26 U.S.C. § 267 — Losses, expenses, and interest with respect

Page 1018 TITLE 26—INTERNAL REVENUE CODE § 266 ‘‘(O) Minneapolis, Minnesota, Miller Milling Com- pany—flour mill project. ‘‘(P) Homewood, Alabama, the Club Apartments. ‘‘(Q) Charlotte, North Carolina—qualified mortgage bonds acquired by NCNB bank ($5,250,000). ‘‘(R) Grand Rapids, Michigan, Central Bank project. ‘‘(S) Ruppman Marketing Services, Inc.—building project. ‘‘(T) Bellows Falls, Vermont—building project. ‘‘(U) East Broadway Project, Louisville, Kentucky. ‘‘(V) O.K. Industries, Oklahoma. ‘‘(4) ADDITIONAL TRANSITIONAL RULE.—Obligations issued pursuant to an allocation of a State’s volume limitation for private activity bonds, which allocation was made by Executive Order 25 signed by the Governor of the State on May 22, 1986 (as such order may be amended before January 1, 1987), and qualified 501(c)(3) bonds designated by such Governor for purposes of this paragraph, shall be treated as acquired on or before Au- gust 7, 1986, in the hands of the first and any subse- quent financial institution acquiring such obligation. The aggregate face amount of obligations to which this paragraph applies shall not exceed $200,000,000.’’ EFFECTIVE DATE OF 1984 AMENDMENT Amendment by section 16(a) of Pub. L. 98–369 applica- ble to taxable years ending after Dec. 31, 1983, see sec- tion 18(a) of Pub. L. 98–369, set out as a note under sec- tion 48 of this title. Amendment by section 56(c) of Pub. L. 98–369 applica- ble to short sales after July 18, 1984, in taxable years ending after that date, see section 56(d) of Pub. L. 98–369, set out as a note under section 163 of this title. EFFECTIVE DATE OF 1981 AMENDMENT Pub. L. 97–34, title III, § 301(d), Aug. 13, 1981, 95 Stat. 270, provided that: ‘‘(1) IN GENERAL.—Except as provided in paragraph (2), the amendments made by this section [enacting section 128 of this title and amending this section and sections 584, 643, and 702 of this title] shall apply to taxable years ending after September 30, 1981. ‘‘(2) CONFORMING AMENDMENTS.—The amendments made by subsection (b)(6) [amending sections 584, 643, and 702 of this title] shall apply to taxable years be- ginning after December 31, 1981.’’ EFFECTIVE AND TERMINATION DATES OF 1980 AMENDMENT Pub. L. 96–223, title IV, § 404(c), Apr. 2, 1980, 94 Stat. 308, as amended by Pub. L. 97–34, title III, § 302(b)(1), Aug. 13, 1981, 95 Stat. 272, provided that: ‘‘The amend- ments made by this section [amending this section and sections 116, 584, 643, 702, 854, and 857 of this title] shall apply with respect to taxable years beginning after De- cember 31, 1980, and before January 1, 1982.’’ EFFECTIVE DATE OF 1976 AMENDMENT Amendment by section 1901(a)(37) of Pub. L. 94–455 ef- fective for 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. Amendment by section 2137(e) of Pub. L. 94–455 effec- tive for taxable years beginning after Dec. 31, 1975, see section 2137(e) of Pub. L. 94–455, set out as a note under section 852 of this title. EFFECTIVE DATE OF 1964 AMENDMENT Pub. L. 88–272, title II, § 216(b), Feb. 26, 1964, 78 Stat. 56, provided that: ‘‘The amendment made by subsection (a) [amending this section] shall apply with respect to taxable years ending after the date of the enactment of this Act [Feb. 26, 1964].’’ SAVINGS PROVISION For provisions that nothing in amendment by Pub. L. 101–508 be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to Nov. 5, 1990, for purposes of determining liabil- ity for tax for periods ending after Nov. 5, 1990, see sec- tion 11821(b) of Pub. L. 101–508, set out as a note under section 45K of this title. CLARIFICATION OF TREATMENT OF AMOUNTS EXCLUDED UNDER SECTION 597 Pub. L. 99–514, title IX, § 904(c)(2)(B), Oct. 22, 1986, 100 Stat. 2385, provided that this section shall not deny any deduction by reason of such deduction being allocable to amounts excluded from gross income under section 597 of this title as in effect on Oct. 21, 1986, prior to re- peal by Pub. L. 101–73, title XIV, § 1401(a)(3)(B), Aug. 9, 1989, 103 Stat. 549. § 266. Carrying charges No deduction shall be allowed for amounts paid or accrued for such taxes and carrying charges as, under regulations prescribed by the Secretary, are chargeable to capital account with respect to property, if the taxpayer elects, in accordance with such regulations, to treat such taxes or charges as so chargeable. (Aug. 16, 1954, ch. 736, 68A