26 U.S.C. § 80: Restoration of value of…

Summary

If a U.S. corporation took a loss because a foreign government (or its agency) seized property tied to a security, and the company later gets money or other property back for that loss, the amount recovered must be counted as taxable income in the year it is recovered. Only count recovered amounts up to the total of the earlier loss, adding any recoveries from prior years. If part of the original loss never actually lowered the company’s tax, the taxable recovery is reduced by that unrecovered tax benefit. Normally the recovery is treated as ordinary income. But if the original loss was recorded as a capital loss from selling a capital asset, the recovery is treated as long-term capital gain. If special rules for foreign expropriation recoveries apply, those rules are used instead.

Title 26, §80

Internal Revenue Code, Source: USLM XML via OLRC

(a)General rule

In the case of a domestic corporation subject to the tax imposed by section 11 or 801, if the value of any security (as defined in section 165(g)(2))—

(1)which became worthless by reason of the expropriation, intervention, seizure, or similar taking by the government of any foreign country, any political subdivision thereof, or any agency or instrumentality of the foregoing of property to which such security was related, 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,

is restored in whole or in part during any taxable year by reason of any recovery of money or other property in respect of the property to which such security was related, the value so restored (to the extent that, when added to the value so restored during prior taxable years, it does not exceed the amount of the loss described in paragraph (2)) shall, except as provided in subsection (b), be included in gross income for the taxable year in which such restoration occurs.

(b)Reduction for failure to receive tax benefit

The amount otherwise includible in gross income under subsection (a) in respect of any security shall be reduced by an amount equal to the amount (if any) of the loss described in subsection (a)(2) which did not result in a reduction of the taxpayer’s tax under this subtitle for any taxable year, determined under regulations prescribed by the Secretary.

(c)Character of income

For purposes of this subtitle—

(1)Except as provided in paragraph (2), the amount included in gross income under this section shall be treated as ordinary income.

(2)If the loss described in subsection (a)(2) was taken into account as a loss from the sale or exchange of a capital asset, the amount included in gross income under this section shall be treated as long-term capital gain.

(d)Treatment under foreign expropriation loss recovery provisions

This section shall not apply to any recovery of a foreign expropriation loss to which section 1351 applies.

Notes & Related Subsidiaries

Editorial Notes

Amendments

1984—Subsec. (a). Pub. L. 98–369 substituted “801” for “802”. 1976—Subsec. (b). Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary”. Subsec. (c)(1). Pub. L. 94–455, § 1901(b)(3)(K), substituted “ordinary income” for “gain from the sale or exchange of property which is neither a capital asset nor property described in section 1231”.

Statutory Notes and Related Subsidiaries

Effective Date

of 1984 AmendmentAmendment by 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.

Effective Date

of 1976 AmendmentAmendment by section 1901(b)(3)(K) of Pub. L. 94–455 applicable with respect to taxable years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L. 94–455, set out as a note under section 2 of this title.

Effective Date

Pub. L. 89–384, § 1(b)(3), Apr. 8, 1966, 80 Stat. 102, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: “The

Amendments

made by this subsection [enacting this section] shall apply to taxable years beginning after

December 31, 1965, but only with respect to losses described in section 80(a)(2) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as added by paragraph (1) of this subsection) which were sustained after

December 31, 1958.”

§80 Restoration of Value of Certain Securities

Summary

Title 26, §80

Notes & Related Subsidiaries

Editorial Notes

Amendments

Statutory Notes and Related Subsidiaries

Effective Date

Effective Date

Effective Date

Effective Date

Amendments

Citations & Metadata