOREA

Ex. Ord. No. 10585, Jan. 1, 1955, 20 F.R. 17, provided:

By virtue of the authority vested in me by section 112(c)(3) of

the Internal Revenue Code of 1954 [now I.R.C. 1986], January 31,

1955, as of midnight thereof, is hereby designated as the date of

termination of combatant activities in the zone comprised of the

area described in Executive Order No. 10195 of December 20, 1950

(15 F.R. 9177).

Dwight D. Eisenhower.

EX. ORD. NO. 11216. DESIGNATION OF VIETNAM AND ADJACENT WATERS AS

COMBAT ZONE

Ex. Ord. No. 11216, Apr. 24, 1965, 30 F.R. 5817, provided:

Pursuant to the authority vested in me by section 112 of the

Internal Revenue Code of 1954 [now I.R.C. 1986], I hereby

designate, for the purposes of that section, as an area in which

Armed Forces of the United States are and have been engaged in

combat:

Vietnam, including the waters adjacent thereto within the

following-described limits: From a point on the East Coast of

Vietnam at the juncture of Vietnam with China southeastward to

21G6&#186;<!-- degrees --> N Lat., 108G6&#186;<!-- degrees -->15

E Long.; thence southward to 18G6&#186;<!-- degrees --> N Lat.,

108G6&#186;<!-- degrees -->15 E Long.; thence southeastward to

17G6&#186;<!-- degrees -->30 N Lat., 111G6&#186;<!-- degrees -->

E Long.; thence southward to 11G6&#186;<!-- degrees --> N Lat.,

111G6&#186;<!-- degrees --> E Long.; thence southwestward to

7G6&#186;<!-- degrees --> N Lat., 105G6&#186;<!-- degrees --> E

Long.; thence westward to 7G6&#186;<!-- degrees --> N Lat.,

103G6&#186;<!-- degrees --> E Long.; thence northward to

9G6&#186;<!-- degrees -->30 N Lat., 103G6&#186;<!-- degrees --> E

Long.; thence northeastward to 10G6&#186;<!-- degrees -->15 N

Lat., 104G6&#186;<!-- degrees -->27 E Long.; thence northward to a

point on the West Coast of Vietnam at the juncture of Vietnam with

Cambodia.

The date of the commencing of combatant activities in such area

is hereby designated as January 1, 1964.

Lyndon B. Johnson.

EX. ORD. NO. 12744. DESIGNATION OF ARABIAN PENINSULA AREAS,

AIRSPACE, AND ADJACENT WATERS AS COMBAT ZONE

Ex. Ord. No. 12744, Jan. 21, 1991, 56 F.R. 2663, provided:

By the authority vested in me as President by the Constitution

and the laws of the United States of America, including section 112

of the Internal Revenue Code of 1986 (26 U.S.C. 112), I hereby

designate, for purposes of that section, the following locations,

including the airspace above such locations, as an area in which

Armed Forces of the United States are and have been engaged in

combat:

- the Persian Gulf

- the Red Sea

- the Gulf of Oman

- that portion of the Arabian Sea that lies north of 10 degrees

north latitude and west of 68 degrees east longitude

- the Gulf of Aden

- the total land areas of Iraq, Kuwait, Saudi Arabia, Oman,

Bahrain, Qatar, and the United Arab Emirates.

For the purposes of this order, the date of the commencing of

combatant activities in such zone is hereby designated as January

17, 1991.

George Bush.

EX. ORD. NO. 13002. TERMINATION OF COMBAT ZONE DESIGNATION IN

VIETNAM AND WATERS ADJACENT THERETO

Ex. Ord. No. 13002, May 13, 1996, 61 F.R. 24665, provided:

By the authority vested in me as President by the Constitution

and the laws of the United States of America, including section

112(c)(3) of the Internal Revenue Code of 1986 (26 U.S.C.

112(c)(3)), June 30, 1996, as of midnight thereof, is hereby

designated as the date of termination of combatant activities in

the zone comprised of the area described in Executive Order No.

11216 of April 24, 1965 [set out above].

William J. Clinton.

EX. ORD. NO. 13119. DESIGNATION OF FEDERAL REPUBLIC OF YUGOSLAVIA

(SERBIA/MONTENEGRO), ALBANIA, THE AIRSPACE ABOVE, AND ADJACENT

WATERS AS A COMBAT ZONE

Ex. Ord. No. 13119, April 13, 1999, 64 F.R. 18797, provided:

Pursuant to the authority vested in me as President by the

Constitution and laws of the United States of America, including

section 112 of the Internal Revenue Code of 1986 (26 U.S.C. 112), I

designate, for the purposes of that section, the following

locations, including the airspace above such locations, as an area

in which Armed Forces of the United States are and have been

engaged in combat:

- The Federal Republic of Yugoslavia (Serbia/Montenegro);

- Albania;

- the Adriatic Sea;

- the Ionian Sea north of the 39th parallel.

For the purposes of this order, I designate March 24, 1999, as

the date of the commencement of combatant activities in such zone.

William J. Clinton.

EX. ORD. NO. 13239. DESIGNATION OF AFGHANISTAN AND THE AIRSPACE

ABOVE AS A COMBAT ZONE

Ex. Ord. No. 13239, Dec. 12, 2001, 66 F.R. 64907, provided:

Pursuant to the authority vested in me as President by the

Constitution and the laws of the United States of America,

including section 112 of the Internal Revenue Code of 1986 (26

U.S.C. 112), I designate, for purposes of that section,

Afghanistan, including the airspace above, as an area in which

Armed Forces of the United States are and have been engaged in

combat.

For purposes of this order, I designate September 19, 2001, as

the date of the commencement of combatant activities in such zone.

George W. Bush.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 2, 692, 2201, 3401, 4253,

6013, 7508 of this title; title 5 sections 6304, 6326; title 10

section 1580.

-End-

-CITE-

26 USC [Sec. 113 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter B - Computation of Taxable Income

PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

-HEAD-

[Sec. 113. Repealed. Pub. L. 101-508, title XI, Sec. 11801(a)(7),

Nov. 5, 1990, 104 Stat. 1388-520]

-MISC1-

Section, act Aug. 16, 1954, ch. 736, 68A Stat. 35, related to

mustering-out payments for members of Armed Forces.

SAVINGS PROVISION

For provisions that nothing in repeal by 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.

-End-

-CITE-

26 USC Sec. 114 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter B - Computation of Taxable Income

PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

-HEAD-

Sec. 114. Extraterritorial income

-STATUTE-

(a) Exclusion

Gross income does not include extraterritorial income.

(b) Exception

Subsection (a) shall not apply to extraterritorial income which

is not qualifying foreign trade income as determined under subpart

E of part III of subchapter N.

(c) Disallowance of deductions

(1) In general

Any deduction of a taxpayer allocated under paragraph (2) to

extraterritorial income of the taxpayer excluded from gross

income under subsection (a) shall not be allowed.

(2) Allocation

Any deduction of the taxpayer properly apportioned and

allocated to the extraterritorial income derived by the taxpayer

from any transaction shall be allocated on a proportionate basis

between -

(A) the extraterritorial income derived from such transaction

which is excluded from gross income under subsection (a), and

(B) the extraterritorial income derived from such transaction

which is not so excluded.

(d) Denial of credits for certain foreign taxes

Notwithstanding any other provision of this chapter, no credit

shall be allowed under this chapter for any income, war profits,

and excess profits taxes paid or accrued to any foreign country or

possession of the United States with respect to extraterritorial

income which is excluded from gross income under subsection (a).

(e) Extraterritorial income

For purposes of this section, the term "extraterritorial income"

means the gross income of the taxpayer attributable to foreign

trading gross receipts (as defined in section 942) of the taxpayer.

-SOURCE-

(Added Pub. L. 106-519, Sec. 3(a), Nov. 15, 2000, 114 Stat. 2423.)

-MISC1-

PRIOR PROVISIONS

A prior section 114, act Aug. 16, 1954, ch. 736, 68A Stat. 35,

related to sports programs conducted for American National Red

Cross, prior to repeal by Pub. L. 101-508, title XI, Sec.

11801(a)(8), Nov. 5, 1990, 104 Stat. 1388-520.

EFFECTIVE DATE

Section applicable to transactions after Sept. 30, 2000, with

special rules relating to existing foreign sales corporations, see

section 5 of Pub. L. 106-519, set out as a note under section 941

of this title.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 56, 903, 941, 943 of this

title.

-End-

-CITE-

26 USC Sec. 115 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter B - Computation of Taxable Income

PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

-HEAD-

Sec. 115. Income of States, municipalities, etc.

-STATUTE-

Gross income does not include -

(1) income derived from any public utility or the exercise of

any essential governmental function and accruing to a State or

any political subdivision thereof, or the District of Columbia;

or

(2) income accruing to the government of any possession of the

United States, or any political subdivision thereof.

-SOURCE-

(Aug. 16, 1954, ch. 736, 68A Stat. 35; Pub. L. 94-455, title XIX,

Sec. 1901(a)(19), Oct. 4, 1976, 90 Stat. 1766.)

-MISC1-

AMENDMENTS

1976 - Pub. L. 94-455 struck out "(a) General rule" before "Gross

income does not include", struck out subsecs. (b) and (c) which

related to contracts concerning public utilities made before Sept.

8, 1916, and contracts concerning bridge acquisition made before

May 29, 1928, respectively, and in par. (1) of former subsec. (a),

struck out "or territory" after "accruing to a State".

EFFECTIVE DATE OF 1976 AMENDMENT

Amendment by 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.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 415, 501 of this title;

title 45 section 1207.

-End-

-CITE-

26 USC [Sec. 116 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter B - Computation of Taxable Income

PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

-HEAD-

[Sec. 116. Repealed. Pub. L. 99-514, title VI, Sec. 612(a), Oct.

22, 1986, 100 Stat. 2250]

-MISC1-

Section, acts Aug. 16, 1954, ch. 736, 68A Stat. 37; June 25,

1959, Pub. L. 86-69, Sec. 3(a)(2), 73 Stat. 139; Sept. 14, 1960,

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

88-272, title II, Sec. 201(c), (d)(6)(C), 78 Stat. 32; Nov. 13,

1966, Pub. L. 89-809, title I, Sec. 103(g), 80 Stat. 1552; Oct. 4,

1976, Pub. L. 94-455, title X, Secs. 1051(h)(2), 1053(d)(1), title

XIX, Sec. 1901(a)(20), 90 Stat. 1647, 1649, 1766; Apr. 2, 1980,

Pub. L. 96-223, title IV, Sec. 404(a), 94 Stat. 305; Aug. 13, 1981,

Pub. L. 97-34, title III, Sec. 302(b)(2), 95 Stat. 272; July 18,

1984, Pub. L. 98-369, div. A, title V, Sec. 542(b), 98 Stat. 891,

authorized partial exclusion of dividends received by individuals.

EFFECTIVE DATE OF REPEAL

Repeal applicable to taxable years beginning after Dec. 31, 1986,

see section 612(c) of Pub. L. 99-514, set out as an Effective Date

of 1986 Amendment note under section 301 of this title.

-End-

-CITE-

26 USC Sec. 117 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter B - Computation of Taxable Income

PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

-HEAD-

Sec. 117. Qualified scholarships

-STATUTE-

(a) General rule

Gross income does not include any amount received as a qualified

scholarship by an individual who is a candidate for a degree at an

educational organization described in section 170(b)(1)(A)(ii).

(b) Qualified scholarship

For purposes of this section -

(1) In general

The term "qualified scholarship" means any amount received by

an individual as a scholarship or fellowship grant to the extent

the individual establishes that, in accordance with the

conditions of the grant, such amount was used for qualified

tuition and related expenses.

(2) Qualified tuition and related expenses

For purposes of paragraph (1), the term "qualified tuition and

related expenses" means -

(A) tuition and fees required for the enrollment or

attendance of a student at an educational organization

described in section 170(b)(1)(A)(ii), and

(B) fees, books, supplies, and equipment required for courses

of instruction at such an educational organization.

(c) Limitation

(1) In general

Except as provided in paragraph (2), subsections (a) and (d)

shall not apply to that portion of any amount received which

represents payment for teaching, research, or other services by

the student required as a condition for receiving the qualified

scholarship or qualified tuition reduction.

(2) Exceptions

Paragraph (1) shall not apply to any amount received by an

individual under -

(A) the National Health Service Corps Scholarship Program

under section 338A(g)(1)(A) of the Public Health Service Act,

or

(B) the Armed Forces Health Professions Scholarship and

Financial Assistance program under subchapter I of chapter 105

of title 10, United States Code.

(d) Qualified tuition reduction

(1) In general

Gross income shall not include any qualified tuition reduction.

(2) Qualified tuition reduction

For purposes of this subsection, the term "qualified tuition

reduction" means the amount of any reduction in tuition provided

to an employee of an organization described in section

170(b)(1)(A)(ii) for the education (below the graduate level) at

such organization (or another organization described in section

170(b)(1)(A)(ii)) of -

(A) such employee, or

(B) any person treated as an employee (or whose use is

treated as an employee use) under the rules of section 132(h).

(3) Reduction must not discriminate in favor of highly

compensated, etc.

Paragraph (1) shall apply with respect to any qualified tuition

reduction provided with respect to any highly compensated

employee only if such reduction is available on substantially the

same terms to each member of a group of employees which is

defined under a reasonable classification set up by the employer

which does not discriminate in favor of highly compensated

employees (within the meaning of section 414(q)). For purposes of

this paragraph, the term "highly compensated employee" has the

meaning given such term by section 414(q).

[(4) Repealed. Pub. L. 101-140, title II, Sec. 203(a)(1), (2),

Nov. 8, 1989, 103 Stat. 830]

(5) Special rules for teaching and research assistants

In the case of the education of an individual who is a graduate

student at an educational organization described in section

170(b)(1)(A)(ii) and who is engaged in teaching or research

activities for such organization, paragraph (2) shall be applied

as if it did not contain the phrase "(below the graduate level)".

-SOURCE-

(Aug. 16, 1954, ch. 736, 68A Stat. 38; Pub. L. 87-256, Sec. 110(a),

Sept. 21, 1961, 75 Stat. 535; Pub. L. 94-455, title XIX, Sec.

1901(b)(8)(A), (c)(3), Oct. 4, 1976, 90 Stat. 1794, 1803; Pub. L.

96-541, Sec. 5(a)(1), Dec. 17, 1980, 94 Stat. 3205; Pub. L. 98-369,

div. A, title V, Sec. 532(a), July 18, 1984, 98 Stat. 887; Pub. L.

99-514, title I, Sec. 123(a), title XI, Secs. 1114(b)(2),

1151(g)(2), Oct. 22, 1986, 100 Stat. 2112, 2450, 2506; Pub. L.

100-647, title I, Sec. 1011B(a)(31)(B), title IV, Sec. 4001(b)(2),

Nov. 10, 1988, 102 Stat. 3488, 3643; Pub. L. 101-140, title II,

Sec. 203(a)(1), (2), Nov. 8, 1989, 103 Stat. 830; Pub. L. 104-188,

title I, Sec. 1703(n)(14), Aug. 20, 1996, 110 Stat. 1878; Pub. L.

107-16, title IV, Sec. 413(a), June 7, 2001, 115 Stat. 64.)

-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

Section 338A(g)(1)(A) of the Public Health Service Act, referred

to in subsec. (c)(2)(A), is classified to section 254l(g)(1)(A) of

Title 42, The Public Health and Welfare.

-MISC1-

AMENDMENTS

2001 - Subsec. (c). Pub. L. 107-16, Secs. 413(a), 901,

temporarily designated existing provisions as par. (1), inserted

par. heading, substituted "Except as provided in paragraph (2),

subsections (a)" for "Subsections (a)", and added par. (2). See

Effective and Termination Dates of 2001 Amendment note below.

1996 - Subsec. (d)(2)(B). Pub. L. 104-188 substituted "section

132(h)" for "section 132(f)".

1989 - Subsec. (d)(4). Pub. L. 101-140, Sec. 203(a)(2), amended

par. (4) to read as if amendments by Pub. L. 100-647, Sec.

1011B(a)(31)(B), had not been enacted, see 1988 Amendment note

below.

Pub. L. 101-140, Sec. 203(a)(1), amended subsec. (d) to read as

if amendments by Pub. L. 99-514, Sec. 1151(g)(2), which added par.

(4), had not been enacted, see 1986 Amendment note below.

1988 - Subsec. (d)(4). Pub. L. 100-647, Sec. 1011B(a)(31)(B),

substituted "there shall" for "there may" and "who are" for "who

may be".

Subsec. (d)(5). Pub. L. 100-647, Sec. 4001(b)(2), added par. (5).

1986 - Pub. L. 99-514, Sec. 123(a), in amending section

generally, substituted "Qualified scholarships" for "Scholarships

and fellowship grants" in section catchline.

Subsec. (a). Pub. L. 99-514, Sec. 123(a), amended subsec. (a)

generally. Prior to amendment, subsec. (a) read as follows: "In the

case of an individual, gross income does not include -

"(1) any amount received -

"(A) as a scholarship at an educational organization

described in section 170(b)(1)(A)(ii), or

"(B) as a fellowship grant, including the value of

contributed services and accommodations; and

"(2) any amount received to cover expenses for -

"(A) travel,

"(B) research,

"(C) clerical help, or

"(D) equipment,

which are incident to such a scholarship or to a fellowship

grant, but only to the extent that the amount is so expended by

the recipient."

Subsec. (b). Pub. L. 99-514, Sec. 123(a), in amending subsec. (b)

generally, substituted qualified scholarship provision for former

limitations provision, which related in par. (1) to individuals who

were candidates for degrees, and in par. (2) to individuals who

were not candidates for degrees, describing in subpar. (A)

conditions for exclusion and in subpar. (B) extent of exclusion,

such detailed provision now covered in subsec. (c).

Subsec. (c). Pub. L. 99-514, Sec. 123(a), in amending subsec. (c)

generally, substituted limitation provision for former provision

relating to Federal grants for tuition and related expenses not

includable merely because there was requirement of future service

as Federal employee.

Subsec. (d). Pub. L. 99-514, Sec. 123(a), in amending subsec. (d)

generally, substituted "reduction" for "reductions" in heading and

inserted "(within the meaning of section 414(q))" after "highly

compensated employees" in par. (3).

Subsec. (d)(3). Pub. L. 99-514, Sec. 1114(b)(2), struck out

"officer, owner, or" after "with respect to any" and "officers,

owners, or" after "in favor of" and inserted at end "For purposes

of this paragraph, the term 'highly compensated employee' has the

meaning given such term by section 414(q)."

Subsec. (d)(4). Pub. L. 99-514, Sec. 1151(g)(2), added par. (4).

1984 - Subsec. (d). Pub. L. 98-369 added subsec. (d).

1980 - Subsec. (c). Pub. L. 96-541 added subsec. (c).

1976 - Subsecs. (a)(1)(A), (b)(1), (2). Pub. L. 94-455, Sec.

1901(b)(8)(A), substituted "educational organization described in

section 170(b)(1)(A)(ii)" for "educational institution (as defined

in section 151(e)(4))" after "scholarship at an".

Subsec. (b)(2)(A)(iv). Pub. L. 94-455, Sec. 1901(c)(3), struck

out "a territory" after "or a State".

