Internal Revenue Code – Section 163

Sec. 163. Interest

-STATUTE-

(a) General rule

There shall be allowed as a deduction all interest paid or

accrued within the taxable year on indebtedness.

(b) Installment purchases where interest charge is not separately

stated

(1) General rule

If personal property or educational services are purchased

under a contract -

(A) which provides that payment of part or all of the

purchase price is to be made in installments, and

(B) in which carrying charges are separately stated but the

interest charge cannot be ascertained,

 

then the payments made during the taxable year under the contract

shall be treated for purposes of this section as if they included

interest equal to 6 percent of the average unpaid balance under

the contract during the taxable year. For purposes of the

preceding sentence, the average unpaid balance is the sum of the

unpaid balance outstanding on the first day of each month

beginning during the taxable year, divided by 12. For purposes of

this paragraph, the term "educational services" means any service

(including lodging) which is purchased from an educational

organization described in section 170(b)(1)(A)(ii) and which is

provided for a student of such organization.

(2) Limitation

In the case of any contract to which paragraph (1) applies, the

amount treated as interest for any taxable year shall not exceed

the aggregate carrying charges which are properly attributable to

such taxable year.

(c) Redeemable ground rents

For purposes of this subtitle, any annual or periodic rental

under a redeemable ground rent (excluding amounts in redemption

thereof) shall be treated as interest on an indebtedness secured by

a mortgage.

(d) Limitation on investment interest

(1) In general

In the case of a taxpayer other than a corporation, the amount

allowed as a deduction under this chapter for investment interest

for any taxable year shall not exceed the net investment income

of the taxpayer for the taxable year.

(2) Carryforward of disallowed interest

The amount not allowed as a deduction for any taxable year by

reason of paragraph (1) shall be treated as investment interest

paid or accrued by the taxpayer in the succeeding taxable year.

(3) Investment interest

For purposes of this subsection -

(A) In general

The term "investment interest" means any interest allowable

as a deduction under this chapter (determined without regard to

paragraph (1)) which is paid or accrued on indebtedness

properly allocable to property held for investment.

(B) Exceptions

The term "investment interest" shall not include -

(i) any qualified residence interest (as defined in

subsection (h)(3)), or

(ii) any interest which is taken into account under section

469 in computing income or loss from a passive activity of

the taxpayer.

(C) Personal property used in short sale

For purposes of this paragraph, the term "interest" includes

any amount allowable as a deduction in connection with personal

property used in a short sale.

(4) Net investment income

For purposes of this subsection -

(A) In general

The term "net investment income" means the excess of -

(i) investment income, over

(ii) investment expenses.

(B) Investment income

The term "investment income" means the sum of -

(i) gross income from property held for investment (other

than any gain taken into account under clause (ii)(I)),

(ii) the excess (if any) of -

(I) the net gain attributable to the disposition of

property held for investment, over

(II) the net capital gain determined by only taking into

account gains and losses from dispositions of property held

for investment, plus

 

(iii) so much of the net capital gain referred to in clause

(ii)(II) (or, if lesser, the net gain referred to in clause

(ii)(I)) as the taxpayer elects to take into account under

this clause.

 

Such term shall include qualified dividend income (as defined

in section 1(h)(11)(B)) only to the extent the taxpayer elects

to treat such income as investment income for purposes of this

subsection.

(C) Investment expenses

The term "investment expenses" means the deductions allowed

under this chapter (other than for interest) which are directly

connected with the production of investment income.

(D) Income and expenses from passive activities

Investment income and investment expenses shall not include

any income or expenses taken into account under section 469 in

computing income or loss from a passive activity.

(E) Reduction in investment income during phase-in of passive

loss rules

Investment income of the taxpayer for any taxable year shall

be reduced by the amount of the passive activity loss to which

section 469(a) does not apply for such taxable year by reason

of section 469(m). The preceding sentence shall not apply to

any portion of such passive activity loss which is attributable

to a rental real estate activity with respect to which the

taxpayer actively participates (within the meaning of section

469(i)(6)) during such taxable year.

(5) Property held for investment

For purposes of this subsection -

(A) In general

The term "property held for investment" shall include -

(i) any property which produces income of a type described

in section 469(e)(1), and

(ii) any interest held by a taxpayer in an activity

involving the conduct of a trade or business -

(I) which is not a passive activity, and

(II) with respect to which the taxpayer does not

materially participate.

(B) Investment expenses

In the case of property described in subparagraph (A)(i),

expenses shall be allocated to such property in the same manner

as under section 469.

(C) Terms

For purposes of this paragraph, the terms "activity",

"passive activity", and "materially participate" have the

meanings given such terms by section 469.

(6) Phase-in of disallowance

In the case of any taxable year beginning in calendar years

1987 through 1990 -

(A) In general

The amount of interest paid or accrued during any such

taxable year which is disallowed under this subsection shall

not exceed the sum of -

(i) the amount which would be disallowed under this

subsection if -

(I) paragraph (1) were applied by substituting "the sum

of the ceiling amount and the net investment income" for

"the net investment income", and

(II) paragraphs (4)(E) and (5)(A)(ii) did not apply, and

 

(ii) the applicable percentage of the excess of -

(I) the amount which (without regard to this paragraph)

is not allowable as a deduction under this subsection for

the taxable year, over

(II) the amount described in clause (i).

 

The preceding sentence shall not apply to any interest treated

as paid or accrued during the taxable year under paragraph (2).

(B) Applicable percentage

For purposes of this paragraph, the applicable percentage

shall be determined in accordance with the following table:

 

 

In the case of taxable                 2The applicable

years beginning in:

percentage is:

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1987                                                              35

1988                                                              60

1989                                                              80

1990                                                             90.

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(C) Ceiling amount

For purposes of this paragraph, the term "ceiling amount"

means -

(i) $10,000 in the case of a taxpayer not described in

clause (ii) or (iii),

(ii) $5,000 in the case of a married individual filing a

separate return, and

(iii) zero in the case of a trust.

(e) Original issue discount

(1) In general

In the case of any debt instrument issued after July 1, 1982,

the portion of the original issue discount with respect to such

debt instrument which is allowable as a deduction to the issuer

for any taxable year shall be equal to the aggregate daily

portions of the original issue discount for days during such

taxable year.

(2) Definitions and special rules

For purposes of this subsection -

(A) Debt instrument

The term "debt instrument" has the meaning given such term by

section 1275(a)(1).

(B) Daily portions

The daily portion of the original issue discount for any day

shall be determined under section 1272(a) (without regard to

paragraph (7) thereof and without regard to section

1273(a)(3)).

(C) Short-term obligations

In the case of an obligor of a short-term obligation (as

defined in section 1283(a)(1)(A)) who uses the cash receipts

and disbursements method of accounting, the original issue

discount (and any other interest payable) on such obligation

shall be deductible only when paid.

(3) Special rule for original issue discount on obligation held

by related foreign person

(A) In general

If any debt instrument having original issue discount is held

by a related foreign person, any portion of such original issue

discount shall not be allowable as a deduction to the issuer

until paid. The preceding sentence shall not apply to the

extent that the original issue discount is effectively

connected with the conduct by such foreign related person of a

trade or business within the United States unless such original

issue discount is exempt from taxation (or is subject to a

reduced rate of tax) pursuant to a treaty obligation of the

United States.

(B) Special rule for certain foreign entities

(i) In general

In the case of any debt instrument having original issue

discount which is held by a related foreign person which is a

controlled foreign corporation (as defined in section 957) or

a passive foreign investment company (as defined in section

1297), a deduction shall be allowable to the issuer with

respect to such original issue discount for any taxable year

before the taxable year in which paid only to the extent such

original issue discount is includible (determined without

regard to properly allocable deductions and qualified

deficits under section 952(c)(1)(B)) during such prior

taxable year in the gross income of a United States person

who owns (within the meaning of section 958(a)) stock in such

corporation.

(ii) Secretarial authority

The Secretary may by regulation exempt transactions from

the application of clause (i), including any transaction

which is entered into by a payor in the ordinary course of a

trade or business in which the payor is predominantly

engaged.

(C) Related foreign person

For purposes of subparagraph (A), the term "related foreign

person" means any person -

(i) who is not a United States person, and

(ii) who is related (within the meaning of section 267(b))

to the issuer.

(4) Exceptions

This subsection shall not apply to any debt instrument

described in -

(A) subparagraph (D) of section 1272(a)(2) (relating to

obligations issued by natural persons before March 2, 1984),

and

(B) subparagraph (E) of section 1272(a)(2) (relating to loans

between natural persons).

(5) Special rules for original issue discount on certain high

yield obligations

(A) In general

In the case of an applicable high yield discount obligation

issued by a corporation -

(i) no deduction shall be allowed under this chapter for

the disqualified portion of the original issue discount on

such obligation, and

(ii) the remainder of such original issue discount shall

not be allowable as a deduction until paid.

 

For purposes of this paragraph, rules similar to the rules of

subsection (i)(3)(B) shall apply in determining the amount of

the original issue discount and when the original issue

discount is paid.

(B) Disqualified portion treated as stock distribution for

purposes of dividend received deduction

(i) In general

Solely for purposes of sections 243, 245, 246, and 246A,

the dividend equivalent portion of any amount includible in

gross income of a corporation under section 1272(a) in

respect of an applicable high yield discount obligation shall

be treated as a dividend received by such corporation from

the corporation issuing such obligation.

(ii) Dividend equivalent portion

For purposes of clause (i), the dividend equivalent portion

of any amount includible in gross income under section

1272(a) in respect of an applicable high yield discount

obligation is the portion of the amount so includible -

(I) which is attributable to the disqualified portion of

the original issue discount on such obligation, and

(II) which would have been treated as a dividend if it

had been a distribution made by the issuing corporation

with respect to stock in such corporation.

(C) Disqualified portion

(i) In general

For purposes of this paragraph, the disqualified portion of

the original issue discount on any applicable high yield

discount obligation is the lesser of -

(I) the amount of such original issue discount, or

(II) the portion of the total return on such obligation

which bears the same ratio to such total return as the

disqualified yield on such obligation bears to the yield to

maturity on such obligation.

(ii) Definitions

For purposes of clause (i), the term "disqualified yield"

means the excess of the yield to maturity on the obligation

over the sum referred to (!1) subsection (i)(1)(B) plus 1

percentage point, and the term "total return" is the amount

which would have been the original issue discount on the

obligation if interest described in the parenthetical in

section 1273(a)(2) were included in the stated redemption

price at maturity.

 

(D) Exception for S corporations

This paragraph shall not apply to any obligation issued by

any corporation for any period for which such corporation is an

S corporation.