Stat. 78; Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834.) Editorial Notes AMENDMENTS 1976—Pub. L. 94–455 struck out ‘‘or his delegate’’ after ‘‘Secretary’’. § 267. Losses, expenses, and interest with respect to transactions between related taxpayers (a) In general (1) Deduction for losses disallowed No deduction shall be allowed in respect of any loss from the sale or exchange of property, directly or indirectly, between persons speci- fied in any of the paragraphs of subsection (b). The preceding sentence shall not apply to any loss of the distributing corporation (or the dis- tributee) in the case of a distribution in com- plete liquidation. (2) Matching of deduction and payee income item in the case of expenses and interest If— (A) by reason of the method of accounting of the person to whom the payment is to be made, the amount thereof is not (unless paid) includible in the gross income of such person, and (B) at the close of the taxable year of the taxpayer for which (but for this paragraph) the amount would be deductible under this chapter, both the taxpayer and the person to whom the payment is to be made are persons specified in any of the paragraphs of sub- section (b), then any deduction allowable under this chap- ter in respect of such amount shall be allow- able as of the day as of which such amount is includible in the gross income of the person to whom the payment is made (or, if later, as of the day on which it would be so allowable but for this paragraph). For purposes of this para- graph, in the case of a personal service cor- poration (within the meaning of section Page 1019 TITLE 26—INTERNAL REVENUE CODE § 267 441(i)(2)), such corporation and any employee- owner (within the meaning of section 269A(b)(2), as modified by section 441(i)(2)) shall be treated as persons specified in sub- section (b). (3) Payments to foreign persons (A) In general The Secretary shall by regulations apply the matching principle of paragraph (2) in cases in which the person to whom the pay- ment is to be made is not a United States person. (B) Special rule for certain foreign entities (i) In general Notwithstanding subparagraph (A), in the case of any item payable to a con- trolled foreign corporation (as defined in section 957) or a passive foreign invest- ment company (as defined in section 1297), a deduction shall be allowable to the payor with respect to such amount for any tax- able year before the taxable year in which paid only to the extent that an amount at- tributable to such item is includible (de- termined without regard to properly allo- cable deductions and qualified deficits under section 952(c)(1)(B)) during such prior taxable year in the gross income of a United States person who owns (within the meaning of section 958(a)) stock in such corporation. (ii) Secretarial authority The Secretary may by regulation exempt transactions from the application of clause (i), including any transaction which is en- tered into by a payor in the ordinary course of a trade or business in which the payor is predominantly engaged and in which the payment of the accrued amounts occurs within 81⁄2 months after accrual or within such other period as the Secretary may prescribe. (b) Relationships The persons referred to in subsection (a) are: (1) Members of a family, as defined in sub- section (c)(4); (2) An individual and a corporation more than 50 percent in value of the outstanding stock of which is owned, directly or indirectly, by or for such individual; (3) Two corporations which are members of the same controlled group (as defined in sub- section (f)); (4) A grantor and a fiduciary of any trust; (5) A fiduciary of a trust and a fiduciary of another trust, if the same person is a grantor of both trusts; (6) A fiduciary of a trust and a beneficiary of such trust; (7) A fiduciary of a trust and a beneficiary of another trust, if the same person is a grantor of both trusts; (8) A fiduciary of a trust and a corporation more than 50 percent in value of the out- standing stock of which is owned, directly or indirectly, by or for the trust or by or for a person who is a grantor of the trust; (9) A person and an organization to which section 501 (relating to certain educational and charitable organizations which are exempt from tax) applies and which is controlled di- rectly or indirectly by such person or (if such person is an individual) by members of the family of