# 26 U.S.C. § 38: General business credit

Source: OLRC release point 119-134 <https://uscode.house.gov/us/usc/119-134/t26/s38>. Cite pinpoints as 26 U.S.C. § 38(a)(1).

## § 38(a) Allowance of credit

There shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the sum of—

**§ 38(a)(1)** the business credit carryforwards carried to such taxable year,

**§ 38(a)(2)** the amount of the current year business credit, plus

**§ 38(a)(3)** the business credit carrybacks carried to such taxable year.

## § 38(b) Current year business credit

For purposes of this subpart, the amount of the current year business credit is the sum of the following credits determined for the taxable year:

**§ 38(b)(1)** the investment credit determined under section 46,

**§ 38(b)(2)** the work opportunity credit determined under section 51(a),

**§ 38(b)(3)** the alcohol fuels credit determined under section 40(a),

**§ 38(b)(4)** the research credit determined under section 41(a),

**§ 38(b)(5)** the low-income housing credit determined under section 42(a),

**§ 38(b)(6)** the enhanced oil recovery credit under section 43(a),

**§ 38(b)(7)** in the case of an eligible small business (as defined in section 44(b)), the disabled access credit determined under section 44(a),

**§ 38(b)(8)** the renewable electricity production credit under section 45(a),

**§ 38(b)(9)** the empowerment zone employment credit determined under section 1396(a),

**§ 38(b)(10)** the Indian employment credit as determined under section 45A(a),

**§ 38(b)(11)** the employer social security credit determined under section 45B(a),

**§ 38(b)(12)** the orphan drug credit determined under section 45C(a),

**§ 38(b)(13)** the new markets tax credit determined under section 45D(a),

**§ 38(b)(14)** in the case of an eligible employer (as defined in section 45E(c)), the small employer pension plan startup cost credit determined under section 45E(a),

**§ 38(b)(15)** the employer-provided child care credit determined under section 45F(a),

**§ 38(b)(16)** the railroad track maintenance credit determined under section 45G(a),

**§ 38(b)(17)** the biodiesel fuels credit determined under section 40A(a),

**§ 38(b)(18)** the low sulfur diesel fuel production credit determined under section 45H(a),

**§ 38(b)(19)** the marginal oil and gas well production credit determined under section 45I(a),

**§ 38(b)(20)** the distilled spirits credit determined under section 5011(a),

**§ 38(b)(21)** the advanced nuclear power facility production credit determined under section 45J(a),

**§ 38(b)(22)** the nonconventional source production credit determined under section 45K(a),

**§ 38(b)(23)** the new energy efficient home credit determined under section 45L(a),

**§ 38(b)(24)** the portion of the alternative motor vehicle credit to which section 30B(g)(1) applies,

**§ 38(b)(25)** the portion of the alternative fuel vehicle refueling property credit to which section 30C(d)(1) applies,

**§ 38(b)(26)** the mine rescue team training credit determined under section 45N(a),

**§ 38(b)(27)** in the case of an eligible agricultural business (as defined in section 45O(e)), the agricultural chemicals security credit determined under section 45O(a),

**§ 38(b)(28)** the differential wage payment credit determined under section 45P(a),

**§ 38(b)(29)** the carbon dioxide sequestration credit determined under section 45Q(a),

**§ 38(b)(30)** the portion of the new clean vehicle credit to which section 30D(c)(1) applies,

**§ 38(b)(31)** the small employer health insurance credit determined under section 45R,

**§ 38(b)(32)** in the case of an eligible employer (as defined in section 45S(c)), the paid family and medical leave credit determined under section 45S(a),

**§ 38(b)(33)** in the case of an eligible employer (as defined in section 45T(c)), the retirement auto-enrollment credit determined under section 45T(a), plus

**§ 38(b)(34)** the zero-emission nuclear power production credit determined under section 45U(a).

**§ 38(b)(35)** the sustainable aviation fuel credit determined under section 40B,

**§ 38(b)(36)** the clean hydrogen production credit determined under section 45V(a),

**§ 38(b)(37)** the qualified commercial clean vehicle credit determined under section 45W,

**§ 38(b)(38)** the advanced manufacturing production credit determined under section 45X(a),

**§ 38(b)(39)** the clean electricity production credit determined under section 45Y(a),

**§ 38(b)(40)** the clean fuel production credit determined under section 45Z(a), plus

**§ 38(b)(41)** in the case of an eligible small employer (as defined in section 45AA(c)), the military spouse retirement plan eligibility credit determined under section 45AA(a).

