Collapse to view only § 72. Annuities; certain proceeds of endowment and life insurance contracts
- [§ 71. Repealed.
- § 72. Annuities; certain proceeds of endowment and life insurance contracts
- § 73. Services of child
- § 74. Prizes and awards
- § 75. Dealers in tax-exempt securities
- [§ 76. Repealed.
- § 77. Commodity credit loans
- § 78. Gross up for deemed paid foreign tax credit
- § 79. Group-term life insurance purchased for employees
- § 80. Restoration of value of certain securities
- [§ 81. Repealed.
- § 82. Reimbursement of moving expenses
- § 83. Property transferred in connection with performance of services
- § 84. Transfer of appreciated property to political organizations
- § 85. Unemployment compensation
- § 86. Social security and tier 1 railroad retirement benefits
- § 87. Alcohol and biodiesel fuels credits
- § 88. Certain amounts with respect to nuclear decommissioning costs
- [§ 89. Repealed.
- § 90. Illegal Federal irrigation subsidies
- § 91. Certain foreign branch losses transferred to specified 10-percent owned foreign corporations
[§ 71. Repealed. Pub. L. 115–97, title I, § 11051(b)(1)(B), Dec. 22, 2017, 131 Stat. 2089]
§ 72. Annuities; certain proceeds of endowment and life insurance contracts
(a) General rules for annuities
(1) Income inclusion
(2) Partial annuitizationIf any amount is received as an annuity for a period of 10 years or more or during one or more lives under any portion of an annuity, endowment, or life insurance contract—
(A) such portion shall be treated as a separate contract for purposes of this section,
(B) for purposes of applying subsections (b), (c), and (e), the investment in the contract shall be allocated pro rata between each portion of the contract from which amounts are received as an annuity and the portion of the contract from which amounts are not received as an annuity, and
(C) a separate annuity starting date under subsection (c)(4) shall be determined with respect to each portion of the contract from which amounts are received as an annuity.
(b) Exclusion ratio
(1) In general
(2) Exclusion limited to investment
(3) Deduction where annuity payments cease before entire investment recovered
(A) In generalIf—
(i) after the annuity starting date, payments as an annuity under the contract cease by reason of the death of an annuitant, and
(ii) as of the date of such cessation, there is unrecovered investment in the contract,
the amount of such unrecovered investment (in excess of any amount specified in subsection (e)(5) which was not included in gross income) shall be allowed as a deduction to the annuitant for his last taxable year.
(B) Payments to other persons
(C) Net operating loss deductions provided
(4) Unrecovered investmentFor purposes of this subsection, the unrecovered investment in the contract as of any date is—
(A) the investment in the contract (determined without regard to subsection (c)(2)) as of the annuity starting date, reduced by
(B) the aggregate amount received under the contract on or after such annuity starting date and before the date as of which the determination is being made, to the extent such amount was excludable from gross income under this subtitle.
(c) Definitions
(1) Investment in the contractFor purposes of subsection (b), the investment in the contract as of the annuity starting date is—
(A) the aggregate amount of premiums or other consideration paid for the contract, minus
(B) the aggregate amount received under the contract before such date, to the extent that such amount was excludable from gross income under this subtitle or prior income tax laws.
(2) Adjustment in investment where there is refund featureIf—
(A) the expected return under the contract depends in whole or in part on the life expectancy of one or more individuals;
(B) the contract provides for payments to be made to a beneficiary (or to the estate of an annuitant) on or after the death of the annuitant or annuitants; and
(C) such payments are in the nature of a refund of the consideration paid,
then the value (computed without discount for interest) of such payments on the annuity starting date shall be subtracted from the amount determined under paragraph (1). Such value shall be computed in accordance with actuarial tables prescribed by the Secretary. For purposes of this paragraph and of subsection (e)(2)(A), the term “refund of the consideration paid” includes amounts payable after the death of an annuitant by reason of a provision in the contract for a life annuity with minimum period of payments certain, but (if part of the consideration was contributed by an employer) does not include that part of any payment to a beneficiary (or to the estate of the annuitant) which is not attributable to the consideration paid by the employee for the contract as determined under paragraph (1)(A).
(3) Expected returnFor purposes of subsection (b), the expected return under the contract shall be determined as follows:
(A) Life expectancy
(B) Installment payments
(4) Annuity starting date
(d) Special rules for qualified employer retirement plans
(1) Simplified method of taxing annuity payments
(A) In generalIn the case of any amount received as an annuity under a qualified employer retirement plan—
(i) subsection (b) shall not apply, and
(ii) the investment in the contract shall be recovered as provided in this paragraph.
(B) Method of recovering investment in contract
(i) In generalGross income shall not include so much of any monthly annuity payment under a qualified employer retirement plan as does not exceed the amount obtained by dividing—(I) the investment in the contract (as of the annuity starting date), by(II) the number of anticipated payments determined under the table contained in clause (iii) (or, in the case of a contract to which subsection (c)(3)(B) applies, the number of monthly annuity payments under such contract).
(ii) Certain rules made applicable
(iii) Number of anticipated payments
(iv) Number of anticipated payments where more than one life
(C) Adjustment for refund feature not applicable
(D) Special rule where lump sum paid in connection with commencement of annuity paymentsIf, in connection with the commencement of annuity payments under any qualified employer retirement plan, the taxpayer receives a lump-sum payment—
(i) such payment shall be taxable under subsection (e) as if received before the annuity starting date, and
(ii) the investment in the contract for purposes of this paragraph shall be determined as if such payment had been so received.
(E) Exception
(F) Adjustment where annuity payments not on monthly basis
(G) Qualified employer retirement plan
(2) Treatment of employee contributions under defined contribution plans
(3) Treatment of contributions to a pension-linked emergency savings account
(e) Amounts not received as annuities
(1) Application of subsection
(A) In generalThis subsection shall apply to any amount which—
(i) is received under an annuity, endowment, or life insurance contract, and
(ii) is not received as an annuity,
if no provision of this subtitle (other than this subsection) applies with respect to such amount.
(B) Dividends
(2) General ruleAny amount to which this subsection applies—
(A) if received on or after the annuity starting date, shall be included in gross income, or
(B) if received before the annuity starting date—
(i) shall be included in gross income to the extent allocable to income on the contract, and
(ii) shall not be included in gross income to the extent allocable to the investment in the contract.
(3) Allocation of amounts to income and investmentFor purposes of paragraph (2)(B)—
(A) Allocation to incomeAny amount to which this subsection applies shall be treated as allocable to income on the contract to the extent that such amount does not exceed the excess (if any) of—
(i) the cash value of the contract (determined without regard to any surrender charge) immediately before the amount is received, over
(ii) the investment in the contract at such time.
(B) Allocation to investment
(4) Special rules for application of paragraph (2)(B)For purposes of paragraph (2)(B)—
(A) Loans treated as distributionsIf, during any taxable year, an individual—
(i) receives (directly or indirectly) any amount as a loan under any contract to which this subsection applies, or
(ii) assigns or pledges (or agrees to assign or pledge) any portion of the value of any such contract,
such amount or portion shall be treated as received under the contract as an amount not received as an annuity. The preceding sentence shall not apply for purposes of determining investment in the contract, except that the investment in the contract shall be increased by any amount included in gross income by reason of the amount treated as received under the preceding sentence.
(B) Treatment of policyholder dividends
(C) Treatment of transfers without adequate consideration
(i) In generalIf an individual who holds an annuity contract transfers it without full and adequate consideration, such individual shall be treated as receiving an amount equal to the excess of—(I) the cash surrender value of such contract at the time of transfer, over(II) the investment in such contract at such time,
under the contract as an amount not received as an annuity.
(ii) Exception for certain transfers between spouses or former spouses
(iii) Adjustment to investment in contract of transferee
(5) Retention of existing rules in certain cases
(A) In generalIn any case to which this paragraph applies—
(i) paragraphs (2)(B) and (4)(A) shall not apply, and
(ii) if paragraph (2)(A) does not apply,
the amount shall be included in gross income, but only to the extent it exceeds the investment in the contract.
(B) Existing contracts
(C) Certain life insurance and endowment contracts
(D) Contracts under qualified plansExcept as provided in paragraph (8), this paragraph shall apply to any amount received—
(i) from a trust described in section 401(a) which is exempt from tax under section 501(a),
(ii) from a contract—(I) purchased by a trust described in clause (i),(II) purchased as part of a plan described in section 403(a),(III) described in section 403(b), or(IV) provided for employees of a life insurance company under a plan described in section 818(a)(3), or
(iii) from an individual retirement account or an individual retirement annuity.
Any dividend described in section 404(k) which is received by a participant or beneficiary shall, for purposes of this subparagraph, be treated as paid under a separate contract to which clause (ii)(I) applies.
(E) Full refunds, surrenders, redemptions, and maturitiesThis paragraph shall apply to—
(i) any amount received, whether in a single sum or otherwise, under a contract in full discharge of the obligation under the contract which is in the nature of a refund of the consideration paid for the contract, and
(ii) any amount received under a contract on its complete surrender, redemption, or maturity.
In the case of any amount to which the preceding sentence applies, the rule of paragraph (2)(A) shall not apply.
(6) Investment in the contractFor purposes of this subsection, the investment in the contract as of any date is—
(A) the aggregate amount of premiums or other consideration paid for the contract before such date, minus
(B) the aggregate amount received under the contract before such date, to the extent that such amount was excludable from gross income under this subtitle or prior income tax laws.
[(7) Repealed. Pub. L. 100–647, title I, § 1011A(b)(9)(A), Nov. 10, 1988, 102 Stat. 3474]
(8) Extension of paragraph (2)(b) 1
1 So in original. Probably should be paragraph “(2)(B)”.
to qualified plans(A) In general
(B) Allocation of amount received
(C) Treatment of forfeitable rights
(D) Investment in the contract before 1987
(9) Extension of paragraph (2)(B) to qualified tuition programs and Coverdell education savings accounts
(10) Treatment of modified endowment contracts
(A) In generalNotwithstanding paragraph (5)(C), in the case of any modified endowment contract (as defined in section 7702A)—
(i) paragraphs (2)(B) and (4)(A) shall apply, and
(ii) in applying paragraph (4)(A), “any person” shall be substituted for “an individual”.
(B) Treatment of certain burial contracts
(11) Special rules for certain combination contracts providing long-term care insuranceNotwithstanding paragraphs (2), (5)(C), and (10), in the case of any charge against the cash value of an annuity contract or the cash surrender value of a life insurance contract made as payment for coverage under a qualified long-term care insurance contract which is part of or a rider on such annuity or life insurance contract—
(A) the investment in the contract shall be reduced (but not below zero) by such charge, and
(B) such charge shall not be includible in gross income.
