§ 1400Z–1. Designation

• (a) For the purposes of this subchapter, the term “qualified opportunity zone” means a population census tract that is a low-income community that is designated as a qualified opportunity zone.
• (b)
  • (1) For purposes of subsection (a), a population census tract that is a low-income community is designated as a qualified opportunity zone if—
    • (A) not later than the end of the determination period, the chief executive officer of the State in which the tract is located—
      • (i) nominates the tract for designation as a qualified opportunity zone, and
      • (ii) notifies the Secretary in writing of such nomination, and
    • (B) the Secretary certifies such nomination and designates such tract as a qualified opportunity zone before the end of the consideration period.
  • (2) A chief executive officer of a State may request that the Secretary extend either the determination or consideration period, or both (determined without regard to this subparagraph), 1 1 So in original. Probably should be “paragraph),”. for an additional 30 days.
  • (3) Each population census tract in Puerto Rico that is a low-income community shall be deemed to be certified and designated as a qualified opportunity zone, effective on the date of the enactment of Public Law 115–97 .
• (c) For purposes of this subsection—
  • (1) The term “low-income community” has the same meaning as when used in section 45D(e).
  • (2)
    • (A) The term “consideration period” means the 30-day period beginning on the date on which the Secretary receives notice under subsection (b)(1)(A)(ii), as extended under subsection (b)(2).
    • (B) The term “determination period” means the 90-day period beginning on the date of the enactment of the Tax Cuts and Jobs Act, as extended under subsection (b)(2).
  • (3) For purposes of this section, the term “State” includes any possession of the United States.
• (d)
  • (1) Except as provided by paragraph (2) and subsection (b)(3), the number of population census tracts in a State that may be designated as qualified opportunity zones under this section may not exceed 25 percent of the number of low-income communities in the State.
  • (2) If the number of low-income communities in a State is less than 100, then a total of 25 of such tracts may be designated as qualified opportunity zones.
• (e)
  • (1) A population census tract that is not a low-income community may be designated as a qualified opportunity zone under this section if—
    • (A) the tract is contiguous with the low-income community that is designated as a qualified opportunity zone, and
    • (B) the median family income of the tract does not exceed 125 percent of the median family income of the low-income community with which the tract is contiguous.
  • (2) Not more than 5 percent of the population census tracts designated in a State as a qualified opportunity zone may be designated under paragraph (1).
• (f) A designation as a qualified opportunity zone shall remain in effect for the period beginning on the date of the designation and ending at the close of the 10th calendar year beginning on or after such date of designation.

§ 1400Z–2. Special rules for capital gains invested in opportunity zones

• (a)
  • (1) In the case of gain from the sale to, or exchange with, an unrelated person of any property held by the taxpayer, at the election of the taxpayer—
    • (A) gross income for the taxable year shall not include so much of such gain as does not exceed the aggregate amount invested by the taxpayer in a qualified opportunity fund during the 180-day period beginning on the date of such sale or exchange,
    • (B) the amount of gain excluded by subparagraph (A) shall be included in gross income as provided by subsection (b), and
    • (C) subsection (c) shall apply.
  • (2) No election may be made under paragraph (1)—
    • (A) with respect to a sale or exchange if an election previously made with respect to such sale or exchange is in effect, or
    • (B) with respect to any sale or exchange after December 31, 2026 .
• (b)
  • (1) Gain to which subsection (a)(1)(B) applies shall be included in income in the taxable year which includes the earlier of—
    • (A) the date on which such investment is sold or exchanged, or
    • (B) December 31, 2026 .
  • (2)
    • (A) The amount of gain included in gross income under subsection (a)(1)(A) shall be the excess of—
      • (i) the lesser of the amount of gain excluded under paragraph (1) or the fair market value of the investment as determined as of the date described in paragraph (1), over
      • (ii) the taxpayer’s basis in the investment.
    • (B)
      • (i) Except as otherwise provided in this clause or subsection (c), the taxpayer’s basis in the investment shall be zero.
      • (ii) The basis in the investment shall be increased by the amount of gain recognized by reason of subsection (a)(1)(B) with respect to such property.
      • (iii) In the case of any investment held for at least 5 years, the basis of such investment shall be increased by an amount equal to 10 percent of the amount of gain deferred by reason of subsection (a)(1)(A).
      • (iv) In the case of any investment held by the taxpayer for at least 7 years, in addition to any adjustment made under clause (iii), the basis of such property shall be increased by an amount equal to 5 percent of the amount of gain deferred by reason of subsection (a)(1)(A).
• (c) In the case of any investment held by the taxpayer for at least 10 years and with respect to which the taxpayer makes an election under this clause, the basis of such property shall be equal to the fair market value of such investment on the date that the investment is sold or exchanged.
• (d) For purposes of this section—
  • (1) The term “qualified opportunity fund” means any investment vehicle which is organized as a corporation or a partnership for the purpose of investing in qualified opportunity zone property (other than another qualified opportunity fund) that holds at least 90 percent of its assets in qualified opportunity zone property, determined by the average of the percentage of qualified opportunity zone property held in the fund as measured—
    • (A) on the last day of the first 6-month period of the taxable year of the fund, and
    • (B) on the last day of the taxable year of the fund.
  • (2)
    • (A) The term “qualified opportunity zone property” means property which is—
      • (i) qualified opportunity zone stock,
      • (ii) qualified opportunity zone partnership interest, or
      • (iii) qualified opportunity zone business property.
    • (B)
      • (i) Except as provided in clause (ii), the term “qualified opportunity zone stock” means any stock in a domestic corporation if—
        • (I) such stock is acquired by the qualified opportunity fund after December 31, 2017 , at its original issue (directly or through an underwriter) from the corporation solely in exchange for cash,
        • (II) as of the time such stock was issued, such corporation was a qualified opportunity zone business (or, in the case of a new corporation, such corporation was being organized for purposes of being a qualified opportunity zone business), and
        • (III) during substantially all of the qualified opportunity fund’s holding period for such stock, such corporation qualified as a qualified opportunity zone business.
      • (ii) A rule similar to the rule of section 1202(c)(3) shall apply for purposes of this paragraph.
    • (C) The term “qualified opportunity zone partnership interest” means any capital or profits interest in a domestic partnership if—
      • (i) such interest is acquired by the qualified opportunity fund after December 31, 2017 , from the partnership solely in exchange for cash,
      • (ii) as of the time such interest was acquired, such partnership was a qualified opportunity zone business (or, in the case of a new partnership, such partnership was being organized for purposes of being a qualified opportunity zone business), and
      • (iii) during substantially all of the qualified opportunity fund’s holding period for such interest, such partnership qualified as a qualified opportunity zone business.
    • (D)
      • (i) The term “qualified opportunity zone business property” means tangible property used in a trade or business of the qualified opportunity fund if—
        • (I) such property was acquired by the qualified opportunity fund by purchase (as defined in section 179(d)(2)) after December 31, 2017 ,
        • (II) the original use of such property in the qualified opportunity zone commences with the qualified opportunity fund or the qualified opportunity fund substantially improves the property, and
        • (III) during substantially all of the qualified opportunity fund’s holding period for such property, substantially all of the use of such property was in a qualified opportunity zone.
      • (ii) For purposes of subparagraph (A)(ii), property shall be treated as substantially improved by the qualified opportunity fund only if, during any 30-month period beginning after the date of acquisition of such property, additions to basis with respect to such property in the hands of the qualified opportunity fund exceed an amount equal to the adjusted basis of such property at the beginning of such 30-month period in the hands of the qualified opportunity fund.
      • (iii) For purposes of subparagraph (A)(i), the related person rule of section 179(d)(2) shall be applied pursuant to paragraph (8) of this subsection 1 1 So in original. This subsection does not contain a paragraph (8). in lieu of the application of such rule in section 179(d)(2)(A).
  • (3)
    • (A) The term “qualified opportunity zone business” means a trade or business—
      • (i) in which substantially all of the tangible property owned or leased by the taxpayer is qualified opportunity zone business property (determined by substituting “qualified opportunity zone business” for “qualified opportunity fund” each place it appears in paragraph (2)(D)),
      • (ii) which satisfies the requirements of paragraphs (2), (4), and (8) of section 1397C(b), and
      • (iii) which is not described in section 144(c)(6)(B).
    • (B) For purposes of subparagraph (A), tangible property that ceases to be a qualified opportunity zone business property shall continue to be treated as a qualified opportunity zone business property for the lesser of—
      • (i) 5 years after the date on which such tangible property ceases to be so qualified, or
      • (ii) the date on which such tangible property is no longer held by the qualified opportunity zone business.
• (e)
  • (1) In the case of any investment in a qualified opportunity fund only a portion of which consists of investments of gain to which an election under subsection (a) is in effect—
    • (A) such investment shall be treated as 2 separate investments, consisting of—
      • (i) one investment that only includes amounts to which the election under subsection (a) applies, and
      • (ii) a separate investment consisting of other amounts, and
    • (B) subsections (a), (b), and (c) shall only apply to the investment described in subparagraph (A)(i).
  • (2) For purposes of this section, persons are related to each other if such persons are described in section 267(b) or 707(b)(1), determined by substituting “20 percent” for “50 percent” each place it occurs in such sections.
  • (3) In the case of a decedent, amounts recognized under this section shall, if not properly includible in the gross income of the decedent, be includible in gross income as provided by section 691.
  • (4) The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including—
    • (A) rules for the certification of qualified opportunity funds for the purposes of this section,
    • (B) rules to ensure a qualified opportunity fund has a reasonable period of time to reinvest the return of capital from investments in qualified opportunity zone stock and qualified opportunity zone partnership interests, and to reinvest proceeds received from the sale or disposition of qualified opportunity zone property, and
    • (C) rules to prevent abuse.
• (f)
  • (1) If a qualified opportunity fund fails to meet the 90-percent requirement of subsection (c)(1), 2 2 So in original. Probably should be “subsection (d)(1),”. the qualified opportunity fund shall pay a penalty for each month it fails to meet the requirement in an amount equal to the product of—
    • (A) the excess of—
      • (i) the amount equal to 90 percent of its aggregate assets, over
      • (ii) the aggregate amount of qualified opportunity zone property held by the fund, multiplied by
    • (B) the underpayment rate established under section 6621(a)(2) for such month.
  • (2) In the case that the qualified opportunity fund is a partnership, the penalty imposed by paragraph (1) shall be taken into account proportionately as part of the distributive share of each partner of the partnership.
  • (3) No penalty shall be imposed under this subsection with respect to any failure if it is shown that such failure is due to reasonable cause.

§ 5. Cross references relating to tax on individuals

• (a)
  • (1) For rates of tax on nonresident aliens, see section 871.
  • (2) For doubling of tax on citizens of certain foreign countries, see section 891.
  • (3) For rate of withholding in the case of nonresident aliens, see section 1441.
  • (4) For alternative minimum tax, see section 55.
• (b)
  • (1) For limitation on tax in case of income of members of Armed Forces, astronauts, and victims of certain terrorist attacks on death, see section 692.
  • (2) For computation of tax where taxpayer restores substantial amount held under claim of right, see section 1341.

§ 11. Tax imposed

• (a) A tax is hereby imposed for each taxable year on the taxable income of every corporation.
• (b) The amount of the tax imposed by subsection (a) shall be 21 percent of taxable income.
• (c) Subsection (a) shall not apply to a corporation subject to a tax imposed by—
  • (1) section 594 (relating to mutual savings banks conducting life insurance business),
  • (2) subchapter L (sec. 801 and following, relating to insurance companies), or
  • (3) subchapter M (sec. 851 and following, relating to regulated investment companies and real estate investment trusts).
• (d) In the case of a foreign corporation, the tax imposed by subsection (a) shall apply only as provided by section 882.

§ 12. Cross references relating to tax on corporations

• (1) For tax on the unrelated business income of certain charitable and other corporations exempt from tax under this chapter, see section 511.
• (2) For accumulated earnings tax and personal holding company tax, see parts I and II of subchapter G (sec. 531 and following).
• (3) For doubling of tax on corporations of certain foreign countries, see section 891.
• (4) For rate of withholding in case of foreign corporations, see section 1442.

§ 15. Effect of changes

• (a) If any rate of tax imposed by this chapter changes, and if the taxable year includes the effective date of the change (unless that date is the first day of the taxable year), then—
  • (1) tentative taxes shall be computed by applying the rate for the period before the effective date of the change, and the rate for the period on and after such date, to the taxable income for the entire taxable year; and
  • (2) the tax for such taxable year shall be the sum of that proportion of each tentative tax which the number of days in each period bears to the number of days in the entire taxable year.
• (b) For purposes of subsection (a)—
  • (1) if a tax is repealed, the repeal shall be considered a change of rate; and
  • (2) the rate for the period after the repeal shall be zero.
• (c) For purposes of subsections (a) and (b)—
  • (1) if the rate changes for taxable years “beginning after” or “ending after” a certain date, the following day shall be considered the effective date of the change; and
  • (2) if a rate changes for taxable years “beginning on or after” a certain date, that date shall be considered the effective date of the change.
• (d) This section shall not apply to any change in rates under subsection (f) of section 1 (relating to adjustments in tax tables so that inflation will not result in tax increases).
• (e) If the change referred to in subsection (a) involves a change in the highest rate of tax imposed by section 1 or 11(b), any reference in this chapter to such highest rate (other than in a provision imposing a tax by reference to such rate) shall be treated as a reference to the weighted average of the highest rates before and after the change determined on the basis of the respective portions of the taxable year before the date of the change and on or after the date of the change.
• (f) This section shall not apply to any change in rates under subsection (i) of section 1 (relating to rate reductions after 2000).

§ 21. Expenses for household and dependent care services necessary for gainful employment

• (a)
  • (1) In the case of an individual for which there are 1 or more qualifying individuals (as defined in subsection (b)(1)) with respect to such individual, there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the applicable percentage of the employment-related expenses (as defined in subsection (b)(2)) paid by such individual during the taxable year.
  • (2) For purposes of paragraph (1), the term “applicable percentage” means 35 percent reduced (but not below 20 percent) by 1 percentage point for each $2,000 (or fraction thereof) by which the taxpayer’s adjusted gross income for the taxable year exceeds $15,000.
• (b) For purposes of this section—
  • (1) The term “qualifying individual” means—
    • (A) a dependent of the taxpayer (as defined in section 152(a)(1)) who has not attained age 13,
    • (B) a dependent of the taxpayer (as defined in section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B)) who is physically or mentally incapable of caring for himself or herself and who has the same principal place of abode as the taxpayer for more than one-half of such taxable year, or
    • (C) the spouse of the taxpayer, if the spouse is physically or mentally incapable of caring for himself or herself and who has the same principal place of abode as the taxpayer for more than one-half of such taxable year.
  • (2)
    • (A) The term “employment-related expenses” means amounts paid for the following expenses, but only if such expenses are incurred to enable the taxpayer to be gainfully employed for any period for which there are 1 or more qualifying individuals with respect to the taxpayer:
      • (i) expenses for household services, and
      • (ii) expenses for the care of a qualifying individual.
    • (B) Employment-related expenses described in subparagraph (A) which are incurred for services outside the taxpayer’s household shall be taken into account only if incurred for the care of—
      • (i) a qualifying individual described in paragraph (1)(A), or
      • (ii) a qualifying individual (not described in paragraph (1)(A)) who regularly spends at least 8 hours each day in the taxpayer’s household.
    • (C) Employment-related expenses described in subparagraph (A) which are incurred for services provided outside the taxpayer’s household by a dependent care center (as defined in subparagraph (D)) shall be taken into account only if—
      • (i) such center complies with all applicable laws and regulations of a State or unit of local government, and
      • (ii) the requirements of subparagraph (B) are met.
    • (D) For purposes of this paragraph, the term “dependent care center” means any facility which—
      • (i) provides care for more than six individuals (other than individuals who reside at the facility), and
      • (ii) receives a fee, payment, or grant for providing services for any of the individuals (regardless of whether such facility is operated for profit).
• (c) The amount of the employment-related expenses incurred during any taxable year which may be taken into account under subsection (a) shall not exceed—
  • (1) $3,000 if there is 1 qualifying individual with respect to the taxpayer for such taxable year, or
  • (2) $6,000 if there are 2 or more qualifying individuals with respect to the taxpayer for such taxable year.
• (d)
  • (1) Except as otherwise provided in this subsection, the amount of the employment-related expenses incurred during any taxable year which may be taken into account under subsection (a) shall not exceed—
    • (A) in the case of an individual who is not married at the close of such year, such individual’s earned income for such year, or
    • (B) in the case of an individual who is married at the close of such year, the lesser of such individual’s earned income or the earned income of his spouse for such year.
  • (2) In the case of a spouse who is a student or a qualifying individual described in subsection (b)(1)(C), for purposes of paragraph (1), such spouse shall be deemed for each month during which such spouse is a full-time student at an educational institution, or is such a qualifying individual, to be gainfully employed and to have earned income of not less than—
    • (A) $250 if subsection (c)(1) applies for the taxable year, or
    • (B) $500 if subsection (c)(2) applies for the taxable year.
• (e) For purposes of this section—
  • (1) An individual shall not be treated as having the same principal place of abode of the taxpayer if at any time during the taxable year of the taxpayer the relationship between the individual and the taxpayer is in violation of local law.
  • (2) If the taxpayer is married at the close of the taxable year, the credit shall be allowed under subsection (a) only if the taxpayer and his spouse file a joint return for the taxable year.
  • (3) An individual legally separated from his spouse under a decree of divorce or of separate maintenance shall not be considered as married.
  • (4) If—
    • (A) an individual who is married and who files a separate return—
      • (i) maintains as his home a household which constitutes for more than one-half of the taxable year the principal place of abode of a qualifying individual, and
      • (ii) furnishes over half of the cost of maintaining such household during the taxable year, and
    • (B) during the last 6 months of such taxable year such individual’s spouse is not a member of such household,
  • (5) If—
    • (A) section 152(e) applies to any child with respect to any calendar year, and
    • (B) such child is under the age of 13 or is physically or mentally incapable of caring for himself,
  • (6) No credit shall be allowed under subsection (a) for any amount paid by the taxpayer to an individual—
    • (A) with respect to whom, for the taxable year, a deduction under section 151(c) (relating to deduction for personal exemptions for dependents) is allowable either to the taxpayer or his spouse, or
    • (B) who is a child of the taxpayer (within the meaning of section 152(f)(1)) who has not attained the age of 19 at the close of the taxable year.
  • (7) The term “student” means an individual who during each of 5 calendar months during the taxable year is a full-time student at an educational organization.
  • (8) The term “educational organization” means an educational organization described in section 170(b)(1)(A)(ii).
  • (9) No credit shall be allowed under subsection (a) for any amount paid to any person unless—
    • (A) the name, address, and taxpayer identification number of such person are included on the return claiming the credit, or
    • (B) if such person is an organization described in section 501(c)(3) and exempt from tax under section 501(a), the name and address of such person are included on the return claiming the credit.
  • (10) No credit shall be allowed under this section with respect to any qualifying individual unless the TIN of such individual is included on the return claiming the credit.
• (f) The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this section.