## § 38(c) Limitation based on amount of tax

**§ 38(c)(1) In general.** The credit allowed under subsection (a) for any taxable year shall not exceed the excess (if any) of the taxpayer’s net income tax over the greater of—

**§ 38(c)(1)(A)** the tentative minimum tax for the taxable year, or

**§ 38(c)(1)(B)** 25 percent of so much of the taxpayer’s net regular tax liability as exceeds $25,000.

For purposes of the preceding sentence, the term “net income tax” means the sum of the regular tax liability and the tax imposed by section 55, reduced by the credits allowable under subparts A and B of this part, and the term “net regular tax liability” means the regular tax liability reduced by the sum of the credits allowable under subparts A and B of this part.

**§ 38(c)(2) Empowerment zone employment credit may offset 25 percent of minimum tax.**

**§ 38(c)(2)(A) In general.** In the case of the empowerment zone employment credit—

**§ 38(c)(2)(A)(i)** this section and section 39 shall be applied separately with respect to such credit, and

**§ 38(c)(2)(A)(ii)** for purposes of applying paragraph (1) to such credit—

**§ 38(c)(2)(A)(ii)(I)** 75 percent of the tentative minimum tax shall be substituted for the tentative minimum tax under subparagraph (A) thereof, and

**§ 38(c)(2)(A)(ii)(II)** the limitation under paragraph (1) (as modified by subclause (I)) shall be reduced by the credit allowed under subsection (a) for the taxable year (other than the empowerment zone employment credit and the specified credits).

**§ 38(c)(2)(B) Empowerment zone employment credit.** For purposes of this paragraph, the term “empowerment zone employment credit” means the portion of the credit under subsection (a) which is attributable to the credit determined under section 1396 (relating to empowerment zone employment credit).

**§ 38(c)(3) Repealed. Pub. L. 115–141, div. U, title IV, § 401(d)(6)(B)(iii), Mar. 23, 2018, 132 Stat. 1211].**

**§ 38(c)(4) Special rules for specified credits.**

**§ 38(c)(4)(A) In general.** In the case of specified credits—

**§ 38(c)(4)(A)(i)** this section and section 39 shall be applied separately with respect to such credits, and

**§ 38(c)(4)(A)(ii)** in applying paragraph (1) to such credits—

**§ 38(c)(4)(A)(ii)(I)** the tentative minimum tax shall be treated as being zero, and

**§ 38(c)(4)(A)(ii)(II)** the limitation under paragraph (1) (as modified by subclause (I)) shall be reduced by the credit allowed under subsection (a) for the taxable year (other than the specified credits).

**§ 38(c)(4)(B) Specified credits.** For purposes of this subsection, the term “specified credits” means—

**§ 38(c)(4)(B)(i)** for taxable years beginning after December 31, 2004, the credit determined under section 40,

**§ 38(c)(4)(B)(ii)** the credit determined under section 41 for the taxable year with respect to an eligible small business (as defined in paragraph (5)(A) after application of the rules of paragraph (5)(B)),

**§ 38(c)(4)(B)(iii)** the credit determined under section 42 to the extent attributable to buildings placed in service after December 31, 2007,

**§ 38(c)(4)(B)(iv)** the credit determined under section 45 to the extent that such credit is attributable to electricity or refined coal produced—

**§ 38(c)(4)(B)(iv)(I)** at a facility which is originally placed in service after the date of the enactment of this paragraph, and

**§ 38(c)(4)(B)(iv)(II)** during the 4-year period beginning on the date that such facility was originally placed in service,

**§ 38(c)(4)(B)(v)** the credit determined under section 45 to the extent that such credit is attributable to section 45(e)(10) (relating to Indian coal production facilities),

**§ 38(c)(4)(B)(vi)** the credit determined under section 45B,

**§ 38(c)(4)(B)(vii)** the credit determined under section 45G,

**§ 38(c)(4)(B)(viii)** the credit determined under section 45R,

**§ 38(c)(4)(B)(ix)** the credit determined under section 45S,

**§ 38(c)(4)(B)(x)** the credit determined under section 46 to the extent that such credit is attributable to the energy credit determined under section 48,

**§ 38(c)(4)(B)(xi)** the credit determined under section 46 to the extent that such credit is attributable to the rehabilitation credit under section 47, but only with respect to qualified rehabilitation expenditures properly taken into account for periods after December 31, 2007, and

