Cases: United States v. Hill, 506 U.S. 546 (1993); Wyly v. United States, 662 F.2d 397 (5th Cir. 1981); Kolom v. Commissioner, 71 T.C. 235 (1978)
Final rules 1
(a) General rule For purposes of this part, the items of tax preference determined under this section are—
Amended 1993
- 1993 Pub. L. 103-66 Pub. L. 103–66, § 13171(a), redesignated par. (8) as (7).
- 1993 Pub. L. 103-66 Pub. L. 103–66, § 13113(b)(1), added par. (8).
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(1) Depletion With respect to each property (as defined in section 614), the excess of the deduction for depletion allowable under section 611 for the taxable year over the adjusted basis of the property at the end of the taxable year (determined without regard to the depletion deduction for the taxable year). This paragraph shall not apply to any deduction for depletion computed in accordance with section 613A(c).
Amended 1992, 2014
- 2014 Pub. L. 113-295 Pub. L. 113–295, § 221(a)(10), substituted “This paragraph” for “Effective with respect to taxable years beginning after December 31, 1992, this paragraph”.
- 1992 Pub. L. 102-486 Pub. L. 102–486, § 1915(a)(1), inserted at end “Effective with respect to taxable years beginning after December 31, 1992, this paragraph shall not apply to any deduction for depletion computed in accordance with section 613A(c).”
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(2) Intangible drilling costs
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(A) In general With respect to all oil, gas, and geothermal properties of the taxpayer, the amount (if any) by which the amount of the excess intangible drilling costs arising in the taxable year is greater than 65 percent of the net income of the taxpayer from oil, gas, and geothermal properties for the taxable year.
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(B) Excess intangible drilling costs For purposes of subparagraph (A), the amount of the excess intangible drilling costs arising in the taxable year is the excess of—
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(i) the intangible drilling and development costs paid or incurred in connection with oil, gas, and geothermal wells (other than costs incurred in drilling a nonproductive well) allowable under section 263(c) or 291(b) for the taxable year, over
(ii) the amount which would have been allowable for the taxable year if such costs had been capitalized and straight line recovery of intangibles (as defined in subsection (b)) had been used with respect to such costs.
(C) Net income from oil, gas, and geothermal properties For purposes of subparagraph (A), the amount of the net income of the taxpayer from oil, gas, and geothermal properties for the taxable year is the excess of—
(i) the aggregate amount of gross income (within the meaning of section 613(a)) from all oil, gas, and geothermal properties of the taxpayer received or accrued by the taxpayer during the taxable year, over
(ii) the amount of any deductions allocable to such properties reduced by the excess described in subparagraph (B) for such taxable year.
(D) Paragraph applied separately with respect to geothermal properties and oil and gas properties This paragraph shall be applied separately with respect to—
(i) all oil and gas properties which are not described in clause (ii), and
(ii) all properties which are geothermal deposits (as defined in section 613(e)(2)).
Amended 1990
- 1990 Pub. L. 101-508 Pub. L. 101–508, § 11815(b)(3), substituted “section 613(e)(2)” for “section 613(e)(3)”.
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(E) Exception for independent producers In the case of any oil or gas well—
Amended 1992
- 1992 Pub. L. 102-486 Pub. L. 102–486, § 1915(b)(1), added subpar. (E).
(i) In general This paragraph shall not apply to any taxpayer which is not an integrated oil company (as defined in section 291(b)(4)).
Amended 2014
- 2014 Pub. L. 113-295 Pub. L. 113–295, § 221(a)(11)(A), substituted “This paragraph” for “In the case of any taxable year beginning after December 31, 1992, this paragraph”.
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(ii) Limitation on benefit The reduction in alternative minimum taxable income by reason of clause (i) for any taxable year shall not exceed 40 percent of the alternative minimum taxable income for such year determined without regard to clause (i) and the alternative tax net operating loss deduction under section 56(a)(4).
Amended 2014
- 2014 Pub. L. 113-295 Pub. L. 113–295, § 221(a)(11)(B), struck out “(30 percent in case of taxable years beginning in 1993)” after “40 percent”.
[(3) Repealed. Pub. L. 100–647, title I, § 1007(b)(14)(B), Nov. 10, 1988, 102 Stat. 3430]
Amended 1988
- 1988 Pub. L. 100-647 Pub. L. 100–647, § 1007(b)(14)(B), struck out par. (3) which related to incentive stock options.