§ 22. Credit for the elderly and the permanently and totally disabled

• (a) In the case of a qualified individual, there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to 15 percent of such individual’s section 22 amount for such taxable year.
• (b) For purposes of this section, the term “qualified individual” means any individual—
  • (1) who has attained age 65 before the close of the taxable year, or
  • (2) who retired on disability before the close of the taxable year and who, when he retired, was permanently and totally disabled.
• (c) For purposes of subsection (a)—
  • (1) An individual’s section 22 amount for the taxable year shall be the applicable initial amount determined under paragraph (2), reduced as provided in paragraph (3) and in subsection (d).
  • (2)
    • (A) Except as provided in subparagraph (B), the initial amount shall be—
      • (i) $5,000 in the case of a single individual, or a joint return where only one spouse is a qualified individual,
      • (ii) $7,500 in the case of a joint return where both spouses are qualified individuals, or
      • (iii) $3,750 in the case of a married individual filing a separate return.
    • (B)
      • (i) In the case of a qualified individual who has not attained age 65 before the close of the taxable year, except as provided in clause (ii), the initial amount shall not exceed the disability income for the taxable year.
      • (ii) In the case of a joint return where both spouses are qualified individuals and at least one spouse has not attained age 65 before the close of the taxable year—
        • (I) if both spouses have not attained age 65 before the close of the taxable year, the initial amount shall not exceed the sum of such spouses’ disability income, or
        • (II) if one spouse has attained age 65 before the close of the taxable year, the initial amount shall not exceed the sum of $5,000 plus the disability income for the taxable year of the spouse who has not attained age 65 before the close of the taxable year.
      • (iii) For purposes of this subparagraph, the term “disability income” means the aggregate amount includable in the gross income of the individual for the taxable year under section 72 or 105(a) to the extent such amount constitutes wages (or payments in lieu of wages) for the period during which the individual is absent from work on account of permanent and total disability.
  • (3)
    • (A) The reduction under this paragraph is an amount equal to the sum of the amounts received by the individual (or, in the case of a joint return, by either spouse) as a pension or annuity or as a disability benefit—
      • (i) which is excluded from gross income and payable under—
        • (I) title II of the Social Security Act,
        • (II) the Railroad Retirement Act of 1974, or
        • (III) a law administered by the Department of Veterans Affairs, or
      • (ii) which is excluded from gross income under any provision of law not contained in this title.
    • (B) For purposes of subparagraph (A), any amount treated as a social security benefit under section 86(d)(3) shall be treated as a disability benefit received under title II of the Social Security Act.
• (d) If the adjusted gross income of the taxpayer exceeds—
  • (1) $7,500 in the case of a single individual,
  • (2) $10,000 in the case of a joint return, or
  • (3) $5,000 in the case of a married individual filing a separate return,
• (e) For purposes of this section—
  • (1) Except in the case of a husband and wife who live apart at all times during the taxable year, if the taxpayer is married at the close of the taxable year, the credit provided by this section shall be allowed only if the taxpayer and his spouse file a joint return for the taxable year.
  • (2) Marital status shall be determined under section 7703.
  • (3) An individual is permanently and totally disabled if he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months. An individual shall not be considered to be permanently and totally disabled unless he furnishes proof of the existence thereof in such form and manner, and at such times, as the Secretary may require.
• (f) No credit shall be allowed under this section to any nonresident alien.

§ 23. Adoption expenses

• (a)
  • (1) In the case of an individual, there shall be allowed as a credit against the tax imposed by this chapter the amount of the qualified adoption expenses paid or incurred by the taxpayer.
  • (2) The credit under paragraph (1) with respect to any expense shall be allowed—
    • (A) in the case of any expense paid or incurred before the taxable year in which such adoption becomes final, for the taxable year following the taxable year during which such expense is paid or incurred, and
    • (B) in the case of an expense paid or incurred during or after the taxable year in which such adoption becomes final, for the taxable year in which such expense is paid or incurred.
  • (3) In the case of an adoption of a child with special needs which becomes final during a taxable year, the taxpayer shall be treated as having paid during such year qualified adoption expenses with respect to such adoption in an amount equal to the excess (if any) of $10,000 over the aggregate qualified adoption expenses actually paid or incurred by the taxpayer with respect to such adoption during such taxable year and all prior taxable years.
• (b)
  • (1) The aggregate amount of qualified adoption expenses which may be taken into account under subsection (a) for all taxable years with respect to the adoption of a child by the taxpayer shall not exceed $10,000.
  • (2)
    • (A) The amount allowable as a credit under subsection (a) for any taxable year (determined without regard to subsection (c)) shall be reduced (but not below zero) by an amount which bears the same ratio to the amount so allowable (determined without regard to this paragraph but with regard to paragraph (1)) as—
      • (i) the amount (if any) by which the taxpayer’s adjusted gross income exceeds $150,000, bears to
      • (ii) $40,000.
    • (B) For purposes of subparagraph (A), adjusted gross income shall be determined without regard to sections 911, 931, and 933.
  • (3)
    • (A) No credit shall be allowed under subsection (a) for any expense for which a deduction or credit is allowed under any other provision of this chapter.
    • (B) No credit shall be allowed under subsection (a) for any expense to the extent that funds for such expense are received under any Federal, State, or local program.
• (c)
  • (1) If the credit allowable under subsection (a) for any taxable year exceeds the limitation imposed by section 26(a) for such taxable year reduced by the sum of the credits allowable under this subpart (other than this section and section 25D), such excess shall be carried to the succeeding taxable year and added to the credit allowable under subsection (a) for such taxable year.
  • (2) No credit may be carried forward under this subsection to any taxable year following the fifth taxable year after the taxable year in which the credit arose. For purposes of the preceding sentence, credits shall be treated as used on a first-in first-out basis.
• (d) For purposes of this section—
  • (1) The term “qualified adoption expenses” means reasonable and necessary adoption fees, court costs, attorney fees, and other expenses—
    • (A) which are directly related to, and the principal purpose of which is for, the legal adoption of an eligible child by the taxpayer,
    • (B) which are not incurred in violation of State or Federal law or in carrying out any surrogate parenting arrangement,
    • (C) which are not expenses in connection with the adoption by an individual of a child who is the child of such individual’s spouse, and
    • (D) which are not reimbursed under an employer program or otherwise.
  • (2) The term “eligible child” means any individual who—
    • (A) has not attained age 18, or
    • (B) is physically or mentally incapable of caring for himself.
  • (3) The term “child with special needs” means any child if—
    • (A) a State has determined that the child cannot or should not be returned to the home of his parents,
    • (B) such State has determined that there exists with respect to the child a specific factor or condition (such as his ethnic background, age, or membership in a minority or sibling group, or the presence of factors such as medical conditions or physical, mental, or emotional handicaps) because of which it is reasonable to conclude that such child cannot be placed with adoptive parents without providing adoption assistance, and
    • (C) such child is a citizen or resident of the United States (as defined in section 217(h)(3)).
• (e) In the case of an adoption of a child who is not a citizen or resident of the United States (as defined in section 217(h)(3))—
  • (1) subsection (a) shall not apply to any qualified adoption expense with respect to such adoption unless such adoption becomes final, and
  • (2) any such expense which is paid or incurred before the taxable year in which such adoption becomes final shall be taken into account under this section as if such expense were paid or incurred during such year.
• (f)
  • (1) Rules similar to the rules of paragraphs (2), (3), and (4) of section 21(e) shall apply for purposes of this section.
  • (2)
    • (A) No credit shall be allowed under this section with respect to any eligible child unless the taxpayer includes (if known) the name, age, and TIN of such child on the return of tax for the taxable year.
    • (B) The Secretary may, in lieu of the information referred to in subparagraph (A), require other information meeting the purposes of subparagraph (A), including identification of an agent assisting with the adoption.
• (g) For purposes of this subtitle, if a credit is allowed under this section for any expenditure with respect to any property, the increase in the basis of such property which would (but for this subsection) result from such expenditure shall be reduced by the amount of the credit so allowed.
• (h) In the case of a taxable year beginning after December 31, 2002 , each of the dollar amounts in subsection (a)(3) and paragraphs (1) and (2)(A)(i) of subsection (b) shall be increased by an amount equal to—
  • (1) such dollar amount, multiplied by
  • (2) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting “calendar year 2001” for “calendar year 2016” in subparagraph (A)(ii) thereof.
• (i) The Secretary shall prescribe such regulations as may be appropriate to carry out this section and section 137, including regulations which treat unmarried individuals who pay or incur qualified adoption expenses with respect to the same child as 1 taxpayer for purposes of applying the dollar amounts in subsections (a)(3) and (b)(1) of this section and in section 137(b)(1).

§ 24. Child tax credit

• (a) There shall be allowed as a credit against the tax imposed by this chapter for the taxable year with respect to each qualifying child of the taxpayer for which the taxpayer is allowed a deduction under section 151 an amount equal to $1,000.
• (b)
  • (1) The amount of the credit allowable under subsection (a) shall be reduced (but not below zero) by $50 for each $1,000 (or fraction thereof) by which the taxpayer’s modified adjusted gross income exceeds the threshold amount. For purposes of the preceding sentence, the term “modified adjusted gross income” means adjusted gross income increased by any amount excluded from gross income under section 911, 931, or 933.
  • (2) For purposes of paragraph (1), the term “threshold amount” means—
    • (A) $110,000 in the case of a joint return,
    • (B) $75,000 in the case of an individual who is not married, and
    • (C) $55,000 in the case of a married individual filing a separate return.
• (c) For purposes of this section—
  • (1) The term “qualifying child” means a qualifying child of the taxpayer (as defined in section 152(c)) who has not attained age 17.
  • (2) The term “qualifying child” shall not include any individual who would not be a dependent if subparagraph (A) of section 152(b)(3) were applied without regard to all that follows “resident of the United States”.
• (d)
  • (1) The aggregate credits allowed to a taxpayer under subpart C shall be increased by the lesser of—
    • (A) the credit which would be allowed under this section without regard to this subsection and the limitation under section 26(a) or
    • (B) the amount by which the aggregate amount of credits allowed by this subpart (determined without regard to this subsection) would increase if the limitation imposed by section 26(a) were increased by the greater of—
      • (i) 15 percent of so much of the taxpayer’s earned income (within the meaning of section 32) which is taken into account in computing taxable income for the taxable year as exceeds $3,000, or
      • (ii) in the case of a taxpayer with 3 or more qualifying children, the excess (if any) of—
        • (I) the taxpayer’s social security taxes for the taxable year, over
        • (II) the credit allowed under section 32 for the taxable year.
  • (2) For purposes of paragraph (1)—
    • (A) The term “social security taxes” means, with respect to any taxpayer for any taxable year—
      • (i) the amount of the taxes imposed by sections 3101 and 3201(a) on amounts received by the taxpayer during the calendar year in which the taxable year begins,
      • (ii) 50 percent of the taxes imposed by section 1401 on the self-employment income of the taxpayer for the taxable year, and
      • (iii) 50 percent of the taxes imposed by section 3211(a) on amounts received by the taxpayer during the calendar year in which the taxable year begins.
    • (B) The term “social security taxes” shall not include any taxes to the extent the taxpayer is entitled to a special refund of such taxes under section 6413(c).
    • (C) Any amounts paid pursuant to an agreement under section 3121( l ) (relating to agreements entered into by American employers with respect to foreign affiliates) which are equivalent to the taxes referred to in subparagraph (A)(i) shall be treated as taxes referred to in such subparagraph.
  • (3) Paragraph (1) shall not apply to any taxpayer for any taxable year if such taxpayer elects to exclude any amount from gross income under section 911 for such taxable year.
• (e)
  • (1) No credit shall be allowed under this section to a taxpayer with respect to any qualifying child unless the taxpayer includes the name and taxpayer identification number of such qualifying child on the return of tax for the taxable year and such taxpayer identification number was issued on or before the due date for filing such return.
  • (2) No credit shall be allowed under this section if the taxpayer identification number of the taxpayer was issued after the due date for filing the return for the taxable year.
• (f) Except in the case of a taxable year closed by reason of the death of the taxpayer, no credit shall be allowable under this section in the case of a taxable year covering a period of less than 12 months.
• (g)
  • (1)
    • (A) No credit shall be allowed under this section for any taxable year in the disallowance period.
    • (B) For purposes of subparagraph (A), the disallowance period is—
      • (i) the period of 10 taxable years after the most recent taxable year for which there was a final determination that the taxpayer’s claim of credit under this section was due to fraud, and
      • (ii) the period of 2 taxable years after the most recent taxable year for which there was a final determination that the taxpayer’s claim of credit under this section was due to reckless or intentional disregard of rules and regulations (but not due to fraud).
  • (2) In the case of a taxpayer who is denied credit under this section for any taxable year as a result of the deficiency procedures under subchapter B of chapter 63, no credit shall be allowed under this section for any subsequent taxable year unless the taxpayer provides such information as the Secretary may require to demonstrate eligibility for such credit.
• (h)
  • (1) In the case of a taxable year beginning after December 31, 2017 , and before January 1, 2026 , this section shall be applied as provided in paragraphs (2) through (7).
  • (2) Subsection (a) shall be applied by substituting “$2,000” for “$1,000”.
  • (3) In lieu of the amount determined under subsection (b)(2), the threshold amount shall be $400,000 in the case of a joint return ($200,000 in any other case).
  • (4)
    • (A) The credit determined under subsection (a) (after the application of paragraph (2)) shall be increased by $500 for each dependent of the taxpayer (as defined in section 152) other than a qualifying child described in subsection (c).
    • (B) Subparagraph (A) shall not apply with respect to any individual who would not be a dependent if subparagraph (A) of section 152(b)(3) were applied without regard to all that follows “resident of the United States”.
    • (C) In the case of any qualifying child with respect to whom a credit is not allowed under this section by reason of paragraph (7), such child shall be treated as a dependent to whom subparagraph (A) applies.
  • (5)
    • (A) The amount determined under subsection (d)(1)(A) with respect to any qualifying child shall not exceed $1,400, and such subsection shall be applied without regard to paragraph (4) of this subsection.
    • (B) In the case of a taxable year beginning after 2018, the $1,400 amount in subparagraph (A) shall be increased by an amount equal to—
      • (i) such dollar amount, multiplied by
      • (ii) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting “2017” for “2016” in subparagraph (A)(ii) thereof.
  • (6) Subsection (d)(1)(B)(i) shall be applied by substituting “$2,500” for “$3,000”.
  • (7) No credit shall be allowed under this section to a taxpayer with respect to any qualifying child unless the taxpayer includes the social security number of such child on the return of tax for the taxable year. For purposes of the preceding sentence, the term “social security number” means a social security number issued to an individual by the Social Security Administration, but only if the social security number is issued—
    • (A) to a citizen of the United States or pursuant to subclause (I) (or that portion of subclause (III) that relates to subclause (I)) of section 205(c)(2)(B)(i) of the Social Security Act, and
    • (B) before the due date for such return.

