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147 Cards in this Set

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Section 61
Gross income defined

Except as otherwise provided in this subtitle, gross income means all income from whatever source derived.
Section 62
Adjusted gross income defined

Adjusted gross income (AGI) is an individual taxpayer's gross income, less the deductions described in § 62(a)
Section 63
Taxable income defined

Taxable income is the base to which the statutory rates are applied. It is defined by § 63(a) as the excess of gross income over all allowable deductions.
Section 64
Ordinary income defined

Ordinary income includes any gain from the sale or exchange of property which is (or is treated as or considered by the Code to be) neither a capital asset nor a Code Sec. 1231 capital gain-ordinary loss asset.
Section 65
Ordinary loss defined

Ordinary loss includes any loss from the sale or exchange of property which isn't (or isn't treated or considered to be) a capital asset.
Section 66
Treatment of community income

community income will be taxed to the spouse who earned the income rather than according to community property laws. Thus, an abandoned or separated spouse won't be taxed on a portion of the community income earned by the other spouse.
Section 67
2-percent floor on miscellaneous itemized deductions

An individual, trust, or estate is allowed “miscellaneous itemized deductions” only to the extent that they exceed 2 percent of AGI. The term “miscellaneous itemized deductions” includes (1) nonbusiness investment expenses; (2) expenses incurred in determining or contesting taxes; (3) expenses of an activity not carried on for profit allowable under § 183, which allows such expenses to the extent of gross income from the activity; and (4) employee business expenses that are not deductible under § 62 in determining AGI.
Section 68
Overall limitation on intemized deductions

An individual’s itemized deductions are reduced by 3 percent of the amount by which AGI exceeds $100,000 ($50,000 for a married person filing separately), except that the reduction cannot exceed 80 percent of the itemized deductions otherwise allowable
Section 71
Alimony and separate maintenance payments

Gross income includes amounts received as alimony or separate maintenance payments.
Section 72
Annuities; certian proceeds of endowment and life-insurance contrcts

An annuity payment is divided by § 72(b) into two components. A portion is excluded from gross income as a return of capital (the cost of the contract), and the balance is gross income under § 72(a), since it is income earned by the taxpayer's investment in the contract.
Section 73
Services of child

Amounts received in respect of the services of a child must be included in the child's gross income, not the gross income of the parent.
Section 74
Prizes and awards

Under § 74 , prizes and awards are includable in gross income except in three limited circumstances: (1) tax-exempt scholarship; (2) meritorious achievement; (3) certain employee achievement awards.
Section 75
Dealers in tax-exempt securities

Security dealers are not required to amortize bond premiums, because bonds that constitute stock in trade are excluded from the amortization provision.
Section 77
Commodity credit loans

Taxpayers may electively include community credit loans in gross income in the year the loan is received, provided they do so consistently. The effect is an increase in the basis of pledged farm property to the extent the loan is included in income. The basis is later reduced to the extent the farmer is discharged from liability.
Section 78
Dividiends received from certain foreign corporations by domestic corporations choosing foreign tax credit

If a domestic corporation claims a credit for foreign taxes of a foreign corporation, it must include in income an amount equal to the foreign income taxes deemed paid by it. Thus, the dividends received are grossed up to include the tax deemed paid thereon. This income is treated as a dividend for all U.S. tax purposes except the dividends received deduction for dividends from foreign corporations.
Section 79
Group-term life insurance purchased for employees

If employer and employee both contribute toward the cost of group-term coverage, § 79 only applies to the employer's contribution; the employee's contribution is a nondeductible consumption purchase. An employee contribution is applied first to the cost of coverage above $50,000. Thus, if $75,000 of coverage costs $1,500 per year, of which the employee pays $200, the employer's payment of the remaining $1,300 is taxable to the extent of $300 ($500, the cost of the excess $25,000 of insurance, less the employee's $200 contribution).
Section 80
Restoration of value of certain securities

Under Section 80 , securities that were deducted as worthless because of a foreign expropriation must be included in income if their value is restored in whole or in part, up to the prior deductions resulting in a tax benefit.
Section 82
Reimbursement for expenses of moving

Except to the extent that it is a “qualified moving expense reimbursement”, any amount received or accrued by an individual as payment for, or reimbursement of, expenses of moving from one residence to another residence, if the amount is attributable to employment or self-employment, is includible in income under Code Sec. 82.
Section 83
Property transferred in connection with performance of services

Generally, the recipient of a service-connected transfer of property is required to include in income the excess of the fair market value of such property at the time it becomes substantially vested, over any amount paid by the recipient for the property. This fair market value amount is determined with regard to any “nonlapse restriction,” but without regard to any “lapse restriction.”
Section 84
Transfer of appreciated property to political organization

A person who transfers property to a political organization recognizes gain on the transfer to the extent the property's fair market value exceeds its adjusted basis.
Section 85
Unemployment compensation

An individuals's gross income includes “unemployment compensation.”
Section 86
Social security and tier 1 railroad retirement benefits

A taxpayer may have to include from 50% to 85% of his social security benefits (or Tier 1 Railroad Retirement Act benefits) in his gross income. The amount includable depends on the amount of his other income and the amount of the benefits themselves.
Section 87
Alcohol and biodiesel fuels credits

Gross income includes alcohol and biodiesel credits determined under Section 40(a).
Section 88
Certain amounts with respect to nuclear decommissioning costs

For any taxpayer who is required to include the amount of any nuclear decommissioning costs in the taxpayer's cost of service for ratemaking purposes, the amount so included for any tax year is includible in the taxpayer's gross income.
Sectiton 90
Illegal federal irrigation subsidies

A taxpayer's gross income includes an amount equal to any illegal federal irrigation subsidy. An illegal federal irrigation subsidy is the excess of (1) the amount required to be paid for any Federal irrigation water delivered to the taxpayer during the tax year, over (2) the amount paid for such water.