(12) Anti-abuse rules
(A) In generalFor purposes of determining the amount includible in gross income under this subsection—
(i) all modified endowment contracts issued by the same company to the same policyholder during any calendar year shall be treated as 1 modified endowment contract, and
(ii) all annuity contracts issued by the same company to the same policyholder during any calendar year shall be treated as 1 annuity contract.
The preceding sentence shall not apply to any contract described in paragraph (5)(D).
(B) Regulatory authority
(f) Special rules for computing employees’ contributionsIn computing, for purposes of subsection (c)(1)(A), the aggregate amount of premiums or other consideration paid for the contract, and for purposes of subsection (e)(6), the aggregate premiums or other consideration paid, amounts contributed by the employer shall be included, but only to the extent that—
(1) such amounts were includible in the gross income of the employee under this subtitle or prior income tax laws; or
(2) if such amounts had been paid directly to the employee at the time they were contributed, they would not have been includible in the gross income of the employee under the law applicable at the time of such contribution.
Paragraph (2) shall not apply to amounts which were contributed by the employer after December 31, 1962, and which would not have been includible in the gross income of the employee by reason of the application of section 911 if such amounts had been paid directly to the employee at the time of contribution. The preceding sentence shall not apply to amounts which were contributed by the employer, as determined under regulations prescribed by the Secretary, to provide pension or annuity credits, to the extent such credits are attributable to services performed before January 1, 1963, and are provided pursuant to pension or annuity plan provisions in existence on March 12, 1962, and on that date applicable to such services, or to the extent such credits are attributable to services performed as a foreign missionary (within the meaning of section 403(b)(2)(D)(iii), as in effect before the enactment of the Economic Growth and Tax Relief Reconciliation Act of 2001).
(g) Rules for transferee where transfer was for valueWhere any contract (or any interest therein) is transferred (by assignment or otherwise) for a valuable consideration, to the extent that the contract (or interest therein) does not, in the hands of the transferee, have a basis which is determined by reference to the basis in the hands of the transferor, then—
(1) for purposes of this section, only the actual value of such consideration, plus the amount of the premiums and other consideration paid by the transferee after the transfer, shall be taken into account in computing the aggregate amount of the premiums or other consideration paid for the contract;
(2) for purposes of subsection (c)(1)(B), there shall be taken into account only the aggregate amount received under the contract by the transferee before the annuity starting date, to the extent that such amount was excludable from gross income under this subtitle or prior income tax laws; and
(3) the annuity starting date is the first day of the first period for which the transferee received an amount under the contract as an annuity.
For purposes of this subsection, the term “transferee” includes a beneficiary of, or the estate of, the transferee.
(h) Option to receive annuity in lieu of lump sumIf—
(1) a contract provides for payment of a lump sum in full discharge of an obligation under the contract, subject to an option to receive an annuity in lieu of such lump sum;
(2) the option is exercised within 60 days after the day on which such lump sum first became payable; and
(3) part or all of such lump sum would (but for this subsection) be includible in gross income by reason of subsection (e)(1),
then, for purposes of this subtitle, no part of such lump sum shall be considered as includible in gross income at the time such lump sum first became payable.
[(i) Repealed. Pub. L. 94–455, title XIX, § 1951(b)(1)(A), Oct. 4, 1976, 90 Stat. 1836]
(j) Interest
[(k) Repealed. Pub. L. 98–369, div. A, title IV, § 421(b)(1), July 18, 1984, 98 Stat. 794]
(l) Face-amount certificates
(m) Special rules applicable to employee annuities and distributions under employee plans
[(1) Repealed. Pub. L. 93–406, title II, § 2001(h)(2), Sept. 2, 1974, 88 Stat. 957]
(2) Computation of consideration paid by the employeeIn computing—
(A) the aggregate amount of premiums or other consideration paid for the contract for purposes of subsection (c)(1)(A) (relating to the investment in the contract), and
(B) the aggregate premiums or other consideration paid for purposes of subsection (e)(6) (relating to certain amounts not received as an annuity),
any amount allowed as a deduction with respect to the contract under section 404 which was paid while the employee was an employee within the meaning of section 401(c)(1) shall be treated as consideration contributed by the employer, and there shall not be taken into account any portion of the premiums or other consideration for the contract paid while the employee was an owner-employee which is properly allocable (as determined under regulations prescribed by the Secretary) to the cost of life, accident, health, or other insurance.
(3) Life insurance contracts
(A) This paragraph shall apply to any life insurance contract—
(i) purchased as a part of a plan described in section 403(a), or
(ii) purchased by a trust described in section 401(a) which is exempt from tax under section 501(a) if the proceeds of such contract are payable directly or indirectly to a participant in such trust or to a beneficiary of such participant.
(B) Any contribution to a plan described in subparagraph (A)(i) or a trust described in subparagraph (A)(ii) which is allowed as a deduction under section 404, and any income of a trust described in subparagraph (A)(ii), which is determined in accordance with regulations prescribed by the Secretary to have been applied to purchase the life insurance protection under a contract described in subparagraph (A), is includible in the gross income of the participant for the taxable year when so applied.
(C) In the case of the death of an individual insured under a contract described in subparagraph (A), an amount equal to the cash surrender value of the contract immediately before the death of the insured shall be treated as a payment under such plan or a distribution by such trust, and the excess of the amount payable by reason of the death of the insured over such cash surrender value shall not be includible in gross income under this section and shall be treated as provided in section 101.
[(4) Repealed. Pub. L. 97–248, title II, § 236(b)(1), Sept. 3, 1982, 96 Stat. 510]
(5) Penalties applicable to certain amounts received by 5-percent owners
(A) This paragraph applies to amounts which are received from a qualified trust described in section 401(a) or under a plan described in section 403(a) at any time by an individual who is, or has been, a 5-percent owner, or by a successor of such an individual, but only to the extent such amounts are determined, under regulations prescribed by the Secretary, to exceed the benefits provided for such individual under the plan formula.
(B) If a person receives an amount to which this paragraph applies, his tax under this chapter for the taxable year in which such amount is received shall be increased by an amount equal to 10 percent of the portion of the amount so received which is includible in his gross income for such taxable year.
(C) For purposes of this paragraph, the term “5-percent owner” means any individual who, at any time during the 5 plan years preceding the plan year ending in the taxable year in which the amount is received, is a 5-percent owner (as defined in section 416(i)(1)(B)).
(6) Owner-employee defined
(7) Meaning of disabled
[(8) Repealed. Pub. L. 97–248, title II, § 236(b)(1), Sept. 3, 1982, 96 Stat. 510]
[(9) Repealed. Pub. L. 98–369, div. A, title VII, § 713(d)(1), July 18, 1984, 98 Stat. 957]
(10) Determination of investment in the contract in the case of qualified domestic relations orders
(n) Annuities under retired serviceman’s family protection plan or survivor benefit plan
(o) Special rules for distributions from qualified plans to which employee made deductible contributions
(1) Treatment of contributions
[(2) Repealed. Pub. L. 100–647, title I, § 1011A(c)(8), Nov. 10, 1988, 102 Stat. 3476]
(3) Amounts constructively received
(A) In general
(B) Purchase of life insurance
(4) Special rule for treatment of rollover amounts
(5) Definitions and special rulesFor purposes of this subsection—
(A) Deductible employee contributions
(B) Accumulated deductible employee contributionsThe term “accumulated deductible employee contributions” means the deductible employee contributions—
(i) increased by the amount of income and gain allocable to such contributions, and
(ii) reduced by the sum of the amount of loss and expense allocable to such contributions and the amounts distributed with respect to the employee which are attributable to such contributions (or income or gain allocable to such contributions).
(C) Qualified employer plan
(D) Government plan
(6) Ordering rules
(p) Loans treated as distributionsFor purposes of this section—
(1) Treatment as distributions
(A) Loans
(B) Assignments or pledges
(2) Exception for certain loans
(A) General ruleParagraph (1) shall not apply to any loan to the extent that such loan (when added to the outstanding balance of all other loans from such plan whether made on, before, or after August 13, 1982), does not exceed the lesser of—
(i) $50,000, reduced by the excess (if any) of—(I) the highest outstanding balance of loans from the plan during the 1-year period ending on the day before the date on which such loan was made, over(II) the outstanding balance of loans from the plan on the date on which such loan was made, or
(ii) the greater of (I) one-half of the present value of the nonforfeitable accrued benefit of the employee under the plan, or (II) $10,000.
For purposes of clause (ii), the present value of the nonforfeitable accrued benefit shall be determined without regard to any accumulated deductible employee contributions (as defined in subsection (o)(5)(B)).
(B) Requirement that loan be repayable within 5 years
(i) In general
(ii) Exception for home loans
(C) Requirement of level amortization
(D) Prohibition of loans through credit cards and other similar arrangements
(E) Related employers and related plansFor purposes of this paragraph—
(i) the rules of subsections (b), (c), and (m) of section 414 shall apply, and
(ii) all plans of an employer (determined after the application of such subsections) shall be treated as 1 plan.
(3) Denial of interest deductions in certain cases
(A) In general
(B) Period to which subparagraph (A) appliesFor purposes of subparagraph (A), the period described in this subparagraph is the period—
(i) on or after the 1st day on which the individual to whom the loan is made is a key employee (as defined in section 416(i)), or
(ii) such loan is secured by amounts attributable to elective deferrals described in subparagraph (A) or (C) of section 402(g)(3).
(4) Qualified employer plan, etc.For purposes of this subsection—
(A) Qualified employer plan
(i) In generalThe term “qualified employer plan” means—(I) a plan described in section 401(a) which includes a trust exempt from tax under section 501(a),(II) an annuity plan described in section 403(a), and(III) a plan under which amounts are contributed by an individual’s employer for an annuity contract described in section 403(b).
(ii) Special rule
(B) Government plan
(5) Special rules for loans, etc., from certain contracts
(6) Increase in limit on loans not treated as distributions
(A) In generalIn the case of any loan from a qualified employer plan to a qualified individual made during the applicable period—
(i) clause (i) of paragraph (2)(A) shall be applied by substituting “$100,000” for “$50,000”, and
(ii) clause (ii) of such paragraph shall be applied by substituting “the present value of the nonforfeitable accrued benefit of the employee under the plan” for “one-half of the present value of the nonforfeitable accrued benefit of the employee under the plan”.