§ 25. Interest on certain home mortgages

• (a)
  • (1) There shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the product of—
    • (A) the certificate credit rate, and
    • (B) the interest paid or accrued by the taxpayer during the taxable year on the remaining principal of the certified indebtedness amount.
  • (2)
    • (A) If the certificate credit rate exceeds 20 percent, the amount of the credit allowed to the taxpayer under paragraph (1) for any taxable year shall not exceed $2,000.
    • (B) If 2 or more persons hold interests in any residence, the limitation of subparagraph (A) shall be allocated among such persons in proportion to their respective interests in the residence.
• (b) For purposes of this section—
  • (1) The term “certificate credit rate” means the rate of the credit allowable by this section which is specified in the mortgage credit certificate.
  • (2) The term “certified indebtedness amount” means the amount of indebtedness which is—
    • (A) incurred by the taxpayer—
      • (i) to acquire the principal residence of the taxpayer,
      • (ii) as a qualified home improvement loan (as defined in section 143(k)(4)) with respect to such residence, or
      • (iii) as a qualified rehabilitation loan (as defined in section 143(k)(5)) with respect to such residence, and
    • (B) specified in the mortgage credit certificate.
• (c) For purposes of this section—
  • (1) The term “mortgage credit certificate” means any certificate which—
    • (A) is issued under a qualified mortgage credit certificate program by the State or political subdivision having the authority to issue a qualified mortgage bond to provide financing on the principal residence of the taxpayer,
    • (B) is issued to the taxpayer in connection with the acquisition, qualified rehabilitation, or qualified home improvement of the taxpayer’s principal residence,
    • (C) specifies—
      • (i) the certificate credit rate, and
      • (ii) the certified indebtedness amount, and
    • (D) is in such form as the Secretary may prescribe.
  • (2)
    • (A) The term “qualified mortgage credit certificate program” means any program—
      • (i) which is established by a State or political subdivision thereof for any calendar year for which it is authorized to issue qualified mortgage bonds,
      • (ii) under which the issuing authority elects (in such manner and form as the Secretary may prescribe) not to issue an amount of private activity bonds which it may otherwise issue during such calendar year under section 146,
      • (iii) under which the indebtedness certified by mortgage credit certificates meets the requirements of the following subsections of section 143 (as modified by subparagraph (B) of this paragraph):
        • (I) subsection (c) (relating to residence requirements),
        • (II) subsection (d) (relating to 3-year requirement),
        • (III) subsection (e) (relating to purchase price requirement),
        • (IV) subsection (f) (relating to income requirements),
        • (V) subsection (h) (relating to portion of loans required to be placed in targeted areas), and
        • (VI) paragraph (1) of subsection (i) (relating to other requirements),
      • (iv) under which no mortgage credit certificate may be issued with respect to any residence any of the financing of which is provided from the proceeds of a qualified mortgage bond or a qualified veterans’ mortgage bond,
      • (v) except to the extent provided in regulations, which is not limited to indebtedness incurred from particular lenders,
      • (vi) except to the extent provided in regulations, which provides that a mortgage credit certificate is not transferrable, and
      • (vii) if the issuing authority allocates a block of mortgage credit certificates for use in connection with a particular development, which requires the developer to furnish to the issuing authority and the homebuyer a certificate that the price for the residence is no higher than it would be without the use of a mortgage credit certificate.
    • (B) Under regulations prescribed by the Secretary, in applying section 143 for purposes of subclauses (II), (IV), and (V) of subparagraph (A)(iii)—
      • (i) each qualified mortgage certificate credit program shall be treated as a separate issue,
      • (ii) the product determined by multiplying—
        • (I) the certified indebtedness amount of each mortgage credit certificate issued under such program, by
        • (II) the certificate credit rate specified in such certificate,
      • (iii) paragraph (1) of section 143(d) shall be applied by substituting “100 percent” for “95 percent or more”.
• (d) For purposes of this section—
  • (1) The certificate credit rate specified in any mortgage credit certificate shall not be less than 10 percent or more than 50 percent.
  • (2)
    • (A) In the case of each qualified mortgage credit certificate program, the sum of the products determined by multiplying—
      • (i) the certified indebtedness amount of each mortgage credit certificate issued under such program, by
      • (ii) the certificate credit rate with respect to such certificate,
    • (B) For purposes of subparagraph (A), the term “nonissued bond amount” means, with respect to any qualified mortgage credit certificate program, the amount of qualified mortgage bonds which the issuing authority is otherwise authorized to issue and elects not to issue under subsection (c)(2)(A)(ii).
• (e) For purposes of this section—
  • (1)
    • (A) If the credit allowable under subsection (a) for any taxable year exceeds the applicable tax limit for such taxable year, such excess shall be a carryover to each of the 3 succeeding taxable years and, subject to the limitations of subparagraph (B), shall be added to the credit allowable by subsection (a) for such succeeding taxable year.
    • (B) The amount of the unused credit which may be taken into account under subparagraph (A) for any taxable year shall not exceed the amount (if any) by which the applicable tax limit for such taxable year exceeds the sum of—
      • (i) the credit allowable under subsection (a) for such taxable year determined without regard to this paragraph, and
      • (ii) the amounts which, by reason of this paragraph, are carried to such taxable year and are attributable to taxable years before the unused credit year.
    • (C) For purposes of this paragraph, the term “applicable tax limit” means the limitation imposed by section 26(a) for the taxable year reduced by the sum of the credits allowable under this subpart (other than this section and sections 23 and 25D).
  • (2) Subsection (a) shall not apply to any indebtedness if all the requirements of subsection (c)(1), (d), (e), (f), and (i) of section 143 and clauses (iv), (v), and (vii) of subsection (c)(2)(A), were not in fact met with respect to such indebtedness. Except to the extent provided in regulations, the requirements described in the preceding sentence shall be treated as met if there is a certification, under penalty of perjury, that such requirements are met.
  • (3)
    • (A) Except as provided in subparagraph (B), a mortgage credit certificate shall be treated as in effect with respect to interest attributable to the period—
      • (i) beginning on the date such certificate is issued, and
      • (ii) ending on the earlier of the date on which—
        • (I) the certificate is revoked by the issuing authority, or
        • (II) the residence to which such certificate relates ceases to be the principal residence of the individual to whom the certificate relates.
    • (B) A certificate shall not apply to any indebtedness which is incurred after the close of the second calendar year following the calendar year for which the issuing authority made the applicable election under subsection (c)(2)(A)(ii).
    • (C) Any issuing authority which revokes any mortgage credit certificate shall notify the Secretary of such revocation at such time and in such manner as the Secretary shall prescribe by regulations.
  • (4) The Secretary may prescribe regulations which allow the administrator of a mortgage credit certificate program to reissue a mortgage credit certificate specifying a certified mortgage indebtedness that replaces the outstanding balance of the certified mortgage indebtedness specified on the original certificate to any taxpayer to whom the original certificate was issued, under such terms and conditions as the Secretary determines are necessary to ensure that the amount of the credit allowable under subsection (a) with respect to such reissued certificate is equal to or less than the amount of credit which would be allowable under subsection (a) with respect to the original certificate for any taxable year ending after such reissuance.
  • (5) At least 90 days before any mortgage credit certificate is to be issued after a qualified mortgage credit certificate program, the issuing authority shall provide reasonable public notice of—
    • (A) the eligibility requirements for such certificate,
    • (B) the methods by which such certificates are to be issued, and
    • (C) such other information as the Secretary may require.
  • (6) No credit shall be allowed under subsection (a) for any interest paid or accrued to a person who is a related person to the taxpayer (within the meaning of section 144(a)(3)(A)).
  • (7) The term “principal residence” has the same meaning as when used in section 121.
  • (8)
    • (A) The term “qualified rehabilitation” has the meaning given such term by section 143(k)(5)(B).
    • (B) The term “qualified home improvement” means an alteration, repair, or improvement described in section 143(k)(4).
  • (9) The term “qualified mortgage bond” has the meaning given such term by section 143(a)(1).
  • (10) For purposes of this section, the term “single family residence” includes any manufactured home which has a minimum of 400 square feet of living space and a minimum width in excess of 102 inches and which is of a kind customarily used at a fixed location. Nothing in the preceding sentence shall be construed as providing that such a home will be taken into account in making determinations under section 143.
• (f)
  • (1) If for any calendar year any mortgage credit certificate program which satisfies procedural requirements with respect to volume limitations prescribed by the Secretary fails to meet the requirements of paragraph (2) of subsection (d), such requirements shall be treated as satisfied with respect to any certified indebtedness of such program, but the applicable State ceiling under subsection (d) of section 146 for the State in which such program operates shall be reduced by 1.25 times the correction amount with respect to such failure. Such reduction shall be applied to such State ceiling for the calendar year following the calendar year in which the Secretary determines the correction amount with respect to such failure.
  • (2)
    • (A) For purposes of paragraph (1), the term “correction amount” means an amount equal to the excess credit amount divided by 0.25.
    • (B)
      • (i) For purposes of subparagraph (A)(ii), the term “excess credit amount” means the excess of—
        • (I) the credit amount for any mortgage credit certificate program, over
        • (II) the amount which would have been the credit amount for such program had such program met the requirements of paragraph (2) of subsection (d).
      • (ii) For purposes of clause (i), the term “credit amount” means the sum of the products determined under clauses (i) and (ii) of subsection (d)(2)(A).
  • (3) In the case of a State having one or more constitutional home rule cities (within the meaning of section 146(d)(3)(C)), the reduction in the State ceiling by reason of paragraph (1) shall be allocated to the constitutional home rule city, or to the portion of the State not within such city, whichever caused the reduction.
  • (4) The provisions of this subsection shall not apply in any case in which there is a certification program which is designed to ensure that the requirements of this section are met and which meets such requirements as the Secretary may by regulations prescribe.
  • (5) The Secretary may waive the application of paragraph (1) in any case in which he determines that the failure is due to reasonable cause.
• (g) Each person who makes a loan which is a certified indebtedness amount under any mortgage credit certificate shall file a report with the Secretary containing—
  • (1) the name, address, and social security account number of the individual to which the certificate was issued,
  • (2) the certificate’s issuer, date of issue, certified indebtedness amount, and certificate credit rate, and
  • (3) such other information as the Secretary may require by regulations.
• (h)
  • (1) The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this section, including regulations which may require recipients of mortgage credit certificates to pay a reasonable processing fee to defray the expenses incurred in administering the program.
  • (2) The Secretary is authorized to enter into contracts with any person to provide services in connection with the administration of this section.
• (i) For provisions increasing the tax imposed by this chapter to recapture a portion of the Federal subsidy from the use of mortgage credit certificates, see section 143(m).

§ 25A. American Opportunity and Lifetime Learning credits

• (a) In the case of an individual, there shall be allowed as a credit against the tax imposed by this chapter for the taxable year the amount equal to the sum of—
  • (1) the American Opportunity Tax Credit, plus
  • (2) the Lifetime Learning Credit.
• (b)
  • (1) In the case of any eligible student for whom an election is in effect under this section for any taxable year, the American Opportunity Tax Credit is an amount equal to the sum of—
    • (A) 100 percent of so much of the qualified tuition and related expenses paid by the taxpayer during the taxable year (for education furnished to the eligible student during any academic period beginning in such taxable year) as does not exceed $2,000, plus
    • (B) 25 percent of such expenses so paid as exceeds $2,000 but does not exceed $4,000.
  • (2)
    • (A) An election to have this section apply with respect to any eligible student for purposes of the American Opportunity Tax Credit under subsection (a)(1) may not be made for any taxable year if such an election (by the taxpayer or any other individual) is in effect with respect to such student for any 4 prior taxable years.
    • (B) The American Opportunity Tax Credit under subsection (a)(1) shall not be allowed for a taxable year with respect to the qualified tuition and related expenses of an individual unless such individual is an eligible student for at least one academic period which begins during such year.
    • (C) The American Opportunity Tax Credit under subsection (a)(1) shall not be allowed for a taxable year with respect to the qualified tuition and related expenses of an eligible student if the student has completed (before the beginning of such taxable year) the first 4 years of postsecondary education at an eligible educational institution.
    • (D) The American Opportunity Tax Credit under subsection (a)(1) shall not be allowed for qualified tuition and related expenses for the enrollment or attendance of a student for any academic period if such student has been convicted of a Federal or State felony offense consisting of the possession or distribution of a controlled substance before the end of the taxable year with or within which such period ends.
  • (3) For purposes of this subsection, the term “eligible student” means, with respect to any academic period, a student who—
    • (A) meets the requirements of section 484(a)(1) of the Higher Education Act of 1965 ( 20 U.S.C. 1091(a)(1) ), as in effect on the date of the enactment of this section, and
    • (B) is carrying at least ½ the normal full-time work load for the course of study the student is pursuing.
  • (4)
    • (A)
      • (i) No American Opportunity Tax Credit shall be allowed under this section for any taxable year in the disallowance period.
      • (ii) For purposes of subparagraph (A), the disallowance period is—
        • (I) the period of 10 taxable years after the most recent taxable year for which there was a final determination that the taxpayer’s claim of the American Opportunity Tax Credit under this section was due to fraud, and
        • (II) the period of 2 taxable years after the most recent taxable year for which there was a final determination that the taxpayer’s claim of the American Opportunity Tax Credit under this section was due to reckless or intentional disregard of rules and regulations (but not due to fraud).
    • (B) In the case of a taxpayer who is denied the American Opportunity Tax Credit under this section for any taxable year as a result of the deficiency procedures under subchapter B of chapter 63, no American Opportunity Tax Credit shall be allowed under this section for any subsequent taxable year unless the taxpayer provides such information as the Secretary may require to demonstrate eligibility for such credit.
• (c)
  • (1) The Lifetime Learning Credit for any taxpayer for any taxable year is an amount equal to 20 percent of so much of the qualified tuition and related expenses paid by the taxpayer during the taxable year (for education furnished during any academic period beginning in such taxable year) as does not exceed $10,000.
  • (2)
    • (A) The qualified tuition and related expenses with respect to an individual who is an eligible student for whom a 1 1 So in original. Probably should be “an”. American Opportunity Tax Credit under subsection (a)(1) is allowed for the taxable year shall not be taken into account under this subsection.
    • (B) For purposes of paragraph (1), qualified tuition and related expenses shall include expenses described in subsection (f)(1) with respect to any course of instruction at an eligible educational institution to acquire or improve job skills of the individual.
• (d)
  • (1) The American Opportunity Tax Credit (determined without regard to this paragraph) shall be reduced (but not below zero) by the amount which bears the same ratio to such credit (as so determined) as—
    • (A) the excess of—
      • (i) the taxpayer’s modified adjusted gross income for such taxable year, over
      • (ii) $80,000 ($160,000 in the case of a joint return), bears to
    • (B) $10,000 ($20,000 in the case of a joint return).
  • (2) The Lifetime Learning Credit (determined without regard to this paragraph) shall be reduced (but not below zero) by the amount which bears the same ratio to such credit (as so determined) as—
    • (A) the excess of—
      • (i) the taxpayer’s modified adjusted gross income for such taxable year, over
      • (ii) $40,000 ($80,000 in the case of a joint return), bears to
    • (B) $10,000 ($20,000 in the case of a joint return).
  • (3) For purposes of this subsection, the term “modified adjusted gross income” means the adjusted gross income of the taxpayer for the taxable year increased by any amount excluded from gross income under section 911, 931, or 933.
• (e) A taxpayer may elect not to have this section apply with respect to the qualified tuition and related expenses of an individual for any taxable year.
• (f) For purposes of this section—
  • (1)
    • (A) The term “qualified tuition and related expenses” means tuition and fees required for the enrollment or attendance of—
      • (i) the taxpayer,
      • (ii) the taxpayer’s spouse, or
      • (iii) any dependent of the taxpayer with respect to whom the taxpayer is allowed a deduction under section 151,
    • (B) Such term does not include expenses with respect to any course or other education involving sports, games, or hobbies, unless such course or other education is part of the individual’s degree program.
    • (C) Such term does not include student activity fees, athletic fees, insurance expenses, or other expenses unrelated to an individual’s academic course of instruction.
    • (D) For purposes of determining the American Opportunity Tax Credit, subparagraph (A) shall be applied by substituting “tuition, fees, and course materials” for “tuition and fees”.
  • (2) The term “eligible educational institution” means an institution—
    • (A) which is described in section 481 of the Higher Education Act of 1965 ( 20 U.S.C. 1088 ), as in effect on the date of the enactment of this section, and
    • (B) which is eligible to participate in a program under title IV of such Act.
• (g)
  • (1)
    • (A) No credit shall be allowed under subsection (a) to a taxpayer with respect to the qualified tuition and related expenses of an individual unless the taxpayer includes the name and taxpayer identification number of such individual on the return of tax for the taxable year.
    • (B)
      • (i) The requirements of subparagraph (A) shall not be treated as met with respect to the American Opportunity Tax Credit unless the individual’s taxpayer identification number was issued on or before the due date for filing the return of tax for the taxable year.
      • (ii) No American Opportunity Tax Credit shall be allowed under this section if the taxpayer identification number of the taxpayer was issued after the due date for filing the return for the taxable year.
      • (iii) No American Opportunity Tax Credit shall be allowed under this section unless the taxpayer includes the employer identification number of any institution to which qualified tuition and related expenses were paid with respect to the individual.
  • (2) The amount of qualified tuition and related expenses otherwise taken into account under subsection (a) with respect to an individual for an academic period shall be reduced (before the application of subsections (b), (c), and (d)) by the sum of any amounts paid for the benefit of such individual which are allocable to such period as—
    • (A) a qualified scholarship which is excludable from gross income under section 117,
    • (B) an educational assistance allowance under chapter 30, 31, 32, 34, or 35 of title 38, United States Code, or under chapter 1606 of title 10, United States Code, and
    • (C) a payment (other than a gift, bequest, devise, or inheritance within the meaning of section 102(a)) for such individual’s educational expenses, or attributable to such individual’s enrollment at an eligible educational institution, which is excludable from gross income under any law of the United States.
  • (3) If a deduction under section 151 with respect to an individual is allowed to another taxpayer for a taxable year beginning in the calendar year in which such individual’s taxable year begins—
    • (A) no credit shall be allowed under subsection (a) to such individual for such individual’s taxable year,
    • (B) qualified tuition and related expenses paid by such individual during such individual’s taxable year shall be treated for purposes of this section as paid by such other taxpayer, and
    • (C) a statement described in paragraph (8) and received by such individual shall be treated as received by the taxpayer.
  • (4) If qualified tuition and related expenses are paid by the taxpayer during a taxable year for an academic period which begins during the first 3 months following such taxable year, such academic period shall be treated for purposes of this section as beginning during such taxable year.
  • (5) No credit shall be allowed under this section for any expense for which a deduction is allowed under any other provision of this chapter.
  • (6) If the taxpayer is a married individual (within the meaning of section 7703), this section shall apply only if the taxpayer and the taxpayer’s spouse file a joint return for the taxable year.
  • (7) If the taxpayer is a nonresident alien individual for any portion of the taxable year, this section shall apply only if such individual is treated as a resident alien of the United States for purposes of this chapter by reason of an election under subsection (g) or (h) of section 6013.
  • (8) Except as otherwise provided by the Secretary, no credit shall be allowed under this section unless the taxpayer receives a statement furnished under section 6050S(d) which contains all of the information required by paragraph (2) thereof.
• (h)
  • (1) In the case of a taxable year beginning after 2001, the $40,000 and $80,000 amounts in subsection (d)(2) shall each be increased by an amount equal to—
    • (A) such dollar amount, multiplied by
    • (B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting “calendar year 2000” for “calendar year 2016” in subparagraph (A)(ii) thereof.
  • (2) If any amount as adjusted under paragraph (1) is not a multiple of $1,000, such amount shall be rounded to the next lowest multiple of $1,000.
• (i) Forty percent of so much of the credit allowed under subsection (a) as is attributable to the American Opportunity Tax Credit (determined after application of subsection (d) and without regard to this paragraph 2 2 So in original. Probably should be “this subsection”. and section 26(a)) shall be treated as a credit allowable under subpart C (and not allowed under subsection (a)). The preceding sentence shall not apply to any taxpayer for any taxable year if such taxpayer is a child to whom subsection (g) of section 1 applies for such taxable year.
• (j) The Secretary may prescribe such regulations as may be necessary or appropriate to carry out this section, including regulations providing for a recapture of the credit allowed under this section in cases where there is a refund in a subsequent taxable year of any amount which was taken into account in determining the amount of such credit.

