I.R.C. § 263A(a) Nondeductibility Of Certain Direct And Indirect Costs
I.R.C. § 263A(a)(1) In General —
In the case of any property to which this section applies, any costs described in
paragraph (2)—
I.R.C. § 263A(a)(1)(A) —
in the case of property which is inventory in the hands of the taxpayer, shall be
included in inventory costs, and
I.R.C. § 263A(a)(1)(B) —
in the case of any other property, shall be capitalized.
I.R.C. § 263A(a)(2) Allocable Costs —
The costs described in this paragraph with respect to any property are—
I.R.C. § 263A(a)(2)(A) —
the direct costs of such property, and
I.R.C. § 263A(a)(2)(B) —
such property's proper share of those indirect costs (including taxes) part or all
of which are allocable to such property.
Any cost which (but for this subsection)
could not be taken into account in computing taxable income for any taxable year
shall not be treated as a cost described in this paragraph.
I.R.C. § 263A(b) Property To Which Section Applies —
Except as otherwise provided in this section, this section shall apply to—
I.R.C. § 263A(b)(1) Property Produced By Taxpayer —
Real or tangible personal property produced by the taxpayer.
I.R.C. § 263A(b)(2) Property Acquired For Resale —
Real or personal property described in section 1221(a)(1)
which is acquired by the taxpayer for resale.
For purposes of paragraph (1), the term “tangible personal property” shall include
a film, sound recording, video tape, book, or similar property.
I.R.C. § 263A(c) General Exceptions
I.R.C. § 263A(c)(1) Personal Use Property —
This section shall not apply to any property produced by the taxpayer for use by
the taxpayer other than in a trade or business or an activity conducted for profit.
I.R.C. § 263A(c)(2) Research And Experimental Expenditures —
This section shall not apply to any amount allowable as a deduction under section
174.
I.R.C. § 263A(c)(3) Certain Development And Other Costs Of Oil And Gas Wells Or Other Mineral Property —
This section shall not apply to any cost allowable as a deduction under section
167(h),
179B, 263(c), 263(i), 291(b)(2), 616, or 617.
I.R.C. § 263A(c)(4) Coordination With Long-Term Contract Rules —
This section shall not apply to any property produced by the taxpayer pursuant to
a long-term contract.
I.R.C. § 263A(c)(5) Timber And Certain Ornamental Trees —
This section shall not apply to—
I.R.C. § 263A(c)(5)(A) —
trees raised, harvested, or grown by the taxpayer other than trees described in
clause (ii) of subsection
(e)(4)(B) (after application of the last sentence thereof), and
I.R.C. § 263A(c)(5)(B) —
any real property underlying such trees.
I.R.C. § 263A(c)(6) Coordination With Section 59(e) —
Paragraphs (2) and (3) shall apply to any amount allowable as a deduction under
section 59(e) for qualified expenditures described in subparagraphs (B), (C), (D), and (E) of
paragraph (2) thereof.
I.R.C. § 263A(c)(7) Coordination With Section 168(k)(5) —
This section shall not apply to any amount allowed as a deduction by reason of section 168(k)(5) (relating to special rules for certain plants bearing fruits and nuts).
I.R.C. § 263A(d) Exception For Farming Businesses
I.R.C. § 263A(d)(1) Section Not To Apply To Certain Property
I.R.C. § 263A(d)(1)(A) In General —
This section shall not apply to any of the following which is produced by the taxpayer
in a farming business:
I.R.C. § 263A(d)(1)(A)(i) —
Any animal.
I.R.C. § 263A(d)(1)(A)(ii) —
Any plant which has a preproductive period of 2 years or less.
I.R.C. § 263A(d)(1)(B) Exception For Taxpayers Required To Use Accrual Method —
Subparagraph (A) shall not apply to any corporation, partnership, or tax shelter
required to use an accrual method of accounting under section 447 or
448(a)(3).
I.R.C. § 263A(d)(2) Treatment Of Certain Plants Lost By Reason Of Casualty
I.R.C. § 263A(d)(2)(A) In General —
If plants bearing an edible crop for human consumption were lost or damaged (while
in the hands of the taxpayer) by reason of freezing temperatures, disease, drought,
pests, or casualty, this section shall not apply to any costs of the taxpayer of
replanting plants bearing the same type of crop (whether on the same parcel of land
on which such lost or damaged plants were located or any other parcel of land of
the same acreage in the United States).
I.R.C. § 263A(d)(2)(B) Special Rule For Person With Minority Interest Who Materially Participates —
Subparagraph (A) shall apply to amounts paid or incurred by a person (other than
the taxpayer described in subparagraph (A))
if—
I.R.C. § 263A(d)(2)(B)(i) —
the taxpayer described in subparagraph
(A) has an equity interest of more than 50 percent in the plants described in subparagraph
(A) at all times during the taxable year in which such amounts were paid or incurred,
and
I.R.C. § 263A(d)(2)(B)(ii) —
such other person holds any part of the remaining equity interest and materially
participates in the planting, maintenance, cultivation, or development of the plants
described in subparagraph (A) during the taxable year in which such amounts were
paid or incurred.