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[(4) Repealed. Pub. L. 104–188, title I, § 1616(b)(3), Aug. 20, 1996, 110 Stat. 1856]
Amended 1990, 1996
- 1996 Pub. L. 104-188 Pub. L. 104–188 struck out par. (4) which read as follows: “Reserves for losses on bad debts of financial institutions.—In the case of a financial institution to which section 593 applies, the amount by which the deduction allowable for the taxable year for a reasonable addition to a reserve for bad debts exceeds the amount that would have been allowable had the institution maintained its bad debt reserve for all taxable years on the basis of actual experience.”
- 1990 Pub. L. 101-508 Pub. L. 101–508, § 11801(c)(12)(A), struck out “585 or” after “section”.
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(5) Tax-exempt interest
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(A) In general Interest on specified private activity bonds reduced by any deduction (not allowable in computing the regular tax) which would have been allowable if such interest were includible in gross income.
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(B) Treatment of exempt-interest dividends Under regulations prescribed by the Secretary, any exempt-interest dividend (as defined in section 852(b)(5)(A)) shall be treated as interest on a specified private activity bond to the extent of its proportionate share of the interest on such bonds received by the company paying such dividend.
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(C) Specified private activity bonds
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(i) In general For purposes of this part, the term “specified private activity bond” means any private activity bond (as defined in section 141) which is issued after August 7, 1986, and the interest on which is not includible in gross income under section 103.
Amended 1988
- 1988 Pub. L. 100-647 Pub. L. 100–647, § 1007(c)(2), amended cl. (i) generally. Prior to amendment, cl. (i) read as follows: “For purposes of this part, the term ‘specified private activity bonds’ means any private activity bond (as defined in section 141) issued after August 7, 1986.”
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(ii) Exception for qualified 501(c)(3) bonds For purposes of clause (i), the term “private activity bond” shall not include any qualified 501(c)(3) bond (as defined in section 145).
(iii) Exception for certain housing bonds For purposes of clause (i), the term “private activity bond” shall not include any bond issued after the date of the enactment of this clause if such bond is—
Amended 1988, 2008
- 2008 Pub. L. 110-289 Pub. L. 110–289 added cl. (iii) and redesignated former cls. (iii) and (iv) as (iv) and (v), respectively.
- 1988 Pub. L. 100-647 Pub. L. 100–647, § 1007(c)(1), inserted “(whether a current or advance refunding)” after “any refunding bond”.
(I) an exempt facility bond issued as part of an issue 95 percent or more of the net proceeds of which are to be used to provide qualified residential rental projects (as defined in section 142(d)),
(II) a qualified mortgage bond (as defined in section 143(a)), or
(III) a qualified veterans’ mortgage bond (as defined in section 143(b)).
The preceding sentence shall not apply to any refunding bond unless such preceding sentence applied to the refunded bond (or in the case of a series of refundings, the original bond).
(iv) Exception for refundings For purposes of clause (i), the term “private activity bond” shall not include any refunding bond (whether a current or advance refunding) if the refunded bond (or in the case of a series of refundings, the original bond) was issued before August 8, 1986.
Amended 2008
- 2008 Pub. L. 110-289 Pub. L. 110–289 added cl. (iii) and redesignated former cls. (iii) and (iv) as (iv) and (v), respectively.
(v) Certain bonds issued before September 1, 1986 For purposes of this subparagraph, a bond issued before September 1, 1986, shall be treated as issued before August 8, 1986, unless such bond would be a private activity bond if—
Amended 2008
- 2008 Pub. L. 110-289 Pub. L. 110–289 added cl. (iii) and redesignated former cls. (iii) and (iv) as (iv) and (v), respectively.
(I) paragraphs (1) and (2) of section 141(b) were applied by substituting “25 percent” for “10 percent” each place it appears,
(II) paragraphs (3), (4), and (5) of section 141(b) did not apply, and
(III) subparagraph (B) of section 141(c)(1) did not apply.
(vi) Exception for bonds issued in 2009 and 2010
Amended 2009
- 2009 Pub. L. 111-5 Pub. L. 111–5 added cl. (vi).
(I) In general For purposes of clause (i), the term “private activity bond” shall not include any bond issued after December 31, 2008, and before January 1, 2011.
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(II) Treatment of refunding bonds For purposes of subclause (I), a refunding bond (whether a current or advance refunding) shall be treated as issued on the date of the issuance of the refunded bond (or in the case of a series of refundings, the original bond).
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(III) Exception for certain refunding bonds Subclause (II) shall not apply to any refunding bond which is issued to refund any bond which was issued after December 31, 2003, and before January 1, 2009.