§ 25B. Elective deferrals and IRA contributions by certain individuals

• (a) In the case of an eligible individual, there shall be allowed as a credit against the tax imposed by this subtitle for the taxable year an amount equal to the applicable percentage of so much of the qualified retirement savings contributions of the eligible individual for the taxable year as do not exceed $2,000.
• (b) For purposes of this section—
  • (1) In the case of a joint return, the applicable percentage is—
    • (A) if the adjusted gross income of the taxpayer is not over $30,000, 50 percent,
    • (B) if the adjusted gross income of the taxpayer is over $30,000 but not over $32,500, 20 percent,
    • (C) if the adjusted gross income of the taxpayer is over $32,500 but not over $50,000, 10 percent, and
    • (D) if the adjusted gross income of the taxpayer is over $50,000, zero percent.
  • (2) In the case of—
    • (A) a head of household, the applicable percentage shall be determined under paragraph (1) except that such paragraph shall be applied by substituting for each dollar amount therein (as adjusted under paragraph (3)) a dollar amount equal to 75 percent of such dollar amount, and
    • (B) any taxpayer not described in paragraph (1) or subparagraph (A), the applicable percentage shall be determined under paragraph (1) except that such paragraph shall be applied by substituting for each dollar amount therein (as adjusted under paragraph (3)) a dollar amount equal to 50 percent of such dollar amount.
  • (3) In the case of any taxable year beginning in a calendar year after 2006, each of the dollar amounts in paragraph (1) shall be increased by an amount equal to—
    • (A) such dollar amount, multiplied by
    • (B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting “calendar year 2005” for “calendar year 2016” in subparagraph (A)(ii) thereof.
• (c) For purposes of this section—
  • (1) The term “eligible individual” means any individual if such individual has attained the age of 18 as of the close of the taxable year.
  • (2) The term “eligible individual” shall not include—
    • (A) any individual with respect to whom a deduction under section 151 is allowed to another taxpayer for a taxable year beginning in the calendar year in which such individual’s taxable year begins, and
    • (B) any individual who is a student (as defined in section 152(f)(2)).
• (d) For purposes of this section—
  • (1) The term “qualified retirement savings contributions” means, with respect to any taxable year, the sum of—
    • (A) the amount of the qualified retirement contributions (as defined in section 219(e)) made by the eligible individual,
    • (B) the amount of—
      • (i) any elective deferrals (as defined in section 402(g)(3)) of such individual, and
      • (ii) any elective deferral of compensation by such individual under an eligible deferred compensation plan (as defined in section 457(b)) of an eligible employer described in section 457(e)(1)(A),
    • (C) the amount of voluntary employee contributions by such individual to any qualified retirement plan (as defined in section 4974(c)), and
    • (D) the amount of contributions made before January 1, 2026 , by such individual to the ABLE account (within the meaning of section 529A) of which such individual is the designated beneficiary.
  • (2)
    • (A) The qualified retirement savings contributions determined under paragraph (1) shall be reduced (but not below zero) by the aggregate distributions received by the individual during the testing period from any entity of a type to which contributions under paragraph (1) may be made. The preceding sentence shall not apply to the portion of any distribution which is not includible in gross income by reason of a trustee-to-trustee transfer or a rollover distribution.
    • (B) For purposes of subparagraph (A), the testing period, with respect to a taxable year, is the period which includes—
      • (i) such taxable year,
      • (ii) the 2 preceding taxable years, and
      • (iii) the period after such taxable year and before the due date (including extensions) for filing the return of tax for such taxable year.
    • (C) There shall not be taken into account under subparagraph (A)—
      • (i) any distribution referred to in section 72(p), 401(k)(8), 401(m)(6), 402(g)(2), 404(k), or 408(d)(4), and
      • (ii) any distribution to which section 408A(d)(3) applies.
    • (D) For purposes of determining distributions received by an individual under subparagraph (A) for any taxable year, any distribution received by the spouse of such individual shall be treated as received by such individual if such individual and spouse file a joint return for such taxable year and for the taxable year during which the spouse receives the distribution.
• (e) For purposes of this section, adjusted gross income shall be determined without regard to sections 911, 931, and 933.
• (f) Notwithstanding any other provision of law, a qualified retirement savings contribution shall not fail to be included in determining the investment in the contract for purposes of section 72 by reason of the credit under this section.

§ 25C. Nonbusiness energy property

• (a) In the case of an individual, there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the sum of—
  • (1) 10 percent of the amount paid or incurred by the taxpayer for qualified energy efficiency improvements installed during such taxable year, and
  • (2) the amount of the residential energy property expenditures paid or incurred by the taxpayer during such taxable year.
• (b)
  • (1) The credit allowed under this section with respect to any taxpayer for any taxable year shall not exceed the excess (if any) of $500 over the aggregate credits allowed under this section with respect to such taxpayer for all prior taxable years ending after December 31, 2005 .
  • (2) In the case of amounts paid or incurred for components described in subsection (c)(3)(B) by any taxpayer for any taxable year, the credit allowed under this section with respect to such amounts for such year shall not exceed the excess (if any) of $200 over the aggregate credits allowed under this section with respect to such amounts for all prior taxable years ending after December 31, 2005 .
  • (3) The amount of the credit allowed under this section by reason of subsection (a)(2) shall not exceed—
    • (A) $50 for any advanced main air circulating fan,
    • (B) $150 for any qualified natural gas, propane, or oil furnace or hot water boiler, and
    • (C) $300 for any item of energy-efficient building property.
• (c) For purposes of this section—
  • (1) The term “qualified energy efficiency improvements” means any energy efficient building envelope component, if—
    • (A) such component is installed in or on a dwelling unit located in the United States and owned and used by the taxpayer as the taxpayer’s principal residence (within the meaning of section 121),
    • (B) the original use of such component commences with the taxpayer, and
    • (C) such component reasonably can be expected to remain in use for at least 5 years.
  • (2) The term “energy efficient building envelope component” means a building envelope component which meets—
    • (A) applicable Energy Star program requirements, in the case of a roof or roof products,
    • (B) version 6.0 Energy Star program requirements, in the case of an exterior window, a skylight, or an exterior door, and
    • (C) the prescriptive criteria for such component established by the 2009 International Energy Conservation Code, as such Code (including supplements) is in effect on the date of the enactment of the American Recovery and Reinvestment Tax Act of 2009, in the case of any other component.
  • (3) The term “building envelope component” means—
    • (A) any insulation material or system which is specifically and primarily designed to reduce the heat loss or gain of a dwelling unit when installed in or on such dwelling unit,
    • (B) exterior windows (including skylights),
    • (C) exterior doors, and
    • (D) any metal roof or asphalt roof installed on a dwelling unit, but only if such roof has appropriate pigmented coatings or cooling granules which are specifically and primarily designed to reduce the heat gain of such dwelling unit.
  • (4) The term “dwelling unit” includes a manufactured home which conforms to Federal Manufactured Home Construction and Safety Standards (part 3280 of title 24, Code of Federal Regulations).
• (d) For purposes of this section—
  • (1) The term “residential energy property expenditures” means expenditures made by the taxpayer for qualified energy property which is—
    • (A) installed on or in connection with a dwelling unit located in the United States and owned and used by the taxpayer as the taxpayer’s principal residence (within the meaning of section 121), and
    • (B) originally placed in service by the taxpayer.
  • (2)
    • (A) The term “qualified energy property” means—
      • (i) energy-efficient building property,
      • (ii) a qualified natural gas, propane, or oil furnace or hot water boiler, or
      • (iii) an advanced main air circulating fan.
    • (B) Property described under subparagraph (A) shall meet the performance and quality standards, and the certification requirements (if any), which—
      • (i) have been prescribed by the Secretary by regulations (after consultation with the Secretary of Energy or the Administrator of the Environmental Protection Agency, as appropriate), and
      • (ii) are in effect at the time of the acquisition of the property, or at the time of the completion of the construction, reconstruction, or erection of the property, as the case may be.
    • (C) The standards and requirements prescribed by the Secretary under subparagraph (B) with respect to the energy efficiency ratio (EER) for central air conditioners and electric heat pumps—
      • (i) shall require measurements to be based on published data which is tested by manufacturers at 95 degrees Fahrenheit, and
      • (ii) may be based on the certified data of the Air Conditioning and Refrigeration Institute that are prepared in partnership with the Consortium for Energy Efficiency.
  • (3) The term “energy-efficient building property” means—
    • (A) an electric heat pump water heater which yields a Uniform Energy Factor of at least 2.2 in the standard Department of Energy test procedure,
    • (B) an electric heat pump which achieves the highest efficiency tier established by the Consortium for Energy Efficiency, as in effect on January 1, 2009 ,
    • (C) a central air conditioner which achieves the highest efficiency tier established by the Consortium for Energy Efficiency, as in effect on January 1, 2009 ,
    • (D) a natural gas, propane, or oil water heater which has either a Uniform Energy Factor of at least 0.82 or a thermal efficiency of at least 90 percent, and
    • (E) a stove which uses the burning of biomass fuel to heat a dwelling unit located in the United States and used as a residence by the taxpayer, or to heat water for use in such a dwelling unit, and which has a thermal efficiency rating of at least 75 percent.
  • (4) The term “qualified natural gas, propane, or oil furnace or hot water boiler” means a natural gas, propane, or oil furnace or hot water boiler which achieves an annual fuel utilization efficiency rate of not less than 95.
  • (5) The term “advanced main air circulating fan” means a fan used in a natural gas, propane, or oil furnace and which has an annual electricity use of no more than 2 percent of the total annual energy use of the furnace (as determined in the standard Department of Energy test procedures).
  • (6) The term “biomass fuel” means any plant-derived fuel available on a renewable or recurring basis, including agricultural crops and trees, wood and wood waste and residues (including wood pellets), plants (including aquatic plants), grasses, residues, and fibers.
• (e) For purposes of this section—
  • (1) Rules similar to the rules under paragraphs (4), (5), (6), (7), and (8) of section 25D(e) shall apply.
  • (2)
    • (A) Any expenditure otherwise qualifying as an expenditure under this section shall not be treated as failing to so qualify merely because such expenditure was made with respect to two or more dwelling units.
    • (B) In the case of any expenditure described in subparagraph (A), the amount of the credit allowable under subsection (a) shall (subject to paragraph (1)) be computed separately with respect to the amount of the expenditure made for each dwelling unit.
  • (3) For purposes of determining the amount of expenditures made by any individual with respect to any property, there shall not be taken into account expenditures which are made from subsidized energy financing (as defined in section 48(a)(4)(C)).
• (f) For purposes of this subtitle, if a credit is allowed under this section for any expenditure with respect to any property, the increase in the basis of such property which would (but for this subsection) result from such expenditure shall be reduced by the amount of the credit so allowed.
• (g) This section shall not apply with respect to any property placed in service—
  • (1) after December 31, 2007 , and before January 1, 2009 , or
  • (2) after December 31, 2020 .

§ 25D. Residential energy efficient property

• (a) In the case of an individual, there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the sum of the applicable percentages of—
  • (1) the qualified solar electric property expenditures,
  • (2) the qualified solar water heating property expenditures,
  • (3) the qualified fuel cell property expenditures,
  • (4) the qualified small wind energy property expenditures, and
  • (5) the qualified geothermal heat pump property expenditures,
• (b)
  • (1) In the case of any qualified fuel cell property expenditure, the credit allowed under subsection (a) (determined without regard to subsection (c)) for any taxable year shall not exceed $500 with respect to each half kilowatt of capacity of the qualified fuel cell property (as defined in section 48(c)(1)) to which such expenditure relates.
  • (2) No credit shall be allowed under this section for an item of property described in subsection (d)(1) unless such property is certified for performance by the non-profit Solar Rating Certification Corporation or a comparable entity endorsed by the government of the State in which such property is installed.
• (c) If the credit allowable under subsection (a) exceeds the limitation imposed by section 26(a) for such taxable year reduced by the sum of the credits allowable under this subpart (other than this section), such excess shall be carried to the succeeding taxable year and added to the credit allowable under subsection (a) for such succeeding taxable year.
• (d) For purposes of this section—
  • (1) The term “qualified solar water heating property expenditure” means an expenditure for property to heat water for use in a dwelling unit located in the United States and used as a residence by the taxpayer if at least half of the energy used by such property for such purpose is derived from the sun.
  • (2) The term “qualified solar electric property expenditure” means an expenditure for property which uses solar energy to generate electricity for use in a dwelling unit located in the United States and used as a residence by the taxpayer.
  • (3) The term “qualified fuel cell property expenditure” means an expenditure for qualified fuel cell property (as defined in section 48(c)(1)) installed on or in connection with a dwelling unit located in the United States and used as a principal residence (within the meaning of section 121) by the taxpayer.
  • (4) The term “qualified small wind energy property expenditure” means an expenditure for property which uses a wind turbine to generate electricity for use in connection with a dwelling unit located in the United States and used as a residence by the taxpayer.
  • (5)
    • (A) The term “qualified geothermal heat pump property expenditure” means an expenditure for qualified geothermal heat pump property installed on or in connection with a dwelling unit located in the United States and used as a residence by the taxpayer.
    • (B) The term “qualified geothermal heat pump property” means any equipment which—
      • (i) uses the ground or ground water as a thermal energy source to heat the dwelling unit referred to in subparagraph (A) or as a thermal energy sink to cool such dwelling unit, and
      • (ii) meets the requirements of the Energy Star program which are in effect at the time that the expenditure for such equipment is made.
• (e) For purposes of this section—
  • (1) Expenditures for labor costs properly allocable to the onsite preparation, assembly, or original installation of the property described in subsection (d) and for piping or wiring to interconnect such property to the dwelling unit shall be taken into account for purposes of this section.
  • (2) No expenditure relating to a solar panel or other property installed as a roof (or portion thereof) shall fail to be treated as property described in paragraph (1) or (2) of subsection (d) solely because it constitutes a structural component of the structure on which it is installed.
  • (3) Expenditures which are properly allocable to a swimming pool, hot tub, or any other energy storage medium which has a function other than the function of such storage shall not be taken into account for purposes of this section.
  • (4) In the case of any dwelling unit with respect to which qualified fuel cell property expenditures are made and which is jointly occupied and used during any calendar year as a residence by two or more individuals, the following rules shall apply:
    • (A) The maximum amount of such expenditures which may be taken into account under subsection (a) by all such individuals with respect to such dwelling unit during such calendar year shall be $1,667 in the case of each half kilowatt of capacity of qualified fuel cell property (as defined in section 48(c)(1)) with respect to which such expenditures relate.
    • (B) The expenditures allocated to any individual for the taxable year in which such calendar year ends shall be an amount equal to the lesser of—
      • (i) the amount of expenditures made by such individual with respect to such dwelling during such calendar year, or
      • (ii) the maximum amount of such expenditures set forth in subparagraph (A) multiplied by a fraction—
        • (I) the numerator of which is the amount of such expenditures with respect to such dwelling made by such individual during such calendar year, and
        • (II) the denominator of which is the total expenditures made by all such individuals with respect to such dwelling during such calendar year.
  • (5) In the case of an individual who is a tenant-stockholder (as defined in section 216) in a cooperative housing corporation (as defined in such section), such individual shall be treated as having made his tenant-stockholder’s proportionate share (as defined in section 216(b)(3)) of any expenditures of such corporation.
  • (6)
    • (A) In the case of an individual who is a member of a condominium management association with respect to a condominium which the individual owns, such individual shall be treated as having made the individual’s proportionate share of any expenditures of such association.
    • (B) For purposes of this paragraph, the term “condominium management association” means an organization which meets the requirements of paragraph (1) of section 528(c) (other than subparagraph (E) thereof) with respect to a condominium project substantially all of the units of which are used as residences.
  • (7) If less than 80 percent of the use of an item is for nonbusiness purposes, only that portion of the expenditures for such item which is properly allocable to use for nonbusiness purposes shall be taken into account.
  • (8)
    • (A) Except as provided in subparagraph (B), an expenditure with respect to an item shall be treated as made when the original installation of the item is completed.
    • (B) In the case of an expenditure in connection with the construction or reconstruction of a structure, such expenditure shall be treated as made when the original use of the constructed or reconstructed structure by the taxpayer begins.
• (f) For purposes of this subtitle, if a credit is allowed under this section for any expenditure with respect to any property, the increase in the basis of such property which would (but for this subsection) result from such expenditure shall be reduced by the amount of the credit so allowed.
• (g) For purposes of subsection (a), the applicable percentage shall be—
  • (1) in the case of property placed in service after December 31, 2016 , and before January 1, 2020 , 30 percent,
  • (2) in the case of property placed in service after December 31, 2019 , and before January 1, 2021 , 26 percent, and
  • (3) in the case of property placed in service after December 31, 2020 , and before January 1, 2022 , 22 percent.
• (h) The credit allowed under this section shall not apply to property placed in service after December 31, 2021 .

