Amended 1976
- 1976 Pub. L. 94-455 Pub. L. 94–455 substituted “sale of depreciable property between certain related taxpayers” for “sale of certain property between spouses or between an individual and a controlled corporation” in section catchline.
Cases: Mitchell v. Commissioner, 300 F.2d 533 (4th Cir. 1962); Trotz v. Commissioner, 361 F.2d 927 (10th Cir. 1966); Chu v. Commissioner, 486 F.2d 696 (1st Cir. 1973)
(a) Treatment of gain as ordinary income In the case of a sale or exchange of property, directly or indirectly, between related persons, any gain recognized to the transferor shall be treated as ordinary income if such property is, in the hands of the transferee, of a character which is subject to the allowance for depreciation provided in section 167.
Amended 1976, 1978
- 1978 Pub. L. 95-600 Pub. L. 95–600 substituted “of a character which is subject to the allowance for depreciation provided in section 167” for “subject to the allowance for depreciation provided in section 167”.
- 1976 Pub. L. 94-455 Pub. L. 94–455 substituted provisions for transactions between related persons for such transactions (1) between a husband and wife; or (2) between an individual and a corporation more than 80 percent in value of the outstanding stock of which is owned by such individual, his spouse, and his minor children and minor grandchildren and “any gain recognized to the transferee shall be treated as ordinary income if such property is, in the hands of the transferee, subject to the allowance for depreciation provided in section 167” for “any gain recognized to the transferor from the sale or exchange of such property shall be considered as gain from the sale or exchange of property which is neither a capital asset nor property described in section 1231”.
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(b) Related persons For purposes of subsection (a), the term “related persons” means—
Amended 1976, 1983, 1984
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 421(b)(6), redesignated pars. (2) and (3) as (1) and (2), respectively. Former par. (1), defining a husband and wife as “related persons”, was struck out.
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 175(b), amended subsec. (b) generally, adding par. (3).
- 1983 Pub. L. 97-448 Pub. L. 97–448, § 301(a), substituted provisions that “related persons” means (1) a husband and wife, and (2) a person and all entities which are 80-percent owned entities with respect to such person, for provisions which provided that “related persons” meant (1) the taxpayer and the taxpayer’s spouse, (2) the taxpayer and an 80-percent owned entity, or (3) two 80-percent owned entities.
- 1976 Pub. L. 94-455 Pub. L. 94–455 substituted definition of “related persons” for prior provision making section applicable only to sales or exchanges of depreciable property.
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(1) a person and all entities which are controlled entities with respect to such person,
Amended 1980, 1986
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 642(a)(1)(A), substituted “controlled entities” for “80-percent owned entities”.
- 1980 Pub. L. 96-471 Pub. L. 96–471 substituted “the taxpayer and the taxpayer’s spouse” for “a husband and wife”.
(2) a taxpayer and any trust in which such taxpayer (or his spouse) is a beneficiary, unless such beneficiary’s interest in the trust is a remote contingent interest (within the meaning of section 318(a)(3)(B)(i)), and
Amended 1980
- 1980 Pub. L. 96-471 Pub. L. 96–471 substituted “the taxpayer and an 80-percent owned entity, or” for “an individual and a corporation 80 percent or more in value of the outstanding stock of which is owned, directly or indirectly, by or for such individual, or”.
(3) except in the case of a sale or exchange in satisfaction of a pecuniary bequest, an executor of an estate and a beneficiary of such estate.
Amended 1980, 1997
- 1997 Pub. L. 105-34 Pub. L. 105–34 added par. (3).
- 1980 Pub. L. 96-471 Pub. L. 96–471 substituted “two 80-percent owned entities” for “two or more corporations 80 percent or more in value of the outstanding stock of each of which is owned, directly or indirectly, by or for the same individual”.
(c) Controlled entity defined
Amended 1958, 1976, 1980, 1986
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 642(a)(1)(B), (C), in heading, substituted “Controlled entity” for “80-percent owned entity”, in par. (1), in introductory provisions, substituted “controlled entity” for “80-percent owned entity”, in subpar. (A), substituted “more than 50 percent of the value” for “80 percent or more in value”, in subpar. (B), substituted “more than 50 percent” for “80 percent or more”, and added subpar. (C), and amended par. (2) generally. Prior to amendment, par. (2) read as follows: “For purposes of subparagraphs (A) and (B) of paragraph (1), the principles of section 318 shall apply, except that—
“(A) the members of an individual’s family shall consist only of such individual and such individual’s spouse,
“(B) paragraph (2)(C) of section 318(a) shall be applied without regard to the 50-percent limitation contained therein, and
“(C) paragraph (3) of section 318(a) shall not apply.”
- 1980 Pub. L. 96-471 Pub. L. 96–471 substituted provisions defining an “80-percent owned entity” for provisions relating to constructive ownership of stock.
- 1976 Pub. L. 94-455 Pub. L. 94–455 substituted provision respecting constructive ownership of stock for prior provision making section inapplicable with respect to sales or exchanges made on or before May 3, 1951.
- 1958 Pub. L. 85-866 Pub. L. 85–866 added subsec. (c).
(1) General rule For purposes of this section, the term “controlled entity” means, with respect to any person—
Amended 1983
- 1983 Pub. L. 97-448 Pub. L. 97–448, § 301(b), inserted “, with respect to any person” after “means” in introductory provisions and substituted “such person” for “the taxpayer” in subpars. (A) and (B).
(A) a corporation more than 50 percent of the value of the outstanding stock of which is owned (directly or indirectly) by or for such person,
(B) a partnership more than 50 percent of the capital interest or profits interest in which is owned (directly or indirectly) by or for such person, and
(C) any entity which is a related person to such person under paragraph (3), (10), (11), or (12) of section 267(b).
(2) Constructive ownership For purposes of this section, ownership shall be determined in accordance with rules similar to the rules under section 267(c) (other than paragraph (3) thereof).
Amended 1983
- 1983 Pub. L. 97-448 Pub. L. 97–448, § 301(b), struck out “and” at end of subpar. (A), substituted “paragraph (2)(C)” for “paragraphs (2)(C) and (3)(C)” in subpar. (B), and added subpar. (C).
(d) Employer and related employee association For purposes of subsection (a), the term “related person” also includes—
Amended 1984
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 557(a), added subsec. (d).
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(1) an employer and any person related to the employer (within the meaning of subsection (b)), and
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(2) a welfare benefit fund (within the meaning of section 419(e)) which is controlled directly or indirectly by persons referred to in paragraph (1).
(e) Patent applications treated as depreciable property For purposes of this section, a patent application shall be treated as property which, in the hands of the transferee, is of a character which is subject to the allowance for depreciation provided in section 167.
Amended 1984
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 175(a), added subsec. (e).