26 U.S.C. § 280F — Limitation on depreciation for luxury

Page 1055 TITLE 26—INTERNAL REVENUE CODE § 280F this section, such individual shall be treated for pur- poses of the credit allowed by section 40 as having first begun work for the taxpayer not earlier than January 1, 1979, and any wages paid or incurred after December 31, 1978, with respect to such individual shall be considered to be attributable to services ren- dered after that date.’’ [Pub. L. 96–178, § 6(d), Jan. 2, 1980, 93 Stat. 1298, pro- vided that: ‘‘Any amendment made by this section to the Revenue Act of 1978 [amending section 322(e)(1) and (2) of Pub. L. 95–600, set out above] shall take effect as if it had been included in the provision of the Revenue Act of 1978 [Pub. L. 95–600] to which such amendment relates.’’] EFFECTIVE DATE Section applicable to taxable years beginning after Dec. 31, 1976, and to credit carrybacks from such years, see section 202(e) of Pub. L. 95–30, set out as a note under section 51 of this title. SAVINGS PROVISION For provisions that amendment made by section 401(d)(3)(B)(iii) of Pub. L. 115–141 not apply to expendi- tures made in taxable years beginning before Jan. 1, 2011, in the case of the repeal of section 48D(e)(1) of this title, see section 401(d)(3)(C) of Pub. L. 115–141, set out as a note under section 49 of this title. For provisions that amendment made by section 401(d)(6)(B)(iv) of Pub. L. 115–141 not apply, in the case of certain repeals, to various types of wages, bonds, property, or other items before specific dates, see sec- tion 401(d)(6)(C) of Pub. L. 115–141, set out as a note under former section 1400L of this title. For provisions that nothing in amendment by section 401(d)(3)(B)(iii), (6)(B)(iv) of Pub. L. 115–141 be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to Mar. 23, 2018, for purposes of determining liability for tax for periods ending after Mar. 23, 2018, see section 401(e) of Pub. L. 115–141, set out as a note under section 23 of this title. TIME AND FORM OF CERTAIN ELECTIONS UNDER SUBSECTION (c)(2) Pub. L. 101–239, title VII, § 7814(e)(2)(B), Dec. 19, 1989, 103 Stat. 2413, provided that: ‘‘In the case of a taxable year for which the last date for making the election under section 280C(c)(3) of the Internal Revenue Code of 1986 (as added by subparagraph (A)) [see 26 U.S.C. 280C(c)(2)] is on or before the date which is 75 days after the date of the enactment of this Act [Dec. 19, 1989], such an election for such year may be made— ‘‘(i) at any time before the date which is 75 days after such date of enactment, and ‘‘(ii) in such form and manner as the Secretary of the Treasury or his delegate may prescribe.’’ 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. [§ 280D. Repealed. Pub. L. 100–418, title I, § 1941(b)(4)(A), Aug. 23, 1988, 102 Stat. 1324] Section, added Pub. L. 96–499, title XI, § 1131(d)(1), Dec. 5, 1980, 94 Stat. 2693, related to portion of chapter 45 windfall profit tax on domestic crude oil for which credit or refund was allowable under section 6429. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF REPEAL Repeal applicable to crude oil removed from the premises on or after Aug. 23, 1988, see section 1941(c) of Pub. L. 100–418, set out as an Effective Date of 1988 Amendment note under section 164 of this title. § 280E. Expenditures in connection with the ille- gal sale of drugs No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which com- prise such trade or business) consists of traf- ficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted. (Added Pub. L. 97–248, title III, § 351(a), Sept. 3, 1982, 96 Stat. 640.) Editorial Notes REFERENCES IN TEXT The Controlled Substances Act, referred to in text, is title II of Pub. L. 91–513, Oct. 27, 1970, 84 Stat. 1242, which is classified principally to subchapter I (§ 801 et seq.) of chapter 13 of Title 21, Food and Drugs. Sched- ules I and II are set out in section 812 of Title 21. For complete classification of this Act to the Code, see Short Title note set out under section 801 of Title 21 and Tables. Statutory Notes and Related Subsidiaries EFFECTIVE DATE Pub. L. 97–248, title III, § 351(c), Sept. 3, 1982, 96 Stat. 640, provided that: ‘‘The amendments made by this sec- tion [enacting this section] shall apply to amounts paid or incurred after the date of the enactment of this Act [Sept. 3, 1982] in taxable years ending after such date.’’ § 280F. Limitation on depreciation for luxury automobiles; limitation where certain prop- erty used for personal purposes (a) Limitation on amount of depreciation for lux- ury automobiles (1) Depreciation (A) Limitation The amount of the depreciation deduction for any taxable year for any passenger auto- mobile shall not exceed— (i) $10,000 for the 1st taxable year in the recovery period, (ii) $16,000 for the 2nd taxable year in the recovery period, (iii) $9,600 for the 3rd taxable year in the recovery period, and (iv) $5,760 for each succeeding taxable year in the recovery period. (B) Disallowed deductions allowed for years after recovery period (i) In general Except as provided in clause (ii), the un- recovered basis of any passenger auto- mobile shall be treated as an expense for the 1st taxable year after the recovery pe- riod. Any excess of the unrecovered basis Page 1056 TITLE 26—INTERNAL REVENUE CODE § 280F over the limitation of clause (ii) shall be treated as an expense in the succeeding taxable year. (ii) $5,760 limitation The amount treated as an expense under clause (i) for any taxable year shall not ex- ceed $5,760. (iii) Property must be depreciable No amount shall be allowable as a deduc- tion by reason of this subparagraph with respect to any property for any taxable year unless a depreciation deduction would be allowable with respect to such property for such taxable year. (iv) Amount treated as depreciation deduc- tion For purposes of this subtitle, any amount allowable as a deduction by reason of this subparagraph shall be treated as a depreciation deduction allowable under section 168. (2) Coordination with reductions in amount al- lowable by reason of personal use, etc. This subsection shall be applied before— (A) the application of subsection (b), and (B) the application of any other reduction in the amount of any depreciation deduction allowable under section 168 by reason of any use not qualifying the property for such credit or depreciation deduction. (b) Limitation where business use of listed prop- erty not greater than 50 percent (1) Depreciation If any listed property is not predominantly used in a qualified business use for any taxable year, the deduction allowed under section 168 with respect to such property for such taxable year and any subsequent taxable year shall be determined under section 168(g) (relating to al- ternative depreciation system). (2) Recapture (A) Where business use percentage does not exceed 50 percent If— (i) property is predominantly used in a qualified business use in a taxable year in which it is placed in service, and (ii) such property is not predominantly used in a qualified business use for any subsequent taxable year, then any excess depreciation shall be in- cluded in gross income for the taxable year referred to in clause (ii), and the deprecia- tion deduction for the taxable year referred to in clause (ii) and any subsequent taxable years shall be determined under section 168(g) (relating to alternative depreciation system). (B) Excess depreciation For purposes of subparagraph (A), the term ‘‘excess depreciation’’ means the excess (if any) of— (i) the amount of the depreciation deduc- tions allowable with respect to the prop- erty for taxable years before the 1st tax- able year in which the property was not predominantly used in a qualified business use, over (ii) the amount which would have been so allowable if the property had not been predominantly used in a qualified business use for the taxable year in which it was placed in service. (3) Property predominantly used in qualified business use For purposes of this subsection, property shall be treated as predominantly used in a qualified business use for any taxable year if the business use percentage for such taxable year exceeds 50 percent. (c) Treatment of leases (1) Lessor’s deductions not affected This section shall not apply to any listed property leased or held for leasing by any per- son regularly engaged in the business of leas- ing such property. (2) Lessee’s deductions reduced For purposes of determining the amount al- lowable as a deduction under this chapter for rentals or other payments under a lease for a period of 30 days or more of listed property, only the allowable percentage of such pay- ments shall be taken into account. (3) Allowable percentage For purposes of paragraph (2), the allowable percentage shall be determined under tables prescribed by the Secretary. Such tables shall be prescribed so that the reduction in the de- duction under paragraph (2) is substantially equivalent to the applicable restrictions con- tained in subsections (a) and (b). (4) Lease term In determining the term of any lease for pur- poses of paragraph (2), the rules of section 168(i)(3)(A) shall apply. (5) Lessee recapture Under regulations prescribed by the Sec- retary, rules similar to the rules of subsection (b)(3) shall apply to any lessee to which para- graph (2) applies. (d) Definitions and special rules For purposes of this section— (1) Coordination with section 179 Any deduction allowable under section 179 with respect to any listed property shall be subject to the limitations of subsections (a) and (b), and the limitation of paragraph (3) of this subsection, in the same