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Sec. 126. Certain Cost-Sharing Payments

I.R.C. § 126(a) General Rule
Gross income does not include the excludable portion of payments received under—
I.R.C. § 126(a)(1)
The rural clean water program authorized by section 208(j) of the Federal Water Pollution Control Act (33 U.S.C. 1288(j)).
I.R.C. § 126(a)(2)
The rural abandoned mine program authorized by section 406 of the Surface Mining Control and Reclamation Act of 1977 (30 U.S.C. 1236).
I.R.C. § 126(a)(3)
The water bank program authorized by the Water Bank Act (16 U.S.C. 1301 et seq.).
I.R.C. § 126(a)(4)
The emergency conservation measures program authorized by title IV of the Agricultural Credit Act of 1978.
I.R.C. § 126(a)(5)
The agricultural conservation program authorized by the Soil Conservation and Domestic Allotment Act (16 U.S.C. 590a).
I.R.C. § 126(a)(6)
The resource conservation and development program authorized by the Bankhead-Jones Farm Tenant Act and by the Soil Conservation and Domestic Allotment Act (7 U.S.C. 1010; 16 U.S.C. 590a et seq.).
I.R.C. § 126(a)(7)
Any small watershed program administered by the Secretary of Agriculture which is determined by the Secretary of the Treasury or his delegate to be substantially similar to the type of programs described in paragraphs (1) through (8).
I.R.C. § 126(a)(8)
Any program of a State, possession of the United States, a political subdivision of any of the foregoing, or the District of Columbia under which payments are made to individuals primarily for the purpose of conserving soil, protecting or restoring the environment, improving forests, or providing a habitat for wildlife.
I.R.C. § 126(b) Excludable Portion
For purposes of this section—
I.R.C. § 126(b)(1) In General
The term “excludable portion” means that portion (or all) of a payment made to any person under any program described in subsection (a) which—
I.R.C. § 126(b)(1)(A)
is determined by the Secretary of Agriculture to be made primarily for the purpose of conserving soil and water resources, protecting or restoring the environment, improving forests, or providing a habitat for wildlife, and
I.R.C. § 126(b)(1)(B)
is determined by the Secretary of the Treasury or his delegate as not increasing substantially the annual income derived from the property.
I.R.C. § 126(b)(2) Payments Not Chargeable To Capital Account
The term “excludable portion” does not include that portion of any payment which is properly associated with an amount which is allowable as a deduction for the taxable year in which such amount is paid or incurred.
I.R.C. § 126(c) Election For Section Not To Apply
I.R.C. § 126(c)(1) In General
The taxpayer may elect not to have this section (and section 1255) apply to any excludable portion (or portion thereof).
I.R.C. § 126(c)(2) Manner And Time For Making Election
Any election under paragraph (1) shall be made in the manner prescribed by the Secretary by regulations and shall be made not later than the due date prescribed by law (including extensions) for filing the return of tax under this chapter for the taxable year in which the payment was received or accrued.
I.R.C. § 126(d) Denial Of Double Benefits
No deduction or credit shall be allowed with respect to any expenditure which is properly associated with any amount excluded from gross income under subsection (a).
I.R.C. § 126(e) Basis Of Property Not Increased By Reason Of Excludable Payments
Notwithstanding any provision of section 1016 to the contrary, no adjustment to basis shall be made with respect to property acquired or improved through the use of any payment, to the extent that such adjustment would reflect any amount which is excluded from gross income under subsection (a).
(Added by Pub. L. 95-600, title V, 543(a), Nov. 6, 1978, 92 Stat. 2888, and amended by Pub. L. 96-222, title I, 105(a)(7)(A), (C), (E), Apr. 1, 1980, 94 Stat. 220, 221; Pub. L. 113-295, Div. A, title II, Sec. 221(a)(22), Dec. 19, 2014, 128 Stat. 4010; Pub. L. 115-141, Div. U, title IV, Sec. 401(b)(9), Mar. 23, 2018, 132 Stat. 348.)