The determination of whether an individual materially
participates in any activity shall be made in a manner similar to the manner in which
such determination is made under section 2032A(e)(6).
I.R.C. § 263A(d)(2)(C) Special Temporary Rule For Citrus Plants Lost By Reason Of Casualty
I.R.C. § 263A(d)(2)(C)(i) In General —
In the case of the replanting of citrus plants, subparagraph
(A) shall apply to amounts paid or incurred by a person (other than the taxpayer described
in subparagraph (A)) if—
I.R.C. § 263A(d)(2)(C)(i)(I) —
the taxpayer described in subparagraph
(A) has an equity interest of not less than 50 percent in the replanted citrus plants
at all times during the taxable year in which such amounts were paid or incurred and
such other person holds any part of the remaining equity interest, or
I.R.C. § 263A(d)(2)(C)(i)(II) —
such other person acquired the entirety of such taxpayer's equity interest in the
land on which the lost or damaged citrus plants were located at the time of such loss
or damage, and the replanting is on such land.
I.R.C. § 263A(d)(2)(C)(ii) Termination —
Clause (i) shall not apply to any cost paid or incurred after the date which is 10
years after the date of the enactment of the Tax Cuts and Jobs Act.
I.R.C. § 263A(d)(3) Election To Have This Section Not Apply
I.R.C. § 263A(d)(3)(A) In General —
If a taxpayer makes an election under this paragraph, this section shall not apply
to any plant produced in any farming business carried on by such taxpayer.
I.R.C. § 263A(d)(3)(B) Certain Persons Not Eligible —
No election may be made under this paragraph by a corporation, partnership, or tax
shelter, if such corporation, partnership, or tax shelter is required to use an accrual
method of accounting under section 447 or
448(a)(3).
I.R.C. § 263A(d)(3)(C) Special Rule For Citrus And Almond Growers —
An election under this paragraph shall not apply with respect to any item which
is attributable to the planting, cultivation, maintenance, or development of any
citrus or almond grove (or part thereof) and which is incurred before the close of
the 4th taxable year beginning with the taxable year in which the trees were planted.
For purposes of the preceding sentence, the portion of a citrus or almond grove planted
in 1 taxable year shall be treated separately from the portion of such grove planted
in another taxable year.
I.R.C. § 263A(d)(3)(D) Election —
Unless the Secretary otherwise consents, an election under this paragraph may be
made only for the taxpayer's 1st taxable year which begins after December 31, 1986,
and during which the taxpayer engages in a farming business. Any such election, once
made, may be revoked only with the consent of the Secretary.
I.R.C. § 263A(e) Definitions And Special Rules For Purposes Of Subsection (d)
I.R.C. § 263A(e)(1) Recapture Of Expensed Amounts On Disposition
I.R.C. § 263A(e)(1)(A) In General —
In the case of any plant with respect to which amounts would have been capitalized
under subsection (a) but for an election under subsection (d)(3)—
I.R.C. § 263A(e)(1)(A)(i) —
such plant (if not otherwise section 1245 property) shall be treated as section 1245 property, and
I.R.C. § 263A(e)(1)(A)(ii) —
for purposes of section 1245, the recapture amount shall be treated as a deduction allowed for depreciation with
respect to such property.
I.R.C. § 263A(e)(1)(B) Recapture Amount —
For purposes of subparagraph (A), the term “recapture amount” means any amount allowable
as a deduction to the taxpayer which, but for an election under subsection (d)(3),
would have been capitalized with respect to the plant.
I.R.C. § 263A(e)(2) Effects Of Election On Depreciation
I.R.C. § 263A(e)(2)(A) In General —
If the taxpayer (or any related person) makes an election under subsection (d)(3),
the provisions of section 168(g)(2) (relating to alternative
depreciation) shall apply to all property of the taxpayer used predominantly in the
farming business and placed in service in any taxable year during which any such
election is in effect.
I.R.C. § 263A(e)(2)(B) Related Person —
For purposes of subparagraph (A), the term “related person” means—
I.R.C. § 263A(e)(2)(B)(i) —
the taxpayer and members of the taxpayer's family,
I.R.C. § 263A(e)(2)(B)(ii) —
any corporation (including an S corporation)
if 50 percent or more (in value) of the stock of such corporation is owned (directly
or through the application of section 318) by the taxpayer or members of the taxpayer's family,
I.R.C. § 263A(e)(2)(B)(iii) —
a corporation and any other corporation which is a member of the same controlled
group described in section 1563(a)(1), and
I.R.C. § 263A(e)(2)(B)(iv) —
any partnership if 50 percent or more
(in value) of the interests in such partnership is owned directly or indirectly by
the taxpayer or members of the taxpayer's family.