Subsec. (b)(2)(B). Pub. L. 94-455, Sec. 1901(b)(8)(A),

substituted "educational organization described in section

170(b)(1)(A)(ii)" for "educational institution (as defined in

section 151(e)(4))" after "degree at an".

1961 - Subsec. (b)(2)(A). Pub. L. 87-256 included cases where the

grantor of the scholarship or fellowship grant is a foreign

government, an international organization, or a binational or

multinational educational and cultural foundation or commission

created or continued pursuant to the Mutual Educational and

Cultural Exchange Act of 1961.

EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT

Pub. L. 107-16, title IV, Sec. 413(b), June 7, 2001, 115 Stat.

64, provided that: "The amendments made by subsection (a) [amending

this section] shall apply to amounts received in taxable years

beginning after December 31, 2001."

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 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 1989 AMENDMENT

Amendment by Pub. L. 101-140 effective as if included in section

1151 of Pub. L. 99-514, see section 203(c) of Pub. L. 101-140, set

out as a note under section 79 of this title.

EFFECTIVE DATE OF 1988 AMENDMENT

Amendment by section 1011B(a)(31)(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 4001(c) of Pub. L. 100-647 provided that: "The amendments

made by this section [amending this section and section 127 of this

title] shall apply to taxable years beginning after December 31,

1987."

EFFECTIVE DATE OF 1986 AMENDMENT

Amendment by section 123(a) of Pub. L. 99-514 applicable to

taxable years beginning after Dec. 31, 1986, but only in the case

of scholarships and fellowships granted after Aug. 16, 1986, see

section 151(d) of Pub. L. 99-514, set out as a note under section 1

of this title.

Amendment by section 1114(b)(2) of Pub. L. 99-514 applicable to

years beginning after Dec. 31, 1987, see section 1114(c)(2) of Pub.

L. 99-514, set out as a note under section 414 of this title.

Amendment by section 1151(g)(2) of Pub. L. 99-514 applicable,

with certain qualifications and exceptions, to years beginning

after Dec. 31, 1988, see section 1151(k) of Pub. L. 99-514, as

amended, set out as a note under section 79 of this title.

EFFECTIVE DATE OF 1984 AMENDMENTS

Section 532(b) of Pub. L. 98-369, as amended by Pub. L. 99-514,

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

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

to qualified tuition reductions (as defined in section 117(d)(2) of

the Internal Revenue Code of 1986 [formerly I.R.C. 1954]) for

education furnished after June 30, 1985, in taxable years ending

after such date."

Provisions of subsec. (d) treated as in effect on and after Jan.

1, 1984, in case of education described in section 127(c)(8) of

this title, see section 1(g)(5) of Pub. L. 98-611, set out as a

note under section 127 of this title.

EFFECTIVE DATE OF 1980 AMENDMENT

Section 5(a)(2) of Pub. L. 96-541 provided: "The amendment made

by paragraph (1) [amending this section] shall apply to taxable

years beginning after December 31, 1980."

EFFECTIVE DATE OF 1976 AMENDMENT

Amendment by 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.

EFFECTIVE DATE OF 1961 AMENDMENT

Section 110(h)(1) of Pub. L. 87-256 provided that: "The

amendments made by subsections (a), (b), and (c) of this section

[amending this section and sections 871 and 872 of this title]

shall apply to taxable years beginning after December 31, 1961."

REGULATIONS

Secretary of the Treasury or his delegate to issue before Feb. 1,

1988, final regulations to carry out amendments made by section

1114 of Pub. L. 99-514, see section 1141 of Pub. L. 99-514, set out

as a note under section 401 of this title.

NONENFORCEMENT OF AMENDMENT MADE BY SECTION 1151 OF PUB. L. 99-514

FOR FISCAL YEAR 1990

No monies appropriated by Pub. L. 101-136 to be used to implement

or enforce section 1151 of Pub. L. 99-514 or the amendments made by

such section, see section 528 of Pub. L. 101-136, set out as a note

under section 89 of this title.

APPLICABILITY OF CERTAIN AMENDMENTS BY PUBLIC LAW 99-514 IN

RELATION TO TREATY OBLIGATIONS OF UNITED STATES

For nonapplication of amendment by section 123(a) of Pub. L.

99-514 to the extent application of such amendment would be

contrary to 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)(3), (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.

TRANSITIONAL RULES FOR TREATMENT OF CERTAIN REDUCTIONS IN TUITION

Section 1853(f) of Pub. L. 99-514 provided that:

"(1) A tuition reduction plan shall be treated as meeting the

requirements of section 117(d)(3) of the Internal Revenue Code of

1954 [now 1986] if -

"(A) such plan would have met the requirements of such section

(as amended by this section but without regard to the lack of

evidence that benefits under such plan were the subject of good

faith bargaining) on the day on which eligibility to participate

in the plan was closed,

"(B) at all times thereafter, the tuition reductions available

under such plan are available on substantially the same terms to

all employees eligible to participate in such plan, and

"(C) the eligibility to participate in such plan closed on June

30, 1972, June 30, 1974, or December 31, 1975.

"(2) For purposes of applying section 117(d)(3) of the Internal

Revenue Code of 1954 [now 1986] to all tuition reduction plans of

an employer with at least 1 such plan described in paragraph (1) of

this subsection, there shall be excluded from consideration

employees not included in the plan who are included in a unit of

employees covered by an agreement that the Secretary of the

Treasury or his delegate finds to be a collective bargaining

agreement between employee representatives and 1 or more employers,

if, with respect to plans other than plans described in paragraph

(1), there is evidence that such benefits were the subject of good

faith bargaining.

"(3) Any reduction in tuition provided with respect to a

full-time course of education furnished at the graduate level

before July 1, 1988, shall not be included in gross income if -

"(A) such reduction would not be included in gross income under

the Internal Revenue Service regulations in effect on the date of

the enactment of the Tax Reform Act of 1984 [July 18, 1984], and

"(B) such reduction is provided with respect to a student who

was accepted for admission to such course of education before

July 1, 1984, and began such course of education before June 30,

1985."

NATIONAL RESEARCH SERVICE AWARDS

Pub. L. 95-600, title I, Sec. 161(b), Nov. 6, 1978, 92 Stat.

2810, as amended by Pub. L. 96-167, Sec. 9(b), Dec. 29, 1979, 93

Stat. 1278; Pub. L. 96-541, Sec. 5(b), Dec. 17, 1980, 94 Stat.

3206; Pub. L. 97-248, title II, Sec. 285, Sept. 3, 1982, 96 Stat.

569; Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095,

provided that any amount paid to, or on behalf of, an individual as

a national research service award under former section 289l-1 of

title 42 during calendar years 1974 through 1983 was to be treated

as a scholarship or fellowship grant under this section.

SCHOLARSHIP PROGRAMS FOR MEMBERS OF THE UNIFORMED SERVICES

Pub. L. 93-483, Sec. 4, Oct. 26, 1974, 88 Stat. 1458, as amended

Pub. L. 94-455, title XXI, Sec. 2130, Oct. 4, 1976, 90 Stat. 1922;

Pub. L. 95-171, Sec. 5, Nov. 12, 1977, 91 Stat. 1355; Pub. L.

95-600, title I, Sec. 161(a), Nov. 6, 1978, 92 Stat. 2810; Pub. L.

95-615, title I, Sec. 6, Nov. 8, 1978, 92 Stat. 3098; Pub. L.

96-167, Sec. 9(a), Dec. 29, 1979, 93 Stat. 1278; Pub. L. 99-514,

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

"(a) In General. - Any amount received from appropriated funds as

a scholarship, including the value of contributed services and

accommodations, by a member of a uniformed service who is receiving

training under the Armed Forces Health Professions Scholarship

Program (or any other program determined by the Secretary of the

Treasury or his delegate to have substantially similar objectives)

from an educational institution (as defined in section 151(e)(4) of

the Internal Revenue Code of 1986 [formerly I.R.C. 1954]) [see

section 170(b)(1)(A)(ii) of this title] shall be treated as a

scholarship under section 117 of such Code [this section], whether

that member is receiving training while on active duty or in an

off-duty or inactive status, and without regard to whether a period

of active duty is required of the member as a condition of

receiving those payments.

"(b) Definition of Uniformed Services. - For purposes of this

section, the term 'uniformed service' has the meaning given it by

section 101(3) of title 37, United States Code.

"(c) Effective Date. - The provisions of this section shall apply

with respect to amounts received during calendar years 1973, 1974,

and 1975, and, in the case of a member of a uniformed service

receiving training after 1975 and before 1981 in programs described

in subsection (a), with respect to amounts received after 1975 and

before 1985."

[Section 6 of Pub. L. 95-615, which reenacted Sec. 4(c) of Pub.

L. 93-483 without change, to cease to have effect on the day after

Nov. 8, 1978, see section 210(a) of Pub. L. 95-615, set out as a

note under section 61 of this title.]

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 25A, 74, 125, 127, 135,

414, 1441, 3121, 3231, 3306, 3401, 4941, 4945 of this title; title

42 section 409.

-End-

-CITE-

26 USC Sec. 118 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter B - Computation of Taxable Income

PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

-HEAD-

Sec. 118. Contributions to the capital of a corporation

-STATUTE-

(a) General rule

In the case of a corporation, gross income does not include any

contribution to the capital of the taxpayer.

(b) Contributions in aid of construction, etc.

For purposes of subsection (a), except as provided in subsection

(c), the term "contribution to the capital of the taxpayer" does

not include any contribution in aid of construction or any other

contribution as a customer or potential customer.

(c) Special rules for water and sewerage disposal utilities

(1) General rule

For purposes of this section, the term "contribution to the

capital of the taxpayer" includes any amount of money or other

property received from any person (whether or not a shareholder)

by a regulated public utility which provides water or sewerage

disposal services if -

(A) such amount is a contribution in aid of construction,

(B) in the case of contribution of property other than water

or sewerage disposal facilities, such amount meets the

requirements of the expenditure rule of paragraph (2), and

(C) such amount (or any property acquired or constructed with

such amount) is not included in the taxpayer's rate base for

ratemaking purposes.

(2) Expenditure rule

An amount meets the requirements of this paragraph if -

(A) an amount equal to such amount is expended for the

acquisition or construction of tangible property described in

section 1231(b) -

(i) which is the property for which the contribution was

made or is of the same type as such property, and

(ii) which is used predominantly in the trade or business

of furnishing water or sewerage disposal services,

(B) the expenditure referred to in subparagraph (A) occurs

before the end of the second taxable year after the year in

which such amount was received, and

(C) accurate records are kept of the amounts contributed and

expenditures made, the expenditures to which contributions are

allocated, and the year in which the contributions and

expenditures are received and made.

(3) Definitions

For purposes of this subsection -

(A) Contribution in aid of construction

The term "contribution in aid of construction" shall be

defined by regulations prescribed by the Secretary, except that

such term shall not include amounts paid as service charges for

starting or stopping services.

(B) Predominantly

The term "predominantly" means 80 percent or more.

(C) Regulated public utility

The term "regulated public utility" has the meaning given

such term by section 7701(a)(33), except that such term shall

not include any utility which is not required to provide water

or sewerage disposal services to members of the general public

in its service area.

(4) Disallowance of deductions and credits; adjusted basis

Notwithstanding any other provision of this subtitle, no

deduction or credit shall be allowed for, or by reason of, any

expenditure which constitutes a contribution in aid of

construction to which this subsection applies. The adjusted basis

of any property acquired with contributions in aid of

construction to which this subsection applies shall be zero.

(d) Statute of limitations

If the taxpayer for any taxable year treats an amount as a

contribution to the capital of the taxpayer described in subsection

(c), then -

(1) the statutory period for the assessment of any deficiency

attributable to any part of such amount shall not expire before

the expiration of 3 years from the date the Secretary is notified

by the taxpayer (in such manner as the Secretary may prescribe)

of -

(A) the amount of the expenditure referred to in subparagraph

(A) of subsection (c)(2),

(B) the taxpayer's intention not to make the expenditures

referred to in such subparagraph, or

(C) a failure to make such expenditure within the period

described in subparagraph (B) of subsection (c)(2), and

(2) such deficiency may be assessed before the expiration of

such 3-year period notwithstanding the provisions of any other

law or rule of law which would otherwise prevent such assessment.

(e) Cross references

(1) For basis of property acquired by a corporation through a

contribution to its capital, see section 362.

(2) For special rules in the case of contributions of

indebtedness, see section 108(e)(6).

-SOURCE-

(Aug. 16, 1954, ch. 736, 68A Stat. 39; Pub. L. 94-455, title XXI,

Sec. 2120(a), Oct. 4, 1976, 90 Stat. 1912; Pub. L. 95-600, title

III, Sec. 364(a), Nov. 6, 1978, 92 Stat. 2854; Pub. L. 96-589, Sec.

2(e)(2), Dec. 24, 1980, 94 Stat. 3396; Pub. L. 98-369, div. A,

title I, Sec. 163(a), July 18, 1984, 98 Stat. 697; Pub. L. 99-514,

title VIII, Sec. 824(a), Oct. 22, 1986, 100 Stat. 2374; Pub. L.

104-188, title I, Sec. 1613(a)(1), (2), Aug. 20, 1996, 110 Stat.

1848-1850.)

-MISC1-

AMENDMENTS

1996 - Subsec. (b). Pub. L. 104-188, Sec. 1613(a)(2), inserted

"except as provided in subsection (c)," before "the term".

Subsecs. (c) to (e). Pub. L. 104-188, Sec. 1613(a)(1), added

subsecs. (c) and (d) and redesignated former subsec. (c) as (e).

1986 - Subsec. (b). Pub. L. 99-514, Sec. 824(a), added subsec.

(b) and struck out former subsec. (b) relating to contributions in

aid of construction, containing par. (1) general rule, par. (2)

expenditure rule, par. (3) definitions, and par. (4) disallowance

of deductions and investment credit; adjusted basis.

Subsecs. (c), (d). Pub. L. 99-514, Sec. 824(a), redesignated

former subsec. (d) as (c) and struck out former subsec. (c),

statute of limitations, which read as follows: "If the taxpayer for

any taxable year treats an amount as a contribution to the capital

of the taxpayer described in subsection (b), then -

"(1) the statutory period for the assessment of any deficiency

attributable to any part of such amount shall not expire before

the expiration of 3 years from the date the Secretary is notified

by the taxpayer (in such manner as the Secretary may prescribe)

of -

"(A) the amount of the expenditure referred to in

subparagraph (A) of subsection (b)(2),

"(B) the taxpayer's intention not to make the expenditures

referred to in such subparagraph, or

"(C) a failure to make such expenditure within the period

described in subparagraph (B) of subsection (b)(2); and

"(2) such deficiency may be assessed before the expiration of

such 3-year period notwithstanding the provisions of any other

law or rule of law which would otherwise prevent such

assessment."

1984 - Subsecs. (c), (d). Pub. L. 98-369 added subsec. (c) and

redesignated former subsec. (c) as (d).

1980 - Subsec. (c). Pub. L. 96-589 designated existing provisions

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

1978 - Subsec. (b)(1). Pub. L. 95-600, Sec. 364(a)(1), (2),

substituted in provisions preceding subpar. (A) "electric energy,

gas (through a local distribution system or transportation by

pipeline), water," for "water" and in subpar. (B) "electric energy,

gas, steam, water," for "water".

Subsec. (b)(2)(A)(ii). Pub. L. 95-600, Sec. 364(a)(3),

substituted "electric energy, gas, steam, water," for "water".

Subsec. (b)(3)(A). Pub. L. 95-600, Sec. 364(a)(4), substituted

"line to an electric line, a gas main, a steam line, or a main

water or sewer line" for "property to a main water or sewer line".

Subsec. (b)(3)(C). Pub. L. 95-600, Sec. 364(a)(5), substituted

"electric energy, gas, water," for "water" and inserted "(including

in the case of a gas transmission utility, the provision of gas

services by sale for resale to the general public)" after "members

of the general public".

1976 - Subsecs. (b), (c). Pub. L. 94-455, Sec. 2120(a), added

subsec. (b) and redesignated former subsec. (b) as (c).

EFFECTIVE DATE OF 1996 AMENDMENT

Section 1613(a)(3) of Pub. L. 104-188 provided that: "The

amendments made by this subsection [amending this section] shall

apply to amounts received after June 12, 1996."

EFFECTIVE DATE OF 1986 AMENDMENT

Section 824(c) of Pub. L. 99-514, as amended by Pub. L. 100-647,

title I, Sec. 1008(j)(2), Nov. 10, 1988, 102 Stat. 3445, provided

that:

"(1) In general. - Except as otherwise provided in this

subsection, the amendments made by this section [amending this

section and section 362 of this title] shall apply to amounts

received after December 31, 1986, in taxable years ending after

such date.

"(2) Treatment of certain water supply projects. - The amendments

made by this section shall not apply to amounts which are paid by

the New Jersey Department of Environmental Protection for

construction of alternative water supply projects in zones of

drinking water contamination and which are designated by such

department as being taken into account under this paragraph. Not

more than $4,631,000 of such amounts may be designated under the

preceding sentence.

"(3) Treatment of certain contributions by transportation

authority. - The amendments made by this section shall not apply to

contributions in aid of construction by a qualified transportation

authority which were clearly identified in a master plan in

existence on September 13, 1984, and which are designated by such

authority as being taken into account under this paragraph. Not

more than $68,000,000 of such contributions may be designated under

the preceding sentence. For purposes of this paragraph, a qualified

transportation authority is an entity which was created on February

20, 1967, and which was established by an interstate compact and

consented to by Congress in Public Law 89-774, 80 Stat. 1324

(1966).

"(4) Treatment of certain partnerships. - In the case of a

partnership with a taxable year beginning May 1, 1986, if such

partnership realized net capital gain during the period beginning

on the 1st day of such taxable year and ending on May 29, 1986,

pursuant to an underwriting agreement dated May 6, 1986, then such

partnership may elect to treat each asset to which such net capital

gain relates as having been distributed to the partners of such

partnership in proportion to their distributive share of the

capital gain or loss realized by the partnership with respect to

such asset and to treat each such asset as having been sold by each

partner on the date of the sale of the asset by the partnership. If

such an election is made, the consideration received by the

partnership in connection with the sale of such assets shall be

treated as having been received by the partners in connection with

the deemed sale of such assets. In the case of a tiered

partnership, for purposes of this paragraph each partnership shall

be treated as having realized net capital gain equal to its

proportionate share of the net capital gain of each partnership in

which it is a partner, and the election provided by this paragraph

shall apply to each tier."

EFFECTIVE DATE OF 1984 AMENDMENT

Section 163(c) of Pub. L. 98-369, as amended by Pub. L. 99-514,

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

amendments made by this section [amending this section and sections

6501 and 6511 of this title] shall apply to expenditures with

respect to which the second taxable year described in section

118(b)(2)(B) of the Internal Revenue Code of 1986 [formerly I.R.C.

1954] ends after December 31, 1984."

EFFECTIVE DATE OF 1980 AMENDMENT

Amendment by Pub. L. 96-589 applicable to transactions which

occur after Dec. 31, 1980, other than transactions which occur in a

proceeding in a bankruptcy case or similar judicial proceeding or

in a proceeding under Title 11 commencing on or after Dec. 31,

1980, with an exception permitting the debtor to make the amendment

applicable to transactions occurring after Sept. 30, 1979, in a

specified manner, see section 7(a)(1), (f) of Pub. L. 96-589, set

out as a note under section 108 of this title.

