26 U.S.C. § 49
The credit base of any property to which this paragraph applies shall be reduced by the nonqualified nonrecourse financing with respect to such credit base (as of the close of the taxable year in which placed in service).
This paragraph applies to any property which-
For purposes of this paragraph, the term "credit base" means-
For purposes of this paragraph and paragraph (2), the term "nonqualified nonrecourse financing" means any nonrecourse financing which is not qualified commercial financing.
For purposes of this paragraph, the term "qualified commercial financing" means any financing with respect to any property if-
Such term shall not include any convertible debt.
For purposes of this subparagraph, the term "nonrecourse financing" includes-
In the case of amounts borrowed by a corporation from a shareholder, subclause (II) shall not apply to an interest as a shareholder.
For purposes of this paragraph, the term "qualified person" means any person which is actively and regularly engaged in the business of lending money and which is not-
For purposes of this subparagraph, the term "related person" has the meaning given such term by section 465(b)(3)(C). Except as otherwise provided in regulations prescribed by the Secretary, the determination of whether a person is a related person shall be made as of the close of the taxable year in which the property is placed in service.
For purposes of this paragraph and paragraph (2)-
Except as otherwise provided in this subparagraph, in the case of any partnership or S corporation, the determination of whether a partner's or shareholder's allocable share of any financing is nonqualified nonrecourse financing shall be made at the partner or shareholder level.
A shareholder of an S corporation shall be treated as liable for his allocable share of any financing provided by a qualified person to such corporation if-
For purposes of clause (ii), the term "qualified business property" means any property if-
The determination of any partner's or shareholder's allocable share of any financing shall be made in the same manner as the credit allowable by section 38 with respect to such property.
Rules similar to the rules of subparagraph (F) of section 46(c)(8) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990) shall apply for purposes of this paragraph.
If, at the close of a taxable year following the taxable year in which the property was placed in service, there is a net decrease in the amount of nonqualified nonrecourse financing with respect to such property, such net decrease shall be taken into account as an increase in the credit base for such property in accordance with subparagraph (C).
For purposes of this paragraph, nonqualified nonrecourse financing shall not be treated as decreased through the surrender or other use of property financed by nonqualified nonrecourse financing.
For purposes of determining the amount of credit allowable under section 38 and the amount of credit subject to the early disposition or cessation rules under section 50(a), any increase in a taxpayer's credit base for any property by reason of this paragraph shall be taken into account as if it were property placed in service by the taxpayer in the taxable year in which the property referred to in subparagraph (A) was first placed in service.
Any credit allowable under this subpart for any increase in qualified investment by reason of this paragraph shall be treated as earned during the taxable year of the decrease in the amount of nonqualified nonrecourse financing.
If, as of the close of the taxable year, there is a net increase with respect to the taxpayer in the amount of nonqualified nonrecourse financing (within the meaning of subsection (a)(1)) with respect to any property to which subsection (a)(1) applied, then the tax under this chapter for such taxable year shall be increased by an amount equal to the aggregate decrease in credits allowed under section 38 for all prior taxable years which would have resulted from reducing the credit base (as defined in subsection (a)(1)(C)) taken into account with respect to such property by the amount of such net increase. For purposes of determining the amount of credit subject to the early disposition or cessation rules of section 50(a), the net increase in the amount of the nonqualified nonrecourse financing with respect to the property shall be treated as reducing the property's credit base in the year in which the property was first placed in service.
For purposes of paragraph (1), the amount of nonqualified nonrecourse financing (within the meaning of subsection (a)(1)(D)) with respect to the taxpayer shall not be treated as increased by reason of a transfer of (or agreement to transfer) any evidence of any indebtedness if such transfer occurs (or such agreement is entered into) more than 1 year after the date such indebtedness was incurred.
Rules similar to the rules of section 47(d)(3) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990) shall apply for purposes of this subsection.
Any increase in tax under paragraph (1) shall not be treated as tax imposed by this chapter for purposes of determining the amount of any credit allowable under this chapter.
