§ 291. Special rules relating to corporate preference items

§ 291. Special rules relating to corporate preference items

(a) Reduction in certain preference items, etc. For purposes of this subtitle, in the case of a corporation—

(1) Section 1250 capital gain treatment In the case of section 1250 property which is disposed of during the taxable year, 20 percent of the excess (if any) of—

shall be treated as gain which is ordinary income under section 1250 and shall be recognized notwithstanding any other provision of this title. Under regulations prescribed by the Secretary, the provisions of this paragraph shall not apply to the disposition of any property to the extent section 1250(a) does not apply to such disposition by reason of section 1250(d).

(A) the amount which would be treated as ordinary income if such property was section 1245 property, over

(B) the amount treated as ordinary income under section 1250 (determined without regard to this paragraph),

(2) Reduction in percentage depletion In the case of iron ore and coal (including lignite), the amount allowable as a deduction under section 613 with respect to any property (as defined in section 614) shall be reduced by 20 percent of the amount of the excess (if any) of—

(A) the amount of the deduction allowable under section 613 for the taxable year (determined without regard to this paragraph), over

(B) the adjusted basis of the property at the close of the taxable year (determined without regard to the depletion deduction for the taxable year).

(3) Certain financial institution preference items The amount allowable as a deduction under this chapter (determined without regard to this section) with respect to any financial institution preference item shall be reduced by 20 percent.

(4) Amortization of pollution control facilities If an election is made under section 169 with respect to any certified pollution control facility, the amortizable basis of such facility for purposes of such section shall be reduced by 20 percent.

(b) Special rules for treatment of intangible drilling costs and mineral exploration and development costs For purposes of this subtitle, in the case of a corporation—

(1) In general The amount allowable as a deduction for any taxable year (determined without regard to this section)—

shall be reduced by 30 percent.

(A) under section 263(c) in the case of an integrated oil company, or

(B) under section 616(a) or 617(a),

(2) Amortization of amounts not allowable as deductions under paragraph (1) The amount not allowable as a deduction under section 263(c), 616(a), or 617(a) (as the case may be) for any taxable year by reason of paragraph (1) shall be allowable as a deduction ratably over the 60-month period beginning with the month in which the costs are paid or incurred.

(3) Dispositions For purposes of section 1254, any deduction under paragraph (2) shall be treated as a deduction allowable under section 263(c), 616(a), or 617(a) (whichever is appropriate).

(4) Integrated oil company defined For purposes of this subsection, the term “integrated oil company” means, with respect to any taxable year, any producer of crude oil to whom subsection (c) of section 613A does not apply by reason of paragraph (2) or (4) of section 613A(d).

(5) Coordination with cost depletion The portion of the adjusted basis of any property which is attributable to amounts to which paragraph (1) applied shall not be taken into account for purposes of determining depletion under section 611.

(c) Special rules relating to pollution control facilities For purposes of this subtitle—

(1) Accelerated cost recovery deduction Section 168 shall apply with respect to that portion of the basis of any property not taken into account under section 169 by reason of subsection (a)(4).

(2) 1250 Recapture Subsection (a)(1) shall not apply to any section 1250 property which is part of a certified pollution control facility (within the meaning of section 169(d)(1)) with respect to which an election under section 169 was made.

(d) Special rule for real estate investment trusts In the case of a real estate investment trust (as defined in section 856), the difference between the amounts described in subparagraphs (A) and (B) of subsection (a)(1) shall be reduced to the extent that a capital gain dividend (as defined in section 857(b)(3)(C),11 See References in Text note below. applied without regard to this section) is treated as paid out of such difference. Any capital gain dividend treated as having been paid out of such difference to a shareholder which is an applicable corporation retains its character in the hands of the shareholder as gain from the disposition of section 1250 property for purposes of applying subsection (a)(1) to such shareholder.