EFFECTIVE DATE OF 1978 AMENDMENT

Section 364(b) of Pub. L. 95-600 provided that: "The amendments

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

contributions made after January 31, 1976."

EFFECTIVE DATE OF 1976 AMENDMENT

Section 2120(c) of Pub. L. 94-455 provided that: "The amendments

made by this section [amending this section and section 362 of this

title] apply to contributions made after January 31, 1976."

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in section 108 of this title.

-End-

-CITE-

26 USC Sec. 119 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter B - Computation of Taxable Income

PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

-HEAD-

Sec. 119. Meals or lodging furnished for the convenience of the

employer

-STATUTE-

(a) Meals and lodging furnished to employee, his spouse, and his

dependents, pursuant to employment

There shall be excluded from gross income of an employee the

value of any meals or lodging furnished to him, his spouse, or any

of his dependents by or on behalf of his employer for the

convenience of the employer, but only if -

(1) in the case of meals, the meals are furnished on the

business premises of the employer, or

(2) in the case of lodging, the employee is required to accept

such lodging on the business premises of his employer as a

condition of his employment.

(b) Special rules

For purposes of subsection (a) -

(1) Provisions of employment contract or State statute not to be

determinative

In determining whether meals or lodging are furnished for the

convenience of the employer, the provisions of an employment

contract or of a State statute fixing terms of employment shall

not be determinative of whether the meals or lodging are intended

as compensation.

(2) Certain factors not taken into account with respect to meals

In determining whether meals are furnished for the convenience

of the employer, the fact that a charge is made for such meals,

and the fact that the employee may accept or decline such meals,

shall not be taken into account.

(3) Certain fixed charges for meals

(A) In general

If -

(i) an employee is required to pay on a periodic basis a

fixed charge for his meals, and

(ii) such meals are furnished by the employer for the

convenience of the employer,

there shall be excluded from the employee's gross income an

amount equal to such fixed charge.

(B) Application of subparagraph (A)

Subparagraph (A) shall apply -

(i) whether the employee pays the fixed charge out of his

stated compensation or out of his own funds, and

(ii) only if the employee is required to make the payment

whether he accepts or declines the meals.

(4) Meals furnished to employees on business premises where meals

of most employees are otherwise excludable

All meals furnished on the business premises of an employer to

such employer's employees shall be treated as furnished for the

convenience of the employer if, without regard to this paragraph,

more than half of the employees to whom such meals are furnished

on such premises are furnished such meals for the convenience of

the employer.

(c) Employees living in certain camps

(1) In general

In the case of an individual who is furnished lodging in a camp

located in a foreign country by or on behalf of his employer,

such camp shall be considered to be part of the business premises

of the employer.

(2) Camp

For purposes of this section, a camp constitutes lodging which

is -

(A) provided by or on behalf of the employer for the

convenience of the employer because the place at which such

individual renders services is in a remote area where

satisfactory housing is not available on the open market,

(B) located, as near as practicable, in the vicinity of the

place at which such individual renders services, and

(C) furnished in a common area (or enclave) which is not

available to the public and which normally accommodates 10 or

more employees.

(d) Lodging furnished by certain educational institutions to

employees

(1) In general

In the case of an employee of an educational institution, gross

income shall not include the value of qualified campus lodging

furnished to such employee during the taxable year.

(2) Exception in cases of inadequate rent

Paragraph (1) shall not apply to the extent of the excess of -

(A) the lesser of -

(i) 5 percent of the appraised value of the qualified

campus lodging, or

(ii) the average of the rentals paid by individuals (other

than employees or students of the educational institution)

during such calendar year for lodging provided by the

educational institution which is comparable to the qualified

campus lodging provided to the employee, over

(B) the rent paid by the employee for the qualified campus

lodging during such calendar year.

The appraised value under subparagraph (A)(i) shall be determined

as of the close of the calendar year in which the taxable year

begins, or, in the case of a rental period not greater than 1

year, at any time during the calendar year in which such period

begins.

(3) Qualified campus lodging

For purposes of this subsection, the term "qualified campus

lodging" means lodging to which subsection (a) does not apply and

which is -

(A) located on, or in the proximity of, a campus of the

educational institution, and

(B) furnished to the employee, his spouse, and any of his

dependents by or on behalf of such institution for use as a

residence.

(4) Educational institution, etc.

For purposes of this subsection -

(A) In general

The term "educational institution" means -

(i) an institution described in section 170(b)(1)(A)(ii)

(or an entity organized under State law and composed of

public institutions so described), or

(ii) an academic health center.

(B) Academic health center

For purposes of subparagraph (A), the term "academic health

center" means an entity -

(i) which is described in section 170(b)(1)(A)(iii),

(ii) which receives (during the calendar year in which the

taxable year of the taxpayer begins) payments under

subsection (d)(5)(B) or (h) of section 1886 of the Social

Security Act (relating to graduate medical education), and

(iii) which has as one of its principal purposes or

functions the providing and teaching of basic and clinical

medical science and research with the entity's own faculty.

-SOURCE-

(Aug. 16, 1954, ch. 736, 68A Stat. 39; Pub. L. 95-427, Sec. 4(a),

Oct. 7, 1978, 92 Stat. 997; Pub. L. 95-615, title II, Sec. 205,

Nov. 8, 1978, 92 Stat. 3107; Pub. L. 96-222, title I, Sec.

108(a)(1)(G), Apr. 1, 1980, 94 Stat. 225; Pub. L. 97-34, title I,

Sec. 113, Aug. 13, 1981, 95 Stat. 195; Pub. L. 99-514, title XI,

Sec. 1164(a), Oct. 22, 1986, 100 Stat. 2511; Pub. L. 100-647, title

I, Sec. 1011B(d), Nov. 10, 1988, 102 Stat. 3489; Pub. L. 104-188,

title I, Sec. 1123(a), Aug. 20, 1996, 110 Stat. 1768; Pub. L.

105-206, title V, Sec. 5002(a), July 22, 1998, 112 Stat. 788.)

-REFTEXT-

REFERENCES IN TEXT

Section 1886(d)(5)(B) or (h) of the Social Security Act, referred

to in subsec. (d)(4)(B)(ii), is classified to section

1395ww(d)(5)(B) or (h) of Title 42, The Public Health and Welfare.

-MISC1-

AMENDMENTS

1998 - Subsec. (b)(4). Pub. L. 105-206 added par. (4).

1996 - Subsec. (d)(4). Pub. L. 104-188 amended par. (4)

generally. Prior to amendment, par. (4) read as follows:

"Educational institution. - For purposes of this paragraph, the

term 'educational institution' means an institution described in

section 170(b)(1)(A)(ii)."

1988 - Subsec. (d). Pub. L. 100-647 struck out "(as of the close

of the calendar year in which the taxable year begins)" after

"appraised value" in par. (2)(A)(i) and inserted at end "The

appraised value under subparagraph (A)(i) shall be determined as of

the close of the calendar year in which the taxable year begins,

or, in the case of a rental period not greater than 1 year, at any

time during the calendar year in which such period begins." as

concluding provision.

1986 - Subsec. (d). Pub. L. 99-514 added subsec. (d).

1981 - Subsec. (c). Pub. L. 97-34 added subsec. (c).

1980 - Subsec. (a). Pub. L. 96-222 struck out "General rule" in

subsec. (a) as in effect on the day before the date of enactment of

the Foreign Earned Income Act of 1978 to correct a legislative

oversight in the amendment of subsec. (a) of this section by

section 205 of Pub. L. 95-615. The amendment by Pub. L. 95-615,

however, was executed without reference to "General rule" as the

probable intent of Congress, thereby requiring no change in text.

1978 - Subsec. (a). Pub. L. 95-615 designated existing provisions

as subsec. (a), added subsec. (a) heading, and substituted

"furnished to him, his spouse, or any of his dependents by or on

behalf of his employer for the convenience of the employer" for

"furnished to him by his employer for the convenience of the

employer".

Pub. L. 95-427 inserted provisions relating to factors not taken

into account with respect to meals and certain fixed charges for

meals.

EFFECTIVE DATE OF 1998 AMENDMENT

Pub. L. 105-206, title v, Sec. 5002(b), July 22, 1998, 112 Stat.

789, provided that: "The amendment made by subsection (a) [amending

this section] shall apply to taxable years beginning before, on, or

after the date of the enactment of this Act [July 22, 1998]."

EFFECTIVE DATE OF 1996 AMENDMENT

Section 1123(b) of Pub. L. 104-188 provided that: "The amendment

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

years beginning after December 31, 1995."

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

Section 1164(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."

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

Amendment by Pub. L. 96-222 effective as if included in the

Foreign Earned Income Act of 1978, Pub. L. 95-615, see section

108(a)(2)(A) of Pub. L. 96-222, set out as a note under section 3

of this title.

EFFECTIVE DATE OF 1978 AMENDMENT

Section 4(b) of Pub. L. 95-427 provided that: "The amendment made

by subsection (a) [amending this section] shall apply with respect

to taxable years beginning after December 31, 1953, and ending

after August 16, 1954."

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.

STATUTE OF LIMITATIONS

Pub. L. 96-605, title I, Sec. 107(b), Dec. 28, 1980, 94 Stat.

3524, provided that: "In the case of any allowance received during

calendar year 1974, 1975, 1976, or 1977, subsections (a)(2) and (e)

of such section 3 [section 3 of Pub. L. 95-427, set out below]

shall be applied by substituting the date one year after the date

of the enactment of this Act [Dec. 28, 1980] for 'April 15, 1979'

each place it appears."

TREATMENT OF CERTAIN STATUTORY SUBSISTENCE ALLOWANCES OR

SUBSISTENCE ALLOWANCES NEGOTIATED IN ACCORDANCE WITH STATE LAW

RECEIVED BY STATE POLICE OFFICERS BEFORE JANUARY 1, 1978

Section 3 of Pub. L. 95-427, as amended by Pub. L. 96-605, title

I, Sec. 107(a), Dec. 28, 1980, 94 Stat. 3524; Pub. L. 99-514, Sec.

2, Oct. 22, 1986, 100 Stat. 2095, provided that:

"(a) General Rule. - If -

"(1) an individual who was employed as a State police officer

received a statutory subsistence allowance or a subsistence

allowance negotiated in accordance with State law while so

employed,

"(2) such individual elects, on or before April 15, 1979, and

in such manner and form as the Secretary of the Treasury may

prescribe, to have this section apply to such allowance, and

"(3) this section applies to such allowance,

then, for purposes of the Internal Revenue Code of 1986 [formerly

I.R.C. 1954], such allowance shall not be included in such

individual's gross income.

"(b) Allowances to Which Section Applies. - For purposes of this

section, this section applies to any statutory subsistence

allowance or subsistence allowance negotiated in accordance with

State law which was received -

"(1) after December 31, 1969, and before January 1, 1974, to

the extent such individual did not include such allowance in

gross income on his income tax return for the taxable year in

which such allowance was received, or

"(2) during the calendar year 1974, 1975, 1976, or 1977.

"(c) Other Definitions. - For purposes of this section -

"(1) State police officer. - The term 'State police officer'

means any police officer (including a highway patrolman) employed

by a State (or the District of Columbia) on a full-time basis

with the power to arrest.

"(2) Income tax return. - The term 'income tax return' means

the return of the taxes imposed by subtitle A of the Internal

Revenue Code of 1986. If an individual filed before November 29,

1977, an amended return for any taxable year, such amended return

shall be treated as the return for such taxable year.

"(d) Limitation on Deduction. - If any individual receives a

subsistence allowance which is excluded from gross income under

subsection (a), no deduction shall be allowed under any provision

of chapter 1 of the Internal Revenue Code of 1986 for expenses in

respect of which he has received such allowance, except to the

extent that such expenses exceed the amount excludable from gross

income under subsection (a) and the excess is otherwise allowed as

a deduction under such chapter 1.

"(e) Statute of Limitations. - If refund or credit of any

overpayment of tax resulting from the application of this section

is prevented at any time on or before April 15, 1979, by the

operation of any law or rule of law (including res judicata),

refund or credit of such overpayment (to the extent attributable to

the application of this section) may, nevertheless, be made or

allowed if claim therefor is filed on or before April 15, 1979."

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 132, 280A, 1402, 3121,

3231, 3306 of this title; title 42 sections 409, 411.

-End-

-CITE-

26 USC Sec. 120 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter B - Computation of Taxable Income

PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

-HEAD-

Sec. 120. Amounts received under qualified group legal services

plans

-STATUTE-

(a) Exclusion by employee for contributions and legal services

provided by employer

Gross income of an employee, his spouse, or his dependents, does

not include -

(1) amounts contributed by an employer on behalf of an

employee, his spouse, or his dependents under a qualified group

legal services plan (as defined in subsection (b)); or

(2) the value of legal services provided, or amounts paid for

legal services, under a qualified group legal services plan (as

defined in subsection (b)) to, or with respect to, an employee,

his spouse, or his dependents.

No exclusion shall be allowed under this section with respect to an

individual for any taxable year to the extent that the value of

insurance (whether through an insurer or self-insurance) against

legal costs incurred by the individual (or his spouse or

dependents) provided under a qualified group legal services plan

exceeds $70.

(b) Qualified group legal services plan

For purposes of this section, a qualified group legal services

plan is a separate written plan of an employer for the exclusive

benefit of his employees or their spouses or dependents to provide

such employees, spouses, or dependents with specified benefits

consisting of personal legal services through prepayment of, or

provision in advance for, legal fees in whole or in part by the

employer, if the plan meets the requirements of subsection (c).

(c) Requirements

(1) Discrimination

The contributions or benefits provided under the plan shall not

discriminate in favor of employees who are highly compensated

employees (within the meaning of section 414(q)).

(2) Eligibility

The plan shall benefit employees who qualify under a

classification set up by the employer and found by the Secretary

not to be discriminatory in favor of employees who are described

in paragraph (1). For purposes of this paragraph, there shall be

excluded from consideration employees not included in the plan

who are included in a unit of employees covered by an agreement

which the Secretary of Labor finds to be a collective bargaining

agreement between employee representatives and one or more

employers, if there is evidence that group legal services plan

benefits were the subject of good faith bargaining between such

employee representatives and such employer or employers.

(3) Contribution limitation

Not more than 25 percent of the amounts contributed under the

plan during the year may be provided for the class of individuals

who are shareholders or owners (or their spouses or dependents),

each of whom (on any day of the year) owns more than 5 percent of

the stock or of the capital or profits interest in the employer.

(4) Notification

The plan shall give notice to the Secretary, in such manner as

the Secretary may by regulations prescribe, that it is applying

for recognition of the status of a qualified group legal services

plan.

(5) Contributions

Amounts contributed under the plan shall be paid only (A) to

insurance companies, or to organizations or persons that provide

personal legal services, or indemnification against the cost of

personal legal services, in exchange for a prepayment or payment

of a premium, (B) to organizations or trusts described in section

501(c)(20), (C) to organizations described in section 501(c)

which are permitted by that section to receive payments from an

employer for support of one or more qualified group legal

services plan or plans, except that such organizations shall pay

or credit the contribution to an organization or trust described

in section 501(c)(20), (D) as prepayments to providers of legal

services under the plan, or (E) a combination of the above.

(d) Other definitions and special rules

For purposes of this section -

(1) Employee

The term "employee" includes, for any year, an individual who

is an employee within the meaning of section 401(c)(1) (relating

to self-employed individuals).

(2) Employer

An individual who owns the entire interest in an unincorporated

trade or business shall be treated as his own employer. A

partnership shall be treated as the employer of each partner who

is an employee within the meaning of paragraph (1).

(3) Allocations

Allocations of amounts contributed under the plan shall be made

in accordance with regulations prescribed by the Secretary and

shall take into account the expected relative utilization of

benefits to be provided from such contributions or plan assets

and the manner in which any premium or other charge was

developed.

(4) Dependent

The term "dependent" has the meaning given to it by section

152.

(5) Exclusive benefit

In the case of a plan to which contributions are made by more

than one employer, in determining whether the plan is for the

exclusive benefit of an employer's employees or their spouses or

dependents, the employees of any employer who maintains the plan

shall be considered to be the employees of each employer who

maintains the plan.

(6) Attribution rules

For purposes of this section -

(A) ownership of stock in a corporation shall be determined

in accordance with the rules provided under subsections (d) and

(e) of section 1563 (without regard to section 1563(e)(3)(C)),

and

(B) the interest of an employee in a trade or business which

is not incorporated shall be determined in accordance with

regulations prescribed by the Secretary, which shall be based

on principles similar to the principles which apply in the case

of subparagraph (A).

(7) Time of notice to Secretary

A plan shall not be a qualified group legal services plan for

any period prior to the time notification was provided to the

Secretary in accordance with subsection (c)(4), if such notice is

given after the time prescribed by the Secretary by regulations

for giving such notice.

(e) Termination

This section and section 501(c)(20) shall not apply to taxable

years beginning after June 30, 1992.

(f) Cross reference

For reporting and recordkeeping requirements, see section

6039D.

-SOURCE-

(Added Pub. L. 94-455, title XXI, Sec. 2134(a), Oct. 4, 1976, 90

Stat. 1926; amended Pub. L. 97-34, title VIII, Sec. 802(a), Aug.

13, 1981, 95 Stat. 349; Pub. L. 97-448, title I, Sec. 108(a), Jan.

12, 1983, 96 Stat. 2391; Pub. L. 98-612, Sec. 1(a), (b)(3)(A), Oct.

31, 1984, 98 Stat. 3180, 3181; Pub. L. 99-514, title XI, Secs.

1114(b)(3), 1151(c)(3), (g)(1), 1162(b), Oct. 22, 1986, 100 Stat.

2450, 2503, 2506, 2510; Pub. L. 100-647, title I, Sec.

1011B(a)(31)(B), title IV, Sec. 4002(a), (b)(1), Nov. 10, 1988, 102

Stat. 3488, 3643; Pub. L. 101-140, title II, Sec. 203(a)(1), (2),

Nov. 8, 1989, 103 Stat. 830; Pub. L. 101-239, title VII, Sec.

7102(a)(1), Dec. 19, 1989, 103 Stat. 2305; Pub. L. 101-508, title

XI, Sec. 11404(a), Nov. 5, 1990, 104 Stat. 1388-473; Pub. L.

102-227, title I, Sec. 104(a)(1), Dec. 11, 1991, 105 Stat. 1687.)

-MISC1-

PRIOR PROVISIONS

A prior section 120, act Aug. 16, 1954, ch. 736, 68A Stat. 39,

related to statutory subsistence allowance received by police,

prior to repeal by Pub. L. 85-866, title I, Sec. 3(a), (c), Sept.

2, 1958, 72 Stat. 1607, effective with respect to taxable years

ending after Sept. 30, 1958, but only with respect to amounts

received as a statutory subsistence allowance for any day after

Sept. 30, 1958.

AMENDMENTS

1991 - Subsec. (e). Pub. L. 102-227 substituted "June 30, 1992"

for "December 31, 1991".

1990 - Subsec. (e). Pub. L. 101-508 substituted "December 31,

1991" for "September 30, 1990".

