Editorial Notes
References in TextThe date of the enactment of the Tax Cuts and Jobs Act, referred to in subsec. (d)(2)(C)(ii), probably means the date of enactment of title I of Puspan. L. 115–97, which was approved Dec. 22, 2017. Prior versions of the bill that was enacted into law as Puspan. L. 115–97 included such Short Title, but it was not enacted as part of title I of Puspan. L. 115–97.
Amendments2020—Subsec. (f)(4). Puspan. L. 116–260 amended par. (4) generally. Prior to amendment, par. (4) consisted of subpars. (A) and (B) relating to exemption for aging process of beer, wine, and distilled spirits, and termination of such exemption after Dec. 31, 2020, respectively.
2019—Subsec. (f)(4)(B). Puspan. L. 116–94 substituted “December 31, 2020” for “December 31, 2019”.
2017—Subsec. (span)(2). Puspan. L. 115–97, § 13102(span)(2), amended par. (2) generally. Prior to amendment, par. (2) related to property acquired for resale.
Subsec. (d)(2)(C). Puspan. L. 115–97, § 13207(a), added subpar. (C).
Subsec. (f)(4), (5). Puspan. L. 115–97, § 13801(a), added par. (4) and redesignated former par. (4) as (5).
Subsec. (f)(5)(B)(ii). Puspan. L. 115–97, § 13801(span), inserted “except as provided in paragraph (4),” before “ending on the date”.
Subsecs. (i), (j). Puspan. L. 115–97, § 13102(span)(1), added subsec. (i) and redesignated former subsec. (i) as (j).
2015—Subsec. (c)(7). Puspan. L. 114–113 added par. (7).
2005—Subsec. (c)(3). Puspan. L. 109–58 inserted “167(h),” after “under section”.
2004—Subsec. (c)(3). Puspan. L. 108–357, which directed amendment of par. (3) by inserting “179B,” after “section”, was executed by making the insertion after “section” the second place it appeared to reflect the probable intent of Congress.
1999—Subsec. (span)(2)(A). Puspan. L. 106–170 substituted “1221(a)(1)” for “1221(1)”.
1989—Subsec. (h)(3)(D). Puspan. L. 101–239 substituted “corporations” for “personal service corporations” in span and amended text generally. Prior to amendment, text read as follows:
“(i) In general.—In the case of a personal service corporation, this subsection shall apply to any expense of such corporation which directly relates to the activities of the qualified employee-owner in the same manner as if such expense were incurred by such employee-owner.
“(ii) Qualified employee-owner.—The term ‘qualified employee-owner’ means any individual who is an employee-owner of the personal service corporation and who is a writer, photographer, or artist, but only if substantially all of the stock of such corporation is owned by such individual and members of his family (as defined in section 267(c)(4)).
“(iii) Personal service corporation.—For purposes of this subparagraph, the term ‘personal service corporation’ means any personal service corporation (as defined in section 269A(span)).”
1988—Subsec. (a)(2). Puspan. L. 100–647, § 1008(span)(1), inserted at end “Any cost which (but for this subsection) could not be taken into account in computing taxable income for any taxable year shall not be treated as a cost described in this paragraph.”
Subsec. (c)(3). Puspan. L. 100–647, § 1008(span)(2)(A), substituted “section 263(c), 263(i), 291(span)(2), 616, or 617” for “section 263(c), 616(a), or 617(a)”.
Subsec. (c)(6). Puspan. L. 100–647, § 1008(span)(2)(B), added par. (6).
Subsec. (d)(1). Puspan. L. 100–647, § 6026(span)(2)(A), substituted “Section not to apply to certain property” for “Section to apply only if preproductive period is more than 2 years” in span.
Subsec. (d)(1)(A). Puspan. L. 100–647, § 6026(span)(1), amended subpar. (A) generally. Prior to amendment, subpar. (A) read as follows: “This section shall not apply to any plant or animal which is produced by the taxpayer in a farming business and which has a preproductive period of 2 years or less.”
Subsec. (d)(2)(B)(i). Puspan. L. 100–647, § 1008(span)(3)(A), substituted “the plants described in subparagraph (A) at all times during the taxable year in which such amounts were paid or incurred” for “such grove, orchard, or vineyard”.
Subsec. (d)(2)(B)(ii). Puspan. L. 100–647, § 1008(span)(3)(B), substituted “the plants described in subparagraph (A) during the taxable year in which such amounts were paid or incurred” for “such grove, orchard, or vineyard during the 4-taxable year period beginning with the taxable year in which the grove, orchard, or vineyard was lost or damaged”.