(e) Definitions For purposes of this section—

(1) Financial institution preference item The term “financial institution preference item” includes the following:

[(A) Repealed. Pub. L. 101–508, title XI, § 11801(c)(12)(B), Nov. 5, 1990, 104 Stat. 1388–527]

(B) Interest on debt to carry tax-exempt obligations acquired after December 31, 1982, and before August 8, 1986

For application of this subparagraph to certain obligations issued after August 7, 1986, see section 265(b)(3). That portion of any obligation not taken into account under paragraph (2)(A) of section 265(b) by reason of paragraph (7) of such section shall be treated for purposes of this section as having been acquired on August 7, 1986.

(i) In general In the case of a financial institution which is a bank (as defined in section 585(a)(2)), the amount of interest on indebtedness incurred or continued to purchase or carry obligations acquired after December 31, 1982, and before August 8, 1986, the interest on which is exempt from taxes for the taxable year, to the extent that a deduction would (but for this paragraph or section 265(b)) be allowable with respect to such interest for such taxable year.

(ii) Determination of interest allocable to indebtedness on tax-exempt obligations Unless the taxpayer (under regulations prescribed by the Secretary) establishes otherwise, the amount determined under clause (i) shall be an amount which bears the same ratio to the aggregate amount allowable (determined without regard to this section and section 265(b)) to the taxpayer as a deduction for interest for the taxable year as—

(I) the taxpayer’s average adjusted basis (within the meaning of section 1016) of obligations described in clause (i), bears to

(II) such average adjusted basis for all assets of the taxpayer.

(iii) Interest For purposes of this subparagraph, the term “interest” includes amounts (whether or not designated as interest) paid in respect of deposits, investment certificates, or withdrawable or repurchasable shares.

(iv) Application of subparagraph to certain obligations issued after August 7, 1986

(2) Section 1245 and 1250 property The terms “section 1245 property” and “section 1250 property” have the meanings given such terms by sections 1245(a)(3) and 1250(c), respectively.

(Added Pub. L. 97–248, title II, § 204(a), Sept. 3, 1982, 96 Stat. 423; amended Pub. L. 97–354, § 5(a)(27), Oct. 19, 1982, 96 Stat. 1694; Pub. L. 97–448, title III, § 306(a)(2), Jan. 12, 1983, 96 Stat. 2400; Pub. L. 98–369, div. A, title I, § 68(a), (b), title VII, § 712(a)(1)(A), (2)–(4), July 18, 1984, 98 Stat. 588, 946; Pub. L. 99–514, title II, § 201(d)(5), title IV, §§ 411(a), (b)(2)(C)(ii), 412(b)(1), title IX, §§ 901(b)(4), (d)(4)(C), 902(c), title XVIII, §§ 1804(k)(1), (3)(A), 1854(c)(1), 1876(b)(1), Oct. 22, 1986, 100 Stat. 2140, 2225, 2227, 2378, 2380, 2382, 2809, 2878, 2898; Pub. L. 100–418, title I, § 1941(b)(5), Aug. 23, 1988, 102 Stat. 1324; Pub. L. 100–647, title I, § 1009(b)(4), (5), Nov. 10, 1988, 102 Stat. 3449; Pub. L. 101–508, title XI, § 11801(c)(12)(B), Nov. 5, 1990, 104 Stat. 1388–527; Pub. L. 104–188, title I, §§ 1602(b)(1), 1616(b)(5), Aug. 20, 1996, 110 Stat. 1833, 1856; Pub. L. 110–172, § 11(g)(6), Dec. 29, 2007, 121 Stat. 2490; Pub. L. 111–5, div. B, title I, § 1501(b), Feb. 17, 2009, 123 Stat. 353.)

Editorial Notes

References in Text

Section 857(b)(3)(C), referred to in subsec. (d), was redesignated section 857(b)(3)(B) by Pub. L. 115–97, title I, § 13001(b)(2)(K)(i), Dec. 22, 2017, 131 Stat. 2096.

Amendments

2009—Subsec. (e)(1)(B)(iv). Pub. L. 111–5 inserted at end “That portion of any obligation not taken into account under paragraph (2)(A) of section 265(b) by reason of paragraph (7) of such section shall be treated for purposes of this section as having been acquired on August 7, 1986.”