(E) Effect on earnings and profits

This paragraph shall not apply for purposes of determining

earnings and profits; except that, for purposes of determining

the dividend equivalent portion of any amount includible in

gross income under section 1272(a) in respect of an applicable

high yield discount obligation, no reduction shall be made for

any amount attributable to the disqualified portion of any

original issue discount on such obligation.

(F) Suspension of application of paragraph

(i) Temporary suspension

This paragraph shall not apply to any applicable high yield

discount obligation issued during the period beginning on

September 1, 2008, and ending on December 31, 2009, in

exchange (including an exchange resulting from a modification

of the debt instrument) for an obligation which is not an

applicable high yield discount obligation and the issuer (or

obligor) of which is the same as the issuer (or obligor) of

such applicable high yield discount obligation. The preceding

sentence shall not apply to any obligation the interest on

which is interest described in section 871(h)(4) (without

regard to subparagraph (D) thereof) or to any obligation

issued to a related person (within the meaning of section

108(e)(4)).

(ii) Successive application

Any obligation to which clause (i) applies shall not be

treated as an applicable high yield discount obligation for

purposes of applying this subparagraph to any other

obligation issued in exchange for such obligation.

(iii) Secretarial authority to suspend application

The Secretary may apply this paragraph with respect to debt

instruments issued in periods following the period described

in clause (i) if the Secretary determines that such

application is appropriate in light of distressed conditions

in the debt capital markets.

(G) Cross reference

For definition of applicable high yield discount obligation,

see subsection (i).

(6) Cross references

For provision relating to deduction of original issue

discount on tax-exempt obligation, see section 1288.

For special rules in the case of the borrower under certain

loans for personal use, see section 1275(b).

(f) Denial of deduction for interest on certain obligations not in

registered form

(1) In general

Nothing in subsection (a) or in any other provision of law

shall be construed to provide a deduction for interest on any

registration-required obligation unless such obligation is in

registered form.

(2) Registration-required obligation

For purposes of this section -

(A) In general

The term "registration-required obligation" means any

obligation (including any obligation issued by a governmental

entity) other than an obligation which -

(i) is issued by a natural person,

(ii) is not of a type offered to the public,

(iii) has a maturity (at issue) of not more than 1 year, or

(iv) is described in subparagraph (B).

(B) Certain obligations not included

An obligation is described in this subparagraph if -

(i) there are arrangements reasonably designed to ensure

that such obligation will be sold (or resold in connection

with the original issue) only to a person who is not a United

States person, and

(ii) in the case of an obligation not in registered form -

(I) interest on such obligation is payable only outside

the United States and its possessions, and

(II) on the face of such obligation there is a statement

that any United States person who holds such obligation

will be subject to limitations under the United States

income tax laws.

(C) Authority to include other obligations

Clauses (ii) and (iii) of subparagraph (A), and subparagraph

(B), shall not apply to any obligation if -

(i) in the case of -

(I) subparagraph (A), such obligation is of a type which

the Secretary has determined by regulations to be used

frequently in avoiding Federal taxes, or

(II) subparagraph (B), such obligation is of a type

specified by the Secretary in regulations, and

 

(ii) such obligation is issued after the date on which the

regulations referred to in clause (i) take effect.

(3) Book entries permitted, etc.

For purposes of this subsection, rules similar to the rules of

section 149(a)(3) shall apply.

(g) Reduction of deduction where section 25 credit taken

The amount of the deduction under this section for interest paid

or accrued during any taxable year on indebtedness with respect to

which a mortgage credit certificate has been issued under section

25 shall be reduced by the amount of the credit allowable with

respect to such interest under section 25 (determined without

regard to section 26).

(h) Disallowance of deduction for personal interest

(1) In general

In the case of a taxpayer other than a corporation, no

deduction shall be allowed under this chapter for personal

interest paid or accrued during the taxable year.

(2) Personal interest

For purposes of this subsection, the term "personal interest"

means any interest allowable as a deduction under this chapter

other than -

(A) interest paid or accrued on indebtedness properly

allocable to a trade or business (other than the trade or

business of performing services as an employee),

(B) any investment interest (within the meaning of subsection

(d)),

(C) any interest which is taken into account under section

469 in computing income or loss from a passive activity of the

taxpayer,

(D) any qualified residence interest (within the meaning of

paragraph (3)),

(E) any interest payable under section 6601 on any unpaid

portion of the tax imposed by section 2001 for the period

during which an extension of time for payment of such tax is in

effect under section 6163, and

(F) any interest allowable as a deduction under section 221

(relating to interest on educational loans).

(3) Qualified residence interest

For purposes of this subsection -

(A) In general

The term "qualified residence interest" means any interest

which is paid or accrued during the taxable year on -

(i) acquisition indebtedness with respect to any qualified

residence of the taxpayer, or

(ii) home equity indebtedness with respect to any qualified

residence of the taxpayer.

 

For purposes of the preceding sentence, the determination of

whether any property is a qualified residence of the taxpayer

shall be made as of the time the interest is accrued.

(B) Acquisition indebtedness

(i) In general

The term "acquisition indebtedness" means any indebtedness

which -

(I) is incurred in acquiring, constructing, or

substantially improving any qualified residence of the

taxpayer, and

(II) is secured by such residence.

 

Such term also includes any indebtedness secured by such

residence resulting from the refinancing of indebtedness

meeting the requirements of the preceding sentence (or this

sentence); but only to the extent the amount of the

indebtedness resulting from such refinancing does not exceed

the amount of the refinanced indebtedness.

(ii) $1,000,000 limitation

The aggregate amount treated as acquisition indebtedness

for any period shall not exceed $1,000,000 ($500,000 in the

case of a married individual filing a separate return).

(C) Home equity indebtedness

(i) In general

The term "home equity indebtedness" means any indebtedness

(other than acquisition indebtedness) secured by a qualified

residence to the extent the aggregate amount of such

indebtedness does not exceed -

(I) the fair market value of such qualified residence,

reduced by

(II) the amount of acquisition indebtedness with respect

to such residence.

(ii) Limitation

The aggregate amount treated as home equity indebtedness

for any period shall not exceed $100,000 ($50,000 in the case

of a separate return by a married individual).

(D) Treatment of indebtedness incurred on or before October 13,

1987

(i) In general

In the case of any pre-October 13, 1987, indebtedness -

(I) such indebtedness shall be treated as acquisition

indebtedness, and

(II) the limitation of subparagraph (B)(ii) shall not

apply.

(ii) Reduction in $1,000,000 limitation

The limitation of subparagraph (B)(ii) shall be reduced

(but not below zero) by the aggregate amount of outstanding

pre-October 13, 1987, indebtedness.

(iii) Pre-October 13, 1987, indebtedness

The term "pre-October 13, 1987, indebtedness" means -

(I) any indebtedness which was incurred on or before

October 13, 1987, and which was secured by a qualified

residence on October 13, 1987, and at all times thereafter

before the interest is paid or accrued, or

(II) any indebtedness which is secured by the qualified

residence and was incurred after October 13, 1987, to

refinance indebtedness described in subclause (I) (or

refinanced indebtedness meeting the requirements of this

subclause) to the extent (immediately after the

refinancing) the principal amount of the indebtedness

resulting from the refinancing does not exceed the

principal amount of the refinanced indebtedness

(immediately before the refinancing).

(iv) Limitation on period of refinancing

Subclause (II) of clause (iii) shall not apply to any

indebtedness after -

(I) the expiration of the term of the indebtedness

described in clause (iii)(I), or

(II) if the principal of the indebtedness described in

clause (iii)(I) is not amortized over its term, the

expiration of the term of the 1st refinancing of such

indebtedness (or if earlier, the date which is 30 years

after the date of such 1st refinancing).

(E) Mortgage insurance premiums treated as interest

(i) In general

Premiums paid or accrued for qualified mortgage insurance

by a taxpayer during the taxable year in connection with

acquisition indebtedness with respect to a qualified

residence of the taxpayer shall be treated for purposes of

this section as interest which is qualified residence

interest.

(ii) Phaseout

The amount otherwise treated as interest under clause (i)

shall be reduced (but not below zero) by 10 percent of such

amount for each $1,000 ($500 in the case of a married

individual filing a separate return) (or fraction thereof)

that the taxpayer's adjusted gross income for the taxable

year exceeds $100,000 ($50,000 in the case of a married

individual filing a separate return).

(iii) Limitation

Clause (i) shall not apply with respect to any mortgage

insurance contracts issued before January 1, 2007.

(iv) Termination

Clause (i) shall not apply to amounts -

(I) paid or accrued after December 31, 2011, or

(II) properly allocable to any period after such date.

(4) Other definitions and special rules

For purposes of this subsection -

(A) Qualified residence

(i) In general

The term "qualified residence" means -

(I) the principal residence (within the meaning of

section 121) of the taxpayer, and

(II) 1 other residence of the taxpayer which is selected

by the taxpayer for purposes of this subsection for the

taxable year and which is used by the taxpayer as a

residence (within the meaning of section 280A(d)(1)).

(ii) Married individuals filing separate returns

If a married couple does not file a joint return for the

taxable year -

(I) such couple shall be treated as 1 taxpayer for

purposes of clause (i), and

(II) each individual shall be entitled to take into

account 1 residence unless both individuals consent in

writing to 1 individual taking into account the principal

residence and 1 other residence.

(iii) Residence not rented

For purposes of clause (i)(II), notwithstanding section

280A(d)(1), if the taxpayer does not rent a dwelling unit at

any time during a taxable year, such unit may be treated as a

residence for such taxable year.

(B) Special rule for cooperative housing corporations

Any indebtedness secured by stock held by the taxpayer as a

tenant-stockholder (as defined in section 216) in a cooperative

housing corporation (as so defined) shall be treated as secured

by the house or apartment which the taxpayer is entitled to

occupy as such a tenant-stockholder. If stock described in the

preceding sentence may not be used to secure indebtedness,

indebtedness shall be treated as so secured if the taxpayer

establishes to the satisfaction of the Secretary that such

indebtedness was incurred to acquire such stock.

(C) Unenforceable security interests

Indebtedness shall not fail to be treated as secured by any

property solely because, under any applicable State or local

homestead or other debtor protection law in effect on August

16, 1986, the security interest is ineffective or the

enforceability of the security interest is restricted.

(D) Special rules for estates and trusts

For purposes of determining whether any interest paid or

accrued by an estate or trust is qualified residence interest,

any residence held by such estate or trust shall be treated as

a qualified residence of such estate or trust if such estate or

trust establishes that such residence is a qualified residence

of a beneficiary who has a present interest in such estate or

trust or an interest in the residuary of such estate or trust.