(B) Delay of repaymentIn the case of a qualified individual with respect to any qualified disaster with an outstanding loan from a qualified employer plan on or after the applicable date with respect to the qualified disaster—
(i) if the due date pursuant to subparagraph (B) or (C) of paragraph (2) for any repayment with respect to such loan occurs during the period beginning on the first day of the incident period of such qualified disaster and ending on the date which is 180 days after the last day of such incident period, such due date may be delayed for 1 year,
(ii) any subsequent repayments with respect to any such loan may be appropriately adjusted to reflect the delay in the due date under clause (i) and any interest accruing during such delay, and
(iii) in determining the 5-year period and the term of a loan under subparagraph (B) or (C) of paragraph (2), the period described in clause (i) may be disregarded.
(C) DefinitionsFor purposes of this paragraph—
(i) Qualified individualThe term “qualified individual” means any individual—(I) whose principal place of abode at any time during the incident period of any qualified disaster is located in the qualified disaster area with respect to such qualified disaster, and(II) who has sustained an economic loss by reason of such qualified disaster.
(ii) Applicable periodThe applicable period with respect to any disaster is the period—(I) beginning on the applicable date with respect to such disaster, and(II) ending on the date that is 180 days after such applicable date.
(iii) Other termsFor purposes of this paragraph—(I) the terms “applicable date”, “qualified disaster”, “qualified disaster area”, and “incident period” have the meaning given such terms under subsection (t)(11), and(II) the term “applicable period” has the meaning given such term under subsection (t)(8).
(q) 10-percent penalty for premature distributions from annuity contracts
(1) Imposition of penalty
(2) Subsection not to apply to certain distributionsParagraph (1) shall not apply to any distribution—
(A) made on or after the date on which the taxpayer attains age 59½,
(B) made on or after the death of the holder (or, where the holder is not an individual, the death of the primary annuitant (as defined in subsection (s)(6)(B))),
(C) attributable to the taxpayer’s becoming disabled within the meaning of subsection (m)(7),
(D) which is a part of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the taxpayer or the joint lives (or joint life expectancies) of such taxpayer and his designated beneficiary,
(E) from a plan, contract, account, trust, or annuity described in subsection (e)(5)(D),
(F) allocable to investment in the contract before August 14, 1982, or 2
2 So in original. The word “or” probably should not appear.
(G) under a qualified funding asset (within the meaning of section 130(d), but without regard to whether there is a qualified assignment),
(H) to which subsection (t) applies (without regard to paragraph (2) thereof),
(I) under an immediate annuity contract (within the meaning of section 72(u)(4)), or
(J) which is purchased by an employer upon the termination of a plan described in section 401(a) or 403(a) and which is held by the employer until such time as the employee separates from service.
For purposes of subparagraph (D), periodic payments shall not fail to be treated as substantially equal merely because they are amounts received as an annuity, and such periodic payments shall be deemed to be substantially equal if they are payable over a period described in subparagraph (D) and would satisfy the requirements applicable to annuity payments under section 401(a)(9) if such requirements applied.
(3) Change in substantially equal payments
(A) In generalIf—
(i) paragraph (1) does not apply to a distribution by reason of paragraph (2)(D), and
(ii) the series of payments under such paragraph are subsequently modified (other than by reason of death or disability)—(I) before the close of the 5-year period beginning on the date of the first payment and after the taxpayer attains age 59½, or(II) before the taxpayer attains age 59½,
the taxpayer’s tax for the 1st taxable year in which such modification occurs shall be increased by an amount, determined under regulations, equal to the tax which (but for paragraph (2)(D)) would have been imposed, plus interest for the deferral period (within the meaning of subsection (t)(4)(B)).
(B) Exchanges to subsequent contractsIf—
(i) payments described in paragraph (2)(D) are being made from an annuity contract,
(ii) an exchange of all or a portion of such contract for another contract is made under section 1035, and
(iii) the aggregate distributions from the contracts involved in the exchange continue to satisfy the requirements of paragraph (2)(D) as if the exchange had not taken place,
such exchange shall not be treated as a modification under subparagraph (A)(ii), and compliance with paragraph (2)(D) shall be determined on the basis of the combined distributions described in clause (iii).
(r) Certain railroad retirement benefits treated as received under employer plans
(1) In general
(2) Tier 2 taxes treated as contributions
(A) In generalFor purposes of paragraph (1)—
(i) the tier 2 portion of the tax imposed by section 3201 (relating to tax on employees) shall be treated as an employee contribution,
(ii) the tier 2 portion of the tax imposed by section 3211 (relating to tax on employee representatives) shall be treated as an employee contribution, and
(iii) the tier 2 portion of the tax imposed by section 3221 (relating to tax on employers) shall be treated as an employer contribution.
(B) Tier 2 portionFor purposes of subparagraph (A)—
(i) After 1984
(ii) After September 30, 1981, and before 1985With respect to compensation paid before 1985 for services rendered after September 30, 1981, the tier 2 portion shall be—(I) so much of the tax imposed by section 3201 as is determined at the 2 percent rate, and(II) so much of the taxes imposed by sections 3211 and 3221 as is determined at the 11.75 percent rate.
With respect to compensation paid for services rendered after December 31, 1983, and before 1985, subclause (I) shall be applied by substituting “2.75 percent” for “2 percent”, and subclause (II) shall be applied by substituting “12.75 percent” for “11.75 percent”.
(iii) Before October 1, 1981With respect to compensation paid for services rendered during any period before October 1, 1981, the tier 2 portion shall be the excess (if any) of—(I) the tax imposed for such period by section 3201, 3211, or 3221, as the case may be (other than any tax imposed with respect to man-hours), over(II) the tax which would have been imposed by such section for such period had the rates of the comparable taxes imposed by chapter 21 for such period applied under such section.
(C) Contributions not allocable to supplemental annuity or windfall benefitsFor purposes of paragraph (1), no amount treated as an employee contribution under this paragraph shall be allocated to—
(i) any supplemental annuity paid under section 2(b) of the Railroad Retirement Act of 1974, or
(ii) any benefit paid under section 3(h), 4(e), or 4(h) of such Act.
(3) Tier 1 railroad retirement benefit
(s) Required distributions where holder dies before entire interest is distributed
(1) In generalA contract shall not be treated as an annuity contract for purposes of this title unless it provides that—
(A) if any holder of such contract dies on or after the annuity starting date and before the entire interest in such contract has been distributed, the remaining portion of such interest will be distributed at least as rapidly as under the method of distributions being used as of the date of his death, and
(B) if any holder of such contract dies before the annuity starting date, the entire interest in such contract will be distributed within 5 years after the death of such holder.
(2) Exception for certain amounts payable over life of beneficiaryIf—
(A) any portion of the holder’s interest is payable to (or for the benefit of) a designated beneficiary,
(B) such portion will be distributed (in accordance with regulations) over the life of such designated beneficiary (or over a period not extending beyond the life expectancy of such beneficiary), and
(C) such distributions begin not later than 1 year after the date of the holder’s death or such later date as the Secretary may by regulations prescribe,
then for purposes of paragraph (1), the portion referred to in subparagraph (A) shall be treated as distributed on the day on which such distributions begin.
(3) Special rule where surviving spouse beneficiary
(4) Designated beneficiary
(5) Exception for certain annuity contractsThis subsection shall not apply to any annuity contract—
(A) which is provided—
(i) under a plan described in section 401(a) which includes a trust exempt from tax under section 501, or
(ii) under a plan described in section 403(a),
(B) which is described in section 403(b),
(C) which is an individual retirement annuity or provided under an individual retirement account or annuity, or
(D) which is a qualified funding asset (as defined in section 130(d), but without regard to whether there is a qualified assignment).
(6) Special rule where holder is corporation or other non-individual
(A) In general
(B) Primary annuitant
(7) Treatment of changes in primary annuitant where holder of contract is not an individual
(t) 10-percent additional tax on early distributions from qualified retirement plans
(1) Imposition of additional tax
(2) Subsection not to apply to certain distributionsExcept as provided in paragraphs (3) and (4), paragraph (1) shall not apply to any of the following distributions:
(A) In generalDistributions which are—
(i) made on or after the date on which the employee attains age 59½,
(ii) made to a beneficiary (or to the estate of the employee) on or after the death of the employee,
(iii) attributable to the employee’s being disabled within the meaning of subsection (m)(7),
(iv) part of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the employee or the joint lives (or joint life expectancies) of such employee and his designated beneficiary,
(v) made to an employee after separation from service after attainment of age 55,
(vi) dividends paid with respect to stock of a corporation which are described in section 404(k),
(vii) made on account of a levy under section 6331 on the qualified retirement plan,
(viii) payments under a phased retirement annuity under section 8366a(a)(5) 3
3 So in original. Probably should refer to section 8336a.
or 8412a(a)(5) of title 5, United States Code, or a composite retirement annuity under section 8366a(a)(1) 3 or 8412a(a)(1) of such title, or(ix) attributable to withdrawal of net income attributable to a contribution which is distributed pursuant to section 408(d)(4).
For purposes of clause (iv), periodic payments shall not fail to be treated as substantially equal merely because they are amounts received as an annuity, and such periodic payments shall be deemed to be substantially equal if they are payable over a period described in clause (iv) and satisfy the requirements applicable to annuity payments under section 401(a)(9).
(B) Medical expenses
(C) Payments to alternate payees pursuant to qualified domestic relations orders
(D) Distributions to unemployed individuals for health insurance premiums
(i) In generalDistributions from an individual retirement plan to an individual after separation from employment—(I) if such individual has received unemployment compensation for 12 consecutive weeks under any Federal or State unemployment compensation law by reason of such separation,(II) if such distributions are made during any taxable year during which such unemployment compensation is paid or the succeeding taxable year, and(III) to the extent such distributions do not exceed the amount paid during the taxable year for insurance described in section 213(d)(1)(D) with respect to the individual and the individual’s spouse and dependents (as defined in section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof).
(ii) Distributions after reemployment
(iii) Self-employed individuals
(E) Distributions from individual retirement plans for higher education expenses
(F) Distributions from certain plans for first home purchases
(G) Distributions from retirement plans to individuals called to active duty
(i) In general
(ii) Amount distributed may be repaid
(iii) Qualified reservist distributionFor purposes of this subparagraph, the term “qualified reservist distribution” means any distribution to an individual if—(I) such distribution is from an individual retirement plan, or from amounts attributable to employer contributions made pursuant to elective deferrals described in subparagraph (A) or (C) of section 402(g)(3) or section 501(c)(18)(D)(iii),(II) such individual was (by reason of being a member of a reserve component (as defined in section 101 of title 37, United States Code)) ordered or called to active duty for a period in excess of 179 days or for an indefinite period, and(III) such distribution is made during the period beginning on the date of such order or call and ending at the close of the active duty period.