§ 26. Limitation based on tax liability; definition of tax liability

• (a) The aggregate amount of credits allowed by this subpart for the taxable year shall not exceed the sum of—
  • (1) the taxpayer’s regular tax liability for the taxable year reduced by the foreign tax credit allowable under section 27, and
  • (2) the tax imposed by section 55(a) for the taxable year.
• (b) For purposes of this part—
  • (1) The term “regular tax liability” means the tax imposed by this chapter for the taxable year.
  • (2) For purposes of paragraph (1), any tax imposed by any of the following provisions shall not be treated as tax imposed by this chapter:
    • (A) section 55 (relating to minimum tax),
    • (B) section 59A (relating to base erosion and anti-abuse tax),
    • (C) subsection (m)(5)(B), (q), (t), or (v) of section 72 (relating to additional taxes on certain distributions),
    • (D) section 143(m) (relating to recapture of proration of Federal subsidy from use of mortgage bonds and mortgage credit certificates),
    • (E) section 530(d)(4) (relating to additional tax on certain distributions from Coverdell education savings accounts),
    • (F) section 531 (relating to accumulated earnings tax),
    • (G) section 541 (relating to personal holding company tax),
    • (H) section 1351(d)(1) (relating to recoveries of foreign expropriation losses),
    • (I) section 1374 (relating to tax on certain built-in gains of S corporations),
    • (J) section 1375 (relating to tax imposed when passive investment income of corporation having subchapter C earnings and profits exceeds 25 percent of gross receipts),
    • (K) subparagraph (A) of section 7518(g)(6) (relating to nonqualified withdrawals from capital construction funds taxed at highest marginal rate),
    • (L) sections 871(a) and 881 (relating to certain income of nonresident aliens and foreign corporations),
    • (M) section 860E(e) (relating to taxes with respect to certain residual interests),
    • (N) section 884 (relating to branch profits tax),
    • (O) sections 453( l )(3) and 453A(c) (relating to interest on certain deferred tax liabilities),
    • [(P) Repealed. Pub. L. 115–141, div. U, title IV, § 401(b)(2) , Mar. 23, 2018 , 132 Stat. 1201 .]
    • (Q) section 220(f)(4) (relating to additional tax on Archer MSA distributions not used for qualified medical expenses),
    • (R) section 138(c)(2) (relating to penalty for distributions from Medicare Advantage MSA not used for qualified medical expenses if minimum balance not maintained),
    • (S) sections 106(e)(3)(A)(ii), 223(b)(8)(B)(i)(II), and 408(d)(9)(D)(i)(II) (relating to certain failures to maintain high deductible health plan coverage),
    • (T) section 170( o )(3)(B) (relating to recapture of certain deductions for fractional gifts),
    • (U) section 223(f)(4) (relating to additional tax on health savings account distributions not used for qualified medical expenses),
    • (V) subsections (a)(1)(B)(i) and (b)(4)(A) of section 409A (relating to interest and additional tax with respect to certain deferred compensation),
    • (W) section 36(f) (relating to recapture of homebuyer credit),
    • (X) section 457A(c)(1)(B) (relating to determinability of amounts of compensation), and
    • (Y) section 529A(c)(3)(A) (relating to additional tax on ABLE account distributions not used for qualified disability expenses).
• (c) For purposes of this part, the term “tentative minimum tax” means the amount determined under section 55(b)(1).

§ 27. Taxes of foreign countries and possessions of the United States

The amount of taxes imposed by foreign countries and possessions of the United States shall be allowed as a credit against the tax imposed by this chapter to the extent provided in section 901 1 1 So in original. Probably should be followed by a period.

§ 30B. Alternative motor vehicle credit

• (a) There shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the sum of—
  • (1) the new qualified fuel cell motor vehicle credit determined under subsection (b),
  • (2) the new advanced lean burn technology motor vehicle credit determined under subsection (c),
  • (3) the new qualified hybrid motor vehicle credit determined under subsection (d),
  • (4) the new qualified alternative fuel motor vehicle credit determined under subsection (e), and
  • (5) the plug-in conversion credit determined under subsection (i).
• (b)
  • (1) For purposes of subsection (a), the new qualified fuel cell motor vehicle credit determined under this subsection with respect to a new qualified fuel cell motor vehicle placed in service by the taxpayer during the taxable year is—
    • (A) $8,000 ($4,000 in the case of a vehicle placed in service after December 31, 2009 ), if such vehicle has a gross vehicle weight rating of not more than 8,500 pounds,
    • (B) $10,000, if such vehicle has a gross vehicle weight rating of more than 8,500 pounds but not more than 14,000 pounds,
    • (C) $20,000, if such vehicle has a gross vehicle weight rating of more than 14,000 pounds but not more than 26,000 pounds, and
    • (D) $40,000, if such vehicle has a gross vehicle weight rating of more than 26,000 pounds.
  • (2)
    • (A) The amount determined under paragraph (1)(A) with respect to a new qualified fuel cell motor vehicle which is a passenger automobile or light truck shall be increased by—
      • (i) $1,000, if such vehicle achieves at least 150 percent but less than 175 percent of the 2002 model year city fuel economy,
      • (ii) $1,500, if such vehicle achieves at least 175 percent but less than 200 percent of the 2002 model year city fuel economy,
      • (iii) $2,000, if such vehicle achieves at least 200 percent but less than 225 percent of the 2002 model year city fuel economy,
      • (iv) $2,500, if such vehicle achieves at least 225 percent but less than 250 percent of the 2002 model year city fuel economy,
      • (v) $3,000, if such vehicle achieves at least 250 percent but less than 275 percent of the 2002 model year city fuel economy,
      • (vi) $3,500, if such vehicle achieves at least 275 percent but less than 300 percent of the 2002 model year city fuel economy, and
      • (vii) $4,000, if such vehicle achieves at least 300 percent of the 2002 model year city fuel economy.
    • (B) For purposes of subparagraph (A), the 2002 model year city fuel economy with respect to a vehicle shall be determined in accordance with the following tables:
      • (i) In the case of a passenger automobile: If vehicle inertia weight class is: The 2002 model year city fuel economy is: 1,500 or 1,750 lbs 45.2 mpg 2,000 lbs 39.6 mpg 2,250 lbs 35.2 mpg 2,500 lbs 31.7 mpg 2,750 lbs 28.8 mpg 3,000 lbs 26.4 mpg 3,500 lbs 22.6 mpg 4,000 lbs 19.8 mpg 4,500 lbs 17.6 mpg 5,000 lbs 15.9 mpg 5,500 lbs 14.4 mpg 6,000 lbs 13.2 mpg 6,500 lbs 12.2 mpg 7,000 to 8,500 lbs 11.3 mpg.
      • (ii) In the case of a light truck: If vehicle inertia weight class is: The 2002 model year city fuel economy is: 1,500 or 1,750 lbs 39.4 mpg 2,000 lbs 35.2 mpg 2,250 lbs 31.8 mpg 2,500 lbs 29.0 mpg 2,750 lbs 26.8 mpg 3,000 lbs 24.9 mpg 3,500 lbs 21.8 mpg 4,000 lbs 19.4 mpg 4,500 lbs 17.6 mpg 5,000 lbs 16.1 mpg 5,500 lbs 14.8 mpg 6,000 lbs 13.7 mpg 6,500 lbs 12.8 mpg 7,000 to 8,500 lbs 12.1 mpg.
    • (C) For purposes of subparagraph (B), the term “vehicle inertia weight class” has the same meaning as when defined in regulations prescribed by the Administrator of the Environmental Protection Agency for purposes of the administration of title II of the Clean Air Act ( 42 U.S.C. 7521 et seq.).
  • (3) For purposes of this subsection, the term “new qualified fuel cell motor vehicle” means a motor vehicle—
    • (A) which is propelled by power derived from 1 or more cells which convert chemical energy directly into electricity by combining oxygen with hydrogen fuel which is stored on board the vehicle in any form and may or may not require reformation prior to use,
    • (B) which, in the case of a passenger automobile or light truck, has received on or after the date of the enactment of this section a certificate that such vehicle meets or exceeds the Bin 5 Tier II emission level established in regulations prescribed by the Administrator of the Environmental Protection Agency under section 202(i) of the Clean Air Act for that make and model year vehicle,
    • (C) the original use of which commences with the taxpayer,
    • (D) which is acquired for use or lease by the taxpayer and not for resale, and
    • (E) which is made by a manufacturer.
• (c)
  • (1) For purposes of subsection (a), the new advanced lean burn technology motor vehicle credit determined under this subsection for the taxable year is the credit amount determined under paragraph (2) with respect to a new advanced lean burn technology motor vehicle placed in service by the taxpayer during the taxable year.
  • (2)
    • (A)
      • (i) The credit amount determined under this paragraph shall be determined in accordance with the following table: In the case of a vehicle which achieves a fuel economy (expressed as a percentage of the 2002 model year city fuel economy) of— The credit amount is— At least 125 percent but less than 150 percent $400 At least 150 percent but less than 175 percent $800 At least 175 percent but less than 200 percent $1,200 At least 200 percent but less than 225 percent $1,600 At least 225 percent but less than 250 percent $2,000 At least 250 percent $2,400.
      • (ii) For purposes of clause (i), the 2002 model year city fuel economy with respect to a vehicle shall be determined on a gasoline gallon equivalent basis as determined by the Administrator of the Environmental Protection Agency using the tables provided in subsection (b)(2)(B) with respect to such vehicle.
    • (B) The amount determined under subparagraph (A) with respect to a new advanced lean burn technology motor vehicle shall be increased by the conservation credit amount determined in accordance with the following table: In the case of a vehicle which achieves a lifetime fuel savings (expressed in gallons of gasoline) of— The conservation credit amount is— At least 1,200 but less than 1,800 $250 At least 1,800 but less than 2,400 $500 At least 2,400 but less than 3,000 $750 At least 3,000 $1,000.
  • (3) For purposes of this subsection, the term “new advanced lean burn technology motor vehicle” means a passenger automobile or a light truck—
    • (A) with an internal combustion engine which—
      • (i) is designed to operate primarily using more air than is necessary for complete combustion of the fuel,
      • (ii) incorporates direct injection,
      • (iii) achieves at least 125 percent of the 2002 model year city fuel economy,
      • (iv) for 2004 and later model vehicles, has received a certificate that such vehicle meets or exceeds—
        • (I) in the case of a vehicle having a gross vehicle weight rating of 6,000 pounds or less, the Bin 5 Tier II emission standard established in regulations prescribed by the Administrator of the Environmental Protection Agency under section 202(i) of the Clean Air Act for that make and model year vehicle, and
        • (II) in the case of a vehicle having a gross vehicle weight rating of more than 6,000 pounds but not more than 8,500 pounds, the Bin 8 Tier II emission standard which is so established,
    • (B) the original use of which commences with the taxpayer,
    • (C) which is acquired for use or lease by the taxpayer and not for resale, and
    • (D) which is made by a manufacturer.
  • (4) For purposes of this subsection, the term “lifetime fuel savings” means, in the case of any new advanced lean burn technology motor vehicle, an amount equal to the excess (if any) of—
    • (A) 120,000 divided by the 2002 model year city fuel economy for the vehicle inertia weight class, over
    • (B) 120,000 divided by the city fuel economy for such vehicle.
• (d)
  • (1) For purposes of subsection (a), the new qualified hybrid motor vehicle credit determined under this subsection for the taxable year is the credit amount determined under paragraph (2) with respect to a new qualified hybrid motor vehicle placed in service by the taxpayer during the taxable year.
  • (2)
    • (A) In the case of a new qualified hybrid motor vehicle which is a passenger automobile or light truck and which has a gross vehicle weight rating of not more than 8,500 pounds, the amount determined under this paragraph is the sum of the amounts determined under clauses (i) and (ii).
      • (i) The amount determined under this clause is the amount which would be determined under subsection (c)(2)(A) if such vehicle were a vehicle referred to in such subsection.
      • (ii) The amount determined under this clause is the amount which would be determined under subsection (c)(2)(B) if such vehicle were a vehicle referred to in such subsection.
    • (B)
      • (i) In the case of any new qualified hybrid motor vehicle to which subparagraph (A) does not apply, the amount determined under this paragraph is the amount equal to the applicable percentage of the qualified incremental hybrid cost of the vehicle as certified under clause (v).
      • (ii) For purposes of clause (i), the applicable percentage is—
        • (I) 20 percent if the vehicle achieves an increase in city fuel economy relative to a comparable vehicle of at least 30 percent but less than 40 percent,
        • (II) 30 percent if the vehicle achieves such an increase of at least 40 percent but less than 50 percent, and
        • (III) 40 percent if the vehicle achieves such an increase of at least 50 percent.
      • (iii) For purposes of this subparagraph, the qualified incremental hybrid cost of any vehicle is equal to the amount of the excess of the manufacturer’s suggested retail price for such vehicle over such price for a comparable vehicle, to the extent such amount does not exceed—
        • (I) $7,500, if such vehicle has a gross vehicle weight rating of not more than 14,000 pounds,
        • (II) $15,000, if such vehicle has a gross vehicle weight rating of more than 14,000 pounds but not more than 26,000 pounds, and
        • (III) $30,000, if such vehicle has a gross vehicle weight rating of more than 26,000 pounds.
      • (iv) For purposes of this subparagraph, the term “comparable vehicle” means, with respect to any new qualified hybrid motor vehicle, any vehicle which is powered solely by a gasoline or diesel internal combustion engine and which is comparable in weight, size, and use to such vehicle.
      • (v) A certification described in clause (i) shall be made by the manufacturer and shall be determined in accordance with guidance prescribed by the Secretary. Such guidance shall specify procedures and methods for calculating fuel economy savings and incremental hybrid costs.
  • (3) For purposes of this subsection—
    • (A) The term “new qualified hybrid motor vehicle” means a motor vehicle—
      • (i) which draws propulsion energy from onboard sources of stored energy which are both—
        • (I) an internal combustion or heat engine using consumable fuel, and
        • (II) a rechargeable energy storage system,
      • (ii) which, in the case of a vehicle to which paragraph (2)(A) applies, has received a certificate of conformity under the Clean Air Act and meets or exceeds the equivalent qualifying California low emission vehicle standard under section 243(e)(2) of the Clean Air Act for that make and model year, and
        • (I) in the case of a vehicle having a gross vehicle weight rating of 6,000 pounds or less, the Bin 5 Tier II emission standard established in regulations prescribed by the Administrator of the Environmental Protection Agency under section 202(i) of the Clean Air Act for that make and model year vehicle, and
        • (II) in the case of a vehicle having a gross vehicle weight rating of more than 6,000 pounds but not more than 8,500 pounds, the Bin 8 Tier II emission standard which is so established,
      • (iii) which has a maximum available power of at least—
        • (I) 4 percent in the case of a vehicle to which paragraph (2)(A) applies,
        • (II) 10 percent in the case of a vehicle which has a gross vehicle weight rating of more than 8,500 pounds and not more than 14,000 pounds, and
        • (III) 15 percent in the case of a vehicle in excess of 14,000 pounds,
      • (iv) which, in the case of a vehicle to which paragraph (2)(B) applies, has an internal combustion or heat engine which has received a certificate of conformity under the Clean Air Act as meeting the emission standards set in the regulations prescribed by the Administrator of the Environmental Protection Agency for 2004 through 2007 model year diesel heavy duty engines or ottocycle heavy duty engines, as applicable,
      • (v) the original use of which commences with the taxpayer,
      • (vi) which is acquired for use or lease by the taxpayer and not for resale, and
      • (vii) which is made by a manufacturer.
    • (B) For purposes of subparagraph (A)(i)(I), the term “consumable fuel” means any solid, liquid, or gaseous matter which releases energy when consumed by an auxiliary power unit.
    • (C)
      • (i) In the case of a vehicle to which paragraph (2)(A) applies, the term “maximum available power” means the maximum power available from the rechargeable energy storage system, during a standard 10 second pulse power or equivalent test, divided by such maximum power and the SAE net power of the heat engine.
      • (ii) In the case of a vehicle to which paragraph (2)(B) applies, the term “maximum available power” means the maximum power available from the rechargeable energy storage system, during a standard 10 second pulse power or equivalent test, divided by the vehicle’s total traction power. For purposes of the preceding sentence, the term “total traction power” means the sum of the peak power from the rechargeable energy storage system and the heat engine peak power of the vehicle, except that if such storage system is the sole means by which the vehicle can be driven, the total traction power is the peak power of such storage system.
    • (D) Any vehicle with respect to which a credit is allowable under section 30D (determined without regard to subsection (c) thereof) shall not be taken into account under this section.
• (e)
  • (1) Except as provided in paragraph (5), the new qualified alternative fuel motor vehicle credit determined under this subsection is an amount equal to the applicable percentage of the incremental cost of any new qualified alternative fuel motor vehicle placed in service by the taxpayer during the taxable year.
  • (2) For purposes of paragraph (1), the applicable percentage with respect to any new qualified alternative fuel motor vehicle is—
    • (A) 50 percent, plus
    • (B) 30 percent, if such vehicle—
      • (i) has received a certificate of conformity under the Clean Air Act and meets or exceeds the most stringent standard available for certification under the Clean Air Act for that make and model year vehicle (other than a zero emission standard), or
      • (ii) has received an order certifying the vehicle as meeting the same requirements as vehicles which may be sold or leased in California and meets or exceeds the most stringent standard available for certification under the State laws of California (enacted in accordance with a waiver granted under section 209(b) of the Clean Air Act) for that make and model year vehicle (other than a zero emission standard).
  • (3) For purposes of this subsection, the incremental cost of any new qualified alternative fuel motor vehicle is equal to the amount of the excess of the manufacturer’s suggested retail price for such vehicle over such price for a gasoline or diesel fuel motor vehicle of the same model, to the extent such amount does not exceed—
    • (A) $5,000, if such vehicle has a gross vehicle weight rating of not more than 8,500 pounds,
    • (B) $10,000, if such vehicle has a gross vehicle weight rating of more than 8,500 pounds but not more than 14,000 pounds,
    • (C) $25,000, if such vehicle has a gross vehicle weight rating of more than 14,000 pounds but not more than 26,000 pounds, and
    • (D) $40,000, if such vehicle has a gross vehicle weight rating of more than 26,000 pounds.
  • (4) For purposes of this subsection—
    • (A) The term “new qualified alternative fuel motor vehicle” means any motor vehicle—
      • (i) which is only capable of operating on an alternative fuel,
      • (ii) the original use of which commences with the taxpayer,
      • (iii) which is acquired by the taxpayer for use or lease, but not for resale, and
      • (iv) which is made by a manufacturer.
    • (B) The term “alternative fuel” means compressed natural gas, liquefied natural gas, liquefied petroleum gas, hydrogen, and any liquid at least 85 percent of the volume of which consists of methanol.
  • (5)
    • (A) In the case of a mixed-fuel vehicle placed in service by the taxpayer during the taxable year, the credit determined under this subsection is an amount equal to—
      • (i) in the case of a 75/25 mixed-fuel vehicle, 70 percent of the credit which would have been allowed under this subsection if such vehicle was a qualified alternative fuel motor vehicle, and
      • (ii) in the case of a 90/10 mixed-fuel vehicle, 90 percent of the credit which would have been allowed under this subsection if such vehicle was a qualified alternative fuel motor vehicle.
    • (B) For purposes of this subsection, the term “mixed-fuel vehicle” means any motor vehicle described in subparagraph (C) or (D) of paragraph (3), which—
      • (i) is certified by the manufacturer as being able to perform efficiently in normal operation on a combination of an alternative fuel and a petroleum-based fuel,
      • (ii) either—
        • (I) has received a certificate of conformity under the Clean Air Act, or
        • (II) has received an order certifying the vehicle as meeting the same requirements as vehicles which may be sold or leased in California and meets or exceeds the low emission vehicle standard under section 88.105–94 of title 40, Code of Federal Regulations, for that make and model year vehicle,
      • (iii) the original use of which commences with the taxpayer,
      • (iv) which is acquired by the taxpayer for use or lease, but not for resale, and
      • (v) which is made by a manufacturer.
    • (C) For purposes of this subsection, the term “75/25 mixed-fuel vehicle” means a mixed-fuel vehicle which operates using at least 75 percent alternative fuel and not more than 25 percent petroleum-based fuel.
    • (D) For purposes of this subsection, the term “90/10 mixed-fuel vehicle” means a mixed-fuel vehicle which operates using at least 90 percent alternative fuel and not more than 10 percent petroleum-based fuel.
• (f)
  • (1) In the case of a qualified vehicle sold during the phaseout period, only the applicable percentage of the credit otherwise allowable under subsection (c) or (d) shall be allowed.
  • (2) For purposes of this subsection, the phaseout period is the period beginning with the second calendar quarter following the calendar quarter which includes the first date on which the number of qualified vehicles manufactured by the manufacturer of the vehicle referred to in paragraph (1) sold for use in the United States after December 31, 2005 , is at least 60,000.
  • (3) For purposes of paragraph (1), the applicable percentage is—
    • (A) 50 percent for the first 2 calendar quarters of the phaseout period,
    • (B) 25 percent for the 3d and 4th calendar quarters of the phaseout period, and
    • (C) 0 percent for each calendar quarter thereafter.
  • (4)
    • (A) For purposes of this subsection, all persons treated as a single employer under subsection (a) or (b) of section 52 or subsection (m) or ( o ) of section 414 shall be treated as a single manufacturer.
    • (B) For purposes of subparagraph (A), in applying subsections (a) and (b) of section 52 to this section, section 1563 shall be applied without regard to subsection (b)(2)(C) thereof.
  • (5) For purposes of this subsection, the term “qualified vehicle” means any new qualified hybrid motor vehicle (described in subsection (d)(2)(A)) and any new advanced lean burn technology motor vehicle.
• (g)
  • (1) So much of the credit which would be allowed under subsection (a) for any taxable year (determined without regard to this subsection) that is attributable to property of a character subject to an allowance for depreciation shall be treated as a credit listed in section 38(b) for such taxable year (and not allowed under subsection (a)).
  • (2) For purposes of this title, the credit allowed under subsection (a) for any taxable year (determined after application of paragraph (1)) shall be treated as a credit allowable under subpart A for such taxable year.
• (h) For purposes of this section—
  • (1) The term “motor vehicle” means any vehicle which is manufactured primarily for use on public streets, roads, and highways (not including a vehicle operated exclusively on a rail or rails) and which has at least 4 wheels.
  • (2) The city fuel economy with respect to any vehicle shall be measured in a manner which is substantially similar to the manner city fuel economy is measured in accordance with procedures under part 600 of subchapter Q of chapter I of title 40, Code of Federal Regulations, as in effect on the date of the enactment of this section.
  • (3) The terms “automobile”, “passenger automobile”, “medium duty passenger vehicle”, “light truck”, and “manufacturer” have the meanings given such terms in regulations prescribed by the Administrator of the Environmental Protection Agency for purposes of the administration of title II of the Clean Air Act ( 42 U.S.C. 7521 et seq.).
  • (4) For purposes of this subtitle, the basis of any property for which a credit is allowable under subsection (a) shall be reduced by the amount of such credit so allowed (determined without regard to subsection (g)).
  • (5) The amount of any deduction or other credit allowable under this chapter—
    • (A) for any incremental cost taken into account in computing the amount of the credit determined under subsection (e) shall be reduced by the amount of such credit attributable to such cost, and
    • (B) with respect to a vehicle described under subsection (b) or (c), shall be reduced by the amount of credit allowed under subsection (a) for such vehicle for the taxable year (determined without regard to subsection (g)).
  • (6) In the case of a vehicle whose use is described in paragraph (3) or (4) of section 50(b) and which is not subject to a lease, the person who sold such vehicle to the person or entity using such vehicle shall be treated as the taxpayer that placed such vehicle in service, but only if such person clearly discloses to such person or entity in a document the amount of any credit allowable under subsection (a) with respect to such vehicle (determined without regard to subsection (g)). For purposes of subsection (g), property to which this paragraph applies shall be treated as of a character subject to an allowance for depreciation.
  • (7) No credit shall be allowable under subsection (a) with respect to any property referred to in section 50(b)(1) or with respect to the portion of the cost of any property taken into account under section 179.
  • (8) The Secretary shall, by regulations, provide for recapturing the benefit of any credit allowable under subsection (a) with respect to any property which ceases to be property eligible for such credit (including recapture in the case of a lease period of less than the economic life of a vehicle), except that no benefit shall be recaptured if such property ceases to be eligible for such credit by reason of conversion to a qualified plug-in electric drive motor vehicle.
  • (9) No credit shall be allowed under subsection (a) for any vehicle if the taxpayer elects to not have this section apply to such vehicle.
  • (10) Unless otherwise provided in this section, a motor vehicle shall not be considered eligible for a credit under this section unless such vehicle is in compliance with—
    • (A) the applicable provisions of the Clean Air Act for the applicable make and model year of the vehicle (or applicable air quality provisions of State law in the case of a State which has adopted such provision under a waiver under section 209(b) of the Clean Air Act), and
    • (B) the motor vehicle safety provisions of sections 30101 through 30169 of title 49, United States Code.
• (i)
  • (1) For purposes of subsection (a), the plug-in conversion credit determined under this subsection with respect to any motor vehicle which is converted to a qualified plug-in electric drive motor vehicle is 10 percent of so much of the cost of the converting such vehicle as does not exceed $40,000.
  • (2) For purposes of this subsection, the term “qualified plug-in electric drive motor vehicle” means any new qualified plug-in electric drive motor vehicle (as defined in section 30D, determined without regard to whether such vehicle is made by a manufacturer or whether the original use of such vehicle commences with the taxpayer).
  • (3) The credit allowed under this subsection shall be allowed with respect to a motor vehicle notwithstanding whether a credit has been allowed with respect to such motor vehicle under this section (other than this subsection) in any preceding taxable year.
  • (4) This subsection shall not apply to conversions made after December 31, 2011 .
• (j)
  • (1) Except as provided in paragraph (2), the Secretary shall promulgate such regulations as necessary to carry out the provisions of this section.
  • (2) The Secretary of the Treasury, in coordination with the Secretary of Transportation and the Administrator of the Environmental Protection Agency, shall prescribe such regulations as necessary to determine whether a motor vehicle meets the requirements to be eligible for a credit under this section.
• (k) This section shall not apply to any property purchased after—
  • (1) in the case of a new qualified fuel cell motor vehicle (as described in subsection (b)), December 31, 2020 ,
  • (2) in the case of a new advanced lean burn technology motor vehicle (as described in subsection (c)) or a new qualified hybrid motor vehicle (as described in subsection (d)(2)(A)), December 31, 2010 ,
  • (3) in the case of a new qualified hybrid motor vehicle (as described in subsection (d)(2)(B)), December 31, 2009 , and
  • (4) in the case of a new qualified alternative fuel vehicle (as described in subsection (e)), December 31, 2010 .