(E) Qualified mortgage insurance

The term "qualified mortgage insurance" means -

(i) mortgage insurance provided by the Veterans

Administration, the Federal Housing Administration, or the

Rural Housing Administration, and

(ii) private mortgage insurance (as defined by section 2 of

the Homeowners Protection Act of 1998 (12 U.S.C. 4901), as in

effect on the date of the enactment of this subparagraph).

(F) Special rules for prepaid qualified mortgage insurance

Any amount paid by the taxpayer for qualified mortgage

insurance that is properly allocable to any mortgage the

payment of which extends to periods that are after the close of

the taxable year in which such amount is paid shall be

chargeable to capital account and shall be treated as paid in

such periods to which so allocated. No deduction shall be

allowed for the unamortized balance of such account if such

mortgage is satisfied before the end of its term. The preceding

sentences shall not apply to amounts paid for qualified

mortgage insurance provided by the Veterans Administration or

the Rural Housing Administration.

(5) Phase-in of limitation

In the case of any taxable year beginning in calendar years

1987 through 1990, the amount of interest with respect to which a

deduction is disallowed under this subsection shall be equal to

the applicable percentage (within the meaning of subsection

(d)(6)(B)) of the amount which (but for this paragraph) would

have been so disallowed.

(i) Applicable high yield discount obligation

(1) In general

For purposes of this section, the term "applicable high yield

discount obligation" means any debt instrument if -

(A) the maturity date of such instrument is more than 5 years

from the date of issue,

(B) the yield to maturity on such instrument equals or

exceeds the sum of -

(i) the applicable Federal rate in effect under section

1274(d) for the calendar month in which the obligation is

issued, plus

(ii) 5 percentage points, and

 

(C) such instrument has significant original issue discount.

 

For purposes of subparagraph (B)(i), the Secretary may by

regulation (i) permit a rate to be used with respect to any debt

instrument which is higher than the applicable Federal rate if

the taxpayer establishes to the satisfaction of the Secretary

that such higher rate is based on the same principles as the

applicable Federal rate and is appropriate for the term of the

instrument, or (ii) permit, on a temporary basis, a rate to be

used with respect to any debt instrument which is higher than the

applicable Federal rate if the Secretary determines that such

rate is appropriate in light of distressed conditions in the debt

capital markets.

(2) Significant original issue discount

For purposes of paragraph (1)(C), a debt instrument shall be

treated as having significant original issue discount if -

(A) the aggregate amount which would be includible in gross

income with respect to such instrument for periods before the

close of any accrual period (as defined in section 1272(a)(5))

ending after the date 5 years after the date of issue, exceeds -

(B) the sum of -

(i) the aggregate amount of interest to be paid under the

instrument before the close of such accrual period, and

(ii) the product of the issue price of such instrument (as

defined in sections 1273(b) and 1274(a)) and its yield to

maturity.

(3) Special rules

For purposes of determining whether a debt instrument is an

applicable high yield discount obligation -

(A) any payment under the instrument shall be assumed to be

made on the last day permitted under the instrument, and

(B) any payment to be made in the form of another obligation

of the issuer (or a related person within the meaning of

section 453(f)(1)) shall be assumed to be made when such

obligation is required to be paid in cash or in property other

than such obligation.

 

Except for purposes of paragraph (1)(B), any reference to an

obligation in subparagraph (B) of this paragraph shall be treated

as including a reference to stock.

(4) Debt instrument

For purposes of this subsection, the term "debt instrument"

means any instrument which is a debt instrument as defined in

section 1275(a).

(5) Regulations

The Secretary shall prescribe such regulations as may be

appropriate to carry out the purposes of this subsection and

subsection (e)(5), including -

(A) regulations providing for modifications to the provisions

of this subsection and subsection (e)(5) in the case of varying

rates of interest, put or call options, indefinite maturities,

contingent payments, assumptions of debt instruments,

conversion rights, or other circumstances where such

modifications are appropriate to carry out the purposes of this

subsection and subsection (e)(5), and

(B) regulations to prevent avoidance of the purposes of this

subsection and subsection (e)(5) through the use of issuers

other than C corporations, agreements to borrow amounts due

under the debt instrument, or other arrangements.

(j) Limitation on deduction for interest on certain indebtedness

(1) Limitation

(A) In general

If this subsection applies to any corporation for any taxable

year, no deduction shall be allowed under this chapter for

disqualified interest paid or accrued by such corporation

during such taxable year. The amount disallowed under the

preceding sentence shall not exceed the corporation's excess

interest expense for the taxable year.

(B) Disallowed amount carried to succeeding taxable year

Any amount disallowed under subparagraph (A) for any taxable

year shall be treated as disqualified interest paid or accrued

in the succeeding taxable year (and clause (ii) of paragraph

(2)(A) shall not apply for purposes of applying this subsection

to the amount so treated).

(2) Corporations to which subsection applies

(A) In general

This subsection shall apply to any corporation for any

taxable year if -

(i) such corporation has excess interest expense for such

taxable year, and

(ii) the ratio of debt to equity of such corporation as of

the close of such taxable year (or on any other day during

the taxable year as the Secretary may by regulations

prescribe) exceeds 1.5 to 1.

(B) Excess interest expense

(i) In general

For purposes of this subsection, the term "excess interest

expense" means the excess (if any) of -

(I) the corporation's net interest expense, over

(II) the sum of 50 percent of the adjusted taxable income

of the corporation plus any excess limitation carryforward

under clause (ii).

(ii) Excess limitation carryforward

If a corporation has an excess limitation for any taxable

year, the amount of such excess limitation shall be an excess

limitation carryforward to the 1st succeeding taxable year

and to the 2nd and 3rd succeeding taxable years to the extent

not previously taken into account under this clause. The

amount of such a carryforward taken into account for any such

succeeding taxable year shall not exceed the excess interest

expense for such succeeding taxable year (determined without

regard to the carryforward from the taxable year of such

excess limitation).

(iii) Excess limitation

For purposes of clause (ii), the term "excess limitation"

means the excess (if any) of -

(I) 50 percent of the adjusted taxable income of the

corporation, over

(II) the corporation's net interest expense.

(C) Ratio of debt to equity

For purposes of this paragraph, the term "ratio of debt to

equity" means the ratio which the total indebtedness of the

corporation bears to the sum of its money and all other assets

reduced (but not below zero) by such total indebtedness. For

purposes of the preceding sentence -

(i) the amount taken into account with respect to any asset

shall be the adjusted basis thereof for purposes of

determining gain,

(ii) the amount taken into account with respect to any

indebtedness with original issue discount shall be its issue

price plus the portion of the original issue discount

previously accrued as determined under the rules of section

1272 (determined without regard to subsection (a)(7) or

(b)(4) thereof), and

(iii) there shall be such other adjustments as the

Secretary may by regulations prescribe.

(3) Disqualified interest

For purposes of this subsection, the term "disqualified

interest" means -

(A) any interest paid or accrued by the taxpayer (directly or

indirectly) to a related person if no tax is imposed by this

subtitle with respect to such interest,

(B) any interest paid or accrued by the taxpayer with respect

to any indebtedness to a person who is not a related person if -

(i) there is a disqualified guarantee of such indebtedness,

and

(ii) no gross basis tax is imposed by this subtitle with

respect to such interest, and

 

(C) any interest paid or accrued (directly or indirectly) by

a taxable REIT subsidiary (as defined in section 856(l)) of a

real estate investment trust to such trust.

(4) Related person

For purposes of this subsection -

(A) In general

Except as provided in subparagraph (B), the term "related

person" means any person who is related (within the meaning of

section 267(b) or 707(b)(1)) to the taxpayer.

(B) Special rule for certain partnerships

(i) In general

Any interest paid or accrued to a partnership which

(without regard to this subparagraph) is a related person

shall not be treated as paid or accrued to a related person

if less than 10 percent of the profits and capital interests

in such partnership are held by persons with respect to whom

no tax is imposed by this subtitle on such interest. The

preceding sentence shall not apply to any interest allocable

to any partner in such partnership who is a related person to

the taxpayer.

(ii) Special rule where treaty reduction

If any treaty between the United States and any foreign

country reduces the rate of tax imposed by this subtitle on a

partner's share of any interest paid or accrued to a

partnership, such partner's interests in such partnership

shall, for purposes of clause (i), be treated as held in part

by a tax-exempt person and in part by a taxable person under

rules similar to the rules of paragraph (5)(B).

(5) Special rules for determining whether interest is subject to

tax

(A) Treatment of pass-thru entities

In the case of any interest paid or accrued to a partnership,

the determination of whether any tax is imposed by this

subtitle on such interest shall be made at the partner level.

Rules similar to the rules of the preceding sentence shall

apply in the case of any pass-thru entity other than a

partnership and in the case of tiered partnerships and other

entities.

(B) Interest treated as tax-exempt to extent of treaty

reduction

If any treaty between the United States and any foreign

country reduces the rate of tax imposed by this subtitle on any

interest paid or accrued by the taxpayer, such interest shall

be treated as interest on which no tax is imposed by this

subtitle to the extent of the same proportion of such interest

as -

(i) the rate of tax imposed without regard to such treaty,

reduced by the rate of tax imposed under the treaty, bears to

(ii) the rate of tax imposed without regard to the treaty.

(6) Other definitions and special rules

For purposes of this subsection -

(A) Adjusted taxable income

The term "adjusted taxable income" means the taxable income

of the taxpayer -

(i) computed without regard to -

(I) any deduction allowable under this chapter for the

net interest expense,

(II) the amount of any net operating loss deduction under

section 172,

(III) any deduction allowable under section 199, and

(IV) any deduction allowable for depreciation,

amortization, or depletion, and

 

(ii) computed with such other adjustments as the Secretary

may by regulations prescribe.

(B) Net interest expense

The term "net interest expense" means the excess (if any) of -

(i) the interest paid or accrued by the taxpayer during the

taxable year, over

(ii) the amount of interest includible in the gross income

of such taxpayer for such taxable year.

 

The Secretary may by regulations provide for adjustments in

determining the amount of net interest expense.

(C) Treatment of affiliated group

All members of the same affiliated group (within the meaning

of section 1504(a)) shall be treated as 1 taxpayer.

(D) Disqualified guarantee

(i) In general

Except as provided in clause (ii), the term "disqualified

guarantee" means any guarantee by a related person which is -

(I) an organization exempt from taxation under this

subtitle, or

(II) a foreign person.

(ii) Exceptions

The term "disqualified guarantee" shall not include a

guarantee -

(I) in any circumstances identified by the Secretary by

regulation, where the interest on the indebtedness would

have been subject to a net basis tax if the interest had

been paid to the guarantor, or

(II) if the taxpayer owns a controlling interest in the

guarantor.