I.R.C. § 263A(e)(2)(C) Members Of Family —
For purposes of this paragraph, the term “family” means the taxpayer, the spouse
of the taxpayer, and any of their children who have not attained age 18 before the
close of the taxable year.
I.R.C. § 263A(e)(3) Preproductive Period
I.R.C. § 263A(e)(3)(A) In General —
For purposes of this section, the term “preproductive period” means—
I.R.C. § 263A(e)(3)(A)(i) —
in the case of a plant which will have more than 1 crop or yield, the period before
the 1st marketable crop or yield from such plant, or
I.R.C. § 263A(e)(3)(A)(ii) —
in the case of any other plant, the period before such plant is reasonably expected
to be disposed of.
For purposes of this subparagraph, use by the taxpayer in a farming business of any
supply produced in such business shall be treated as a disposition.
I.R.C. § 263A(e)(3)(B) Rule For Determining Period —
In the case of a plant grown in commercial quantities in the United States, the
preproductive period for such plant if grown in the United States shall be based
on the nationwide weighted average preproductive period for such plant.
I.R.C. § 263A(e)(4) Farming Business —
For purposes of this section—
I.R.C. § 263A(e)(4)(A) In General —
The term “farming business” means the trade or business of farming.
I.R.C. § 263A(e)(4)(B) Certain Trades And Businesses Included —
The term “farming business” shall include the trade or business of—
I.R.C. § 263A(e)(4)(B)(i) —
operating a nursery or sod farm, or
I.R.C. § 263A(e)(4)(B)(ii) —
the raising or harvesting of trees bearing fruit, nuts, or other crops, or ornamental
trees.
For purposes of clause (ii), an
evergreen tree which is more than 6 years old at the time severed from the roots
shall not be treated as an ornamental tree.
I.R.C. § 263A(e)(5) Certain Inventory Valuation Methods Permitted —
The Secretary shall by regulations permit the taxpayer to use reasonable inventory
valuation methods to compute the amount required to be capitalized under subsection
(a) in the case of any plant.
I.R.C. § 263A(f) Special Rules For Allocation Of Interest To Property Produced By The Taxpayer
I.R.C. § 263A(f)(1) Interest Capitalized Only In Certain Cases —
Subsection (a) shall only apply to interest costs which are—
I.R.C. § 263A(f)(1)(A) —
paid or incurred during the production period, and
I.R.C. § 263A(f)(1)(B) —
allocable to property which is described in subsection (b)(1) and which has--
I.R.C. § 263A(f)(1)(B)(i) —
a long useful life,
I.R.C. § 263A(f)(1)(B)(ii) —
an estimated production period exceeding 2 years, or
I.R.C. § 263A(f)(1)(B)(iii) —
an estimated production period exceeding 1 year and a cost exceeding $1,000,000.
I.R.C. § 263A(f)(2) Allocation Rules
I.R.C. § 263A(f)(2)(A) In General —
In determining the amount of interest required to be capitalized under subsection
(a) with respect to any property—
I.R.C. § 263A(f)(2)(A)(i) —
interest on any indebtedness directly attributable to production expenditures with
respect to such property shall be assigned to such property, and
I.R.C. § 263A(f)(2)(A)(ii) —
interest on any other indebtedness shall be assigned to such property to the extent
that the taxpayer's interest costs could have been reduced if production expenditures
(not attributable to indebtedness described in clause (i)) had not been incurred.
I.R.C. § 263A(f)(2)(B) Exception For Qualified Residence Interest —
Subparagraph (A) shall not apply to any qualified residence interest (within the
meaning of section 163(h)).
I.R.C. § 263A(f)(2)(C) Special Rule For Flow-Through Entities —
Except as provided in regulations, in the case of any flow-through entity, this
paragraph shall be applied first at the entity level and then at the beneficiary
level.
I.R.C. § 263A(f)(3) Interest Relating To Property Used To Produce Property —
This subsection shall apply to any interest on indebtedness allocable (as determined
under paragraph (2)) to property used to produce property to which this subsection
applies to the extent such interest is allocable (as so determined) to the produced
property.
I.R.C. § 263A(f)(4) Exemption For Aging Process Of Beer, Wine, And Distilled Spirits— —
For purposes of this subsection, the production period shall not include the aging
period for—
I.R.C. § 263A(f)(4)(A) —
beer (as defined in section 5052(a)),
I.R.C. § 263A(f)(4)(B) —
wine (as described in section 5041(a)), or
I.R.C. § 263A(f)(4)(C) —
distilled spirits (as defined in section 5002(a)(8)), except such spirits that are unfit for use for beverage purposes.
I.R.C. § 263A(f)(5) Definitions —
For purposes of this subsection—
I.R.C. § 263A(f)(5)(A) Long Useful Life —
Property has a long useful life if such property is—
I.R.C. § 263A(f)(5)(A)(i) —
real property, or
I.R.C. § 263A(f)(5)(A)(ii) —
property with a class life of 20 years or more (as determined under section 168).