such individual; (10) A corporation and a partnership if the same persons own— (A) more than 50 percent in value of the outstanding stock of the corporation, and (B) more than 50 percent of the capital in- terest, or the profits interest, in the partner- ship; (11) An S corporation and another S corpora- tion if the same persons own more than 50 per- cent in value of the outstanding stock of each corporation; (12) An S corporation and a C corporation, if the same persons own more than 50 percent in value of the outstanding stock of each cor- poration; or (13) Except in the case of a sale or exchange in satisfaction of a pecuniary bequest, an ex- ecutor of an estate and a beneficiary of such estate. (c) Constructive ownership of stock For purposes of determining, in applying sub- section (b), the ownership of stock— (1) Stock owned, directly or indirectly, by or for a corporation, partnership, estate, or trust shall be considered as being owned proportion- ately by or for its shareholders, partners, or beneficiaries; (2) An individual shall be considered as own- ing the stock owned, directly or indirectly, by or for his family; (3) An individual owning (otherwise than by the application of paragraph (2)) any stock in a corporation shall be considered as owning the stock owned, directly or indirectly, by or for his partner; (4) The family of an individual shall include only his brothers and sisters (whether by the whole or half blood), spouse, ancestors, and lineal descendants; and (5) Stock constructively owned by a person by reason of the application of paragraph (1) shall, for the purpose of applying paragraph (1), (2), or (3), be treated as actually owned by such person, but stock constructively owned by an individual by reason of the application of paragraph (2) or (3) shall not be treated as owned by him for the purpose of again apply- ing either of such paragraphs in order to make another the constructive owner of such stock. (d) Amount of gain where loss previously dis- allowed (1) In general If— (A) in the case of a sale or exchange of property to the taxpayer a loss sustained by the transferor is not allowable to the trans- feror as a deduction by reason of subsection (a)(1), and (B) the taxpayer sells or otherwise dis- poses of such property (or of other property the basis of which in the taxpayer’s hands is determined directly or indirectly by ref- erence to such property) at a gain, then such gain shall be recognized only to the extent that it exceeds so much of such loss as Page 1020 TITLE 26—INTERNAL REVENUE CODE § 267 is properly allocable to the property sold or otherwise disposed of by the taxpayer. (2) Exception for wash sales Paragraph (1) shall not apply if the loss sus- tained by the transferor is not allowable to the transferor as a deduction by reason of sec- tion 1091 (relating to wash sales). (3) Exception for transfers from tax indifferent parties Paragraph (1) shall not apply to the extent any loss sustained by the transferor (if al- lowed) would not be taken into account in de- termining a tax imposed under section 1 or 11 or a tax computed as provided by either of such sections. (e) Special rules for pass-thru entities (1) In general In the case of any amount paid or incurred by, to, or on behalf of, a pass-thru entity, for purposes of applying subsection (a)(2)— (A) such entity, (B) in the case of— (i) a partnership, any person who owns (directly or indirectly) any capital interest or profits interest of such partnership, or (ii) an S corporation, any person who owns (directly or indirectly) any of the stock of such corporation, (C) any person who owns (directly or indi- rectly) any capital interest or profits inter- est of a partnership in which such entity owns (directly or indirectly) any capital in- terest or profits interest, and (D) any person related (within the mean- ing of subsection (b) of this section or sec- tion 707(b)(1)) to a person described in sub- paragraph (B) or (C), shall be treated as persons specified in a para- graph of subsection (b). Subparagraph (C) shall apply to a transaction only if such transaction is related either to the operations of the part- nership described in such subparagraph or to an interest in such partnership. (2) Pass-thru entity For purposes of this section, the term ‘‘pass- thru entity’’ means— (A) a partnership, and (B) an S corporation. (3) Constructive ownership in the case of