26 U.S.C. § 291 — Special rules relating to corporate preference items

This section applies only to corporations and cuts back several tax preferences they would otherwise get. (a) Reduction in certain preference items: (1) Section 1250 capital gain treatment: When a corporation sells or disposes of certain real estate called "section 1250 property," normally only part of the gain is taxed as high as ordinary income (the rest gets lower capital-gains treatment). This section takes 20 percent of the extra amount that would have been ordinary income if the property had instead been "section 1245 property," and taxes that extra 20 percent slice as ordinary income too, no matter what other tax rules say. The Secretary can write regulations exempting some dispositions from this rule, matching an exception that already exists elsewhere in section 1250. (2) Reduction in percentage depletion: For iron ore and coal (including lignite), the corporation's percentage depletion deduction is cut by 20 percent of the amount by which that deduction would otherwise exceed the property's adjusted basis at the end of the year (counted before subtracting depletion). (3) Certain financial institution preference items: Whatever a corporation could otherwise deduct as a "financial institution preference item" (defined in subsection (e)) is cut by 20 percent. (4) Amortization of pollution control facilities: If a corporation elects to amortize a certified pollution control facility under section 169, the amount it can amortize is cut by 20 percent. (b) Special rules for drilling and mineral costs: (1) In general: A corporation's deduction for intangible drilling costs (for an "integrated oil company," defined below) or for certain mineral exploration and development costs is cut by 30 percent. (2) Amortization of the disallowed amount: The 30 percent that gets disallowed under (1) isn't lost — the corporation can instead deduct it evenly over the 60 months starting with the month the costs were paid or incurred. (3) Dispositions: If the property is later sold, that 60-month deduction is treated the same as the original drilling or mineral-cost deduction for purposes of the recapture rules in section 1254. (4) "Integrated oil company" defined: This means a crude-oil producer that doesn't qualify for the small-producer exception in section 613A(c), because of section 613A(d)(2) or (4). (5) Coordination with cost depletion: The part of the property's basis tied to the disallowed 30 percent doesn't count when figuring depletion under section 611. (c) Special rules for pollution control facilities: (1) Accelerated cost recovery: For the part of a pollution control facility's basis that a corporation didn't amortize under section 169 (because of the 20 percent cut in (a)(4)), regular depreciation under section 168 applies instead. (2) Section 1250 recapture exception: The extra-ordinary-income rule in (a)(1) does not apply to section 1250 property that is part of a certified pollution control facility for which the corporation elected section 169 treatment. (d) Special rule for real estate investment trusts (REITs): For a REIT, the gap described in (a)(1)(A) and (B) is reduced to the extent a capital gain dividend (as defined in section 857(b)(3)(C), ignoring this section) is treated as paid out of that gap. If a shareholder that is itself a corporation receives such a dividend, it keeps its character in that shareholder's hands as section 1250 gain, for purposes of applying (a)(1) to that shareholder. (e) Definitions: (1) "Financial institution preference item" includes: (A) [Repealed by a 1990 law.] (B) Interest on debt used to buy or carry tax-exempt bonds acquired after December 31, 1982, and before August 8, 1986: (i) For a bank (as defined in section 585(a)(2)), this is the interest on debt taken out or kept to purchase or carry those tax-exempt bonds, to the extent that interest would otherwise be deductible. (ii) Unless the taxpayer proves otherwise, this amount is figured using a ratio: the average adjusted basis of those tax-exempt bonds, divided by the average adjusted basis of all the bank's assets, applied to the bank's total interest deduction for the year. (iii) "Interest" here includes amounts paid on deposits, investment certificates, or withdrawable shares, whether or not they're called "interest." (iv) For certain bonds issued after August 7, 1986, a different provision (section 265(b)(3)) applies instead; and a specific portion excluded under section 265(b)(2)(A) because of section 265(b)(7) is treated as if it had been acquired on August 7, 1986. (2) "Section 1245 property" and "section 1250 property" mean whatever those terms mean under sections 1245(a)(3) and 1250(c).