manner as if it were a depreciation deduction allowable under section 168. (2) Subsequent depreciation deductions re- duced for deductions allocable to personal use Solely for purposes of determining the amount of the depreciation deduction for sub- sequent taxable years, if less than 100 percent of the use of any listed property during any taxable year is use in a trade or business (in- cluding the holding for the production of in- come), all of the use of such property during Page 1057 TITLE 26—INTERNAL REVENUE CODE § 280F such taxable year shall be treated as use so de- scribed. (3) Deductions of employee (A) In general Any employee use of listed property shall not be treated as use in a trade or business for purposes of determining the amount of any depreciation deduction allowable to the employee (or the amount of any deduction allowable to the employee for rentals or other payments under a lease of listed prop- erty) unless such use is for the convenience of the employer and required as a condition of employment. (B) Employee use For purposes of subparagraph (A), the term ‘‘employee use’’ means any use in connec- tion with the performance of services as an employee. (4) Listed property (A) In general Except as provided in subparagraph (B), the term ‘‘listed property’’ means— (i) any passenger automobile, (ii) any other property used as a means of transportation, (iii) any property of a type generally used for purposes of entertainment, recre- ation, or amusement, and (iv) any other property of a type speci- fied by the Secretary by regulations. (B) Exception for property used in business of transporting persons or property Except to the extent provided in regula- tions, clause (ii) of subparagraph (A) shall not apply to any property substantially all of the use of which is in a trade or business of providing to unrelated persons services consisting of the transportation of persons or property for compensation or hire. (5) Passenger automobile (A) In general Except as provided in subparagraph (B), the term ‘‘passenger automobile’’ means any 4-wheeled vehicle— (i) which is manufactured primarily for use on public streets, roads, and highways, and (ii) which is rated at 6,000 pounds un- loaded gross vehicle weight or less. In the case of a truck or van, clause (ii) shall be applied by substituting ‘‘gross vehicle weight’’ for ‘‘unloaded gross vehicle weight’’. (B) Exception for certain vehicles The term ‘‘passenger automobile’’ shall not include— (i) any ambulance, hearse, or combina- tion ambulance-hearse used by the tax- payer directly in a trade or business, (ii) any vehicle used by the taxpayer di- rectly in the trade or business of trans- porting persons or property for compensa- tion or hire, and (iii) under regulations, any truck or van. (6) Business use percentage (A) In general The term ‘‘business use percentage’’ means the percentage of the use of any listed prop- erty during any taxable year which is a qualified business use. (B) Qualified business use Except as provided in subparagraph (C), the term ‘‘qualified business use’’ means any use in a trade or business of the taxpayer. (C) Exception for certain use by 5-percent owners and related persons (i) In general The term ‘‘qualified business use’’ shall not include— (I) leasing property to any 5-percent owner or related person, (II) use of property provided as com- pensation for the performance of services by a 5-percent owner or related person, or (III) use of property provided as com- pensation for the performance of services by any person not described in subclause (II) unless an amount is included in the gross income of such person with respect to such use, and, where required, there was withholding under chapter 24. (ii) Special rule for aircraft Clause (i) shall not apply with respect to any aircraft if at least 25 percent of the total use of the aircraft during the taxable year consists of qualified business use not described in clause (i). (D) Definitions For purposes of this paragraph— (i) 5-percent owner The term ‘‘5-percent owner’’ means any person who is a 5-percent owner with re- spect to the taxpayer (as defined in section 416(i)(1)(B)(i)). (ii) Related person The term ‘‘related person’’ means any person related to the taxpayer (within the meaning of section 267(b)). (7) Automobile price inflation adjustment (A) In general In the case of any passenger automobile placed in service after 2018, subsection (a) shall be applied by increasing each dollar amount contained in such subsection by the automobile price inflation adjustment for the calendar year in which such automobile is placed in service. Any increase under the preceding sentence shall be rounded to the nearest multiple of $100 (or if the increase is a multiple of $50, such increase shall be in- creased to the next higher multiple of $100). (B) Automobile price inflation adjustment For purposes of this paragraph— (i) In general The automobile price inflation adjust- ment for any calendar year is the percent- age (if any) by which— Page 1058 TITLE 26—INTERNAL REVENUE CODE § 280F (I) the C-CPI-U automobile component for October of the preceding calendar year, exceeds (II) the automobile component of the CPI (as defined in section 1(f)(4)) for Oc- tober of 2017, multiplied by the amount determined under 1(f)(3)(B). (ii) C-CPI-U automobile component The term ‘‘C-CPI-U automobile compo- nent’’ means the automobile component of the Chained Consumer Price Index for All Urban Consumers (as described in section 1(f)(6)). (8) Unrecovered basis For purposes of subsection (a)(1), the term ‘‘unrecovered basis’’ means the adjusted basis of the passenger automobile determined after the application of subsection (a) and as if all use during the recovery period were use in a trade or business (including the holding of property for the production of income). (9) All taxpayers holding interests in passenger automobile treated as 1 taxpayer All taxpayers holding interests in any pas- senger automobile shall be treated as 1 tax- payer for purposes of applying subsection (a) to such automobile, and the limitations of subsection (a) shall be allocated among such taxpayers in proportion to their interests in such automobile. (10) Special rule for property acquired in non- recognition transactions For purposes of subsection (a)(1) any prop- erty acquired in a nonrecognition transaction shall be treated as a single property originally placed in service in the taxable year in which it was placed in service after being so ac- quired. (e) Regulations The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including regula- tions with respect to items properly included in, or excluded from, the adjusted basis of any list- ed property. (Added Pub. L. 98–369, div. A, title I, § 179(a), July 18, 1984, 98 Stat. 713; amended Pub. L. 99–44, § 4, May 24, 1985, 99 Stat. 78; Pub. L. 99–514, title II, § 201(d)(4), title XVIII, § 1812(e)(1)(A), (C), (2)–(5), Oct. 22, 1986, 100 Stat. 2139, 2836, 2837; Pub. L. 100–647, title I, §§ 1002(a)(10), (b)(2), 1018(u)(3), Nov. 10, 1988, 102 Stat. 3354, 3357, 3590; Pub. L. 101–239, title VII, § 7643(a), Dec. 19, 1989, 103 Stat. 2381; Pub. L. 101–508, title XI, § 11813(b)(13)(A)–(E), Nov. 5, 1990, 104 Stat. 1388–554, 1388–555; Pub. L. 104–188, title I, § 1702(h)(5), Aug. 20, 1996, 110 Stat. 1874; Pub. L. 105–34, title IX, § 971(a), Aug. 5, 1997, 111 Stat. 897; Pub. L. 105–206, title VI, § 6009(c), July 22, 1998, 112 Stat. 812; Pub. L. 107–147, title VI, § 602(b)(1), Mar. 9, 2002, 116 Stat. 59; Pub. L. 111–240, title II, § 2043(a), Sept. 27, 2010, 124 Stat. 2560; Pub. L. 113–295, div. A, title II, §§ 220(j), 221(a)(34)(E), Dec. 19, 2014, 128 Stat. 4036, 4042; Pub. L. 115–97, title I, §§ 11002(d)(8), 13202(a), (b), Dec. 22, 2017, 131 Stat. 2061, 2108, 2109.) INFLATION ADJUSTED ITEMS FOR CERTAIN CALENDAR YEARS For inflation adjustment of certain items in this section, see Revenue Procedures listed in a table below. Editorial Notes AMENDMENTS 2017—Subsec. (a)(1)(A)(i). Pub. L. 115–97, § 13202(a)(1)(A), substituted ‘‘$10,000’’ for ‘‘$2,560’’. Subsec. (a)(1)(A)(ii). Pub. L. 115–97, § 13202(a)(1)(B), substituted ‘‘$16,000’’ for ‘‘$4,100’’. Subsec. (a)(1)(A)(iii). Pub. L. 115–97, § 13202(a)(1)(C), substituted ‘‘$9,600’’ for ‘‘$2,450’’. Subsec. (a)(1)(A)(iv). Pub. L. 115–97, § 13202(a)(1)(D), substituted ‘‘$5,760’’ for ‘‘$1,475’’. Subsec. (a)(1)(B)(ii). Pub. L. 115–97, § 13202(a)(2)(A), substituted ‘‘$5,760’’ for ‘‘$1,475’’ in heading and text. Subsec. (d)(4)(A)(iv), (v). Pub. L. 115–97, § 13202(b)(1), redesignated cl. (v) as (iv) and struck out former cl. (iv) which read as follows: ‘‘any computer or peripheral equipment (as defined in section 168(i)(2)(B)), ‘and’ ’’. Subsec. (d)(4)(B), (C). Pub. L. 115–97, § 13202(b)(2), re- designated subpar. (C) as (B) and struck out former sub- par. (B). Prior to amendment, text of subpar. (B) read as follows: ‘‘The term ‘listed property’ shall not include any computer or peripheral equipment (as so defined) used exclusively at a regular business establishment and owned or leased by the person operating such es- tablishment. For purposes of the preceding sentence, any portion of a dwelling unit shall be treated as a reg- ular business establishment if (and only if) the require- ments of section 280A(c)(1) are met with respect to such portion.’’ Subsec. (d)(7)(A). Pub. L. 115–97, § 13202(a)(2)(B)(i), sub- stituted ‘‘2018’’ for ‘‘1988’’. Subsec. (d)(7)(B). Pub. L. 115–97, § 11002(d)(8), amended subpar. (B) generally. Prior to amendment, subpar. (B) related to automobile price inflation adjustment. Subsec. (d)(7)(B)(i)(II). Pub. L. 115–97, § 13202(a)(2)(B)(ii), substituted ‘‘2017’’ for ‘‘1987’’. 