Taxpayer receives Federal irrigation water during the current tax year. The “full cost” of this water is $25,000. However, taxpayer pays only $13,500. Taxpayer must include $11,500 in his gross income for the current tax year.
Section 101
Certain death benefits

Amounts paid under a life insurance contract on the death of the insured are ordinarily excluded from gross income by § 101(a).
Section 102
Gifts and inheritances

Gifts, devises, bequests, and inheritances are excluded from gross income.
Section 103
Interest on State and local bonds

Since 1913, interest on obligations of states and their political subdivisions has been excluded from the obligee's gross income.
Section 104
Compensation for injuries or sickness

Compensation for personal injuries and sickness is excluded from gross income by § 104(a), subject to certain qualifications.
Section 105
Amounts received under accident and health plans

Under § 105(a) , amounts received by an employee through employer-financed accident or health insurance for personal injuries or sickness are generally taxable unless certain exclusions apply.
Section 106
Contributions by employer to accident and health plans

An employee excludes from gross income employer-provided coverage under an accident or health plan.
Section 107
Rental value of parsonages

A minister is permitted by § 107 to exclude from gross income the rental value of a home provided as part of his compensation, as well as rental allowances to the extent used to rent or provide a home.
Section 108
Income from discharge of indebtedness

In general, cancellation of indebtedness (“COD”) results in taxable income. However, gross income does not include any amount that is includable in gross income by reason of a discharge of indebtedness of the taxpayer if—

(1) the discharge occurs in a Title 11 case;
(2) the discharge occurs when the taxpayer is insolvent;
(3) the indebtedness discharged is qualified farm indebtedness; or
(4) in the case of a taxpayer other than a C corporation, the indebtedness discharged is qualified real property business indebtedness.
Section 109
Improvements by lessee on lessor's property

Under § 109 , if a building or other improvement constructed by a lessee of real property reverts to the lessor on termination of the lease, the value of the improvement is not gross income to the lessor unless it is “rent.” Under a related provision, § 1019 , the lessor's basis for the building is neither increased nor decreased by the excluded amount.
Section 110
Qualified lessee construction allowances for short term leases

§ 110 , enacted in 1997, excludes from a lessee's gross income amounts received in cash or as rent reductions from a lessor “under a short-term lease of retail space” to cover costs incurred by the lessee in “constructing or improving qualified long-term real property for use in such lessee's trade or business at such retail space.”
Section 111
Recovery of tax benefit items

The tax benefit rule provides that where an item deducted in one year is subsequently recovered, that recovery must be included in income except to the extent that no tax benefit resulted from the prior deduction.
Section 112
Certain combat zone compensattion of members of the armed forces

Pursuant to § 112 , compensation for any month during which a member of the armed forces served in a combat zone or was hospitalized because of wounds, disease, or injury incurred in a combat zone is generally excluded from gross income.
Section 115
Income of States, municipalities, etc.

Section 115(1) excludes from gross income “income derived from any public utility or the exercise of any essential governmental function and accruing to a State or any political subdivision thereof, or the District of Columbia.”
Section 117
Qualified scholarships

Gross income doesn't include any amount received as a qualified scholarship by an individual who is a candidate for a degree at an educational organization. Thus, nondegree candidates cannot exclude scholarship income from gross income.
Section 118
Contributions to the capital of a corporation

Section 118(a) provides that in the case of a corporation, gross income shall not include any “contribution to the capital of the taxpayer.”

(Requires a downward basis adjustment.)
Section 119
Meals or lodging furnished for the convenience of the employer

The value of meals furnished to an employee is excluded from the employee's gross income if the meals are furnished: (1) for the convenience of the employer, and (2) on the business premises of the employer.
Section 120
Amounts received under qualified group legal services plans

As an incentive to the establishment of prepaid legal services plans, Congress in 1976 enacted § 120, which excluded from a participating employee's gross income both the employer's contributions to a qualified group legal services plan and benefits received under the plan. The provision was enacted for a five-year trial period (1977 through 1982), but its life was briefly extended seven times, most recently through June 30, 1992. That Congress has left the provision dormant for nearly 15 years suggests that its experiment with this tax-free fringe benefit has ended.
Section 121
Exclusion of gain from sale of princiapl residence

Section 121, as restated in 1997, excludes from gross income up to $250,000 of gain on a sale or exchange if, for at least two years during the preceding five years, the taxpayer owned the property and used it as his or her principal residence. For a married couple filing a joint return, the maximum exclusion is usually $500,000.
Section 122
Certain reduced uniformed services retirement pay

Under the Survivor Benefit Plan (10 USC 1447) retired servicemen receive reduced amounts of retired or retainer pay in order to provide for survivor annuities. The survivor annuity benefits apply unless the retired serviceman elects not to participate. Where a serviceman doesn't elect out of the survivor annuity, the amount of the reduction in his benefit is excluded from gross income.
Section 123
Amounts received under insurance contracts for certain living expenses

In the case of an individual whose principal residence is damaged or destroyed by fire, storm, or other casualty, or who is denied access to his principal residence by governmental authorities because of the occurrence or threat of occurrence a casualty, gross income doesn't include amounts received by the individual under an insurance contract which are paid to compensate or reimburse the individual for living expenses incurred for himself and members of his household resulting from the loss of use or occupancy of the residence.
Section 125
Cafeteria Plans

A “cafeteria plan” is a written plan under which participating employees may choose between two or more benefits consisting of cash and qualified benefits.

