26 U.S.C. § 15 — Effect of changes

(a) General rule: This subsection applies when a tax rate in this chapter changes. It applies if the change's effective date falls inside a taxpayer's taxable year. It does not apply if the effective date is the very first day of that taxable year. When it applies, the tax is figured in two steps. Step one: compute two "tentative taxes." Apply the rate from before the change to the entire year's taxable income. That is the first tentative tax. Apply the rate from after the change to that same entire year's taxable income. That is the second tentative tax. Step two: blend the two tentative taxes by time. Count the days in the taxable year that fell before the change. Divide that by the total days in the taxable year. Multiply the first tentative tax by that fraction. Count the days on or after the change. Divide that by the total days in the taxable year. Multiply the second tentative tax by that fraction. Add the two results together. That sum is the tax owed for the year. (b) Repeal of tax: This subsection extends the rule in (a) to a full repeal of a tax. A repeal counts as a "change of rate." After the repeal, the rate used in the (a) formula is zero. (c) Effective date of change: This subsection defines "effective date" for subsections (a) and (b). The definition depends on the exact words used for the change. Suppose the change applies to years "beginning after" a date. Or suppose it applies to years "ending after" a date. In either case, the effective date is the day right after that date. Now suppose the change instead applies to years "beginning on or after" a date. In that case, the effective date is that date itself. (d) Section not to apply to inflation adjustments: This section does not apply to rate changes made under section 1(f). Section 1(f) adjusts tax tables each year. That adjustment keeps inflation from pushing taxpayers into higher brackets on its own. (e) References to highest rate: This subsection applies only in one situation. It applies when the rate change in subsection (a) changes the "highest rate" of tax set by section 1 or section 11(b). When that happens, other parts of this chapter that refer to that highest rate must use a blended rate instead. The blended rate is a weighted average. It averages the highest rate before the change and the highest rate after the change. The weighting is based on time: how much of the taxable year came before the change, and how much came on or after it. There is one exception. This blending rule does not apply to a provision that imposes a tax by referring to the highest rate. Those provisions still use the real rate, not the blended average. (f) Rate reductions enacted by Economic Growth and Tax Relief Reconciliation Act of 2001: This section does not apply to the rate reductions made under section 1(i). Section 1(i) covers rate reductions that took effect after the year 2000.