part- nerships For purposes of determining ownership of a capital interest or profits interest of a part- nership, the principles of subsection (c) shall apply, except that— (A) paragraph (3) of subsection (c) shall not apply, and (B) interests owned (directly or indirectly) by or for a C corporation shall be considered as owned by or for any shareholder only if such shareholder owns (directly or indi- rectly) 5 percent or more in value of the stock of such corporation. (4) Subsection (a)(2) not to apply to certain guaranteed payments of partnerships In the case of any amount paid or incurred by a partnership, subsection (a)(2) shall not apply to the extent that section 707(c) applies to such amount. (5) Exception for certain expenses and interest of partnerships owning low-income hous- ing (A) In general This subsection shall not apply with re- spect to qualified expenses and interest paid or incurred by a partnership owning low-in- come housing to— (i) any qualified 5-percent or less partner of such partnership, or (ii) any person related (within the mean- ing of subsection (b) of this section or sec- tion 707(b)(1)) to any qualified 5-percent or less partner of such partnership. (B) Qualified 5-percent or less partner For purposes of this paragraph, the term ‘‘qualified 5-percent or less partner’’ means any partner who has (directly or indirectly) an interest of 5 percent or less in the aggre- gate capital and profits interests of the part- nership but only if— (i) such partner owned the low-income housing at all times during the 2-year pe- riod ending on the date such housing was transferred to the partnership, or (ii) such partnership acquired the low-in- come housing pursuant to a purchase, as- signment, or other transfer from the De- partment of Housing and Urban Develop- ment or any State or local housing author- ity. For purposes of the preceding sentence, a partner shall be treated as holding any in- terest in the partnership which is held (di- rectly or indirectly) by any person related (within the meaning of subsection (b) of this section or section 707(b)(1)) to such partner. (C) Qualified expenses and interest For purpose of this paragraph, the term ‘‘qualified expenses and interest’’ means any expense or interest incurred by the partner- ship with respect to low-income housing held by the partnership but— (i) only if the amount of such expense or interest (as the case may be) is uncondi- tionally required to be paid by the partner- ship not later than 10 years after the date such amount was incurred, and (ii) in the case of such interest, only if such interest is incurred at an annual rate not in excess of 12 percent. (D) Low-income housing For purposes of this paragraph, the term ‘‘low-income housing’’ means— (i) any interest in property described in clause (i), (ii), (iii), or (iv) of section 1250(a)(1)(B), and (ii) any interest in a partnership owning such property. (6) Cross reference For additional rules relating to partnerships, see section 707(b). Page 1021 TITLE 26—INTERNAL REVENUE CODE § 267 (f) Controlled group defined; special rules appli- cable to controlled groups (1) Controlled group defined For purposes of this section, the term ‘‘con- trolled group’’ has the meaning given to such term by section 1563(a), except that— (A) ‘‘more than 50 percent’’ shall be sub- stituted for ‘‘at least 80 percent’’ each place it appears in section 1563(a), and (B) the determination shall be made with- out regard to subsections (a)(4) and (e)(3)(C) of section 1563. (2) Deferral (rather than denial) of loss from sale or exchange between members In the case of any loss from the sale or ex- change of property which is between members of the same controlled group and to which sub- section (a)(1) applies (determined without re- gard to this paragraph but with regard to paragraph (3))— (A) subsections (a)(1) and (d) shall not apply to such loss, but (B) such loss shall be deferred until the property is transferred outside such con- trolled group and there would be recognition of loss under consolidated return principles or until such other time as may be pre- scribed in regulations. (3) Loss deferral rules not to apply in certain cases (A) Transfer to DISC For purposes of applying subsection (a)(1), the term ‘‘controlled group’’ shall not in- clude a DISC. (B) Certain sales of inventory Except to the extent provided in regula- tions prescribed by the