Under § 125 , employees are not required to include certain otherwise nontaxable fringe benefits in gross income merely because they are permitted by an employer's “cafeteria plan” to choose between cash and nontaxable benefits. Section 125 thus supersedes the pervasive but nonstatutory principle that taxpayers who choose nontaxable benefits in lieu of cash must be viewed as though they had taken the cash and used it to purchase the benefits actually chosen.
Section 126
Certain cost-sharing payments

§ 126(a) lists a number of federal and state subsidies that are excluded from gross income if and to the extent that the payment (1) is made primarily for the purpose of conserving soil and water resources, protecting or restoring the environment, improving forests, or providing a habitat for wildlife, as determined by the Secretary of Agriculture, and (2) does not substantially increase the annual income derived from the property, as determined by the IRS.
Section 127
Educational assistance programs

Under § 127 , an employee can exclude up to $5,250 annually of educational assistance received from one or more employers if the benefits are furnished under an “educational assistance program.”
Section 129
Dependent care assitance programs

Amounts paid or incurred by an employer under a dependent care assistance program are excludable from gross income only to the extent these amounts do not exceed the lesser of the participant's earned income or the participant's spouse's earned income.
Section 130
Certain personal injury liability assignments

Amounts received by the assignee of a qualified assignment for agreeing to make payments under the qualified assignment are excluded from gross income to the extent of the total cost of the qualified funding assets.

Illustration: As a result of winning a judgment against B Corp for personal injury, A is to receive periodic payments from B Corp. B Corp assigns this liability to S Insurance Co, paying $75,000 to S. If it costs S only $72,000 to buy an annuity, S can exclude $72,000 from income, but must include $3,000 ($75,000 − $72,000) as ordinary income.
Section 131
Certain foster care payments

Generally, gross income doesn't include amounts received by a foster care provider during the tax year as qualified foster care payments.
Section 132
Certain fringe benefits

Section 132(a) excludes a fringe benefit from gross income if it is a “no-additional-cost service,” “qualified employee discount,” “working condition fringe,” “de minimis fringe,” “qualified transportation fringe,” or “qualified moving expense reimbursement.” Elsewhere within § 132 , an exclusion is provided for employee use of on-premises athletic facilities.
Section 134
Certain military benefits

Gross income doesn't include any “qualified military benefit.”

A “qualified military benefit” is any allowance or in-kind benefit, other than personal use of a vehicle, received by a member or former member of the uniformed services of the U.S. or his dependent (an “eligible recipient”).
Section 135
Income from US savings bonds used to pay higher education tuition and fees

A taxpayer who cashes in certain savings bonds under an education savings bond program may be able to exclude interest from income.
Section 136
Energy conservation subsidies provided by public utilities

Section 136(a) , enacted in 1992, 1 excludes from gross income “any subsidy provided…by a public utility to a customer for the purchase or installation of any energy conservation measure.”
Section 137
Adoption assistance programs

An employee's gross income doesn't include amounts paid or expenses incurred by the employer under an adoption assistance program for qualified adoption expenses in connection with the employee's adoption of a child.
Section 138
Medicare Advantage MSA

Contributions made to a Medicare Advantage MSA by the Secretary of Health and Human Services are not includible in the gross income of the account holder.
Section 139
Disaster relief payments

An individual may exclude a “qualified disaster relief payment” from gross income, and if such a payment arises in an employment context, it is not wages or net earnings from self-employment for purposes of wage withholding and employment taxes.
Section 139A
Federal subsidies for prescription drug plans

Section 139A , added to the Code by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 , excludes from gross income federal subsidy payments, made pursuant to 42 USC § 1395w-132 , to a sponsor of a qualified retiree prescription drug plan. The exclusion also applies for purposes of the corporate alternative minimum tax.
Section 140
Cross references to other Acts

Provides cross references to exemptions under other acts.
Section 161
Allowance of deduction

In computing taxable income under section 63, there shall be allowed as deductions the items specified in this part, subject to the exceptions provided in part IX ( sec. 261 to 280H).
Section 162
Trade or business expenses

Individual, corporate and other taxpayers can deduct from gross income 1 all the ordinary and necessary expenses paid or incurred during the tax year in carrying on any trade or business
Section 163
Interest

Generally, interest paid or accrued during the taxable year is deductible whether or not it is incurred in a trade or business. Interest incurred in connection with certain kinds of debt, however, is not deductible at all, and interest incurred in connection with certain other kinds of debt is deductible only within limits.
Section 164
Taxes

Section 164(a) permits state, local, and foreign property and income taxes to be deducted whether or not they are incurred in the taxpayer’s business or profit-oriented activities. It also allows deductions for two federal taxes, the generation-skipping transfer tax on income distributions and the environmental tax under § 59A.
Section 165
Losses

There is a deduction for a loss sustained during the tax year and not compensated by insurance or otherwise.
Section 166
Bad debts

The general rule of § 166(a) allows an ordinary loss deduction for worthless debts, but this principle is subject to an important exception: By virtue of § 166(d) , an individual or other noncorporate taxpayer is confined to a short-term capital loss if the uncollectible claim is a nonbusiness debt. Moreover, § 166(a) permits a partially worthless claim to be written off pro tanto even though the balance retains some value; debts subject to § 166(d) , however, cannot be deducted in installments but only when the unpaid balance becomes wholly uncollectible.
Section 167
Depreciation

IRC § 167(a) allows as a depreciation deduction a reasonable allowance for the exhaustion, wear and tear, and obsolescence of property used in a trade or business.
Section 169
Amortization of pollution control facilities

Any individual, corporation or other taxpayer is entitled to elect to amortize over a 60-month period the amortizable basis of any certified pollution control facility.
Section 170
Charitable, etc., contributions and gifts

In general, to be deducted under § 170, a charitable transfer must (1) be paid to or for the use of a qualified recipient; (2) constitute a “contribution” rather than payment for goods or services; (3) consist of cash or qualified property; (4) not exceed a specified percentage of the taxpayer's income in the year of payment or, when a carryover is permitted, in subsequent years; and (5) meet certain other standards.
Section 171
Amortizable bond premium
Bond premium on tax-exempt bondsmust be amortized. Bond premium on taxable bondsmay be amortized at the owner's election.
Section 172
Net operating loss deduction

A deduction is allowed in computing taxable income for any tax year, that equals the aggregate of the net operating loss carryovers, plus the net operating loss carrybacks to the particular tax year. For purposes of subtitle A of the Code (income taxes), the term “net operating loss deduction” means this deduction allowed by Code Sec. 172(a).
Section 173
Circulation expenditures

Notwithstanding Code Sec. 263 (relating to capital expenditures), expenditures incurred by publishers of newspapers, magazines and other periodicals to establish, maintain or increase circulation are deductible expenses.
Section 174
Research and experimental expenditures

The taxpayer may deduct research or experimental expenditures paid or incurred in connection with the taxpayer's trade or business.