§ 30C. Alternative fuel vehicle refueling property credit

• (a) There shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to 30 percent of the cost of any qualified alternative fuel vehicle refueling property placed in service by the taxpayer during the taxable year.
• (b) The credit allowed under subsection (a) with respect to all qualified alternative fuel vehicle refueling property placed in service by the taxpayer during the taxable year at a location shall not exceed—
  • (1) $30,000 in the case of a property of a character subject to an allowance for depreciation, and
  • (2) $1,000 in any other case.
• (c) For purposes of this section, the term “qualified alternative fuel vehicle refueling property” has the same meaning as the term “qualified clean-fuel vehicle refueling property” would have under section 179A if—
  • (1) paragraph (1) of section 179A(d) did not apply to property installed on property which is used as the principal residence (within the meaning of section 121) of the taxpayer, and
  • (2) only the following were treated as clean-burning fuels for purposes of section 179A(d):
    • (A) Any fuel at least 85 percent of the volume of which consists of one or more of the following: ethanol, natural gas, compressed natural gas, liquified natural gas, liquefied petroleum gas, or hydrogen.
    • (B) Any mixture—
      • (i) which consists of two or more of the following: biodiesel (as defined in section 40A(d)(1)), diesel fuel (as defined in section 4083(a)(3)), or kerosene, and
      • (ii) at least 20 percent of the volume of which consists of biodiesel (as so defined) determined without regard to any kerosene in such mixture.
    • (C) Electricity.
• (d)
  • (1) So much of the credit which would be allowed under subsection (a) for any taxable year (determined without regard to this subsection) that is attributable to property of a character subject to an allowance for depreciation shall be treated as a credit listed in section 38(b) for such taxable year (and not allowed under subsection (a)).
  • (2) The credit allowed under subsection (a) (after the application of paragraph (1)) for any taxable year shall not exceed the excess (if any) of—
    • (A) the regular tax liability (as defined in section 26(b)) reduced by the sum of the credits allowable under subpart A and section 27, over
    • (B) the tentative minimum tax for the taxable year.
• (e) For purposes of this section—
  • (1) For purposes of this subtitle, the basis of any property for which a credit is allowable under subsection (a) shall be reduced by the amount of such credit so allowed (determined without regard to subsection (d)).
  • (2) In the case of any qualified alternative fuel vehicle refueling property the use of which is described in paragraph (3) or (4) of section 50(b) and which is not subject to a lease, the person who sold such property to the person or entity using such property shall be treated as the taxpayer that placed such property in service, but only if such person clearly discloses to such person or entity in a document the amount of any credit allowable under subsection (a) with respect to such property (determined without regard to subsection (d)). For purposes of subsection (d), property to which this paragraph applies shall be treated as of a character subject to an allowance for depreciation.
  • (3) No credit shall be allowable under subsection (a) with respect to any property referred to in section 50(b)(1) or with respect to the portion of the cost of any property taken into account under section 179.
  • (4) No credit shall be allowed under subsection (a) for any property if the taxpayer elects not to have this section apply to such property.
  • (5) Rules similar to the rules of section 179A(e)(4) shall apply.
  • (6) For purposes of this section, any reference to section 179A shall be treated as a reference to such section as in effect immediately before its repeal.
• (f) The Secretary shall prescribe such regulations as necessary to carry out the provisions of this section.
• (g) This section shall not apply to any property placed in service after December 31, 2020 .

§ 30D. New qualified plug-in electric drive motor vehicles

• (a) There shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the sum of the credit amounts determined under subsection (b) with respect to each new qualified plug-in electric drive motor vehicle placed in service by the taxpayer during the taxable year.
• (b)
  • (1) The amount determined under this subsection with respect to any new qualified plug-in electric drive motor vehicle is the sum of the amounts determined under paragraphs (2) and (3) with respect to such vehicle.
  • (2) The amount determined under this paragraph is $2,500.
  • (3) In the case of a vehicle which draws propulsion energy from a battery with not less than 5 kilowatt hours of capacity, the amount determined under this paragraph is $417, plus $417 for each kilowatt hour of capacity in excess of 5 kilowatt hours. The amount determined under this paragraph shall not exceed $5,000.
• (c)
  • (1) So much of the credit which would be allowed under subsection (a) for any taxable year (determined without regard to this subsection) that is attributable to property of a character subject to an allowance for depreciation shall be treated as a credit listed in section 38(b) for such taxable year (and not allowed under subsection (a)).
  • (2) For purposes of this title, the credit allowed under subsection (a) for any taxable year (determined after application of paragraph (1)) shall be treated as a credit allowable under subpart A for such taxable year.
• (d) For purposes of this section—
  • (1) The term “new qualified plug-in electric drive motor vehicle” means a motor vehicle—
    • (A) the original use of which commences with the taxpayer,
    • (B) which is acquired for use or lease by the taxpayer and not for resale,
    • (C) which is made by a manufacturer,
    • (D) which is treated as a motor vehicle for purposes of title II of the Clean Air Act,
    • (E) which has a gross vehicle weight rating of less than 14,000 pounds, and
    • (F) which is propelled to a significant extent by an electric motor which draws electricity from a battery which—
      • (i) has a capacity of not less than 4 kilowatt hours, and
      • (ii) is capable of being recharged from an external source of electricity.
  • (2) The term “motor vehicle” means any vehicle which is manufactured primarily for use on public streets, roads, and highways (not including a vehicle operated exclusively on a rail or rails) and which has at least 4 wheels.
  • (3) The term “manufacturer” has the meaning given such term in regulations prescribed by the Administrator of the Environmental Protection Agency for purposes of the administration of title II of the Clean Air Act ( 42 U.S.C. 7521 et seq.).
  • (4) The term “capacity” means, with respect to any battery, the quantity of electricity which the battery is capable of storing, expressed in kilowatt hours, as measured from a 100 percent state of charge to a 0 percent state of charge.
• (e)
  • (1) In the case of a new qualified plug-in electric drive motor vehicle sold during the phaseout period, only the applicable percentage of the credit otherwise allowable under subsection (a) shall be allowed.
  • (2) For purposes of this subsection, the phaseout period is the period beginning with the second calendar quarter following the calendar quarter which includes the first date on which the number of new qualified plug-in electric drive motor vehicles manufactured by the manufacturer of the vehicle referred to in paragraph (1) sold for use in the United States after December 31, 2009 , is at least 200,000.
  • (3) For purposes of paragraph (1), the applicable percentage is—
    • (A) 50 percent for the first 2 calendar quarters of the phaseout period,
    • (B) 25 percent for the 3d and 4th calendar quarters of the phaseout period, and
    • (C) 0 percent for each calendar quarter thereafter.
  • (4) Rules similar to the rules of section 30B(f)(4) shall apply for purposes of this subsection.
• (f)
  • (1) For purposes of this subtitle, the basis of any property for which a credit is allowable under subsection (a) shall be reduced by the amount of such credit so allowed (determined without regard to subsection (c)).
  • (2) The amount of any deduction or other credit allowable under this chapter for a vehicle for which a credit is allowable under subsection (a) shall be reduced by the amount of credit allowed under such subsection for such vehicle (determined without regard to subsection (c)).
  • (3) In the case of a vehicle the use of which is described in paragraph (3) or (4) of section 50(b) and which is not subject to a lease, the person who sold such vehicle to the person or entity using such vehicle shall be treated as the taxpayer that placed such vehicle in service, but only if such person clearly discloses to such person or entity in a document the amount of any credit allowable under subsection (a) with respect to such vehicle (determined without regard to subsection (c)). For purposes of subsection (c), property to which this paragraph applies shall be treated as of a character subject to an allowance for depreciation.
  • (4) No credit shall be allowable under subsection (a) with respect to any property referred to in section 50(b)(1).
  • (5) The Secretary shall, by regulations, provide for recapturing the benefit of any credit allowable under subsection (a) with respect to any property which ceases to be property eligible for such credit.
  • (6) No credit shall be allowed under subsection (a) for any vehicle if the taxpayer elects to not have this section apply to such vehicle.
  • (7) A vehicle shall not be considered eligible for a credit under this section unless such vehicle is in compliance with—
    • (A) the applicable provisions of the Clean Air Act for the applicable make and model year of the vehicle (or applicable air quality provisions of State law in the case of a State which has adopted such provision under a waiver under section 209(b) of the Clean Air Act), and
    • (B) the motor vehicle safety provisions of sections 30101 through 30169 of title 49, United States Code.
• (g)
  • (1) In the case of a qualified 2- or 3-wheeled plug-in electric vehicle—
    • (A) there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the sum of the applicable amount with respect to each such qualified 2- or 3-wheeled plug-in electric vehicle placed in service by the taxpayer during the taxable year, and
    • (B) the amount of the credit allowed under subparagraph (A) shall be treated as a credit allowed under subsection (a).
  • (2) For purposes of paragraph (1), the applicable amount is an amount equal to the lesser of—
    • (A) 10 percent of the cost of the qualified 2- or 3-wheeled plug-in electric vehicle, or
    • (B) $2,500.
  • (3) The term “qualified 2- or 3-wheeled plug-in electric vehicle” means any vehicle which—
    • (A) has 2 or 3 wheels,
    • (B) meets the requirements of subparagraphs (A), (B), (C), (E), and (F) of subsection (d)(1) (determined by substituting “2.5 kilowatt hours” for “4 kilowatt hours” in subparagraph (F)(i)),
    • (C) is manufactured primarily for use on public streets, roads, and highways,
    • (D) is capable of achieving a speed of 45 miles per hour or greater, and
    • (E) is acquired—
      • (i) after December 31, 2011 , and before January 1, 2014 , or
      • (ii) in the case of a vehicle that has 2 wheels, after December 31, 2014 , and before January 1, 2021 .

