r/title-26-INTERNAL-REVENUE-CODE wiki — defined terms

“modified taxable income” applies in that section

the term “modified taxable income” means, with respect to any period, the gross income for such period minus the deductions allowed by this chapter for such period (but, in the case of a short period, only the adjusted amount of the deductions for personal exemptions).

“deferral period” applies in that section

the term “deferral period” means, with respect to any taxable year of the entity, the months between— (A) the beginning of such year, and (B) the close of the 1st required taxable year ending within such year. (c) Effect of election If an entity makes an election under subsection (a), then— (1) in the case of a partnership or S corporation, such entity shall make the payments required by section 7519, and (2) in the case of a personal service corporation, such corporation shall be subject to the deduction limitations of section 280H. (d) Elections (1) Person making election An election under subsection (a) shall be made by the partnership, S corporation, or personal service corporation.

“personal service corporation” applies in that section

the term “personal service corporation” has the meaning given to such term by section 441(i)(2). (g) Regulations The Secretary shall prescribe such regulations as may be necessary to carry out the provisions of this section, including regulations to prevent the avoidance of subsection (b)(2)(B) or (d)(2)(B) through the change in form of an entity.

“required taxable year” applies in that section

the term “required taxable year” means the taxable year determined under section 706(b), 1378, or 441(i) without taking into account any taxable year which is allowable by reason of business purposes. Solely for purposes of the preceding sentence, sections 706(b), 1378, and 441(i) shall be treated as in effect for taxable years beginning before January 1, 1987 . (f) Personal service corporation For purposes of this section,

“annual accrual method of accounting” applies in that section

the term “annual accrual method of accounting” means a method under which revenues, costs, and expenses are computed on an accrual method of accounting and the preproductive period expenses incurred during the taxable year are charged to harvested crops or deducted in determining the taxable income for such years.

“qualified farming trade or business” applies in that section

The term “qualified farming trade or business” means the trade or business of farming— (I) sugar cane, (II) any plant with a preproductive period (as defined in section 263A(e)(3)) of 2 years or less, and (III) any other plant (other than any citrus or almond tree) if an election by the corporation under this subparagraph is in effect. In the case of a partnership and for purposes of paragraph (3)(A), subclauses (II) and (III) shall not apply. (ii) Effect of election For purposes of paragraphs (1) and (2) of section 263A(e), any election under this subparagraph shall be treated as if it were an election under subsection (d)(3) of section 263A.

“qualified partnership” applies in that section

The term “qualified partnership” means a partnership which is engaged in a qualified farming trade or business and each of the partners of which is a corporation other than— (i) an S corporation, or (ii) a personal holding company (within the meaning of section 542(a)). (B) Qualified farming trade or business (i) In general

“farming business” applies in that section

The term “farming business” means the trade or business of farming (within the meaning of section 263A(e)(4)). (B) Timber and ornamental trees

“qualified personal service corporation” applies in that section

The term “qualified personal service corporation” means any corporation— (A) substantially all of the activities of which involve the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting, and (B) substantially all of the stock of which (by value) is held directly (or indirectly through 1 or more partnerships, S corporations, or qualified personal service corporations not described in paragraph (2) or (3) of subsection (a)) by— (i) employees performing services for such corporation in connection with the activities involving a field referred to in subparagraph (A), (ii) retired employees who had …

“tax shelter” applies in that section

The term “tax shelter” has the meaning given such term by section 461(i)(3) (determined after application of paragraph (4) thereof). An S corporation shall not be treated as a tax shelter for purposes of this section merely by reason of being required to file a notice of exemption from registration with a State agency described in section 461(i)(3)(A), but only if there is a requirement applicable to all corporations offering securities for sale in the State that to be exempt from such registration the corporation must file such a notice.

“advance payment” applies in that section

The term “advance payment” means any payment— (i) the full inclusion of which in the gross income of the taxpayer for the taxable year of receipt is a permissible method of accounting under this section (determined without regard to this subsection), (ii) any portion of which is included in revenue by the taxpayer in a financial statement described in clause (i) or (ii) of subsection (b)(1)(A) for a subsequent taxable year, and (iii) which is for goods, services, or such other items as may be identified by the Secretary for purposes of this clause.

“applicable financial statement” applies in that section

the term “applicable financial statement” means— (A) a financial statement which is certified as being prepared in accordance with generally accepted accounting principles and which is— (i) a 10–K (or successor form), or annual statement to shareholders, required to be filed by the taxpayer with the United States Securities and Exchange Commission, (ii) an audited financial statement of the taxpayer which is used for— (I) credit purposes, (II) reporting to shareholders, partners, or other proprietors, or to beneficiaries, or (III) any other substantial nontax purpose, but only if there is no statement of the taxpayer described in clause (i), or (iii) filed by the taxpayer with any other …

“exempt utility property” applies in that section

The term “exempt utility property” means property used in the trade or business of— (i) generating, transmitting, distributing, or selling electricity, or (ii) producing, transmitting, distributing, or selling natural gas. (B) Nonrecognition of gain by reason of acquisition of stock Acquisition of control of a corporation shall be taken into account under this subsection with respect to a qualifying electric transmission transaction only if the principal trade or business of such corporation is a trade or business referred to in subparagraph (A).

“frozen deposit” applies in that section

the term “frozen deposit” means any deposit if, as of the close of the calendar year, any portion of such deposit may not be withdrawn because of— (A) the bankruptcy or insolvency of the qualified financial institution (or threat thereof), or (B) any requirement imposed by the State in which such institution is located by reason of the bankruptcy or insolvency (or threat thereof) of 1 or more financial institutions in the State. (5) Other definitions For purposes of this subsection, the terms “qualified individual”, “qualified financial institution”, and “deposit” have the same respective meanings as when used in section 165( l ).

“independent transmission company” applies in that section

the term “independent transmission company” means— (A) an independent transmission provider approved by the Federal Energy Regulatory Commission, (B) a person— (i) who the Federal Energy Regulatory Commission determines in its authorization of the transaction under section 203 of the Federal Power Act ( 16 U.S.C.

“qualified electric utility” applies in that section

the term “qualified electric utility” means a person that, as of the date of the qualifying electric transmission transaction, is vertically integrated, in that it is both— (A) a transmitting utility (as defined in section 3(23) of the Federal Power Act ( 16 U.S.C. 796(23) )) with respect to the transmission facilities to which the election under this subsection applies, and (B) an electric utility (as defined in section 3(22) of the Federal Power Act ( 16 U.S.C. 796(22) )).

“qualified gain” applies in that section

the term “qualified gain” means, with respect to any qualifying electric transmission transaction in any taxable year— (A) any ordinary income derived from such transaction which would be required to be recognized under section 1245 or 1250 for such taxable year (determined without regard to this subsection), and (B) any income derived from such transaction in excess of the amount described in subparagraph (A) which is required to be included in gross income for such taxable year (determined without regard to this subsection). (3) Qualifying electric transmission transaction For purposes of this subsection,

“qualified prize” applies in that section

The term “qualified prize” means any prize or award which— (i) is awarded as a part of a contest, lottery, jackpot, game, or other similar arrangement, (ii) does not relate to any past services performed by the recipient and does not require the recipient to perform any substantial future service, and (iii) is payable over a period of at least 10 years. (3) Partnership, etc. The Secretary shall provide for the application of this subsection in the case of a partnership or other pass-through entity consisting entirely of individuals described in paragraph (1).