I.R.C. § 263A(f)(5)(B) Production Period —
The term “production period” means, when used with respect to any property, the
period—
I.R.C. § 263A(f)(5)(B)(i) —
beginning on the date on which production of the property begins, and
I.R.C. § 263A(f)(5)(B)(ii) —
except as provided in paragraph (4), ending on the date on which the property is ready
to be placed in service or is ready to be held for sale.
I.R.C. § 263A(f)(5)(C) Production Expenditures —
The term “production expenditures” means the costs
(whether or not incurred during the production period) required to be capitalized
under subsection (a) with respect to the property.
I.R.C. § 263A(g) Production —
For purposes of this section—
I.R.C. § 263A(g)(1) In General —
The term “produce” includes construct, build, install, manufacture, develop, or
improve.
I.R.C. § 263A(g)(2) Treatment Of Property Produced Under Contract For The Taxpayer —
The taxpayer shall be treated as producing any property produced for the taxpayer
under a contract with the taxpayer; except that only costs paid or incurred by the
taxpayer (whether under such contract or otherwise) shall be taken into account in
applying subsection
(a) to the taxpayer.
I.R.C. § 263A(h) Exemption For Free Lance Authors, Photographers, And Artists
I.R.C. § 263A(h)(1) In General —
Nothing in this section shall require the capitalization of any qualified creative
expense.
I.R.C. § 263A(h)(2) Qualified Creative Expense —
For purposes of this subsection, the term “qualified creative expense” means any
expense—
I.R.C. § 263A(h)(2)(A) —
which is paid or incurred by an individual in the trade or business of such individual
(other than as an employee)
of being a writer, photographer, or artist, and
I.R.C. § 263A(h)(2)(B) —
which, without regard to this section, would be allowable as a deduction for the
taxable year.
Such term does not include any expense related to printing, photographic plates,
motion picture films, video tapes, or similar items.
I.R.C. § 263A(h)(3) Definitions —
For purposes of this subsection—
I.R.C. § 263A(h)(3)(A) Writer —
The term “writer” means any individual if the personal efforts of such individual
create (or may reasonably be expected to create) a literary manuscript, musical composition
(including any accompanying words), or dance score.
I.R.C. § 263A(h)(3)(B) Photographer —
The term “photographer” means any individual if the personal efforts of such individual
create (or may reasonably be expected to create) a photograph or photographic negative
or transparency.
I.R.C. § 263A(h)(3)(C) Artist
I.R.C. § 263A(h)(3)(C)(i) In General —
The term “artist” means any individual if the personal efforts of such individual
create (or may reasonably be expected to create) a picture, painting, sculpture,
statue, etching, drawing, cartoon, graphic design, or original print edition.
I.R.C. § 263A(h)(3)(C)(ii) Criteria —
In determining whether any expense is paid or incurred in the trade or business
of being an artist, the following criteria shall be taken into account:
I.R.C. § 263A(h)(3)(C)(ii)(I) —
The originality and uniqueness of the item created (or to be created).
I.R.C. § 263A(h)(3)(C)(ii)(II) —
The predominance of aesthetic value over utilitarian value of the item created (or
to be created).
I.R.C. § 263A(h)(3)(D) Treatment Of Certain Corporations
I.R.C. § 263A(h)(3)(D)(i) In General —
If—
I.R.C. § 263A(h)(3)(D)(i)(I) —
substantially all of the stock of a corporation is owned by a qualified employee-owner
and members of his family (as defined in section 267(c)(4)), and
I.R.C. § 263A(h)(3)(D)(i)(II) —
the principal activity of such corporation is performance of personal services directly
related to the activities of the qualified employee-owner and such services are substantially
performed by the qualified employee-owner,
this subsection shall apply to any expense of such corporation which directly relates
to the activities of such employee-owner in the same manner as if such expense were
incurred by such employee-owner.
I.R.C. § 263A(h)(3)(D)(ii) —
QUALIFIED EMPLOYEE-OWNER. -- For purposes of this subparagraph, the term “qualified
employee-owner”
means any individual who is an employee-owner of the corporation
(as defined in section 269A(b)(2))
and who is a writer, photographer, or artist.”
I.R.C. § 263A(i) Exemption For Certain Small Business
I.R.C. § 263A(i)(1) In General —
In the case of any taxpayer (other than a tax shelter prohibited from using the cash
receipts and disbursements method of accounting under section 448(a)(3)) which meets
the gross receipts test of section 448(c) for any taxable year, this section shall
not apply with respect to such taxpayer for such taxable year.
I.R.C. § 263A(i)(2) 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.
I.R.C. § 263A(i)(3) 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.