Code Sec. 174(a) .
Research or experimental expenditures are research and development costs in the experimental or laboratory sense, which includes all costs that are incident to the development or improvement of a product.
Section 175
Soil and water conservation expenditures

A farmer may elect to deduct instead of capitalize nondepreciable capital expenditures for soil or water conservation or for the prevention of land erosion, if such expenditures are consistent with a federal or state-approved conservation plan.
Section 176
Payments with respect to employees of certain foreign corporations

A domestic corporation (among others) may enter into a voluntary Code Sec. 3121(l) agreement with IRS that extends social security coverage to services performed abroad by U.S. citizen or resident employees of a foreign subsidiary of the domestic corporation.
Section 178
Amortization of cost of acquiring a lease

The cost of acquiring an interest as a lessee under an existing lease of tangible property is also not to be treated as a § 197 intangible asset. Rather, this cost is to be amortized in accordance with § 178 and the Regulations under § 162. Under § 162 , any premium paid to acquire an interest as a lessee in a below-market lease is deductible over the remaining term of the lease. In turn, § 178 provides that the term of the lease for this purpose is to include all renewal option periods, as well as any other periods for which the parties reasonably expect the lease to be renewed, if less than 75 percent of the cost of the lease is attributable to the remaining term of the lease. In making this determination, the remaining term of the lease is to exclude any renewal options exercisable by the lessee.
Section 179
Election to expense certain depreciable business assets

A taxpayer (except an estate, a trust, and certain noncorporate lessors) who buys and places in service in the taxpayer's active trade or business tangible MACRS property, may elect to expense (i.e., deduct) for the year the property is placed in service a specified amount of its cost.
Section 179A
Deduction for clean-fuel vehicles and certain refueling property

For property placed in service before Jan. 1, 2006, 1a deduction from gross income was available for a portion of the cost of any qualified clean-fuel vehicle and any qualified clean-fuel vehicle refueling property.
Section 179B
Deduction for capital costs incurred in complying with EPA sulfur regulations

Under § 179B , a “small business refiner” may, at its election, deduct 75 percent of its “qualified capital costs.” 79 A person is a small business refiner for a taxable year if (1) it refines crude oil, (2) the number of “individuals…engaged in the refinery operations of the business” does not exceed 1,500 on any day of the year, and (3) “the average daily domestic refinery run or average retained production of…all facilities of the taxpayer” for 2002 did not exceed 205,000 barrels. A refiner's “qualified capital costs” are costs paid or incurred during the “applicable period” in complying with the EPA's “Highway Diesel Fuel Sulfur Control Requirements,” including “expenditures for the construction of new process operation units or the dismantling and reconstruction of existing process units to be used in the production of low sulfur diesel fuel, associated adjacent or offsite equipment (including tankage, catalyst, and power supply), engineering, construction period interest, and sitework.”
Section 179C
Election to expensee certain refineries

Section 179C , enacted in 2005, allows a taxpayer to elect to deduct 50 percent of the cost of “qualified refinery property” for the taxable year during which the taxpayer places the property in service.
Section 179D
Energy efficient commercial buildings deduction

Under § 179D , a taxpayer may deduct the cost of “energy efficient commercial building property” for the year the taxpayer places the property in service, but for any taxable year, this deduction may not exceed $1.80 for each square foot of the building, less the sum of the deductions under this provision with respect to the building for prior taxable years.
Section 179E
Election to expense advance mine safety equipment

A taxpayer can elect to treat 50% of the cost of any qualified advanced mine safety equipment property as an expense that is not chargeable to capital account. Thus, any cost for which the election is made is allowed as a deduction for the tax year in which the qualified advanced mine safety equipment property is placed in service.
Section 180
Expenditures by farmers for fertilizer, etc.

A taxpayer engaged in the business of farming may elect to deduct (treat as not chargeable to capital account) expenses that are otherwise chargeable to capital account that are paid or incurred by the taxpayer during the tax year for the purchase or acquisition of fertilizer, lime, ground limestone, marl, or other material to enrich, neutralize, or condition land used for farming, or for the application of those materials to the land.
Section 181
Treatment of certain qualified film and television productions

Generally, the cost of producing a motion picture or television program must be capitalized and depreciated by the income forecast method or some other method not expressed in terms of years. A taxpayer may, however, elect to deduct costs of a “qualified film or television production” as incurred if costs of the production do not exceed $15 million.
Section 183
Activities not engaged in for profit

Under § 183, if the primary objective of an activity of an individual, partnership, or S corporation is not profit, deductions attributable to the activity are only allowable to the extent of gross income from the activity. When the provision was enacted in 1969, its principal application was to losses incurred in hobbies and other activities carried on primarily for recreation or pleasure. More recently, the provision has also been applied to losses from tax shelter investments, where the issue is whether the investor's primary objective is economic profit or tax benefits.
Section 186
Recoveries of damages for antitrust violations, etc.