“qualified prize option” applies in that section

The term “qualified prize option” means an option which— (i) entitles an individual to receive a single cash payment in lieu of receiving a qualified prize (or remaining portion thereof), and (ii) is exercisable not later than 60 days after such individual becomes entitled to the qualified prize. (B) Qualified prize

“qualifying electric transmission transaction” applies in that section

the term “qualifying electric transmission transaction” means any sale or other disposition before January 1, 2008 (before January 1, 2021 , in the case of a qualified electric utility), of— (A) property used in the trade or business of providing electric transmission services, or (B) any stock or partnership interest in a corporation or partnership, as the case may be, whose principal trade or business consists of providing electric transmission services, but only if such sale or disposition is to an independent transmission company. (4) Independent transmission company For purposes of this subsection,

“utility services” applies in that section

The term “utility services” includes— (i) the providing of electrical energy, water, or sewage disposal, (ii) the furnishing of gas or steam through a local distribution system, (iii) telephone or other communication services, and (iv) the transporting of gas or steam by pipeline. (B) Year in which services provided The taxable year in which services are treated as provided to customers shall not, in any manner, be determined by reference to— (i) the period in which the customers’ meters are read, or (ii) the period in which the taxpayer bills (or may bill) the customers for such service.

“dealer disposition” applies throughout this title

The term “dealer disposition” means any of the following dispositions: (A) Personal property Any disposition of personal property by a person who regularly sells or otherwise disposes of personal property of the same type on the installment plan. (B) Real property Any disposition of real property which is held by the taxpayer for sale to customers in the ordinary course of the taxpayer’s trade or business. (2) Exceptions The term “dealer disposition” does not include— (A) Farm property The disposition on the installment plan of any property used or produced in the trade or business of farming (within the meaning of section 2032A(e)(4) or (5)).

“depreciable property” applies in that section

The term “depreciable property” means property of a character which (in the hands of the transferee) is subject to the allowance for depreciation provided in section 167. (8) Payments to be received defined

“installment method” applies in that section

the term “installment method” means a method under which the income recognized for any taxable year from a disposition is that proportion of the payments received in that year which the gross profit (realized or to be realized when payment is completed) bears to the total contract price. (d) Election out (1) In general Subsection (a) shall not apply to any disposition if the taxpayer elects to have subsection (a) not apply to such disposition.

“installment sale” applies in that section

The term “installment sale” means a disposition of property where at least 1 payment is to be received after the close of the taxable year in which the disposition occurs. (2) Exceptions The term “installment sale” does not include— (A) Dealer dispositions Any dealer disposition (as defined in subsection ( l )). (B) Inventories of personal property A disposition of personal property of a kind which is required to be included in the inventory of the taxpayer if on hand at the close of the taxable year. (c) Installment method defined For purposes of this section,

“marketable securities” applies in that section

The term “marketable securities” means any security for which, as of the date of the disposition, there was a market on an established securities market or otherwise. (3) Payment Except as provided in paragraph (4), the term “payment” does not include the receipt of evidences of indebtedness of the person acquiring the property (whether or not payment of such indebtedness is guaranteed by another person). (4) Purchaser evidences of indebtedness payable on demand or readily tradable Receipt of a bond or other evidence of indebtedness which— (A) is payable on demand, or (B) is readily tradable, shall be treated as receipt of payment. (5) Readily tradable defined For purposes of paragraph (4),

“payments to be received” applies in that section

The term “payments to be received” includes— (A) the aggregate amount of all payments which are not contingent as to amount, and (B) the fair market value of any payments which are contingent as to amount.

“readily tradable” applies in that section

the term “readily tradable” means a bond or other evidence of indebtedness which is issued— (A) with interest coupons attached or in registered form (other than one in registered form which the taxpayer establishes will not be readily tradable in an established securities market), or (B) in any other form designed to render such bond or other evidence of indebtedness readily tradable in an established securities market.

“recapture income” applies throughout this title

the term “recapture income” means, with respect to any installment sale, the aggregate amount which would be treated as ordinary income under section 1245 or 1250 (or so much of section 751 as relates to section 1245 or 1250) for the taxable year of the disposition if all payments to be received were received in the taxable year of disposition. (j) Regulations (1) In general The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the provisions of this section.

“related person” applies in that section

the term “related person” means— (A) a person whose stock would be attributed under section 318(a) (other than paragraph (4) thereof) to the person first disposing of the property, or (B) a person who bears a relationship described in section 267(b) to the person first disposing of the property. (2) Marketable securities

“related persons” applies in that section

the term “related persons” has the meaning given to such term by section 1239(b), except that such term shall include 2 or more partnerships having a relationship to each other described in section 707(b)(1)(B).

“applicable percentage” applies in that section

the term “applicable percentage” means, with respect to obligations arising in any taxable year, the percentage determined by dividing— (A) the portion of the aggregate face amount of such obligations outstanding as of the close of such taxable year in excess of $5,000,000, by (B) the aggregate face amount of such obligations outstanding as of the close of such taxable year. (5) Treatment as interest Any amount payable under this subsection shall be taken into account in computing the amount of any deduction allowable to the taxpayer for interest paid or accrued during the taxable year.

“deferred tax liability” applies in that section

the term “deferred tax liability” means, with respect to any taxable year, the product of— (A) the amount of gain with respect to an obligation which has not been recognized as of the close of such taxable year, multiplied by (B) the maximum rate of tax in effect under section 1 or 11, whichever is appropriate, for such taxable year. For purposes of applying the preceding sentence with respect to so much of the gain which, when recognized, will be treated as long-term capital gain, the maximum rate on net capital gain under section 1(h) shall be taken into account. (4) Applicable percentage For purposes of this subsection,

“noninsurance business” applies in that section

the term “noninsurance business” means any activity which is not an insurance business. (B) Certain activities treated as insurance businesses For purposes of subparagraph (A), any activity which is not an insurance business shall be treated as an insurance business if— (i) it is of a type traditionally carried on by life insurance companies for investment purposes, but only if the carrying on of such activity (other than in the case of real estate) does not constitute the active conduct of a trade or business, or (ii) it involves the performance of administrative services in connection with plans providing life insurance, pension, or accident and health benefits.

“liability” applies in that section

The term “liability” means a liability to furnish or deliver a newspaper, magazine, or other periodical. (3) Receipt of prepaid subscription income Prepaid subscription income shall be treated as received during the taxable year for which it is includible in gross income under section 451 (without regard to this section).