1989 - Subsec. (b). Pub. L. 101-140, Sec. 203(a)(1), amended

subsec. (b) to read as if amendments by Pub. L. 99-514, Sec.

1151(c)(3), had not been enacted, see 1986 Amendment note below.

Subsec. (c)(2). Pub. L. 101-140, Sec. 203(a)(2), amended par. (2)

to read as if amendments by Pub. L. 100-647, Sec. 1011B(a)(31)(B),

had not been enacted, see 1988 Amendment note below.

Pub. L. 101-140, Sec. 203(a)(1), amended par. (2) to read as if

amendments by Pub. L. 99-514, Sec. 1151(g)(1), had not been

enacted, see 1986 Amendment note below.

Subsec. (e). Pub. L. 101-239 substituted "taxable years beginning

after September 30, 1990" for "taxable years ending after December

31, 1988".

1988 - Subsec. (a). Pub. L. 100-647, Sec. 4002(b)(1), inserted at

end "No exclusion shall be allowed under this section with respect

to an individual for any taxable year to the extent that the value

of insurance (whether through an insurer or self-insurance) against

legal costs incurred by the individual (or his spouse or

dependents) provided under a qualified group legal services plan

exceeds $70."

Subsec. (c)(2). Pub. L. 100-647, Sec. 1011B(a)(31)(B),

substituted "there shall" for "there may" and "who are" for "who

may be".

Subsec. (e). Pub. L. 100-647, Sec. 4002(a), substituted "1988"

for "1987".

1986 - Subsec. (b). Pub. L. 99-514, Sec. 1151(c)(3), amended

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

follows: "For purposes of this section, a qualified group legal

services plan is a separate written plan of an employer for the

exclusive benefit of his employees or their spouses or dependents

to provide such employees, spouses, or dependents with specified

benefits consisting of personal legal services through prepayment

of, or provision in advance for, legal fees in whole or in part by

the employer, if the plan meets the requirements of subsection

(c)."

Subsec. (c)(1). Pub. L. 99-514, Sec. 1114(b)(3)(A), substituted

"highly compensated employees (within the meaning of section

414(q))" for "officers, shareholders, self-employed individuals, or

highly compensated".

Subsec. (c)(2). Pub. L. 99-514, Sec. 1151(g)(1), substituted "For

purposes of this paragraph, there may be excluded from

consideration employees who may be excluded from consideration

under section 89(h)." for "For purposes of this paragraph, there

shall be excluded from consideration employees not included in the

plan who are included in a unit of employees covered by an

agreement which the Secretary of Labor finds to be a collective

bargaining agreement between employee representatives and one or

more employers, if there is evidence that group legal services plan

benefits were the subject of good faith bargaining between such

employee representatives and such employer or employers."

Subsec. (d)(1). Pub. L. 99-514, Sec. 1114(b)(3)(B), struck out

reference to self-employed individuals in heading, and substituted

"The" for "The term 'self-employed individual' means, and the" in

text.

Subsec. (e). Pub. L. 99-514, Sec. 1162(b), substituted "December

31, 1987" for "December 31, 1985".

1984 - Subsec. (e). Pub. L. 98-612, Sec. 1(a), substituted

"December 31, 1985" for "December 31, 1984".

Subsec. (f). Pub. L. 98-612, Sec. 1(b)(3)(A), added subsec. (f).

1983 - Subsec. (e). Pub. L. 97-448 substituted "This section and

section 501(c)(20) shall not apply" for "This section shall not

apply".

1981 - Subsec. (e). Pub. L. 97-34 added subsec. (e).

EFFECTIVE DATE OF 1991 AMENDMENT

Section 104(b) of Pub. L. 102-227 provided that: "The amendment

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

years beginning after December 31, 1991."

EFFECTIVE DATE OF 1990 AMENDMENT

Section 11404(c) of Pub. L. 101-508 provided that: "The

amendments made by this section [amending this section and

repealing provisions set out below] shall apply to taxable years

beginning after December 31, 1989."

EFFECTIVE DATE OF 1989 AMENDMENTS

Section 7102(b) of Pub. L. 101-239 provided that: "The amendment

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

taxable years ending after December 31, 1988."

Amendment by Pub. L. 101-140 effective as if included in section

1151 of Pub. L. 99-514, see section 203(c) of Pub. L. 101-140, set

out as a note under section 79 of this title.

EFFECTIVE DATE OF 1988 AMENDMENT

Amendment by section 1011B(a)(31)(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 4002(c) of Pub. L. 100-647 provided that: "The amendments

made by this section [amending this section and section 125 of this

title] shall apply to taxable years ending after December 31,

1987."

EFFECTIVE DATE OF 1986 AMENDMENT

Amendment by section 1114(b)(3) of Pub. L. 99-514 applicable to

years beginning after Dec. 31, 1987, see section 1114(c)(2) of Pub.

L. 99-514, set out as a note under section 414 of this title.

Amendment by section 1151(c)(3), (g)(1) of Pub. L. 99-514

applicable, with certain qualifications and exceptions, to years

beginning after Dec. 31, 1988, see section 1151(k) of Pub. L.

99-514, as amended, set out as a note under section 79 of this

title.

Section 1162(c) of Pub. L. 99-514 provided that:

"(1) Subsection (a). - The amendments made by subsection (a)

[amending section 127 of this title] shall apply to taxable years

beginning after December 31, 1985.

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

[amending this section] shall apply to years ending after December

31, 1985.

"(3) Cafeteria plan with group legal benefits. - If, within 60

days after the date of the enactment of this Act [Oct. 22, 1986],

an employee elects under a cafeteria plan under section 125 of the

Internal Revenue Code of 1986 coverage for group legal benefits to

which section 120 of such Code applies, such election may, at the

election of the taxpayer, apply to all legal services provided

during 1986. The preceding sentence shall not apply to any plan

which on August 16, 1986, offered such group legal benefits under

such plan."

EFFECTIVE DATE OF 1984 AMENDMENT

Section 1(d)(1) of Pub. L. 98-612 provided that: "The amendment

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

taxable years ending after December 31, 1984."

Amendment by section 1(b)(3)(A) of Pub. L. 98-612 effective Jan.

1, 1985, see section 1(d)(2) of Pub. L. 98-612.

EFFECTIVE DATE OF 1983 AMENDMENT

Amendment by Pub. L. 97-448 effective, except as otherwise

provided, as if it had been included in the provision of the

Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such

amendment relates, see section 109 of Pub. L. 97-448, set out as a

note under section 1 of this title.

EFFECTIVE DATE

Section 2134(e) of Pub. L. 94-455, as amended by Pub. L. 95-600,

title VII, Sec. 703(b)(1), Nov. 6, 1978, 92 Stat. 2939; Pub. L.

97-34, title VIII, Sec. 802(b), Aug. 13, 1981, 95 Stat. 349; Pub.

L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:

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

amendments made by this section [enacting this section and

section 501 of this title] shall apply to taxable years beginning

after December 31, 1976.

"(2) Notice requirement. - For purposes of section 120(d)(7) of

the Internal Revenue Code of 1986 [formerly I.R.C. 1954] the time

prescribed by the Secretary of the Treasury by regulations for

giving the notice required by section 120(c)(4) of such Code

shall not expire before the 90th day after the day on which

regulations prescribed under such section 120(c)(4) first become

final.

"(3) Existing plans. -

"(A) For purposes of section 120 of the Internal Revenue Code

of 1986, a written group legal services plan which was in

existence on June 4, 1976, shall be considered as satisfying

the requirements of subsections (b) and (c) of such section 120

for the period ending with the compliance date (determined

under subparagraph (B)).

"(B) Compliance date. - For purposes of this paragraph, the

term 'compliance date' means -

"(i) the date occurring 180 days after the date of the

enactment of this Act [Oct. 4, 1976], or

"(ii) if later, in the case of a plan which is maintained

pursuant to one or more agreements which the Secretary of

Labor finds to be collective bargaining agreements, the

earlier of December 31, 1981, or the date on which the last

of the collective bargaining agreements relating to the plan

terminates (determined without regard to any extension

thereof agreed to after the date of the enactment of this Act

[Oct. 4, 1976])."

REGULATIONS

Secretary of the Treasury or his delegate to issue before Feb. 1,

1988, final regulations to carry out amendments made by section

1114 of Pub. L. 99-514, see section 1141 of Pub. L. 99-514, set out

as a note under section 401 of this title.

EXTENSION OF EMPLOYER-PROVIDED GROUP LEGAL SERVICES

Section 104(a)(2) of Pub. L. 102-227 provided that: "In the case

of any taxable year beginning in 1992, only amounts paid before

July 1, 1992, by the employer for coverage for the employee, his

spouse, or his dependents, under a qualified group legal services

plan for periods before July 1, 1992, shall be taken into account

in determining the amount excluded under section 120 of the

Internal Revenue Code of 1986 with respect to such employee for

such taxable year."

SPECIAL RULE FOR TAXABLE YEARS BEGINNING IN 1990

Section 7102(a)(2) of Pub. L. 101-239 provided that in the case

of any taxable year beginning in 1990, only amounts paid before

October 1, 1990, by the employer for coverage for the employee, his

spouse, or his dependents under a qualified group legal services

plan for periods before October 1, 1990, would be taken into

account in determining the amount excluded under this section with

respect to such employee for such taxable year, prior to repeal by

Pub. L. 101-508, title XI, Sec. 11404(b), Nov. 5, 1990, 104 Stat.

1388-473.

NONENFORCEMENT OF AMENDMENT MADE BY SECTION 1151 OF PUB. L. 99-514

FOR FISCAL YEAR 1990

No monies appropriated by Pub. L. 101-136 to be used to implement

or enforce section 1151 of Pub. L. 99-514 or the amendments made by

such section, see section 528 of Pub. L. 101-136, set out as a note

under section 89 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.

STUDY AND REPORT

Section 2134(d) of Pub. L. 94-455 provided that a complete study

and investigation with respect to the desirability and feasibility

of continuing the exclusion from income of certain prepaid group

legal services benefits under section 120 of the Internal Revenue

Code of 1954 be made by the Secretary of Labor and the Secretary of

the Treasury, with a report to the President and the Congress not

later than Dec. 31, 1980.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 414, 501, 3121, 3306,

3231, 6039D of this title; title 42 section 409.

-End-

-CITE-

26 USC Sec. 121 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter B - Computation of Taxable Income

PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

-HEAD-

Sec. 121. Exclusion of gain from sale of principal residence

-STATUTE-

(a) Exclusion

Gross income shall not include gain from the sale or exchange of

property if, during the 5-year period ending on the date of the

sale or exchange, such property has been owned and used by the

taxpayer as the taxpayer's principal residence for periods

aggregating 2 years or more.

(b) Limitations

(1) In general

The amount of gain excluded from gross income under subsection

(a) with respect to any sale or exchange shall not exceed

$250,000.

(2) Special rules for joint returns

In the case of a husband and wife who make a joint return for

the taxable year of the sale or exchange of the property -

(A) $500,000 Limitation for certain joint returns

Paragraph (1) shall be applied by substituting "$500,000" for

"$250,000" if -

(i) either spouse meets the ownership requirements of

subsection (a) with respect to such property;

(ii) both spouses meet the use requirements of subsection

(a) with respect to such property; and

(iii) neither spouse is ineligible for the benefits of

subsection (a) with respect to such property by reason of

paragraph (3).

(B) Other joint returns

If such spouses do not meet the requirements of subparagraph

(A), the limitation under paragraph (1) shall be the sum of the

limitations under paragraph (1) to which each spouse would be

entitled if such spouses had not been married. For purposes of

the preceding sentence, each spouse shall be treated as owning

the property during the period that either spouse owned the

property.

(3) Application to only 1 sale or exchange every 2 years

(A) In general

Subsection (a) shall not apply to any sale or exchange by the

taxpayer if, during the 2-year period ending on the date of

such sale or exchange, there was any other sale or exchange by

the taxpayer to which subsection (a) applied.

(B) Pre-May 7, 1997, sales not taken into account

Subparagraph (A) shall be applied without regard to any sale

or exchange before May 7, 1997.

(c) Exclusion for taxpayers failing to meet certain requirements

(1) In general

In the case of a sale or exchange to which this subsection

applies, the ownership and use requirements of subsection (a),

and subsection (b)(3), shall not apply; but the dollar limitation

under paragraph (1) or (2) of subsection (b), whichever is

applicable, shall be equal to -

(A) the amount which bears the same ratio to such limitation

(determined without regard to this paragraph) as

(B)(i) the shorter of -

(I) the aggregate periods, during the 5-year period ending

on the date of such sale or exchange, such property has been

owned and used by the taxpayer as the taxpayer's principal

residence; or

(II) the period after the date of the most recent prior

sale or exchange by the taxpayer to which subsection (a)

applied and before the date of such sale or exchange, bears

to

(ii) 2 years.

(2) Sales and exchanges to which subsection applies

This subsection shall apply to any sale or exchange if -

(A) subsection (a) would not (but for this subsection) apply

to such sale or exchange by reason of -

(i) a failure to meet the ownership and use requirements of

subsection (a), or

(ii) subsection (b)(3), and

(B) such sale or exchange is by reason of a change in place

of employment, health, or, to the extent provided in

regulations, unforeseen circumstances.

(d) Special rules

(1) Joint returns

If a husband and wife make a joint return for the taxable year

of the sale or exchange of the property, subsections (a) and (c)

shall apply if either spouse meets the ownership and use

requirements of subsection (a) with respect to such property.

(2) Property of deceased spouse

For purposes of this section, in the case of an unmarried

individual whose spouse is deceased on the date of the sale or

exchange of property, the period such unmarried individual owned

and used such property shall include the period such deceased

spouse owned and used such property before death.

(3) Property owned by spouse or former spouse

For purposes of this section -

(A) Property transferred to individual from spouse or former

spouse

In the case of an individual holding property transferred to

such individual in a transaction described in section 1041(a),

the period such individual owns such property shall include the

period the transferor owned the property.

(B) Property used by former spouse pursuant to divorce decree,

etc.

Solely for purposes of this section, an individual shall be

treated as using property as such individual's principal

residence during any period of ownership while such

individual's spouse or former spouse is granted use of the

property under a divorce or separation instrument (as defined

in section 71(b)(2)).

(4) Tenant-stockholder in cooperative housing corporation

For purposes of this section, if the taxpayer holds stock as a

tenant-stockholder (as defined in section 216) in a cooperative

housing corporation (as defined in such section), then -

(A) the holding requirements of subsection (a) shall be

applied to the holding of such stock, and

(B) the use requirements of subsection (a) shall be applied

to the house or apartment which the taxpayer was entitled to

occupy as such stockholder.

(5) Involuntary conversions

(A) In general

For purposes of this section, the destruction, theft,

seizure, requisition, or condemnation of property shall be

treated as the sale of such property.

(B) Application of section 1033

In applying section 1033 (relating to involuntary

conversions), the amount realized from the sale or exchange of

property shall be treated as being the amount determined

without regard to this section, reduced by the amount of gain

not included in gross income pursuant to this section.

(C) Property acquired after involuntary conversion

If the basis of the property sold or exchanged is determined

(in whole or in part) under section 1033(b) (relating to basis

of property acquired through involuntary conversion), then the

holding and use by the taxpayer of the converted property shall

be treated as holding and use by the taxpayer of the property

sold or exchanged.

(6) Recognition of gain attributable to depreciation

Subsection (a) shall not apply to so much of the gain from the

sale of any property as does not exceed the portion of the

depreciation adjustments (as defined in section 1250(b)(3))

attributable to periods after May 6, 1997, in respect of such

property.

(7) Determination of use during periods of out-of-residence care

In the case of a taxpayer who -

(A) becomes physically or mentally incapable of self-care,

and

(B) owns property and uses such property as the taxpayer's

principal residence during the 5-year period described in

subsection (a) for periods aggregating at least 1 year,

then the taxpayer shall be treated as using such property as the

taxpayer's principal residence during any time during such 5-year

period in which the taxpayer owns the property and resides in any

facility (including a nursing home) licensed by a State or

political subdivision to care for an individual in the taxpayer's

condition.

(8) Sales of remainder interests

For purposes of this section -

(A) In general

At the election of the taxpayer, this section shall not fail

to apply to the sale or exchange of an interest in a principal

residence by reason of such interest being a remainder interest

in such residence, but this section shall not apply to any

other interest in such residence which is sold or exchanged

separately.

(B) Exception for sales to related parties

Subparagraph (A) shall not apply to any sale to, or exchange

with, any person who bears a relationship to the taxpayer which

is described in section 267(b) or 707(b).

(e) Denial of exclusion for expatriates

This section shall not apply to any sale or exchange by an

individual if the treatment provided by section 877(a)(1) applies

to such individual.

(f) Election to have section not apply

This section shall not apply to any sale or exchange with respect

to which the taxpayer elects not to have this section apply.

(g) Residences acquired in rollovers under section 1034

For purposes of this section, in the case of property the

acquisition of which by the taxpayer resulted under section 1034

(!1) (as in effect on the day before the date of the enactment of

this section) in the nonrecognition of any part of the gain

realized on the sale or exchange of another residence, in

determining the period for which the taxpayer has owned and used

such property as the taxpayer's principal residence, there shall be

included the aggregate periods for which such other residence (and

each prior residence taken into account under section 1223(7) in

determining the holding period of such property) had been so owned

and used.

-SOURCE-

(Added Pub. L. 88-272, title II, Sec. 206(a), Feb. 26, 1964, 78

Stat. 38; amended Pub. L. 94-455, title XIV, Sec. 1404(a), title

XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1733, 1834; Pub.

L. 95-600, title IV, Sec. 404(a)-(c)(2), Nov. 6, 1978, 92 Stat.

2869, 2870; Pub. L. 97-34, title I, Sec. 123(a), Aug. 13, 1981, 95

Stat. 197; Pub. L. 100-647, title VI, Sec. 6011(a), Nov. 10, 1988,

102 Stat. 3691; Pub. L. 105-34, title III, Sec. 312(a), Aug. 5,

1997, 111 Stat. 836; Pub. L. 105-206, title VI, Sec. 6005(e)(1),

(2), July 22, 1998, 112 Stat. 805; Pub. L. 107-16, title V, Sec.

542(c), June 7, 2001, 115 Stat. 84.)

-STATAMEND-

AMENDMENT OF SUBSECTION (D)

Pub. L. 107-16, title V, Sec. 542(c), (f)(1), title IX, Sec. 901,

June 7, 2001, 115 Stat. 84, 86, 150, provided that, applicable to

estates of decedents dying after Dec. 31, 2009, subsection (d) of

this section is temporarily amended by adding paragraph (9) at end

to read as follows:

(9) Property acquired from a decedent

The exclusion under this section shall apply to property sold

by -

(A) the estate of a decedent,

(B) any individual who acquired such property from the

decedent (within the meaning of section 1022), and

(C) a trust which, immediately before the death of the

decedent, was a qualified revocable trust (as defined in

section 645(b)(1)) established by the decedent,

determined by taking into account the ownership and use by the

decedent.

See Effective and Termination Dates of 2001 Amendment note below.