(iv) Application of subparagraph
(H) Distributions from retirement plans in case of birth of child or adoption
(i) In general
(ii) Limitation
(iii) Qualified birth or adoption distributionFor purposes of this subparagraph—(I) In general(II) Eligible adoptee
(iv) Treatment of plan distributions(I) In general(II) Controlled group
(v) Amount distributed may be repaid(I) In general(II) Limitation on contributions to applicable eligible retirement plans other than IRAs(III) Treatment of repayments of distributions from applicable eligible retirement plans other than IRAs(IV) Treatment of repayments for distributions from IRAs
(vi) Definition and special rulesFor purposes of this subparagraph—(I) Applicable eligible retirement plan(II) Exemption of distributions from trustee to trustee transfer and withholding rules(III) Taxpayer must include TIN(IV) Distributions treated as meeting plan distribution requirements
(I) Distributions for certain emergency expenses
(i) In general
(ii) Annual limitation
(iii) Dollar limitationThe amount which may be treated as an emergency personal expense distribution by any individual in any calendar year shall not exceed the lesser of $1,000 or an amount equal to the excess of—(I) the individual’s total nonforfeitable accrued benefit under the plan (the individual’s total interest in the plan in the case of an individual retirement plan), determined as of the date of each such distribution, over(II) $1,000.
(iv) Emergency personal expense distribution
(v) Treatment of plan distributions
(vi) Amount distributed may be repaid
(vii) Limitation on subsequent distributionsIf a distribution is treated as an emergency personal expense distribution in any calendar year with respect to a plan of the employee, no amount may be treated as such a distribution during the immediately following 3 calendar years with respect to such plan unless—(I) such previous distribution is fully repaid to such plan pursuant to clause (vi), or(II) the aggregate of the elective deferrals and employee contributions to the plan (the total amounts contributed to the plan in the case of an individual retirement plan) subsequent to such previous distribution is at least equal to the amount of such previous distribution which has not been so repaid.
(viii) Special rules
(J) Distributions from pension-linked emergency savings account
(K) Distribution from retirement plan in case of domestic abuse
(i) In general
(ii) LimitationThe aggregate amount which may be treated as an eligible distribution to a domestic abuse victim by any individual shall not exceed an amount equal to the lesser of—(I) $10,000, or(II) 50 percent of the present value of the nonforfeitable accrued benefit of the employee under the plan.
(iii) Eligible distribution to a domestic abuse victimFor purposes of this subparagraph—(I) In general(II) Domestic abuse
(iv) Treatment of plan distributions
(v) Amount distributed may be repaid
(vi) Definition and special rulesFor purposes of this subparagraph:(I) Applicable eligible retirement plan(II) Exemption of distributions from trustee to trustee transfer and withholding rules(III) Distributions treated as meeting plan distribution requirements; self-certification
(vii) Inflation adjustmentIn the case of a taxable year beginning in a calendar year after 2024, the $10,000 amount in clause (ii)(I) shall be increased by an amount equal to—(I) such dollar amount, multiplied by(II) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting “calendar year 2023” for “calendar year 2016” in subparagraph (A)(ii) thereof.
If any amount after adjustment under the preceding sentence is not a multiple of $100, such amount shall be rounded to the nearest multiple of $100.
(L) Terminal illness
(i) In general
(ii) Definition
(iii) Documentation
(iv) Amount distributed may be repaid
(M) Distributions from retirement plans in connection with federally declared disasters
(3) Limitations
(A) Certain exceptions not to apply to individual retirement plans
(B) Periodic payments under qualified plans must begin after separation
(4) Change in substantially equal payments
(A) In generalIf—
(i) paragraph (1) does not apply to a distribution by reason of paragraph (2)(A)(iv), and
(ii) the series of payments under such paragraph are subsequently modified (other than by reason of death or disability or a distribution to which paragraph (10) applies)—(I) before the close of the 5-year period beginning with the date of the first payment and after the employee attains age 59½, or(II) before the employee attains age 59½,
the taxpayer’s tax for the 1st taxable year in which such modification occurs shall be increased by an amount, determined under regulations, equal to the tax which (but for paragraph (2)(A)(iv)) would have been imposed, plus interest for the deferral period.
(B) Deferral period
(C) Rollovers to subsequent planIf—
(i) payments described in paragraph (2)(A)(iv) are being made from a qualified retirement plan,
(ii) a transfer or a rollover from such qualified retirement plan of all or a portion of the taxpayer’s benefit under the plan is made to another qualified retirement plan, and
(iii) distributions from the transferor and transferee plans would in combination continue to satisfy the requirements of paragraph (2)(A)(iv) if they had been made only from the transferor plan,
such transfer or rollover shall not be treated as a modification under subparagraph (A)(ii), and compliance with paragraph (2)(A)(iv) shall be determined on the basis of the combined distributions described in clause (iii).
(5) Employee
(6) Special rules for simple retirement accounts
(A) In general
In the case of any amount received from a simple retirement account (within the meaning of section 408(p)) during the 2-year period beginning on the date such individual first participated in any qualified salary reduction arrangement maintained by the individual’s employer under section 408(p)(2), paragraph (1) shall be applied by substituting “25 percent” for “10 percent”.
(B) Waiver in case of plan conversion to 401(k) or 403(b)
(7) Qualified higher education expensesFor purposes of paragraph (2)(E)—
(A) In generalThe term “qualified higher education expenses” means qualified higher education expenses (as defined in section 529(e)(3)) for education furnished to—
(i) the taxpayer,
(ii) the taxpayer’s spouse, or
(iii) any child (as defined in section 152(f)(1)) or grandchild of the taxpayer or the taxpayer’s spouse,
at an eligible educational institution (as defined in section 529(e)(5)).
(B) Coordination with other benefits
(8) Qualified first-time homebuyer distributionsFor purposes of paragraph (2)(F)—
(A) In general
(B) Lifetime dollar limitationThe aggregate amount of payments or distributions received by an individual which may be treated as qualified first-time homebuyer distributions for any taxable year shall not exceed the excess (if any) of—
(i) $10,000, over
(ii) the aggregate amounts treated as qualified first-time homebuyer distributions with respect to such individual for all prior taxable years.
(C) Qualified acquisition costs
(D) First-time homebuyer; other definitionsFor purposes of this paragraph—
(i) First-time homebuyerThe term “first-time homebuyer” means any individual if—(I) such individual (and if married, such individual’s spouse) had no present ownership interest in a principal residence during the 2-year period ending on the date of acquisition of the principal residence to which this paragraph applies, and(II) subsection (h) or (k) of section 1034 5
5 See References in Text note below.
(as in effect on the day before the date of the enactment of this paragraph) did not suspend the running of any period of time specified in section 1034 5 (as so in effect) with respect to such individual on the day before the date the distribution is applied pursuant to subparagraph (A).(ii) Principal residence
(iii) Date of acquisitionThe term “date of acquisition” means the date—(I) on which a binding contract to acquire the principal residence to which subparagraph (A) applies is entered into, or(II) on which construction or reconstruction of such a principal residence is commenced.
(E) Special rule where delay in acquisitionIf any distribution from any individual retirement plan fails to meet the requirements of subparagraph (A) solely by reason of a delay or cancellation of the purchase or construction of the residence, the amount of the distribution may be contributed to an individual retirement plan as provided in section 408(d)(3)(A)(i) (determined by substituting “120th day” for “60th day” in such section), except that—
(i) section 408(d)(3)(B) shall not be applied to such contribution, and
(ii) such amount shall not be taken into account in determining whether section 408(d)(3)(B) applies to any other amount.
(F) Recontributions
(i) General rule(I) In general(II) Treatment of repayments
(ii) Qualified distributionFor purposes of this subparagraph, the term “qualified distribution” means any distribution—(I) which is a qualified first-time homebuyer distribution,(II) which was to be used to purchase or construct a principal residence in a qualified disaster area, but which was not so used on account of the qualified disaster with respect to such area, and(III) which was received during the period beginning on the date which is 180 days before the first day of the incident period of such qualified disaster and ending on the date which is 30 days after the last day of such incident period.
(iii) Applicable period
(9) Special rule for rollovers to section 457 plans
(10) Distributions to qualified public safety employees and private sector firefighters
(A) In general
(B) Qualified public safety employeeFor purposes of this paragraph, the term “qualified public safety employee” means—
(i) any employee of a State or political subdivision of a State who provides police protection, firefighting services, emergency medical services, or services as a corrections officer or as a forensic security employee providing for the care, custody, and control of forensic patients for any area within the jurisdiction of such State or political subdivision, or
(ii) any Federal law enforcement officer described in section 8331(20) or 8401(17) of title 5, United States Code, any Federal customs and border protection officer described in section 8331(31) or 8401(36) of such title, any Federal firefighter described in section 8331(21) or 8401(14) of such title, any air traffic controller described in 8331(30) or 8401(35) of such title, any nuclear materials courier described in section 8331(27) or 8401(33) of such title, any member of the United States Capitol Police, any member of the Supreme Court Police, or any diplomatic security special agent of the Department of State.
(11) Qualified disaster recovery distributionFor purposes of paragraph (2)(M)—
(A) In generalExcept as provided in subparagraph (B), the term “qualified disaster recovery distribution” means any distribution made—
(i) on or after the first day of the incident period of a qualified disaster and before the date that is 180 days after the applicable date with respect to such disaster, and
(ii) to an individual whose principal place of abode at any time during the incident period of such qualified disaster is located in the qualified disaster area with respect to such qualified disaster and who has sustained an economic loss by reason of such qualified disaster.
(B) Aggregate dollar limitation
(i) In general
(ii) Treatment of plan distributions
(iii) Controlled group
(C) Amount distributed may be repaid
(i) In general
(ii) Treatment of repayments of distributions from eligible retirement plans other than IRAs
(iii) Treatment of repayments for distributions from IRAs
(D) Income inclusion spread over 3-year period
(i) In general
(ii) Special rule
(E) Qualified disaster
(F) Other definitionsFor purposes of this paragraph and paragraph (8)—
(i) Qualified disaster area(I) In general(II) Exceptions
(ii) Incident period
(iii) Applicable dateThe term “applicable date” means the latest of—(I) the date of the enactment of this paragraph,(II) the first day of the incident period with respect to the qualified disaster, or(III) the date of the disaster declaration with respect to the qualified disaster.