“prepaid subscription income” applies in that section

The term “prepaid subscription income” means any amount (includible in gross income) which is received in connection with, and is directly attributable to, a liability which extends beyond the close of the taxable year in which such amount is received, and which is income from a subscription to a newspaper, magazine, or other periodical. (2) Liability

“liability” applies in that section

The term “liability” means a liability to render services or make available membership privileges over a period of time which does not exceed 36 months, which liability shall be deemed to exist ratably over the period of time that such services are required to be rendered, or that such membership privileges are required to be made available. (3) Membership organization

“membership organization” applies in that section

The term “membership organization” means a corporation, association, federation, or other organization— (A) organized without capital stock of any kind, and (B) no part of the net earnings of which is distributable to any member. (4) Receipt of prepaid dues income Prepaid dues income shall be treated as received during the taxable year for which it is includible in gross income under section 451 (without regard to this section).

“prepaid dues income” applies in that section

The term “prepaid dues income” means any amount (includible in gross income) which is received by a membership organization in connection with, and is directly attributable to, a liability to render services or make available membership privileges over a period of time which extends beyond the close of the taxable year in which such amount is received. (2) Liability

“applicable employment retention plan” applies throughout this title

The term “applicable employment retention plan” means an employment retention plan maintained by— (i) a local educational agency (as defined in section 8101 of the Elementary and Secondary Education Act of 1965 ( 20 U.S.C. 7801 )), or (ii) an education association which principally represents employees of 1 or more agencies described in clause (i) and which is described in section 501(c)(5) or (6) and exempt from taxation under section 501(a). (D) Employment retention plan

“applicable voluntary early retirement incentive plan” applies in that section

the term “applicable voluntary early retirement incentive plan” means a voluntary early retirement incentive plan maintained by— (I) a local educational agency (as defined in section 8101 of the Elementary and Secondary Education Act of 1965), or (II) an education association which principally represents employees of 1 or more agencies described in subclause (I) and which is described in section 501(c)(5) or (6) and exempt from tax under section 501(a). (12) Exception for nonelective deferred compensation of nonemployees (A) In general This section shall not apply to nonelective deferred compensation attributable to services not performed as an employee.

“beneficiary” applies in that section

The term “beneficiary” means a beneficiary of the participant, his estate, or any other person whose interest in the plan is derived from the participant. (5) Includible compensation

“eligible deferred compensation plan” applies in that section

the term “eligible deferred compensation plan” means a plan established and maintained by an eligible employer— (1) in which only individuals who perform service for the employer may be participants, (2) which provides that (except as provided in paragraph (3)) the maximum amount which may be deferred under the plan for the taxable year (other than rollover amounts) shall not exceed the lesser of— (A) the applicable dollar amount, or (B) 100 percent of the participant’s includible compensation, (3) which may provide that, for 1 or more of the participant’s last 3 taxable years ending before he attains normal retirement age under the plan, the ceiling set forth in paragraph (2) shall be the …

“eligible employer” applies in that section

The term “eligible employer” means— (A) a State, political subdivision of a State, and any agency or instrumentality of a State or political subdivision of a State, and (B) any other organization (other than a governmental unit) exempt from tax under this subtitle. (2) Performance of service The performance of service includes performance of service as an independent contractor and the person (or governmental unit) for whom such services are performed shall be treated as the employer. (3) Participant

“employment retention plan” applies throughout this title

The term “employment retention plan” means a plan to pay, upon termination of employment, compensation to an employee of a local educational agency or education association described in subparagraph (C) for purposes of— (i) retaining the services of the employee, or (ii) rewarding such employee for the employee’s service with 1 or more such agencies or associations.

“includible compensation” applies in that section

The term “includible compensation” has the meaning given to the term “participant’s compensation” by section 415(c)(3). (6) Compensation taken into account at present value Compensation shall be taken into account at its present value. (7) Community property laws The amount of includible compensation shall be determined without regard to any community property laws. (8) Income attributable Gains from the disposition of property shall be treated as income attributable to such property. (9) Benefits of tax exempt organization plans not treated as made available by reason of certain elections, etc.

“participant” applies in that section

The term “participant” means an individual who is eligible to defer compensation under the plan. (4) Beneficiary

“plan” applies in that section

The term “plan” includes any agreement or arrangement. (B) Substantial risk of forfeiture The rights of a person to compensation are subject to a substantial risk of forfeiture if such person’s rights to such compensation are conditioned upon the future performance of substantial services by any individual. (4) Employment retention plans For purposes of paragraph (2)(F)— (A) In general The portion of an applicable employment retention plan described in this paragraph with respect to any participant is that portion of the plan which provides benefits payable to the participant not in excess of twice the applicable dollar limit determined under subsection (e)(15).

“qualified services” applies in that section

the term “qualified services” means fire fighting and prevention services, emergency medical services, and ambulance services. (D) Certain voluntary early retirement incentive plans (i) In general If an applicable voluntary early retirement incentive plan— (I) makes payments or supplements as an early retirement benefit, a retirement-type subsidy, or a benefit described in the last sentence of section 411(a)(9), and (II) such payments or supplements are made in coordination with a defined benefit plan which is described in section 401(a) and includes a trust exempt from tax under section 501(a) and which is maintained by an eligible employer described in paragraph (1)(A) or by an education …

“comprehensive foreign income tax” applies in that section

The term “comprehensive foreign income tax” means, with respect to any foreign person, the income tax of a foreign country if— (A) such person is eligible for the benefits of a comprehensive income tax treaty between such foreign country and the United States, or (B) such person demonstrates to the satisfaction of the Secretary that such foreign country has a comprehensive income tax. (3) Nonqualified deferred compensation plan (A) In general

“investment asset” applies in that section

the term “investment asset” means any single asset (other than an investment fund or similar entity)— (I) acquired directly by an investment fund or similar entity, (II) with respect to which such entity does not (nor does any person related to such entity) participate in the active management of such asset (or if such asset is an interest in an entity, in the active management of the activities of such entity), and (III) substantially all of any gain on the disposition of which (other than such deferred compensation) is allocated to investors in such entity. (iii) Coordination with special rule Paragraph (3)(B) shall not apply to any compensation to which clause (i) applies.

“nonqualified deferred compensation plan” applies in that section

The term “nonqualified deferred compensation plan” has the meaning given such term under section 409A(d), except that such term shall include any plan that provides a right to compensation based on the appreciation in value of a specified number of equity units of the service recipient. (B) Exception Compensation shall not be treated as deferred for purposes of this section if the service provider receives payment of such compensation not later than 12 months after the end of the taxable year of the service recipient during which the right to the payment of such compensation is no longer subject to a substantial risk of forfeiture.

“nonqualified entity” applies in that section

the term “nonqualified entity” means— (1) any foreign corporation unless substantially all of its income is— (A) effectively connected with the conduct of a trade or business in the United States, or (B) subject to a comprehensive foreign income tax, and (2) any partnership unless substantially all of its income is allocated to persons other than— (A) foreign persons with respect to whom such income is not subject to a comprehensive foreign income tax, and (B) organizations which are exempt from tax under this title.