-REFTEXT-

REFERENCES IN TEXT

Section 1034 (as in effect on the day before the date of the

enactment of this section), referred to in subsec. (g), probably

means section 1034 of this title as in effect on the day before the

date of enactment of Pub. L. 105-34 which amended this section

generally and was approved Aug. 5, 1997. Section 1034 was repealed

by Pub. L. 105-34, title III, Sec. 312(b), Aug. 5, 1997, 111 Stat.

839.

-MISC1-

PRIOR PROVISIONS

A prior section 121 was renumbered section 140 of this title.

AMENDMENTS

1998 - Subsec. (b)(2). Pub. L. 105-206, Sec. 6005(e)(1),

substituted "Special rules for joint returns" for "$500,000

limitation for certain joint returns" in heading and amended text

generally. Prior to amendment, text read as follows: "Paragraph (1)

shall be applied by substituting '$500,000' for '$250,000' if -

"(A) a husband and wife make a joint return for the taxable

year of the sale or exchange of the property,

"(B) either spouse meets the ownership requirements of

subsection (a) with respect to such property,

"(C) both spouses meet the use requirements of subsection (a)

with respect to such property, and

"(D) neither spouse is ineligible for the benefits of

subsection (a) with respect to such property by reason of

paragraph (3)."

Subsec. (c)(1). Pub. L. 105-206, Sec. 6005(e)(2), reenacted

heading without change and amended text generally. Prior to

amendment, text read as follows: "In the case of a sale or exchange

to which this subsection applies, the ownership and use

requirements of subsection (a) shall not apply and subsection

(b)(3) shall not apply; but the amount of gain excluded from gross

income under subsection (a) with respect to such sale or exchange

shall not exceed -

"(A) the amount which bears the same ratio to the amount which

would be so excluded under this section if such requirements had

been met, as

"(B) the shorter of -

"(i) the aggregate periods, during the 5-year period ending

on the date of such sale or exchange, such property has been

owned and used by the taxpayer as the taxpayer's principal

residence, or

"(ii) the period after the date of the most recent prior sale

or exchange by the taxpayer to which subsection (a) applied and

before the date of such sale or exchange,

bears to 2 years."

1997 - Pub. L. 105-34 amended section catchline and text

generally. Prior to amendment, section related to one-time

exclusion of gain from sale of principal residence by individual

who had attained age 55.

1988 - Subsec. (d)(9). Pub. L. 100-647 added par. (9).

1981 - Subsec. (b)(1). Pub. L. 97-34 substituted "$125,000

($62,500" for "$100,000 ($50,000".

1978 - Pub. L. 95-600, Sec. 404(a), substituted "One-time

exclusion of gain from sale of principal residence by individual

who has attained age 55" for "Gain from sale or exchange of

residence of individual who has attained age 65" in section

catchline.

Subsec. (a). Pub. L. 95-600, Sec. 404(a), substituted "55" for

"65", "5-year" for "8-year", and "3 years" for "5 years".

Subsec. (b). Pub. L. 95-600, Sec. 404(a), in par. (1) substituted

provisions respecting dollar limitations for amount of gain for

provisions setting forth applicable limitations where the adjusted

sales price exceeds $35,000 and added par. (3).

Subsec. (d)(2). Pub. L. 95-600, Sec. 404(c)(1), substituted

"5-year period" for "8-year period".

Subsec. (d)(5). Pub. L. 95-600, Sec. 404(c)(2), substituted

"5-year period" for "8-year period" and "3 years" for "5 years".

Subsec. (d)(8). Pub. L. 95-600, Sec. 404(b), added par. (8).

1976 - Subsec. (b)(1). Pub. L. 94-455, Sec. 1404(a), substituted

"$35,000" for "$20,000" in three places.

Subsecs. (c), (d)(5). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck

out "or his delegate" after "Secretary".

EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT

Pub. L. 107-16, title V, Sec. 542(f), June 7, 2001, 115 Stat. 86,

provided that:

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

amendments made by this section [enacting sections 1022 and 6716 of

this title and amending this section and sections 170, 684, 1040,

1221, 1246, 1291, 1296, 4947, 6018, 6019, 6075, and 7701 of this

title] shall apply to estates of decedents dying after December 31,

2009.

"(2) Transfers to nonresidents. - The amendments made by

subsection (e)(1) [amending section 684 of this title] shall apply

to transfers after December 31, 2009.

"(3) Section 4947. - The amendment made by subsection (e)(4)

[amending section 4947 of this title] shall apply to deductions for

taxable years beginning after December 31, 2009."

Amendment by Pub. L. 107-16 inapplicable to estates of decedents

dying, gifts made, or generation skipping transfers, after Dec. 31,

2010, and the Internal Revenue Code of 1986 to be applied and

administered to such estates, gifts, and transfers 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 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 312(d) of Pub. L. 105-34, as amended by Pub. L. 105-206,

title VI, Sec. 6005(e)(3), July 22, 1998, 112 Stat. 806, provided

that:

"(1) In general. - The amendments made by this section [amending

this section and sections 25, 32, 56, 143, 163, 215, 280A, 464,

512, 1016, 1033, 1038, 1223, 1250, 1274, 6012, 6045, 6212, 6334,

6504, and 7872 of this title and repealing section 1034 of this

title] shall apply to sales and exchanges after May 6, 1997.

"(2) Sales on or before date of enactment. - At the election of

the taxpayer, the amendments made by this section shall not apply

to any sale or exchange on or before the date of the enactment of

this Act [Aug. 5, 1997].

"(3) Certain sales within 2 years after date of enactment. -

Section 121 of the Internal Revenue Code of 1986 (as amended by

this section) shall be applied without regard to subsection

(c)(2)(B) thereof in the case of any sale or exchange of property

during the 2-year period beginning on the date of the enactment of

this Act if the taxpayer held such property on the date of the

enactment of this Act and fails to meet the ownership and use

requirements of subsection (a) thereof with respect to such

property.

"(4) Binding contracts. - At the election of the taxpayer, the

amendments made by this section shall not apply to a sale or

exchange after the date of the enactment of this Act, if -

"(A) such sale or exchange is pursuant to a contract which was

binding on such date, or

"(B) without regard to such amendments, gain would not be

recognized under section 1034 of the Internal Revenue Code of

1986 (as in effect on the day before the date of the enactment of

this Act) on such sale or exchange by reason of a new residence

acquired on or before such date or with respect to the

acquisition of which by the taxpayer a binding contract was in

effect on such date.

This paragraph shall not apply to any sale or exchange by an

individual if the treatment provided by section 877(a)(1) of the

Internal Revenue Code of 1986 applies to such individual."

EFFECTIVE DATE OF 1988 AMENDMENT

Section 6011(b) of Pub. L. 100-647 provided that: "The amendment

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

respect to any sale or exchange after September 30, 1988, in

taxable years ending after such date."

EFFECTIVE DATE OF 1981 AMENDMENT

Section 123(b) of Pub. L. 97-34 provided that: "The amendment

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

residences sold or exchanged after July 20, 1981."

EFFECTIVE DATE OF 1978 AMENDMENT

Section 404(d)(1) of Pub. L. 95-600 provided that: "The

amendments made by this section [amending this section and sections

1033, 1034, 1038, 1250, and 6012 of this title] shall apply to

sales or exchanges after July 26, 1978, in taxable years ending

after such date."

EFFECTIVE DATE OF 1976 AMENDMENT

Section 1404(b) of Pub. L. 94-455 provided that: "The amendment

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

taxable years beginning after December 31, 1976."

EFFECTIVE DATE

Section 206(c) of Pub. L. 88-272 provided that: "The amendments

made by this section [enacting this section, redesignating former

section 121 as 122, and amending sections 1033, 1034, and 6012 of

this title] shall apply to dispositions after Dec. 31, 1963, in

taxable years ending after such date."

SENSE OF CONGRESS CONCERNING TAX TREATMENT OF PRINCIPAL RESIDENCE

OF MEMBERS OF ARMED FORCES WHILE AWAY FROM HOME ON ACTIVE DUTY

Pub. L. 105-261, div. A, title X, Sec. 1074, Oct. 17, 1998, 112

Stat. 2138, provided that: "It is the sense of Congress that a

member of the Armed Forces should be treated for purposes of

section 121 of the Internal Revenue Code of 1986 as using property

as a principal residence during any continuous period that the

member is serving on active duty for 180 days or more with the

Armed Forces, but only if the member used the property as a

principal residence for any period during or immediately before

that period of active duty."

TRANSITIONAL RULE IN CASE OF SALE OR EXCHANGE OF RESIDENCE BEFORE

JULY 26, 1981

Section 404(d)(2) of Pub. L. 95-600, as amended by Pub. L.

99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "In

the case of a sale or exchange of a residence before July 26, 1981,

a taxpayer who has attained age 65 on the date of such sale or

exchange may elect to have section 121 of the Internal Revenue Code

of 1986 [formerly I.R.C. 1954] applied by substituting '8-year

period' for '5-year period' and '5 years' for '3 years' in

subsections (a), (d)(2), and (d)(5) of such section."

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 25, 45F, 56, 72, 143,

163, 216, 280A, 464, 1033, 1038, 1274, 1400C, 6012, 6045, 6334,

7872 of this title.

-FOOTNOTE-

(!1) See References in Text note below.

-End-

-CITE-

26 USC Sec. 122 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter B - Computation of Taxable Income

PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

-HEAD-

Sec. 122. Certain reduced uniformed services retirement pay

-STATUTE-

(a) General rule

In the case of a member or former member of the uniformed

services of the United States, gross income does not include the

amount of any reduction in his retired or retainer pay pursuant to

the provisions of chapter 73 of title 10, United States Code.

(b) Special rule

(1) Amount excluded from gross income

In the case of any individual referred to in subsection (a),

all amounts received after December 31, 1965, as retired or

retainer pay shall be excluded from gross income until there has

been so excluded an amount equal to the consideration for the

contract. The preceding sentence shall apply only to the extent

that the amounts received would, but for such sentence, be

includible in gross income.

(2) Consideration for the contract

For purposes of paragraph (1) and section 72(n), the term

"consideration for the contract" means, in respect of any

individual, the sum of -

(A) the total amount of the reductions before January 1,

1966, in his retired or retainer pay by reason of an election

under chapter 73 of title 10 of the United States Code, and

(B) any amounts deposited at any time by him pursuant to

section 1438 or 1452(d) of such title 10.

-SOURCE-

(Added Pub. L. 89-365, Sec. 1(a)(1), Mar. 8, 1966, 80 Stat. 32;

amended Pub. L. 93-406, title II, Secs. 2005(c)(10), 2007(a),

(b)(1), Sept. 2, 1974, 88 Stat. 992, 994.)

-MISC1-

PRIOR PROVISIONS

A prior section 122 was renumbered section 140 of this title.

AMENDMENTS

1974 - Subsec. (a). Pub. L. 93-406, Sec. 2007(a), substituted

"United States, gross income does not include the amount of any

reduction in his retired or retainer pay pursuant to the provisions

of chapter 73 of title 10, United States Code" for "United States

who has made an election under chapter 73 of title 10 of the United

States Code to receive a reduced amount of retired or retainer pay,

gross income does not include the amount of any reduction after

December 31, 1965, in his retired or retainer pay by reason of such

election".

Subsec. (b)(2). Pub. L. 93-406, Sec. 2005(c)(10), substituted

"72(n)" for "72(o)".

Subsec. (b)(2)(B). Pub. L. 93-406, Sec. 2007(b)(1), inserted

reference to section 1452(d) of title 10.

EFFECTIVE DATE OF 1974 AMENDMENT

Amendment by section 2005(c)(10) of Pub. L. 93-406 applicable

only with respect to distributions or payments made after Dec. 31,

1973, in taxable years beginning after Dec. 31, 1973, see section

2005(d) of Pub. L. 93-406, set out as a note under section 402 of

this title.

Section 2007(c) of Pub. L. 93-406 provided that: "The amendments

made by this section [amending this section and sections 72, 101,

and 2039 of this title] apply to taxable years ending on or after

September 21, 1972. The amendments made by paragraphs (3) and (4)

of subsection (b) [amending sections 101 and 2039 of this title]

apply with respect to individuals dying on or after such date".

EFFECTIVE DATE

Section 1(d) of Pub. L. 89-365 provided that: "The amendments

made by subsections (a) and (b) [enacting this section and amending

section 72 of this title] shall apply with respect to taxable years

ending after December 31, 1965. The amendment made by subsection

(c) [amending section 101 of this title] shall apply with respect

to individuals making an election under chapter 73 of title 10 of

the United States Code who die after December 31, 1965."

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in section 72 of this title.

-End-

-CITE-

26 USC Sec. 123 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter B - Computation of Taxable Income

PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

-HEAD-

Sec. 123. Amounts received under insurance contracts for certain

living expenses

-STATUTE-

(a) General rule

In the case of an individual whose principal residence is damaged

or destroyed by fire, storm, or other casualty, or who is denied

access to his principal residence by governmental authorities

because of the occurrence or threat of occurrence of such a

casualty, gross income does not include amounts received by such

individual under an insurance contract which are paid to compensate

or reimburse such individual for living expenses incurred for

himself and members of his household resulting from the loss of use

or occupancy of such residence.

(b) Limitation

Subsection (a) shall apply to amounts received by the taxpayer

for living expenses incurred during any period only to the extent

the amounts received do not exceed the amount by which -

(1) the actual living expenses incurred during such period for

himself and members of his household resulting from the loss of

use or occupancy of their residence, exceed

(2) the normal living expenses which would have been incurred

for himself and members of his household during such period.

-SOURCE-

(Added Pub. L. 91-172, title IX, Sec. 901(a), Dec. 30, 1969, 83

Stat. 709.)

-MISC1-

PRIOR PROVISIONS

A prior section 123 was renumbered section 140 of this title.

EFFECTIVE DATE

Section 901(c) of Pub. L. 91-172 provided that: "The amendments

made by this section [enacting this section] shall apply with

respect to amounts received on or after January 1, 1969."

-End-

-CITE-

26 USC [Sec. 124 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter B - Computation of Taxable Income

PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

-HEAD-

[Sec. 124. Repealed. Pub. L. 101-508, title XI, Sec. 11801(a)(9),

Nov. 5, 1990, 104 Stat. 1388-520]

-MISC1-

Section, added Pub. L. 95-618, title II, Sec. 242(a), Nov. 9,

1978, 92 Stat. 3193, related to qualified transportation provided

by employers.

A prior section 124 was renumbered section 140 of this title.

SAVINGS PROVISION

For provisions that nothing in repeal by 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.

-End-

-CITE-

26 USC Sec. 125 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter B - Computation of Taxable Income

PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

-HEAD-

Sec. 125. Cafeteria plans

-STATUTE-

(a) General rule

Except as provided in subsection (b), no amount shall be included

in the gross income of a participant in a cafeteria plan solely

because, under the plan, the participant may choose among the

benefits of the plan.

(b) Exception for highly compensated participants and key employees

(1) Highly compensated participants

In the case of a highly compensated participant, subsection (a)

shall not apply to any benefit attributable to a plan year for

which the plan discriminates in favor of -

(A) highly compensated individuals as to eligibility to

participate, or

(B) highly compensated participants as to contributions and

benefits.

(2) Key employees

In the case of a key employee (within the meaning of section

416(i)(1)), subsection (a) shall not apply to any benefit

attributable to a plan for which the statutory nontaxable

benefits provided to key employees exceed 25 percent of the

aggregate of such benefits provided for all employees under the

plan. For purposes of the preceding sentence, statutory

nontaxable benefits shall be determined without regard to the

last sentence of subsection (f).

(3) Year of inclusion

For purposes of determining the taxable year of inclusion, any

benefit described in paragraph (1) or (2) shall be treated as

received or accrued in the taxable year of the participant or key

employee in which the plan year ends.

(c) Discrimination as to benefits or contributions

For purposes of subparagraph (B) of subsection (b)(1), a

cafeteria plan does not discriminate where qualified benefits and

total benefits (or employer contributions allocable to qualified

benefits and employer contributions for total benefits) do not

discriminate in favor of highly compensated participants.

(d) Cafeteria plan defined

For purposes of this section -

(1) In general

The term "cafeteria plan" means a written plan under which -

(A) all participants are employees, and

(B) the participants may choose among 2 or more benefits

consisting of cash and qualified benefits.

(2) Deferred compensation plans excluded

(A) In general

The term "cafeteria plan" does not include any plan which

provides for deferred compensation.

(B) Exception for cash and deferred arrangements

Subparagraph (A) shall not apply to a profit-sharing or stock

bonus plan or rural cooperative plan (within the meaning of

section 401(k)(7)) which includes a qualified cash or deferred

arrangement (as defined in section 401(k)(2)) to the extent of

amounts which a covered employee may elect to have the employer

pay as contributions to a trust under such plan on behalf of

the employee.

(C) Exception for certain plans maintained by educational

institutions

Subparagraph (A) shall not apply to a plan maintained by an

educational organization described in section 170(b)(1)(A)(ii)

to the extent of amounts which a covered employee may elect to

have the employer pay as contributions for post-retirement

group life insurance if -

(i) all contributions for such insurance must be made

before retirement, and

(ii) such life insurance does not have a cash surrender

value at any time.

For purposes of section 79, any life insurance described in the

preceding sentence shall be treated as group-term life

insurance.

(e) Highly compensated participant and individual defined

For purposes of this section -

(1) Highly compensated participant

The term "highly compensated participant" means a participant

who is -

(A) an officer,

(B) a shareholder owning more than 5 percent of the voting

power or value of all classes of stock of the employer,

(C) highly compensated, or

(D) a spouse or dependent (within the meaning of section 152)

of an individual described in subparagraph (A), (B), or (C).

(2) Highly compensated individual

The term "highly compensated individual" means an individual

who is described in subparagraphs (!1) (A), (B), (C), or (D) of

paragraph (1).

(f) Qualified benefits defined

For purposes of this section, the term "qualified benefit" means

any benefit which, with the application of subsection (a), is not

includible in the gross income of the employee by reason of an

express provision of this chapter (other than section 106(b), 117,

127, or 132). Such term includes any group term life insurance

which is includible in gross income only because it exceeds the

dollar limitation of section 79 and such term includes any other

benefit permitted under regulations. Such term shall not include

any product which is advertised, marketed, or offered as long-term

care insurance.

(g) Special rules

(1) Collectively bargained plan not considered discriminatory

For purposes of this section, a plan shall not be treated as

discriminatory if the plan is maintained under an agreement which

the Secretary finds to be a collective bargaining agreement

between employee representatives and one or more employers.

(2) Health benefits

For purposes of subparagraph (B) of subsection (b)(1), a

cafeteria plan which provides health benefits shall not be

treated as discriminatory if -

(A) contributions under the plan on behalf of each

participant include an amount which -

(i) equals 100 percent of the cost of the health benefit

coverage under the plan of the majority of the highly

compensated participants similarly situated, or

(ii) equals or exceeds 75 percent of the cost of the health

benefit coverage of the participant (similarly situated)

having the highest cost health benefit coverage under the

plan, and

(B) contributions or benefits under the plan in excess of

those described in subparagraph (A) bear a uniform relationship

to compensation.

(3) Certain participation eligibility rules not treated as

discriminatory

For purposes of subparagraph (A) of subsection (b)(1), a

classification shall not be treated as discriminatory if the plan

-

(A) benefits a group of employees described in section

410(b)(2)(A)(i), and

(B) meets the requirements of clauses (i) and (ii):

(i) No employee is required to complete more than 3 years

of employment with the employer or employers maintaining the

plan as a condition of participation in the plan, and the

employment requirement for each employee is the same.