2007—Subsec. (a)(4), (5). Pub. L. 110–172, § 11(g)(6)(A), redesignated par. (5) as (4) and struck out former par. (4) which read as follows: “In the case of taxable years beginning after December 31, 1984, section 923(a) shall be applied with respect to any FSC by substituting—

“(A) ‘30 percent’ for ‘32 percent’ in paragraph (2), and

“(B) ‘^15⁄23’ for ‘^16⁄23’ in paragraph (3).

If all of the stock in the FSC is not held by 1 or more C corporations throughout the taxable year, under regulations, proper adjustments shall be made in the application of the preceding sentence to take into account stock held by persons other than C corporations.”

Subsec. (c)(1). Pub. L. 110–172, § 11(g)(6)(B), substituted “subsection (a)(4)” for “subsection (a)(5)”.

1996—Subsec. (e)(1)(B)(i). Pub. L. 104–188, § 1616(b)(5), struck out “or to which section 593 applies” after “585(a)(2))”.

Subsec. (e)(1)(B)(iv), (v). Pub. L. 104–188, § 1602(b)(1), redesignated cl. (v) as (iv) and struck out former cl. (iv) which read as follows: “Special rules for obligations to which section 133 applies.—In the case of an obligation to which section 133 applies, interest on such obligation shall not be treated as exempt from taxes for purposes of this subparagraph.”

1990—Subsec. (e)(1)(A). Pub. L. 101–508 struck out subpar. (A) “Excess reserves for losses on bad debts of financial institutions” which read as follows: “In the case of a financial institution to which section 585 applies, the excess of—

“(i) the amount which would, but for this section, be allowable as a deduction for the taxable year for a reasonable addition to a reserve for bad debts, over

“(ii) the amount which would have been allowable had such institution maintained its bad debt reserve for all taxable years on the basis of actual experience.”

1988—Subsec. (b)(4). Pub. L. 100–418 amended par. (4) generally. Prior to amendment, par. (4) read as follows: “For purposes of this subsection, the term ‘integrated oil company’ means, with respect to any taxable year, any producer (within the meaning of section 4996(a)(1)) of crude oil other than an independent producer (within the meaning of section 4992(b)).”

Subsec. (e)(1)(B)(i). Pub. L. 100–647, § 1009(b)(5), substituted “section 585(a)(2)” for “section 582(a)(2)”.

Subsec. (e)(1)(B)(iv), (v). Pub. L. 100–647, § 1009(b)(4), redesignated cl. (iv), relating to application of subparagraph to certain obligations issued after Aug. 7, 1986, as (v).

1986—Subsec. (a). Pub. L. 99–514, § 1804(k)(3)(A), substituted “Reduction” for “20-percent reduction” in heading.

Subsec. (a)(1)(A). Pub. L. 99–514, § 201(d)(5)(A), struck out “or section 1245 recovery property” after “section 1245 property”.

Subsec. (a)(2). Pub. L. 99–514, § 412(b)(1), substituted “20 percent” for “15 percent”.

Subsec. (a)(4). Pub. L. 99–514, § 1876(b)(1), substituted “Certain FSC income” for “Certain deferred FSC income” in heading and amended text generally. Prior to amendment, text read as follows: “If a C corporation is a shareholder of the FSC, in the case of taxable years beginning after December 31, 1984, section 923(a) shall be applied with respect to such corporation by substituting—

“(A) ‘30 percent’ for ‘32 percent’ in paragraph (2), and

“(B) ‘15/23’ for ‘16/23’ in paragraph (3).”

Pub. L. 99–514, § 1804(k)(1), substituted “If a C corporation” for “If a corporation”.

Subsec. (b)(1). Pub. L. 99–514, § 411(a)(1), (b)(2)(C)(ii), substituted “30 percent” for “20 percent” in closing provisions and “617(a)” for “617” in subpar. (B).