**§ 38(c)(4)(B)(xii)** the credit determined under section 51.

**§ 38(c)(5) Rules related to eligible small businesses.**

**§ 38(c)(5)(A) Eligible small business.** For purposes of this subsection, the term “eligible small business” means, with respect to any taxable year—

**§ 38(c)(5)(A)(i)** a corporation the stock of which is not publicly traded,

**§ 38(c)(5)(A)(ii)** a partnership, or

**§ 38(c)(5)(A)(iii)** a sole proprietorship,

if the average annual gross receipts of such corporation, partnership, or sole proprietorship for the 3-taxable-year period preceding such taxable year does not exceed $50,000,000. For purposes of applying the test under the preceding sentence, rules similar to the rules of paragraphs (2) and (3) of section 448(c) shall apply.

**§ 38(c)(5)(B) Treatment of partners and S corporation shareholders.** For purposes of paragraph (4)(B)(ii), any credit determined under section 41 with respect to a partnership or S corporation shall not be treated as a specified credit by any partner or shareholder unless such partner or shareholder meets the gross receipts test under subparagraph (A) for the taxable year in which such credit is treated as a current year business credit.

**§ 38(c)(6) Special rules.**

**§ 38(c)(6)(A) Married individuals.** In the case of a husband or wife who files a separate return, the amount specified under subparagraph (B) of paragraph (1) shall be $12,500 in lieu of $25,000. This subparagraph shall not apply if the spouse of the taxpayer has no business credit carryforward or carryback to, and has no current year business credit for, the taxable year of such spouse which ends within or with the taxpayer’s taxable year.

**§ 38(c)(6)(B) Controlled groups.** In the case of a controlled group, the $25,000 amount specified under subparagraph (B) of paragraph (1) shall be reduced for each component member of such group by apportioning $25,000 among the component members of such group in such manner as the Secretary shall by regulations prescribe. For purposes of the preceding sentence, the term “controlled group” has the meaning given to such term by section 1563(a).

**§ 38(c)(6)(C) Limitations with respect to certain persons.** In the case of a person described in subparagraph (A) or (B) of section 46(e)(1) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990), the $25,000 amount specified under subparagraph (B) of paragraph (1) shall equal such person’s ratable share (as determined under section 46(e)(2) (as so in effect) of such amount.

**§ 38(c)(6)(D) Estates and trusts.** In the case of an estate or trust, the $25,000 amount specified under subparagraph (B) of paragraph (1) shall be reduced to an amount which bears the same ratio to $25,000 as the portion of the income of the estate or trust which is not allocated to beneficiaries bears to the total income of the estate or trust.

**§ 38(c)(6)(E) Corporations.** In the case of a corporation—

**§ 38(c)(6)(E)(i)** the first sentence of paragraph (1) shall be applied by substituting “25 percent of the taxpayer’s net income tax as exceeds $25,000” for “the greater of” and all that follows,

**§ 38(c)(6)(E)(ii)** paragraph (2)(A) shall be applied without regard to clause (ii)(I) thereof, and

**§ 38(c)(6)(E)(iii)** paragraph (4)(A) shall be applied without regard to clause (ii)(I) thereof.

## § 38(d) Ordering rules

For purposes of any provision of this title where it is necessary to ascertain the extent to which the credits determined under any section referred to in subsection (b) are used in a taxable year or as a carryback or carryforward—

**§ 38(d)(1) In general.** The order in which such credits are used shall be determined on the basis of the order in which they are listed in subsection (b) as of the close of the taxable year in which the credit is used.

**§ 38(d)(2) Components of investment credit.** The order in which the credits listed in section 46 are used shall be determined on the basis of the order in which such credits are listed in section 46 as of the close of the taxable year in which the credit is used.