§ 31. Tax withheld on wages

• (a)
  • (1) The amount withheld as tax under chapter 24 shall be allowed to the recipient of the income as a credit against the tax imposed by this subtitle.
  • (2) The amount so withheld during any calendar year shall be allowed as a credit for the taxable year beginning in such calendar year. If more than one taxable year begins in a calendar year, such amount shall be allowed as a credit for the last taxable year so beginning.
• (b)
  • (1) The Secretary may prescribe regulations providing for the crediting against the tax imposed by this subtitle of the amount determined by the taxpayer or the Secretary to be allowable under section 6413(c) as a special refund of tax imposed on wages. The amount allowed as a credit under such regulations shall, for purposes of this subtitle, be considered an amount withheld at source as tax under section 3402.
  • (2) Any amount to which paragraph (1) applies shall be allowed as a credit for the taxable year beginning in the calendar year during which the wages were received. If more than one taxable year begins in the calendar year, such amount shall be allowed as a credit for the last taxable year so beginning.
• (c) Any credit allowed by subsection (a) for any amount withheld under section 3406 shall be allowed for the taxable year of the recipient of the income in which the income is received.

§ 32. Earned income

• (a)
  • (1) In the case of an eligible individual, there shall be allowed as a credit against the tax imposed by this subtitle for the taxable year an amount equal to the credit percentage of so much of the taxpayer’s earned income for the taxable year as does not exceed the earned income amount.
  • (2) The amount of the credit allowable to a taxpayer under paragraph (1) for any taxable year shall not exceed the excess (if any) of—
    • (A) the credit percentage of the earned income amount, over
    • (B) the phaseout percentage of so much of the adjusted gross income (or, if greater, the earned income) of the taxpayer for the taxable year as exceeds the phaseout amount.
• (b) For purposes of subsection (a)—
  • (1) The credit percentage and the phaseout percentage shall be determined as follows: In the case of an eligible individual with: The credit percentage is: The phaseout percentage is: 1 qualifying child 34 15.98 2 qualifying children 40 21.06 3 or more qualifying children 45 21.06 No qualifying children 7.65 7.65
  • (2)
    • (A) Subject to subparagraph (B), the earned income amount and the phaseout amount shall be determined as follows: In the case of an eligible individual with: The earned income amount is: The phaseout amount is: 1 qualifying child $6,330 $11,610 2 or more qualifying children $8,890 $11,610 No qualifying children $4,220 $5,280
    • (B) In the case of a joint return filed by an eligible individual and such individual’s spouse, the phaseout amount determined under subparagraph (A) shall be increased by $5,000.
• (c) For purposes of this section—
  • (1)
    • (A) The term “eligible individual” means—
      • (i) any individual who has a qualifying child for the taxable year, or
      • (ii) any other individual who does not have a qualifying child for the taxable year, if—
        • (I) such individual’s principal place of abode is in the United States for more than one-half of such taxable year,
        • (II) such individual (or, if the individual is married, either the individual or the individual’s spouse) has attained age 25 but not attained age 65 before the close of the taxable year, and
        • (III) such individual is not a dependent for whom a deduction is allowable under section 151 to another taxpayer for any taxable year beginning in the same calendar year as such taxable year.
    • (B) If an individual is the qualifying child of a taxpayer for any taxable year of such taxpayer beginning in a calendar year, such individual shall not be treated as an eligible individual for any taxable year of such individual beginning in such calendar year.
    • (C) The term “eligible individual” does not include any individual who claims the benefits of section 911 (relating to citizens or residents living abroad) for the taxable year.
    • (D) The term “eligible individual” shall not include any individual who is a nonresident alien individual for any portion of the taxable year unless such individual is treated for such taxable year as a resident of the United States for purposes of this chapter by reason of an election under subsection (g) or (h) of section 6013.
    • (E) No credit shall be allowed under this section to an eligible individual who does not include on the return of tax for the taxable year—
      • (i) such individual’s taxpayer identification number, and
      • (ii) if the individual is married (within the meaning of section 7703), the taxpayer identification number of such individual’s spouse.
    • (F) No credit shall be allowed under this section to any eligible individual who has one or more qualifying children if no qualifying child of such individual is taken into account under subsection (b) by reason of paragraph (3)(D).
  • (2)
    • (A) The term “earned income” means—
      • (i) wages, salaries, tips, and other employee compensation, but only if such amounts are includible in gross income for the taxable year, plus
      • (ii) the amount of the taxpayer’s net earnings from self-employment for the taxable year (within the meaning of section 1402(a)), but such net earnings shall be determined with regard to the deduction allowed to the taxpayer by section 164(f).
    • (B) For purposes of subparagraph (A)—
      • (i) the earned income of an individual shall be computed without regard to any community property laws,
      • (ii) no amount received as a pension or annuity shall be taken into account,
      • (iii) no amount to which section 871(a) applies (relating to income of nonresident alien individuals not connected with United States business) shall be taken into account,
      • (iv) no amount received for services provided by an individual while the individual is an inmate at a penal institution shall be taken into account,
      • (v) no amount described in subparagraph (A) received for service performed in work activities as defined in paragraph (4) or (7) of section 407(d) of the Social Security Act to which the taxpayer is assigned under any State program under part A of title IV of such Act shall be taken into account, but only to the extent such amount is subsidized under such State program, and
      • (vi) a taxpayer may elect to treat amounts excluded from gross income by reason of section 112 as earned income.
  • (3)
    • (A) The term “qualifying child” means a qualifying child of the taxpayer (as defined in section 152(c), determined without regard to paragraph (1)(D) thereof and section 152(e)).
    • (B) The term “qualifying child” shall not include an individual who is married as of the close of the taxpayer’s taxable year unless the taxpayer is entitled to a deduction under section 151 for such taxable year with respect to such individual (or would be so entitled but for section 152(e)).
    • (C) For purposes of subparagraph (A), the requirements of section 152(c)(1)(B) shall be met only if the principal place of abode is in the United States.
    • (D)
      • (i) A qualifying child shall not be taken into account under subsection (b) unless the taxpayer includes the name, age, and TIN of the qualifying child on the return of tax for the taxable year.
      • (ii) The Secretary may prescribe other methods for providing the information described in clause (i).
  • (4) For purposes of paragraphs (1)(A)(ii)(I) and (3)(C), the principal place of abode of a member of the Armed Forces of the United States shall be treated as in the United States during any period during which such member is stationed outside the United States while serving on extended active duty with the Armed Forces of the United States. For purposes of the preceding sentence, the term “extended active duty” means any period of active duty pursuant to a call or order to such duty for a period in excess of 90 days or for an indefinite period.
• (d) In the case of an individual who is married (within the meaning of section 7703), this section shall apply only if a joint return is filed for the taxable year under section 6013.
• (e) Except in the case of a taxable year closed by reason of the death of the taxpayer, no credit shall be allowable under this section in the case of a taxable year covering a period of less than 12 months.
• (f)
  • (1) The amount of the credit allowed by this section shall be determined under tables prescribed by the Secretary.
  • (2) The tables prescribed under paragraph (1) shall reflect the provisions of subsections (a) and (b) and shall have income brackets of not greater than $50 each—
    • (A) for earned income between $0 and the amount of earned income at which the credit is phased out under subsection (b), and
    • (B) for adjusted gross income between the dollar amount at which the phaseout begins under subsection (b) and the amount of adjusted gross income at which the credit is phased out under subsection (b).
• [(g)
• [(h)
• (i)
  • (1) No credit shall be allowed under subsection (a) for the taxable year if the aggregate amount of disqualified income of the taxpayer for the taxable year exceeds $2,200.
  • (2) For purposes of paragraph (1), the term “disqualified income” means—
    • (A) interest or dividends to the extent includible in gross income for the taxable year,
    • (B) interest received or accrued during the taxable year which is exempt from tax imposed by this chapter,
    • (C) the excess (if any) of—
      • (i) gross income from rents or royalties not derived in the ordinary course of a trade or business, over
      • (ii) the sum of—
        • (I) the deductions (other than interest) which are clearly and directly allocable to such gross income, plus
        • (II) interest deductions properly allocable to such gross income,
    • (D) the capital gain net income (as defined in section 1222) of the taxpayer for such taxable year, and
    • (E) the excess (if any) of—
      • (i) the aggregate income from all passive activities for the taxable year (determined without regard to any amount included in earned income under subsection (c)(2) or described in a preceding subparagraph), over
      • (ii) the aggregate losses from all passive activities for the taxable year (as so determined).
• (j)
  • (1) In the case of any taxable year beginning after 2015, each of the dollar amounts in subsections (b)(2) and (i)(1) shall be increased by an amount equal to—
    • (A) such dollar amount, multiplied by
    • (B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting in subparagraph (A)(ii) thereof—
      • (i) in the case of amounts in subsections (b)(2)(A) and (i)(1), “calendar year 1995” for “calendar year 2016”, and
      • (ii) in the case of the $5,000 amount in subsection (b)(2)(B), “calendar year 2008” for “calendar year 2016”.
  • (2)
    • (A) If any dollar amount in subsection (b)(2)(A) (after being increased under subparagraph (B) thereof), after being increased under paragraph (1), is not a multiple of $10, such dollar amount shall be rounded to the nearest multiple of $10.
    • (B) If the dollar amount in subsection (i)(1), after being increased under paragraph (1), is not a multiple of $50, such amount shall be rounded to the next lowest multiple of $50.
• (k)
  • (1)
    • (A) No credit shall be allowed under this section for any taxable year in the disallowance period.
    • (B) For purposes of paragraph (1), the disallowance period is—
      • (i) the period of 10 taxable years after the most recent taxable year for which there was a final determination that the taxpayer’s claim of credit under this section was due to fraud, and
      • (ii) the period of 2 taxable years after the most recent taxable year for which there was a final determination that the taxpayer’s claim of credit under this section was due to reckless or intentional disregard of rules and regulations (but not due to fraud).
  • (2) In the case of a taxpayer who is denied credit under this section for any taxable year as a result of the deficiency procedures under subchapter B of chapter 63, no credit shall be allowed under this section for any subsequent taxable year unless the taxpayer provides such information as the Secretary may require to demonstrate eligibility for such credit.
• (l) For purposes of—
  • (1) the United States Housing Act of 1937,
  • (2) title V of the Housing Act of 1949,
  • (3) section 101 of the Housing and Urban Development Act of 1965,
  • (4) sections 221(d)(3), 235, and 236 of the National Housing Act, and
  • (5) the Food and Nutrition Act of 2008,
• (m) Solely for purposes of subsections (c)(1)(E) and (c)(3)(D), a taxpayer identification number means a social security number issued to an individual by the Social Security Administration (other than a social security number issued pursuant to clause (II) (or that portion of clause (III) that relates to clause (II)) of section 205(c)(2)(B)(i) of the Social Security Act) on or before the due date for filing the return for the taxable year.

§ 33. Tax withheld at source on nonresident aliens and foreign corporations

There shall be allowed as a credit against the tax imposed by this subtitle the amount of tax withheld at source under subchapter A of chapter 3 (relating to withholding of tax on nonresident aliens and on foreign corporations).

§ 34. Certain uses of gasoline and special fuels

• (a) There shall be allowed as a credit against the tax imposed by this subtitle for the taxable year an amount equal to the sum of the amounts payable to the taxpayer—
  • (1) under section 6420 (determined without regard to section 6420(g)),
  • (2) under section 6421 (determined without regard to section 6421(i)), and
  • (3) under section 6427 (determined without regard to section 6427(k)).
• (b) Credit shall not be allowed under subsection (a) for any amount payable under section 6421 or 6427, if a claim for such amount is timely filed and, under section 6421(i) or 6427(k), is payable under such section.