 

For purposes of subclause (II), except as provided in

regulations, the term "a controlling interest" means direct

or indirect ownership of at least 80 percent of the total

voting power and value of all classes of stock of a

corporation, or 80 percent of the profit and capital

interests in any other entity. For purposes of the preceding

sentence, the rules of paragraphs (1) and (5) of section

267(c) shall apply; except that such rules shall also apply

to interest in entities other than corporations.

(iii) Guarantee

Except as provided in regulations, the term "guarantee"

includes any arrangement under which a person (directly or

indirectly through an entity or otherwise) assures, on a

conditional or unconditional basis, the payment of another

person's obligation under any indebtedness.

(E) Gross basis and net basis taxation

(i) Gross basis tax

The term "gross basis tax" means any tax imposed by this

subtitle which is determined by reference to the gross amount

of any item of income without any reduction for any deduction

allowed by this subtitle.

(ii) Net basis tax

The term "net basis tax" means any tax imposed by this

subtitle which is not a gross basis tax.

(7) Coordination with passive loss rules, etc.

This subsection shall be applied before sections 465 and 469.

(8) Treatment of corporate partners

Except to the extent provided by regulations, in applying this

subsection to a corporation which owns (directly or indirectly)

an interest in a partnership -

(A) such corporation's distributive share of interest income

paid or accrued to such partnership shall be treated as

interest income paid or accrued to such corporation,

(B) such corporation's distributive share of interest paid or

accrued by such partnership shall be treated as interest paid

or accrued by such corporation, and

(C) such corporation's share of the liabilities of such

partnership shall be treated as liabilities of such

corporation.

(9) Regulations

The Secretary shall prescribe such regulations as may be

appropriate to carry out the purposes of this subsection,

including -

(A) such regulations as may be appropriate to prevent the

avoidance of the purposes of this subsection,

(B) regulations providing such adjustments in the case of

corporations which are members of an affiliated group as may be

appropriate to carry out the purposes of this subsection,

(C) regulations for the coordination of this subsection with

section 884, and

(D) regulations providing for the reallocation of shares of

partnership indebtedness, or distributive shares of the

partnership's interest income or interest expense.

(k) Section 6166 interest

No deduction shall be allowed under this section for any interest

payable under section 6601 on any unpaid portion of the tax imposed

by section 2001 for the period during which an extension of time

for payment of such tax is in effect under section 6166.

(l) Disallowance of deduction on certain debt instruments of

corporations

(1) In general

No deduction shall be allowed under this chapter for any

interest paid or accrued on a disqualified debt instrument.

(2) Disqualified debt instrument

For purposes of this subsection, the term "disqualified debt

instrument" means any indebtedness of a corporation which is

payable in equity of the issuer or a related party or equity held

by the issuer (or any related party) in any other person.

(3) Special rules for amounts payable in equity

For purposes of paragraph (2), indebtedness shall be treated as

payable in equity of the issuer or any other person only if -

(A) a substantial amount of the principal or interest is

required to be paid or converted, or at the option of the

issuer or a related party is payable in, or convertible into,

such equity,

(B) a substantial amount of the principal or interest is

required to be determined, or at the option of the issuer or a

related party is determined, by reference to the value of such

equity, or

(C) the indebtedness is part of an arrangement which is

reasonably expected to result in a transaction described in

subparagraph (A) or (B).

 

For purposes of this paragraph, principal or interest shall be

treated as required to be so paid, converted, or determined if it

may be required at the option of the holder or a related party

and there is a substantial certainty the option will be

exercised.

(4) Capitalization allowed with respect to equity of persons

other than issuer and related parties

If the disqualified debt instrument of a corporation is payable

in equity held by the issuer (or any related party) in any other

person (other than a related party), the basis of such equity

shall be increased by the amount not allowed as a deduction by

reason of paragraph (1) with respect to the instrument.

(5) Exception for certain instruments issued by dealers in

securities

For purposes of this subsection, the term "disqualified debt

instrument" does not include indebtedness issued by a dealer in

securities (or a related party) which is payable in, or by

reference to, equity (other than equity of the issuer or a

related party) held by such dealer in its capacity as a dealer in

securities. For purposes of this paragraph, the term "dealer in

securities" has the meaning given such term by section 475.

(6) Related party

For purposes of this subsection, a person is a related party

with respect to another person if such person bears a

relationship to such other person described in section 267(b) or

707(b).

(7) Regulations

The Secretary shall prescribe such regulations as may be

necessary or appropriate to carry out the purposes of this

subsection, including regulations preventing avoidance of this

subsection through the use of an issuer other than a corporation.

(m) Interest on unpaid taxes attributable to nondisclosed

reportable transactions

No deduction shall be allowed under this chapter for any interest

paid or accrued under section 6601 on any underpayment of tax which

is attributable to the portion of any reportable transaction

understatement (as defined in section 6662A(b)) with respect to

which the requirement of section 6664(d)(2)(A) (!2) is not met.

 

(n) Cross references

(1) For disallowance of certain amounts paid in connection

with insurance, endowment, or annuity contracts, see section

264.

(2) For disallowance of deduction for interest relating to

tax-exempt income, see section 265(a)(2).

(3) For disallowance of deduction for carrying charges

chargeable to capital account, see section 266.

(4) For disallowance of interest with respect to transactions

between related taxpayers, see section 267.

(5) For treatment of redeemable ground rents and real

property held subject to liabilities under redeemable ground

rents, see section 1055.

 

-SOURCE-

(Aug. 16, 1954, ch. 736, 68A Stat. 46; Pub. L. 88-9, Sec. 1(a),

(c), Apr. 10, 1963, 77 Stat. 6, 7; Pub. L. 88-272, title II, Sec.

224(c), Feb. 26, 1964, 78 Stat. 79; Pub. L. 91-172, title II, Sec.

221(a), Dec. 30, 1969, 83 Stat. 574; Pub. L. 92-178, title III,

Sec. 304(a)(2), (b)(2), (d), Dec. 10, 1971, 85 Stat. 523, 524; Pub.

L. 94-455, title II, Secs. 205(c)(3), 209(a), title XIX, Secs.

1901(b)(3)(K), (8)(C), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1535,

1542, 1793, 1794, 1834; Pub. L. 97-248, title II, Sec. 231(b),

title III, Sec. 310(b)(2), Sept. 3, 1982, 96 Stat. 498, 596; Pub.

L. 97-354, Sec. 5(a)(18), Oct. 19, 1982, 96 Stat. 1693; Pub. L. 98-

369, div. A, title I, Secs. 42(a)(3), 56(b), 127(f), 128(c), title

VI, Sec. 612(c), July 18, 1984, 98 Stat. 556, 574, 652, 654, 911;

Pub. L. 99-514, title V, Sec. 511(a), (b), title IX, Sec.

902(e)(1), title XIII, Sec. 1301(j)(3), title XVIII, Secs.

1803(a)(4), 1810(e)(1), Oct. 22, 1986, 100 Stat. 2244, 2246, 2382,

2657, 2793, 2825; Pub. L. 100-203, title X, Secs. 10102(a), (b),

10212(b), Dec. 22, 1987, 101 Stat. 1330-384, 1330-386, 1330-406;

Pub. L. 100-647, title I, Secs. 1005(c)(1)-(9), (12), 1006(u)(1),

1009(b)(6), title II, Sec. 2004(b)(1), Nov. 10, 1988, 102 Stat.

3390-3392, 3427, 3449, 3598; Pub. L. 101-239, title VII, Secs.

7202(a), (b), 7210(a), Dec. 19, 1989, 103 Stat. 2330, 2331, 2339;

Pub. L. 101-508, title XI, Sec. 11701(b), (c), Nov. 5, 1990, 104

Stat. 1388-507; Pub. L. 103-66, title XIII, Secs. 13206(d)(1),

13228(a)-(c), Aug. 10, 1993, 107 Stat. 467, 494, 495; Pub. L. 104-

188, title I, Secs. 1703(n)(4), 1704(f)(2)(A), (B), Aug. 20, 1996,

110 Stat. 1877, 1879; Pub. L. 105-34, title III, Sec. 312(d)(1),

title V, Sec. 503(b)(2), title X, Sec. 1005(a), title XVI, Sec.

1604(g)(1), Aug. 5, 1997, 111 Stat. 839, 853, 911, 1099; Pub. L.

105-277, div. J, title IV, Sec. 4003(a)(1), Oct. 21, 1998, 112

Stat. 2681-908; Pub. L. 106-170, title V, Sec. 544, Dec. 17, 1999,

113 Stat. 1944; Pub. L. 108-27, title III, Sec. 302(b), May 28,

2003, 117 Stat. 762; Pub. L. 108-357, title VIII, Secs. 838(a),

841(a), 845(a)-(d), Oct. 22, 2004, 118 Stat. 1596, 1597, 1600,

1601; Pub. L. 109-135, title IV, Sec. 403(a)(15), Dec. 21, 2005,

119 Stat. 2619; Pub. L. 109-222, title V, Sec. 501(a), (b), May 17,

2006, 120 Stat. 354; Pub. L. 109-432, div. A, title IV, Sec.

419(a), (b), Dec. 20, 2006, 120 Stat. 2967; Pub. L. 110-142, Sec.

3(a), Dec. 20, 2007, 121 Stat. 1804; Pub. L. 111-5, div. B, title

I, Sec. 1232(a), (b), Feb. 17, 2009, 123 Stat. 341; Pub. L. 111-

147, title V, Sec. 502(a)(1), (2)(B), (C), (c), Mar. 18, 2010, 124

Stat. 107, 108; Pub. L. 111-312, title VII, Sec. 759(a), Dec. 17,

2010, 124 Stat. 3323.)

 

 

-STATAMEND-

AMENDMENT OF SECTION

Pub. L. 111-147, title V, Sec. 502(a)(1), (2)(B), (C), (c), (f),

Mar. 18, 2010, 124 Stat. 107, 108, provided that, applicable to

obligations issued after the date which is 2 years after Mar. 18,

2010, subsection (f) of this section is amended as follows:

(1) in paragraph (2):

(A) in subparagraph (A), by inserting "or" at the end of clause

(ii), by striking ", or" at the end of clause (iii) and inserting a

period, and by striking clause (iv);

(B) by striking out subparagraph (B) and redesignating

subparagraph (C) as (B);

(C) by striking out ", and subparagraph (B)," in introductory

provisions of subparagraph (B), as resdesignated; and

(D) by amending clause (i) of subparagraph (B), as redesignated,

to read as follows:

"(i) such obligation is of a type which the Secretary has

determined by regulations to be used frequently in avoiding

Federal taxes, and"; and

 

(2) in paragraph (3), by inserting before the period at the end

the following: ", except that a dematerialized book entry system or

other book entry system specified by the Secretary shall be treated

as a book entry system described in such section".

