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

Summary

If you get back money you deducted in an earlier year, you don't have to count it as income to the extent the deduction never actually lowered your tax. A similar rule applies when you claimed a credit on an amount and later receive a downward price adjustment: nothing happens to the extent the credit didn't reduce your tax. That credit rule doesn't apply to the investment credit or the foreign tax credit. An increase in a carryover that hasn't expired counts as having reduced your tax. Special rules coordinate this exclusion with the accumulated earnings tax and the personal holding company tax.

Title 26, §111

Internal Revenue Code — Source: USLM XML via OLRC

(a)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)(1)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,

(2)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)This subsection shall not apply with respect to the credit determined under section 46 and the foreign tax credit.

(c)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)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.

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.

§111 Recovery of Tax Benefit Items

Summary

Title 26, §111

Notes & Related Subsidiaries

Editorial Notes

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Statutory Notes and Related Subsidiaries

Effective Date

Effective Date

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Effective Date

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Citations & Metadata