(6) Accelerated depreciation or amortization on certain property placed in service before January 1, 1987 The amounts which would be treated as items of tax preference with respect to the taxpayer under paragraphs (2), (3), (4), and (12) of this subsection (as in effect on the day before the date of the enactment of the Tax Reform Act of 1986). The preceding sentence shall not apply to any property to which section 56(a)(1) or (5) applies.
Amended 1988, 1990, 1991, 1993
- 1993 Pub. L. 103-66 Pub. L. 103–66, § 13171(a), redesignated pars. (7) and (8) as (6) and (7), respectively, and struck out heading and text of former par. (6). Text read as follows:
- 1993 “(A) In general.—The amount by which the deduction allowable under section 170 or 642(c) would be reduced if all capital gain property were taken into account at its adjusted basis.
- 1993 “(B) Capital gain property.—For purposes of subparagraph (A), the term ‘capital gain property’ has the meaning given to such term by section 170(b)(1)(C)(iv). Such term shall not include any property to which an election under section 170(b)(1)(C)(iii) applies. In the case of any taxable year beginning in 1991, such term shall not include any tangible personal property. In the case of a contribution made before July 1, 1992, in a taxable year beginning in 1992, such term shall not include any tangible personal property.”
- 1991 Pub. L. 102-227 Pub. L. 102–227 inserted at end “In the case of a contribution made before July 1, 1992, in a taxable year beginning in 1992, such term shall not include any tangible personal property.”
- 1990 Pub. L. 101-508 Pub. L. 101–508, § 11344, inserted at end “In the case of any taxable year beginning in 1991, such term shall not include any tangible personal property.”
- 1988 Pub. L. 100-647 Pub. L. 100–647, § 1007(c)(3), inserted “or 642(c)” after “section 170”.
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(7) Exclusion for gains on sale of certain small business stock In the case of stock acquired on or before the date of the enactment of the Creating Small Business Jobs Act of 2010, an amount equal to 7 percent of the amount excluded from gross income for the taxable year under section 1202.
Amended 1993, 1997, 1998, 2003, 2025
- 2025 Pub. L. 119-21 Pub. L. 119–21 substituted “In the case of stock acquired on or before the date of the enactment of the Creating Small Business Jobs Act of 2010, an amount” for “An amount”.
- 2003 Pub. L. 108-27 Pub. L. 108–27 substituted “7 percent” for “42 percent” after “An amount equal to” and struck out last sentence which read as follows: “In the case of stock the holding period of which begins after December 31, 2000 (determined with the application of the last sentence of section 1(h)(2)(B)), the preceding sentence shall be applied by substituting ‘28 percent’ for ‘42 percent’.”
- 1998 Pub. L. 105-206 Pub. L. 105–206 inserted at end “In the case of stock the holding period of which begins after December 31, 2000 (determined with the application of the last sentence of section 1(h)(2)(B)), the preceding sentence shall be applied by substituting ‘28 percent’ for ‘42 percent’.”
- 1997 Pub. L. 105-34 Pub. L. 105–34 substituted “42 percent” for “one-half”.
- 1993 Pub. L. 103-66 Pub. L. 103–66, § 13171(a), redesignated pars. (7) and (8) as (6) and (7), respectively, and struck out heading and text of former par. (6). Text read as follows:
- 1993 “(A) In general.—The amount by which the deduction allowable under section 170 or 642(c) would be reduced if all capital gain property were taken into account at its adjusted basis.
- 1993 “(B) Capital gain property.—For purposes of subparagraph (A), the term ‘capital gain property’ has the meaning given to such term by section 170(b)(1)(C)(iv). Such term shall not include any property to which an election under section 170(b)(1)(C)(iii) applies. In the case of any taxable year beginning in 1991, such term shall not include any tangible personal property. In the case of a contribution made before July 1, 1992, in a taxable year beginning in 1992, such term shall not include any tangible personal property.”
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(b) Straight line recovery of intangibles defined For purposes of paragraph (2) of subsection (a)—
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(1) In general The term “straight line recovery of intangibles”, when used with respect to intangible drilling and development costs for any well, means (except in the case of an election under paragraph (2)) ratable amortization of such costs over the 120-month period beginning with the month in which production from such well begins.
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(2) Election If the taxpayer elects with respect to the intangible drilling and development costs for any well, the term “straight line recovery of intangibles” means any method which would be permitted for purposes of determining cost depletion with respect to such well and which is selected by the taxpayer for purposes of subsection (a)(2).