For termination of amendment by section 303 of Pub. L. 108-27,

see Effective and Termination Dates of 2003 Amendment note below.

 

-REFTEXT-

REFERENCES IN TEXT

The date of the enactment of this subparagraph, referred to in

subsec. (h)(4)(E)(ii), is the date of enactment of Pub. L. 109-432,

which was approved Dec. 20, 2006.

Section 6664(d)(2)(A), referred to in subsec. (m), was

redesignated as section 6664(d)(3)(A) by Pub. L. 111-152, title I,

Sec. 1409(c)(2)(A), Mar. 30, 2010, 124 Stat. 1069.

 

 

-MISC1-

AMENDMENTS

2010 - Subsec. (h)(3)(E)(iv)(I). Pub. L. 111-312 substituted

"December 31, 2011" for "December 31, 2010".

2009 - Subsec. (e)(5)(F), (G). Pub. L. 111-5, Sec. 1232(a), added

subpar. (F) and redesignated former subpar. (F) as (G).

Subsec. (i)(1). Pub. L. 111-5, Sec. 1232(b), in concluding

provisions, inserted "(i)" before "permit a rate" and ", or (ii)

permit, on a temporary basis, a rate to be used with respect to any

debt instrument which is higher than the applicable Federal rate if

the Secretary determines that such rate is appropriate in light of

distressed conditions in the debt capital markets" before period at

end.

2007 - Subsec. (h)(3)(E)(iv)(I). Pub. L. 110-142 substituted

"December 31, 2010" for "December 31, 2007".

2006 - Subsec. (h)(3)(E). Pub. L. 109-432, Sec. 419(a), added

subpar. (E).

Subsec. (h)(4)(E), (F). Pub. L. 109-432, Sec. 419(b), added

subpars. (E) and (F).

Subsec. (j)(8). Pub. L. 109-222, Sec. 501(a), added par. (8).

Former par. (8) redesignated (9).

Subsec. (j)(9). Pub. L. 109-222 redesignated par. (8) as (9) and

added subpar. (D).

2005 - Subsec. (j)(6)(A)(i)(III), (IV). Pub. L. 109-135 added

subcl. (III) and redesignated former subcl. (III) as (IV).

2004 - Subsec. (e)(3)(B), (C). Pub. L. 108-357, Sec. 841(a),

added subpar. (B) and redesignated former subpar. (B) as (C).

Subsec. (l)(2). Pub. L. 108-357, Sec. 845(a), inserted "or equity

held by the issuer (or any related party) in any other person"

after "or a related party".

Subsec. (l)(3). Pub. L. 108-357, Sec. 845(d), substituted "or any

other person" for "or a related party" in introductory provisions.

Subsec. (l)(4) to (7). Pub. L. 108-357, Sec. 845(b), (c), added

pars. (4) and (5) and redesignated former pars. (4) and (5) as (6)

and (7), respectively.

Subsecs. (m), (n). Pub. L. 108-357, Sec. 838(a), added subsec.

(m) and redesignated former subsec. (m) as (n).

2003 - Subsec. (d)(4)(B). Pub. L. 108-27, Secs. 302(b), 303,

temporarily inserted at end "Such term shall include qualified

dividend income (as defined in section 1(h)(11)(B)) only to the

extent the taxpayer elects to treat such income as investment

income for purposes of this subsection." See Effective and

Termination Dates of 2003 Amendment note below.

1999 - Subsec. (j)(3)(C). Pub. L. 106-170 added subpar. (C).

1998 - Subsec. (h)(2)(F). Pub. L. 105-277 added subpar. (F).

1997 - Subsec. (h)(2)(E). Pub. L. 105-34, Sec. 503(b)(2)(B),

struck out "or 6166 or under section 6166A (as in effect before its

repeal by the Economic Recovery Tax Act of 1981)" after "section

6163".

Subsec. (h)(4)(A)(i)(I). Pub. L. 105-34, Sec. 312(d)(1),

substituted "section 121" for "section 1034".

Subsec. (j)(2)(B)(iii). Pub. L. 105-34, Sec. 1604(g)(1),

substituted "clause (ii)" for "clause (i)" in introductory

provisions.

Subsec. (k). Pub. L. 105-34, Sec. 503(b)(2)(A), added subsec.

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

Subsec. (l). Pub. L. 105-34, Sec. 1005(a), added subsec. (l).

Former subsec. (l) redesignated (m).

Pub. L. 105-34, Sec. 503(b)(2)(A), redesignated subsec. (k) as

(l).

Subsec. (m). Pub. L. 105-34, Sec. 1005(a), redesignated subsec.

(l) as (m).

1996 - Subsec. (j)(1)(B). Pub. L. 104-188, Sec. 1704(f)(2)(A),

inserted before period at end "(and clause (ii) of paragraph (2)(A)

shall not apply for purposes of applying this subsection to the

amount so treated)".

Subsec. (j)(6)(E)(ii). Pub. L. 104-188, Sec. 1703(n)(4), which

directed that cl. (ii) be amended by substituting "which is" for

"which is a", could not be executed, because "which is a" does not

appear.

Subsec. (j)(7), (8). Pub. L. 104-188, Sec. 1704(f)(2)(B), added

par. (7) and redesignated former par. (7) as (8).

1993 - Subsec. (d)(4)(B). Pub. L. 103-66, Sec. 13206(d)(1),

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

amendment, text read as follows: "The term 'investment income'

means the sum of -

"(i) gross income (other than gain taken into account under

clause (ii)) from property held for investment, and

"(ii) any net gain attributable to the disposition of property

held for investment."

Subsec. (j). Pub. L. 103-66, Sec. 13228(c)(2), substituted "for

interest on certain indebtedness" for "for certain interest paid by

corporation to related person" in heading.

Subsec. (j)(3). Pub. L. 103-66, Sec. 13228(a), amended heading

and text of par. (3) generally. Prior to amendment, text read as

follows: "For purposes of this subsection -

"(A) In general. - Except as provided in subparagraph (B), the

term 'disqualified interest' means any interest paid or accrued

by the taxpayer (directly or indirectly) to a related person if

no tax is imposed by this subtitle with respect to such interest.

"(B) Exception for certain existing indebtedness. - The term

'disqualified interest' does not include any interest paid or

accrued under indebtedness with a fixed term -

"(i) which was issued on or before July 10, 1989, or

"(ii) which was issued after such date pursuant to a written

binding contract in effect on such date and all times

thereafter before such indebtedness was issued."

Subsec. (j)(5)(B). Pub. L. 103-66, Sec. 13228(c)(1), struck out

"to a related person" after "by the taxpayer" in introductory

provisions.

Subsec. (j)(6)(D), (E). Pub. L. 103-66, Sec. 13228(b), added

subpars. (D) and (E).

1990 - Subsec. (e)(5)(A). Pub. L. 101-508, Sec. 11701(b)(1),

amended last sentence generally. Prior to amendment, last sentence

read as follows: "For purposes of clause (ii), rules similar to the

rules of subsection (i)(3)(B) shall apply in determining the time

when the original issue discount is paid."

Subsec. (i)(3). Pub. L. 101-508, Sec. 11701(b)(2)(B), inserted

sentence at end.

Subsec. (i)(3)(B). Pub. L. 101-508, Sec. 11701(b)(2)(A), struck

out "(or stock)" after "obligation" wherever appearing.

Subsec. (j)(2)(A)(ii). Pub. L. 101-508, Sec. 11701(c)(2),

substituted "or on any other day" for "and on such other days".

Subsec. (j)(2)(C). Pub. L. 101-508, Sec. 11701(c)(1), substituted

"reduced (but not below zero) by such" for "less such" in

introductory provisions.

1989 - Subsec. (e)(5), (6). Pub. L. 101-239, Sec. 7202(a), added

par. (5) and redesignated former par. (5) as (6).

Subsec. (i). Pub. L. 101-239, Sec. 7202(b), added subsec. (i).

Former subsec. (i) redesignated (j).

Subsec. (j). Pub. L. 101-239, Sec. 7210(a), added subsec. (j).

Former subsec. (j) redesignated (k).

Pub. L. 101-239, Sec. 7202(b), redesignated subsec. (i) as (j).

Subsec. (k). Pub. L. 101-239, Sec. 7210(a), redesignated subsec.

(j) as (k).

1988 - Subsec. (d)(3)(A). Pub. L. 100-647, Sec. 1005(c)(1),

substituted "properly allocable to" for "incurred or continued to

purchase or carry".

Subsec. (d)(4)(B). Pub. L. 100-647, Sec. 1005(c)(2), amended

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

follows: "The term 'investment income' means the sum of -

"(i) gross income (other than gain described in clause (ii))

from property held for investment, and

"(ii) any net gain attributable to the disposition of property

held for investment,

but only to the extent such amounts are not derived from the

conduct of a trade or business."

Subsec. (d)(6)(A). Pub. L. 100-647, Sec. 1005(c)(3), amended

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

follows: "The amount of interest disallowed under this subsection

for any such taxable year shall be equal to the sum of -

"(i) the applicable percentage of the amount which (without

regard to this paragraph) is not allowed as a deduction under

this subsection for the taxable year to the extent such amount

does not exceed the ceiling amount,

"(ii) the amount which (without regard to this paragraph) is

not allowed as a deduction under this subsection in excess of the

ceiling amount, plus

"(iii) the amount of any carryforward to such taxable year

under paragraph (2) with respect to which a deduction was

disallowed under this subsection for a preceding taxable year.

For purposes of this subparagraph, the amount under clause (i) or

(ii) shall be computed without regard to the amount described in

clause (iii)."

Subsec. (e)(2)(B). Pub. L. 100-647, Sec. 1006(u)(1), substituted

"paragraph (7)" for "paragraph (6)".

Subsec. (h)(2)(A). Pub. L. 100-647, Sec. 1005(c)(4), substituted

"properly allocable to" for "incurred or continued in connection

with the conduct of".

Subsec. (h)(2)(E). Pub. L. 100-647, Sec. 1005(c)(12), inserted

"or under section 6166A (as in effect before its repeal by the

Economic Recovery Tax Act of 1981)" before period at end.

