General rule for taxable year of inclusion
General rule
Special rule in case of death
Special rule for employee tips
Special rule for crop insurance proceeds or disaster payments
Special rule for proceeds from livestock sold on account of drought, flood, or other weather-related conditions
In general
Limitation
Special election rules
Special rule for utility services
In general
Definition and special rule
For purposes of this subsection—
Utility services
The term “utility services” includes—
the providing of electrical energy, water, or sewage disposal,
the furnishing of gas or steam through a local distribution system,
telephone or other communication services, and
the transporting of gas or steam by pipeline.
Year in which services provided
The taxable year in which services are treated as provided to customers shall not, in any manner, be determined by reference to—
the period in which the customers’ meters are read, or
the period in which the taxpayer bills (or may bill) the customers for such service.
Treatment of interest on frozen deposits in certain financial institutions
In general
In the case of interest credited during any calendar year on a frozen deposit in a qualified financial institution, the amount of such interest includible in the gross income of a qualified individual shall not exceed the sum of—
the net amount withdrawn by such individual from such deposit during such calendar year, and
the amount of such deposit which is withdrawable as of the close of the taxable year (determined without regard to any penalty for premature withdrawals of a time deposit).
Interest tested each year
Deferral of interest deduction
Frozen deposit
For purposes of this subsection, the term “frozen deposit” means any deposit if, as of the close of the calendar year, any portion of such deposit may not be withdrawn because of—
the bankruptcy or insolvency of the qualified financial institution (or threat thereof), or
any requirement imposed by the State in which such institution is located by reason of the bankruptcy or insolvency (or threat thereof) of 1 or more financial institutions in the State.
Other definitions
Special rule for cash options for receipt of qualified prizes
In general
Qualified prize option; qualified prize
For purposes of this subsection—
In general
The term “qualified prize option” means an option which—
entitles an individual to receive a single cash payment in lieu of receiving a qualified prize (or remaining portion thereof), and
is exercisable not later than 60 days after such individual becomes entitled to the qualified prize.
Qualified prize
The term “qualified prize” means any prize or award which—
is awarded as a part of a contest, lottery, jackpot, game, or other similar arrangement,
does not relate to any past services performed by the recipient and does not require the recipient to perform any substantial future service, and
is payable over a period of at least 10 years.
Partnership, etc.
Special rule for sales or dispositions to implement Federal Energy Regulatory Commission or State electric restructuring policy
In general
In the case of any qualifying electric transmission transaction for which the taxpayer elects the application of this section, qualified gain from such transaction shall be recognized—
in the taxable year which includes the date of such transaction to the extent the amount realized from such transaction exceeds—
the cost of exempt utility property which is purchased by the taxpayer during the 4-year period beginning on such date, reduced (but not below zero) by
any portion of such cost previously taken into account under this subsection, and
ratably over the 8-taxable year period beginning with the taxable year which includes the date of such transaction, in the case of any such gain not recognized under subparagraph (A).
Qualified gain
For purposes of this subsection, the term “qualified gain” means, with respect to any qualifying electric transmission transaction in any taxable year—
any ordinary income derived from such transaction which would be required to be recognized under section 1245 or 1250 for such taxable year (determined without regard to this subsection), and
any income derived from such transaction in excess of the amount described in subparagraph (A) which is required to be included in gross income for such taxable year (determined without regard to this subsection).
Qualifying electric transmission transaction
For purposes of this subsection, the term “qualifying electric transmission transaction” means any sale or other disposition before
property used in the trade or business of providing electric transmission services, or
any stock or partnership interest in a corporation or partnership, as the case may be, whose principal trade or business consists of providing electric transmission services,
but only if such sale or disposition is to an independent transmission company.
Independent transmission company
For purposes of this subsection, the term “independent transmission company” means—
an independent transmission provider approved by the Federal Energy Regulatory Commission,
a person—
who the Federal Energy Regulatory Commission determines in its authorization of the transaction under section 203 of the Federal Power Act (16 U.S.C. 824b) or by declaratory order is not a market participant within the meaning of such Commission’s rules applicable to independent transmission providers, and
whose transmission facilities to which the election under this subsection applies are under the operational control of a Federal Energy Regulatory Commission-approved independent transmission provider before the close of the period specified in such authorization, but not later than the date which is 4 years after the close of the taxable year in which the transaction occurs, or
in the case of facilities subject to the jurisdiction of the Public Utility Commission of Texas—
a person which is approved by that Commission as consistent with Texas State law regarding an independent transmission provider, or
a political subdivision or affiliate thereof whose transmission facilities are under the operational control of a person described in clause (i).
Exempt utility property
For purposes of this subsection:
In general
The term “exempt utility property” means property used in the trade or business of—
generating, transmitting, distributing, or selling electricity, or
producing, transmitting, distributing, or selling natural gas.
Nonrecognition of gain by reason of acquisition of stock
Exception for property located outside the United States
Qualified electric utility
For purposes of this subsection, the term “qualified electric utility” means a person that, as of the date of the qualifying electric transmission transaction, is vertically integrated, in that it is both—
a transmitting utility (as defined in section 3(23) of the Federal Power Act (16 U.S.C. 796(23))) with respect to the transmission facilities to which the election under this subsection applies, and
an electric utility (as defined in section 3(22) of the Federal Power Act (16 U.S.C. 796(22))).