(iv) Eligible retirement plan
(G) Special rules
(i) Exemption of distributions from trustee to trustee transfer and withholding rules
(ii) Qualified disaster recovery distributions treated as meeting plan distribution requirementsFor purposes of this title—(I) a qualified disaster recovery distribution shall be treated as meeting the requirements of sections 401(k)(2)(B)(i), 403(b)(7)(A)(i), 403(b)(11), and 457(d)(1)(A), and(II) in the case of a money purchase pension plan, a qualified disaster recovery distribution which is an in-service withdrawal shall be treated as meeting the requirements of section 401(a) applicable to distributions.
(u) Treatment of annuity contracts not held by natural persons
(1) In generalIf any annuity contract is held by a person who is not a natural person—
(A) such contract shall not be treated as an annuity contract for purposes of this subtitle (other than subchapter L), and
(B) the income on the contract for any taxable year of the policyholder shall be treated as ordinary income received or accrued by the owner during such taxable year.
For purposes of this paragraph, holding by a trust or other entity as an agent for a natural person shall not be taken into account.
(2) Income on the contract
(A) In generalFor purposes of paragraph (1), the term “income on the contract” means, with respect to any taxable year of the policyholder, the excess of—
(i) the sum of the net surrender value of the contract as of the close of the taxable year plus all distributions under the contract received during the taxable year or any prior taxable year, reduced by
(ii) the sum of the amount of net premiums under the contract for the taxable year and prior taxable years and amounts includible in gross income for prior taxable years with respect to such contract under this subsection.
Where necessary to prevent the avoidance of this subsection, the Secretary may substitute “fair market value of the contract” for “net surrender value of the contract” each place it appears in the preceding sentence.
(B) Net premiums
(3) ExceptionsThis subsection shall not apply to any annuity contract which—
(A) is acquired by the estate of a decedent by reason of the death of the decedent,
(B) is held under a plan described in section 401(a) or 403(a), under a program described in section 403(b), or under an individual retirement plan,
(C) is a qualified funding asset (as defined in section 130(d), but without regard to whether there is a qualified assignment),
(D) is purchased by an employer upon the termination of a plan described in section 401(a) or 403(a) and is held by the employer until all amounts under such contract are distributed to the employee for whom such contract was purchased or the employee’s beneficiary, or
(E) is an immediate annuity.
(4) Immediate annuityFor purposes of this subsection, the term “immediate annuity” means an annuity—
(A) which is purchased with a single premium or annuity consideration,
(B) the annuity starting date (as defined in subsection (c)(4)) of which commences no later than 1 year from the date of the purchase of the annuity, and
(C) which provides for a series of substantially equal periodic payments (to be made not less frequently than annually) during the annuity period.
(v) 10-percent additional tax for taxable distributions from modified endowment contracts
(1) Imposition of additional tax
(2) Subsection not to apply to certain distributionsParagraph (1) shall not apply to any distribution—
(A) made on or after the date on which the taxpayer attains age 59½,
(B) which is attributable to the taxpayer’s becoming disabled (within the meaning of subsection (m)(7)), or
(C) which is part of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the taxpayer or the joint lives (or joint life expectancies) of such taxpayer and his beneficiary.
(w) Application of basis rules to nonresident aliens
(1) In general
(2) Applicable nontaxable contributionFor purposes of this subsection, the term “applicable nontaxable contribution” means any employer or employee contribution—
(A) which was made with respect to compensation—
(i) for labor or personal services performed by an employee who, at the time the labor or services were performed, was a nonresident alien for purposes of the laws of the United States in effect at such time, and
(ii) which is treated as from sources without the United States, and
(B) which was not subject to income tax (and would have been subject to income tax if paid as cash compensation when the services were rendered) under the laws of the United States or any foreign country.
(3) Applicable nontaxable earningsFor purposes of this subsection, the term “applicable nontaxable earnings” means earnings—
(A) which are paid or accrued with respect to any employer or employee contribution which was made with respect to compensation for labor or personal services performed by an employee,
(B) with respect to which the employee was at the time the earnings were paid or accrued a nonresident alien for purposes of the laws of the United States, and
(C) which were not subject to income tax under the laws of the United States or any foreign country.
(4) Regulations
(x) Cross reference
(Aug. 16, 1954, ch. 736, 68A Stat. 20; Pub. L. 87–792, § 4(a), (b), Oct. 10, 1962, 76 Stat. 821; Pub. L. 87–834, § 11(b), Oct. 16, 1962, 76 Stat. 1005; Pub. L. 88–272, title II, § 232(b), Feb. 26, 1964, 78 Stat. 110; Pub. L. 89–44, title VIII, § 809(d)(2), June 21, 1965, 79 Stat. 167; Pub. L. 89–97, title I, § 106(d)(2), July 30, 1965, 79 Stat. 337; Pub. L. 89–365, § 1(b), Mar. 8, 1966, 80 Stat. 32; Pub. L. 91–172, title V, § 515(b), Dec. 30, 1969, 83 Stat. 644; Pub. L. 93–406, title II, §§ 2001(e)(5), (g)(1), (2)(A), (h)(2), (3), 2002(g)(10), 2005(c)(3), 2007(b)(2), Sept. 2, 1974, 88 Stat. 955, 957, 970, 991, 994; Pub. L. 94–455, title XIX, §§ 1901(a)(12), (13), 1906(b)(13)(A), 1951(b)(1)(A), Oct. 4, 1976, 90 Stat. 1765, 1834, 1836; Pub. L. 97–34, title III, §§ 311(b)(1), 312(d), (e)(1), Aug. 13, 1981, 95 Stat. 278, 284; Pub. L. 97–248, title II, §§ 236(a), (b), 237(d), 265(a), (b)(1), Sept. 3, 1982, 96 Stat. 509–511, 544–546; Pub. L. 97–448, title I, § 103(c)(3)(B)(i), (6), Jan. 12, 1983, 96 Stat. 2376; Pub. L. 98–76, title II, § 224(a), Aug. 12, 1983, 97 Stat. 421; Pub. L. 98–369, div. A, title II, §§ 211(b)(1), 222(a), (b), title IV, §§ 421(b)(1), 491(d)(3), (4), title V, §§ 521(d), 523(a), (b), title VII, § 713(b)(1)–(c)(1)(B), (d)(1), July 18, 1984, 98 Stat. 754, 774, 794, 849, 868, 871, 872, 956, 957; Pub. L. 98–397, title II, § 204(c)(2), Aug. 23, 1984, 98 Stat. 1448; Pub. L. 99–514, title XI, §§ 1101(b)(2)(B), (C), 1122(c), 1123(a), (b), (d)(1), 1134(a)–(d), 1135(a), title XVIII, §§ 1826(a), (b)(1)–(3), (c), (d), 1852(a)(2), (c)(1)–(4), 1854(b)(1), 1898(c)(1)(B), Oct. 22, 1986, 100 Stat. 2413, 2414, 2467, 2472, 2474, 2475, 2483, 2484, 2848–2850, 2864, 2867, 2878, 2951; Pub. L. 100–647, title I, §§ 1011A(b)(1)(A), (B), (2), (9), (c)(1)–(8), (h), (i), 1018(k), (t)(1)(A), (B), (u)(8), title V, § 5012(a), (b)(1), (d), Nov. 10, 1988, 102 Stat. 3472, 3474–3476, 3482, 3583, 3587, 3590, 3661, 3662, 3664; Pub. L. 101–239, title VII, §§ 7811(m)(4), 7815(a)(3), (5), Dec. 19, 1989, 103 Stat. 2412, 2414; Pub. L. 101–508, title XI, § 11802(a), Nov. 5, 1990, 104 Stat. 1388–529; Pub. L. 102–318, title V, § 521(b)(3), July 3, 1992, 106 Stat. 310; Pub. L. 104–188, title I, §§ 1403(a), 1421(b)(4)(A), 1463(a), 1704(l)(1), (t)(2), (77), Aug. 20, 1996, 110 Stat. 1790, 1796, 1824, 1882, 1887, 1891; Pub. L. 104–191, title III, § 361(a)–(c), Aug. 21, 1996, 110 Stat. 2071, 2072; Pub. L. 105–34, title II, § 203(a), (b), title III, § 303(a), (b), title X, § 1075(a), (b), Aug. 5, 1997, 111 Stat. 809, 829, 949; Pub. L. 105–206, title III, § 3436(a), title VI, §§ 6004(d)(3)(B), 6005(c)(1), 6023(3), (4), July 22, 1998, 112 Stat. 761, 794, 800, 824;
§ 73. Services of child
(a) Treatment of amounts received
(b) Treatment of expenditures
(c) Parent defined
(d) Cross reference
(Aug. 16, 1954, ch. 736, 68A Stat. 24.)
§ 74. Prizes and awards
(a) General rule
(b)
Gross income does not include amounts received as prizes and awards made primarily in recognition of religious, charitable, scientific, educational, artistic, literary, or civic achievement, but only if—
(1) the recipient was selected without any action on his part to enter the contest or proceeding;
(2) the recipient is not required to render substantial future services as a condition to receiving the prize or award; and
(3) the prize or award is transferred by the payor to a governmental unit or organization described in paragraph (1) or (2) of section 170(c) pursuant to a designation made by the recipient.
(c) Exception for certain employee achievement awards
(1) In general
(2) Excess deduction award
If the cost to the employer of the employee achievement award received by the taxpayer exceeds the amount allowable as a deduction to the employer, then gross income includes the greater of—
(A) an amount equal to the portion of the cost to the employer of the award that is not allowable as a deduction to the employer (but not in excess of the value of the award), or
(B) the amount by which the value of the award exceeds the amount allowable as a deduction to the employer.
The remaining portion of the value of such award shall not be included in the gross income of the recipient.
(3) Treatment of tax-exempt employers
(4) Cross reference
(d) Exception for Olympic and Paralympic medals and prizes
(1) In general
(2) Limitation based on adjusted gross income
(A) In general
(B) Coordination with other limitations
(Aug. 16, 1954, ch. 736, 68A Stat. 24; Pub. L. 99–514, title I, §§ 122(a)(1), 123(b)(1), Oct. 22, 1986, 100 Stat. 2109, 2113; Pub. L. 114–239, § 2(a), Oct. 7, 2016, 130 Stat. 973; Pub. L. 115–97, title I, § 13305(b)(1), Dec. 22, 2017, 131 Stat. 2126; Pub. L. 116–260, div. EE, title I, § 104(b)(2)(B), Dec. 27, 2020, 134 Stat. 3041; Pub. L. 117–2, title IX, § 9042(b)(1), Mar. 11, 2021, 135 Stat. 122.)