2014—Subsec. (a)(1)(C). Pub. L. 113–295, § 221(a)(34)(E), struck out subpar. (C) which related to special rules for certain automobiles modified to be propelled by a clean burning fuel and for purpose built passenger vehicles that were placed in service between Aug. 5, 1997, and Jan. 1, 2007. Subsec. (d)(8), (10). Pub. L. 113–295, § 220(j), substituted ‘‘subsection (a)(1)’’ for ‘‘subsection (a)(2)’’. 2010—Subsec. (d)(4)(A). Pub. L. 111–240 inserted ‘‘ ‘and’ ’’ at end of clause (iv), redesignated clause (vi) as (v), and struck out former cl. (v) which read as follows: ‘‘any cellular telephone (or other similar telecommuni- cations equipment), and’’. 2002—Subsec. (a)(1)(C)(iii). Pub. L. 107–147 added cl. (iii). 1998—Subsec. (a)(1)(C)(ii). Pub. L. 105–206 substituted ‘‘subparagraphs (A) and (B)’’ for ‘‘subparagraph (A)’’. 1997—Subsec. (a)(1)(C). Pub. L. 105–34 added subpar. (C). 1996—Subsec. (a). Pub. L. 104–188 struck out ‘‘invest- ment tax credit and’’ after ‘‘amount of’’ in heading. 1990—Pub. L. 101–508, § 11813(b)(13)(E), struck out ‘‘in- vestment tax credit and’’ after ‘‘Limitation on’’ in sec- tion catchline. Subsec. (a)(1). Pub. L. 101–508, § 11813(b)(13)(A)(i), re- designated par. (2) as (1) and struck out former par. (1) ‘‘Investment tax credit’’ which read as follows: ‘‘The amount of the credit determined under section 46(a) for any passenger automobile shall not exceed $675.’’ Subsec. (a)(2). Pub. L. 101–508, § 11813(b)(13)(A)(i), re- designated par. (3) as (2). Former par. (2) redesignated (1). Subsec. (a)(2)(B). Pub. L. 101–508, § 11813(b)(13)(A)(ii), struck out ‘‘the credit determined under section 46(a) or’’ after ‘‘the amount of’’. Subsec. (a)(3). Pub. L. 101–508, § 11813(b)(13)(A)(i), re- designated par. (3) as (2). Page 1059 TITLE 26—INTERNAL REVENUE CODE § 280F Subsec. (a)(4). Pub. L. 101–508, § 11813(b)(13)(A)(i), struck out par. (4) ‘‘Special rule where election of re- duced credit in lieu of the basis adjustment’’ which read as follows: ‘‘In the case of any election under sec- tion 48(q)(4) with respect to any passenger automobile, the limitation of paragraph (1) applicable to such pas- senger automobile shall be 2⁄3 of the amount which would be so applicable but for this paragraph.’’ Subsec. (b). Pub. L. 101–508, § 11813(b)(13)(B), redesig- nated pars. (2) to (4) as (1) to (3), respectively, and struck out former par. (1) ‘‘Investment tax credit’’ which read as follows: ‘‘For purposes of this subtitle, any listed property shall not be treated as section 38 property for any taxable year unless such property is predominantly used in a qualified business use for such taxable year.’’ Subsec. (c)(1). Pub. L. 101–508, § 11813(b)(13)(C), struck out ‘‘credits and’’ after ‘‘Lessor’s’’ in heading. Subsec. (d)(3)(A). Pub. L. 101–508, § 11813(b)(13)(D), struck out ‘‘the amount of any credit allowable under section 38 to the employee or’’ after ‘‘of determining’’. 1989—Subsec. (d)(4)(A)(v), (vi). Pub. L. 101–239 added cl. (v) and redesignated former cl. (v) as (vi). 1988—Subsec. (b)(3)(B)(i). Pub. L. 100–647, § 1018(u)(3), substituted ‘‘depreciation deductions’’ for ‘‘recovery deductions’’. Subsec. (d)(1). Pub. L. 100–647, § 1002(b)(2), substituted ‘‘subsections (a) and (b), and the limitation of para- graph (3) of this subsection,’’ for ‘‘subsections (a) and (b)’’. Subsec. (d)(3)(A). Pub. L. 100–647, § 1002(a)(10), sub- stituted ‘‘depreciation deduction’’ for ‘‘recovery deduc- tion’’. 1986—Subsec. (a)(2)(A). Pub. L. 99–514, § 201(d)(4)(A)(i), (K), substituted ‘‘depreciation deduction’’ for ‘‘recovery deduction’’ in introductory provisions and substituted cls. (i) to (iv) for former cls. (i) and (ii) which read as follows: ‘‘(i) $3,200 for the first taxable year in the recovery period, and ‘‘(ii) $4,800 for each succeeding taxable year in the re- covery period.’’ Subsec. (a)(2)(B). Pub. L. 99–514, § 201(d)(4)(A)(ii), (K), substituted ‘‘$1,475’’ for ‘‘$4,800’’ in heading and text of cl. (ii), and ‘‘depreciation deduction’’ for ‘‘recovery de- duction’’ in heading and text of cl. (iv). Subsec. (a)(3)(B). Pub. L. 99–514, § 201(d)(4)(K), sub- stituted ‘‘depreciation deduction’’ for ‘‘recovery deduc- tion’’ in two places. Subsec. (b)(2). Pub. L. 99–514, § 201(d)(4)(J), substituted ‘‘section 168(g) (relating to alternative depreciation system)’’ for ‘‘the straight line method over the earn- ings and profits life for such property’’. Subsec. (b)(3)(A). Pub. L. 99–514, § 201(d)(4)(B), (K), substituted ‘‘depreciation deduction’’ for ‘‘recovery de- duction’’ and ‘‘section 168(g) (relating to alternative de- preciation system)’’ for ‘‘the straight line method over the earnings and profits life’’ in closing provisions. Subsec. (b)(4). Pub. L. 99–514, § 201(d)(4)(C), in amend- ing par. (4) generally, struck out heading ‘‘Defini- tions’’, redesignated as par. (4) former