26 U.S.C. § 280H — Limitation on certain amounts paid to

Page 1064 TITLE 26—INTERNAL REVENUE CODE § 280H Subsec. (c). Pub. L. 99–514, § 1804(j)(5), inserted provi- sion defining ‘‘highly-compensated individual’’. Subsec. (d)(2). Pub. L. 99–514, § 1804(j)(8), substituted ‘‘performed personal services for the corporation’’ for ‘‘was an employee of the corporation’’. Subsec. (d)(5). Pub. L. 99–514, § 1804(j)(4), added par. (5). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2008 AMENDMENT Pub. L. 110–343, div. A, title III, § 302(c)(2), Oct. 3, 2008, 122 Stat. 3806, provided that: ‘‘The amendments made by subsection (b) [amending this section] shall apply to payments with respect to severances occurring during the period during which the authorities under section 101(a) of this Act [enacting section 5211(a) of Title 12, Banks and Banking, and amending section 5315 of Title 5, Government Organization and Employees, and sec- tion 301 of Title 31, Money and Finance] are in effect (determined under section 120 of this Act [12 U.S.C. 5230]).’’ EFFECTIVE DATE OF 1996 AMENDMENT Amendment by Pub. L. 104–188 applicable to taxable years beginning after Dec. 31, 1996, see section 1421(e) of Pub. L. 104–188, set out as a note under section 72 of this title. EFFECTIVE DATE OF 1988 AMENDMENT Amendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title. EFFECTIVE DATE OF 1986 AMENDMENT Amendment by Pub. L. 99–514 effective, except as oth- erwise 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 1985 AMENDMENT Amendment by Pub. L. 99–121 applicable to sales and exchanges after June 30, 1985, in taxable years ending after such date, see section 105(a)(1) of Pub. L. 99–121, set out as a note under section 1274 of this title. EFFECTIVE DATE Pub. L. 98–369, div. A, title I, § 67(e), July 18, 1984, 98 Stat. 587, provided that: ‘‘(1) IN GENERAL.—The amendments made by this sec- tion [enacting this section and section 4999 of this title and amending sections 275 and 3121 of this title] shall apply to payments under agreements entered into or renewed after June 14, 1984, in taxable years ending after such date. ‘‘(2) SPECIAL RULE FOR CONTRACT AMENDMENTS.—Any contract entered into before June 15, 1984, which is amended after June 14, 1984, in any significant relevant aspect shall be treated as a contract entered into after June 14, 1984.’’ PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1998 For provisions directing that if any amendments made by subtitle D [§§ 1401–1465] of title I of Pub. L. 104–188 require an amendment to any plan or annuity contract, such amendment shall not be required to be made before the first day of the first plan year begin- ning on or after Jan. 1, 1998, see section 1465 of Pub. L. 104–188, set out as a note under section 401 of this title. PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989 For 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. § 280H. Limitation on certain amounts paid to employee-owners by personal service cor- porations electing alternative taxable years (a) General rule If— (1) an election by a personal service corpora- tion under section 444 is in effect for a taxable year, and (2) such corporation does not meet the min- imum distribution requirements of subsection (c) for such taxable year, then the deduction otherwise allowed under this chapter for applicable amounts paid or incurred by such corporation to employee-owners shall not exceed the maximum deductible amount. The preceding sentence shall not apply for pur- poses of subchapter G (relating to personal hold- ing companies). (b) Carryover of nondeductible amounts If any amount is not allowed as a deduction for a taxable year under subsection (a), such amount shall be treated as paid or incurred in the succeeding taxable year. (c) Minimum distribution requirement For purposes of this section— (1) In general A personal service corporation meets the minimum distribution requirements of this subsection if the applicable amounts paid or incurred during the deferral period of the tax- able year (determined without regard to sub- section (b)) equal or exceed the lesser of— (A) the product of— (i) the applicable amounts paid during the preceding taxable year, divided by the number of months in such taxable year, multiplied by (ii) the number of months in the deferral period of the preceding taxable year, or (B) the applicable percentage of the ad- justed taxable income for the deferral period of the taxable year. (2) Applicable percentage The term ‘‘applicable percentage’’ means the percentage (not in excess of 95 percent) deter- mined by dividing— (A) the applicable amounts paid or in- curred during the 3 taxable years imme- diately preceding the taxable year, by (B) the adjusted taxable income of such corporation for such 3 taxable years. (d) Maximum deductible amount For purposes of this section, the term ‘‘max- imum deductible amount’’ means the sum of— (1) the applicable