Subsec. (b)(2) to (6). Pub. L. 99–514, § 411(a)(2), added pars. (2) to (5) and struck out former pars. (2) to (6) as follows: former par. (2), special rule for amounts not allowable as deductions under paragraph (1), related in subpar. (A) to intangible drilling costs and in subpar. (B) to mineral exploration and development costs; former par. (3) defined applicable percentage in accordance with table for taxable years 1 to 5; former par. (4) dispositions, related in subpar. (A) to oil, gas, and geothermal property, in subpar. (B) to application of section 617(d) of this title, and in subpar. (C) to recapture of investment credit; former par. (5) defined integrated oil company; and former par. (6) related to coordination with cost depletion.

Subsec. (c)(1). Pub. L. 99–514, § 201(d)(5)(B), amended par. (1) generally. Prior to amendment, par. (1) read as follows: “For purposes of subclause (1) of section 168(d)(1)(A)(ii), a taxpayer shall not be treated as electing the amortization deduction under section 169 with respect to that portion of the basis not taken into account under section 169 by reason of subsection (a)(5).”

Subsec. (e)(1)(A). Pub. L. 99–514, § 901(b)(4), struck out “or 593” after “section 585”.

Subsec. (e)(1)(B). Pub. L. 99–514, § 902(c)(2)(C), substituted “1982, and before August 8, 1986” for “1982” in heading.

Subsec. (e)(1)(B)(i). Pub. L. 99–514, § 902(c)(1), (2)(A), substituted “1982, and before August 8, 1986” for “1982” and “(but for this paragraph or section 265(b))” for “(but for this paragraph)”.

Pub. L. 99–514, § 901(d)(4)(C), substituted “which is a bank (as defined in section 582(a)(2)) or to which section 593 applies” for “to which section 585 or 593 applies”.

Subsec. (e)(1)(B)(ii). Pub. L. 99–514, § 902(c)(2)(B), inserted “and section 265(b)”.

Subsec. (e)(1)(B)(iv). Pub. L. 99–514, § 1854(c)(1), added cl. (iv) relating to special rules for obligations to which section 133 applies.

Pub. L. 99–514, § 902(c)(2)(D), added cl. (iv) relating to application of subparagraph to certain obligations issued after August 7, 1986.

Subsec. (e)(2). Pub. L. 99–514, § 201(d)(5)(C), struck out “, ‘section 1245 recovery property’,” after “ ‘section 1245 property’ ” and directed that par. (2) be amended by striking out “, section 1245(a)(5),” which was executed by striking out “, 1245(a)(5),” after “sections 1245(a)(3)” to reflect the probable intent of Congress.

1984—Subsec. (a). Pub. L. 98–369, § 68(a), which directed that each subsection be amended by substituting “20 percent” for “15 percent” wherever appearing, was executed in heading by substituting “20-percent” for “15-percent” to reflect the probable intent of Congress.

Subsec. (a)(1). Pub. L. 98–369, § 68(a), substituted “20 percent” for “15 percent” in provisions preceding subpar. (A).

Pub. L. 98–369, § 712(a)(1)(A)(ii), inserted “under section 1250” in provisions following subpar. (B).

Subsec. (a)(1)(B). Pub. L. 98–369, § 712(a)(1)(A)(i), inserted “(determined without regard to this paragraph)”.

Subsec. (a)(3). Pub. L. 98–369, § 68(a), substituted “20 percent” for “15 percent”.

Subsec. (a)(4). Pub. L. 98–369, § 68(b), amended par. (4) generally. Prior to amendment, par. (4) read as follows:

“(4) Certain deferred disc income.—If a corporation is a shareholder of a DISC, in the case of taxable years beginning after December 31, 1982, section 995(b)(1)(F)(i) shall be applied with respect to such corporation by substituting ‘57.5 percent’ for ‘one-half’.”

Subsec. (a)(5). Pub. L. 98–369, § 68(a), substituted “20 percent” for “15 percent”.