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United States Code (Last Updated: May 24, 2014) |
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Title 26. INTERNAL REVENUE CODE |
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SubTitle A. Income Taxes |
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Chapter 1. NORMAL TAXES AND SURTAXES |
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SubChapter G. Corporations Used to Avoid Income Tax on Shareholders |
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Part I. CORPORATIONS IMPROPERLY ACCUMULATING SURPLUS |
§ 535. Accumulated taxable income
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(a) Definition For purposes of this subtitle, the term “accumulated taxable income” means the taxable income, adjusted in the manner provided in subsection (b), minus the sum of the dividends paid deduction (as defined in section 561) and the accumulated earnings credit (as defined in subsection (c)).
(b) Adjustments to taxable income For purposes of subsection (a), taxable income shall be adjusted as follows: (1) Taxes There shall be allowed as a deduction Federal income and excess profits taxes and income, war profits, and excess profits taxes of foreign countries and possessions of the United States (to the extent not allowable as a deduction under section 275(a)(4)), accrued during the taxable year or deemed to be paid by a domestic corporation under section 902(a) or 960(a)(1) for the taxable year, but not including the accumulated earnings tax imposed by section 531, the personal holding company tax imposed by section 541, or the taxes imposed by corresponding sections of a prior income tax law.
(2) Charitable contributions The deduction for charitable contributions provided under section 170 shall be allowed without regard to section 170(b)(2).
(3) Special deductions disallowed The special deductions for corporations provided in part VIII (except section 248) of subchapter B (section 241 and following, relating to the deduction for dividends received by corporations, etc.) shall not be allowed.
(4) Net operating loss The net operating loss deduction provided in section 172 shall not be allowed.
(5) Capital losses (A) In general Except as provided in subparagraph (B), there shall be allowed as a deduction an amount equal to the net capital loss for the taxable year (determined without regard to paragraph (7)(A)).
(B) Recapture of previous deductions for capital gains The aggregate amount allowable as a deduction under subparagraph (A) for any taxable year shall be reduced by the lesser of— (i) the nonrecaptured capital gains deductions, or (ii) the amount of the accumulated earnings and profits of the corporation as of the close of the preceding taxable year. (C) Nonrecaptured capital gains deductions For purposes of subparagraph (B), the term “nonrecaptured capital gains deductions” means the excess of— (i) the aggregate amount allowable as a deduction under paragraph (6) for preceding taxable years beginning after July 18, 1984 , over(ii) the aggregate of the reductions under subparagraph (B) for preceding taxable years. (6) Net capital gains (A) In general There shall be allowed as a deduction— (i) the net capital gain for the taxable year (determined with the application of paragraph (7)), reduced by (ii) the taxes attributable to such net capital gain. (B) Attributable taxes For purposes of subparagraph (A), the taxes attributable to the net capital gain shall be an amount equal to the difference between— (i) the taxes imposed by this subtitle (except the tax imposed by this part) for the taxable year, and (ii) such taxes computed for such year without including in taxable income the net capital gain for the taxable year (determined without the application of paragraph (7)). (7) Capital loss carryovers (A) Unlimited carryforward The net capital loss for any taxable year shall be treated as a short-term capital loss in the next taxable year.
(B) Section 1212 inapplicable No allowance shall be made for the capital loss carryback or carryforward provided in section 1212.
(8) Special rules for mere holding or investment companies In the case of a mere holding or investment company— (A) Capital loss deduction, etc., not allowed Paragraphs (5) and (7)(A) shall not apply.
(B) Deduction for certain offsets There shall be allowed as a deduction the net short-term capital gain for the taxable year to the extent such gain does not exceed the amount of any capital loss carryover to such taxable year under section 1212 (determined without regard to paragraph (7)(B)).
(C) Earnings and profits For purposes of subchapter C, the accumulated earnings and profits at any time shall not be less than they would be if this subsection had applied to the computation of earnings and profits for all taxable years beginning after
July 18, 1984 .(9) Special rule for capital gains and losses of foreign corporations In the case of a foreign corporation, paragraph (6) shall be applied by taking into account only gains and losses which are effectively connected with the conduct of a trade or business within the United States and are not exempt from tax under treaty.