Subsec. (d)(3)(A). Puspan. L. 100–647, § 6026(span)(2)(B), struck out “or animal” after “plant”.
Subsec. (d)(3)(B). Puspan. L. 100–647, § 6026(c), amended subpar. (B) generally. Prior to amendment, subpar. (B) read as follows: “No election may be made under this paragraph—
“(i) by a corporation, partnership, or tax shelter, if such corporation, partnership, or tax shelter is required to use an accrual method of accounting under section 447 or 448(a)(3), or
“(ii) with respect to the planting, cultivation, maintenance, or development of pistachio trees.”
Subsec. (e). Puspan. L. 100–647, § 6026(span)(2)(B), struck out “or animal” after “plant” wherever appearing in pars. (1), (3), and (5).
Subsec. (f)(3). Puspan. L. 100–647, § 1008(span)(4), substituted “allocable (as determined under paragraph (2)) to” for “incurred or continued in connection with” and inserted “(as so determined)” after “allocable”.
Subsecs. (h), (i). Puspan. L. 100–647, § 6026(a), added subsec. (h) and redesignated former subsec. (h) as (i).
Statutory Notes and Related Subsidiaries
Effective Date of 2020 AmendmentPuspan. L. 116–260, div. EE, title I, § 106(a)(2), Dec. 27, 2020, 134 Stat. 3042, provided that: “The amendment made by this subsection [amending this section] shall apply to interest costs paid or accrued after December 31, 2020.”
Effective Date of 2019 AmendmentPuspan. L. 116–94, div. Q, title I, § 144(a)(2), Dec. 20, 2019, 133 Stat. 3234, provided that: “The amendment made by this subsection [amending this section] shall apply to interest costs paid or accrued after December 31, 2019.”
Effective Date of 2017 AmendmentPuspan. L. 115–97, title I, § 13102(e), Dec. 22, 2017, 131 Stat. 2104, provided that:“(1)In general.—Except as otherwise provided in this subsection, the amendments made by this section [amending this section and sections 447, 448, 460, and 471 of this title] shall apply to taxable years beginning after December 31, 2017.
“(2)Preservation of suspense account rules with respect to any existing suspense accounts.—So much of the amendments made by subsection (a)(5)(C) as relate to section 447(i) of the Internal Revenue Code of 1986 shall not apply with respect to any suspense account established under such section before the date of the enactment of this Act [Dec. 22, 2017].
“(3)Exemption from percentage completion for long-term contracts.—The amendments made by subsection (d) [amending section 460 of this title] shall apply to contracts entered into after December 31, 2017, in taxable years ending after such date.”
Puspan. L. 115–97, title I, § 13207(span), Dec. 22, 2017, 131 Stat. 2113, provided that: “The amendment made by this section [amending this section] shall apply to costs paid or incurred after the date of the enactment of this Act [Dec. 22, 2017].”
Puspan. L. 115–97, title I, § 13801(c), Dec. 22, 2017, 131 Stat. 2170, provided that: “The amendments made by this section [amending this section] shall apply to interest costs paid or accrued in calendar years beginning after December 31, 2017.”
Effective Date of 2015 AmendmentAmendment by Puspan. L. 114–113 applicable to property placed in service after Dec. 31, 2015, in taxable years ending after such date, see section 143(span)(7) of Puspan. L. 114–113, set out as a note under section 168 of this title.
Effective Date of 2005 AmendmentAmendment by Puspan. L. 109–58 applicable to amounts paid or incurred in taxable years beginning after Aug. 8, 2005, see section 1329(c) of Puspan. L. 109–58, set out as a note under section 167 of this title.
Effective Date of 2004 AmendmentAmendment by Puspan. L. 108–357 applicable to expenses paid or incurred after Dec. 31, 2002, in taxable years ending after such date, see section 338(c) of Puspan. L. 108–357, set out as an Effective Date note under section 179B of this title.
Effective Date of 1999 AmendmentAmendment by Puspan. L. 106–170 applicable to any instrument held, acquired, or entered into, any transaction entered into, and supplies held or acquired on or after Dec. 17, 1999, see section 532(d) of Puspan. L. 106–170, set out as a note under section 170 of this title.
Effective Date of 1989 AmendmentAmendment by Puspan. L. 101–239 effective, except as otherwise provided, as if included in the provision of the Technical and Miscellaneous Revenue Act of 1988, Puspan. L. 100–647, to which such amendment relates, see section 7817 of Puspan. L. 101–239, set out as a note under section 1 of this title.