subpar. (A) head- ing and text, substituted ‘‘For purposes of this section, property’’ for ‘‘Property’’, and struck out former sub- par. (B) definition of straight line method over earn- ings and profits life. Subsec. (c)(4). Pub. L. 99–514, § 201(d)(4)(D), substituted ‘‘section 168(i)(3)(A)’’ for ‘‘section 168(j)(6)(B)’’. Subsec. (d)(1). Pub. L. 99–514, § 201(d)(4)(E), substituted ‘‘depreciation deduction’’ for ‘‘recovery deduction’’. Subsec. (d)(2). Pub. L. 99–514, § 1812(e)(5), substituted ‘‘is use described in’’ for ‘‘is not use described in’’. Pub. L. 99–514, § 201(d)(4)(F), substituted ‘‘depreciation deduction’’ for ‘‘recovery deduction’’ and ‘‘use in a trade or business (including the holding for the produc- tion of income)’’ for ‘‘use described in section 168(c)(1) (defining recovery property)’’. Subsec. (d)(3)(A). Pub. L. 99–514, § 1812(e)(2), inserted ‘‘(or the amount of any deduction allowable to the em- ployee for rentals or other payments under a lease of listed property)’’. Subsec. (d)(4)(A)(iv). Pub. L. 99–514, § 201(d)(4)(G), sub- stituted ‘‘section 168(i)(2)(B)’’ for ‘‘section 168(j)(5)(D)’’. Subsec. (d)(4)(B). Pub. L. 99–514, § 1812(e)(3), inserted ‘‘and owned or leased by the person operating such es- tablishment’’. Subsec. (d)(4)(C). Pub. L. 99–514, § 1812(e)(4), added sub- par. (C). Subsec. (d)(5)(A). Pub. L. 99–514, § 1812(e)(1)(A), (C), substituted ‘‘unloaded gross vehicle weight’’ for ‘‘gross vehicle weight’’ in cl. (ii) and inserted at end ‘‘In the case of a truck or van, clause (ii) shall be applied by substituting ‘gross vehicle weight’ for ‘unloaded gross vehicle weight’.’’ Subsec. (d)(8). Pub. L. 99–514, § 201(d)(4)(H), amended par. (8) generally. Prior to amendment, par. (8) read as follows: ‘‘For purposes of subsection (a)(2), the term ‘unrecovered basis’ means the excess (if any) of— ‘‘(A) the unadjusted basis (as defined in section 168(d)(1)(A)) of the passenger automobile, over ‘‘(B) the amount of the recovery deductions which would have been allowable for taxable years in the re- covery period determined after the application of subsection (a) and as if all use during the recovery pe- riod were use described in section 168(c)(1).’’ Subsec. (d)(10). Pub. L. 99–514, § 201(d)(4)(I), struck out ‘‘, notwithstanding any regulations prescribed under section 168(f)(7),’’ after ‘‘For purposes of subsection (a)(2)’’. 1985—Subsec. (a)(1). Pub. L. 99–44, § 4(a)(1), substituted ‘‘$675’’ for ‘‘$1,000’’. Subsec. (a)(2)(A)(i). Pub. L. 99–44, § 4(a)(2)(A), sub- stituted ‘‘$3,200’’ for ‘‘$4,000’’. Subsec. (a)(2)(A)(ii), (B)(ii). Pub. L. 99–44, § 4(a)(2)(B), substituted ‘‘$4,800’’ for ‘‘$6,000’’ wherever appearing in text and heading. Subsec. (d)(7)(A). Pub. L. 99–44, § 4(b)(1), inserted ‘‘placed in service after 1988’’ after ‘‘passenger auto- mobile’’. Subsec. (d)(7)(B)(i). Pub. L. 99–44, § 4(b)(3), struck out last sentence which directed that in the case of cal- endar year 1984, the automobile price inflation adjust- ment would be zero. Subsec. (d)(7)(B)(i)(II). Pub. L. 99–44, § 4(b)(2), sub- stituted ‘‘1987’’ for ‘‘1983’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2017 AMENDMENT Amendment by section 11002(d)(8) of Pub. L. 115–97 ap- plicable to taxable years beginning after Dec. 31, 2017, see section 11002(e) of Pub. L. 115–97, set out as a note under section 1 of this title. Pub. L. 115–97, title I, § 13202(c), Dec. 22, 2017, 131 Stat. 2109, provided that: ‘‘The amendments made by this section [amending this section] shall apply to property placed in service after December 31, 2017, in taxable years ending after such date.’’ EFFECTIVE DATE OF 2014 AMENDMENT Amendment by section 221(a)(34)(E) of 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. 111–240, title II, § 2043(b), Sept. 27, 2010, 124 Stat. 2560, provided that: ‘‘The amendment made by this section [amending this section] shall apply to tax- able years beginning after December 31, 2009.’’ EFFECTIVE DATE OF 2002 AMENDMENT Pub. L. 107–147, title VI, § 602(c), Mar. 9, 2002, 116 Stat. 59, provided that: ‘‘The amendments made by this sec- tion [amending this section, section 30 of this title, and provisions set out as a note under this section] shall apply to property placed in service after December 31, 2001.’’ EFFECTIVE DATE OF 1998 AMENDMENT Amendment by Pub. L. 105–206 effective, except as otherwise provided, as if included in the provisions of Page 1060 TITLE 26—INTERNAL REVENUE CODE § 280F the Taxpayer Relief Act of 1997, Pub. L. 105–34, to which such amendment relates, see section 6024 of Pub. L. 105–206, set out as a note under section 1 of this title. EFFECTIVE DATE OF 1997 AMENDMENT Pub. L. 105–34, title IX, § 971(b), Aug. 5, 1997, 111 Stat. 897, as amended by Pub. L. 107–147, title VI, § 602(b)(2), Mar. 9, 2002, 116 Stat. 59, provided that: ‘‘The amend- ments made by this section [amending this section] shall apply to property placed in service after the date of enactment of this Act [Aug. 5, 1997].’’ EFFECTIVE DATE OF 1996 AMENDMENT Amendment by Pub. L. 104–188 effective, except as otherwise expressly provided, as if included in the pro- vision of the Revenue Reconciliation Act of 1990, Pub. L. 101–508, title XI, to which such amendment relates, see section 1702(i) of Pub. L. 104–188, set out as a note under section 38 of this title. EFFECTIVE DATE OF 1990 AMENDMENT Amendment by Pub. L. 101–508 applicable to property placed in service after Dec. 31, 1990, but not applicable to any transition property (as defined in section 49(e) of this title), any property with respect to which qualified progress expenditures were previously taken into ac- count under section 46(d) of this title, and any property described in section 46(b)(2)(C) of this title, as such sec- tions were in effect on Nov. 4, 1990, see section 11813(c) of Pub. L. 101–508, set out as a note under section 45K of this title. EFFECTIVE DATE OF 1989 AMENDMENT Pub. L. 101–239, title VII, § 7643(b), Dec. 19, 1989, 103 Stat. 2381, provided that: ‘‘The amendment made by subsection (a) [amending this section] shall apply to property placed in service or leased in taxable years be- ginning after December 31, 1989.’’ 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 section 201(d)(4) of Pub. L. 99–514 ap- plicable to property placed in service after Dec. 31, 1986, in taxable years ending after such date, with excep- tions, see sections 203 and 204 of Pub. L. 99–514, set out as a note under section 168 of this title. Amendment by section 201(d)(4) of Pub. L. 99–514 not applicable to any property placed in service before Jan. 1, 1994, if such property placed in service as part of specified rehabilitations, and not applicable to certain additional rehabilitations, see section 251(d)(2), (3) of Pub. L. 99–514, set out as a note under section 46 of this title. Amendment by section 1812(e)(1)(A), (C), (2)–(5) of 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 1985 AMENDMENT Pub. L. 99–44, § 6(e), May 24, 1985, 99 Stat. 79, provided that: ‘‘(1) Except as provided in paragraph (2), the amend- ments made by section 4 [amending this section] shall apply to— ‘‘(A) property placed in service after April 2, 1985, in taxable years ending after such date, and ‘‘(B) property leased after April 2, 1985, in taxable years ending after such date. ‘‘(2) The amendments made by section 4 [amending this section] shall not apply to any property— ‘‘(A) acquired by the taxpayer pursuant to a binding contract in effect on April 1, 1985, and at all times thereafter, but only if the property is placed in serv- ice before August 1, 1985, or ‘‘(B) of which the taxpayer is the lessee, but only if the lease is pursuant to a binding contract in effect on April 1, 1985, and at all times thereafter, and only if the taxpayer first uses such property under the lease before August 1, 1985.’’ EFFECTIVE DATE Pub. L. 98–369, div. A, title I, § 179(d), July 18, 1984, 98 Stat. 719, provided that: ‘‘(1) IN GENERAL.— ‘‘(A) Except as provided in subparagraph (B), the amendments made by subsections (a) and (c) [enact- ing this section] shall apply to— ‘‘(i) property placed in service after June 18, 1984, in taxable years ending after such date, and ‘‘(ii) property leased after June 18, 1984, in taxable years ending after such date. ‘‘(B) The amendments made by subsections (a) and (c) shall not apply to any property— ‘‘(i) acquired by the taxpayer pursuant to a bind- ing contract in effect on June 18, 1984, and at all times thereafter (or under construction on such date) but only if the property is placed in service before January 1, 1985 (January 1, 1987, in the case of 15-year real property), or ‘‘(ii) of which the taxpayer is the lessee but only if the lease is pursuant to a binding contract in ef- fect on June 18, 1984, and at all times thereafter and only if the taxpayer first uses such property under the lease before January 1, 1985 (January 1, 1987, in the case of 15-year real property). For purposes of the preceding sentence, the term ‘15- year real property’ includes 18-year real property. ‘‘(2) COMPLIANCE PROVISIONS.—The amendments made by subsection (b) [amending sections 274, 6653, and 6695 of this title] shall apply to taxable years beginning after December 31, 1984.’’ 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. 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. INFLATION ADJUSTED ITEMS FOR CERTAIN YEARS Provisions relating to inflation adjustment of items in this section for certain years were contained in the following: 2024—Revenue Procedure 2024–13. 2023—Revenue Procedure 2023–14. 2022—Revenue Procedure 2022–17. 2021—Revenue Procedure 2021–31. 2020—Revenue Procedure 2020–37. 2019—Revenue Procedure 2019–26. 