“magazine” applies in that section

The term “magazine” includes any other periodical. (2) Paperback

“merchandise return period” applies in that section

the term “merchandise return period” means, with respect to any taxable year— (i) in the case of magazines, the period of 2 months and 15 days first occurring after the close of taxable year, or (ii) in the case of paperbacks and records, the period of 4 months and 15 days first occurring after the close of the taxable year. (B) The taxpayer may select a shorter period than the applicable period set forth in subparagraph (A). (C) Any change in the merchandise return period shall be treated as a change in the method of accounting.

“paperback” applies in that section

The term “paperback” means any book which has a flexible outer cover and the pages of which are affixed directly to such outer cover. Such term does not include a magazine. (3) Record

“record” applies in that section

The term “record” means a disc, tape, or similar object on which musical, spoken, or other sounds are recorded. (4) Separate application with respect to magazines, paperbacks, and records If a taxpayer makes qualified sales of more than one category of merchandise in connection with the same trade or business, this section shall be applied as if the qualified sales of each such category were made in connection with a separate trade or business. For purposes of the preceding sentence, magazines, paperbacks, and records shall each be treated as a separate category of merchandise.

“10-percent year” applies in that section

The term “10-percent year” means the 1st taxable year as of the close of which at least 10 percent of the estimated total contract costs have been incurred. (C) Election An election under this paragraph shall apply to all long-term contracts of the taxpayer which are entered into during the taxable year in which the election is made or any subsequent taxable year. (D) Coordination with other provisions (i) Simplified method of cost allocation This paragraph shall not apply to any taxpayer which uses a simplified procedure for allocation of costs under paragraph (3)(A).

“closely held pass-thru entity” applies in that section

The term “closely held pass-thru entity” means any pass-thru entity if, at any time during any taxable year for which there is income under the contract, 50 percent or more (by value) of the beneficial interests in such entity are held (directly or indirectly) by or for 5 or fewer persons. For purposes of the preceding sentence, rules similar to the constructive ownership rules of section 1563(e) shall apply. (5) Election to use 10-percent method (A) General rule In the case of any long-term contract with respect to which an election under this paragraph is in effect, the 10-percent method shall apply in determining the taxable income from such contract.

“construction contract” applies in that section

the term “construction contract” means any contract for the building, construction, reconstruction, or rehabilitation of, or the installation of any integral component to, or improvements of, real property. (4) Definitions relating to residential construction contracts For purposes of this subsection— (A) Home construction contract

“contract commencement date” applies in that section

the term “contract commencement date” means, with respect to any contract, the first date on which any costs (other than bidding expenses or expenses incurred in connection with negotiating the contract) allocable to such contract are incurred. (h) Regulations The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including regulations to prevent the use of related parties, pass-thru entities, intermediaries, options, or other similar arrangements to avoid the application of this section.

“contract year” applies in that section

The term “contract year” means any taxable year for which income is taken into account under the contract. (ii) Look-back income or loss The look-back income (or loss) is the amount which would be the taxable income (or loss) under the contract if the allocation method set forth in paragraph (2)(A) were used in determining taxable income. (iii) Discounting not applicable The amounts taken into account after the completion of the contract shall be determined without regard to any discounting under the 2nd sentence of paragraph (2). (D) Contracts to which paragraph applies This paragraph shall only apply if the taxpayer makes an election under this subparagraph.

“Federal long-term contract” applies in that section

The term “Federal long-term contract” means any long-term contract— (A) to which the United States (or any agency or instrumentality thereof) is a party, or (B) which is a subcontract under a contract described in subparagraph (A). (2) Special rules for certain taxable entities For purposes of paragraph (1), the rules of section 168(h)(2)(D) (relating to certain taxable entities not treated as instrumentalities) shall apply.

“highest rate” applies in that section

The term “highest rate” means— (I) the highest rate of tax specified in section 11, or (II) if at all times during the year involved more than 50 percent of the interests in the entity are held by individuals directly or through 1 or more other pass-thru entities, the highest rate of tax specified in section 1. (ii) Pass-thru entity

“home construction contract” applies in that section

The term “home construction contract” means any construction contract if 80 percent or more of the estimated total contract costs (as of the close of the taxable year in which the contract was entered into) are reasonably expected to be attributable to activities referred to in paragraph (3) with respect to— (i) dwelling units (as defined in section 168(e)(2)(A)(ii)) contained in buildings containing 4 or fewer dwelling units (as so defined), and (ii) improvements to real property directly related to such dwelling units and located on the site of such dwelling units. For purposes of clause (i), each townhouse or rowhouse shall be treated as a separate building.

“independent research and development expenses” applies in that section

the term “independent research and development expenses” means any expenses incurred in the performance of research or development, except that such term shall not include— (A) any expenses which are directly attributable to a long-term contract in existence when such expenses are incurred, or (B) any expenses under an agreement to perform research or development.

“interest accrual period” applies in that section

the term “interest accrual period” means the period— (i) beginning on the day after the return due date for any taxable year of the taxpayer, and (ii) ending on the return due date for the following taxable year. For purposes of the preceding sentence,

“long-term contract” applies in that section

The term “long-term contract” means any contract for the manufacture, building, installation, or construction of property if such contract is not completed within the taxable year in which such contract is entered into. (2) Special rule for manufacturing contracts A contract for the manufacture of property shall not be treated as a long-term contract unless such contract involves the manufacture of— (A) any unique item of a type which is not normally included in the finished goods inventory of the taxpayer, or (B) any item which normally requires more than 12 calendar months to complete (without regard to the period of the contract). (3) Aggregation, etc.

“pass-thru entity” applies in that section

The term “pass-thru entity” means any— (I) partnership, (II) S corporation, or (III) trust. (iii) Closely held pass-thru entity

“qualified property” applies in that section

the term “qualified property” means property described in section 168(k)(2) which has a recovery period of 7 years or less. (d) Federal long-term contract For purposes of this section— (1) In general

“residential construction contract” applies in that section

The term “residential construction contract” means any contract which would be described in subparagraph (A) if clause (i) of such subparagraph reads as follows: “(i) dwelling units (as defined in section 168(e)(2)(A)(ii)), and”. (f) Long-term contract For purposes of this section— (1) In general

“return due date” applies in that section

the term “return due date” means the date prescribed for filing the return of the tax imposed by this chapter (determined without regard to extensions). (c) Allocation of costs to contract (1) Direct and certain indirect costs In the case of a long-term contract, all costs (including research and experimental costs) which directly benefit, or are incurred by reason of, the long-term contract activities of the taxpayer shall be allocated to such contract in the same manner as costs are allocated to extended period long-term contracts under section 451 and the regulations thereunder.