26 U.S.C. § 49
Amendment of Subsection (a)(1)(C) Pub. L. 117-169, §13702(b)(2), (c), Aug. 16, 2022, 136 Stat. 1997, provided that, applicable to property placed in service after Dec. 31, 2024, subsection (a)(1)(C) of this section is amended: (1) by striking "and" at the end of clause (v),(2) by striking the period at the end of clause (vi) and inserting a comma, and(3) by adding at the end the following new clauses:(vii) the basis of any qualified property which is part of a qualified facility under section 48E, and(viii) the basis of any energy storage technology under section 48E. See 2022 Amendment note below.
EDITORIAL NOTES
REFERENCES IN TEXTThe date of the enactment of the Revenue Reconciliation Act of 1990, referred to in subsecs. (a)(1)(F) and (b)(3), is the date of enactment of Pub. L. 101-508, which was approved Nov. 5, 1990.
PRIOR PROVISIONSA prior section 49, Pub. L. 91-172, title VII, §703(a), Dec. 30, 1969, 83 Stat. 660; Pub. L. 92-178, title I, §101(b)(1)-(4), Dec. 10, 1971, 85 Stat. 498, 499, related to termination of rules for computing credit for investment in certain depreciable property for period beginning Apr. 19, 1969, and ending during 1971, prior to repeal by Pub. L. 95-600, title III, §312(c)(1), Nov. 6, 1978, 92 Stat. 2826, applicable to taxable years ending after Dec. 31, 1978.
AMENDMENTS2022-Subsec. (a)(1)(C)(vi). Pub. L. 117-167 added cl. (vi).Subsec. (a)(1)(C)(vii), (viii). Pub. L. 117-169 added cls. (vii) and (viii).2018-Subsec. (a)(1)(C)(vi). Pub. L. 115-141, §401(d)(3)(B)(i), struck out cl. (vi) which read as follows: "the basis of any property to which paragraph (1) of section 48D(e) applies which is part of a qualifying therapeutic discovery project under such section 48D."Subsec. (a)(1)(D)(iii). Pub. L. 115-141, §401(a) (24), substituted "shareholder" for "share-holder" in concluding provisions.2010-Subsec. (a)(1)(C)(vi). Pub. L. 111-148 added cl. (vi). 2009-Subsec. (a)(1)(C)(v). Pub. L. 111-5 added cl. (v).2005-Subsec. (a)(1)(C)(iii), (iv). Pub. L. 109-58 added cls. (iii) and (iv) and struck out former cl. (iii) which read as follows: "the amortizable basis of any qualified timber property." 1998-Subsec. (b)(4). Pub. L. 105-206 substituted "this chapter" for "subpart A, B, D, or G".1990- Pub. L. 101-508, §11813(a), amended section generally, substituting section catchline for one which read: "Termination of regular percentage" and in text substituting present provisions for provisions relating to the nonapplicability of the regular percentage to any property placed in service after Dec. 31, 1985, for purposes of determining the investment tax credit, exceptions to such rule, the 35 percent reduction in credit for taxable years after 1986, the full basis adjustment in determining investment tax credit, and the definition of transition property and treatment of progress expenditures. 1988-Subsec. (c)(4)(B). Pub. L. 100-647, §1002(e)(2), substituted "years" for "year" in heading and amended text generally. Prior to amendment, text read as follows: "The amount of the reduction of the regular investment credit under paragraph (3)- "(i) may not be carried back to any taxable year, but "(ii) shall be added to the carryforwards from the taxable year before applying paragraph (2)."Subsec. (c)(5)(B)(i). Pub. L. 100-647, §1002(e)(3), amended cl. (i) generally. Prior to amendment, cl. (i) read as follows: "The term 'regular investment credit' has the meaning given such term by section 48(o)".Subsec. (c)(5)(C). Pub. L. 100-647, §1002(e)(8)(B), struck out subpar. (C) which related to portion of credits attributable to regular investment credit.Subsec. (d)(1). Pub. L. 100-647, §1002(e)(1), amended par. (1) generally. Prior to amendment, par. (1) read as follows: "In the case of periods after December 31, 1985, section 48(q) (relating to basis adjustment to section 38 property) shall be applied with respect to transaction property-"(A) by substituting '100 percent' for '50 percent' in paragraph (1), and "(B) without regard to paragraph (4) thereof (relating to election of reduced credit in lieu of basis adjustment)."