(ii) Any employee who has satisfied the employment

requirement of clause (i) and who is otherwise entitled to

participate in the plan commences participation no later than

the first day of the first plan year beginning after the date

the employment requirement was satisfied unless the employee

was separated from service before the first day of that plan

year.

(4) Certain controlled groups, etc.

All employees who are treated as employed by a single employer

under subsection (b), (c), or (m) of section 414 shall be treated

as employed by a single employer for purposes of this section.

(h) Cross reference

For reporting and recordkeeping requirements, see section

6039D.

(i) Regulations

The Secretary shall prescribe such regulations as may be

necessary to carry out the provisions of this section.

-SOURCE-

(Added Pub. L. 95-600, title I, Sec. 134(a), Nov. 6, 1978, 92 Stat.

2783; amended Pub. L. 96-222, title I, Sec. 101(a)(6)(A), Apr. 1,

1980, 94 Stat. 196; Pub. L. 96-605, title II, Secs. 201(b)(2),

226(a), Dec. 28, 1980, 94 Stat. 3527, 3529; Pub. L. 96-613, Sec.

5(b)(2), Dec. 28, 1980, 94 Stat. 3581; Pub. L. 98-369, div. A,

title V, Sec. 531(b)(1)-(4)(A), July 18, 1984, 98 Stat. 881, 882;

Pub. L. 98-611, Sec. 1(d)(3)(A), Oct. 31, 1984, 98 Stat. 3177; Pub.

L. 98-612, Sec. 1(b)(3)(B), Oct. 31, 1984, 98 Stat. 3181; Pub. L.

99-514, title XI, Sec. 1151(d)(1), title XVIII, Sec. 1853(b)(1),

Oct. 22, 1986, 100 Stat. 2504, 2870; Pub. L. 100-647, title I,

Secs. 1011B(a)(11)-(13), 1018(t)(6), title IV, Sec. 4002(b)(2),

title VI, Sec. 6051(b), Nov. 10, 1988, 102 Stat. 3484, 3485, 3589,

3643, 3696; Pub. L. 101-140, title II, Sec. 203(a)(1), (3), (b)(2),

Nov. 8, 1989, 103 Stat. 830, 831; Pub. L. 101-239, title VII, Sec.

7814(b), Dec. 19, 1989, 103 Stat. 2413; Pub. L. 101-508, title XI,

Sec. 11801(c)(3), Nov. 5, 1990, 104 Stat. 1388-523; Pub. L.

104-191, title III, Secs. 301(d), 321(c)(1), Aug. 21, 1996, 110

Stat. 2051, 2058.)

-COD-

CODIFICATION

Pub. L. 101-140, Sec. 203(a)(1), amended this section to read as

if the amendments made by section 1151(d)(1) of Pub. L. 99-514

(amending this section generally) had not been enacted. Subsequent

to amendment by Pub. L. 99-514, this section was amended by Pub. L.

100-647 and Pub. L. 101-239. See 1989 and 1988 Amendment notes

below.

-MISC1-

PRIOR PROVISIONS

A prior section 125 was renumbered section 140 of this title.

AMENDMENTS

1996 - Subsec. (f). Pub. L. 104-191, Sec. 321(c)(1), inserted at

end "Such term shall not include any product which is advertised,

marketed, or offered as long-term care insurance."

Pub. L. 104-191, Sec. 301(d), inserted "106(b)," before "117".

1990 - Subsec. (f). Pub. L. 101-508 substituted "section 117,"

for "section 117, 124,".

1989 - Pub. L. 101-140, Sec. 203(a)(1), amended section to read

as if amendments by Pub. L. 99-514, Sec. 1151(d)(1), had not been

enacted, see 1986 Amendment note below.

Subsec. (d)(2). Pub. L. 101-140, Sec. 203(b)(2), amended par. (2)

generally. Prior to amendment, par. (2) read as follows: "The term

'cafeteria plan' does not include any plan which provides for

deferred compensation. The preceding sentence shall not apply in

the case of a profit-sharing or stock bonus plan which includes a

qualified cash or deferred arrangement (as defined in section

401(k)(2)) to the extent of amounts which a covered employee may

elect to have the employer pay as contributions to a trust under

such plan on behalf of the employee."

Subsec. (e)(2)(A). Pub. L. 101-239 substituted "includible only

because" for "includable only because", see Codification note

above.

Subsec. (g)(3)(A). Pub. L. 101-140, Sec. 203(a)(3), substituted

"section 410(b)(2)(A)(i)" for "subparagraph (B) of section

410(b)(1)".

1988 - Subsec. (a). Pub. L. 100-647, Sec. 1011B(a)(11)(A),

amended subsec. (a) generally, see Codification note above. Prior

to amendment, subsec. (a) read as follows: "In the case of a

cafeteria plan -

"(1) amounts shall not be included in gross income of a

participant in such plan solely because, under the plan, the

participant may choose among the benefits of the plan, and

"(2) if the plan fails to meet the requirements of subsection

(b) for any plan year -

"(A) paragraph (1) shall not apply, and

"(B) notwithstanding any other provision of part III of this

subchapter, any qualified benefits received under such

cafeteria plan by a highly compensated employee for such plan

year shall be included in the gross income of such employee for

the taxable year with or within which such plan year ends."

Subsec. (b)(1). Pub. L. 100-647, Sec. 1011B(a)(11)(B),

substituted "In the case of a highly compensated employee,

subsection (a) shall not apply to any benefit attributable to a

plan year" for "A plan shall be treated as failing to meet the

requirements of this subsection", see Codification note above.

Subsec. (b)(2). Pub. L. 100-647, Sec. 1011B(a)(11)(C),

substituted "subsection (a) shall not apply to any plan year" for

"a plan shall be treated as failing to meet the requirements of

this subsection" in first sentence, see Codification note above.

Pub. L. 100-647, Sec. 1011B(a)(13)(B), substituted "shall not

include benefits which (without regard to this paragraph) are

includible in gross income" for "shall be determined without regard

to the last sentence of subsection (e)", see Codification note

above.

Subsec. (c)(1)(B). Pub. L. 100-647, Sec. 1011B(a)(12), amended

subpar. (B) generally, see Codification note above. Prior to

amendment, subpar. (B) read as follows: "the participants may

choose -

"(i) among 2 or more benefits consisting of cash and qualified

benefits, or

"(ii) among 2 or more qualified benefits."

Subsec. (c)(2)(B). Pub. L. 100-647, Sec. 1018(t)(6), inserted "or

rural electric cooperative plan (within the meaning of section

401(k)(7))" after "stock bonus plan", see Codification note above.

Subsec. (c)(2)(C). Pub. L. 100-647, Sec. 6051(b), inserted at end

"In applying section 89 to a plan described in this subparagraph,

contributions under the plan shall be tested as of the time the

contributions were made.", see Codification note above.

Subsec. (e)(1). Pub. L. 100-647, Sec. 1011B(a)(13)(A), inserted

"and without regard to section 89(a)" after "subsection (a)", see

Codification note above.

Subsec. (e)(2)(A). Pub. L. 100-647, Sec. 4002(b)(2), inserted "or

any insurance under a qualified group legal services plan the value

of which is so includable only because it exceeds the limitation of

section 120(a)" after "section 79", see Codification note above.

1986 - Pub. L. 99-514, Sec. 1151(d)(1), amended section

generally, revising and restating as subsecs. (a) to (g) provisions

of former subsecs. (a) to (i) so as to coincide with the coming

into effect of section 89 of this title.

Subsecs. (c), (d)(1)(B). Pub. L. 99-514, Sec. 1853(b)(1)(A),

substituted "qualified benefits" for "statutory nontaxable

benefits" wherever appearing.

Subsec. (f). Pub. L. 99-514, Sec. 1853(b)(1)(B), substituted

"Qualified benefits defined" for "Statutory nontaxable benefits

defined" in heading and amended text generally. Prior to amendment,

text read as follows: "For purposes of this section, the term

'statutory nontaxable benefit' means any benefit which, with the

application of subsection (a) is not includible in the gross income

of the employee by reason of an express provision of this chapter

(other than section 117, 124, 127, or 132). Such term includes any

group term life insurance which is includible in gross income only

because it exceeds the dollar limitation of section 79."

1984 - Subsec. (b). Pub. L. 98-369, Sec. 531(b)(3), amended

subsec. (b) generally, substituting "and key employees" for "where

plan is discriminatory" in heading and "Highly compensated

participants" for "In general" in par. (1) heading, adding par.

(2), redesignating former par. (2) as (3), and inserting therein

references to par. (2) and to taxable year of key employee.

Subsec. (c). Pub. L. 98-369, Sec. 531(b)(2)(B), inserted

"statutory" before "nontaxable benefits" in two places.

Subsec. (d)(1). Pub. L. 98-369, Sec. 531(b)(1), substituted

"among 2 or more benefits consisting of cash and statutory

nontaxable benefits" for "among two or more benefits" in cl. (B)

and struck out "The benefits which may be chosen may be nontaxable

benefits, or cash, property, or other taxable benefits."

Subsec. (f). Pub. L. 98-369, Sec. 531(b)(2)(A), amended subsec.

(f) generally, inserting "Statutory" in heading and "statutory"

before "nontaxable benefit" in text, providing that the benefit be

excluded by reason of an express provision of this chapter (other

than section 117, 124, 127, or 132), and extending the benefit to

include group term life insurance.

Subsec. (h). Pub. L. 98-611 and Pub. L. 98-612, made identical

amendments, substituting cross reference provision for reporting

requirements provisions.

Pub. L. 98-369, Sec. 531(b)(4)(A), added subsec. (h) relating to

reporting requirements provisions. Former subsec. (h) redesignated

(i).

Subsec. (i). Pub. L. 98-369, Sec. 531(b)(4)(A), redesignated

subsec. (h) as (i).

1980 - Subsec. (d)(2). Pub. L. 96-605, Sec. 226(a), inserted

provision that the sentence excluding deferred compensation plans

not apply in the case of a profit-sharing or stock bonus plan which

includes a qualified cash or deferred arrangement, as defined in

section 401(k)(2) to the extent of amounts which a covered employee

may elect to have the employer pay as contributions to a trust

under such plan on behalf of the employee.

Subsec. (g)(3)(B). Pub. L. 96-222 substituted "employment

requirement" for "service requirement" in cls. (i) and (ii).

Subsec. (g)(4). Pub. L. 96-613, Sec. 5(b)(2), and Pub. L. 96-605,

Sec. 201(b)(2), made identical amendments by substituting

"controlled groups, etc." for "controlled groups" in heading, and

by substituting "subsection (b), (c), or (m) of section 414" for

"subsection (b) or (c) of section 414" in text.

EFFECTIVE DATE OF 1996 AMENDMENT

Amendment by section 301(d) of Pub. L. 104-191 applicable to

taxable years beginning after Dec. 31, 1996, see section 301(j) of

Pub. L. 104-191, set out as a note under section 62 of this title.

Amendment by section 321(c)(1) of Pub. L. 104-191 applicable to

contracts issued after Dec. 31, 1996, see section 321(f) of Pub. L.

104-191, set out as an Effective Date note under section 7702B of

this title.

EFFECTIVE DATE OF 1989 AMENDMENTS

Amendment by 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 Pub. L. 101-140 effective as if included in section

1151 of Pub. L. 99-514, see section 203(c) of Pub. L. 101-140, set

out as a note under section 79 of this title.

EFFECTIVE DATE OF 1988 AMENDMENT

Amendment by sections 1011B(a)(11)-(13) and 1018(t)(6) 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 4002(b)(2) of Pub. L. 100-647 applicable to

taxable years ending after Dec. 31, 1987, see section 4002(c) of

Pub. L. 100-647, set out as a note under section 120 of this title.

Section 6051(c) of Pub. L. 100-647 provided that: "The amendments

made by this section [amending this section and section 89 of this

title] shall take effect as if included in the amendments made by

section 1151 of the Reform Act [Pub. L. 99-514, see Effective Date

of 1986 Amendment note set out under section 79 of this title]."

EFFECTIVE DATE OF 1986 AMENDMENT

Amendment by section 1151(d)(1) of Pub. L. 99-514 applicable,

with certain qualifications and exceptions, to years beginning

after Dec. 31, 1988, see section 1151(k) of Pub. L. 99-514, as

amended, set out as a note under section 79 of this title.

Amendment by section 1853(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 AMENDMENTS

Amendment by Pub. L. 98-612 effective Jan. 1, 1985, see section

1(d)(2) of Pub. L. 98-612.

Amendment by Pub. L. 98-611 effective Jan. 1, 1985, see section

1(g)(2) of Pub. L. 98-611, set out as a note under section 127 of

this title.

Amendment by Pub. L. 98-369 effective Jan. 1, 1985, see section

531(h) of Pub. L. 98-369, set out as an Effective Date note under

section 132 of this title.

EFFECTIVE DATE OF 1980 AMENDMENTS

Amendments by section 201(b)(2) of Pub. L. 96-605 and section

5(b)(2) of Pub. L. 96-613 applicable to years ending after Nov. 30,

1980, except in the case of a plan in existence on Nov. 30, 1980

where amendments by section 201(b)(2) of Pub. L. 96-605 and section

5(b)(2) of Pub. L. 96-613 applicable to plan years beginning after

Nov. 30, 1980, see section 201(c) of Pub. L. 96-605 and section

5(c) of Pub. L. 96-613, set out as a note under section 414 of this

title.

Section 226(b) of Pub. L. 96-605 provided that: "The amendment

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

respect to taxable years beginning after December 31, 1980."

Amendment by Pub. L. 96-222 effective, except as otherwise

provided, as if it had been included in the provisions of the

Revenue Act of 1978, Pub. L. 95-600, to which such amendment

relates, see section 201 of Pub. L. 96-222, set out as a note under

section 32 of this title.

EFFECTIVE DATE OF 1978 AMENDMENT

Section 134(c) of Pub. L. 95-600, as amended by Pub. L. 96-222,

title I, Sec. 101(a)(6)(B), Apr. 1, 1980, 94 Stat. 197, provided

that: "The amendments made by this section [enacting this section]

shall apply to plan years beginning after December 31, 1978."

SAVINGS PROVISION

For provisions that nothing in amendment by 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.

NONENFORCEMENT OF AMENDMENT MADE BY SECTION 1151 OF PUB. L. 99-514

FOR FISCAL YEAR 1990

No monies appropriated by Pub. L. 101-136 to be used to implement

or enforce section 1151 of Pub. L. 99-514 or the amendments made by

such section, see section 528 of Pub. L. 101-136, set out as a note

under section 89 of this title.

TREATMENT OF PRE-1989 ELECTIONS FOR DEPENDENT CARE ASSISTANCE UNDER

CAFETERIA PLANS

Section 6063 of Pub. L. 100-647 provided that: "For purposes of

section 125 of the 1986 Code, a plan shall not be treated as

failing to be a cafeteria plan solely because under the plan a

participant elected before January 1, 1989, to receive

reimbursement under the plan for dependent care assistance for

periods after December 31, 1988, and such assistance is includible

in gross income under the provisions of the Family Support Act of

1988 [Pub. L. 100-485, see Tables for classification]."

For provision that for purposes of section 125 of the Internal

Revenue Code of 1986, a plan shall not be treated as failing to be

a cafeteria plan solely because under the plan a participant

elected before January 1, 1988, to receive reimbursement under the

plan for dependent care assistance for periods after December 31,

1987, and such assistance included reimbursement for expenses at a

camp where the dependent stays overnight, see section 10101(b)(2)

of Pub. L. 100-203, as added by Pub. L. 100-647, set out as an

Effective Date of 1987 Amendment note under section 21 of this

title.

EXCEPTION FOR CERTAIN CAFETERIA PLANS AND BENEFITS

Section 531(b)(5) of Pub. L. 98-369, as amended by Pub. L.

99-514, title XVIII, Sec. 1853(b)(2), (3), Oct. 22, 1986, 100 Stat.

2870, 2871, provided that:

"(A) General transitional rule. - Any cafeteria plan in existence

on February 10, 1984, which failed as of such date and continued to

fail thereafter to satisfy the rules relating to section 125 under

proposed Treasury regulations, and any benefit offered under such a

cafeteria plan which failed as of such date and continued to fail

thereafter to satisfy the rules of section 105, 106, 120, or 129

under proposed Treasury regulations, will not fail to be a

cafeteria plan under section 125 or a nontaxable benefit under

section 105, 106, 120, or 129 solely because of such failures. The

preceding sentence shall apply only with respect to cafeteria plans

and benefits provided under cafeteria plans before the earlier of -

"(i) January 1, 1985, or

"(ii) the effective date of any modification to provide

additional benefits after February 10, 1984.

"(B) Special transition rule for advance election benefit banks.

- Any benefit offered under a cafeteria plan in existence on

February 10, 1984, which failed as of such date and continued to

fail thereafter to satisfy the rules of section 105, 106, 120, or

129 under proposed Treasury regulations because an employee was

assured of receiving (in cash or any other benefit) amounts

available but unused for covered reimbursement during the year

without regard to whether he incurred covered expenses, will not

fail to be a nontaxable benefit under such applicable section

solely because of such failure. The preceding sentence shall apply

only with respect to benefits provided under cafeteria plans before

the earlier of -

"(i) July 1, 1985, or

"(ii) the effective date of any modification to provide

additional benefits after February 10, 1984.

Except as provided in Treasury regulations, the special transition

rule is available only for benefits with respect to which, after

December 31, 1984, contributions are fixed before the period of

coverage and taxable cash is not available until the end of such

period of coverage.

"(C) Plans for which substantial implementation costs were

incurred. - For purposes of this paragraph, any plan with respect

to which substantial implementation costs had been incurred before

February 10, 1984, shall be treated as in existence on February 10,

1984.

"(D) Collective bargaining agreements. - In the case of any

cafeteria plan in existence on February 10, 1984, and maintained

pursuant to 1 or more collective bargaining agreements between

employee representatives and 1 or more employers, the date on which

the last of such collective bargaining agreements terminates

(determined without regard to any extension thereof agreed to after

July 18, 1984) shall be substituted for 'January 1, 1985' in

subparagraph (A) and for 'July 1, 1985' in subparagraph (B). For

purposes of the preceding sentence, any plan amendment made

pursuant to a collective bargaining agreement relating to the plan

which amends the plan solely to conform to any requirement added by

this section (or any requirement in the regulations under section

125 of the Internal Revenue Code of 1954 [now 1986] proposed on May

6, 1984) shall not be treated as a termination of such collective

bargaining agreement.

"(E) Special rule where contributions or reimbursements

suspended. - For purposes of subparagraphs (A) and (B), a plan

shall not be treated as not continuing to fail to satisfy the rules

referred to in such subparagraphs with respect to any benefit

provided in the form of a flexible spending arrangement merely

because contributions or reimbursements (or both) with respect to

such plan were suspended before January 1, 1985."

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 35, 79, 403, 414, 415,

3121, 3306, 6039D, 7701 of this title; title 29 section 2918; title

42 section 409.

-FOOTNOTE-

(!1) So in original. Probably should be "subparagraph".