## Regulations

- [Treas. Reg. § 1.38-1](/26/reg/1.38-1.md): Investment in certain depreciable property. (interprets § 38)

## Leading cases

- [World Airways, Inc. v. Commissioner, 564 F.2d 886 (9th Cir. 1977)](https://www.courtlistener.com/opinion/350156/world-airways-inc-and-world-air-center-inc-v-commissioner-of-internal/)
- [Hokanson v. Commissioner, 730 F.2d 1245 (9th Cir. 1984)](https://www.courtlistener.com/opinion/433466/ragnar-v-hokanson-and-marilyn-l-hokanson-v-commissioner-of-internal/)

## Connections

Cites: § 30B Alternative motor vehicle credit; § 30C Alternative fuel vehicle refueling property credit; § 30D Clean vehicle credit; § 39 Carryback and carryforward of unused credits; § 40 Alcohol, etc., used as fuel; § 40A Biodiesel and renewable diesel used as fuel; § 40B Sustainable aviation fuel credit; § 41 Credit for increasing research activities; § 42 Low-income housing credit; § 43 Enhanced oil recovery credit; § 44 Expenditures to provide access to disabled individuals; § 45 Electricity produced from certain renewable resources, etc.; § 45A Indian employment credit; § 45B Credit for portion of employer social security taxes paid with respect to employee cash tips; § 45C Clinical testing expenses for certain drugs for rare diseases or conditions; § 45D New markets tax credit; § 45E Small employer pension plan startup costs; § 45F Employer-provided child care credit; § 45G Railroad track maintenance credit; § 45H Credit for production of low sulfur diesel fuel; § 45I Credit for producing oil and gas from marginal wells; § 45J Credit for production from advanced nuclear power facilities; § 45K Credit for producing fuel from a nonconventional source; § 45L New energy efficient home credit; § 45N Mine rescue team training credit; § 45O Agricultural chemicals security credit; § 45P Employer wage credit for employees who are active duty members of the uniformed services; § 45Q Credit for carbon oxide sequestration; § 45R Employee health insurance expenses of small employers; § 45S Employer credit for paid family and medical leave; § 45T Auto-enrollment option for retirement savings options provided by small employers; § 45U Zero-emission nuclear power production credit; § 45V Credit for production of clean hydrogen; § 45W Credit for qualified commercial clean vehicles; § 45X Advanced manufacturing production credit; § 45Y Clean electricity production credit; § 45Z Clean fuel production credit; § 46 Amount of credit; § 47 Rehabilitation credit; § 48 Energy credit; § 51 Amount of credit; § 55 Alternative minimum tax imposed; § 448 Limitation on use of cash method of accounting; § 1396 Empowerment zone employment credit; § 1563 Definitions and special rules; § 5011 Income tax credit for average cost of carrying excise tax

Cited by: § 30B Alternative motor vehicle credit; § 30C Alternative fuel vehicle refueling property credit; § 30D Clean vehicle credit; § 39 Carryback and carryforward of unused credits; § 40 Alcohol, etc., used as fuel; § 40A Biodiesel and renewable diesel used as fuel; § 40B Sustainable aviation fuel credit; § 41 Credit for increasing research activities; § 42 Low-income housing credit; § 43 Enhanced oil recovery credit; § 44 Expenditures to provide access to disabled individuals; § 45 Electricity produced from certain renewable resources, etc.; § 45A Indian employment credit; § 45AA Military spouse retirement plan eligibility credit for small employers; § 45B Credit for portion of employer social security taxes paid with respect to employee cash tips; § 45C Clinical testing expenses for certain drugs for rare diseases or conditions; § 45D New markets tax credit; § 45E Small employer pension plan startup costs; § 45F Employer-provided child care credit; § 45G Railroad track maintenance credit; § 45H Credit for production of low sulfur diesel fuel; § 45I Credit for producing oil and gas from marginal wells; § 45J Credit for production from advanced nuclear power facilities; § 45K Credit for producing fuel from a nonconventional source; § 45L New energy efficient home credit; § 45N Mine rescue team training credit; § 45O Agricultural chemicals security credit; § 45P Employer wage credit for employees who are active duty members of the uniformed services; § 45Q Credit for carbon oxide sequestration; § 45R Employee health insurance expenses of small employers; § 45S Employer credit for paid family and medical leave; § 45T Auto-enrollment option for retirement savings options provided by small employers; § 45U Zero-emission nuclear power production credit; § 45V Credit for production of clean hydrogen; § 45W Credit for qualified commercial clean vehicles; § 45X Advanced manufacturing production credit; § 45Y Clean electricity production credit; § 45Z Clean fuel production credit; § 46 Amount of credit; § 48 Energy credit; § 48D Advanced manufacturing investment credit; § 48E Clean electricity investment credit; § 49 At-risk rules; § 50 Other special rules; § 51 Amount of credit; § 52 Special rules; § 59A Tax on base erosion payments of taxpayers with substantial gross receipts; § 108 Income from discharge of indebtedness; § 179 Election to expense certain depreciable business assets; § 196 Deduction for certain unused business credits; § 280C Certain expenses for which credits are allowable; § 381 Carryovers in certain corporate acquisitions; § 877 Expatriation to avoid tax; § 1016 Adjustments to basis; § 1274A Special rules for certain transactions where stated principal amount does not exceed $2,800,000; § 1351 Treatment of recoveries of foreign expropriation losses; § 1396 Empowerment zone employment credit; § 3111 Rate of tax; § 4612 Definitions and special rules; § 5011 Income tax credit for average cost of carrying excise tax; § 6417 Elective payment of applicable credits; § 6418 Transfer of certain credits