Special rule for consolidated groups
Time for assessment of deficiencies
If the taxpayer has made the election under paragraph (1) and any gain is recognized by such taxpayer as provided in paragraph (1)(B), then—
the statutory period for the assessment of any deficiency, for any taxable year in which any part of the gain on the transaction is realized, attributable to such gain shall not expire prior to the expiration of 3 years from the date the Secretary is notified by the taxpayer (in such manner as the Secretary may by regulations prescribe) of the purchase of exempt utility property or of an intention not to purchase such property, and
such deficiency may be assessed before the expiration of such 3-year period notwithstanding any law or rule of law which would otherwise prevent such assessment.
Purchase
Election
Nonapplication of installment sales treatment
Source
(Aug. 16, 1954, ch. 736, 68A Stat. 152; Pub. L. 89–97, title III, § 313(b),Notes
References in Text
Amendments
Effective Date of 2015 Amendment
Effective Date of 2014 Amendment
Effective Date of 2013 Amendment
Effective Date of 2005 Amendment
In general.—
The amendment made by subsection (a) [amending this section] shall apply to transactions occurring after the date of the enactment of this Act [
Technical amendment.—
The amendment made by subsection (b) [amending this section] shall take effect as if included in the amendments made by section 909 of the American Jobs Creation Act of 2004 [Pub. L. 108–357, amending this section].”
Effective Date of 2010 Amendment
Effective Date of 2008 Amendment
Extension.—
The amendments made by subsection (a) [amending this section] shall apply to transactions after
Transfers of operational control.—
The amendment made by subsection (b) [amending this section] shall take effect as if included in section 909 of the American Jobs Creation Act of 2004 [Pub. L. 108–357].
Exception for property located outside the united states.—
The amendment made by subsection (c) [amending this section] shall apply to transactions after the date of the enactment of this Act [
Effective Date of 2004 Amendment
Effective Date of 1998 Amendment
In general.—
The amendment made by this section [amending this section] shall apply to any prize to which a person first becomes entitled after the date of enactment of this Act [
Transition rule.—
The amendment made by this section shall apply to any prize to which a person first becomes entitled on or before the date of enactment of this Act, except that in determining whether an option is a qualified prize option as defined in section 451(h)(2)(A) of the Internal Revenue Code of 1986 (as added by such amendment)—
clause (ii) of such section 451(h)(2)(A) shall not apply, and
such option shall be treated as a qualified prize option if it is exercisable only during all or part of the 18-month period beginning on
Effective Date of 1997 Amendment
Effective Date of 1988 Amendment
Effective Date of 1986 Amendment
In general.—
The amendments made by this section [amending this section] shall apply to taxable years beginning after
Change in method of accounting.—
If a taxpayer is required by the amendments made by this section to change its method of accounting for any taxable year—
such change shall be treated as initiated by the taxpayer,
such change shall be treated as having been made with the consent of the Secretary, and
the adjustments under section 481 of the Internal Revenue Code of 1954 [now 1986] by reason of such change shall be taken into account ratably over a period no longer than the first 4 taxable years beginning after
Special rule for certain cycle billing.—
If a taxpayer for any taxable year beginning before
In general.—
The amendment made by subsection (a) [amending section 165 of this title] shall apply to taxable years beginning after
Special rules for subsection (b).—
The amendment made by subsection (b) [amending this section] shall apply to taxable years beginning after
In the case of interest attributable to the period beginning
Effective Date of 1976 Amendment
Effective Date of 1969 Amendment
Effective Date of 1965 Amendment
Tax Treatment of Incentive Payment
Overpayments or Underpayments of Tax Attributable to Certain Amendments by Pub. L. 99–514 or Pub. L. 100–647
Modification of Regulations on the Completed Contract Method of Accounting
In General.—
The Secretary of the Treasury shall modify the income tax regulations relating to accounting for long-term contracts to—
clarify the time at which a contract is to be considered completed,
clarify when—
one agreement will be treated as more than one contract, and
two or more agreements will be treated as one contract, and
properly allocate all costs which directly benefit, or are incurred by reason of, the extended period long-term contract activities of the taxpayer.
Extended Period Long-Term Contracts Defined.—
For purposes of this section—
In general.—
The term ‘extended period long-term contract’ means any long-term contract which the taxpayer estimates (at the time such contract is entered into) will not be completed within the 2-year period beginning on the contract commencement date of such contract.
Certain construction contracts.—
In general.—
The term ‘extended period long-term contract’ does not include any construction contract entered into by a taxpayer—
who estimates (at the time such contract is entered into) that such contract will be completed within the 3-year period beginning on the contract commencement date of such contract, or
whose average annual gross receipts over the 3 taxable years preceding the taxable year in which such contract is entered into do not exceed $25,000,000.