STATUTORY NOTES AND RELATED SUBSIDIARIES
EFFECTIVE DATE OF 2022 AMENDMENT Amendment by Pub. L. 117-169 applicable to property placed in service after Dec. 31, 2024, see section 13702(c) of Pub. L. 117-169, set out as an Effective Date note under section 48E of this title. Amendment by Pub. L. 117-167 applicable to property placed in service after Dec. 31, 2022, and, for any property the construction of which begins prior to Jan. 1, 2023, only to the extent of the basis thereof attributable to the construction, reconstruction, or erection after Aug. 9, 2022, see section 107(f) of Pub. L. 117-167, set out as a note under section 905 of Title 2, The Congress.
EFFECTIVE DATE OF 2010 AMENDMENT Amendment by Pub. L. 111-148 applicable to amounts paid or incurred after Dec. 31, 2008, in taxable years beginning after such date, see section 9023(f) of Pub. L. 111-148, set out as a note under section 46 of this title.
EFFECTIVE DATE OF 2009 AMENDMENT Amendment by Pub. L. 111-5 applicable to periods after Feb. 17, 2009, under rules similar to the rules of section 48(m) of this title as in effect on the day before Nov. 5, 1990, see section 1302(d) of Pub. L. 111-5, set out as a note under section 46 of this title.
EFFECTIVE DATE OF 2005 AMENDMENT Amendment by Pub. L. 109-58 applicable to periods after Aug. 8, 2005, under rules similar to the rules of section 48(m) of this title, as in effect on the day before Nov. 5, 1990, see section 1307(d) of Pub. L. 109-58, set out as a note under section 46 of this title.
EFFECTIVE DATE OF 1998 AMENDMENT Amendment by Pub. L. 105-206 effective, except as otherwise provided, as if included in the provisions of the Taxpayer Relief Act of 1997, Pub. L. 105-34, to which such amendment relates, see section 6024 of Pub. L. 105-206, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1990 AMENDMENT Amendment by Pub. L. 101-508 applicable to property placed in service after Dec. 31, 1990, but not applicable to any transition property (as defined in section 49(e) of this title), any property with respect to which qualified progress expenditures were previously taken into account under section 46(d) of this title, and any property described in section 46(b)(2)(C) of this title, as such sections were in effect on Nov. 4, 1990, see section 11813(c) of Pub. L. 101-508, set out as a note under section 45K of this title.
EFFECTIVE DATE OF 1988 AMENDMENT Amendment by section 1002(e)(1)-(3) of Pub. L. 100-647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment relates, see section 1019(a) of Pub. L. 100-647, set out as a note under section 1 of this title.Amendment by section 1002(e)(8)(B) of Pub. L. 100-647 applicable to taxable years beginning after Dec. 31, 1983, and to carrybacks from such years, see section 1002(e)(8)(C) of Pub. L. 100-647, set out as a note under section 38 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT Pub. L. 99-514, title II, §211(e), Oct. 22, 1986, 100 Stat. 2169, as amended by Pub. L. 100-647, title I, §1002(e)(4)-(7), Nov. 10, 1988, 102 Stat. 3367, 3368, provided that:"(1) IN GENERAL.-Except as provided in this subsection, the amendments made by this section [enacting this section and provisions set out below] shall apply to property placed in service after December 31, 1985, in taxable years ending after such date. Section 49(c) of the Internal Revenue Code of 1986 (as added by subsection (a)) shall apply to taxable years ending after June 30, 1987, and to amounts carried to such taxable years."(2) EXCEPTIONS FOR CERTAIN FILMS.-For purposes of determining whether any property is transition property within the meaning of section 49(e) of the Internal Revenue Code of 1986- "(A) in the case of any motion picture or television film, construction shall be treated as including production for purposes of section 203(b)(1) of this Act [enacting provisions set out as a note under section 168 of this title], and written contemporary evidence of an agreement (in accordance with industry practice) shall be treated as a written binding contract for such purposes,"(B) in the case of any television film, a license agreement or agreement for production services between a television network and a producer shall be treated as a binding contract for purposes of section 203(b)(1)(A) of this Act, and "(C) a motion picture film shall be treated as described in section 203(b)(1)(A) of this Act if-"(i) funds were raised pursuant to a public offering before September 26, 1985, for the production of such film,"(ii) 40 percent of the funds raised pursuant to such public offering are being spent on films the production of which commenced before such date, and"(iii) all of the films funded by such public offering are required to be distributed pursuant to distribution agreements entered into before September 26, 1985."