§ 75. Dealers in tax-exempt securities
(a) Adjustment for bond premiumIn computing the gross income of a taxpayer who holds during the taxable year a municipal bond (as defined in subsection (b)(1)) primarily for sale to customers in the ordinary course of his trade or business—
(1) if the gross income of the taxpayer from such trade or business is computed by the use of inventories and his inventories are valued on any basis other than cost, the cost of securities sold (as defined in subsection (b)(2)) during such year shall be reduced by an amount equal to the amortizable bond premium which would be disallowed as a deduction for such year by section 171(a)(2) (relating to deduction for amortizable bond premium) if the definition in section 171(d) of the term “bond” did not exclude such municipal bond; or
(2) if the gross income of the taxpayer from such trade or business is computed without the use of inventories, or by use of inventories valued at cost, and the municipal bond is sold or otherwise disposed of during such year, the adjusted basis (computed without regard to this paragraph) of the municipal bond shall be reduced by the amount of the adjustment which would be required under section 1016(a)(5) (relating to adjustment to basis for amortizable bond premium) if the definition in section 171(d) of the term “bond” did not exclude such municipal bond.
Notwithstanding the provisions of paragraph (1), no reduction to the cost of securities sold during the taxable year shall be made in respect of any obligation described in subsection (b)(1)(A)(ii) which is held by the taxpayer at the close of the taxable year; but in the taxable year in which any such obligation is sold or otherwise disposed of, if such obligation is a municipal bond (as defined in subsection (b)(1)), the cost of securities sold during such year shall be reduced by an amount equal to the adjustment described in paragraph (2), without regard to the fact that the taxpayer values his inventories on any basis other than cost.
(b) DefinitionsFor purposes of subsection (a)—
(1) The term “municipal bond” means any obligation issued by a government or political subdivision thereof if the interest on such obligation is excludable from gross income; but such term does not include such an obligation if—
(A)
(i) it is sold or otherwise disposed of by the taxpayer within 30 days after the date of its acquisition by him, or
(ii) its earliest maturity or call date is a date more than 5 years from the date on which it was acquired by the taxpayer; and
(B) when it is sold or otherwise disposed of by the taxpayer—
(i) in the case of a sale, the amount realized, or
(ii) in the case of any other disposition, its fair market value at the time of such disposition,
is higher than its adjusted basis (computed without regard to this section and section 1016(a)(6)).
Determinations under subparagraph (B) shall be exclusive of interest.
(2) The term “cost of securities sold” means the amount ascertained by subtracting the inventory value of the closing inventory of a taxable year from the sum of—
(A) the inventory value of the opening inventory for such year, and
(B) the cost of securities and other property purchased during such year which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year.
(Aug. 16, 1954, ch. 736, 68A Stat. 25; Pub. L. 85–866, title I, § 2(a), Sept. 2, 1958, 72 Stat. 1606.)
[§ 76. Repealed. Pub. L. 94–455, title XIX, § 1901(a)(14), Oct. 4, 1976, 90 Stat. 1765]
§ 77. Commodity credit loans
(a) Election to include loans in income
(b) Effect of election on adjustments for subsequent years
(Aug. 16, 1954, ch. 736, 68A Stat. 25; Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834.)
§ 78. Gross up for deemed paid foreign tax credit
If a domestic corporation chooses to have the benefits of subpart A of part III of subchapter N (relating to foreign tax credit) for any taxable year, an amount equal to the taxes deemed to be paid by such corporation under subsections (a), (b), and (d) of section 960 (determined without regard to the phrase “80 percent of” in subsection (d)(1) thereof) for such taxable year shall be treated for purposes of this title (other than sections 245 and 245A) as a dividend received by such domestic corporation from the foreign corporation.
(Added Pub. L. 87–834, § 9(b), Oct. 16, 1962, 76 Stat. 1001; amended Pub. L. 94–455, title X, § 1033(b)(1), Oct. 4, 1976, 90 Stat. 1628; Pub. L. 115–97, title I, § 14301(c)(1), Dec. 22, 2017, 131 Stat. 2222.)
§ 79. Group-term life insurance purchased for employees
(a) General ruleThere shall be included in the gross income of an employee for the taxable year an amount equal to the cost of group-term life insurance on his life provided for part or all of such year under a policy (or policies) carried directly or indirectly by his employer (or employers); but only to the extent that such cost exceeds the sum of—
(1) the cost of $50,000 of such insurance, and
(2) the amount (if any) paid by the employee toward the purchase of such insurance.
(b) ExceptionsSubsection (a) shall not apply to—
(1) the cost of group-term life insurance on the life of an individual which is provided under a policy carried directly or indirectly by an employer after such individual has terminated his employment with such employer and is disabled (within the meaning of section 72(m)(7)),
(2) the cost of any portion of the group-term life insurance on the life of an employee provided during part or all of the taxable year of the employee under which—
(A) the employer is directly or indirectly the beneficiary, or
(B) a person described in section 170(c) is the sole beneficiary,
for the entire period during such taxable year for which the employee receives such insurance, and
(3) the cost of any group-term life insurance which is provided under a contract to which section 72(m)(3) applies.
(c) Determination of cost of insurance
(d) Nondiscrimination requirements
(1) In generalIn the case of a discriminatory group-term life insurance plan—
(A) subsection (a)(1) shall not apply with respect to any key employee, and
(B) the cost of group-term life insurance on the life of any key employee shall be the greater of—
(i) such cost determined without regard to subsection (c), or
(ii) such cost determined with regard to subsection (c).
(2) Discriminatory group-term life insurance planFor purposes of this subsection, the term “discriminatory group-term life insurance plan” means any plan of an employer for providing group-term life insurance unless—
(A) the plan does not discriminate in favor of key employees as to eligibility to participate, and
(B) the type and amount of benefits available under the plan do not discriminate in favor of participants who are key employees.
(3) Nondiscriminatory eligibility classification
(A) In generalA plan does not meet requirements of subparagraph (A) of paragraph (2) unless—
(i) such plan benefits 70 percent or more of all employees of the employer,
(ii) at least 85 percent of all employees who are participants under the plan are not key employees,
(iii) such plan benefits such employees as qualify under a classification set up by the employer and found by the Secretary not to be discriminatory in favor of key employees, or
(iv) in the case of a plan which is part of a cafeteria plan, the requirements of section 125 are met.
(B) Exclusion of certain employeesFor purposes of subparagraph (A), there may be excluded from consideration—
(i) employees who have not completed 3 years of service;
(ii) part-time or seasonal employees;
(iii) employees not included in the plan who are included in a unit of employees covered by an agreement between employee representatives and one or more employers which the Secretary finds to be a collective bargaining agreement, if the benefits provided under the plan were the subject of good faith bargaining between such employee representatives and such employer or employers; and
(iv) employees who are nonresident aliens and who receive no earned income (within the meaning of section 911(d)(2)) from the employer which constitutes income from sources within the United States (within the meaning of section 861(a)(3)).
(4) Nondiscriminatory benefits
(5) Special rule
(6) Key employee defined
(7) Exemption for church plans
(A) In general
(B) DefinitionsFor purposes of subparagraph (A), the terms “church plan” and “church employee” have the meaning given such terms by paragraphs (1) and (3)(B) of section 414(e), respectively, except that—
(i) section 414(e) shall be applied by substituting “section 501(c)(3)” for “section 501” each place it appears, and
(ii) the term “church employee” shall not include an employee of—(I) an organization described in section 170(b)(1)(A)(ii) above the secondary school level (other than a school for religious training),(II) an organization described in section 170(b)(1)(A)(iii), and(III) an organization described in section 501(c)(3), the basis of the exemption for which is substantially similar to the basis for exemption of an organization described in subclause (II).
(8) Treatment of former employees
(e) Employee includes former employee
(f) Exception for life insurance purchased in connection with qualified transfer of excess pension assets
(Added Pub. L. 88–272, title II, § 204(a)(1), Feb. 26, 1964, 78 Stat. 36; amended Pub. L. 89–97, title I, § 106(d)(3), July 30, 1965, 79 Stat. 337; Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 97–248, title II, § 244(a), Sept. 3, 1982, 96 Stat. 523; Pub. L. 98–369, div. A, title II, § 223(a), (b), July 18, 1984, 98 Stat. 775; Pub. L. 99–514, title XI, § 1151(c)(1), title XVIII, § 1827(a)(1), (c), (d), Oct. 22, 1986, 100 Stat. 2503, 2850, 2851; Pub. L. 100–647, title V, § 5013(a), Nov. 10, 1988, 102 Stat. 3666; Pub. L. 101–140, title II, § 203(a)(1), (b)(1)(A), Nov. 8, 1989, 103 Stat. 830, 831; Pub. L. 101–508, title XI, § 11703(e)(1), Nov. 5, 1990, 104 Stat. 1388–517; Pub. L. 112–141, div. D, title II, § 40242(d), July 6, 2012, 126 Stat. 861.)
§ 80. Restoration of value of certain securities
(a) General rule
In the case of a domestic corporation subject to the tax imposed by section 11 or 801, if the value of any security (as defined in section 165(g)(2))—
(1) which became worthless by reason of the expropriation, intervention, seizure, or similar taking by the government of any foreign country, any political subdivision thereof, or any agency or instrumentality of the foregoing of property to which such security was related, and
(2) which was taken into account as a loss from the sale or exchange of a capital asset or with respect to which a deduction for a loss was allowed under section 165,
is restored in whole or in part during any taxable year by reason of any recovery of money or other property in respect of the property to which such security was related, the value so restored (to the extent that, when added to the value so restored during prior taxable years, it does not exceed the amount of the loss described in paragraph (2)) shall, except as provided in subsection (b), be included in gross income for the taxable year in which such restoration occurs.
(b) Reduction for failure to receive tax benefit
(c) Character of income
For purposes of this subtitle—
(1) Except as provided in paragraph (2), the amount included in gross income under this section shall be treated as ordinary income.
(2) If the loss described in subsection (a)(2) was taken into account as a loss from the sale or exchange of a capital asset, the amount included in gross income under this section shall be treated as long-term capital gain.
(d) Treatment under foreign expropriation loss recovery provisions
(Added Pub. L. 89–384, § 1(b)(1), Apr. 8, 1966, 80 Stat. 101; amended Pub. L. 94–455, title XIX, §§ 1901(b)(3)(K), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1793, 1834; Pub. L. 98–369, div. A, title II, § 211(b)(2), July 18, 1984, 98 Stat. 754.)