Secretary, sub- section (a)(1) shall not apply to the sale or exchange of property between members of the same controlled group (or persons de- scribed in subsection (b)(10)) if— (i) such property in the hands of the transferor is property described in section 1221(a)(1), (ii) such sale or exchange is in the ordi- nary course of the transferor’s trade or business, (iii) such property in the hands of the transferee is property described in section 1221(a)(1), and (iv) the transferee or the transferor is a foreign corporation. (C) Certain foreign currency losses To the extent provided in regulations, sub- section (a)(1) shall not apply to any loss sus- tained by a member of a controlled group on the repayment of a loan made to another member of such group if such loan is payable in a foreign currency or is denominated in such a currency and such loss is attributable to a reduction in value of such foreign cur- rency. (D) Redemptions by fund-of-funds regulated investment companies Except to the extent provided in regula- tions prescribed by the Secretary, sub- section (a)(1) shall not apply to any distribu- tion in redemption of stock of a regulated investment company if— (i) such company issues only stock which is redeemable upon the demand of the stockholder, and (ii) such redemption is upon the demand of another regulated investment company. (4) Determination of relationship resulting in disallowance of loss, for purposes of other provisions For purposes of any other section of this title which refers to a relationship which would result in a disallowance of losses under this section, deferral under paragraph (2) shall be treated as disallowance. (g) Coordination with section 1041 Subsection (a)(1) shall not apply to any trans- fer described in section 1041(a) (relating to transfers of property between spouses or inci- dent to divorce). (Aug. 16, 1954, ch. 736, 68A Stat. 78; Pub. L. 95–628, § 2(a), Nov. 10, 1978, 92 Stat. 3627; Pub. L. 97–354, § 3(h), Oct. 19, 1982, 96 Stat. 1689; Pub. L. 98–369, div. A, title I, § 174(a)–(b)(4), title VII, § 721(s), July 18, 1984, 98 Stat. 704–707, 970; Pub. L. 99–514, title VIII, §§ 803(b)(5), 806(c)(2), title XVIII, §§ 1812(c)(1), (2), (3)(C), (4)(A), 1842(a), Oct. 22, 1986, 100 Stat. 2356, 2364, 2834, 2835, 2852; Pub. L. 100–647, title I, §§ 1006(e)(9), 1008(e)(6), Nov. 10, 1988, 102 Stat. 3401, 3441; Pub. L. 105–34, title XIII, § 1308(a), title XVI, § 1604(e)(1), Aug. 5, 1997, 111 Stat. 1041, 1098; Pub. L. 106–170, title V, § 532(c)(2)(C), Dec. 17, 1999, 113 Stat. 1930; Pub. L. 108–357, title VIII, § 841(b), Oct. 22, 2004, 118 Stat. 1598; Pub. L. 111–325, title III, § 306(b), Dec. 22, 2010, 124 Stat. 3549; Pub. L. 113–295, div. A, title II, § 221(a)(44), Dec. 19, 2014, 128 Stat. 4044; Pub. L. 114–113, div. Q, title III, § 345(a), Dec. 18, 2015, 129 Stat. 3115.) Editorial Notes AMENDMENTS 2015—Subsec. (d). Pub. L. 114–113 amended subsec. (d) generally. Prior to amendment, text read as follows: ‘‘If— ‘‘(1) in the case of a sale or exchange of property to the taxpayer a loss sustained by the transferor is not allowable to the transferor as a deduction by reason of subsection (a)(1); and ‘‘(2) the taxpayer sells or otherwise disposes of such property (or of other property the basis of which in his hands is determined directly or indirectly by ref- erence to such property) at a gain, then such gain shall be recognized only to the extent that it exceeds so much of such loss as is properly allo- cable to the property sold or otherwise disposed of by the taxpayer. This subsection shall not apply if the loss sustained by the transferor is not allowable to the transferor as a deduction by reason of section 1091 (re- lating to wash sales).’’ 2014—Subsec. (d). Pub. L. 113–295, in concluding provi- sions, struck out ‘‘This subsection applies with respect to taxable years ending after December 31, 1953. ’’ after ‘‘by the taxpayer.’’ and ‘‘or by reason of section 118 of the Internal Revenue Code of 1939’’ after ‘‘sales)’’. Subsec. (d)(1). Pub. L. 113–295 struck out ‘‘(or by rea- son of section 24(b) of the Internal Revenue Code of 1939)’’ after ‘‘subsection (a)(1)’’. Subsec. (d)(2). Pub. L. 113–295 struck out ‘‘after De- cember 31, 1953,’’ before ‘‘the taxpayer’’. 2010—Subsec. (f)(3)(D). Pub. L. 111–325 added subpar. (D). Page 1022 TITLE 26—INTERNAL REVENUE CODE § 267 2004—Subsec. (a)(3). Pub. L. 108–357 designated exist- ing provisions as subpar. (A), inserted heading, and added subpar. (B). 