I.R.C. § 263A(j) Regulations —
The Secretary shall prescribe such regulations as may be necessary or appropriate
to carry out the purposes of this section, including—
I.R.C. § 263A(j)(1) —
regulations to prevent the use of related parties, pass-thru entities, or intermediaries
to avoid the application of this section, and
I.R.C. § 263A(j)(2) —
regulations providing for simplified procedures for the application of this section
in the case of property described in subsection (b)(2).
(Added Pub. L. 99-514, title VIII, Sec. 803(a), Oct. 22, 1986, 100 Stat. 2350, and amended Pub. L. 100-647, title I, Sec. 1008(b)(1)-(4), title VI, Sec. 6026(a)-(c), Nov. 10, 1988, 102 Stat.
3437, 3438, 3691-3693; Pub. L. 101-239, title VII, Sec. 7816(d)(1), Dec. 19, 1989, 103 Stat. 2420; Pub. L. 106-170, title V, Sec. 532(c), Dec. 17, 1999, 113 Stat 1860; Pub. L. 108-357, title III, Sec. 338(b)(2), Oct. 22, 2004, 118 Stat. 1418; Pub. L. 109-58, title XIII, Sec. 1329(b), Aug. 8, 2005, 119 Stat. 594; Pub. L. 114-113, Div. Q, title I, Sec. 143(b)(6)(H); Pub. L. 115-97, title I, Sec. 13102(b), 13207(a), 13801(a), (b), Dec. 22, 2017, 131 Stat. 2054;
Pub. L. 116-94, Div. Q, title I, Sec. 144(a)(1), Dec. 20, 2019; Pub. L. 116-260, Div. EE, title I, Sec. 106(a), Dec. 27, 2020, 134 Stat. 1182.)
BACKGROUND NOTES
AMENDMENTS
2020 - Subsec. (f)(4). Pub. L. 116-260, Div. EE, Sec. 106(a)(1), amended par. (4). Prior to amendment it read as follows:
“(4) Exemption For Aging Process Of Beer, Wine, And Distilled Spirits.—
“(A) In General.—For purposes of this subsection, the production period shall not
include the aging period for—
“(i) beer (as defined in section 5052(a)),
“(ii) wine (as described in section 5041(a)), or
“(iii) distilled spirits (as defined in section 5002(a)(8)), except such spirits that
are unfit for use for beverage purposes.
“(B) Termination.—This paragraph shall not apply to interest costs paid or accrued
after December 31, 2020.”
2019 - Subsec. (f)(4)(B). Pub. L. 116-94, Div. Q, Sec. 144(a)(1), amended Subpar. (B) by substituting “December 31, 2020”
for “December 31, 2019”.
2017 -
Subsec. (b)(2). Pub. L. 115-97, Sec. 13102(b)(2), amended par. (2). Before amendment, it read as follows:
‘‘(2) Property Acquired For Resale
“(A) In General.—Real or personal property described in section 1221(a)(1) which is
acquired by the taxpayer for resale.
“(B) Exception For Taxpayer With Gross Receipts Of $10,000,000 Or Less.—Subparagraph
(A) shall not apply to any personal property acquired during any taxable year by the
taxpayer for resale if the average annual gross receipts of the taxpayer (or any predecessor)
for the 3-taxable year period ending with the taxable year preceding such taxable
year do not exceed $10,000,000.
“(C) Aggregation Rules, Etc.—For purposes of subparagraph (B), rules similar to the
rules of paragraphs (2)
and (3) of section 448(c) shall apply.
“For purposes of paragraph (1), the term “tangible personal property” shall include
a film, sound recording, video tape, book, or similar property.”
Subsec. (d)(2)(C). Pub. L. 115-97, Sec. 13207(a), amended par. (2) by adding subpar.
(C).
Subsec. (f)(4)-(5). Pub. L. 115-97, Sec. 13801(a), amended subsec. (f) by redesignating par. (4) as par. (5), and by adding par. (4).
Subsec. (f)(5)(B)(ii). Pub. L. 115-97, Sec. 13801(b), amended clause (ii), as redesignated, by inserting ‘‘except as provided in paragraph
(4),’’ before ‘‘ending on the date’’. Before amendment it read as follows:
“(ii) ending on the date on which the property is ready to be placed in service or
is ready to be held for sale.”
Subsec. (i). Pub. L. 115-97, Sec. 13102(b)(1), redesignated subsec. (i) as subsec. (j) and added subsec. (i).
2015 - Subsec. (c)(7). Pub. L. 114-113, Div. Q, Sec. 143(b)(6)(H), added par. (7).
2005 - Subsec. (c)(3). Pub. L. 109-58, Sec. 1329(b), amended par. (3) by inserting “167(h),” after “under section”.
2004 - Subsec. (c)(3). Pub. L. 108-357, Sec. 338(b)(2), amended par. (3) by inserting “179B,” after “section”.
1999 - Subsec. (b)(2)(A). Pub. L. 106-170, Sec. 532(a), amended subpar. (A) by substituting “section 1221(a)(1)” for “section 1221(1)”.