Subsec. (h)(3)(C). Pub. L. 100-647, Sec. 1005(c)(5), effective as

if enacted immediately before enactment of Pub. L. 100-203 (see

1987 Amendment note below), amended subpar. (C) generally. Prior to

amendment, subpar. (C) read as follows: "The amount under

subparagraph (B)(ii)(I) at any time after August 16, 1986, shall

not be less than the outstanding aggregate principal amount (as of

such time) of indebtedness which was incurred on or before August

16, 1986, and which was secured by the qualified residence on

August 16, 1986."

Subsec. (h)(4). Pub. L. 100-647, Sec. 1005(c)(6)(A), effective as

if enacted immediately before enactment of Pub. L. 100-203

(redesignating par. (5) as (4), see 1987 Amendment note below),

amended heading by substituting "Other definitions and special

rules - For purposes of this subsection - " for "Other definitions

and special rules".

Subsec. (h)(4)(A). Pub. L. 100-647, Sec. 1005(c)(6)(B)(i), (7),

effective as if enacted immediately before enactment of Pub. L. 100-

203 (redesignating par. (5) as (4), see 1987 Amendment note

below), amended subpar. (A) by striking out "For purposes of this

subsection - " after "Qualified residence" in introductory

provisions, "used or" after "Residence not" in cl. (iii) heading,

and "or use" after "does not rent" in cl. (iii) text.

Subsec. (h)(4)(B). Pub. L. 100-647, Sec. 1005(c)(6)(B)(ii),

effective as if enacted immediately before enactment of Pub. L. 100-

203 (redesignating par. (5) as (4), see 1987 Amendment note

below), amended subpar. (B) by substituting "Any" for "For purposes

of this paragraph, any".

Subsec. (h)(4)(C), (D). Pub. L. 100-647, Sec. 1005(c)(8),

effective as if enacted immediately before enactment of Pub. L. 100-

203 (redesignating par. (5) as (4), see 1987 Amendment note

below), par. (4) added subpars. (C) and (D).

Subsec. (h)(5). Pub. L. 100-647, Sec. 2004(b)(1), redesignated

par. (6) as (5).

Subsec. (h)(6). Pub. L. 100-647, Sec. 2004(b)(1), redesignated

par. (6) as (5).

Pub. L. 100-647, Sec. 1005(c)(9), substituted "but for this

paragraph" for "but for this subsection".

Subsec. (i)(2). Pub. L. 100-647, Sec. 1009(b)(6), made technical

correction to directory language of Pub. L. 99-514, Sec. 902(e)(1),

see 1986 Amendment note below.

1987 - Subsec. (d)(4)(E). Pub. L. 100-203, Sec. 10212(b),

substituted "section 469(m)" for "section 469(l)".

Subsec. (h)(3). Pub. L. 100-203, Sec. 10102(a), amended par. (3)

generally. Prior to amendment (see 1988 Amendment note above), par.

(3) read as follows: "For purposes of this subsection -

"(A) In general. - The term 'qualified residence interest'

means interest which is paid or accrued during the taxable year

on indebtedness which is secured by any property which (at the

time such interest is paid or accrued) is a qualified residence

of the taxpayer.

"(B) Limitation on amount of interest. - The term 'qualified

residence interest' shall not include any interest paid or

accrued on indebtedness secured by any qualified residence which

is allocable to that portion of the principal amount of such

indebtedness which, when added to the outstanding aggregate

principal amount of all other indebtedness previously incurred

and secured by such qualified residence, exceeds the lesser of -

"(i) the fair market value of such qualified residence, or

"(ii) the sum of -

"(I) the taxpayer's basis in such qualified residence

(adjusted only by the cost of any improvements to such

residence), plus

"(II) the aggregate amount of qualified indebtedness of the

taxpayer with respect to such qualified residence.

"(C) Cost not less than balance of indebtedness incurred on or

before august 16, 1986. -

"(i) In general. - The amount under subparagraph (B)(ii)(I)

at any time after August 16, 1986, shall not be less than the

outstanding principal amount (as of such time) of indebtedness -

"(I) which was incurred on or before August 16, 1986, and

which was secured by the qualified residence on August 16,

1986, or

"(II) which is secured by the qualified residence and was

incurred after August 16, 1986, to refinance indebtedness

described in subclause (I) (or refinanced indebtedness

meeting the requirements of this subclause) to the extent

(immediately after the refinancing) the principal amount of

the indebtedness resulting from the refinancing does not

exceed the principal amount of the refinanced indebtedness

(immediately before the refinancing).

"(ii) Limitation on period of refinancing. - Subclause (II)

of clause (i) shall not apply to any indebtedness after -

"(I) the expiration of the term of the indebtedness

described in clause (i)(I), or

"(II) if the principal of the indebtedness described in

clause (i)(I) is not amortized over its term, the expiration

of the term of the 1st refinancing of such indebtedness (or

if earlier, the date which is 30 years after the date of such

refinancing).

"(D) Time for determination. - Except as provided in

regulations, any determination under subparagraph (B) shall be

made as of the time the indebtedness is incurred."

Subsec. (h)(4), (5). Pub. L. 100-203, Sec. 10102(b), redesignated

par. (5) as (4) and struck out former par. (4) which defined

"qualified indebtedness" for purposes of this subsection.

1986 - Subsec. (d). Pub. L. 99-514, Sec. 511(a), substituted

"Limitation on investment interest" for "Limitation on interest on

investment indebtedness" in heading, and amended text generally,

revising and restating as pars. (1) to (6) provisions of former

pars. (1) to (7).

Subsec. (e)(2)(C). Pub. L. 99-514, Sec. 1803(a)(4), added subpar.

(C).

Subsec. (e)(3)(A). Pub. L. 99-514, Sec. 1810(e)(1)(A), inserted

"The preceding sentence shall not apply to the extent that the

original issue discount is effectively connected with the conduct

by such foreign related person of a trade or business within the

United States unless such original issue discount is exempt from

taxation (or is subject to a reduced rate of tax) pursuant to a

treaty obligation of the United States."

Subsec. (e)(5). Pub. L. 99-514, Sec. 1810(e)(1)(B), redesignated

par. (4), relating to cross references, as (5).

Subsec. (f)(3). Pub. L. 99-514, Sec. 1301(j)(3), substituted

"section 149(a)(3)" for "section 103(j)(3)".

Subsec. (h). Pub. L. 99-514, Sec. 511(b), added subsec. (h).

Former subsec. (h) redesignated (i).

Subsec. (i)(2). Pub. L. 99-514, Sec. 902(e)(1), as amended by

Pub. L. 100-647, Sec. 1009(b)(6), substituted "section 265(a)(2)"

for "section 265(2)".

Pub. L. 99-514, Sec. 511(b), redesignated former subsec. (h) as

(i).

1984 - Subsec. (d)(3)(D). Pub. L. 98-369, Sec. 56(b), designated

existing provisions as cl. (i) and added cl. (ii).

Subsec. (e)(1). Pub. L. 98-369, Sec. 42(a)(3), substituted "debt

instrument" for "bond" in two places and struck out "by an issuer

(other than a natural person)" before ", the portion of the

original issue".

Subsec. (e)(2). Pub. L. 98-369, Sec. 42(a)(3), substituted

provisions relating to debt instruments for provisions relating to

bonds.

Subsec. (e)(3). Pub. L. 98-369, Sec. 128(c), added par. (3)

relating to special rule for original issue discount on obligation

held by related foreign person. Former par. (3), relating to

exceptions, redesignated (4).

Pub. L. 98-369, Sec. 42(a)(3), added par. (3) relating to

exceptions.

Subsec. (e)(4). Pub. L. 98-369, Sec. 128(c), redesignated par.

(3), relating to exceptions, as (4).

Pub. L. 98-369, Sec. 42(a)(3), added par. (4) relating to cross

references.

Subsec. (f)(2)(C)(i). Pub. L. 98-369, Sec. 127(f), redesignated

existing provision as subcl. (I), and in subcl. (I) as so

redesignated, inserted reference to subpar. (A) and substituted

"or" for "and", and added subcl. (II).

Subsecs. (g), (h). Pub. L. 98-369, Sec. 612(c), added subsec. (g)

and redesignated former subsec. (g) as (h).

1982 - Subsec. (d)(4). Pub. L. 97-354 redesignated subpar. (D) as

(B). Former subpars. (B) and (C), relating to partnerships and

shareholders of electing small business corporations, respectively,

were struck out.

Subsec. (e). Pub. L. 97-248, Sec. 231(b), added subsec. (e)

relating to original issue discount. Former subsec. (e), setting

forth cross references, redesignated (f).

Pub. L. 97-248, Sec. 231(b), redesignated former subsec. (e),

setting forth cross references, as (f).

Subsec. (f). Pub. L. 97-248, Sec. 310(b)(2), added subsec. (f)

relating to the requirement that obligations be in registered form

to be tax-exempt. Former subsec. (f), setting forth cross

references, redesignated (g).

Subsec. (g). Pub. L. 97-248, Sec. 310(b)(2), redesignated former

subsec. (f), setting forth cross references, as (g).

1976 - Subsec. (b)(1). Pub. L. 94-455, Sec. 1901(b)(8)(C),

substituted "organization described in section 170(b)(1)(A)(ii) and

which is provided for a student of such organization" for

"institution (as defined in section 151(e)(4)) and which is

provided for a student of such institution".

Subsec. (d)(1). Pub. L. 94-455, Sec. 209(a)(1), among other

changes, substituted in subpar. (A) "$10,000" for "$25,000" and

"$5,000" for "$12,500", struck out subpar. (C) relating to the

excess of net long-term capital gain over short-term capital loss

and subpar. (D) relating to the excess of investment interest over

amounts in subpar. (A), and in provisions following lettered

paragraphs substituted "$10,000" for "$25,000" and struck out

provisions relating to the determination of the amount referred to

in subpar. (C).

Subsec. (d)(2). Pub. L. 94-455, Sec. 209(a)(1), among other

changes, struck out provisions relating to the limitation on the

amount of interest allowable by this par. and to reduction of

disallowed investment interest for capital gain deduction purposes.

Subsec. (d)(3)(A). Pub. L. 94-455, Sec. 209(a)(2), inserted

provision relating to determination of the amount of net investment

income where taxpayer has investment interest for taxable year to

which this subsection applies.

Subsec. (d)(3)(B)(iii). Pub. L. 94-455, Secs. 205(c)(3),

1901(b)(3)(K), substituted "1250, and 1254" for "and 1250", and

"ordinary income" for "gain from the sale or exchange of property

which is neither a capital asset nor property described in section

1231". Section 205(c)(3) of Pub. L. 94-455, which directed the

amendment of subsec. (d)(3)(A)(iii), was executed by amending

subsec. (d)(3)(B)(iii) to reflect the probable intent of Congress.