1999—Subsec. (f)(3)(B)(i), (iii). Pub. L. 106–170 sub- stituted ‘‘1221(a)(1)’’ for ‘‘1221(1)’’. 1997—Subsec. (b)(13). Pub. L. 105–34, § 1308(a), added par. (13). Subsec. (f)(4). Pub. L. 105–34, § 1604(e)(1), added par. (4). 1988—Subsec. (a)(1). Pub. L. 100–647, § 1006(e)(9), struck out ‘‘(other than a loss in case of a distribution in cor- porate liquidation)’’ after ‘‘exchange of property’’ and inserted at end ‘‘The preceding sentence shall not apply to any loss of the distributing corporation (or the dis- tributee) in the case of a distribution in complete liq- uidation.’’ Subsec. (a)(2). Pub. L. 100–647, § 1008(e)(6), made tech- nical correction to directory language of Pub. L. 99–514, § 806(c)(2), see 1986 Amendment note below. 1986—Subsec. (a)(2). Pub. L. 99–514, § 806(c)(2), as amended by Pub. L. 100–647, § 1008(e)(6), inserted at end ‘‘For purposes of this paragraph, in the case of a per- sonal service corporation (within the meaning of sec- tion 441(i)(2)), such corporation and any employee- owner (within the meaning of section 269A(b)(2), as modified by section 441(i)(2)) shall be treated as persons specified in subsection (b).’’ Subsec. (a)(3). Pub. L. 99–514, § 1812(c)(1), added par. (3). Subsec. (b)(12). Pub. L. 99–514, § 1812(c)(4)(A), sub- stituted ‘‘same persons own’’ for ‘‘same persons owns’’. Subsec. (e)(5)(D). Pub. L. 99–514, § 803(b)(5), substituted in cl. (i) ‘‘interest in property described in clause (i), (ii), (iii), or (iv) of section 1250(a)(1)(B)’’ for ‘‘interest in low-income housing (as defined in paragraph (5) of sec- tion 189(e))’’ and in cl. (ii) ‘‘such property’’ for ‘‘low-in- come housing (as so defined)’’. Subsec. (e)(6). Pub. L. 99–514, § 1812(c)(3)(C), added par. (6). Subsec. (f)(3)(B). Pub. L. 99–514, § 1812(c)(2), inserted ‘‘(or persons described in subsection (b)(10))’’. Subsec. (g). Pub. L. 99–514, § 1842(a), added subsec. (g). 1984—Subsec. (a). Pub. L. 98–369, § 174(a), amended sub- sec. (a) generally, substituting ‘‘In general’’ for ‘‘De- duction disallowed’’ in heading, ‘‘Deduction for losses disallowed’’ for ‘‘Losses’’ in par. (1) heading, and provi- sions dealing with matching of deduction and payee in- come item in the case of expenses and interest for pro- visions dealing with unpaid expenses and interest in par. (2). Subsec. (b)(3). Pub. L. 98–369, § 174(b)(2)(A), sub- stituted ‘‘Two corporations which are members of the same controlled group (as defined in subsection (f))’’ for ‘‘Two corporations more than 50 percent in value of the outstanding stock of each of which is owned, directly or indirectly, by or for the same individual, if either one of such corporations, with respect to the taxable year of the corporation preceding the date of the sale or exchange was, under the law applicable to such tax- able year, a personal holding company or a foreign per- sonal holding company’’. Subsec. (b)(10). Pub. L. 98–369, § 174(b)(3), substituted ‘‘A corporation’’ for ‘‘An S corporation’’ in introduc- tory provisions and ‘‘the corporation’’ for ‘‘the S cor- poration’’ in subpar. (A). Subsec. (b)(12). Pub. L. 98–369, § 174(b)(4), substituted ‘‘the same persons’’ for ‘‘the same individual’’. Subsec. (e). Pub. L. 98–369, § 174(b)(1), added subsec. (e). Pub. L. 98–369, § 174(a)(2), struck out subsec. (e) which provided that for purposes of subsection (a)(2) where the last day of the 21⁄2 month period falls on Saturday, Sunday, or a legal holiday, such last day be treated as falling on the next succeeding day which is not a Satur- day, Sunday, or a legal holiday, and the determination of what constitutes a legal holiday be made under sec- tion 7503 with respect to the payor’s return of tax under this chapter for the preceding taxable year. Subsec. (f). Pub. L. 98–369, § 174(b)(2)(B), added subsec. (f). Pub. L. 98–369, § 174(b)(1), struck out subsec. (f) which related to special rules for unpaid expenses and interest of S corporations and treatment under such provisions of certain shareholders, etc., as related persons. Pub. L. 98–369, § 721(s), in closing provision of par. (1) substituted ‘‘then any deduction allowable under such sections in respect of such amount shall be allowable as of the day as of which such payment is includible in the gross income of the person to whom the payment is made (or, if later, as of the day on which it would be so allowable but for this paragraph)’’ for ‘‘then no de- duction shall be allowed in respect of expenses other- wise deductible under section 162 or 212, or of interest otherwise deductible under section 163, before the day as of which the amount thereof is includible in the gross income of the person to whom the payment is made’’. 