Title 26 — Internal Revenue CodeRelease 119-73
§1351 Treatment of recoveries of foreign expropriation losses
Title 26 › Subtitle Subtitle A— - Income Taxes › Chapter CHAPTER 1— - NORMAL TAXES AND SURTAXES › Subchapter Subchapter Q— - Readjustment of Tax Between Years and Special Limitations › Part PART VII— - RECOVERIES OF FOREIGN EXPROPRIATION LOSSES › § 1351
Summary
Applies when a U.S. corporation that pays federal corporate income tax gets money or property because a foreign government seized or took its property. The company must have been taxed the year it suffered the loss and must choose to use these rules. The Treasury will say how and when to make that choice. A worthless debt that was already deducted as a bad debt counts as that kind of loss. Money and property received are measured at their value when received. Part of a recovery up to the amount the company already deducted for the loss in earlier years is not counted as taxable income now. But the government will recompute and collect the extra tax that would have been due in those earlier years if those earlier deductions had not been taken. The Treasury will issue rules for doing that, will treat the recovery-year tax rates as if they applied to the earlier years, and will allow changes to a company’s foreign tax credit choices if needed. Any remaining recovery is treated as a gain from an involuntary conversion and follows the rollover rules for such gains. The tax basis of property received equals its value on receipt, adjusted for any nonrecognized gain. Bonds received this way do not carry original issue discount. The Treasury will also adjust related credits, net operating loss deductions, capital loss carryovers, and similar items.
Full Legal Text
Title 26, §1351
Internal Revenue Code — Source: USLM XML via OLRC
(a)(1)This section shall apply only to a recovery, by a domestic corporation subject to the tax imposed by section 11 or 801, of a foreign expropriation loss sustained by such corporation and only if such corporation was subject to the tax imposed by section 11 or 801, as the case may be, for the year of the loss and elects to have the provisions of this section apply with respect to such loss.
(2)An election under paragraph (1) shall be made at such time and in such manner as the Secretary may prescribe by regulations. An election made with respect to any foreign expropriation loss shall apply to all recoveries in respect of such loss.
(b)For purposes of this section, the term “foreign expropriation loss” means any loss sustained by reason of the expropriation, intervention, seizure, or similar taking of property by the government of any foreign country, any political subdivision thereof, or any agency or instrumentality of the foregoing. For purposes of the preceding sentence, a debt which becomes worthless shall, to the extent of any deduction allowed under section 166(a), be treated as a loss.
(c)(1)The amount of any recovery of a foreign expropriation loss is the amount of money and the fair market value of other property received in respect of such loss, determined as of the date of receipt.
(2)The amount of any recovery of a foreign expropriation loss includes, in the case of a life insurance company, the amount of decrease of any item taken into account under section 807(c), to the extent such decrease is attributable to the release, by reason of such loss, of its liabilities with respect to such item.
(d)(1)That part of the amount of a recovery of a foreign expropriation loss to which this section applies which, when added to the aggregate of the amounts of previous recoveries with respect to such loss, does not exceed the allowable deductions in prior taxable years on account of such loss shall be excluded from gross income for the taxable year of the recovery for purposes of computing the tax under this subtitle; but there shall be added to, and assessed and collected as a part of, the tax under this subtitle for such taxable year an amount equal to the total increase in the tax under this subtitle for all taxable years which would result by decreasing, in an amount equal to such part of the recovery so excluded, the deductions allowable in the prior taxable years on account of such loss. For purposes of this paragraph, if the loss to which the recovery relates was taken into account as a loss from the sale or exchange of a capital asset, the amount of the loss shall be treated as an allowable deduction even though there were no gains against which to allow such loss.
(2)The increase in the tax for each taxable year referred to in paragraph (1) shall be computed in accordance with regulations prescribed by the Secretary. Such regulations shall give effect to previous recoveries of any kind (including recoveries described in section 111, relating to recovery of tax benefit items) with respect to any prior taxable year, but shall otherwise treat the tax previously determined for any taxable year in accordance with the principles set forth in section 1314(a) (relating to correction of errors). Subject to the provisions of paragraph (3), all credits allowable against the tax for any taxable year, and all carryovers and carrybacks affected by so decreasing the allowable deductions, shall be taken into account in computing the increase in the tax.
(3)For purposes of this subsection, any choice made under subpart A of part III of subchapter N (relating to foreign tax credit) for any taxable year may be changed.
(4)For purposes of this subsection, the rates of tax specified in section 11(b) for the taxable year of the recovery shall be treated as having been in effect for all prior taxable years.
(e)That part of the amount of a recovery of a foreign expropriation loss to which this section applies which is not excluded from gross income under subsection (d)(1) shall be considered for the taxable year of the recovery as gain on the involuntary conversion of property as a result of its destruction or seizure and shall be recognized or not recognized as provided in section 1033.
(f)The basis of property (other than money) received as a recovery of a foreign expropriation loss to which this section applies shall be an amount equal to its fair market value on the date of receipt, reduced by such part of the gain under subsection (e) which is not recognized as provided in section 1033.