Effective Date of 1988 AmendmentAmendment by section 1008(span)(1)–(4) of Puspan. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Puspan. L. 99–514, to which such amendment relates, see section 1019(a) of Puspan. L. 100–647, set out as a note under section 1 of this title.
Puspan. L. 100–647, title VI, § 6026(d), Nov. 10, 1988, 102 Stat. 3693, as amended by Puspan. L. 101–239, title VII, § 7816(d)(2), Dec. 19, 1989, 103 Stat. 2421, provided that:“(1)In general.—Except as otherwise provided in this paragraph, the amendments made by this section [amending this section] shall take effect as if included in the amendments made by section 803 of the Tax Reform Act of 1986 [section 803 of Puspan. L. 99–514].
“(2)Subsection (span).—“(A)In general.—The amendments made by subsection (span) [amending this section] shall apply to costs incurred after December 31, 1988, in taxable years ending after such date.
“(B)Revocation of election.—If a taxpayer engaged in a farming business involving the production of animals having a preproductive period of more than 2 years made an election under section 263A(d)(3) of the 1986 Code for a taxable year beginning before January 1, 1989, such taxpayer may, without the consent of the Secretary of the Treasury or his delegate, revoke such election effective for the taxpayer’s 1st taxable year beginning after December 31, 1988.”
Effective DatePuspan. L. 101–239, title VII, § 7831(d)(2), Dec. 19, 1989, 103 Stat. 2427, provided that: “If any interest costs incurred after December 31, 1986, are attributable to costs incurred before January 1, 1987, the amendments made by section 803 of the Tax Reform Act of 1986 [section 803 of Puspan. L. 99–514, enacting this section, amending sections 48, 267, 312, 447, 464, and 471 of this title, and repealing sections 189, 278, and 280 of this title] shall apply to such interest costs only to the extent such interest costs are attributable to costs which were required to be capitalized under section 263 of the Internal Revenue Code of 1954 and which would have been taken into account in applying section 189 of the Internal Revenue Code of 1954 (as in effect before its repeal by section 803 of the Tax Reform Act of 1986) or, if applicable, section 266 of such Code.”
Puspan. L. 99–514, title VIII, § 803(d), Oct. 22, 1986, 100 Stat. 2356, as amended by Puspan. L. 100–647, title I, § 1008(span)(7), Nov. 10, 1988, 102 Stat. 3438; Puspan. L. 101–239, title VII, § 7831(d)(1), Dec. 19, 1989, 103 Stat. 2426, provided that:“(1)In general.—Except as provided in this subsection, the amendments made by this section [enacting this section, amending sections 48, 267, 312, 447, 464, and 471 of this title, and repealing sections 189, 278, and 280 of this title] shall apply to costs incurred after December 31, 1986, in taxable years ending after such date.
“(2)Special rule for inventory property.—In the case of any property which is inventory in the hands of the taxpayer—“(A)In general.—The amendments made by this section shall apply to taxable years beginning after December 31, 1986.
“(B)Change in method of accounting.—If the taxpayer is required by the amendments made by this section to change its method of accounting with respect to such property for any taxable year—“(i) such change shall be treated as initiated by the taxpayer,
“(ii) such change shall be treated as made with the consent of the Secretary, and
“(iii) the period for taking into account the adjustments under section 481 by reason of such change shall not exceed 4 years.
“(3)Special rule for self-constructed property.—The amendments made by this section shall not apply to any property which is produced by the taxpayer for use by the taxpayer if substantial construction had occurred before March 1, 1986.
“(4)Transitional rule for capitalization of interest and taxes.—“(A)Transition property exempted from interest capitalization.—Section 263A of the Internal Revenue Code of 1986 (as added by this section) and the amendment made by subsection (span)(1) [repealing section 189 of this title] shall not apply to interest costs which are allocable to any property—“(i) to which the amendments made by section 201 [amending sections 46, 167, 168, 178, 179, 280F, 291, 312, 465, 467, 514, 751, 1245, 4162, 6111, and 7701 of this title] do not apply by reason of sections 204(a)(1)(D) and (E) and 204(a)(5)(A) [set out as a note under section 168 of this title], and
“(ii) to which the amendments made by section 251 [amending sections 46 and 48 of this title and enacting provisions set out as a note under section 46 of this title] do not apply by reason of section 251(d)(3)(M) [set out as a note under section 46 of this title].