-End-

-CITE-

26 USC Sec. 126 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter B - Computation of Taxable Income

PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

-HEAD-

Sec. 126. Certain cost-sharing payments

-STATUTE-

(a) General rule

Gross income does not include the excludable portion of payments

received under -

(1) The rural clean water program authorized by section 208(j)

of the Federal Water Pollution Control Act (33 U.S.C. 1288(j)).

(2) The rural abandoned mine program authorized by section 406

of the Surface Mining Control and Reclamation Act of 1977 (30

U.S.C. 1236).

(3) The water bank program authorized by the Water Bank Act (16

U.S.C. 1301 et seq.).

(4) The emergency conservation measures program authorized by

title IV of the Agricultural Credit Act of 1978.

(5) The agricultural conservation program authorized by the

Soil Conservation and Domestic Allotment Act (16 U.S.C. 590a).

(6) The great plains conservation program authorized by section

16 (!1) of the Soil Conservation and Domestic Policy Act (16

U.S.C. 590p(b)).

(7) The resource conservation and development program

authorized by the Bankhead-Jones Farm Tenant Act and by the Soil

Conservation and Domestic Allotment Act (7 U.S.C. 1010; 16 U.S.C.

590a et seq.).

(8) The forestry incentives program authorized by section 4 of

the Cooperative Forestry Assistance Act of 1978 (16 U.S.C. 2103).

(9) Any small watershed program administered by the Secretary

of Agriculture which is determined by the Secretary of the

Treasury or his delegate to be substantially similar to the type

of programs described in paragraphs (1) through (8).

(10) Any program of a State, possession of the United States, a

political subdivision of any of the foregoing, or the District of

Columbia under which payments are made to individuals primarily

for the purpose of conserving soil, protecting or restoring the

environment, improving forests, or providing a habitat for

wildlife.

(b) Excludable portion

For purposes of this section -

(1) In general

The term "excludable portion" means that portion (or all) of a

payment made to any person under any program described in

subsection (a) which -

(A) is determined by the Secretary of Agriculture to be made

primarily for the purpose of conserving soil and water

resources, protecting or restoring the environment, improving

forests, or providing a habitat for wildlife, and

(B) is determined by the Secretary of the Treasury or his

delegate as not increasing substantially the annual income

derived from the property.

(2) Payments not chargeable to capital account

The term "excludable portion" does not include that portion of

any payment which is properly associated with an amount which is

allowable as a deduction for the taxable year in which such

amount is paid or incurred.

(c) Election for section not to apply

(1) In general

The taxpayer may elect not to have this section (and section

1255) apply to any excludable portion (or portion thereof).

(2) Manner and time for making election

Any election under paragraph (1) shall be made in the manner

prescribed by the Secretary by regulations and shall be made not

later than the due date prescribed by law (including extensions)

for filing the return of tax under this chapter for the taxable

year in which the payment was received or accrued.

(d) Denial of double benefits

No deduction or credit shall be allowed with respect to any

expenditure which is properly associated with any amount excluded

from gross income under subsection (a).

(e) Basis of property not increased by reason of excludable

payments

Notwithstanding any provision of section 1016 to the contrary, no

adjustment to basis shall be made with respect to property acquired

or improved through the use of any payment, to the extent that such

adjustment would reflect any amount which is excluded from gross

income under subsection (a).

-SOURCE-

(Added Pub. L. 95-600, title V, Sec. 543(a), Nov. 6, 1978, 92 Stat.

2888; amended Pub. L. 96-222, title I, Sec. 105(a)(7)(A), (C), (E),

Apr. 1, 1980, 94 Stat. 220, 221.)

-REFTEXT-

REFERENCES IN TEXT

The Water Bank Act, referred to in subsec. (a)(3), is Pub. L.

91-559, Dec. 19, 1970, 84 Stat. 1468, as amended, which is

classified generally to chapter 29 (Sec. 1301 et seq.) of Title 16,

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

see Short Title note set out under section 1301 of Title 16 and

Tables.

The Agricultural Credit Act of 1978, referred to in subsec.

(a)(4), is Pub. L. 95-334, Aug. 4, 1978, 92 Stat. 420, as amended.

Title IV of the Agricultural Credit Act of 1978 is classified

generally to chapter 42 (Sec. 2201 et seq.) of Title 16,

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

see Tables.

The Soil Conservation and Domestic Allotment Act, referred to in

subsec. (a)(5), (7), is act Apr. 27, 1935, ch. 85, 49 Stat. 163, as

amended, which is classified generally to chapter 3B (Sec. 590a et

seq.) of Title 16, Conservation. For complete classification of

this Act to the Code, see section 590q of Title 16 and Tables.

Section 16 of the Soil Conservation and Domestic Policy Act,

referred to in subsec. (a)(6), probably means section 16 of the

Soil Conservation and Domestic Allotment Act, which was classified

to section 590p of Title 16, Conservation, prior to repeal by Pub.

L. 104-127, title III, Sec. 336(b)(1), Apr. 4, 1996, 110 Stat.

1006.

The Bankhead-Jones Farm Tenant Act, referred to in subsec.

(a)(7), is act July 22, 1937, ch. 517, 50 Stat. 522, as amended,

which is classified generally to chapter 33 (Sec. 1000 et seq.) of

Title 7, Agriculture. For complete classification of this Act to

the Code, see section 1000 of Title 7 and Tables.

-MISC1-

PRIOR PROVISIONS

A prior section 126 was renumbered section 140 of this title.

AMENDMENTS

1980 - Subsec. (a). Pub. L. 96-222, Sec. 105(a)(7)(C), (E),

inserted in par. (9) "or his delegate" after "Secretary of the

Treasury" and substituted in par. (10) "Any program of a State,

possession of the United States, a political subdivision of any of

the foregoing, or the District of Columbia" for "Any State

program".

Subsec. (b). Pub. L. 96-222, Sec. 105(a)(7)(A), inserted

provisions relating to payments not chargeable to capital account.

Subsec. (c). Pub. L. 96-222, Sec. 105(a)(7)(A), substituted

provisions allowing the taxpayer to elect not to have this section

apply to any excludable portion for provisions relating to the

application of subsec. (a) of this section with other sections.

Subsecs. (d), (e). Pub. L. 96-222, Sec. 105(a)(7)(A), added

subsecs. (d) and (e).

EFFECTIVE DATE OF 1980 AMENDMENT

Amendment by Pub. L. 96-222 effective, except as otherwise

provided, as if it had been included in provisions of the Revenue

Act of 1978, Pub. L. 95-600, to which such amendment relates, see

section 201 of Pub. L. 96-222, set out as a note under section 32

of this title.

EFFECTIVE DATE

Section 543(d) of Pub. L. 95-600 provided that: "The amendments

made by this section [enacting this section and section 1255 of

this title] shall apply with respect to grants made under the

programs after September 30, 1979."

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in section 1255 of this title.

-FOOTNOTE-

(!1) See References in Text note below.

-End-

-CITE-

26 USC Sec. 127 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter B - Computation of Taxable Income

PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

-HEAD-

Sec. 127. Educational assistance programs

-STATUTE-

(a) Exclusion from gross income

(1) In general

Gross income of an employee does not include amounts paid or

expenses incurred by the employer for educational assistance to

the employee if the assistance is furnished pursuant to a program

which is described in subsection (b).

(2) $5,250 maximum exclusion

If, but for this paragraph, this section would exclude from

gross income more than $5,250 of educational assistance furnished

to an individual during a calendar year, this section shall apply

only to the first $5,250 of such assistance so furnished.

(b) Educational assistance program

(1) In general

For purposes of this section an educational assistance program

is a separate written plan of an employer for the exclusive

benefit of his employees to provide such employees with

educational assistance. The program must meet the requirements of

paragraphs (2) through (6) of this subsection.

(2) Eligibility

The program shall benefit employees who qualify under a

classification set up by the employer and found by the Secretary

not to be discriminatory in favor of employees who are highly

compensated employees (within the meaning of section 414(q)) or

their dependents. For purposes of this paragraph, there shall be

excluded from consideration employees not included in the program

who are included in a unit of employees covered by an agreement

which the Secretary of Labor finds to be a collective bargaining

agreement between employee representatives and one or more

employers, if there is evidence that educational assistance

benefits were the subject of good faith bargaining between such

employee representatives and such employer or employers.

(3) Principal shareholders or owners

Not more than 5 percent of the amounts paid or incurred by the

employer for educational assistance during the year may be

provided for the class of individuals who are shareholders or

owners (or their spouses or dependents), each of whom (on any day

of the year) owns more than 5 percent of the stock or of the

capital or profits interest in the employer.

(4) Other benefits as an alternative

A program must not provide eligible employees with a choice

between educational assistance and other remuneration includible

in gross income. For purposes of this section, the business

practices of the employer (as well as the written program) will

be taken into account.

(5) No funding required

A program referred to in paragraph (1) is not required to be

funded.

(6) Notification of employees

Reasonable notification of the availability and terms of the

program must be provided to eligible employees.

(c) Definitions; special rules

For purposes of this section -

(1) Educational assistance

The term "educational assistance" means -

(A) the payment, by an employer, of expenses incurred by or

on behalf of an employee for education of the employee

(including, but not limited to, tuition, fees, and similar

payments, books, supplies, and equipment), and

(B) the provision, by an employer, of courses of instruction

for such employee (including books, supplies, and equipment),

but does not include payment for, or the provision of, tools or

supplies which may be retained by the employee after completion

of a course of instruction, or meals, lodging, or transportation.

The term "educational assistance" also does not include any

payment for, or the provision of any benefits with respect to,

any course or other education involving sports, games, or

hobbies.

(2) Employee

The term "employee" includes, for any year, an individual who

is an employee within the meaning of section 401(c)(1) (relating

to self-employed individuals).

(3) Employer

An individual who owns the entire interest in an unincorporated

trade or business shall be treated as his own employer. A

partnership shall be treated as the employer of each partner who

is an employee within the meaning of paragraph (2).

(4) Attribution rules

(A) Ownership of stock

Ownership of stock in a corporation shall be determined in

accordance with the rules provided under subsections (d) and

(e) of section 1563 (without regard to section 1563(e)(3)(C)).

(B) Interest in unincorporated trade or business

The interest of an employee in a trade or business which is

not incorporated shall be determined in accordance with

regulations prescribed by the Secretary, which shall be based

on principles similar to the principles which apply in the case

of subparagraph (A).

(5) Certain tests not applicable

An educational assistance program shall not be held or

considered to fail to meet any requirements of subsection (b)

merely because -

(A) of utilization rates for the different types of

educational assistance made available under the program; or

(B) successful completion, or attaining a particular course

grade, is required for or considered in determining

reimbursement under the program.

(6) Relationship to current law

This section shall not be construed to affect the deduction or

inclusion in income of amounts (not within the exclusion under

this section) which are paid or incurred, or received as

reimbursement, for educational expenses under section 117, 162 or

212.

(7) Disallowance of excluded amounts as credit or deduction

No deduction or credit shall be allowed to the employee under

any other section of this chapter for any amount excluded from

income by reason of this section.

(d) Cross reference

For reporting and recordkeeping requirements, see section

6039D.

-SOURCE-

(Added Pub. L. 95-600, title I, Sec. 164(a), Nov. 6, 1978, 92 Stat.

2811; amended Pub. L. 98-611, Sec. 1(a)-(c), (d)(3)(B), (e), Oct.

31, 1984, 98 Stat. 3176-3178; Pub. L. 99-514, title XI, Secs.

1114(b)(4), 1151(c)(4), (g)(3), 1162(a), Oct. 22, 1986, 100 Stat.

2450, 2503, 2507, 2510; Pub. L. 100-647, title I, Sec.

1011B(a)(31)(B), title IV, Sec. 4001(a), (b)(1), Nov. 10, 1988, 102

Stat. 3488, 3643; Pub. L. 101-140, title II, Sec. 203(a)(1), (2),

Nov. 8, 1989, 103 Stat. 830; Pub. L. 101-239, title VII, Secs.

7101(a)(1), 7814(a), Dec. 19, 1989, 103 Stat. 2304, 2413; Pub. L.

101-508, title XI, Sec. 11403(a), (b), Nov. 5, 1990, 104 Stat.

1388-473; Pub. L. 102-227, title I, Sec. 103(a)(1), Dec. 11, 1991,

105 Stat. 1687; Pub. L. 103-66, title XIII, Sec. 13101(a)(1), Aug.

10, 1993, 107 Stat. 420; Pub. L. 104-188, title I, Sec. 1202(a),

(b), Aug. 20, 1996, 110 Stat. 1772, 1773; Pub. L. 105-34, title II,

Sec. 221(a), Aug. 5, 1997, 111 Stat. 818; Pub. L. 106-170, title V,

Sec. 506(a), Dec. 17, 1999, 113 Stat. 1922; Pub. L. 107-16, title

IV, Sec. 411(a), (b), June 7, 2001, 115 Stat. 63.)

-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.

-MISC1-

PRIOR PROVISIONS

A prior section 127 was renumbered section 140 of this title.

AMENDMENTS

2001 - Subsec. (c)(1). Pub. L. 107-16, Secs. 411(b), 901,

temporarily struck out before period at end ", and such term also

does not include any payment for, or the provision of any benefits

with respect to, any graduate level course of a kind normally taken

by an individual pursuing a program leading to a law, business,

medical, or other advanced academic or professional degree". See

Effective and Termination Dates of 2001 Amendment note below.

Subsecs. (d), (e). Pub. L. 107-16, Secs. 411(a), 901, temporarily

redesignated subsec. (e) as (d) and struck out heading and text of

former subsec. (d). Text read as follows: "This section shall not

apply to expenses paid with respect to courses beginning after

December 31, 2001." See Effective and Termination Dates of 2001

Amendment note below.

1999 - Subsec. (d). Pub. L. 106-170 substituted "December 31,

2001" for "May 31, 2000".

1997 - Subsec. (d). Pub. L. 105-34 amended heading and text of

subsec. (d) generally. Prior to amendment, text read as follows:

"This section shall not apply to taxable years beginning after May

31, 1997. In the case of any taxable year beginning in 1997, only

expenses paid with respect to courses beginning before July 1,

1997, shall be taken into account in determining the amount

excluded under this section."

1996 - Subsec. (c)(1). Pub. L. 104-188, Sec. 1202(b), in closing

provisions, inserted before period at end ", and such term also

does not include any payment for, or the provision of any benefits

with respect to, any graduate level course of a kind normally taken

by an individual pursuing a program leading to a law, business,

medical, or other advanced academic or professional degree".

Subsec. (d). Pub. L. 104-188, Sec. 1202(a), substituted "May 31,

1997. In the case of any taxable year beginning in 1997, only

expenses paid with respect to courses beginning before July 1,

1997, shall be taken into account in determining the amount

excluded under this section." for "December 31, 1994."

1993 - Subsec. (d). Pub. L. 103-66 substituted "December 31,

1994" for "June 30, 1992".

1991 - Subsec. (d). Pub. L. 102-227 substituted "June 30, 1992"

for "December 31, 1991".

1990 - Subsec. (c)(1). Pub. L. 101-508, Sec. 11403(b), struck out

at end "The term 'educational assistance' also does not include any

payment for, or the provision of any benefits with respect to, any

graduate level course of a kind normally taken by an individual

pursuing a program leading to a law, business, medical, or other

advanced academic or professional degree."

Subsec. (d). Pub. L. 101-508, Sec. 11403(a), substituted

"December 31, 1991" for "September 30, 1990".

1989 - Subsec. (b)(1). Pub. L. 101-140, Sec. 203(a)(1), amended

par. (1) to read as if amendments by Pub. L. 99-514, Sec.

1151(c)(4)(A), had not been enacted, see 1986 Amendment note below.

Subsec. (b)(2). Pub. L. 101-140, Sec. 203(a)(2), amended par. (2)

to read as if amendments by Pub. L. 100-647, Sec. 1011B(a)(31)(B),

had not been enacted, see 1988 Amendment note below.

Pub. L. 101-140, Sec. 203(a)(1), amended par. (2) to read as if

amendments by Pub. L. 99-514, Sec. 1151(g)(3), had not been

enacted, see 1986 Amendment note below.

Subsec. (b)(6). Pub. L. 101-140, Sec. 203(a)(1), amended par. (6)

to read as if amendments by Pub. L. 99-514, Sec. 1151(c)(4)(B), had

not been enacted, see 1986 Amendment note below.

Subsec. (c)(8). Pub. L. 101-239, Sec. 7814(a), struck out par.

(8) which read as follows: "Coordination with section 117(d). - In

the case of the education of an individual who is a graduate

student at an educational organization described in section

170(b)(1)(A)(ii) and who is engaged in teaching or research

activities for such organization, section 117(d)(2) shall be

applied as if it did not contain the phrase '(below the graduate

level)'."

Subsec. (d). Pub. L. 101-239, Sec. 7101(a)(1), substituted

"September 30, 1990" for "December 31, 1988".

1988 - Subsec. (b)(2). Pub. L. 100-647, Sec. 1011B(a)(31)(B),

substituted "there shall" for "there may" and "who are" for "who

may be" in last sentence.

Subsec. (c)(1). Pub. L. 100-647, Sec. 4001(b)(1), inserted at end

"The term 'educational assistance' also does not include any

payment for, or the provision of any benefits with respect to, any

graduate level course of a kind normally taken by an individual

pursuing a program leading to a law, business, medical, or other

advanced academic or professional degree."

Subsec. (d). Pub. L. 100-647, Sec. 4001(a), substituted "1988"

for "1987".

1986 - Subsec. (a)(2). Pub. L. 99-514, Sec. 1162(a)(2),

substituted "$5,250" for "$5,000" in heading and twice in text.

Subsec. (b)(1). Pub. L. 99-514, Sec. 1151(c)(4)(A), added par.

(1) and struck out former par (1) which read as follows: "For

purposes of this section an educational assistance program is a

separate written plan of an employer for the exclusive benefit of

his employees to provide such employees with educational

assistance. The program must meet the requirements of paragraphs

(2) through (6) of this subsection."

Subsec. (b)(2). Pub. L. 99-514, Sec. 1151(g)(3), substituted "For

purposes of this paragraph, there may be excluded from

consideration employees who may be excluded from consideration

under section 89(h)." for "For purposes of this paragraph, there

shall be excluded from consideration employees not included in the

program who are included in a unit of employees covered by an

agreement which the Secretary of Labor finds to be a collective

bargaining agreement between employee representatives and one or

more employers, if there is evidence that educational assistance

benefits were the subject of good faith bargaining between such

employee representatives and such employer or employers."

Pub. L. 99-514, Sec. 1114(b)(4), substituted "highly compensated

employees (within the meaning of section 414(q))" for "officers,

owners, or highly compensated,".

Subsec. (b)(6). Pub. L. 99-514, Sec. 1151(c)(4)(B), struck out

par. (6) which read as follows: "Notification of employees. -

Reasonable notification of the availability and terms of the

program must be provided to eligible employees."

Subsec. (d). Pub. L. 99-514, Sec. 1162(a)(1), substituted

"December 31, 1987" for "December 31, 1985".

1984 - Subsec. (a). Pub. L. 98-611, Sec. 1(b), amended subsec.

generally, substituting "Exclusion from gross income" for "General

rule" in heading, designating existing provision as par. "(1) In

general" and adding par. (2).