(10) Controlled foreign corporations There shall be allowed as a deduction the amount of the corporation’s income for the taxable year which is included in the gross income of a United States shareholder under section 951(a). In the case of any corporation the accumulated taxable income of which would (but for this sentence) be determined without allowance of any deductions, the deduction under this paragraph shall be allowed and shall be appropriately adjusted to take into account any deductions which reduced such inclusion.
(c) Accumulated earnings credit (1) General rule For purposes of subsection (a), in the case of a corporation other than a mere holding or investment company the accumulated earnings credit is (A) an amount equal to such part of the earnings and profits for the taxable year as are retained for the reasonable needs of the business, minus (B) the deduction allowed by subsection (b)(6). For purposes of this paragraph, the amount of the earnings and profits for the taxable year which are retained is the amount by which the earnings and profits for the taxable year exceed the dividends paid deduction (as defined in section 561) for such year.
(2) Minimum credit (A) In general The credit allowable under paragraph (1) shall in no case be less than the amount by which $250,000 exceeds the accumulated earnings and profits of the corporation at the close of the preceding taxable year.
(B) Certain service corporations In the case of a corporation the principal function of which is the performance of services in the field of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting, subparagraph (A) shall be applied by substituting “$150,000” for “$250,000”.
(3) Holding and investment companies In the case of a corporation which is a mere holding or investment company, the accumulated earnings credit is the amount (if any) by which $250,000 exceeds the accumulated earnings and profits of the corporation at the close of the preceding taxable year.
(4) Accumulated earnings and profits For purposes of paragraphs (2) and (3), the accumulated earnings and profits at the close of the preceding taxable year shall be reduced by the dividends which under section 563(a) (relating to dividends paid after the close of the taxable year) are considered as paid during such taxable year.
(5) Cross reference For denial of credit provided in paragraph (2) or (3) where multiple corporations are formed to avoid tax, see section 1551, and for limitation on such credit in the case of certain controlled corporations, see section 1561.
(d) Income distributed to United States-owned foreign corporation retains United States connection (1) In general For purposes of this part, if 10 percent or more of the earnings and profits of any foreign corporation for any taxable year— (A) is derived from sources within the United States, or (B) is effectively connected with the conduct of a trade or business within the United States, any distribution out of such earnings and profits (and any interest payment) received (directly or through 1 or more other entities) by a United States-owned foreign corporation shall be treated as derived by such corporation from sources within the United States. (2) United States-owned foreign corporation The term “United States-owned foreign corporation” has the meaning given to such term by section 904(h)(6).
Amendments
2005—Subsec. (b)(10). Pub. L. 109–135 added par. (10).
2004—Subsec. (d)(2). Pub. L. 108–357 substituted “section 904(h)(6)” for “section 904(g)(6)”.
1990—Subsec. (c)(5). Pub. L. 101–508 substituted “section 1561” for “sections 1561 and 1564”.
1986—Subsec. (b)(5)(C)(i), (8)(C). Pub. L. 99–514, § 1899A(17), substituted “
Subsec. (b)(9). Pub. L. 99–514, § 1225(a), added par. (9).
1984—Subsec. (b)(5). Pub. L. 98–369, § 58(b), designated existing provisions as subpar. (A), substituted “Except as provided in subparagraph (B), there shall be allowed as a deduction an amount equal to the net capital loss for the taxable year (determined without regard to paragraph (7)(A)” for “There shall be allowed as deductions losses from sales or exchanges of capital assets during the taxable year which are disallowed as deductions under section 1211(a) in subpar. (A) as so redesignated, and added subpars. (B) and (C).
Subsec. (b)(6). Pub. L. 98–369, § 58(b), divided existing par. (6) into subpars. (A) and (B) and substituted references to the application of paragraph (7) for references to capital loss carryback and carryover provided in section 1212.
Subsec. (b)(7). Pub. L. 98–369, § 58(b), substituted “Capital loss carryovers” for “Capital loss” in heading, redesignated existing provisions as subpar. (B), and added subpar. (A).
Subsec. (b)(8). Pub. L. 98–369, § 58(b), added par. (8).
Subsec. (d). Pub. L. 98–369, § 125(a), added subsec. (d).
1981—Subsec. (c)(2). Pub. L. 97–34, § 232(a), designated existing provisions as subpar. (A), substituted “$250,000” for “$150,000”, and added subpar. (B).