“applicable subsidy” applies in that section

the term “applicable subsidy” means— (A) any direct or counter-cyclical payment under title I of the Food, Conservation, and Energy Act of 2008, or any payment elected to be received in lieu of any such payment, or (B) any Commodity Credit Corporation loan. (4) Excess farm loss For purposes of this subsection— (A) In general

“economic performance” applies in that section

the term “economic performance” has the meaning given such term by subsection (h). (j) Limitation on excess farm losses of certain taxpayers (1) Limitation If a taxpayer other than a C corporation receives any applicable subsidy for any taxable year, any excess farm loss of the taxpayer for the taxable year shall not be allowed. (2) Disallowed loss carried to next taxable year Any loss which is disallowed under paragraph (1) shall be treated as a deduction of the taxpayer attributable to farming businesses in the next taxable year. (3) Applicable subsidy For purposes of this subsection,

“excess business loss” applies in that section

The term “excess business loss” means the excess (if any) of— (i) the aggregate deductions of the taxpayer for the taxable year which are attributable to trades or businesses of such taxpayer (determined without regard to whether or not such deductions are disallowed for such taxable year under paragraph (1) and without regard to any deduction allowable under section 172 or 199A), over (ii) the sum of— (I) the aggregate gross income or gain of such taxpayer for the taxable year which is attributable to such trades or businesses, plus (II) $250,000 (200 percent of such amount in the case of a joint return).

“excess farm loss” applies in that section

The term “excess farm loss” means the excess of— (i) the aggregate deductions of the taxpayer for the taxable year which are attributable to farming businesses of such taxpayer (determined without regard to whether or not such deductions are disallowed for such taxable year under paragraph (1)), over (ii) the sum of— (I) the aggregate gross income or gain of such taxpayer for the taxable year which is attributable to such farming businesses, plus (II) the threshold amount for the taxable year. (B) Threshold amount (i) In general

“family” applies in that section

the term “family” has the meaning given to such term by section 267(c)(4). (3) Farming For purposes of this subsection,

“farming” applies in that section

the term “farming” has the meaning given to such term by section 464(e). (4) Limited entrepreneur For purposes of this subsection,

“farming business” applies in that section

The term “farming business” has the meaning given such term in section 263A(e)(4). (ii) Certain trades and businesses included If, without regard to this clause, a taxpayer is engaged in a farming business with respect to any agricultural or horticultural commodity—;

“farming syndicate” applies in that section

the term “farming syndicate” means— (A) a partnership or any other enterprise other than a corporation which is not an S corporation engaged in the trade or business of farming, if at any time interests in such partnership or enterprise have been offered for sale in any offering required to be registered with any Federal or State agency having authority to regulate the offering of securities for sale, or (B) a partnership or any other enterprise other than a corporation which is not an S corporation engaged in the trade or business of farming, if more than 35 percent of the losses during any period are allocable to limited partners or limited entrepreneurs.

“limited entrepreneur” applies in that section

the term “limited entrepreneur” means a person who— (A) has an interest in an enterprise other than as a limited partner, and (B) does not actively participate in the management of such enterprise. (l) Limitation on excess business losses of noncorporate taxpayers (1) Limitation In the case of a taxpayer other than a corporation— (A) for any taxable year beginning after December 31, 2017 , and before January 1, 2027 , subsection (j) (relating to limitation on excess farm losses of certain taxpayers) shall not apply, and (B) for any taxable year beginning after December 31, 2020 , and before January 1, 2027 , any excess business loss of the taxpayer for the taxable year shall not be allowed.

“tax shelter” applies in that section

the term “tax shelter” means— (A) any enterprise (other than a C corporation) if at any time interests in such enterprise have been offered for sale in any offering required to be registered with any Federal or State agency having the authority to regulate the offering of securities for sale, (B) any syndicate (within the meaning of section 1256(e)(3)(B)), and (C) any tax shelter (as defined in section 6662(d)(2)(C)(ii)).

“threshold amount” applies in that section

The term “threshold amount” means, with respect to any taxable year, the greater of— (I) $300,000 ($150,000 in the case of married individuals filing separately), or (II) the excess (if any) of the aggregate amounts described in subparagraph (A)(ii)(I) for the 5-consecutive taxable year period preceding the taxable year over the aggregate amounts described in subparagraph (A)(i) for such period.

“deductible farming expenses” applies in that section

The term “deductible farming expenses” means any amount allowable as a deduction under this chapter (including any amount allowable as a deduction for depreciation or amortization) which is properly allocable to the trade or business of farming. (e) Farming For purposes of this section,

“excess prepaid farm supplies” applies in that section

The term “excess prepaid farm supplies” means the prepaid farm supplies for the taxable year to the extent the amount of such supplies exceeds 50 percent of the deductible farming expenses for the taxable year (other than prepaid farm supplies). (B) Prepaid farm supplies

“farm-related taxpayer” applies in that section

the term “farm-related taxpayer” means any taxpayer— (i) whose principal residence (within the meaning of section 121) is on a farm, (ii) who has a principal occupation of farming, or (iii) who is a member of the family (within the meaning of section 461(k)(2)(E)) of a taxpayer described in clause (i) or (ii). (3) Definitions For purposes of this subsection— (A) Excess prepaid farm supplies

“farming” applies in that section

the term “farming” means the cultivation of land or the raising or harvesting of any agricultural or horticultural commodity including the raising, shearing, feeding, caring for, training, and management of animals. For purposes of the preceding sentence, trees (other than trees bearing fruit or nuts) shall not be treated as an agricultural or horticultural commodity.

“prepaid farm supplies” applies in that section

The term “prepaid farm supplies” means any amounts which are described in subsection (a) or (b) and would be allowable for a subsequent taxable year under the rules of subsections (a) and (b). (C) Deductible farming expenses

“qualified farm-related taxpayer” applies in that section

the term “qualified farm-related taxpayer” means any farm-related taxpayer if— (i) (I) the aggregate prepaid farm supplies for the 3 taxable years preceding the taxable year are less than 50 percent of, (II) the aggregate deductible farming expenses (other than prepaid farm supplies) for such 3 taxable years, or (ii) the taxpayer has excess prepaid farm supplies for the taxable year by reason of any change in business operation directly attributable to extraordinary circumstances. (B) Farm-related taxpayer For purposes of this paragraph,

“affiliated group of corporations” applies in that section

The term “affiliated group of corporations” means an affiliated group (as defined in section 1504(a)) which files or is required to file consolidated income tax returns. (iii) Component member

“component member” applies in that section

The terms “controlled group of corporations” and “component member” have the same meanings as when used in section 1563. The determination of the taxable years taken into account with respect to any controlled group of corporations shall be made in a manner consistent with the manner set forth in section 1563. (7) Exclusion of active businesses of qualified C corporations (A) In general In the case of a taxpayer which is a qualified C corporation— (i) each qualifying business carried on by such taxpayer shall be treated as a separate activity, and (ii) subsection (a) shall not apply to losses from such business. (B) Qualified C corporation For purposes of subparagraph (A),

“controlled group of corporations” applies in that section

The terms “controlled group of corporations” and “component member” have the same meanings as when used in section 1563. The determination of the taxable years taken into account with respect to any controlled group of corporations shall be made in a manner consistent with the manner set forth in section 1563. (7) Exclusion of active businesses of qualified C corporations (A) In general In the case of a taxpayer which is a qualified C corporation— (i) each qualifying business carried on by such taxpayer shall be treated as a separate activity, and (ii) subsection (a) shall not apply to losses from such business. (B) Qualified C corporation For purposes of subparagraph (A),

“equipment leasing” applies in that section

The term “equipment leasing” means— (i) the leasing of equipment which is section 1245 property, and (ii) the purchasing, servicing, and selling of such equipment. (B) Leasing of master sound recordings, etc., excluded The term “equipment leasing” does not include the leasing of master sound recordings, and other similar contractual arrangements with respect to tangible or intangible assets associated with literary, artistic, or musical properties. (C) Controlled group of corporations; component member

“excluded business” applies in that section

The term “excluded business” means— (I) equipment leasing (as defined in paragraph (6)), and (II) any business involving the use, exploitation, sale, lease, or other disposition of master sound recordings, motion picture films, video tapes, or tangible or intangible assets associated with literary, artistic, musical, or similar properties. (iii) Special rules relating to communications industry, etc.