Inspired by tax benefit principles, § 186 provides a special rule for damages recovered for antitrust violations, patent infringements, and breach of contract or fiduciary obligations. To the extent of the taxpayer's “unrecovered losses” (defined by § 186(d) as the NOLs attributable to the injury that could not be deducted in any carryover year), the damages (if included in gross income) are allowed as a deduction.
Section 190
Expenditures to remove architectural and transportation barriers to the handicapped and elderly

A taxpayer may elect to treat qualified architectural and transportation barrier removal expenses paid or incurred during the tax year as a deduction rather than as a charge to capital account.
Section 192
Contributioins to black lung benefit trust

A taxpayer is allowed a deduction for amounts contributed (in cash or in items in which the trust may invest) during the taxable year to or under a qualified black lung benefits trust.
Section 193
Tertiary injectants

“Qualified tertiary injectant expenses” are deductible. They are defined as any cost paid or incurred for any tertiary injectant (other than a “hydrocarbon injectant” which is recoverable) which is used as part of a “tertiary recovery method.”
Section 194
Treatment of reforestation expenditures

Section 194 applies to reforestation expenditures that are included in the basis of “qualified timber property,” which is land located in the United States that “will contain trees in significant commercial quantities” and is “held by the taxpayer for the planting, cultivating, caring for, and cutting of trees for sale or use in the commercial production of timber products.”
Section 194A
Contributions to employer liability trusts

If an employer liability trust meets the requirements for tax exemption, employer contributions to the fund are deductible for the year in which the contribution is made and which is properly allocable to that taxable year.
Section 195
Start-up expenditures

Start-up expenses of a trade or business are not deductible unless the taxpayer elects to deduct them in accordance with the following rules. A taxpayer can elect a current deduction for a limited amount (up to $5,000) of start-up expenditures in the tax year in which the trade or business begins. However, this $5,000 amount is reduced (but not below zero) by the amount by which the cumulative cost of start-up expenditures exceeds $50,000. The remainder of the start-up expenditures can be claimed as a deduction ratably over a 15-year period.
Section 196
Deduction for certain unused business credits

A full or partial deduction is allowed for “qualified business credits” that, after the application of the credit limitations based on the taxpayer's tax liability, remain unused at the expiration of the normal carryover period.
Section 197
Amortization of goodwill and certain other intangibles

Section 197 provides for straight-line amortization over a period of 15 years of the basis of certain intangible assets used in a trade or business. This treatment applies to goodwill and going concern value and to a number of other intangible assets specified in Section 197 (i.e., “amortizable section 197 intangibles”).
Section 198
Expensing of environmental remediation costs

A taxpayer may elect to treat any “qualified environmental remediation expenditure” which is paid or incurred by the taxpayer as an expense which is not chargeable to capital account. Any expenditure which is treated as not chargeable to capital account is allowed as a deduction for the tax year in which it is paid or incurred.
Section 199
Income attributable to domestic production activities

The 2004 Jobs Act authorizes for U.S. taxpayers (often corporations) a 9 percent deduction from taxable income for certain “qualified production activities income” (QPAI). The objective of this provision is to provide a result equivalent to a 3 percent income tax rate reduction. This provision is available to C corporations and pass-through entities, including S corporations, partnerships, estates, and trusts. This provision was enacted partially to compensate corporate taxpayers for the loss of the extraterritorial income exclusion (ETI), which was repealed by the 2004 Jobs Act, but it is available to all taxpayers deriving domestic QPAI, whether or not they derive income from exporting transactions.
Section 211
Allowance of deduction

In computing taxable income under section 63, there shall be allowed as deductions the items specified in this part, subject to the exceptions provided in part IX (section 261 to 280H).
Section 212
Expenses for production of income

Individuals are permitted to deduct ordinary and necessary expenses if the expenses are paid or incurred during the tax year:

(1) for the collection or production of income, or
(2) for the management, conservation or maintenance of property held for the production of income.
(3) in connection with the determination, collection or refund of any tax.
Section 213
Medical, dental, etc., expenses

A deduction is allowed for the expenses paid during the tax year for the medical care of the taxpayer, his spouse, and dependents, to the extent the expenses exceed 7.5% of adjusted gross income.
Section 215
Alimony, etc., payments

Section 215 allows a payor to deduct alimony “paid” if it is included in the payee's gross income under § 71(a) . Because § 215 only requires the payments to be “includible” in the payee's gross income, the payor does not lose the deduction if the payee has no taxable income or fails to file a return.
Section 216
Deductoin of taxes, interest, and business depreciation by coop housing orporatoin tenant stockholder

Section 216 permits tenant-stockholders of a cooperative housing corporation (CHC) to deduct their ratable shares of interest and real estate taxes paid by the CHC. Enacted in 1942 to reverse judicial determinations that the tenant-stockholders could not deduct this interest or taxes, the provision achieves a rough tax equivalence among owner-occupied homes, condominiums, and CHCs.
Section 217
Moving expenses

Section 217 allows deductions for moving expenses incurred in connection with the commencement of work at a new principal place of work. The allowance is subject to numerous limitations and qualifications, including principally: (1) The expenses must arise from a change in residences in connection with the taxpayer's employment at a new principal place of work that is at least 50 miles farther from the taxpayer's former residence than was the old duty post and (2) the taxpayer must be employed full-time in the vicinity of the new working place for at least 39 weeks during the 12-month period immediately following arrival there.
Section 219
Retirment savings

Section 219 allows a deduction for contributions to an individual retirement plan, not to exceed a dollar ceiling ($5,000, adjusted for inflation, for years after 2008), which is phased out for taxpayers who are active participants in qualified plans of their employer and whose adjusted gross incomes exceed a dollar amount ($80,000 on a joint return for years after 2006, and $50,000 for an unmarried person). Two types of individual retirement plans, collectively referred to as IRAs, are recognized: individual retirement accounts, which are usually investment accounts with banks or mutual funds, and individual retirement annuities, which are annuity or endowment contracts issued by insurance companies.
Section 220
Archer MSAs

In the case of an individual who is an “eligible individual” for any month during the tax year, a deduction for the tax year is allowed for an amount equal to the aggregate amount paid in cash during the tax year by the individual to an Archer MSA.