BACKGROUND NOTES
AMENDMENTS
2018--Subsec. (a). Pub. L. 115-141, Div. U, Sec. 401(b)(9), amended subsec. (a) by striking par. (7) and by redesignating pars. (8) and (9) as pars. (7) and (8), respectively. Before being struck, par. (7) read as follows:
“(7) The forestry incentives program authorized by section 4 of the Cooperative Assistance Act of 1978 (16 U.S.C. 2103I).”
2014--Subsec. (a). Pub. L. 113-295, Div. A, Sec. 221(a)(22), amended subsec. (a) by striking par. (6) and by redesignating pars. (7)-(10) as pars. (6)-(9), respectively. Before being struck, par. (6) read as follows:
“(6) The great plains conservation program authorized by section 16 of the Soil Conservation and Domestic Policy Act (16 U.S.C. 590p(b)).”
1980--Subsec. (a). Pub. L. 96-222, 105(a)(7)(C), (E), inserted in par. (9) “or his delegate” after “Secretary of the Treasury" and substituted in par. (10) “Any program of a State, possession of the United States, a political subdivision of any of the foregoing, or the District of Columbia” for “Any State program”.
Subsec. (b). Pub. L. 96-222, 105(a)(7)(A), inserted provisions relating to payments not chargeable to capital account.
Subsec. (c). Pub. L. 96-222, 105(a)(7)(A), substituted provisions allowing the taxpayer to elect not to have this section apply to any excludable portion for provisions relating to the application of subsec. (a) of this section with other sections.
Subsecs. (d), (e). Pub. L. 96-222, 105(a)(7)(A), added subsecs. (d) and (e).
EFFECTIVE DATE OF 2018 AMENDMENTS
Amendments by Pub. L. 115-141, Div. U, Sec. 401(b)(9), effective March 23, 2018.
Sec. 401(e) of Pub. L. 115-141, Div. U, provided the following savings provision:
“(e) General Savings Provision With Respect To Deadwood Provisions.—If—
“(1) any provision amended or repealed by the amendments made by subsection (b) or (d) applied to—
“(A) any transaction occurring before the date of the enactment of this Act,
“(B) any property acquired before such date of enactment, or
“(C) any item of income, loss, deduction, or credit taken into account before such date of enactment, and
“(2) the treatment of such transaction, property, or item under such provision would (without regard to the amendments or repeals made by such subsection) affect the liability for tax for periods ending after such date of enactment,
“nothing in the amendments or repeals made by this section shall be construed to affect the treatment of such transaction, property, or item for purposes of determining liability for tax for periods ending after such date of enactment.”
EFFECTIVE DATE OF 2014 AMENDMENTS
Amendments by Pub. L. 113-295, Div. A, Sec. 221(a)(22), effective on the date of the enactment of this Act [Enacted: Dec. 19, 2014].
Section 221(b)(2) of Pub. L. 113-295, Div. A, provided the following Savings Provision:
“(2) SAVINGS PROVISION.—If—
“(A) any provision amended or repealed by the amendments made by this section applied to—
“(i) any transaction occurring before the date of the enactment of this Act [Enacted: Dec. 19, 2014],
“(ii) any property acquired before such date of enactment, or
“(iii) any item of income, loss, deduction, or credit taken into account before such date of enactment, and
“(B) the treatment of such transaction, property, or item under such provision would (without regard to the amendments or repeals made by this section) affect the liability for tax for periods ending after date of enactment, nothing in the amendments or repeals made by this section shall be construed to affect the treatment of such transaction, property, or item for purposes of determining liability for tax for periods ending after such date of enactment.”
EFFECTIVE DATE OF 1980 AMENDMENTS
Amendment by Pub. L. 96-222 effective, except as otherwise provided, as if it had been included in provisions of the Revenue Act of 1978, Pub. L. 95-600, to which such amendment relates, see section 201 of Pub. L. 96-222, set out as a note under section 32 of this title.
EFFECTIVE DATE
Section 543(d) of Pub. L. 95-600 provided that: “The amendments made by this section [enacting sections 126 and 1255 of this title] shall apply with respect to grants made under the programs after September 30, 1979.”