[§ 81. Repealed. Pub. L. 100–203, title X, § 10201(b)(1), Dec. 22, 1987, 101 Stat. 1330–387]
§ 82. Reimbursement of moving expenses
Except as provided in section 132(a)(6), there shall be included in gross income (as compensation for services) any amount received or accrued, directly or indirectly, by an individual as a payment for or reimbursement of expenses of moving from one residence to another residence which is attributable to employment or self-employment.
(Added Pub. L. 91–172, title II, § 231(b), Dec. 30, 1969, 83 Stat. 579; amended Pub. L. 103–66, title XIII, § 13213(d)(3)(A), Aug. 10, 1993, 107 Stat. 474; Pub. L. 115–141, div. U, title IV, § 401(a)(34), Mar. 23, 2018, 132 Stat. 1186.)
§ 83. Property transferred in connection with performance of services
(a) General ruleIf, in connection with the performance of services, property is transferred to any person other than the person for whom such services are performed, the excess of—
(1) the fair market value of such property (determined without regard to any restriction other than a restriction which by its terms will never lapse) at the first time the rights of the person having the beneficial interest in such property are transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier, over
(2) the amount (if any) paid for such property,
shall be included in the gross income of the person who performed such services in the first taxable year in which the rights of the person having the beneficial interest in such property are transferable or are not subject to a substantial risk of forfeiture, whichever is applicable. The preceding sentence shall not apply if such person sells or otherwise disposes of such property in an arm’s length transaction before his rights in such property become transferable or not subject to a substantial risk of forfeiture.
(b) Election to include in gross income in year of transfer
(1) In generalAny person who performs services in connection with which property is transferred to any person may elect to include in his gross income for the taxable year in which such property is transferred, the excess of—
(A) the fair market value of such property at the time of transfer (determined without regard to any restriction other than a restriction which by its terms will never lapse), over
(B) the amount (if any) paid for such property.
If such election is made, subsection (a) shall not apply with respect to the transfer of such property, and if such property is subsequently forfeited, no deduction shall be allowed in respect of such forfeiture.
(2) Election
(c) Special rulesFor purposes of this section—
(1) Substantial risk of forfeiture
(2) Transferability of property
(3) Sales which may give rise to suit under section 16(b) of the Securities Exchange Act of 1934So long as the sale of property at a profit could subject a person to suit under section 16(b) of the Securities Exchange Act of 1934, such person’s rights in such property are—
(A) subject to a substantial risk of forfeiture, and
(B) not transferable.
(4) For purposes of determining an individual’s basis in property transferred in connection with the performance of services, rules similar to the rules of section 72(w) shall apply.
(d) Certain restrictions which will never lapse
(1) Valuation
(2) CancellationIf, in the case of property subject to a restriction which by its terms will never lapse, the restriction is canceled, then, unless the taxpayer establishes—
(A) that such cancellation was not compensatory, and
(B) that the person, if any, who would be allowed a deduction if the cancellation were treated as compensatory, will treat the transaction as not compensatory, as evidenced in such manner as the Secretary shall prescribe by regulations,
the excess of the fair market value of the property (computed without regard to the restrictions) at the time of cancellation over the sum of—
(C) the fair market value of such property (computed by taking the restriction into account) immediately before the cancellation, and
(D) the amount, if any, paid for the cancellation,
shall be treated as compensation for the taxable year in which such cancellation occurs.
(e) Applicability of sectionThis section shall not apply to—
(1) a transaction to which section 421 applies,
(2) a transfer to or from a trust described in section 401(a) or a transfer under an annuity plan which meets the requirements of section 404(a)(2),
(3) the transfer of an option without a readily ascertainable fair market value,
(4) the transfer of property pursuant to the exercise of an option with a readily ascertainable fair market value at the date of grant, or
(5) group-term life insurance to which section 79 applies.
(f) Holding period
(g) Certain exchangesIf property to which subsection (a) applies is exchanged for property subject to restrictions and conditions substantially similar to those to which the property given in such exchange was subject, and if section 354, 355, 356, or 1036 (or so much of section 1031 as relates to section 1036) applied to such exchange, or if such exchange was pursuant to the exercise of a conversion privilege—
(1) such exchange shall be disregarded for purposes of subsection (a), and
(2) the property received shall be treated as property to which subsection (a) applies.
(h) Deduction by employer
(i) Qualified equity grants
(1) In generalFor purposes of this subtitle—
(A) Timing of inclusion
(B) Taxable year determinedThe taxable year determined under this subparagraph is the taxable year of the employee which includes the earliest of—
(i) the first date such qualified stock becomes transferable (including, solely for purposes of this clause, becoming transferable to the employer),
(ii) the date the employee first becomes an excluded employee,
(iii) the first date on which any stock of the corporation which issued the qualified stock becomes readily tradable on an established securities market (as determined by the Secretary, but not including any market unless such market is recognized as an established securities market by the Secretary for purposes of a provision of this title other than this subsection),
(iv) the date that is 5 years after the first date the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier, or
(v) the date on which the employee revokes (at such time and in such manner as the Secretary provides) the election under this subsection with respect to such stock.
(2) Qualified stock
(A) In generalFor purposes of this subsection, the term “qualified stock” means, with respect to any qualified employee, any stock in a corporation which is the employer of such employee, if—
(i) such stock is received—(I) in connection with the exercise of an option, or(II) in settlement of a restricted stock unit, and
(ii) such option or restricted stock unit was granted by the corporation—(I) in connection with the performance of services as an employee, and(II) during a calendar year in which such corporation was an eligible corporation.
(B) Limitation
(C) Eligible corporationFor purposes of subparagraph (A)(ii)(II)—
(i) In generalThe term “eligible corporation” means, with respect to any calendar year, any corporation if—(I) no stock of such corporation (or any predecessor of such corporation) is readily tradable on an established securities market (as determined under paragraph (1)(B)(iii)) during any preceding calendar year, and(II) such corporation has a written plan under which, in such calendar year, not less than 80 percent of all employees who provide services to such corporation in the United States (or any possession of the United States) are granted stock options, or are granted restricted stock units, with the same rights and privileges to receive qualified stock.
(ii) Same rights and privilegesFor purposes of clause (i)(II)—(I) except as provided in subclauses (II) and (III), the determination of rights and privileges with respect to stock shall be made in a similar manner as under section 423(b)(5),(II) employees shall not fail to be treated as having the same rights and privileges to receive qualified stock solely because the number of shares available to all employees is not equal in amount, so long as the number of shares available to each employee is more than a de minimis amount, and(III) rights and privileges with respect to the exercise of an option shall not be treated as the same as rights and privileges with respect to the settlement of a restricted stock unit.
(iii) Employee
(iv) Special rule for calendar years before 2018
(3) Qualified employee; excluded employeeFor purposes of this subsection—
(A) In generalThe term “qualified employee” means any individual who—
(i) is not an excluded employee, and
(ii) agrees in the election made under this subsection to meet such requirements as are determined by the Secretary to be necessary to ensure that the withholding requirements of the corporation under chapter 24 with respect to the qualified stock are met.
(B) Excluded employeeThe term “excluded employee” means, with respect to any corporation, any individual—
(i) who is a 1-percent owner (within the meaning of section 416(i)(1)(B)(ii)) at any time during the calendar year or who was such a 1 percent owner at any time during the 10 preceding calendar years,
(ii) who is or has been at any prior time—(I) the chief executive officer of such corporation or an individual acting in such a capacity, or(II) the chief financial officer of such corporation or an individual acting in such a capacity,
(iii) who bears a relationship described in section 318(a)(1) to any individual described in subclause (I) or (II) of clause (ii), or
(iv) who is one of the 4 highest compensated officers of such corporation for the taxable year, or was one of the 4 highest compensated officers of such corporation for any of the 10 preceding taxable years, determined with respect to each such taxable year on the basis of the shareholder disclosure rules for compensation under the Securities Exchange Act of 1934 (as if such rules applied to such corporation).
(4) Election
(A) Time for making election
(B) LimitationsNo election may be made under this section with respect to any qualified stock if—
(i) the qualified employee has made an election under subsection (b) with respect to such qualified stock,
(ii) any stock of the corporation which issued the qualified stock is readily tradable on an established securities market (as determined under paragraph (1)(B)(iii)) at any time before the election is made, or
(iii) such corporation purchased any of its outstanding stock in the calendar year preceding the calendar year which includes the first date the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture, unless—(I) not less than 25 percent of the total dollar amount of the stock so purchased is deferral stock, and(II) the determination of which individuals from whom deferral stock is purchased is made on a reasonable basis.
(C) Definitions and special rules related to limitation on stock redemptions
(i) Deferral stock
(ii) Deferral stock with respect to any individual not taken into account if individual holds deferral stock with longer deferral period
(iii) Purchase of all outstanding deferral stock
(iv) Reporting
(5) Controlled groups
(6) Notice requirementAny corporation which transfers qualified stock to a qualified employee shall, at the time that (or a reasonable period before) an amount attributable to such stock would (but for this subsection) first be includible in the gross income of such employee—
(A) certify to such employee that such stock is qualified stock, and
(B) notify such employee—
(i) that the employee may be eligible to elect to defer income on such stock under this subsection, and
(ii) that, if the employee makes such an election—(I) the amount of income recognized at the end of the deferral period will be based on the value of the stock at the time at which the rights of the employee in such stock first become transferable or not subject to substantial risk of forfeiture, notwithstanding whether the value of the stock has declined during the deferral period,(II) the amount of such income recognized at the end of the deferral period will be subject to withholding under section 3401(i) at the rate determined under section 3402(t), and(III) the responsibilities of the employee (as determined by the Secretary under paragraph (3)(A)(ii)) with respect to such withholding.
(7) Restricted stock units
(Added Pub. L. 91–172, title III, § 321(a), Dec. 30, 1969, 83 Stat. 588; amended Pub. L. 94–455, title XIX, §§ 1901(a)(15), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1765, 1834; Pub. L. 97–34, title II, § 252(a), Aug. 13, 1981, 95 Stat. 260; Pub. L. 97–448, title I, § 102(k)(1), Jan. 12, 1983, 96 Stat. 2374; Pub. L. 98–369, div. A, title II, § 223(c), July 18, 1984, 98 Stat. 775; Pub. L. 99–514, title XVIII, § 1827(e), Oct. 22, 1986, 100 Stat. 2851; Pub. L. 101–508, title XI, § 11801(a)(5), Nov. 5, 1990, 104 Stat. 1388–520; Pub. L. 108–357, title VIII, § 906(b), Oct. 22, 2004, 118 Stat. 1654; Pub. L. 115–97, title I, § 13603(a), Dec. 22, 2017, 131 Stat. 2159.)