Subsec. (d)(3)(E). Pub. L. 94-455, Sec. 209(a)(3), substituted

"limitation in paragraph (1)" for "limitations in paragraphs (1)

and (2)(A)".

Subsec. (d)(4)(B), (C). Pub. L. 94-455, Sec. 1906(b)(13)(A),

struck out "or his delegate" after "Secretary".

Subsec. (d)(5). Pub. L. 94-455, Sec. 209(a)(4), (5), redesignated

par. (6) as (5) and inserted provision relating to the application

of this paragraph after Dec. 31, 1975, on an allocation basis

rather than a specific item basis. Former par. (5), relating to

capital gains treatment of investment interest, was struck out.

Pub. L. 94-455, Sec. 1901(b)(3)(K), directed the amendment of

par. (5) by substituting "ordinary income" for "gain from the sale

or exchange of property which is neither a capital asset nor

property described in section 1231", such par. (5) having been

struck out by Pub. L. 94-455, Sec. 209(a)(4).

Subsec. (d)(6). Pub. L. 94-455, Secs. 209(a)(4), 1906(b)(13)(A),

redesignated par. (7) as (6) and struck out in provision following

subpar. (B) "or his delegate" after "Secretary". Former par. (6)

redesignated (5).

Subsec. (d)(7). Pub. L. 94-455, Sec. 209(a)(6), added par. (7).

Former par. (7) redesignated (6).

1971 - Subsec. (d)(1)(B). Pub. L. 92-178, Sec. 304(b)(2),

inserted "the amount (if any) by which the deductions allowable

under this section (determined without regard to this subsection)

and sections 162, 164(a)(1) or (2), or 212 attributable to property

of the taxpayer subject to a net lease exceeds the rental income

produced by such property for the property year, plus" after

"plus".

Subsec. (d)(3)(C). Pub. L. 92-178, Sec. 304(d), inserted

reference to section 162.

Subsec. (d)(4)(A)(i). Pub. L. 92-178, Sec. 304(a)(2)(A), inserted

"of the lessor" after "deductions" and "(other than rents and

reimbursed amounts with respect to such property)" after "section

162".

Subsec. (d)(7). Pub. L. 92-178, Sec. 304(a)(2)(B), added par.

(7).

1969 - Subsecs. (d), (e). Pub. L. 91-172 added subsec. (d).

Former subsec. (d) redesignated (e).

1964 - Subsec. (b)(1). Pub. L. 88-272 included the purchase of

educational services, and defined "educational services".

1963 - Subsecs. (c), (d). Pub. L. 88-9, Sec. 1(a), (c), added

subsec. (c), redesignated former subsec. (c) as (d) and added par.

(5).

 

EFFECTIVE DATE OF 2010 AMENDMENT

Pub. L. 111-312, title VII, Sec. 759(b), Dec. 17, 2010, 124 Stat.

3323, provided that: "The amendment made by this section [amending

this section] shall apply to amounts paid or accrued after December

31, 2010."

Amendment by Pub. L. 111-147 applicable to obligations issued

after the date which is 2 years after Mar. 18, 2010, see section

502(f) of Pub. L. 111-147, set out as a note under section 149 of

this title.

 

EFFECTIVE DATE OF 2009 AMENDMENT

Pub. L. 111-5, div. B, title I, Sec. 1232(c), Feb. 17, 2009, 123

Stat. 341, provided that:

"(1) Suspension. - The amendments made by subsection (a)

[amending this section] shall apply to obligations issued after

August 31, 2008, in taxable years ending after such date.

"(2) Interest rate authority. - The amendments made by subsection

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

December 31, 2009, in taxable years ending after such date."

 

EFFECTIVE DATE OF 2007 AMENDMENT

Pub. L. 110-142, Sec. 3(b), Dec. 20, 2007, 121 Stat. 1804,

provided that: "The amendment made by this section [amending this

section] shall apply to amounts paid or accrued after December 31,

2007."

 

EFFECTIVE DATE OF 2006 AMENDMENT

Pub. L. 109-432, div. A, title IV, Sec. 419(d), Dec. 20, 2006,

120 Stat. 2968, provided that: "The amendments made by this section

[amending this section and section 6050H of this title] shall apply

to amounts paid or accrued after December 31, 2006."

Pub. L. 109-222, title V, Sec. 501(c), May 17, 2006, 120 Stat.

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

this section] shall apply to taxable years beginning on or after

the date of the enactment of this Act [May 17, 2006]."

 

EFFECTIVE DATE OF 2005 AMENDMENT

Amendment by Pub. L. 109-135 effective as if included in the

provision of the American Jobs Creation Act of 2004, Pub. L. 108-

357, to which such amendment relates, see section 403(nn) of Pub.

L. 109-135, set out as a note under section 26 of this title.

 

EFFECTIVE DATE OF 2004 AMENDMENT

Pub. L. 108-357, title VIII, Sec. 838(b), Oct. 22, 2004, 118

Stat. 1597, provided that: "The amendments made by this section

[amending this section] shall apply to transactions in taxable

years beginning after the date of the enactment of this Act [Oct.

22, 2004]."

Pub. L. 108-357, title VIII, Sec. 841(c), Oct. 22, 2004, 118

Stat. 1598, provided that: "The amendments made by this section

[amending this section and section 267 of this title] shall apply

to payments accrued on or after the date of the enactment of this

Act [Oct. 22, 2004]."

Pub. L. 108-357, title VIII, Sec. 845(e), Oct. 22, 2004, 118

Stat. 1601, provided that: "The amendments made by this section

[amending this section] shall apply to debt instruments issued

after October 3, 2004."

 

EFFECTIVE AND TERMINATION DATES OF 2003 AMENDMENT

Amendment by Pub. L. 108-27 applicable, except as otherwise

provided, to taxable years beginning after Dec. 31, 2002, see

section 302(f) of Pub. L. 108-27, set out as a note under section 1

of this title.

Amendment by Pub. L. 108-27 inapplicable to taxable years

beginning after Dec. 31, 2012, 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 303 of Pub. L. 108-

27, as amended, set out as a note under section 1 of this title.

 

EFFECTIVE DATE OF 1999 AMENDMENT

Amendment by Pub. L. 106-170 applicable to taxable years

beginning after Dec. 31, 2000, see section 546(a) of Pub. L. 106-

170, set out as a note under section 856 of this title.

 

EFFECTIVE DATE OF 1998 AMENDMENT

Amendment by Pub. L. 105-277 effective as if included in the

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

which such amendment relates, see section 4003(l) of Pub. L. 105-

277, set out as a note under section 86 of this title.

 

EFFECTIVE DATE OF 1997 AMENDMENT

Amendment by section 312(d)(1) of Pub. L. 105-34 applicable to

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

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

121 of this title.

Section 503(d) of Pub. L. 105-34 provided that:

"(1) In general. - The amendments made by this section [amending

this section and sections 2053, 6166, and 6601 of this title] shall

apply to estates of decedents dying after December 31, 1997.

"(2) Election. - In the case of the estate of any decedent dying

before January 1, 1998, with respect to which there is an election

under section 6166 of the Internal Revenue Code of 1986, the

executor of the estate may elect to have the amendments made by

this section apply with respect to installments due after the

effective date of the election; except that the 2-percent portion

of such installments shall be equal to the amount which would be

the 4-percent portion of such installments without regard to such

election. Such an election shall be made before January 1, 1999 in

the manner prescribed by the Secretary of the Treasury and, once

made, is irrevocable."

Section 1005(b) of Pub. L. 105-34 provided that:

"(1) In general. - The amendment made by this section [amending

this section] shall apply to disqualified debt instruments issued

after June 8, 1997.

"(2) Transition rule. - The amendment made by this section shall

not apply to any instrument issued after June 8, 1997, if such

instrument is -

"(A) issued pursuant to a written agreement which was binding

on such date and at all times thereafter,

"(B) described in a ruling request submitted to the Internal

Revenue Service on or before such date, or

"(C) described on or before such date in a public announcement

or in a filing with the Securities and Exchange Commission

required solely by reason of the issuance."

 

EFFECTIVE DATE OF 1996 AMENDMENT

Amendment by section 1703(n)(4) of 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.

Section 1704(f)(2)(C) of Pub. L. 104-188 provided that: "The

amendments made by this paragraph [amending this section] shall

apply as if included in the amendments made by section 7210(a) of

the Revenue Reconciliation Act of 1989 [Pub. L. 101-239]."

 

EFFECTIVE DATE OF 1993 AMENDMENT

Amendment by section 13206(d)(1) of Pub. L. 103-66 applicable to

taxable years beginning after Dec. 31, 1992, see section

13206(d)(3) of Pub. L. 103-66 set out as a note under section 1 of

this title.

Section 13228(d) of Pub. L. 103-66 provided that: "The amendments

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

interest paid or accrued in taxable years beginning after December

31, 1993."

 

EFFECTIVE DATE OF 1990 AMENDMENT

Amendment by Pub. L. 101-508 effective, except as otherwise

provided, as if included in the provision of the Revenue

Reconciliation Act of 1989, Pub. L. 101-239, title VII, to which

such amendment relates, see section 11701(n) of Pub. L. 101-508,

set out as a note under section 42 of this title.

 

EFFECTIVE DATE OF 1989 AMENDMENT

Section 7202(c) of Pub. L. 101-239 provided that:

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

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

to instruments issued after July 10, 1989.

"(2) Exceptions. -

"(A) The amendments made by this section shall not apply to any

instrument if -

"(i) such instrument is issued in connection with an

acquisition -

"(I) which is made on or before July 10, 1989,

"(II) for which there was a written binding contract in

effect on July 10, 1989, and at all times thereafter before

such acquisition, or

"(III) for which a tender offer was filed with the

Securities and Exchange Commission on or before July 10,

1989,

"(ii) the term of such instrument is not greater than -

"(I) the term specified in the written documents described

in clause (iii), or

"(II) if no term is determined under subclause (I), 10

years, and

"(iii) the use of such instrument in connection with such

acquisition (and the maximum amount of proceeds from such

instrument) was determined on or before July 10, 1989, and such

determination is evidenced by written documents -

"(I) which were transmitted on or before July 10, 1989,

between the issuer and any governmental regulatory bodies or

prospective parties to the issuance or acquisition, and

"(II) which are customarily used for the type of

acquisition or financing involved.

"(B) The amendments made by this section shall not apply to any

instrument issued pursuant to the terms of a debt instrument

issued on or before July 10, 1989, or described in subparagraph

(A) or (D).