1989 - Subsec. (h)(3)(D). Pub. L. 101-239 substituted ‘corporations’
for ‘personal service corporations’ in heading and amended text generally. Prior to
amendment, text read as follows:
‘(i) In general. - In the case of a personal service corporation, this subsection
shall apply to any expense of such corporation which directly relates to the activities
of the qualified employee-owner in the same manner as if such expense were incurred
by such employee-owner.
‘(ii) Qualified employee-owner. - The term ‘qualified employee-owner’ means any individual
who is an employee-owner of the personal service corporation and who is a writer,
photographer, or artist, but only if substantially all of the stock of such corporation
is owned by such individual and members of his family (as defined in section 267(c)(4)).
‘(iii) Personal service corporation. - For purposes of this subparagraph, the term
‘personal service corporation’ means any personal service corporation (as defined
in section 269A(b)).'
1988 - Subsec. (a)(2). Pub. L. 100-647, Sec. 1008(b)(1), inserted at end ‘Any cost which (but for this subsection) could not be taken into
account in computing taxable income for any taxable year shall not be treated as a
cost described in this paragraph.’
Subsec. (c)(3). Pub. L. 100-647, Sec. 1008(b)(2)(A), substituted ‘section 263(c), 263(i), 291(b)(2), 616, or 617’ for ‘section 263(c),
616(a), or 617(a)’.
Subsec. (c)(6). Pub. L. 100-647, Sec. 1008(b)(2)(B), added par. (6).
Subsec. (d)(1). Pub. L. 100-647, Sec. 6026(b)(2)(A), substituted ‘Section not to apply to certain property’ for ‘Section to apply only
if preproductive period is more than 2 years’ in heading.
Subsec. (d)(1)(A). Pub. L. 100-647, Sec. 6026(b)(1), amended subpar. (A) generally. Prior to amendment, subpar. (A) read as follows:
‘This section shall not apply to any plant or animal which is produced by the taxpayer
in a farming business and which has a preproductive period of 2 years or less.’
Subsec. (d)(2)(B)(i). Pub. L. 100-647, Sec. 1008(b)(3)(A), substituted ‘the plants described in subparagraph (A) at all times during the taxable
year in which such amounts were paid or incurred’
for ‘such grove, orchard, or vineyard’.
Subsec. (d)(2)(B)(ii). Pub. L. 100-647, Sec. 1008(b)(3)(B), substituted ‘the plants described in subparagraph (A) during the taxable year in
which such amounts were paid or incurred’ for ‘such grove, orchard, or vineyard during
the 4-taxable year period beginning with the taxable year in which the grove, orchard,
or vineyard was lost or damaged’.
Subsec. (d)(3)(A). Pub. L. 100-647, Sec. 6026(b)(2)(B), struck out ‘or animal’ after ‘plant’.
Subsec. (d)(3)(B). Pub. L. 100-647, Sec. 6026(c), amended subpar. (B) generally. Prior to amendment, subpar. (B) read as follows:
‘No election may be made under this paragraph -
‘(i) by a corporation, partnership, or tax shelter, if such corporation, partnership,
or tax shelter is required to use an accrual method of accounting under section 447
or 448(a)(3), or
‘(ii) with respect to the planting, cultivation, maintenance, or development of pistachio
trees.’
Subsec. (e). Pub. L. 100-647, Sec. 6026(b)(2)(B), struck out ‘or animal’ after
‘plant’ wherever appearing in pars. (1), (3), and (5).
Subsec. (f)(3). Pub. L. 100-647, Sec. 1008(b)(4), substituted ‘allocable (as determined under paragraph (2)) to’ for ‘incurred or
continued in connection with’ and inserted ‘(as so determined)’ after ‘allocable’.
Subsecs. (h), (i). Pub. L. 100-647, Sec. 6026(a), added subsec. (h) and redesignated former subsec. (h) as (i).
EFFECTIVE DATE OF 2020 AMENDMENT
Amendment by Pub. L. 116-260, Div. EE, Sec. 106(a), effective for interest costs paid or accrued after December
31, 2020.
EFFECTIVE DATE OF 2019 AMENDMENT
Amendment by Pub. L. 116-94, Div. Q, Sec. 144(a)(1), effective for interest costs paid or accrued after December
31, 2019.
EFFECTIVE DATE OF 2017 AMENDMENT
Amendments by Pub. L. 115-97, Sec. 13102(b), effective for taxable years beginning after December 31, 2017.
Amendment by Pub. L. 115-97, Sec. 13207(a), effective for costs paid or accrued after the date of enactment of this Act [Enacted:
Dec. 22, 2017].
Amendments by Pub. L. 115-97, Sec. 13801, effective for interest costs paid or accrued in calendar years beginning after December
31, 2017.