## Prior provisions

- A prior section 38, added Pub. L. 87–834, § 2(a), Oct. 16, 1962, 76 Stat. 962; amended Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834, related to investment in certain depreciable property, prior to repeal by Pub. L. 98–369, div. A, title IV, § 474(m)(1), July 18, 1984, 98 Stat. 833.
- Another prior section 38 was renumbered section 37 of this title.

## Amendments

- 1984-07-18: [Pub. L. 98-369](/26/act/98-369.md), 98 Stat. 827
- 1986-10-22: [Pub. L. 99-514](/26/act/99-514.md), 100 Stat. 2173
- 1988-11-10: [Pub. L. 100-647](/26/act/100-647.md), 102 Stat. 3368
- 1990-11-05: [Pub. L. 101-508](/26/act/101-508.md), 104 Stat. 1388
- 1992-10-24: [Pub. L. 102-486](/26/act/102-486.md), 106 Stat. 3023
- 1993-08-10: [Pub. L. 103-66](/26/act/103-66.md), 107 Stat. 555
- 1996-08-20: [Pub. L. 104-188](/26/act/104-188.md), 110 Stat. 1772
- 2000-12-21: [Pub. L. 106-554](/26/act/106-554.md), 114 Stat. 2763
- 2001-06-07: [Pub. L. 107-16](/26/act/107-16.md), 115 Stat. 53
- 2002-03-09: [Pub. L. 107-147](/26/act/107-147.md), 116 Stat. 39
- 2004-10-22: [Pub. L. 108-357](/26/act/108-357.md), 118 Stat. 1448
- 2005-08-08: [Pub. L. 109-58](/26/act/109-58.md), 119 Stat. 999
- 2005-08-10: [Pub. L. 109-59](/26/act/109-59.md), 119 Stat. 1958
- 2005-12-21: [Pub. L. 109-135](/26/act/109-135.md), 119 Stat. 2595
- 2006-12-20: [Pub. L. 109-432](/26/act/109-432.md), 120 Stat. 2957
- 2007-05-25: [Pub. L. 110-28](/26/act/110-28.md), 121 Stat. 193
- 2007-12-29: [Pub. L. 110-172](/26/act/110-172.md), 121 Stat. 2485
- 2008-05-22: [Pub. L. 110-234](/26/act/110-234.md), 122 Stat. 1519
- 2008-06-17: [Pub. L. 110-245](/26/act/110-245.md), 122 Stat. 1635
- 2008-06-18: [Pub. L. 110-246](/26/act/110-246.md), 122 Stat. 1664
- 2008-07-30: [Pub. L. 110-289](/26/act/110-289.md), 122 Stat. 2894
- 2008-10-03: [Pub. L. 110-343](/26/act/110-343.md), 122 Stat. 3811
- 2009-02-17: [Pub. L. 111-5](/26/act/111-5.md), 123 Stat. 328
- 2010-03-23: [Pub. L. 111-148](/26/act/111-148.md), 124 Stat. 241
- 2010-09-27: [Pub. L. 111-240](/26/act/111-240.md), 124 Stat. 2555
- 2014-12-19: [Pub. L. 113-295](/26/act/113-295.md), 128 Stat. 4028
- 2015-12-18: [Pub. L. 114-113](/26/act/114-113.md), 129 Stat. 3049
- 2017-12-22: [Pub. L. 115-97](/26/act/115-97.md), 131 Stat. 2092
- 2018-03-23: [Pub. L. 115-141](/26/act/115-141.md), 132 Stat. 1184
- 2019-12-20: [Pub. L. 116-94](/26/act/116-94.md), 133 Stat. 3148
- 2022-08-16: [Pub. L. 117-169](/26/act/117-169.md), 136 Stat. 1828
- 2022-12-29: [Pub. L. 117-328](/26/act/117-328.md), 136 Stat. 5295