Subsec. (c)(3). Pub. L. 97–34, § 232(b)(1), substituted “$250,000” for “$150,000”.
1976—Subsec. (b)(1). Pub. L. 94–455, §§ 1033(b)(3), 1901(a)(74), struck out “(other than the excess profits tax imposed by subchapter E of chapter 2 of the Internal Revenue Code of 1939 for taxable years beginning after
Subsec. (b)(6). Pub. L. 94–455, § 1901(b)(33)(D), substituted “Net” for “Long-term” after “(6)”.
Subsec. (b)(8). Pub. L. 94–455, § 1901(b)(20)(A), struck out par. (8) relating to allowance of deduction by bank affiliates.
Subsec. (b)(9), (10). Pub. L. 94–455, § 1901(b)(32)(C), struck out par. (9) relating to allowance of deduction for distributions of divested stock, and struck out par. (10) relating to special adjustment on disposition of antitrust stock received as a dividend.
1975—Subsec. (c)(2), (3). Pub. L. 94–12 substituted “$150,000” for “$100,000”.
1969—Subsec. (b)(6). Pub. L. 91–172, § 512(f)(5), substituted “capital loss carryback or carryover” for “capital loss carryover” and “capital loss carryback and carryover” for “capital loss carryover” in subpar. (B).
Subsec. (b)(7). Pub. L. 91–172, § 512(f)(6), substituted “Capital loss” for “Capital loss carryover” in heading and “capital loss carryback or carryover” for “capital loss carryover” in text.
Subsec. (c)(5). Pub. L. 91–172, § 401(b)(2)(C), substituted “section 1551, and for limitation on such credit in the case of certain controlled corporations, see sections 1561 and 1564” for “section 1551”.
1964—Subsec. (b)(1). Pub. L. 88–272 substituted “section 275(a)(4)” for “section 164(b)(6)”.
1962—Subsec. (b)(1). Pub. L. 87–834 substituted “accrued during the taxable year or deemed to be paid by a domestic corporation under section 902(a)(1) or 960(a)(1)(C) for the taxable year” for “accrued during the taxable year”.
Subsec. (b)(9), (10). Pub. L. 87–403 added pars. (9) and (10).
1958—Subsec. (b)(2). Pub. L. 85–866, § 31(a), struck out “the limitation in” after “without regard to”.
Subsec. (b)(6)(B). Pub. L. 85–866, § 31(a), substituted “in taxable income the excess of the net long-term capital gain for the taxable year over the net short-term capital loss for such year (determined without regard to the capital loss carryover provided in section 1212)” for “such excess in taxable income”.
Subsec. (c)(2), (3). Pub. L. 85–866, § 205(a), substituted “$100,000” for “$60,000”.
Effective Date Of Amendment
Amendment by Pub. L. 109–135 effective as if included in the provision of the American Jobs Creation Act of 2004, Pub. L. 108–357, to which such amendment relates, see section 403(nn) of Pub. L. 109–135, set out as a note under section 26 of this title.
Pub. L. 108–357, title IV, § 402(c),
Pub. L. 99–514, title XII, § 1225(c),
Amendment by section 58(b) of Pub. L. 98–369 applicable to taxable years beginning after
Pub. L. 98–369, div. A, title I, § 125(b),
Pub. L. 97–34, title II, § 232(c),
For effective date of amendment by section 1033(b)(3) of Pub. L. 94–455, see section 1033(c) of Pub. L. 94–455, set out as a note under section 902 of this title.
Amendment by section 1901(a)(74), (b)(20)(A), (32)(C), (33)(D) of Pub. L. 94–455 applicable with respect to taxable years beginning after
Pub. L. 94–12, title III, § 305(c),
Amendment by section 401(b)(2)(C) of Pub. L. 91–172 applicable with respect to taxable years beginning after
Amendment by section 512(f)(5), (6) of Pub. L. 91–172 applicable with respect to net capital losses sustained in taxable years beginning after
Amendment by Pub. L. 88–272 applicable to taxable years beginning after
Amendment by Pub. L. 87–834 applicable in respect of any distribution received by a domestic corporation after
Amendment by Pub. L. 87–403 applicable only with respect to distributions made after
Amendment by section 31 of Pub. L. 85–866 applicable to taxable years beginning after
Pub. L. 85–866, title II, § 205(b),
Savings
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
Miscellaneous
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of Pub. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after