(g)For purposes of this section, if the value of any interest in, or with respect to, property (including any interest represented by a security, as defined in section 165(g)(2))—
(1)which became worthless by reason of the expropriation, intervention, seizure, or similar taking of such property by the government of any foreign country, any political subdivision thereof, or any agency or instrumentality of the foregoing, and
(2)which was taken into account as a loss from the sale or exchange of a capital asset or with respect to which a deduction for a loss was allowed under section 165 or a deduction for a bad debt was allowed under section 166,
(h)Bonds or other evidences of indebtedness received as a recovery of a foreign expropriation loss to which this section applies shall not be considered to have any original issue discount within the meaning of section 1273(a).
(i)For purposes of this subtitle, proper adjustment shall be made, under regulations prescribed by the Secretary, in—
(1)the credit under section 27 (relating to foreign tax credit),
(2)the credit under section 38 (relating to general business credit),
(3)the net operating loss deduction under section 172,
(4)the capital loss carryover under section 1212(a), and
(5)such other items as may be specified by such regulations,
Legislative History
Notes & Related Subsidiaries
Editorial Notes
Amendments
2017—Subsec. (i)(3). Pub. L. 115–97 struck out at end “or the operations loss deduction under section 810,”. 1986—Subsec. (d)(2). Pub. L. 99–514 substituted “relating to recovery of tax benefit items” for “relating to recovery of bad debts, etc.” 1984—Subsec. (a)(1). Pub. L. 98–369, § 211(b)(18)(A), substituted “801” for “802” in two places. Subsec. (c)(2). Pub. L. 98–369, § 211(b)(18)(B), substituted “section 807(c)” for “section 810(c)”. Subsec. (h). Pub. L. 98–369, § 42(a)(12), substituted “section 1273(a)” for “section 1232(a)(2)”. Subsec. (i)(1). Pub. L. 98–369, § 474(r)(25)(A), substituted “section 27” for “section 33”. Subsec. (i)(2). Pub. L. 98–369, § 474(r)(25)(B), substituted “section 38 (relating to general business credit)” for “section 38 (relating to investment credit)”. Subsec. (i)(3). Pub. L. 98–369, § 211(b)(18)(C), substituted “section 810” for “section 812”. 1978—Subsec. (d)(4). Pub. L. 95–600 substituted “the rates of tax specified in section 11(b)” for “the normal tax rate provided by section 11(b) and the surtax rate provided by section 11(c) which are in effect”. 1976—Subsecs. (a)(2), (d)(2). Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary”. Subsec. (d)(3). Pub. L. 94–455, § 1031(b)(3), struck out provisions relating to an election to have limitation provided by section 904(a)(2) apply and to revocation of such an election previously made. Subsec. (i). Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary”.
Statutory Notes and Related Subsidiaries
Effective Date
of 2017 AmendmentAmendment by Pub. L. 115–97 applicable to losses arising in taxable years beginning after Dec. 31, 2017, see section 13511(c) of Pub. L. 115–97, set out as a note under section 381 of this title.
Effective Date
of 1986 AmendmentAmendment by Pub. L. 99–514 effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98–369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99–514, set out as a note under section 48 of this title.
Effective Date
of 1984 AmendmentAmendment by section 42(a)(12) of Pub. L. 98–369 applicable to taxable years ending after July 18, 1984, see section 44 of Pub. L. 98–369, set out as an
Effective Date
note under section 1271 of this title. Amendment by section 211(b)(18) of Pub. L. 98–369 applicable to taxable years beginning after Dec. 31, 1983, see section 215 of Pub. L. 98–369, set out as an
Effective Date
note under section 801 of this title. Amendment by section 474(r)(25) of Pub. L. 98–369 applicable to taxable years beginning after Dec. 31, 1983, and to carrybacks from such years, see section 475(a) of Pub. L. 98–369, set out as a note under section 21 of this title.
Effective Date
of 1978 AmendmentAmendment by Pub. L. 95–600 applicable to taxable years beginning after Dec. 31, 1978, see section 301(c) of Pub. L. 95–600, set out as a note under section 11 of this title.
Effective Date
of 1976 AmendmentAmendment by section 1031(b)(3) of Pub. L. 94–455 applicable to taxable years beginning after Dec. 31, 1975, with exceptions for certain mining operations, and for income from possessions, see section 1031(c) of Pub. L. 94–455, set out as a note under section 904 of this title.
Effective Date
Pub. L. 89–384, § 2, Apr. 8, 1966, 80 Stat. 105, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: “The
Amendments
made by section 1 (except subsection (b)) [enacting this section and section 6167 of this title and amending section 46, 901, 6503, and 6601 of this title] shall apply with respect to amounts received after
December 31, 1964, in respect of foreign expropriation losses (as defined in section 1351(b) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] added by section 1(a)) sustained after
December 31, 1958.” Plan
Amendments
Not Required Until January 1, 1989For 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 Jan. 1, 1989, see section 1140 of Pub. L. 99–514, as amended, set out as a note under section 401 of this title.
Reference
Citations & Metadata
Citation
26 U.S.C. § 1351
Title 26 — Internal Revenue Code
Last Updated
Apr 6, 2026
Release point: 119-73