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Title 26, Internal Revenue CodeRelease 119-110

§111 Recovery of Tax Benefit Items

Title 26 › Subtitle A — Income Taxes › CHAPTER 1 — NORMAL TAXES AND SURTAXES › Subchapter B — Computation of Taxable Income › PART III — ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME › § 111

Last updated Sep 22, 2026|Official source

Summary

If you get back money you deducted in an earlier year, treat it as income now unless that earlier deduction did not lower your tax. If the earlier year gave you a tax credit for the same amount and you later get a price cut or similar adjustment, you must increase this year’s tax by the part of the old credit that matches the adjustment. You do not have to add back any credit that did not actually reduce tax before. The rule does not apply to the investment tax credit (section 46) or the foreign tax credit. If a tax carryover grows and it had not expired before the year you recover the money, that increase counts as if it reduced tax. For the accumulated earnings tax (section 531) and the personal holding company tax (section 541), special rules say excluded recovered amounts can be allowed in certain cases even if they did not lower those special taxes in the prior year.

Full Legal Text

Title 26, §111

Internal Revenue Code, Source: USLM XML via OLRC

(a)Deductions
Gross income does not include income attributable to the recovery during the taxable year of any amount deducted in any prior taxable year to the extent such amount did not reduce the amount of tax imposed by this chapter.
(b)Credits
(1)In general
If—
(A)a credit was allowable with respect to any amount for any prior taxable year, and
(B)during the taxable year there is a downward price adjustment or similar adjustment,
the tax imposed by this chapter for the taxable year shall be increased by the amount of the credit attributable to the adjustment.
(2)Exception where credit did not reduce tax
Paragraph (1) shall not apply to the extent that the credit allowable for the recovered amount did not reduce the amount of tax imposed by this chapter.
(3)Exception for investment tax credit and foreign tax credit
This subsection shall not apply with respect to the credit determined under section 46 and the foreign tax credit.
(c)Treatment of carryovers
For purposes of this section, an increase in a carryover which has not expired before the beginning of the taxable year in which the recovery or adjustment takes place shall be treated as reducing tax imposed by this chapter.
(d)Special rules for accumulated earnings tax and for personal holding company tax
In applying subsection (a) for the purpose of determining the accumulated earnings tax under section 531 or the tax under section 541 (relating to personal holding companies)—
(1)any excluded amount under subsection (a) allowed for the purposes of this subtitle (other than section 531 or section 541) shall be allowed whether or not such amount resulted in a reduction of the tax under section 531 or the tax under section 541 for the prior taxable year; and
(2)where any excluded amount under subsection (a) was not allowable as a deduction for the prior taxable year for purposes of this subtitle other than of section 531 or section 541 but was allowable for the same taxable year under section 531 or section 541, then such excluded amount shall be allowable if it did not result in a reduction of the tax under section 531 or the tax under section 541.

Legislative History

Notes & Related Subsidiaries

Editorial Notes

Amendments

1986—Subsec. (a). Pub. L. 99–514, § 1812(a)(1), substituted “did not reduce the amount of tax imposed by this chapter” for “did not reduce income subject to tax”. Subsec. (c). Pub. L. 99–514, § 1812(a)(2), substituted “reducing tax imposed by this chapter” for “reducing income subject to tax or reducing tax imposed by this chapter, as the case may be”. 1984—Pub. L. 98–369 amended section generally, substituting provisions relating to recovery of tax benefit items for provisions relating to recovery of bad debts, prior taxes, and delinquency amounts. 1980—Subsec. (d). Pub. L. 96–589 added subsec. (d). 1976—Subsec. (b)(4). Pub. L. 94–455 struck out “or his delegate” after “Secretary”.

Statutory Notes and Related Subsidiaries

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 Amendment Pub. L. 98–369, div. A, title I, § 171(c), July 18, 1984, 98 Stat. 699, provided that: “The

Amendments

made by this section [amending this section] shall apply to amounts recovered after December 31, 1983, in taxable years ending after such date.”

Effective Date

of 1980 AmendmentAmendment by Pub. L. 96–589 applicable to transactions which occur after Dec. 31, 1980, other than transactions which occur in a proceeding in a bankruptcy case or similar judicial proceeding or in a proceeding under Title 11 commencing on or after Dec. 31, 1980, with an exception permitting the debtor to make the amendment applicable to transactions occurring after Sept. 30, 1979, in a specified manner, see section 7(a)(1), (f) of Pub. L. 96–589, set out as a note under section 108 of this title. 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. § 111

Title 26, Internal Revenue Code

Last Updated

Sep 22, 2026

Release point: 119-110