Archer MSAs have not enjoyed wide popularity. Congress essentially limited this vehicle to 750,000 individuals and required the IRS to keep track of the number of Archer MSAs. For 2003, an estimated 79,235 individuals had Archer MSAs.
Section 221
Interest on education loans

Section 221 , enacted in 1997, creates a limited deduction for interest on “qualified education loan[s].”

the maximum deduction for any year is $2,500, and is limited if a taxpayer's modified adjusted gross income exceeds $50,000 ($100,000 on a joint return).
Section 222
Qualified tuition and related expenses

An individual taxpayer (except as provided below) is allowed to deduct the qualified tuition and related expenses (as reduced for phaseout) paid by the taxpayer during the tax year for the taxpayer or his or her spouse.
Section 223
Health savings accounts

IRC § 223 , added by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Pub. L. No. 108-173 ), permits eligible individuals to establish health savings accounts (HSAs) for taxable years beginning after December 31, 2003. Generally, contributions made to an HSA, within permissible limits, are deductible by a taxpayer. This deduction is an adjustment to gross income (i.e., an above-the-line deduction).
Section 224
Cross reference

For deductions in respect of a decedent, see section 691.
Section 241
Allowance of special deductions

In addition to the deductions provided in part VI ( sec. 161 and following), there shall be allowed as deductions in computing taxable income the items specified in this part. (Sections 241-250).
Section 243
Dividends received by corporations

Section 243(a)(1) provides generally that 70 percent of the amount received as dividends from a domestic corporation that is subject to federal income taxation may be deducted. If, however, the shareholder owns 20 percent of the stock by vote and value (or more), it is entitled to an 80 percent deduction.

Section 243(a)(3) permits a 100 percent deduction for certain intercorporate dividends received from a member of the same “affiliated group.”
Section 244
Dividends received on certain preferred stock

Sections 244 and 247 contain special rules pertaining to dividends on certain public utility stocks. Sections 244 and 247 complement each other in that Section 247 permits certain public utility companies to deduct dividends paid on selected preferred stock issues (i.e., to claim a “dividends paid deduction”), while Section 244 modifies and limits the DRD for dividends received on the preferred stock. More specifically, Section 247 permits certain utilities to deduct the dividends paid on preferred stock if the stock was issued before October 1, 1942, or represents stock issued after that date to refund or replace preferred stock or debt issued before October 1, 1942. Section 244, on the other hand, contains a formula for computing the DRD relating to these dividends. However, as a practical matter, Section 244 has a limited and declining role in the DRD scheme, because only a few preferred stock issues are eligible for the Section 247 dividends paid deduction, and even these are disappearing with time.
Section 245
Dividends received from certain foreign corporations

The deduction for dividends received from foreign corporations is restricted to reflect the fact that a foreign corporation's foreign source income is not ordinarily subject to U.S. taxation. No dividends received deduction is allowed unless a distributing foreign corporation's post-1986 undistributed earnings include “U.S. earnings,” which are (1) income that is effectively connected with a trade or business of the foreign corporation in the United States and is not exempted from U.S. tax by treaty and (2) dividends from a domestic corporation in which the foreign corporation is an 80 percent or greater shareholder.
Section 246
Rules applying to deductions for dividends received

Section 246(a) provides that the dividends-received deductions of §§ 243 through 245 do not apply to dividends paid by corporations that are exempt from tax under § 501 (charitable corporations, federal instrumentalities, 195 mutual telephone companies, and so forth) or § 521 (farmers' cooperative associations). These corporations are disqualified because their earnings are wholly or partially tax-exempt; when another corporation receives their earnings in the form of dividends, the earnings will be taxed for the first time at the corporate level.
Section 247
Dividends paid on certian preferred stock of public utilities

Sections 244 and 247 contain special rules pertaining to dividends on certain public utility stocks. Sections 244 and 247 complement each other in that Section 247 permits certain public utility companies to deduct dividends paid on selected preferred stock issues (i.e., to claim a “dividends paid deduction”), while Section 244 modifies and limits the DRD for dividends received on the preferred stock. More specifically, Section 247 permits certain utilities to deduct the dividends paid on preferred stock if the stock was issued before October 1, 1942, or represents stock issued after that date to refund or replace preferred stock or debt issued before October 1, 1942. Section 244, on the other hand, contains a formula for computing the DRD relating to these dividends. However, as a practical matter, Section 244 has a limited and declining role in the DRD scheme, because only a few preferred stock issues are eligible for the Section 247 dividends paid deduction, and even these are disappearing with time.
Section 248
Organizational expenditures

Congress enacted § 248 in 1954 to permit a corporation to elect to amortize “organizational expenditures” over a period of 60 months or more, beginning with the month in which the corporation begins business. 30 In 2004, Congress lengthened the amortization period to 180 months, but it allowed up to $5,000 of organizational expenditures to be deducted for the year during which the corporation begins business if the expenditures, in the aggregate, do not exceed $55,000.
Section 249
Limitation on deduction of bond premium on repurchase

Normally, when a corporation redeems its debt at a premium, it is entitled to a deduction for the premium paid. Section 249 , however, denies a deduction for a premium paid by a corporation to redeem convertible debt, except to the extent the premium does not exceed a normal call premium or to the extent the issuer can prove the premium was attributable to the cost of borrowing and not attributable to the conversion feature.
Section 261
General rule for disallowance of deductions

In computing taxable income no deduction shall in any case be allowed in respect of the items specified in this part. (Sections 261-280H)
Section 262
Personal, living, and family expenses

§ 262(a) states: “Except as otherwise expressly provided in [the income tax provisions of the Internal Revenue Code], no deduction shall be allowed for personal, living, or family expenses.” The Supreme Court observed in United States v. Gilmore that “Congress has seen fit to regard an individual as having two personalities,…a seeker after profit who can deduct the expenses incurred in that search [and] a creature satisfying his needs as a human and those of his family but who cannot deduct such consumption and related expenditures.”
Section 263
Capital expenditures

As interpreted by the regulations, § 263 prohibits any deduction for “the cost of acquisition, construction, or erection of buildings, machinery and equipment, furniture and fixtures, and similar property having a useful life substantially beyond the taxable year,” or for “amounts paid or incurred (1) to add to the value, or substantially prolong the useful life, of property owned by the taxpayer, such as plant or equipment, or (2) to adapt property to a new or different use.”
Section 263A
Capitalization and inclusion of inventory costs of certain expenses