(3) NORMALIZATION RULES.-The provisions of subsection (b) [see Normalization Rules note below] shall apply to any violation of the normalization requirements under paragraph (1) or (2) of section 46(f) of the Internal Revenue Code of 1986 occurring in taxable years ending after December 31, 1985. "(4) ADDITIONAL EXCEPTIONS.-"(A) Subsections (c) and (d) of section 49 of the Internal Revenue Code of 1986 shall not apply to any continuous caster facility for slabs and blooms which is subject to a lease and which is part of a project the second phase of which is a continuous slab caster which was placed in service before December 31, 1985. "(B) For purposes of determining whether an automobile manufacturing facility (including equipment and incidental appurtenances) is transition property within the meaning of section 49(e), property with respect to which the Board of Directors of an automobile manufacturer formally approved the plan for the project on January 7, 1985 shall be treated as transition property and subsections (c) and (d) of section 49 of such Code shall not apply to such property, but only with respect to $70,000,000 of regular investment tax credits."(C) Any solid waste disposal facility which will process and incinerate solid waste of one or more public or private entities including Dakota County, Minnesota, and with respect to which a bond carryforward from 1985 was elected in an amount equal to $12,500,000 shall be treated as transition property within the meaning of section 49(e) of the Internal Revenue Code of 1986."(D) For purposes of section 49 of such Code, the following property shall be treated as transition property:"(i) 2 catamarans built by a shipbuilder incorporated in the State of Washington in 1964, the contracts for which were signed on April 22, 1986 and November 12, 1985, and 1 barge built by such shipbuilder the contract for which was signed on August 7, 1985. "(ii) 2 large passenger ocean-going United States flag cruise ships with a passenger rated capacity of up to 250 which are built by the shipbuilder described in clause (i), which are the first such ships built in the United States since 1952, and which were designed at the request of a Pacific Coast cruise line pursuant to a contract entered into in October 1985. This clause shall apply only to that portion of the cost of each ship which does not exceed $40,000,000."(iii) Property placed in service during 1986 by Satellite Industries, Inc., with headquarters in Minneapolis, Minnesota, to the extent that the cost of such property does not exceed $1,950,000. "(E) Subsections (c) and (d) of section 49 of such Code shall not apply to property described in section 204(a)(4) of this Act [enacting provisions set out as a note under section 168 of this title]."
SAVINGS PROVISION Pub. L. 115-141, div. U, title IV, §401(d)(3)(C), Mar. 23, 2018, 132 Stat. 1209, provided that: "In the case of the repeal of section 48D(e)(1) of the Internal Revenue Code of 1986, the amendments made by this paragraph [amending this section and sections 50 and 280C of this title and repealing former section 48D of this title] shall not apply to expenditures made in taxable years beginning before January 1, 2011."For provisions that nothing in amendment by section 401(d)(3)(B)(i) of Pub. L. 115-141 be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to Mar. 23, 2018, for purposes of determining liability for tax for periods ending after Mar. 23, 2018, see section 401(e) of Pub. L. 115-141, set out as a note under section 23 of this title.For provisions that nothing in amendment by Pub. L. 101-508 be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to Nov. 5, 1990, for purposes of determining liability for tax for periods ending after Nov. 5, 1990, see section 11821(b) of Pub. L. 101-508, set out as a note under section 45K of this title.