Sec. 41111 of Pub. L. 115-123 provided that:
“SEC. 41111. RULE OF CONSTRUCTION FOR CRAFT BEVERAGE MODERNIZATION AND TAX REFORM
“(a) IN GENERAL.—Subpart A of part IX of subtitle C of title I of Public Law 115–97 is amended by adding at the end the following new section:
‘SEC. 13809. RULE OF CONSTRUCTION.—Nothing in this subpart, the amendments made by
this subpart, or any regulation promulgated under this subpart or the amendments made
by this subpart, shall be construed to preempt, supersede, or otherwise limit or restrict
any State, local, or tribal law that prohibits or regulates the production or sale
of distilled spirits, wine, or malt beverages.’.
“(b) EFFECTIVE DATE.—The amendment made by this section shall take effect as if included
in Public Law 115–97.”
EFFECTIVE DATE OF 2015 AMENDMENT
Amendment by Sec. 143(b)(6)(H) of Pub. L. 114-113, Div. Q, effective for property placed in service after December 31, 2015, in taxable
years ending after such date.
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Sec. 1329(b) of Pub. L. 109-58 applicable to amounts paid or incurred in taxable years beginning after the date
of the enactment of this Act [Enacted: Aug. 8, 2005].
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Sec. 338(b)(2)of Pub. L. 108-357 applicable to expenses paid or incurred after December 31, 2002, in taxable years
ending after such date.
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-170 effective for any instrument held, acquired, or entered into, any transaction entered
into, and supplies held or acquired on or after the date of the enactment of this
Act [Enacted: Dec. 17, 1999].
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 effective, except as otherwise provided, as if included in the provision of the Technical
and Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such amendment relates, see section 7817 of Pub. L. 101-239, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1008(b)(1)-(4) of Pub. L. 100-647 effective, except as otherwise provided, as if included in the provision of the Tax
Reform Act of 1986, Pub. L. 99-514, to which such amendment relates, see section 1019(a) of Pub. L. 100-647, set out as a note under section 1 of this title.
Section 6026(d) of Pub. L. 100-647, as amended by Pub. L. 101-239, title VII, Sec. 7816(d)(2), Dec. 19, 1989, 103 Stat. 2421, provided that:
‘(1) In general. - Except as otherwise provided in this paragraph, the amendments
made by this section (amending this section) shall take effect as if included in the
amendments made by section 803 of the Tax Reform Act of 1986 (section 803 of Pub. L. 99-514).
‘(2) Subsection (b). -
‘(A) In general. - The amendments made by subsection (b) (amending this section) shall
apply to costs incurred after December 31, 1988, in taxable years ending after such
date.
‘(B) Revocation of election.
- If a taxpayer engaged in a farming business involving the production of animals
having a preproductive period of more than 2 years made an election under section
263A(d)(3) of the 1986 Code for a taxable year beginning before January 1, 1989, such
taxpayer may, without the consent of the Secretary of the Treasury or his delegate,
revoke such election effective for the taxpayer's 1st taxable year beginning after
December 31, 1988.'
EFFECTIVE DATE
Section 7831(d)(2) of Pub. L. 101-239 provided that: ‘If any interest costs incurred after December 31, 1986, are attributable
to costs incurred before January 1, 1987, the amendments made by section 803 of the
Tax Reform Act of 1986 (section 803 of Pub. L. 99-514, enacting this section, amending sections 48, 267, 312, 447, 464, and 471 of this
title, and repealing sections 189, 278, and 280 of this title) shall apply to such
interest costs only to the extent such interest costs are attributable to costs which
were required to be capitalized under section 263 of the Internal Revenue Code of 1954 and which would have been taken into account in applying section 189 of the Internal Revenue Code of 1954 (as in effect before its repeal by section 803 of the Tax Reform Act of 1986)
or, if applicable, section 266 of such Code.'
Section 803(d) of Pub. L. 99-514, as amended by Pub. L. 100-647, title I, Sec. 1008(b)(7), Nov. 10, 1988, 102 Stat. 3438; Pub. L. 101-239, title VII, Sec. 7831(d)(1), Dec. 19, 1989, 103 Stat. 2426, provided that:
‘(1) In general. - Except as provided in this subsection, the amendments made by this
section (enacting this section, amending sections 48, 267, 312, 447, 464, and 471
of this title, and repealing sections 189, 278, and 280 of this title) shall apply
to costs incurred after December 31, 1986, in taxable years ending after such date.
‘(2) Special rule for inventory property. - In the case of any property which is inventory
in the hands of the taxpayer
-
‘(A) In general. - The amendments made by this section shall apply to taxable years
beginning after December 31, 1986.
‘(B) Change in method of accounting.
- If the taxpayer is required by the amendments made by this section to change its
method of accounting with respect to such property for any taxable year -
‘(i) such change shall be treated as initiated by the taxpayer,
‘(ii) such change shall be treated as made with the consent of the Secretary, and
‘(iii) the period for taking into account the adjustments under section 481 by reason
of such change shall not exceed 4 years.
‘(3) Special rule for self-constructed property.