Subsec. (c)(7). Pub. L. 98-611, Sec. 1(e), substituted "allowed

to the employee" for "allowed".

Subsec. (c)(8). Pub. L. 98-611, Sec. 1(c), added par. (8).

Subsec. (d). Pub. L. 98-611, Sec. 1(a), substituted "December 31,

1985" for "December 31, 1983".

Subsec. (e). Pub. L. 98-611, Sec. 1(d)(3)(B), added subsec. (e).

EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT

Amendment by Pub. L. 107-16 applicable with respect to expenses

relating to courses beginning after Dec. 31, 2001, see section

411(d) of Pub. L. 107-16, set out as a note under section 51A 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 1999 AMENDMENT

Pub. L. 106-170, title V, Sec. 506(b), Dec. 17, 1999, 113 Stat.

1922, provided that: "The amendment made by subsection (a)

[amending this section] shall apply to courses beginning after May

31, 2000."

EFFECTIVE DATE OF 1997 AMENDMENT

Section 221(b) of Pub. L. 105-34 provided that: "The amendment

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

taxable years beginning after December 31, 1996."

EFFECTIVE DATE OF 1996 AMENDMENT

Section 1202(c)(1), (2) of Pub. L. 104-188 provided that:

"(1) Extension. - The amendment made by subsection (a) [amending

this section] shall apply to taxable years beginning after December

31, 1994.

"(2) Graduate education. - The amendment made by subsection (b)

[amending this section] shall apply with respect to expenses

relating to courses beginning after June 30, 1996."

EFFECTIVE DATE OF 1993 AMENDMENT

Section 13101(c)(1) of Pub. L. 103-66 provided that: "The

amendments made by subsection (a) [amending this section and

repealing provisions set out below] shall apply to taxable years

ending after June 30, 1992."

EFFECTIVE DATE OF 1991 AMENDMENT

Section 103(b) of Pub. L. 102-227 provided that: "The amendment

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

years beginning after December 31, 1991."

EFFECTIVE DATE OF 1990 AMENDMENT

Section 11403(d) 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

repealing provisions set out below] shall apply to taxable years

beginning after December 31, 1989.

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

[amending this section] shall apply to taxable years beginning

after December 31, 1990."

EFFECTIVE DATE OF 1989 AMENDMENTS

Section 7101(c) of Pub. L. 101-239 provided that: "The amendments

made by this section [amending this section and section 132 of this

title] shall apply to taxable years beginning after December 31,

1988."

Amendment by section 7814(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 Pub. L. 101-140 effective as if included in section

1151 of Pub. L. 99-514, see section 203(c) of Pub. L. 101-140, set

out as a note under section 79 of this title.

EFFECTIVE DATE OF 1988 AMENDMENT

Amendment by section 1011B(a)(31)(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.

Amendment by section 4001(a), (b)(1) of Pub. L. 100-647

applicable to taxable years beginning after Dec. 31, 1987, see

section 4001(c) of Pub. L. 100-647, set out as a note under section

117 of this title.

EFFECTIVE DATE OF 1986 AMENDMENT

Amendment by section 1114(b)(4) of Pub. L. 99-514 applicable to

years beginning after Dec. 31, 1987, see section 1114(c)(2) of Pub.

L. 99-514, set out as a note under section 414 of this title.

Amendment by section 1151(c)(4), (g)(3) of Pub. L. 99-514

applicable, with certain qualifications and exceptions, to years

beginning after Dec. 31, 1988, see section 1151(k) of Pub. L.

99-514, as amended, set out as a note under section 79 of this

title.

Amendment by section 1162(a) of Pub. L. 99-514 applicable to

taxable years beginning after Dec. 31, 1985, see section 1162(c) of

Pub. L. 99-514, set out as a note under section 120 of this title.

EFFECTIVE DATE OF 1984 AMENDMENT

Section 1(g) of Pub. L. 98-611, as amended by Pub. L. 99-514,

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

"(1) In general. - Except as otherwise provided in this

subsection, the amendments made by this section [enacting section

6039D of this title and amending this section and sections 125,

3231, and 6652 of this title] shall apply to taxable years

beginning after December 31, 1983.

"(2) Subsection (d). - The amendments made by subsection (d)

[enacting section 6039D and amending this section and sections 125

and 6652 of this title] shall take effect on January 1, 1985.

"(3) Subsection (f). - The amendment made by subsection (f)

[amending section 3231 of this title] shall apply to remuneration

paid after December 31, 1984.

"(4) No penalties or interest on failure to withhold. - No

penalty or interest shall be imposed on any failure to withhold

under subtitle C of the Internal Revenue Code of 1986 [formerly

I.R.C. 1954] (relating to employment taxes) with respect to amounts

excluded from gross income under section 127 of such Code (as

amended by this section and determined without regard to subsection

(a)(2) thereof) with respect to periods during 1984.

"(5) Coordination with section 117(d). - In the case of education

described in section 127(c)(8) of the Internal Revenue Code of

1986, as added by this section, section 117(d) of such Code shall

be treated as in effect on and after January 1, 1984."

EFFECTIVE DATE

Section 164(d) of Pub. L. 95-600 provided that: "The amendments

made by this section [enacting this section and amending sections

3121, 3306, and 3401 of this title and section 409 of Title 42, The

Public Health and Welfare] shall apply with respect to taxable

years beginning after December 31, 1978."

REGULATIONS

Secretary of the Treasury or his delegate to issue before Feb. 1,

1988, final regulations to carry out amendments made by section

1114 of Pub. L. 99-514, see section 1141 of Pub. L. 99-514, set out

as a note under section 401 of this title.

EXPEDITED PROCEDURES FOR REFUNDS OF OVERPAYMENTS

Section 1202(c)(3) of Pub. L. 104-188 provided that: "The

Secretary of the Treasury shall establish expedited procedures for

the refund of any overpayment of taxes imposed by the Internal

Revenue Code of 1986 which is attributable to amounts excluded from

gross income during 1995 or 1996 under section 127 of such Code,

including procedures waiving the requirement that an employer

obtain an employee's signature where the employer demonstrates to

the satisfaction of the Secretary that any refund collected by the

employer on behalf of the employee will be paid to the employee."

SPECIAL RULE FOR CERTAIN TAXABLE YEARS

Section 103(a)(2) of Pub. L. 102-227 provided that, in the case

of any taxable year beginning in 1992, only amounts paid before

July 1, 1992, by employer for educational assistance for employee

be taken into account in determining amount excluded under this

section with respect to such employee for such taxable year, prior

to repeal by Pub. L. 103-66, title XIII, Sec. 13101(a)(2), Aug. 10,

1993, 107 Stat. 420.

Section 7101(a)(2) of Pub. L. 101-239 provided that, in the case

of any taxable year beginning in 1990, only amounts paid before

Oct. 1, 1990, by employer for educational assistance for employee

be taken into account in determining amount excluded under this

section with respect to such employee for such taxable year, prior

to repeal by Pub. L. 101-508, title XI, Sec. 11403(c), Nov. 5,

1990, 104 Stat. 1388-473.

NONENFORCEMENT OF AMENDMENT MADE BY SECTION 1151 OF PUB. L. 99-514

FOR FISCAL YEAR 1990

No monies appropriated by Pub. L. 101-136 to be used to implement

or enforce section 1151 of Pub. L. 99-514 or the amendments made by

such section, see section 528 of Pub. L. 101-136, set out as a note

under section 89 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 51A, 125, 132, 137, 221,

414, 1397, 3121, 3231, 3306, 3401, 6039D of this title; title 42

section 409.

-End-

-CITE-

26 USC [Sec. 128 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter B - Computation of Taxable Income

PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

-HEAD-

[Sec. 128. Repealed. Pub. L. 101-508, title XI, Sec. 11801(a)(10),

Nov. 5, 1990, 104 Stat. 1388-520]

-MISC1-

Section, added and amended Pub. L. 97-34, title III, Secs.

301(a), 302(a), (d)(1), Aug. 13, 1981, 95 Stat. 267, 270, 274; Pub.

L. 97-448, title I, Secs. 103(a)(1), (5), (b), 109, Jan. 12, 1983,

96 Stat. 2374, 2375, 2391; Pub. L. 98-21, title I, Secs. 121(f)(2),

(g), 122(c)(3), (d), Apr. 20, 1983, 97 Stat. 84, 87; Pub. L.

98-369, div. A, title I, Sec. 16(a), July 18, 1984, 98 Stat. 505,

related to interest on certain savings certificates.

A prior section 128 was renumbered section 140 of this title.

SAVINGS PROVISION

For provisions that nothing in repeal by 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.

-End-

-CITE-

26 USC Sec. 129 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter B - Computation of Taxable Income

PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

-HEAD-

Sec. 129. Dependent care assistance programs

-STATUTE-

(a) Exclusion

(1) In general

Gross income of an employee does not include amounts paid or

incurred by the employer for dependent care assistance provided

to such employee if the assistance is furnished pursuant to a

program which is described in subsection (d).

(2) Limitation of exclusion

(A) In general

The amount which may be excluded under paragraph (1) for

dependent care assistance with respect to dependent care

services provided during a taxable year shall not exceed $5,000

($2,500 in the case of a separate return by a married

individual).

(B) Year of inclusion

The amount of any excess under subparagraph (A) shall be

included in gross income in the taxable year in which the

dependent care services were provided (even if payment of

dependent care assistance for such services occurs in a

subsequent taxable year).

(C) Marital status

For purposes of this paragraph, marital status shall be

determined under the rules of paragraphs (3) and (4) of section

21(e).

(b) Earned income limitation

(1) In general

The amount excluded from the income of an employee under

subsection (a) for any taxable year shall not exceed -

(A) in the case of an employee who is not married at the

close of such taxable year, the earned income of such employee

for such taxable year, or

(B) in the case of an employee who is married at the close of

such taxable year, the lesser of -

(i) the earned income of such employee for such taxable

year, or

(ii) the earned income of the spouse of such employee for

such taxable year.

(2) Special rule for certain spouses

For purposes of paragraph (1), the provisions of section

21(d)(2) shall apply in determining the earned income of a spouse

who is a student or incapable of caring for himself.

(c) Payments to related individuals

No amount paid or incurred during the taxable year of an employee

by an employer in providing dependent care assistance to such

employee shall be excluded under subsection (a) if such amount was

paid or incurred to an individual -

(1) with respect to whom, for such taxable year, a deduction is

allowable under section 151(c) (relating to personal exemptions

for dependents) to such employee or the spouse of such employee,

or

(2) who is a child of such employee (within the meaning of

section 151(c)(3)) under the age of 19 at the close of such

taxable year.

(d) Dependent care assistance program

(1) In general

For purposes of this section a dependent care assistance

program is a separate written plan of an employer for the

exclusive benefit of his employees to provide such employees with

dependent care assistance which meets the requirements of

paragraphs (2) through (8) of this subsection. If any plan would

qualify as a dependent care assistance program but for a failure

to meet the requirements of this subsection, then,

notwithstanding such failure, such plan shall be treated as a

dependent care assistance program in the case of employees who

are not highly compensated employees.

(2) Discrimination

The contributions or benefits provided under the plan shall not

discriminate in favor of employees who are highly compensated

employees (within the meaning of section 414(q)) or their

dependents.

(3) Eligibility

The program shall benefit employees who qualify under a

classification set up by the employer and found by the Secretary

not to be discriminatory in favor of employees described in

paragraph (2), or their dependents.

(4) Principal shareholders or owners

Not more than 25 percent of the amounts paid or incurred by the

employer for dependent care assistance during the year may be

provided for the class of individuals who are shareholders or

owners (or their spouses or dependents), each of whom (on any day

of the year) owns more than 5 percent of the stock or of the

capital or profits interest in the employer.

(5) No funding required

A program referred to in paragraph (1) is not required to be

funded.

(6) Notification of eligible employees

Reasonable notification of the availability and terms of the

program shall be provided to eligible employees.

(7) Statement of expenses

The plan shall furnish to an employee, on or before January 31,

a written statement showing the amounts paid or expenses incurred

by the employer in providing dependent care assistance to such

employee during the previous calendar year.

(8) Benefits

(A) In general

A plan meets the requirements of this paragraph if the

average benefits provided to employees who are not highly

compensated employees under all plans of the employer is at

least 55 percent of the average benefits provided to highly

compensated employees under all plans of the employer.

(B) Salary reduction agreements

For purposes of subparagraph (A), in the case of any benefits

provided through a salary reduction agreement, a plan may

disregard any employees whose compensation is less than

$25,000. For purposes of this subparagraph, the term

"compensation" has the meaning given such term by section

414(q)(4), except that, under rules prescribed by the

Secretary, an employer may elect to determine compensation on

any other basis which does not discriminate in favor of highly

compensated employees.

(9) Excluded employees

For purposes of paragraphs (3) and (8), there shall be excluded

from consideration -

(A) subject to rules similar to the rules of section

410(b)(4), employees who have not attained the age of 21 and

completed 1 year of service (as defined in section 410(a)(3)),

and

(B) employees not included in a dependent care assistance

program who are included in a unit of employees covered by an

agreement which the Secretary finds to be a collective

bargaining agreement between employee representatives and 1 or

more employees, if there is evidence that dependent care

benefits were the subject of good faith bargaining between such

employee representatives and such employer or employers.

(e) Definitions and special rules

For purposes of this section -

(1) Dependent care assistance

The term "dependent care assistance" means the payment of, or

provision of, those services which if paid for by the employee

would be considered employment-related expenses under section

21(b)(2) (relating to expenses for household and dependent care

services necessary for gainful employment).

(2) Earned income

The term "earned income" shall have the meaning given such term

in section 32(c)(2), but such term shall not include any amounts

paid or incurred by an employer for dependent care assistance to

an employee.

(3) Employee

The term "employee" includes, for any year, an individual who

is an employee within the meaning of section 401(c)(1) (relating

to self-employed individuals).

(4) Employer

An individual who owns the entire interest in an unincorporated

trade or business shall be treated as his own employer. A

partnership shall be treated as the employer of each partner who

is an employee within the meaning of paragraph (3).

(5) Attribution rules

(A) Ownership of stock

Ownership of stock in a corporation shall be determined in

accordance with the rules provided under subsections (d) and

(e) of section 1563 (without regard to section 1563(e)(3)(C)).

(B) Interest in unincorporated trade or business

The interest of an employee in a trade or business which is

not incorporated shall be determined in accordance with

regulations prescribed by the Secretary, which shall be based

on principles similar to the principles which apply in the case

of subparagraph (A).

(6) Utilization test not applicable

A dependent care assistance program shall not be held or

considered to fail to meet any requirements of subsection (d)

(other than paragraphs (4) and (8) thereof) merely because of

utilization rates for the different types of assistance made

available under the program.

(7) Disallowance of excluded amounts as credit or deduction

No deduction or credit shall be allowed to the employee under

any other section of this chapter for any amount excluded from

the gross income of the employee by reason of this section.

(8) Treatment of onsite facilities

In the case of an onsite facility maintained by an employer,

except to the extent provided in regulations, the amount of

dependent care assistance provided to an employee excluded with

respect to any dependent shall be based on -

(A) utilization of the facility by a dependent of the

employee, and

(B) the value of the services provided with respect to such

dependent.

(9) Identifying information required with respect to service

provider

No amount paid or incurred by an employer for dependent care

assistance provided to an employee shall be excluded from the

gross income of such employee unless -

(A) the name, address, and taxpayer identification number of

the person performing the services are included on the return

to which the exclusion relates, or

(B) if such person is an organization described in section

501(c)(3) and exempt from tax under section 501(a), the name and address of such person are included on the return to which

the exclusion relates.

In the case of a failure to provide the information required

under the preceding sentence, the preceding sentence shall not

apply if it is shown that the taxpayer exercised due diligence in

attempting to provide the information so required.

-SOURCE-

(Added Pub. L. 97-34, title I, Sec. 124(e)(1), Aug. 13, 1981, 95

Stat. 198; amended Pub. L. 97-448, title I, Sec. 101(e), Jan. 12,

1983, 96 Stat. 2366; Pub. L. 98-369, div. A, title IV, Sec.

474(r)(6), July 18, 1984, 98 Stat. 839; Pub. L. 99-514, title I,

Sec. 104(b)(1), title XI, Secs. 1114(b)(4), 1151(c)(5), (f),

(g)(4), 1163(a), (b), Oct. 22, 1986, 100 Stat. 2104, 2450, 2503,

2506, 2507, 2510; Pub. L. 100-485, title VII, Sec. 703(c)(2), Oct.

13, 1988, 102 Stat. 2427; Pub. L. 100-647, title I, Sec.

1011B(a)(14), (15), (18), (30), (31)(A), (c)(1), (2)(A), title III,

Sec. 3021(a)(14), Nov. 10, 1988, 102 Stat. 3485, 3487-3489, 3631;

Pub. L. 101-140, title II, Secs. 203(a)(1), (2), 204(a)(1)-(3)(C),

Nov. 8, 1989, 103 Stat. 830, 832; Pub. L. 101-239, title VII, Sec.

7811(h)(2), Dec. 19, 1989, 103 Stat. 2409; Pub. L. 104-188, title

I, Sec. 1431(c)(1)(B), Aug. 20, 1996, 110 Stat. 1803.)

-COD-

CODIFICATION

Pub. L. 101-140, Sec. 203(a)(1), amended this section to read as

if the amendments made by section 1151(c)(5)(A) of Pub. L. 99-514

(amending subsec. (d)(1)) had not been enacted. Subsequent to

amendment by Pub. L. 99-514, subsec. (d)(1) was amended by Pub. L.

100-647. See 1988 Amendment note below.

-MISC1-

PRIOR PROVISIONS

A prior section 129 was renumbered section 140 of this title.

AMENDMENTS

1996 - Subsec. (d)(8)(B). Pub. L. 104-188 substituted "section

414(q)(4)" for "section 414(q)(7)".

1989 - Subsec. (a). Pub. L. 101-239 struck out at end "For

purposes of the preceding sentence, marital status shall be

determined under the rules of paragraphs (3) and (4) of section

21(e)."

Subsec. (d)(1). Pub. L. 101-140, Sec. 204(a)(3)(B), substituted

"paragraphs (2) through (8)" for "paragraphs (2) through (7)".

Pub. L. 101-140, Sec. 204(a)(1), inserted at end "If any plan

would qualify as a dependent care assistance program but for a

failure to meet the requirements of this subsection, then,

notwithstanding such failure, such plan shall be treated as a

dependent care assistance program in the case of employees who are

not highly compensated employees."

Pub. L. 101-140, Sec. 203(a)(1), amended par. (1) to read as if

the amendments by Pub. L. 99-514, Sec. 1151(c)(5)(A), had not been

enacted, see 1986 Amendment note below.

Subsec. (d)(3). Pub. L. 101-140, Sec. 204(a)(2)(B), struck out at

end "For purposes of this paragraph, there may be excluded from

consideration employees who may be excluded from consideration

under section 89(h)." for "For purposes of this paragraph, there

shall be excluded from consideration employees not included in the

program who are included in a unit of employees covered by an

agreement which the Secretary of Labor finds to be a collective

bargaining agreement between employee representatives and one or

more employers, if there is evidence that dependent care benefits

were the subject of good faith bargaining between such employ