Section 263A requires the capitalization of a wide variety of costs attributable to property produced by the taxpayer or acquired for resale in a trade or business or an activity conducted for profit. Allocable costs include the direct costs of producing or acquiring such property and the property's share of indirect costs. 254 According to the legislative history to § 263A, the purpose behind its enactment was to provide a consistent, uniform, and comprehensive set of rules applicable to capitalization of costs incurred in the acquisition, production, holding, and disposition of property.
Section 264
Certain amounts paid in connection with insurance contracts

With certain exceptions, no deduction is allowed for any interest paid or accrued on any indebtedness with respect to one or more life insurance policies owned by the taxpayer covering the life of any individual, or any annuity or endowment contracts owned by the taxpayer covering any individual.
Section 265
Expenses and interest relating to tax-exempt income

Section 265(a)(1) disallows two categories of deductions allocable to tax-exempt income: (1) amounts otherwise deductible that are allocable to exempt income other than interest and (2) amounts otherwise deductible under § 212 allocable to tax-exempt interest.
Section 266
Carrying charges

Section 266 permits otherwise deductible taxes, interest, and other carrying charges to be charged at the taxpayer's election to capital account and thus included in the basis of the affected property.
Section 267
Losses, expenses, and interest with respect to transactions between related taxpayers

Losses on the sale or exchange of property are not allowed if made directly or indirectly between certain related persons (i.e,. a Section 267(b) or Section 707 related person).
Section 268
Sale of land with unharvested crop

Under the capital gain-ordinary loss rule, deductions attributable to producing unharvested crops or fruit sold with the land aren't allowed. This includes ordinary expenses, ACRS deductions or depreciation deductions, or any other costs and applies to all earlier taxable years, as well as to the year in which the sale is made. The disallowed deductions are used to increase the basis of the fruit and crops sold in computing gain or loss.
Section 269
Acquisitions made to evade or avoid income tax

Section 269 provides for the disallowance of deductions and other tax benefits when tax avoidance is the principal purpose for the acquisition of control of a corporation or for certain transfers of property from one corporation to another. This statutory restriction was originally enacted in 1943, principally to curb a growing market for defunct corporate shells.
Section 269A
Personal service corporations formed or availed of to avoid or evade income tax

Section 269A , enacted in 1982, allows the IRS to reallocate corporate income to the shareholders of the corporations.

Section 269A applies if (1) “substantially all of the services of a professional service corporation are performed for…1 other corporation [or] partnership” and (2) the professional service corporation is formed or availed of for the primary purpose of evading tax by reducing the income of the “employee-owner” or securing the benefit of a deduction that would not otherwise be available.
Section 269B
Stapled entities

A device for avoiding classification as a CFC involved the “stapling,” of the stock of two or more entities so that a stockholder could not trade the stock of one entity separately from the other. This resulted in avoidance of the CFC tax provisions

§ 269B(a)(1) that if a domestic and foreign entity are stapled entities, the foreign entity will be domesticated and, therefore, taxable as a U.S. taxpayer.
Section 271
Debts owed by political parties, etc.

Section 271(a) generally denies deductions for the worthlessness of debts owed by political parties. This prohibition covers both bad debt deductions under § 166 and worthless security deductions under § 165(g) , but it does not apply to a bank that acquired the debt “in accordance with its usual commercial practices.”
Section 272
Disposal of coal or domestic iron ore

If coal or iron ore (held for the required period) is disposed of with a retained economic interest, such as under a coal royalty contract, expenditures paid or incurred by the taxpayer during the tax year attributable to making and administering the contract or to preserving the owner's economic interest retained under the contract are disallowed as deductions in computing taxable income.

However, deduction is disallowed only in a tax year in which income is realized under the contract. In any year in which no income is realized under the contract, those expenditures are deductible under the general rules either as expenses for the production of income or as business expenses, or they may be charged to capital account at the taxpayer's election if they qualify as carrying charges.
Section 273
Holders of life or terminable interest

one who acquires a life or other terminable interest by “gift, bequest, or inheritance” isn't entitled to a deduction for “shrinkage (by whatever name called) in the value of such interest due to lapse of time.” This rule bars amortization of the taxpayer's basis for a terminable interest acquired by gift, bequest, or inheritance.
Section 274
Disallowances of certain entertainment, etc., expenses

Section 274(a)(1)(A) provides that no deduction shall be allowed for an item with respect to an activity “which is of a type generally considered to constitute entertainment, amusement, or recreation” unless it is directly related to or associated with the active conduct of the taxpayer's business. For this purpose, activities described by § 212, relating to expenses incurred for the production of income and other profit-oriented activities, are treated as a trade or business.

Also, rules added to § 274 in 1986 and 1993 limit deductions for costs of food and beverages, whether or not furnished in an entertainment setting; among the rules is a provision denying 50 percent of these costs, even when they satisfy all other requirements for deduction.
Section 275
Certain taxes

Section 275 prohibits any deduction for the following taxes:

a. Federal income taxes, including taxes withheld at the source from wages (which are credited by employees against their regular federal income tax liability under § 31), social security taxes on employees, and similar taxes on railroad employees.

b. Federal war profits and excess profits taxes.

c. Estate, inheritance, legacy, succession, and gift taxes.

d. Foreign income taxes if the taxpayer elects the foreign tax credit.

e. Real property taxes treated as imposed on another taxpayer by § 164(d) (apportionment of taxes between seller and purchaser).

f. The special taxes imposed by Chapter 41 (unrelated business income of charities), 22 Chapter (private foundations), Chapter 43 (qualified pension plans), Chapter 44 (real estate investment trusts), Chapter 46 (golden parachute payments), and Chapter 54 (greenmail).
Section 276
Certain indirect contributions to political parties

Section 276(a) disallows three types of political expenditures: (1) advertising in a political party's convention program or in any other publication if the proceeds are intended to, or do, directly or indirectly inure to or for the use of a political party or candidate; (2) admission to a dinner or program whose proceeds are intended to, or do, directly or indirectly inure to or for the use of a political party or candidate; and (3) admission to an inaugural ball, gala, parade, or concert or to any similar event identified with a political party or a political candidate. This provision attempts to disallow deductions for political contributions disguised as advertising expenses.
Section 277
Deductions incurred by certain membership organizationss in transactions with members

A taxable social club or other membership organization operated primarily to furnish services or goods to members, may deduct expenses for the tax year attributable to furnishing services, insurance, goods or other items of value to members, only to the extent of income derived during that year from members or transactions with members.
Section 279
Interest on indebtedness incurred by corporation to acquire stock or assets of another corporation

Section 279 generally provides that no deduction will be allowed for any interest paid or incurred by a corporation with respect to its corporate acquisition indebtedness to the extent such interest exceeds $5 million.
Section 280A
Disallowance of certain expenses in connection with business use of home, rental of vacation homes, etc.