“insurance business” applies in that section

the term “insurance business” means any business which is not a noninsurance business (within the meaning of section 453B(e)(3)). (III) Qualified life insurance company For purposes of subclause (I),

“loss” applies in that section

the term “loss” means the excess of the deductions allowable under this chapter for the taxable year (determined without regard to the first sentence of subsection (a)) and allocable to an activity to which this section applies over the income received or accrued by the taxpayer during the taxable year from such activity (determined without regard to subsection (e)(1)(A)).

“non-owner employee” applies in that section

The term “non-owner employee” means any employee who does not own, at any time during the taxable year, more than 5 percent in value of the outstanding stock of the taxpayer. For purposes of the preceding sentence, section 318 shall apply, except that “5 percent” shall be substituted for “50 percent” in section 318(a)(2)(C). (ii) Excluded business

“qualified C corporation” applies in that section

the term “qualified C corporation” means any corporation described in subparagraph (B) of subsection (a)(1) which is not— (i) a personal holding company (as defined in section 542(a)), or (ii) a personal service corporation (as defined in section 269A(b) but determined by substituting “5 percent” for “10 percent” in section 269A(b)(2)). (C) Qualifying business For purposes of this paragraph,

“qualified corporate partner” applies in that section

the term “qualified corporate partner” means any corporation if— (I) such corporation is a general partner in the partnership, (II) such corporation has an interest of 10 percent or more in the profits and losses of the partnership, and (III) such corporation has contributed property to the partnership in an amount not less than the lesser of $500,000 or 10 percent of the net worth of the corporation. For purposes of subclause (III), any contribution of property other than money shall be taken into account at its fair market value.

“qualified leasing group” applies in that section

the term “qualified leasing group” means a controlled group of corporations which, for the taxable year and each of the 2 immediately preceding taxable years, satisfied each of the following 3 requirements: (i) At least 3 employees During the entire year, the group had at least 3 full-time employees substantially all of the services of whom were services directly related to the equipment leasing activity of the qualified leasing members. (ii) At least 5 separate leasing transactions During the year, the qualified leasing members in the aggregate entered into at least 5 separate equipment leasing transactions.

“qualified life insurance company” applies in that section

the term “qualified life insurance company” means any company which would be a life insurance company as defined in section 816 if unearned premiums were not taken into account under subsections (a)(2) and (c)(2) of section 816. (E) Definitions For purposes of this paragraph— (i) Non-owner employee

“qualified nonrecourse financing” applies in that section

the term “qualified nonrecourse financing” means any financing— (i) which is borrowed by the taxpayer with respect to the activity of holding real property, (ii) which is borrowed by the taxpayer from a qualified person or represents a loan from any Federal, State, or local government or instrumentality thereof, or is guaranteed by any Federal, State, or local government, (iii) except to the extent provided in regulations, with respect to which no person is personally liable for repayment, and (iv) which is not convertible debt.

“qualified person” applies in that section

The term “qualified person” has the meaning given such term by section 49(a)(1)(D)(iv). (ii) Certain commercially reasonable financing from related persons For purposes of clause (i), section 49(a)(1)(D)(iv) shall be applied without regard to subclause (I) thereof (relating to financing from related persons) if the financing from the related person is commercially reasonable and on substantially the same terms as loans involving unrelated persons.

“qualifying business” applies in that section

the term “qualifying business” means any active business if— (i) during the entire 12-month period ending on the last day of the taxable year, such corporation had at least 1 full-time employee substantially all the services of whom were in the active management of such business, (ii) during the entire 12-month period ending on the last day of the taxable year, such corporation had at least 3 full-time, nonowner employees substantially all of the services of whom were services directly related to such business, (iii) the amount of the deductions attributable to such business which are allowable to the taxpayer solely by reason of sections 162 and 404 for the taxable year exceeds 15 percent …

“constant rental amount” applies in that section

The term “constant rental amount” means, with respect to any section 467 rental agreement, the amount which, if paid as of the close of each lease period under the agreement, would result in an aggregate present value equal to the present value of the aggregate payments required under the agreement. (2) Leaseback transaction A transaction is a leaseback transaction if it involves a leaseback to any person who had an interest in such property at any time within 2 years before such leaseback (or to a related person).

“disqualified leaseback or long-term agreement” applies in that section

the term “disqualified leaseback or long-term agreement” means any section 467 rental agreement if— (A) such agreement is part of a leaseback transaction or such agreement is for a term in excess of 75 percent of the statutory recovery period for the property, and (B) a principal purpose for providing increasing rents under the agreement is the avoidance of tax imposed by this subtitle.

“leaseback or long-term agreement” applies in that section

the term “leaseback or long-term agreement” means any agreement described in subsection (b)(4)(A). (5) Special rules Under regulations prescribed by the Secretary— (A) exceptions similar to the exceptions applicable under section 1245 or 1250 (whichever is appropriate) shall apply for purposes of this subsection, (B) any transferee in a disposition excepted by reason of subparagraph (A) who has a transferred basis in the property shall be treated in the same manner as the transferor, and (C) for purposes of sections 170(e) and 751(c), amounts treated as ordinary income under this section shall be treated in the same manner as amounts treated as ordinary income under section 1245 or 1250.

“prior understated inclusion” applies in that section

the term “prior understated inclusion” means the excess (if any) of— (A) the amount which would have been taken into account by the lessor under subsection (a) for periods before the disposition if subsection (b)(2) had applied to the agreement, over (B) the amount taken into account under subsection (a) by the lessor for periods before the disposition. (4) Leaseback or long-term agreement For purposes of this subsection,

“recapture amount” applies in that section

the term “recapture amount” means the lesser of— (A) the prior understated inclusions, or (B) the excess of the amount realized (or in the case of a disposition other than a sale, exchange, or involuntary conversion, the fair market value of the property) over the adjusted basis of such property. The amount determined under subparagraph (B) shall be reduced by the amount of any gain treated as ordinary income on the disposition under any other provision of this subtitle. (3) Prior understated inclusions For purposes of this subsection,

“related person” applies in that section

The term “related person” has the meaning given to such term by section 465(b)(3)(C). (6) Certain options of lessee to renew not taken into account Except as provided in regulations prescribed by the Secretary, there shall not be taken into account in computing the term of any agreement for purposes of this section any extension which is solely at the option of the lessee. (f) Comparable rules where agreement for decreasing payments Under regulations prescribed by the Secretary, rules comparable to the rules of this section shall also apply in the case of any agreement where the amount paid under the agreement for the use of property decreases during the term of the agreement.