"(C) The amendments made by this section shall not apply to any

instrument issued to refinance an original issue discount debt

instrument to which the amendments made by this section do not

apply if -

"(i) the maturity date of the refinancing instrument is not

later than the maturity date of the refinanced instrument,

"(ii) the issue price of the refinancing instrument does not

exceed the adjusted issue price of the refinanced instrument,

"(iii) the stated redemption price at maturity of the

refinancing instrument is not greater than the stated

redemption price at maturity of the refinanced instrument, and

"(iv) the interest payments required under the refinancing

instrument before maturity are not less than (and are paid not

later than) the interest payments required under the refinanced

instrument.

"(D) The amendments made by this section shall not apply to

instruments issued after July 10, 1989, pursuant to a

reorganization plan in a title 11 or similar case (as defined in

section 368(a)(3) of the Internal Revenue Code of 1986) if the

amount of proceeds of such instruments, and the maturities of

such instruments, do not exceed the amount or maturities

specified in the last reorganization plan filed in such case on

or before July 10, 1989."

Section 7210(b) of Pub. L. 101-239 provided that:

"(1) In general. - The amendment made by this section [amending

this section] shall apply to interest paid or accrued in taxable

years beginning after July 10, 1989.

"(2) Special rule for demand loans, etc. - In the case of any

demand loan (or other loan without a fixed term) which was

outstanding on July 10, 1989, interest on such loan to the extent

attributable to periods before September 1, 1989, shall not be

treated as disqualified interest for purposes of section 163(j) of

the Internal Revenue Code of 1986 (as added by subsection (a))."

 

EFFECTIVE DATE OF 1988 AMENDMENT

Section 1005(c)(13) of Pub. L. 100-647 provided that: "For

purposes of applying the amendments made by this subsection

[amending this section and sections 467, 1255, and 7872 of this

title] and the amendments made by section 10102 of the Revenue Act

of 1987 [section 10102 of Pub. L. 100-203, amending this section],

the provisions of this subsection shall be treated as having been

enacted immediately before the enactment of the Revenue Act of

1987."

Amendment by sections 1006(u)(1) and 1009(b)(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 2004(b)(1) of Pub. L. 100-647 effective,

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

the Revenue Act of 1987, Pub. L. 100-203, title X, to which such

amendment relates, see section 2004(u) of Pub. L. 100-647, set out

as a note under section 56 of this title.

 

EFFECTIVE DATE OF 1987 AMENDMENT

Section 10102(c) of Pub. L. 100-203 provided that: "The

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

to taxable years beginning after December 31, 1987."

Amendment by section 10212(b) of Pub. L. 100-203 effective as if

included in the amendments made by section 501 of the Tax Reform

Act of 1986, Pub. L. 99-514, see section 10212(c) of Pub. L. 100-

203, set out as a note under section 58 of this title.

 

EFFECTIVE DATE OF 1986 AMENDMENT

Section 511(e) of Pub. L. 99-514 provided that: "The amendments

made by this section [amending this section and sections 467, 703,

1255, 1363, and 7872 of this title] shall apply to taxable years

beginning after December 31, 1986."

Amendment by section 902(e)(1) of Pub. L. 99-514 applicable to

taxable years ending after Dec. 31, 1986, with certain exceptions

and qualifications, see section 902(f) of Pub. L. 99-514, set out

as a note under section 265 of this title.

Amendment by section 1301(j)(3) 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.

Amendment by sections 1803(a)(4) and 1810(e)(1) of Pub. L. 99-514

effective, except as otherwise provided, as if included in the

provisions of the Tax Reform Act of 1984, Pub. L. 98-369, div. A,

to which such amendment relates, see section 1881 of Pub. L. 99-

514, set out as a note under section 48 of this title.

 

EFFECTIVE DATE OF 1984 AMENDMENT

Amendment by section 42(a)(3) of Pub. L. 98-369 applicable to

taxable years ending after July 18, 1984, see section 44 of Pub. L.

98-369, set out as an Effective Date note under section 1271 of

this title.

Section 56(d) of Pub. L. 98-369 provided that: "The amendments

made by this section [amending this section and sections 263 and

265 of this title] shall apply to short sales after the date of

enactment of this Act [July 18, 1984] in taxable years ending after

such date."

Amendment by section 127(f) of Pub. L. 98-369 applicable to

interest received after July 18, 1984, with respect to obligations

issued after such date, in taxable years ending after such date,

see section 127(g)(1) of Pub. L. 98-369, set out as a note under

section 871 of this title.

Amendment by section 128(c) of Pub. L. 98-369 applicable to

obligations issued after June 9, 1984, see section 128(d)(2) of

Pub. L. 98-369, set out as a note under section 871 of this title.

Amendment by section 612(c) of Pub. L. 98-369 applicable to

interest paid or accrued after Dec. 31, 1984, on indebtedness

incurred after Dec. 31, 1984, see section 612(g) of Pub. L. 98-369,

set out as an Effective Date note under section 25 of this title.

 

EFFECTIVE DATE OF 1982 AMENDMENTS

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.

Amendment by Pub. L. 97-248 applicable to obligations issued

after Dec. 31, 1982, with exceptions for certain warrants, see

section 310(d) of Pub. L. 97-248, set out as a note under section

103 of this title.

 

EFFECTIVE DATE OF 1976 AMENDMENT

Amendment by section 205(c)(3) of Pub. L. 94-455 applicable with

respect to taxable years ending after Dec. 31, 1975, see section

205(e) of Pub. L. 94-455, set out as an Effective Date note under

section 1254 of this title.

Section 209(b) of Pub. L. 94-455, as amended by 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 subsection (a) [amending this section] shall

apply to taxable years beginning after December 31, 1975.

"(2) Indebtedness incurred before september 11, 1975. - In the

case of indebtedness attributable to a specific item of property

which -

"(A) is for a specified term, and

"(B) was incurred before September 11, 1975, or is incurred

after September 10, 1975, pursuant to a written contract or

commitment which on September 11, 1975, and at all times

thereafter before the incurring of such indebtedness, is binding

on the taxpayer,

the amendments made by this section shall not apply, but section

163(d) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]

(as in effect before the enactment of this Act [Oct. 4, 1976])

shall apply. For purposes of the preceding sentence, so much of the

net investment income (as defined in section 163(d)(3)(A) of such

Code) for any taxable year as is not taken into account under

section 163(d) of such Code, as amended by this Act, by reason of

the last sentence of section 163(d)(3)(A) of such Code, shall be

taken into account for purposes of applying such section as in

effect before the date of enactment of this Act [Oct. 4, 1976] with

respect to interest on indebtedness referred to in the preceding

sentence."

Amendment by section 1901(b)(8)(C), (3)(K) 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 1971 AMENDMENT

Section 304(e) of Pub. L. 92-178 provided that: "The amendments

made by this section to section 57 of the Internal Revenue Code of

1954 shall apply to taxable years beginning after December 31,

1969. The amendments made by this section to section 163 of such

Code shall apply to taxable years beginning after December 31,

1971."

 

EFFECTIVE DATE OF 1969 AMENDMENT

Section 221(b) of Pub. L. 91-172 provided that: "The amendments

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

years beginning after December 31, 1971."

 

EFFECTIVE DATE OF 1964 AMENDMENT

Section 224(d) of Pub. L. 88-272 provided that: "The amendments

made by subsections (a) [enacting section 483 of this title] and

(b) [amending the analysis preceding section 481 of this title]

shall apply to payments made after December 31, 1963, on account of

sales or exchanges of property occurring after June 30, 1963, other

than any sale or exchange made pursuant to a binding written

contract (including an irrevocable written option) entered into

before July 1, 1963. The amendments made by subsection (c)

[amending this section] shall apply to payments made during taxable

years beginning after December 31, 1963."

 

EFFECTIVE DATE OF 1963 AMENDMENT

Subsec. (c) effective as of Jan. 1, 1962, and applicable with

respect to taxable years ending on or after such date, see section

2 of Pub. L. 88-9, set out as an Effective Date note under section

1055 of this title.

 

APPLICATION OF SUBSECTION (H) TO TAXABLE YEARS BEGINNING IN 1987

Section 1005(c)(14) of Pub. L. 100-647 provided that:

"(A) For purposes of applying section 163(h) of the 1986 Code to

any taxable year beginning during 1987, if, incident to a divorce

or legal separation -

"(i) an individual acquires the interest of a spouse or former

spouse in a qualified residence in a transfer to which section

1041 of the 1986 Code applies, and

"(ii) such individual incurs indebtedness which is secured by

such qualified residence,

the amount determined under paragraph (3)(B)(ii)(I) of section

163(h) of the 1986 Code (as in effect before the amendments made by

the Revenue Act of 1987 [Pub. L. 100-203, title X]) with respect to

such qualified residence shall be increased by the amount

determined under subparagraph (B).

"(B) The amount determined under this subparagraph shall be equal

to the excess (if any) of -

"(i) the lesser of the amount of the indebtedness described in

subparagraph (A)(ii), or the fair market value of the spouse's or

former spouse's interest in the qualified residence as of the

time of the transfer, over

"(ii) the basis of the spouse or former spouse in such interest

in such residence (adjusted only by the cost of any improvements

to such residence)."

 

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 RULE FOR TREATMENT OF CERTAIN INCOME FROM S

CORPORATIONS

Section 1066 of Pub. L. 98-369, as amended by Pub. L. 99-514,

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

"(a) In General. - If -

"(1) a corporation had an election in effect under subchapter S

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

the taxable years of such corporation beginning in 1982, 1983,

and 1984, and

"(2) a shareholder of such corporation makes an election to

have this section apply,

then any qualified income which such shareholder takes into account

by reason of holding stock in such corporation for any taxable year

of such corporation beginning in 1983 or 1984 shall be treated for

purposes of section 163(d) of the Internal Revenue Code of 1986 as

such income would have been treated but for the enactment of the

Subchapter S Revision Act of 1982 [Pub. L. 97-354, see Tables for

classification].

"(b) Qualified Income. - For purposes of subsection (a), the term

'qualified income' means any income other than income which is

attributable to personal services performed by the shareholder for

the corporation.

"(c) Election. - The election under subsection (a)(2) shall be

made at such time and in such manner as the Secretary of the

Treasury or his delegate may by regulations prescribe."

 

TRANSITIONAL RULE

For provision that, for purposes of amendments by section 231(b)

of Pub. L. 97-248, any evidence of indebtedness issued pursuant to

a written commitment which was binding on July 1, 1982, and at all

times thereafter be treated as issued on July 1, 1982, see section

231(e) of Pub. L. 97-248, set out as a note under section 1232A of

this title.

 

-FOOTNOTE-

(!1) So in original. Probably should be followed by "in".

 

(!2) See References in Text note below.

 

 

-End-