Determination of taxpayer’s gross receipts.—
For purposes of subparagraph (A), the gross receipts of—
all trades or businesses (whether or not incorporated) which are under common control with the taxpayer (within the meaning of section 52(b)), and
all members of any controlled group of corporations of which the taxpayer is a member,
for the 3 taxable years of such persons preceding the taxable year in which the contract described in subparagraph (A) is entered into shall be included in the gross receipts of the taxpayer for the period described in subparagraph (A). The Secretary shall prescribe regulations which provide attribution rules that take into account, in addition to the persons and entities described in the preceding sentence, taxpayers who engage in construction contracts through partnerships, joint ventures, and corporations.
Controlled group of corporations.—
The term ‘controlled group of corporations’ has the meaning given to such term by section 1563(a), except that—
‘more than 50 percent’ shall be substituted for ‘at least 80 percent’ each place it appears in section 1563(a)(1), and
the determination shall be made without regard to subsections (a)(4) and (e)(3)(C) of section 1563.
Construction contract.—
The term ‘construction contract’ means any contract for the building, construction, reconstruction, or rehabilitation of, or the installation of any integral component to, improvements to real property.
Contract commencement date.—
The term ‘contract commencement date’ means, with respect to any contract, the first date on which any costs (other than costs such as bidding expenses or expenses incurred in connection with negotiating the contract) allocable to such contract are incurred.
Effective Dates; Special Rules.—
In general.—
The modifications to regulations which are required to be made under paragraphs (1) and (2) of subsection (a) shall apply with respect to taxable years ending after
Cost allocation.—
In general.—
Any modification to Income Tax Regulation 1.451–3 made under subsection (a)(3) which requires additional costs to be allocated to a contract shall apply only to the applicable percentage of such additional costs incurred in taxable years beginning after
Applicable percentage.—
For purposes of subparagraph (A), the applicable percentage shall be determined in accordance with the following table:
“If the taxable year begins in calendar year: | The applicable percentage is: |
|---|---|
1983 | 33⅓ |
1984 | 66⅔ |
1985 or thereafter | 100. |
Special rules.—
Time of completion.—
Any contract of a taxpayer which would (but for this paragraph) be treated as having been completed prior to the first taxable year of such taxpayer ending after
Aggregation and severance.—
Any contract of a taxpayer which would (but for this paragraph) be treated as having been completed prior to the first taxable year of such taxpayer ending after
solely by reason of any modification to regulations made under subsection (a)(2), or
solely by reason of any modifications to regulations made under both paragraphs (1) and (2) of subsection (a),
shall be treated as having been completed on the first day after
Underpayments of estimated tax for 1982.—
To the extent provided in regulations, no addition to tax shall be made under section 6654 or 6655 of the Internal Revenue Code of 1954 for the taxpayer’s first taxable year ending after
Private Deferred Compensation Plans; Taxable Years Ending on or after February 1, 1978
General Rule.—
The taxable year of inclusion in gross income of any amount covered by a private deferred compensation plan shall be determined in accordance with the principles set forth in regulations, rulings, and judicial decisions relating to deferred compensation which were in effect on
Private Deferred Compensation Plan Defined.—
In general.—
For purposes of this section, the term ‘private deferred compensation plan’ means a plan, agreement, or arrangement—
where the person for whom the service is performed is not a State (within the meaning of paragraph (1) of section 457(d) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]) and not an organization which is exempt from tax under section 501 of such Code, and
under which the payment or otherwise making available of compensation is deferred.
Certain plans excluded.—
Paragraph (1) shall not apply to—
a plan described in section 401(a) of the Internal Revenue Code of 1986 which includes a trust, exempt from tax under section 501(a) of such Code,
an annuity plan or contract described in section 403 of such Code,
a qualified bond purchase plan described in section 405(a) of such Code,
that portion of any plan which consists of a transfer of property described in section 83 (determined without regard to subsection (e) thereof of such Code, and
that portion of any plan which consists of a trust to which section 402(b) of such Code applies.
Effective Date.—
This section shall apply to taxable years ending on or after
Year of Inclusion for Disaster or Deficiency Payments Received in 1978; Election
In General.—
In the case of a taxpayer reporting on the cash receipts and disbursements method of accounting, if—
the taxpayer receives in his first taxable year beginning in 1978 payments under the Agricultural Act of 1949, as amended, [see Short Title note set out under section 1421 of Title 7, Agriculture], as a result of—
the destruction or damage to crops caused by drought, flood, or any other natural disaster, or
the inability to plant crops because of such a natural disaster, and
the taxpayer establishes that, under his practice, income from such crops could have been reported for his last taxable year beginning in 1977, or
the taxpayer receives in his first taxable year beginning in 1978 deficiency (or ‘target price’) payments under the Agricultural Act of 1949, as amended, for any 1977 crop, and
the fifth month of such crop’s marketing year ends before
then the taxpayer may elect to include such proceeds in income for his last taxable year beginning in 1977.
Making and Effect of Election—
An election under this section for any taxable year shall be made at such time and in such manner as the Secretary of the Treasury may by regulations prescribe and shall apply with respect to all proceeds described in subsection (a) which were received by the taxpayer.”