“section 467 rental agreements” applies in that section

the term “section 467 rental agreements” means any rental agreement for the use of tangible property under which— (A) there is at least one amount allocable to the use of property during a calendar year which is to be paid after the close of the calendar year following the calendar year in which such use occurs, or (B) there are increases in the amount to be paid as rent under the agreement.

“current closing costs” applies in that section

The term “current closing costs” means the amount which the taxpayer would be required to pay for qualified closing costs if the closing activities were performed currently. (ii) Costs computed on unit-of-production or capacity method Estimated closing costs shall— (I) in the case of the closing of any mine site, be computed on the unit-of-production method of accounting, and (II) in the case of the closing of any solid waste disposal site, be computed on the unit-of-capacity method. (2) Qualified reclamation or closing costs

“current reclamation costs” applies in that section

The term “current reclamation costs” means the amount which the taxpayer would be required to pay for qualified reclamation costs if the reclamation activities were performed currently. (B) Current closing costs (i) In general

“property” applies in that section

The term “property” has the meaning given such term by section 614. (4) Reserve property

“qualified reclamation or closing costs” applies in that section

The term “qualified reclamation or closing costs” means any of the following expenses: (A) Mining reclamation and closing costs Any expenses incurred for any land reclamation or closing activity which is conducted in accordance with a reclamation plan (including an amendment or modification thereof)— (i) which— (I) is submitted pursuant to the provisions of section 511 or 528 of the Surface Mining Control and Reclamation Act of 1977 (as in effect on January 1, 1984 ), and (II) is part of a surface mining and reclamation permit granted under the provisions of title V of such Act (as so in effect), or (ii) which is submitted pursuant to any other Federal or State law which imposes surface …

“reserve property” applies in that section

The term “reserve property” means any property with respect to which a reserve is established under subsection (a)(1).

“nuclear powerplant” applies in that section

the term “nuclear powerplant” includes any unit thereof. (h) Time when payments deemed made For purposes of this section, a taxpayer shall be deemed to have made a payment to the Fund on the last day of a taxable year if such payment is made on account of such taxable year and is made within 2½ months after the close of such taxable year.

“ruling amount” applies in that section

The term “ruling amount” means, with respect to any taxable year, the amount which the Secretary determines under paragraph (1) to be necessary to— (A) fund the total nuclear decommissioning costs with respect to such power plant over the estimated useful life of such power plant, and (B) prevent any excessive funding of such costs or the funding of such costs at a rate more rapid than level funding, taking into account such discount rates as the Secretary deems appropriate.

“designated settlement fund” applies in that section

The term “designated settlement fund” means any fund— (A) which is established pursuant to a court order and which extinguishes completely the taxpayer’s tort liability with respect to claims described in subparagraph (D), (B) with respect to which no amounts may be transferred other than in the form of qualified payments, (C) which is administered by persons a majority of whom are independent of the taxpayer, (D) which is established for the principal purpose of resolving and satisfying present and future claims against the taxpayer (or any related person or formerly related person) arising out of personal injury, death, or property damage, (E) under the terms of which the taxpayer (or any …

“government entity” applies in that section

the term “government entity” means the United States, any State or political subdivision thereof, the District of Columbia, any possession of the United States, and any agency or instrumentality of any of the foregoing.

“qualified payment” applies in that section

The term “qualified payment” means any money or property which is transferred to any designated settlement fund pursuant to a court order, other than— (A) any amount which may be transferred from the fund to the taxpayer (or any related person), or (B) the transfer of any stock or indebtedness of the taxpayer (or any related person). (2) Designated settlement fund

“related person” applies in that section

The term “related person” means a person related to the taxpayer within the meaning of section 267(b). (e) Nonapplicability of section This section (other than subsection (g)) shall not apply with respect to any liability of the taxpayer arising under any workers’ compensation Act or any contested liability of the taxpayer within the meaning of section 461(f). (f) Other funds Except as provided in regulations, any payment in respect of a liability described in subsection (d)(2)(D) (and not described in subsection (e)) to a trust fund or escrow fund which is not a designated settlement fund shall not be treated as constituting economic performance.

“closely held C corporation” applies in that section

The term “closely held C corporation” means any C corporation described in section 465(a)(1)(B). (2) Personal service corporation

“former passive activity” applies in that section

The term “former passive activity” means any activity which, with respect to the taxpayer— (A) is not a passive activity for the taxable year, but (B) was a passive activity for any prior taxable year. (g) Dispositions of entire interest in passive activity If during the taxable year a taxpayer disposes of his entire interest in any passive activity (or former passive activity), the following rules shall apply: (1) Fully taxable transaction (A) In general If all gain or loss realized on such disposition is recognized, the excess of— (i) any loss from such activity for such taxable year (determined after the application of subsection (b)), over (ii) any net income or gain for such taxable …

“net active income” applies in that section

the term “net active income” means the taxable income of the taxpayer for the taxable year determined without regard to— (i) any income or loss from a passive activity, and (ii) any item of gross income, expense, gain, or loss described in paragraph (1)(A). (3) Compensation for personal services Earned income (within the meaning of section 911(d)(2)(A)) shall not be taken into account in computing the income or loss from a passive activity for any taxable year. (4) Dividends reduced by dividends received deduction For purposes of paragraphs (1) and (2), income from dividends shall be reduced by the amount of any dividends received deduction under section 243 or 245.

“passive activity” applies in that section

The term “passive activity” means any activity— (A) which involves the conduct of any trade or business, and (B) in which the taxpayer does not materially participate. (2) Passive activity includes any rental activity Except as provided in paragraph (7),

“passive activity credit” applies in that section

The term “passive activity credit” means the amount (if any) by which— (A) the sum of the credits from all passive activities allowable for the taxable year under— (i) subpart D of part IV of subchapter A, or (ii) subpart B (other than section 27) of such part IV, exceeds (B) the regular tax liability of the taxpayer for the taxable year allocable to all passive activities.

“passive activity loss” applies in that section

The term “passive activity loss” means the amount (if any) by which— (A) the aggregate losses from all passive activities for the taxable year, exceed (B) the aggregate income from all passive activities for such year. (2) Passive activity credit

“personal service corporation” applies in that section

The term “personal service corporation” has the meaning given such term by section 269A(b)(1), except that section 269A(b)(2) shall be applied— (A) by substituting “any” for “more than 10 percent”, and (B) by substituting “any” for “50 percent or more in value” in section 318(a)(2)(C). A corporation shall not be treated as a personal service corporation unless more than 10 percent of the stock (by value) in such corporation is held by employee-owners (within the meaning of section 269A(b)(2), as modified by the preceding sentence). (3) Regular tax liability

“publicly traded partnership” applies in that section

the term “publicly traded partnership” means any partnership if— (A) interests in such partnership are traded on an established securities market, or (B) interests in such partnership are readily tradable on a secondary market (or the substantial equivalent thereof). (3) Coordination with subsection (g) For purposes of subsection (g), a taxpayer shall not be treated as having disposed of his entire interest in an activity of a publicly traded partnership until he disposes of his entire interest in such partnership.