NORMALIZATION RULESPub. L. 99-514, title II, §211(b), Oct. 22, 1986, 100 Stat. 2168, provided that: "If, for any taxable year beginning after December 31, 1985, the requirements of paragraph (1) or (2) of section 46(f) of the Internal Revenue Code of 1986 are not met with respect to public utility property to which the regular percentage applied for purposes of determining the amount of the investment tax credit-"(1) all credits for open taxable years as of the time of the final determination referred to in section 46(f)(4)(A) of such Code shall be recaptured, and"(2) if the amount of the taxpayer's unamortized credits (or the credits not previously restored to rate base) with respect to such property (whether or not for open years) exceeds the amount referred to in paragraph (1), the taxpayer's tax for the taxable year shall be increased by the amount of such excess.If any portion of the excess described in paragraph (2) is attributable to a credit which is allowable as a carryover to a taxable year beginning after December 31, 1985, in lieu of applying paragraph (2) with respect to such portion, the amount of such carryover shall be reduced by the amount of such portion. Rules similar to the rules of this subsection shall apply in the case of any property with respect to which the requirements of section 46(f)(9) of such Code are met."
EXCEPTION FOR CERTAIN AIRCRAFT USED IN ALASKAPub. L. 99-514, title II, §211(d), Oct. 22, 1986, 100 Stat. 2168, provided that:"(1) The amendments made by subsection (a) [enacting this section and provisions set out above] shall not apply to property originally placed in service after December 29, 1982, and before August 1, 1985, by a corporation incorporated in Alaska on May 21, 1953, and used by it-"(A) in part, for the transportation of mail for the United States Postal Service in the State of Alaska, and "(B) in part, to provide air service in the State of Alaska on routes which had previously been served by an air carrier that received compensation from the Civil Aeronautics Board for providing service."(2) In the case of property described in subparagraph (A)-"(A) such property shall be treated as recovery property described in section 208(d)(5) of the Tax Equity and Fiscal Responsibility Act of 1982 ('TEFRA') [section 208(d)(5) of Pub. L. 97-248, enacting provisions set out as a note under section 168 of this title];"(B) '48 months' shall be substituted for '3 months' each place it appears in applying- "(i) section 48(b)(2)(B) of the Code [26 U.S.C. 48(b)(2)(B)], and"(ii) section 168(f)(8)(D) of the Code [26 U.S.C. 168(f)(8)(D)] (as in effect after the amendments made by the Technical Corrections Act of 1982 [Pub. L. 97-448] but before the amendments made by TEFRA); and"(C) the limitation of section 168(f)(8)(D)(ii)(III) (as then in effect) shall be read by substituting 'the lessee's original cost basis.', for 'the adjusted basis of the lessee at the time of the lease.'"(3) The aggregate amount of property to which this paragraph shall apply shall not exceed $60,000,000."
- Internal Revenue Code of 1986
- The term "Internal Revenue Code of 1986" means this title, and the term "Internal Revenue Code of 1939" means the Internal Revenue Code enacted February 10, 1939, as amended.
- Secretary
- The term "Secretary" means the Secretary of the Treasury or his delegate.
- State
- The term "State" shall be construed to include the District of Columbia, where such construction is necessary to carry out provisions of this title.
- corporation
- The term "corporation" includes associations, joint-stock companies, and insurance companies.
- person
- The term "person" shall be construed to mean and include an individual, a trust, estate, partnership, association, company or corporation.
- shareholder
- The term "shareholder" includes a member in an association, joint-stock company, or insurance company.
- taxable year
- The term "taxable year" means the calendar year, or the fiscal year ending during such calendar year, upon the basis of which the taxable income is computed under subtitle A. "Taxable year" means, in the case of a return made for a fractional part of a year under the provisions of subtitle A or under regulations prescribed by the Secretary, the period for which such return is made.
- taxpayer
- The term "taxpayer" means any person subject to any internal revenue tax.
- trade or business
- The term "trade or business" includes the performance of the functions of a public office.
- transaction
- The term "transaction" includes a series of transactions.