1982—Subsec. (b)(10) to (12). Pub. L. 97–354, § 3(h)(1), (3), added pars. (10) to (12). Subsec. (f). Pub. L. 97–354, § 3(h)(2), added subsec. (f). 1978—Subsec. (e). Pub. L. 95–628 added subsec. (e). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2015 AMENDMENT Pub. L. 114–113, div. Q, title III, § 345(b), Dec. 18, 2015, 129 Stat. 3115, provided that: ‘‘The amendment made by this section [amending this section] shall apply to sales and other dispositions of property acquired after De- cember 31, 2015, by the taxpayer in a sale or exchange to which section 267(a)(1) of the Internal Revenue Code of 1986 applied.’’ EFFECTIVE DATE OF 2014 AMENDMENT Amendment by Pub. L. 113–295 effective Dec. 19, 2014, subject to a savings provision, see section 221(b) of Pub. L. 113–295, set out as a note under section 1 of this title. EFFECTIVE DATE OF 2010 AMENDMENT Pub. L. 111–325, title III, § 306(c), Dec. 22, 2010, 124 Stat. 3550, provided that: ‘‘The amendments made by this section [amending this section and section 302 of this title] shall apply to distributions after the date of the enactment of this Act [Dec. 22, 2010].’’ EFFECTIVE DATE OF 2004 AMENDMENT Amendment by Pub. L. 108–357 applicable to pay- ments accrued on or after Oct. 22, 2004, see section 841(c) of Pub. L. 108–357, set out as a note under section 163 of this title. EFFECTIVE DATE OF 1999 AMENDMENT Amendment by Pub. L. 106–170 applicable to any in- strument held, acquired, or entered into, any trans- action entered into, and supplies held or acquired on or after Dec. 17, 1999, see section 532(d) of Pub. L. 106–170, set out as a note under section 170 of this title. EFFECTIVE DATE OF 1997 AMENDMENT Pub. L. 105–34, title XIII, § 1308(c), Aug. 5, 1997, 111 Stat. 1042, provided that: ‘‘The amendments made by this section [amending this section and section 1239 of this title] shall apply to taxable years beginning after the date of the enactment of this Act [Aug. 5, 1997].’’ Pub. L. 105–34, title XVI, § 1604(e)(2), Aug. 5, 1997, 111 Stat. 1098, provided that: ‘‘The amendment made by paragraph (1) [amending this section] shall take effect as if included in section 174(b) of the Tax Reform Act of 1984 [Pub. L. 98–369].’’ 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 If any interest costs incurred after Dec. 31, 1986, are attributable to costs incurred before Jan. 1, 1987, the Page 1023 TITLE 26—INTERNAL REVENUE CODE § 267A amendment by section 803(b)(5) of Pub. L. 99–514 is ap- plicable to such interest costs only to the extent such interest costs are attributable to costs which were re- quired to be capitalized under section 263 of the Inter- nal Revenue Code of 1954 and which would have been taken into account in applying section 189 of the Inter- nal Revenue Code of 1954 (as in effect before its repeal by section 803 of Pub. L. 99–514) or, if applicable, section 266 of such Code, see section 7831(d)(2) of Pub. L. 101–239, set out as an Effective Date note under section 263A of this title. Amendment by section 803(b)(5) of Pub. L. 99–514 ap- plicable, except as otherwise provided, to costs in- curred after Dec. 31, 1986, in taxable years ending after that date, see section 803(d) of Pub. L. 99–514, set out as a note under section 263A of this title. Amendment by section 806(c)(2) of Pub. L. 99–514 ap- plicable to taxable years beginning after Dec. 31, 1986, with special provisions applicable to taxpayers who are required to change their accounting periods, see sec- tion 806(e) of Pub. L. 99–514, set out as a note under sec- tion 1378 of this title. Amendment by sections 1812(c)(1), (2), (3)(C), (4)(A) and 1842(a) of Pub. L. 99–514 effective, except as other- wise 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, § 174(c), July 18, 1984, 98 Stat. 707, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ‘‘(1) SUBSECTIONS (a) AND (b)(1).—The amendments made by subsections (a) and (b)(1) [amending this sec- tion] shall apply to amounts allowable as deductions under chapter 1 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] for taxable years beginning after December 31, 1983. For purposes of the preceding sen- tence, the allowability of a deduction shall be deter- mined without regard to any disallowance or postpone- ment of deductions under section 267 of such Code. ‘‘(2) SUBSECTION (b) (OTHER THAN PARAGRAPH (1)).