amounts paid during the deferral period, plus (2) an amount equal to the product of— (A) the amount determined under para- graph (1), divided by the number of months in the deferral period, multiplied by Page 1065 TITLE 26—INTERNAL REVENUE CODE § 281 (B) the number of months in the non- deferral period. (e) Disallowance of net operating loss carrybacks No net operating loss carryback shall be al- lowed to (or from) any taxable year of a personal service corporation to which an election under section 444 applies. (f) Other definitions and special rules For purposes of this section— (1) Applicable amount The term ‘‘applicable amount’’ means any amount paid to an employee-owner which is includible in the gross income of such em- ployee, other than— (A) any gain from the sale or exchange of property between the owner-employee and the corporation, or (B) any dividend paid by the corporation. (2) Employee-owner The term ‘‘employee-owner’’ has the mean- ing given such term by section 269A(b)(2) (as modified by section 441(i)(2)). (3) Nondeferral and deferral periods (A) Deferral period The term ‘‘deferral period’’ has the mean- ing given to such term by section 444(b)(4). (B) Nondeferral period The term ‘‘nondeferral period’’ means the portion of the taxable year of the personal service corporation which occurs after the portion of such year constituting the defer- ral period. (4) Adjusted taxable income The term ‘‘adjusted taxable income’’ means taxable income determined without regard to— (A) any amount paid to an employee-owner which is includible in the gross income of such employee-owner, and (B) any net operating loss carryover to the extent such carryover is attributable to amounts described in subparagraph (A). (5) Personal service corporation The term ‘‘personal service corporation’’ has the meaning given to such term by section 441(i)(2). (Added Pub. L. 100–203, title X, § 10206(c)(1), Dec. 22, 1987, 101 Stat. 1330–401; amended Pub. L. 100–647, title II, § 2004(e)(2)(B), (3), (14)(A), (C), Nov. 10, 1988, 102 Stat. 3600, 3602.) Editorial Notes AMENDMENTS 1988—Subsecs. (c)(1)(A)(i), (d)(1). Pub. L. 100–647, § 2004(e)(14)(C), substituted ‘‘amounts paid’’ for ‘‘amounts paid or incurred’’. Subsec. (f)(2). Pub. L. 100–647, § 2004(e)(3), substituted ‘‘section 269A(b)(2) (as modified by section 441(i)(2))’’ for ‘‘section 296A(b)(2)’’. Subsec. (f)(4). Pub. L. 100–647, § 2004(e)(14)(A), amended par. (4) generally. Prior to amendment, par. (4) read as follows: ‘‘The term ‘adjusted taxable income’ means taxable income increased by any amount paid or in- curred to an employee-owner which was includible in the gross income of such employee-owner.’’ Subsec. (f)(5). Pub. L. 100–647, § 2004(e)(2)(B), added par. (5). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1988 AMENDMENT Amendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provisions of the Revenue Act of 1987, Pub. L. 100–203, title X, to which such amendment relates, see section 2004(u) of Pub. L. 100–647, set out as a note under section 56 of this title. EFFECTIVE DATE Section applicable to taxable years beginning after Dec. 31, 1986, see section 10206(d)(1) of Pub. L. 100–203, set out as a note under section 444 of this title. PART X—TERMINAL RAILROAD CORPORA- TIONS AND THEIR SHAREHOLDERS Sec. 281. Terminal railroad corporations and their shareholders. Editorial Notes AMENDMENTS 1962—Pub. L. 87–870, § 1(a), Oct. 23, 1962, 76 Stat. 1158, added part X and item 281. § 281. Terminal railroad corporations and their shareholders (a) Computation of taxable income of terminal railroad corporations (1) In general In computing the taxable income of a ter- minal railroad corporation— (A) such corporation shall not be consid- ered to have received or accrued— (i) the portion of any liability of any railroad corporation, with respect to re- lated terminal services provided by such corporation, which is discharged by cred- iting such liability with an amount of re- lated terminal income, or (ii) the portion of any charge which would be made by such corporation for re- lated terminal services provided by it, but which is not made as a result of taking re- lated terminal income into account in computing such charge; and (B) no deduction otherwise allowable under this chapter shall be disallowed as a result of any discharge of liability described in subparagraph (A)(i) or as a result of any computation of charges in the manner de- scribed in subparagraph (A)(ii). (2) Limitation In the case of any taxable year ending after the date of the enactment of this section, paragraph (1) shall not apply to the extent that it would (but for this paragraph) operate to create (or increase) a net operating loss for the terminal railroad corporation for the tax- able year. (b) Computation of taxable income of share- holders Subject to the limitation in subsection (a)(2), in computing the taxable income of any share- holder of a terminal railroad corporation, no