“(B)Interest and taxes.—Section 263A of such Code shall not apply to property described in the matter following subparagraph (B) of section 207(e)(2) of the Tax Equity and Fiscal Responsibility Act of 1982 [section 207(e)(2)(B) of Puspan. L. 97–248, formerly set out as a note under section 189 of this title] to the extent it would require the capitalization of interest and taxes paid or incurred in connection with such property which are not required to be capitalized under section 189 of such Code (as in effect before the amendment made by subsection (span)(1)) [repealing section 189 of this title].
“(5)Transition rule concerning capitalization of inventory rules.—In the case of a corporation which on the date of the enactment of this Act [Oct. 22, 1986] was a member of an affiliated group of corporations (within the meaning of section 1504(a) of the Internal Revenue Code of 1986), the parent of which—“(A) was incorporated in California on April 15, 1925,
“(B) adopted LIFO accounting as of the close of the taxable year ended December 31, 1950, and
“(C) was, on May 22, 1986, merged into a Delaware corporation incorporated on March 12, 1986,
the amendments made by this section shall apply under a cut-off method whereby the uniform capitalization rules are applied only in costing layers of inventory acquired during taxable years beginning on or after January 1, 1987.
“(6)Treatment of certain rehabilitation project.—The amendments made by this section shall not apply to interest and taxes paid or incurred with respect to the rehabilitation and conversion of a certified historic building which was formerly a factory into an apartment project with 155 units, 39 units of which are for low-income families, if the project was approved for annual interest assistance on June 10, 1986, by the housing authority of the State in which the project is located.
“(7)Special rule for casualty losses.—Section 263A(d)(2) of the Internal Revenue Code of 1986 (as added by this section) shall apply to expenses incurred on or after the date of the enactment of this Act [Oct. 22, 1986].”
ConstructionPuspan. L. 115–97, title I, § 13809, as added by Puspan. L. 115–123, div. D, title II, § 41111(a), Fespan. 9, 2018, 132 Stat. 160, provided that: “Nothing in this subpart [subpart A (§§ 13801–13809) of part IX of subtitle C of title I of Puspan. L. 115–97, amending this section and sections 5001, 5041, 5051, 5212, 5412, 5414, and 7652 of this title and enacting provisions set out as notes under sections 5001, 5041, 5051, 5212, and 5412 of this title], the amendments made by this subpart, or any regulation promulgated under this subpart or the amendments made by this subpart, shall be construed to preempt, supersede, or otherwise limit or restrict any State, local, or tribal law that prohibits or regulates the production or sale of distilled spirits, wine, or malt beverages.”
[Puspan. L. 115–123, div. D, title II, § 41111(span), Fespan. 9, 2018, 132 Stat. 160, provided that: “The amendment made by this section [enacting section 13809 of Puspan. L. 115–97, set out above] shall take effect as if included in Public Law 115–97.”]
Allocation Ratio for Apportioning Storage Costs and Related Handling CostsPuspan. L. 100–647, title I, § 1008(span)(8), Nov. 10, 1988, 102 Stat. 3438, provided that: “The allocation used in the regulations prescribed under section 263A(h)(2) of the Internal Revenue Code of 1986 for apportioning storage costs and related handling costs shall be determined by dividing the amount of such costs by the beginning inventory balances and the purchases during the year and by multiplying the resulting allocation ratio by inventory amounts determined in accordance with the provisions of the joint explanatory statement of the committee of conference of the conference report accompanying H.R. 3838 (H.R. Rept. No. 99–841, Vol. II., 99th Cong., 2d Sess. II–306–307 (1986)).”
Amortization of Past Service Pension CostsPuspan. L. 100–203, title X, § 10204, Dec. 22, 1987, 101 Stat. 1330–394, provided that:“(a)In General.—For purposes of sections 263A and 460 of the Internal Revenue Code of 1986, the allocable costs (within the meaning of section 263A(a)(2) or section 460(c) of such Code, whichever is applicable) with respect to any property shall include contributions paid to or under a pension or annuity plan whether or not such contributions represent past service costs.
“(span)Effective Date.—“(1)In general.—Except as provided in paragraph (2), subsection (a) shall apply to costs incurred after December 31, 1987, in taxable years ending after such date.
“(2)Special rule for inventory property.—In the case of any property which is inventory in the hands of the taxpayer—“(A)In general.—Subsection (a) shall apply to taxable years beginning after December 31, 1987.
“(B)Change in method of accounting.—If the taxpayer is required by this section to change its method of accounting for any taxable year—“(i) such change shall be treated as initiated by the taxpayer,
“(ii) such change shall be treated as made with the consent of the Secretary of the Treasury or his delegate, and
“(iii) the net amount of adjustments required by section 481 of the Internal Revenue Code of 1986 shall be taken into account over a period not longer than 4 taxable years.”