“real property trade or business” applies in that section

the term “real property trade or business” means any real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage trade or business. (D) Special rules for subparagraph (B) (i) Closely held C corporations In the case of a closely held C corporation, the requirements of subparagraph (B) shall be treated as met for any taxable year if more than 50 percent of the gross receipts of such corporation for such taxable year are derived from real property trades or businesses in which the corporation materially participates.

“regular tax liability” applies in that section

The term “regular tax liability” has the meaning given such term by section 26(b). (4) Allocation of passive activity loss and credit The passive activity loss and the passive activity credit (and the $25,000 amount under subsection (i)) shall be allocated to activities, and within activities, on a pro rata basis in such manner as the Secretary may prescribe. (5) Deduction equivalent The deduction equivalent of credits from a passive activity for any taxable year is the amount which (if allowed as a deduction) would reduce the regular tax liability for such taxable year by an amount equal to such credits.

“rental activity” applies in that section

The term “rental activity” means any activity where payments are principally for the use of tangible property. (9) Election to increase basis of property by amount of disallowed credit For purposes of determining gain or loss from a disposition of any property to which subsection (g)(1) applies, the transferor may elect to increase the basis of such property immediately before the transfer by an amount equal to the portion of any unused credit allowable under this chapter which reduced the basis of such property for the taxable year in which such credit arose.

“trade or business” applies in that section

the term “trade or business” includes any activity involving research or experimentation (within the meaning of section 174). (6) Activity in connection with trade or business or production of income To the extent provided in regulations, for purposes of paragraph (1)(A),

“allowable amount” applies in that section

the term “allowable amount” means an amount equal to 20 percent of the lessor’s adjusted basis in the property at the time the lease is entered into. (ii) Higher amount permitted in certain cases To the extent provided in regulations, a higher percentage shall be permitted under clause (i) where necessary because of the credit-worthiness of the lessee. In no event may such regulations permit a percentage of more than 50 percent.

“former tax-exempt use property” applies in that section

the term “former tax-exempt use property” means any property which— (i) is not tax-exempt use property for the taxable year, but (ii) was tax-exempt use property for any prior taxable year. (2) Disposition of entire interest in property If during the taxable year a taxpayer disposes of the taxpayer’s entire interest in tax-exempt use property (or former tax-exempt use property), rules similar to the rules of section 469(g) shall apply for purposes of this section. (3) Coordination with section 469 This section shall be applied before the application of section 469.

“lease term” applies in that section

The term “lease term” has the meaning given to such term by section 168(i)(3). (3) Lender

“lender” applies in that section

The term “lender” means, with respect to any lease, a person that makes a loan to the lessor which is secured (or economically similar to being secured) by the lease or the leased property. (4) Loan

“loan” applies in that section

The term “loan” includes any similar arrangement. (g) Regulations The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including regulations which— (1) allow in appropriate cases the aggregation of property subject to the same lease, and (2) provide for the determination of the allocation of interest expense for purposes of this section.

“tax-exempt use loss” applies in that section

The term “tax-exempt use loss” means, with respect to any taxable year, the amount (if any) by which— (A) the sum of— (i) the aggregate deductions (other than interest) directly allocable to a tax-exempt use property, plus (ii) the aggregate deductions for interest properly allocable to such property, exceed (B) the aggregate income from such property. (2) Tax-exempt use property (A) In general

“tax-exempt use property” applies in that section

The term “tax-exempt use property” has the meaning given to such term by section 168(h), except that such section shall be applied— (i) without regard to paragraphs (1)(C) and (3) thereof, and (ii) as if section 197 intangible property (as defined in section 197), and property described in paragraph (1)(B) or (2) of section 167(f), were tangible property. (B) Exception for partnerships Such term shall not include any property which would (but for this subparagraph) be tax-exempt use property solely by reason of section 168(h)(6). (C) Cross reference For treatment of partnerships as leases to which section 168(h) applies, see section 7701(e).

“applicable financial statement” applies in that section

the term “applicable financial statement” has the meaning given the term in section 451(b)(3). (3) Application of gross receipts test to individuals, etc. In the case of any taxpayer which is not a corporation or a partnership, the gross receipts test of section 448(c) shall be applied in the same manner as if each trade or business of such taxpayer were a corporation or partnership. (4) Coordination with section 481 Any change in method of accounting made pursuant to this subsection shall be treated for purposes of section 481 as initiated by the taxpayer and made with the consent of the Secretary.

“group of financially related corporations” applies in that section

the term “group of financially related corporations” means— (A) any affiliated group as defined in section 1504 determined by substituting “50 percent” for “80 percent” each place it appears in section 1504(a) and without regard to section 1504(b), and (B) any other group of corporations which consolidate or combine for purposes of financial statements.

“LIFO method” applies in that section

The term “LIFO method” means the method of inventorying goods described in section 472. (5) Election (A) In general An election under subsection (a) shall be made subject to such conditions, and in such manner and form and at such time, as the Secretary may prescribe by regulation. (B) Irrevocable election An election under this section shall be irrevocable and shall be binding for the liquidation year and for all determinations for prior and subsequent taxable years insofar as such determinations are affected by the adjustments under this section.

“liquidation year” applies in that section

The term “liquidation year” means the taxable year in which occurs the qualified liquidation to which this section applies. (2) Replacement year

“qualified inventory interruption” applies in that section

The term “qualified inventory interruption” means a regulation, request, or interruption described in subparagraph (B) but only to the extent provided in the notice published pursuant to subparagraph (B).

“qualified liquidation” applies in that section

The term “qualified liquidation” means— (A) a decrease in the closing inventory of the liquidation year from the opening inventory of such year, but only if (B) the taxpayer establishes to the satisfaction of the Secretary that such decrease is directly and primarily attributable to a qualified inventory interruption. (2) Qualified inventory interruption defined (A) In general

“replacement period” applies in that section

The term “replacement period” means the shorter of— (A) the period of the 3 taxable years following the liquidation year, or (B) the period specified by the Secretary in a notice published in the Federal Register with respect to that qualified inventory interruption. Any period specified by the Secretary under subparagraph (B) may be modified by the Secretary in a subsequent notice published in the Federal Register. (4) LIFO method

“replacement year” applies in that section

The term “replacement year” means any taxable year in the replacement period; except that such term shall not include any taxable year after the taxable year in which replacement of the liquidated goods is completed. (3) Replacement period

“applicable Government price index” applies in that section

The term “applicable Government price index” means— (A) except as provided in subparagraph (B), the Producer Price Index published by the Bureau of Labor Statistics, or (B) in the case of a retailer using the retail method, the Consumer Price Index published by the Bureau of Labor Statistics. (3) Major category