The general rule of § 280A(a) flatly disallows all otherwise allowable deductions claimed by individuals and S corporations with respect to the use of a dwelling unit that is used during the taxable year by the taxpayer (or, in the case of an S corporation, any of its shareholders) as a residence, except as allowed by § 280A itself, thus staking out a monopoly of the rules for this area.
Section 280B
Demolition of structures

In 1984, however, Congress enacted § 280B, which disallows any deduction for losses incurred on demolition (and for the cost of the demolition itself) on the ground that prior law relied too heavily on the taxpayer's unascertainable subjective intent and “operated as an undue incentive” for the demolition of existing buildings, including some that could be rehabilitated. Under § 280B(a)(2) , the disallowed amounts are capitalized and are added to the taxpayer's basis for the land.
Section 280C
Certain expenses for which credits are allowable

Income tax deductions for wages and health insurance costs used to determine the Indian employment credit must be reduced by the full amount of the credit.

The employer's deduction for wages paid must be reduced by the full amount of the work opportunity credit, without regard to the tax liability limitation.

The employer's deduction for wages paid for the tax year must be reduced by the employee retention credit for that year.
Section 280E
Expenditures in connection with the illegal sale of drugs

No deduction or credit is allowed in connection with the trade or business of trafficking in illegal drugs. For these purposes, illegal drugs are defined as controlled substances within the meaning of schedules I and II of the Controlled Substances Act the trafficking in which is prohibited by either federal law or the state law for the state in which the trade or business is conducted. Marijuana is a schedule I controlled substance for this purpose, even if it's recommended by a physician as appropriate to benefit the health of the user.
Section 280F
Limitation on depreciation for luxury automobiles; limitation where certain property used for personal purposes

Section 280F limits ACRS deductions, deductions for rent, and investment credits pertaining to automobiles, entertainment facilities, cellular telephones, and computers. If any of these items are used for both business and nonbusiness purposes, ACRS deductions are determined on a straight line basis.
Section 280G
Golden parachute payments

IRC § 280G(a) provides that no deduction shall be allowed under Chapter 1 for any excess parachute payment. A “parachute payment” is defined in IRC § 280G(b)(2) as any payment in the nature of compensation to (or for the benefit of) a disqualified individual if (1) such payment is contingent on a change (a) in the ownership or effective control of the corporation or (b) in the ownership of a substantial portion of the assets of the corporation, and (2) the aggregate present value of the payments in the nature of compensation to (or for the benefit of) the individual that are contingent on the change equals or exceeds three times the base amount.
Section 280H
Limitation on certain amounts paid to employee-owners by personal service corporations electing alternative taxable years

Under § 280H , a test (the “minimum distribution requirement”) is first run to see whether deductible payments to employee-owners have been bunched into the later portion of the PSC's taxable year. If the test is failed, the deductions are limited to the amounts that would have been paid if the rate of payment during the deferral period were only slightly lower than the rate throughout the remainder of the year. For example, if the elected year ends September 30, the deduction is limited to five times the amounts paid to employee-owners during the months of October, November, and December.
Section 281
Terminal railroad corporationss and their shareholders

Major railroad terminals in the U.S. often are owned by a separate corporation all of whose stock is owned by a number of railroad corporations comprising the principal users of the terminal facilities. In general, the shareholding railroads are charged with a pro-rata share of the cost of operating and maintaining the terminal facilities and are credited with a pro-rata share of the terminal corporation's other income.

A corporation which owns a railroad terminal isn't taxed on its income related to its terminal facilities to the extent that such income is used to reduce the charges made to the shareholder railroad corporations for use of the terminal facilities.
Section 291
Special rules relating to corproate preference items

Depreciation recapture for Code Sec. 1245 and Code Sec. 1245 recovery property is computed in the same manner for individuals and for corporations. However, if Code Sec. 1250 property is sold at a gain, Code Sec. 291 may require corporate taxpayers to recharacterize a larger portion of the recognized gain as ordinary income. For tax years beginning after 1986, corporate taxpayers disposing of Code Sec. 1250 property must recapture 20% of the additional amount that would be ordinary income had the property been subject to Code Sec. 1245 recapture. Before the TRA of 1986, the Code Sec. 291 recapture percentage was 15%. The recaptured amount is treated as ordinary income under Code Sec. 1250.
Section 168
Accelerated cost recovery system

Section 168, which establishes the ACRS, was enacted in 1981 and, after being repeatedly amended in various particulars, was extensively revised and restated in 1986. Most tangible property, real and personal, placed in service after 1981 is only depreciable under ACRS. Intangibles, in contrast, cannot be depreciated under ACRS, and remain subject to the pre-ACRS rules under § 167 and to § 197 , enacted in 1993.
Section 246A
Dividends received deduction reduced where portfolio stock is debt financed.

If stock is found to be debt-financed portfolio stock, Section 246A(a) provides that the DRD is applied only to the portion of the dividend that relates to non-debt-financed portion of the stock. That is, the DRD is limited to that percentage of the dividend determined by computing the product of (1) the otherwise available percentage and (2) 100 percent minus the average indebtedness percentage. The average indebtedness percentage is obtained by dividing (1) the average amount of the portfolio debt with respect to the portfolio stock during the base period by (2) the average adjusted basis of the stock during the base period.