§1397 — Title 26 Internal Revenue Code | U.S. Code

§1397 Other definitions and special rules

Title 26 › Subtitle Subtitle A— - Income Taxes › Chapter CHAPTER 1— - NORMAL TAXES AND SURTAXES › Subchapter Subchapter U— - Designation and Treatment of Empowerment Zones, Enterprise Communities, and Rural Development Investment Areas › Part PART III— - ADDITIONAL INCENTIVES FOR EMPOWERMENT ZONES › Subpart Subpart A— - Empowerment Zone Employment Credit › § 1397

Last updated Apr 6, 2026|Official source

Summary

Defines what counts as "wages" and how employers are treated together. "Wages" has the same meaning as in section 51. Payments an employer makes that are excluded from an employee’s income under section 127 count as wages only if paid to someone not related to the employer. Payments for employer-run youth training for employees under 19 done with local education officials also count. "Related" uses the tests in sections 267(b) and 707(b)(1) and the common-control rules in section 52, but use 10 percent instead of 50 percent. Employers treated as one under section 52 are one employer here, and any credit under section 1396 is split by each employer’s share of the wages. Rules like section 51(k) and section 52(c)–(e) apply.

Title 26, §1397

Internal Revenue Code — Source: USLM XML via OLRC

(a)For purposes of this subpart—

(1)The term “wages” has the same meaning as when used in section 51.

(2)(A)The following amounts shall be treated as wages paid to an employee:

(i)Any amount paid or incurred by an employer which is excludable from the gross income of an employee under section 127, but only to the extent paid or incurred to a person not related to the employer.

(ii)In the case of an employee who has not attained the age of 19, any amount paid or incurred by an employer for any youth training program operated by such employer in conjunction with local education officials.

(B)A person is related to any other person if the person bears a relationship to such other person specified in section 267(b) or 707(b)(1), or such person and such other person are engaged in trades or businesses under common control (within the meaning of subsections (a) and (b) of section 52). For purposes of the preceding sentence, in applying section 267(b) or 707(b)(1), “10 percent” shall be substituted for “50 percent”.

(b)For purposes of this subpart—

(1)all employers treated as a single employer under subsection (a) or (b) of section 52 shall be treated as a single employer for purposes of this subpart, and

(2)the credit (if any) determined under section 1396 with respect to each such employer shall be its proportionate share of the wages giving rise to such credit.

(c)For purposes of this subpart, rules similar to the rules of section 51(k) and subsections (c), (d), and (e) of section 52 shall apply.

Notes & Related Subsidiaries

Editorial Notes

Prior Provisions

A prior section 1397, added Pub. L. 95–600, title VI, § 601(a), Nov. 6, 1978, 92 Stat. 2895, related to special rules applicable to an electing general stock ownership corporation, prior to repeal by Pub. L. 99–514, title XIII, § 1303(a), Oct. 22, 1986, 100 Stat. 2658.