2018—Revenue Procedure 2018–25. 2017—Revenue Procedure 2017–29. 2016—Revenue Procedure 2016–23. 2015—Revenue Procedure 2015–19. 2014—Revenue Procedure 2014–21. 2013—Revenue Procedure 2013–21. Page 1061 TITLE 26—INTERNAL REVENUE CODE § 280G 2012—Revenue Procedure 2012–23. 2011—Revenue Procedure 2011–21. 2010—Revenue Procedure 2010–18. 2009—Revenue Procedure 2009–24. 2008—Revenue Procedure 2008–22. 2007—Revenue Procedure 2007–30. 2006—Revenue Procedure 2006–18. 2005—Revenue Procedure 2005–13. 2004—Revenue Procedure 2004–20. 2003—Revenue Procedure 2003–75. 2002—Revenue Procedure 2002–14. 2001—Revenue Procedure 2001–19. 2000—Revenue Procedure 2000–18. 1999—Revenue Procedure 99–14. 1998—Revenue Procedures 98–24 and 98–30. 1997—Revenue Procedure 97–20. 1996—Revenue Procedure 96–25. § 280G. Golden parachute payments (a) General rule No deduction shall be allowed under this chap- ter for any excess parachute payment. (b) Excess parachute payment For purposes of this section— (1) In general The term ‘‘excess parachute payment’’ means an amount equal to the excess of any parachute payment over the portion of the base amount allocated to such payment. (2) Parachute payment defined (A) In general The term ‘‘parachute payment’’ means any payment in the nature of compensation to (or for the benefit of) a disqualified indi- vidual if— (i) such payment is contingent on a change— (I) in the ownership or effective con- trol of the corporation, or (II) in the ownership of a substantial portion of the assets of the corporation, and (ii) the aggregate present value of the payments in the nature of compensation to (or for the benefit of) such individual which are contingent on such change equals or exceeds an amount equal to 3 times the base amount. For purposes of clause (ii), payments not treated as parachute payments under para- graph (4)(A), (5), or (6) shall not be taken into account. (B) Agreements The term ‘‘parachute payment’’ shall also include any payment in the nature of com- pensation to (or for the benefit of) a dis- qualified individual if such payment is made pursuant to an agreement which violates any generally enforced securities laws or regulations. In any proceeding involving the issue of whether any payment made to a dis- qualified individual is a parachute payment on account of a violation of any generally enforced securities laws or regulations, the burden of proof with respect to establishing the occurrence of a violation of such a law or regulation shall be upon the Secretary. (C) Treatment of certain agreements entered into within 1 year before change of own- ership For purposes of subparagraph (A)(i), any payment pursuant to— (i) an agreement entered into within 1 year before the change described in sub- paragraph (A)(i), or (ii) an amendment made within such 1- year period of a previous agreement, shall be presumed to be contingent on such change unless the contrary is established by clear and convincing evidence. (3) Base amount (A) In general The term ‘‘base amount’’ means the indi- vidual’s annualized includible compensation for the base period. (B) Allocation The portion of the base amount allocated to any parachute payment shall be an amount which bears the same ratio to the base amount as— (i) the present value of such payment, bears to (ii) the aggregate present value of all such payments. (4) Treatment of amounts which taxpayer es- tablishes as reasonable compensation In the case of any payment described in paragraph (2)(A)— (A) the amount treated as a parachute payment shall not include the portion of such payment which the taxpayer estab- lishes by clear and convincing evidence is reasonable compensation for personal serv- ices to be rendered on or after the date of the change described in paragraph (2)(A)(i), and (B) the amount treated as an excess para- chute payment shall be reduced by the por- tion of such payment which the taxpayer es- tablishes by clear and convincing evidence is reasonable compensation for personal serv- ices actually rendered before the date of the change described in paragraph (2)(A)(i). For purposes of subparagraph (B), reasonable compensation for services actually rendered before the date of the change described in paragraph (2)(A)(i) shall be first offset against the base amount. (5) Exemption for small business corporations, etc. (A) In general Notwithstanding paragraph (2), the term ‘‘parachute payment’’ does not include— (i) any payment to a disqualified indi- vidual with respect to a corporation which (immediately before the change described in paragraph (2)(A)(i)) was a small business corporation (as defined in section 1361(b) but without regard to paragraph (1)(C) thereof), and (ii) any payment to a disqualified indi- vidual with respect to a corporation (other than a corporation described in clause (i)) if—