- The amendments made by this section shall not apply to any property which is produced
by the taxpayer for use by the taxpayer if substantial construction had occurred before
March 1, 1986.
‘(4) Transitional rule for capitalization of interest and taxes. -
‘(A) Transition property exempted from interest capitalization. - Section 263A of the Internal Revenue Code of 1986 (as added by this section) and the amendment made by subsection (b)(1) (repealing
section 189 of this title) shall not apply to interest costs which are allocable to
any property -
‘(i) to which the amendments made by section 201 (amending sections 46, 167, 168,
178, 179, 280F, 291, 312, 465, 467, 514, 751, 1245, 4162, 6111, and 7701 of this title)
do not apply by reason of sections 204(a)(1)(D) and (E) and 204(a)(5)(A)
(set out as a note under section 168 of this title), and
‘(ii) to which the amendments made by section 251 (amending sections 46 and 48 of
this title and enacting provisions set out as a note under section 46 of this title)
do not apply by reason of section 251(d)(3)(M) (set out as a note under section 46
of this title).
‘(B) Interest and taxes. - Section 263A of such Code shall not apply to property described
in the matter following subparagraph (B) of section 207(e)(2) of the Tax Equity and
Fiscal Responsibility Act of 1982 (section 207(e)(2)(B) of Pub. L. 97-248, formerly set out as a note under section 189 of this title) to the extent it would
require the capitalization of interest and taxes paid or incurred in connection with
such property which are not required to be capitalized under section 189 of such Code
(as in effect before the amendment made by subsection (b)(1)) (repealing section 189
of this title).
‘(5) Transition rule concerning capitalization of inventory rules. - In the case of
a corporation which on the date of the enactment of this Act (Oct. 22, 1986) was a
member of an affiliated group of corporations (within the meaning of section 1504(a) of the Internal Revenue Code of 1986), the parent of which -
‘(A) was incorporated in California on April 15, 1925,
‘(B) adopted LIFO accounting as of the close of the taxable year ended December 31,
1950, and
‘(C) was, on May 22, 1986, merged into a Delaware corporation incorporated on March
12, 1986, the amendments made by this section shall apply under a cut-off method whereby
the uniform capitalization rules are applied only in costing layers of inventory acquired
during taxable years beginning on or after January 1, 1987.
‘(6) Treatment of certain rehabilitation project.
- The amendments made by this section shall not apply to interest and taxes paid or
incurred with respect to the rehabilitation and conversion of a certified historic
building which was formerly a factory into an apartment project with 155 units, 39
units of which are for low-income families, if the project was approved for annual
interest assistance on June 10, 1986, by the housing authority of the State in which
the project is located.
‘(7) Special rule for casualty losses. - Section 263A(d)(2) of the Internal Revenue Code of 1986 (as added by this section) shall apply to expenses incurred on or after the
date of the enactment of this Act
(Oct. 22, 1986).'
ALLOCATION RATIO FOR APPORTIONING STORAGE COSTS AND RELATED HANDLING COSTS
Section 1008(b)(8) of Pub. L. 100-647 provided that: ‘The allocation used in the regulations prescribed under section 263A(h)(2)
of the Internal Revenue Code of 1986 for apportioning storage costs and related handling costs shall be determined
by dividing the amount of such costs by the beginning inventory balances and the purchases
during the year and by multiplying the resulting allocation ratio by inventory amounts
determined in accordance with the provisions of the joint explanatory statement of
the committee of conference of the conference report accompanying H.R. 3838 (H.R.
Rept. No. 99-841, Vol. II., 99th Cong., 2d Sess. II-306-307 (1986)).'
AMORTIZATION OF PAST SERVICE PENSION COSTS
Pub. L. 100-203, title X, Sec. 10204, Dec. 22, 1987, 101 Stat. 1330-394, provided that:
‘(a) In General. - For purposes of sections 263A and 460 of the Internal Revenue Code of 1986, the allocable costs (within the meaning of section 263A(a)(2)
or section 460(c) of such Code, whichever is applicable) with respect to any property
shall include contributions paid to or under a pension or annuity plan whether or
not such contributions represent past service costs.
‘(b) Effective Date. -
‘(1) In general. - Except as provided in paragraph (2), subsection (a) shall apply
to costs incurred after December 31, 1987, in taxable years ending after such date.
‘(2) Special rule for inventory property. - In the case of any property which is inventory
in the hands of the taxpayer -
‘(A) In general. - Subsection
(a) shall apply to taxable years beginning after December 31, 1987.
‘(B) Change in method of accounting.
- If the taxpayer is required by this section to change its method of accounting for
any taxable year -
‘(i) such change shall be treated as initiated by the taxpayer,
‘(ii) such change shall be treated as made with the consent of the Secretary of the
Treasury or his delegate, and
‘(iii) the net amount of adjustments required by section 481 of the Internal Revenue Code of 1986 shall be taken into account over a period not longer than 4 taxable years.'