§ 84. Transfer of appreciated property to political organizations
(a) General rule
If—
(1) any person transfers property to a political organization, and
(2) the fair market value of such property exceeds its adjusted basis,
then for purposes of this chapter the transferor shall be treated as having sold such property to the political organization on the date of the transfer, and the transferor shall be treated as having realized an amount equal to the fair market value of such property on such date.
(b) Basis of property
(c) Political organization defined
(Added Pub. L. 93–625, § 13(a)(1), Jan. 3, 1975, 88 Stat. 2120; amended Pub. L. 115–141, div. U, title IV, § 401(a)(35), Mar. 23, 2018, 132 Stat. 1186.)
§ 85. Unemployment compensation
(a) General rule
(b) Unemployment compensation defined
(c) Special rule for 2020
(1) In general
(2) Application
For purposes of paragraph (1), the adjusted gross income of the taxpayer shall be determined—
(A) after application of sections 86, 135, 137, 219, 221, 222, and 469, and
(B) without regard to this section.
(Added Pub. L. 95–600, title I, § 112(a), Nov. 6, 1978, 92 Stat. 2777; amended Pub. L. 97–34, title I, § 103(c)(1), Aug. 13, 1981, 95 Stat. 188; Pub. L. 97–248, title VI, § 611(a), Sept. 3, 1982, 96 Stat. 706; Pub. L. 98–21, title I, §§ 121(f)(1), 122(c)(2), Apr. 20, 1983, 97 Stat. 84, 87;
§ 86. Social security and tier 1 railroad retirement benefits
(a) In general
(1) In generalExcept as provided in paragraph (2), gross income for the taxable year of any taxpayer described in subsection (b) (notwithstanding section 207 of the Social Security Act) includes social security benefits in an amount equal to the lesser of—
(A) one-half of the social security benefits received during the taxable year, or
(B) one-half of the excess described in subsection (b)(1).
(2) Additional amountIn the case of a taxpayer with respect to whom the amount determined under subsection (b)(1)(A) exceeds the adjusted base amount, the amount included in gross income under this section shall be equal to the lesser of—
(A) the sum of—
(i) 85 percent of such excess, plus
(ii) the lesser of the amount determined under paragraph (1) or an amount equal to one-half of the difference between the adjusted base amount and the base amount of the taxpayer, or
(B) 85 percent of the social security benefits received during the taxable year.
(b) Taxpayers to whom subsection (a) applies
(1) In generalA taxpayer is described in this subsection if—
(A) the sum of—
(i) the modified adjusted gross income of the taxpayer for the taxable year, plus
(ii) one-half of the social security benefits received during the taxable year, exceeds
(B) the base amount.
(2) Modified adjusted gross incomeFor purposes of this subsection, the term “modified adjusted gross income” means adjusted gross income—
(A) determined without regard to this section and sections 85(c), 135, 137, 221, 911, 931, and 933, and
(B) increased by the amount of interest received or accrued by the taxpayer during the taxable year which is exempt from tax.
(c) Base amount and adjusted base amountFor purposes of this section—
(1) Base amountThe term “base amount” means—
(A) except as otherwise provided in this paragraph, $25,000,
(B) $32,000 in the case of a joint return, and
(C) zero in the case of a taxpayer who—
(i) is married as of the close of the taxable year (within the meaning of section 7703) but does not file a joint return for such year, and
(ii) does not live apart from his spouse at all times during the taxable year.
(2) Adjusted base amountThe term “adjusted base amount” means—
(A) except as otherwise provided in this paragraph, $34,000,
(B) $44,000 in the case of a joint return, and
(C) zero in the case of a taxpayer described in paragraph (1)(C).
(d) Social security benefit
(1) In generalFor purposes of this section, the term “social security benefit” means any amount received by the taxpayer by reason of entitlement to—
(A) a monthly benefit under title II of the Social Security Act, or
(B) a tier 1 railroad retirement benefit.
(2) Adjustment for repayments during year
(A) In general
(B) Denial of deduction
(3) Workmen’s compensation benefits substituted for social security benefits
(4) Tier 1 railroad retirement benefitFor purposes of paragraph (1), the term “tier 1 railroad retirement benefit” means—
(A) the amount of the annuity under the Railroad Retirement Act of 1974 equal to the amount of the benefit to which the taxpayer would have been entitled under the Social Security Act if all of the service after December 31, 1936, of the employee (on whose employment record the annuity is being paid) had been included in the term “employment” as defined in the Social Security Act, and
(B) a monthly annuity amount under section 3(f)(3) of the Railroad Retirement Act of 1974.
(5) Effect of early delivery of benefit checks
(e) Limitation on amount included where taxpayer receives lump-sum payment
(1) LimitationIf—
(A) any portion of a lump-sum payment of social security benefits received during the taxable year is attributable to prior taxable years, and
(B) the taxpayer makes an election under this subsection for the taxable year,
then the amount included in gross income under this section for the taxable year by reason of the receipt of such portion shall not exceed the sum of the increases in gross income under this chapter for prior taxable years which would result solely from taking into account such portion in the taxable years to which it is attributable.
(2) Special rules
(A) Year to which benefit attributable
(B) Election
(f) Treatment as pension or annuity for certain purposesFor purposes of—
(1) section 22(c)(3)(A) (relating to reduction for amounts received as pension or annuity),
(2) section 32(c)(2) (defining earned income),
(3) section 219(f)(1) (defining compensation), and
(4) section 911(b)(1) (defining foreign earned income),
(Added and amended Pub. L. 98–21, title I, § 121(a), title III, § 335(b)(2)(A), Apr. 20, 1983, 97 Stat. 80, 130; Pub. L. 98–76, title II, § 224(d), Aug. 12, 1983, 97 Stat. 424; Pub. L. 98–369, div. A, title IV, § 474(r)(2), div. B, title VI, § 2661(o)(1), July 18, 1984, 98 Stat. 839, 1158; Pub. L. 99–272, title XII, § 12111(b), title XIII, § 13204(a), Apr. 7, 1986, 100 Stat. 287, 313; Pub. L. 99–514, title I, § 131(b)(2), title XIII, § 1301(j)(8), title XVIII, § 1847(b)(2), Oct. 22, 1986, 100 Stat. 2113, 2658, 2856; Pub. L. 100–647, title I, § 1001(e), title VI, § 6009(c)(1), Nov. 10, 1988, 102 Stat. 3351, 3690; Pub. L. 103–66, title XIII, § 13215(a), (b), Aug. 10, 1993, 107 Stat. 475, 476; Pub. L. 103–296, title III, § 309(d), Aug. 15, 1994, 108 Stat. 1523; Pub. L. 104–188, title I, §§ 1704(t)(3), 1807(c)(2), Aug. 20, 1996, 110 Stat. 1887, 1902; Pub. L. 105–277, div. J, title IV, § 4003(a)(2)(B), Oct. 21, 1998, 112 Stat. 2681–908; Pub. L. 107–16, title IV, § 431(c)(1), June 7, 2001, 115 Stat. 68; Pub. L. 108–357, title I, § 102(d)(1), Oct. 22, 2004, 118 Stat. 1428; Pub. L. 115–97, title I, § 13305(b)(1), Dec. 22, 2017, 131 Stat. 2126; Pub. L. 116–260, div. EE, title I, § 104(b)(2)(C), Dec. 27, 2020, 134 Stat. 3041; Pub. L. 117–2, title IX, § 9042(b)(2), Mar. 11, 2021, 135 Stat. 122.)
§ 87. Alcohol and biodiesel fuels credits
Gross income includes—
(1) the amount of the alcohol fuel credit determined with respect to the taxpayer for the taxable year under section 40(a),
(2) the biodiesel fuels credit determined with respect to the taxpayer for the taxable year under section 40A(a), and
(3) the sustainable aviation fuel credit determined with respect to the taxpayer for the taxable year under section 40B(a).
(Added Pub. L. 96–223, title II, § 232(c)(1), Apr. 2, 1980, 94 Stat. 276, § 86; renumbered § 87, Pub. L. 98–21, title I, § 121(a), Apr. 20, 1983, 97 Stat. 80; amended Pub. L. 98–369, div. A, title IV, § 474(r)(3), July 18, 1984, 98 Stat. 839; Pub. L. 108–357, title III, § 302(c)(1)(A), Oct. 22, 2004, 118 Stat. 1465; Pub. L. 117–169, title I, § 13203(e), Aug. 16, 2022, 136 Stat. 1935.)
§ 88. Certain amounts with respect to nuclear decommissioning costs
In the case of any taxpayer who is required to include the amount of any nuclear decommissioning costs in the taxpayer’s cost of service for ratemaking purposes, there shall be includible in the gross income of such taxpayer the amount so included for any taxable year.
(Added Pub. L. 98–369, div. A, title I, § 91(f)(1), July 18, 1984, 98 Stat. 607; amended Pub. L. 99–514, title XVIII, § 1807(a)(4)(E)(vii), Oct. 22, 1986, 100 Stat. 2813.)
[§ 89. Repealed. Pub. L. 101–140, title II, § 202(a), Nov. 8, 1989, 103 Stat. 830]
§ 90. Illegal Federal irrigation subsidies
(a) General rule
(b) Illegal Federal irrigation subsidy
For purposes of this section—
(1) In general
The term “illegal Federal irrigation subsidy” means the excess (if any) of—
(A) the amount required to be paid for any Federal irrigation water delivered to the taxpayer during the taxpayer year, over
(B) the amount paid for such water.
(2) Federal irrigation water
(c) Denial of deduction
(Added Pub. L. 100–203, title X, § 10611(a), Dec. 22, 1987, 101 Stat. 1330–451.)
§ 91. Certain foreign branch losses transferred to specified 10-percent owned foreign corporations
(a) In general
(b) Transferred loss amountFor purposes of this section, the term “transferred loss amount” means, with respect to any transfer of substantially all of the assets of a foreign branch, the excess (if any) of—
(1) the sum of losses—
(A) which were incurred by the foreign branch after December 31, 2017, and before the transfer, and
(B) with respect to which a deduction was allowed to the taxpayer, over
(2) the sum of—
(A) any taxable income of such branch for a taxable year after the taxable year in which the loss was incurred and through the close of the taxable year of the transfer, and
(B) any amount which is recognized under section 904(f)(3) on account of the transfer.
(c) Reduction for recognized gains
(d) Source of income
(e) Basis adjustments
(Added Pub. L. 115–97, title I, § 14102(d)(1), Dec. 22, 2017, 131 Stat. 2193.)