— ‘‘(A) IN GENERAL.—Except as provided in subpara- graph (B), the amendments made by subsection (b) (other than paragraph (1) thereof) [amending this sec- tion and sections 170, 368, 514, and 1235 of this title] shall apply to transactions after December 31, 1983, in taxable years ending after such date. ‘‘(B) EXCEPTION FOR TRANSFERS TO FOREIGN COR- PORATIONS ON OR BEFORE MARCH 1, 1984.—The amend- ments made by subsection (b)(2) [amending this sec- tion] shall not apply to property transferred to a for- eign corporation on or before March 1, 1984. ‘‘(3) EXCEPTION FOR EXISTING INDEBTEDNESS, ETC.— ‘‘(A) IN GENERAL.—The amendments made by this section [amending this section and sections 170, 368, 514, and 1235 of this title] shall not apply to any amount paid or incurred— ‘‘(i) on indebtedness incurred on or before Sep- tember 29, 1983, or ‘‘(ii) pursuant to a contract which was binding on September 29, 1983, and at all times thereafter be- fore the amount is paid or incurred. ‘‘(B) TREATMENT OF RENEGOTIATIONS, EXTENSIONS, ETC.—If any indebtedness (or contract described in subparagraph (A)) is renegotiated, extended, renewed, or revised after September 29, 1983, subparagraph (A) shall not apply to any amount paid or incurred on such indebtedness (or pursuant to such contract) after the date of such renegotiation, extension, re- newal, or revision.’’ Amendment by section 721(s) of Pub. L. 98–369 effec- tive as if included in the Subchapter S Revision Act of 1982, Pub. L. 97–354, see section 721(y)(1) of Pub. L. 98–369, set out as a note under section 1361 of this title. EFFECTIVE DATE OF 1982 AMENDMENT Amendment by Pub. L. 97–354 applicable to taxable years beginning after Dec. 31, 1982, see section 6(a) of Pub. L. 97–354, set out as an Effective Date note under section 1361 of this title. EFFECTIVE DATE OF 1978 AMENDMENT Pub. L. 95–628, § 2(b), Nov. 10, 1978, 92 Stat. 3627, pro- vided that: ‘‘The amendment made by subsection (a) [amending this section] shall apply with respect to pay- ments made after the date of the enactment of this Act [Nov. 10, 1978].’’ CONSTRUCTION OF SECTION 806 OF PUB. L. 99–514 Nothing in section 806 of Pub. L. 99–514 [amending this section] or in any legislative history relating thereto to be construed as requiring the Secretary of the Treasury or his delegate to permit an automatic change of a taxable year, see section 1008(e)(9) of Pub. L. 100–647, set out as a note under section 1378 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. EXCEPTION FOR CERTAIN INDEBTEDNESS Pub. L. 99–514, title XVIII, § 1812(c)(5), Oct. 22, 1986, 100 Stat. 2835, provided that: ‘‘Clause (i) of section 174(c)(3)(A) of the Tax Reform Act of 1984 [section 174(c)(3)(A)(i) of Pub. L. 98–369, set out as a note above] shall be applied by substituting ‘December 31, 1983’ for ‘September 29, 1983’ in the case of indebtedness which matures on January 1, 1999, the payments on which from January 1989 through November 1993 equal U/L plus $77,600, the payments on which from December 1993 to maturity equal U/L plus $50,100, and which accrued interest at 13.75 percent through December 31, 1989.’’ § 267A. Certain related party amounts paid or ac- crued in hybrid transactions or with hybrid entities (a) In general No deduction shall be allowed under this chap- ter for any disqualified related party amount paid or accrued pursuant to a hybrid transaction or by, or to, a hybrid entity. (b) Disqualified related party amount For purposes of this section— (1) Disqualified related party amount The term ‘‘disqualified related party amount’’ means any interest or royalty paid or accrued to a related party to the extent that— (A) such amount is not included in the in- come of such related party under the tax law of the country of which such related party is a resident for tax purposes or is subject to tax, or (B) such related party is allowed a deduc- tion with respect to such amount under the tax law of such country. Such term shall not include any payment to the extent such payment is included in the gross income of a United States shareholder under section 951(a). (2) Related party The term ‘‘related party’’ means a related person as defined in section 954(d)(3), except