§ 35. Health insurance costs of eligible individuals

• (a) In the case of an individual, there shall be allowed as a credit against the tax imposed by subtitle A an amount equal to 72.5 percent of the amount paid by the taxpayer for coverage of the taxpayer and qualifying family members under qualified health insurance for eligible coverage months beginning in the taxable year.
• (b) For purposes of this section—
  • (1) The term “eligible coverage month” means any month if—
    • (A) as of the first day of such month, the taxpayer—
      • (i) is an eligible individual,
      • (ii) is covered by qualified health insurance, the premium for which is paid by the taxpayer,
      • (iii) does not have other specified coverage, and
      • (iv) is not imprisoned under Federal, State, or local authority, and
    • (B) such month begins more than 90 days after the date of the enactment of the Trade Act of 2002, and before January 1, 2021 .
  • (2) In the case of a joint return, the requirements of paragraph (1)(A) shall be treated as met with respect to any month if at least 1 spouse satisfies such requirements.
• (c) For purposes of this section—
  • (1) The term “eligible individual” means—
    • (A) an eligible TAA recipient,
    • (B) an eligible alternative TAA recipient, and
    • (C) an eligible PBGC pension recipient.
  • (2)
    • (A) Except as provided in subparagraph (B), the term “eligible TAA recipient” means, with respect to any month, any individual who is receiving for any day of such month a trade readjustment allowance under chapter 2 of title II of the Trade Act of 1974 or who would be eligible to receive such allowance if section 231 of such Act were applied without regard to subsection (a)(3)(B) of such section. An individual shall continue to be treated as an eligible TAA recipient during the first month that such individual would otherwise cease to be an eligible TAA recipient by reason of the preceding sentence.
    • (B) In the case of any eligible coverage month beginning after the date of the enactment of this paragraph, the term “eligible TAA recipient” means, with respect to any month, any individual who—
      • (i) is receiving for any day of such month a trade readjustment allowance under chapter 2 of title II of the Trade Act of 1974,
      • (ii) would be eligible to receive such allowance except that such individual is in a break in training provided under a training program approved under section 236 of such Act that exceeds the period specified in section 233(e) of such Act, but is within the period for receiving such allowances provided under section 233(a) of such Act, or
      • (iii) is receiving unemployment compensation (as defined in section 85(b)) for any day of such month and who would be eligible to receive such allowance for such month if section 231 of such Act were applied without regard to subsections (a)(3)(B) and (a)(5) thereof.
  • (3) The term “eligible alternative TAA recipient” means, with respect to any month, any individual who—
    • (A) is a worker described in section 246(a)(3)(B) of the Trade Act of 1974 who is participating in the program established under section 246(a)(1) of such Act, and
    • (B) is receiving a benefit for such month under section 246(a)(2) of such Act.
  • (4) The term “eligible PBGC pension recipient” means, with respect to any month, any individual who—
    • (A) has attained age 55 as of the first day of such month, and
    • (B) is receiving a benefit for such month any portion of which is paid by the Pension Benefit Guaranty Corporation under title IV of the Employee Retirement Income Security Act of 1974.
• (d) For purposes of this section—
  • (1) The term “qualifying family member” means—
    • (A) the taxpayer’s spouse, and
    • (B) any dependent of the taxpayer with respect to whom the taxpayer is entitled to a deduction under section 151(c).
  • (2) If section 152(e) applies to any child with respect to any calendar year, in the case of any taxable year beginning in such calendar year, such child shall be treated as described in paragraph (1)(B) with respect to the custodial parent (as defined in section 152(e)(4)(A)) and not with respect to the noncustodial parent.
• (e) For purposes of this section—
  • (1) The term “qualified health insurance” means any of the following:
    • (A) Coverage under a COBRA continuation provision (as defined in section 9832(d)(1)).
    • (B) State-based continuation coverage provided by the State under a State law that requires such coverage.
    • (C) Coverage offered through a qualified State high risk pool (as defined in section 2744(c)(2) of the Public Health Service Act).
    • (D) Coverage under a health insurance program offered for State employees.
    • (E) Coverage under a State-based health insurance program that is comparable to the health insurance program offered for State employees.
    • (F) Coverage through an arrangement entered into by a State and—
      • (i) a group health plan (including such a plan which is a multiemployer plan as defined in section 3(37) of the Employee Retirement Income Security Act of 1974),
      • (ii) an issuer of health insurance coverage,
      • (iii) an administrator, or
      • (iv) an employer.
    • (G) Coverage offered through a State arrangement with a private sector health care coverage purchasing pool.
    • (H) Coverage under a State-operated health plan that does not receive any Federal financial participation.
    • (I) Coverage under a group health plan that is available through the employment of the eligible individual’s spouse.
    • (J) In the case of any eligible individual and such individual’s qualifying family members, coverage under individual health insurance (other than coverage enrolled in through an Exchange established under the Patient Protection and Affordable Care Act). For purposes of this subparagraph, the term “individual health insurance” means any insurance which constitutes medical care offered to individuals other than in connection with a group health plan and does not include Federal- or State-based health insurance coverage.
    • (K) Coverage under an employee benefit plan funded by a voluntary employees’ beneficiary association (as defined in section 501(c)(9)) established pursuant to an order of a bankruptcy court, or by agreement with an authorized representative, as provided in section 1114 of title 11 , United States Code.
  • (2)
    • (A) The term “qualified health insurance” does not include any coverage described in subparagraphs (B) through (H) of paragraph (1) unless the State involved has elected to have such coverage treated as qualified health insurance under this section and such coverage meets the following requirements:
      • (i) Each qualifying individual is guaranteed enrollment if the individual pays the premium for enrollment or provides a qualified health insurance costs credit eligibility certificate described in section 7527 and pays the remainder of such premium.
      • (ii) No pre-existing condition limitations are imposed with respect to any qualifying individual.
      • (iii) The total premium (as determined without regard to any subsidies) with respect to a qualifying individual may not be greater than the total premium (as so determined) for a similarly situated individual who is not a qualifying individual.
      • (iv) Benefits under the coverage are the same as (or substantially similar to) the benefits provided to similarly situated individuals who are not qualifying individuals.
    • (B) For purposes of this paragraph, the term “qualifying individual” means—
      • (i) an eligible individual for whom, as of the date on which the individual seeks to enroll in the coverage described in subparagraphs (B) through (H) of paragraph (1), the aggregate of the periods of creditable coverage (as defined in section 9801(c)) is 3 months or longer and who, with respect to any month, meets the requirements of clauses (iii) and (iv) of subsection (b)(1)(A); and
      • (ii) the qualifying family members of such eligible individual.
  • (3) The term “qualified health insurance” shall not include—
    • (A) a flexible spending or similar arrangement, and
    • (B) any insurance if substantially all of its coverage is of excepted benefits described in section 9832(c).
• (f) For purposes of this section, an individual has other specified coverage for any month if, as of the first day of such month—
  • (1)
    • (A) Such individual is covered under any insurance which constitutes medical care (except insurance substantially all of the coverage of which is of excepted benefits described in section 9832(c)) under any health plan maintained by any employer (or former employer) of the taxpayer or the taxpayer’s spouse and at least 50 percent of the cost of such coverage (determined under section 4980B) is paid or incurred by the employer.
    • (B) In the case of an eligible alternative TAA recipient, such individual is either—
      • (i) eligible for coverage under any qualified health insurance (other than insurance described in subparagraph (A), (B), or (F) of subsection (e)(1)) under which at least 50 percent of the cost of coverage (determined under section 4980B(f)(4)) is paid or incurred by an employer (or former employer) of the taxpayer or the taxpayer’s spouse, or
      • (ii) covered under any such qualified health insurance under which any portion of the cost of coverage (as so determined) is paid or incurred by an employer (or former employer) of the taxpayer or the taxpayer’s spouse.
    • (C) For purposes of subparagraphs (A) and (B), the cost of coverage shall be treated as paid or incurred by an employer to the extent the coverage is in lieu of a right to receive cash or other qualified benefits under a cafeteria plan (as defined in section 125(d)).
  • (2) Such individual—
    • (A) is entitled to benefits under part A of title XVIII of the Social Security Act or is enrolled under part B of such title, or
    • (B) is enrolled in the program under title XIX or XXI of such Act (other than under section 1928 of such Act).
  • (3) Such individual—
    • (A) is enrolled in a health benefits plan under chapter 89 of title 5, United States Code, or
    • (B) is entitled to receive benefits under chapter 55 of title 10, United States Code.
• (g)
  • (1) With respect to any taxable year, the amount which would (but for this subsection) be allowed as a credit to the taxpayer under subsection (a) shall be reduced (but not below zero) by the aggregate amount paid on behalf of such taxpayer under section 7527 for months beginning in such taxable year.
  • (2) Amounts taken into account under subsection (a) shall not be taken into account in determining any deduction allowed under section 162( l ) or 213.
  • (3) Amounts distributed from an Archer MSA (as defined in section 220(d)) or from a health savings account (as defined in section 223(d)) shall not be taken into account under subsection (a).
  • (4) No credit shall be allowed under this section to any individual with respect to whom a deduction under section 151 is allowable to another taxpayer for a taxable year beginning in the calendar year in which such individual’s taxable year begins.
  • (5) The spouse of the taxpayer shall not be treated as a qualifying family member for purposes of subsection (a), if—
    • (A) the taxpayer is married at the close of the taxable year,
    • (B) the taxpayer and the taxpayer’s spouse are both eligible individuals during the taxable year, and
    • (C) the taxpayer files a separate return for the taxable year.
  • (6) Rules similar to the rules of paragraphs (3) and (4) of section 21(e) shall apply for purposes of this section.
  • (7) For purposes of this section, rules similar to the rules of section 213(d)(6) shall apply with respect to any contract for qualified health insurance under which amounts are payable for coverage of an individual other than the taxpayer and qualifying family members.
  • (8) For purposes of this section—
    • (A) Payments made by the Secretary on behalf of any individual under section 7527 (relating to advance payment of credit for health insurance costs of eligible individuals) shall be treated as having been made by the taxpayer on the first day of the month for which such payment was made.
    • (B) Payments made by the taxpayer for eligible coverage months shall be treated as having been made by the taxpayer on the first day of the month for which such payment was made.
  • (9) In the case of an assistance eligible individual who receives premium reduction for COBRA continuation coverage under section 3001(a) of title III of division B of the American Recovery and Reinvestment Act of 2009 for any month during the taxable year, such individual shall not be treated as an eligible individual, a certified individual, or a qualifying family member for purposes of this section or section 7527 with respect to such month.
  • (10)
    • (A) In the case of any month which would be an eligible coverage month with respect to an eligible individual but for subsection (f)(2)(A), such month shall be treated as an eligible coverage month with respect to such eligible individual solely for purposes of determining the amount of the credit under this section with respect to any qualifying family members of such individual (and any advance payment of such credit under section 7527). This subparagraph shall only apply with respect to the first 24 months after such eligible individual is first entitled to the benefits described in subsection (f)(2)(A).
    • (B) In the case of the finalization of a divorce between an eligible individual and such individual’s spouse, such spouse shall be treated as an eligible individual for purposes of this section and section 7527 for a period of 24 months beginning with the date of such finalization, except that the only qualifying family members who may be taken into account with respect to such spouse are those individuals who were qualifying family members immediately before such finalization.
    • (C) In the case of the death of an eligible individual—
      • (i) any spouse of such individual (determined at the time of such death) shall be treated as an eligible individual for purposes of this section and section 7527 for a period of 24 months beginning with the date of such death, except that the only qualifying family members who may be taken into account with respect to such spouse are those individuals who were qualifying family members immediately before such death, and
      • (ii) any individual who was a qualifying family member of the decedent immediately before such death (or, in the case of an individual to whom paragraph (4) applies, the taxpayer to whom the deduction under section 151 is allowable) shall be treated as an eligible individual for purposes of this section and section 7527 for a period of 24 months beginning with the date of such death, except that in determining the amount of such credit only such qualifying family member may be taken into account.
  • (11)
    • (A) This section shall not apply to any taxpayer for any eligible coverage month unless such taxpayer elects the application of this section for such month.
    • (B) Except as the Secretary may provide—
      • (i) an election to have this section apply for any eligible coverage month in a taxable year shall be made not later than the due date (including extensions) for the return of tax for the taxable year; and
      • (ii) any election for this section to apply for an eligible coverage month shall apply for all subsequent eligible coverage months in the taxable year and, once made, shall be irrevocable with respect to such months.
  • (12)
    • (A) An eligible coverage month to which the election under paragraph (11) applies shall not be treated as a coverage month (as defined in section 36B(c)(2)) for purposes of section 36B with respect to the taxpayer.
    • (B) In the case of a taxpayer who makes the election under paragraph (11) with respect to any eligible coverage month in a taxable year or on behalf of whom any advance payment is made under section 7527 with respect to any month in such taxable year—
      • (i) the tax imposed by this chapter for the taxable year shall be increased by the excess, if any, of—
        • (I) the sum of any advance payments made on behalf of the taxpayer under section 1412 of the Patient Protection and Affordable Care Act and section 7527 for months during such taxable year, over
        • (II) the sum of the credits allowed under this section (determined without regard to paragraph (1)) and section 36B (determined without regard to subsection (f)(1) thereof) for such taxable year; and
      • (ii) section 36B(f)(2) shall not apply with respect to such taxpayer for such taxable year, except that if such taxpayer received any advance payments under section 7527 for any month in such taxable year and is later allowed a credit under section 36B for such taxable year, then section 36B(f)(2)(B) shall be applied by substituting the amount determined under clause (i) for the amount determined under section 36B(f)(2)(A).
  • (13) The Secretary may prescribe such regulations and other guidance as may be necessary or appropriate to carry out this section, section 6050T, and section 7527.

§ 36. First-time homebuyer credit

• (a) In the case of an individual who is a first-time homebuyer of a principal residence in the United States during a taxable year, there shall be allowed as a credit against the tax imposed by this subtitle for such taxable year an amount equal to 10 percent of the purchase price of the residence.
• (b)
  • (1)
    • (A) Except as otherwise provided in this paragraph, the credit allowed under subsection (a) shall not exceed $8,000.
    • (B) In the case of a married individual filing a separate return, subparagraph (A) shall be applied by substituting “$4,000” for “$8,000”.
    • (C) If two or more individuals who are not married purchase a principal residence, the amount of the credit allowed under subsection (a) shall be allocated among such individuals in such manner as the Secretary may prescribe, except that the total amount of the credits allowed to all such individuals shall not exceed $8,000.
    • (D) In the case of a taxpayer to whom a credit under subsection (a) is allowed by reason of subsection (c)(6), subparagraphs (A), (B), and (C) shall be applied by substituting “$6,500” for “$8,000” and “$3,250” for “$4,000”.
  • (2)
    • (A) The amount allowable as a credit under subsection (a) (determined without regard to this paragraph) for the taxable year shall be reduced (but not below zero) by the amount which bears the same ratio to the amount which is so allowable as—
      • (i) the excess (if any) of—
        • (I) the taxpayer’s modified adjusted gross income for such taxable year, over
        • (II) $125,000 ($225,000 in the case of a joint return), bears to
      • (ii) $20,000.
    • (B) For purposes of subparagraph (A), the term “modified adjusted gross income” means the adjusted gross income of the taxpayer for the taxable year increased by any amount excluded from gross income under section 911, 931, or 933.
  • (3) No credit shall be allowed under subsection (a) for the purchase of any residence if the purchase price of such residence exceeds $800,000.
  • (4) No credit shall be allowed under subsection (a) with respect to the purchase of any residence unless the taxpayer has attained age 18 as of the date of such purchase. In the case of any taxpayer who is married (within the meaning of section 7703), the taxpayer shall be treated as meeting the age requirement of the preceding sentence if the taxpayer or the taxpayer’s spouse meets such age requirement.
• (c) For purposes of this section—
  • (1) The term “first-time homebuyer” means any individual if such individual (and if married, such individual’s spouse) had no present ownership interest in a principal residence during the 3-year period ending on the date of the purchase of the principal residence to which this section applies.
  • (2) The term “principal residence” has the same meaning as when used in section 121.
  • (3)
    • (A) The term “purchase” means any acquisition, but only if—
      • (i) the property is not acquired from a person related to the person acquiring such property (or, if married, such individual’s spouse), and
      • (ii) the basis of the property in the hands of the person acquiring such property is not determined—
        • (I) in whole or in part by reference to the adjusted basis of such property in the hands of the person from whom acquired, or
        • (II) under section 1014(a) (relating to property acquired from a decedent).
    • (B) A residence which is constructed by the taxpayer shall be treated as purchased by the taxpayer on the date the taxpayer first occupies such residence.
  • (4) The term “purchase price” means the adjusted basis of the principal residence on the date such residence is purchased.
  • (5) A person shall be treated as related to another person if the relationship between such persons would result in the disallowance of losses under section 267 or 707(b) (but, in applying section 267(b) and (c) for purposes of this section, paragraph (4) of section 267(c) shall be treated as providing that the family of an individual shall include only his spouse, ancestors, and lineal descendants).
  • (6) In the case of an individual (and, if married, such individual’s spouse) who has owned and used the same residence as such individual’s principal residence for any 5-consecutive-year period during the 8-year period ending on the date of the purchase of a subsequent principal residence, such individual shall be treated as a first-time homebuyer for purposes of this section with respect to the purchase of such subsequent residence.
• (d) No credit under subsection (a) shall be allowed to any taxpayer for any taxable year with respect to the purchase of a residence if—
  • (1) the taxpayer is a nonresident alien,
  • (2) the taxpayer disposes of such residence (or such residence ceases to be the principal residence of the taxpayer (and, if married, the taxpayer’s spouse)) before the close of such taxable year,
  • (3) a deduction under section 151 with respect to such taxpayer is allowable to another taxpayer for such taxable year, or
  • (4) the taxpayer fails to attach to the return of tax for such taxable year a properly executed copy of the settlement statement used to complete such purchase.
• (e) If the Secretary requires information reporting under section 6045 by a person described in subsection (e)(2) thereof to verify the eligibility of taxpayers for the credit allowable by this section, the exception provided by section 6045(e) shall not apply.
• (f)
  • (1) Except as otherwise provided in this subsection, if a credit under subsection (a) is allowed to a taxpayer, the tax imposed by this chapter shall be increased by 6⅔ percent of the amount of such credit for each taxable year in the recapture period.
  • (2) If a taxpayer disposes of the principal residence with respect to which a credit was allowed under subsection (a) (or such residence ceases to be the principal residence of the taxpayer (and, if married, the taxpayer’s spouse)) before the end of the recapture period—
    • (A) the tax imposed by this chapter for the taxable year of such disposition or cessation shall be increased by the excess of the amount of the credit allowed over the amounts of tax imposed by paragraph (1) for preceding taxable years, and
    • (B) paragraph (1) shall not apply with respect to such credit for such taxable year or any subsequent taxable year.
  • (3) In the case of the sale of the principal residence to a person who is not related to the taxpayer, the increase in tax determined under paragraph (2) shall not exceed the amount of gain (if any) on such sale. Solely for purposes of the preceding sentence, the adjusted basis of such residence shall be reduced by the amount of the credit allowed under subsection (a) to the extent not previously recaptured under paragraph (1).
  • (4)
    • (A) Paragraphs (1) and (2) shall not apply to any taxable year ending after the date of the taxpayer’s death.
    • (B) Paragraph (2) shall not apply in the case of a residence which is compulsorily or involuntarily converted (within the meaning of section 1033(a)) if the taxpayer acquires a new principal residence during the 2-year period beginning on the date of the disposition or cessation referred to in paragraph (2). Paragraph (2) shall apply to such new principal residence during the recapture period in the same manner as if such new principal residence were the converted residence.
    • (C) In the case of a transfer of a residence to which section 1041(a) applies—
      • (i) paragraph (2) shall not apply to such transfer, and
      • (ii) in the case of taxable years ending after such transfer, paragraphs (1) and (2) shall apply to the transferee in the same manner as if such transferee were the transferor (and shall not apply to the transferor).
    • (D) In the case of any credit allowed with respect to the purchase of a principal residence after December 31, 2008 —
      • (i) paragraph (1) shall not apply, and
      • (ii) paragraph (2) shall apply only if the disposition or cessation described in paragraph (2) with respect to such residence occurs during the 36-month period beginning on the date of the purchase of such residence by the taxpayer.
    • (E)
      • (i) In the case of the disposition of a principal residence by an individual (or a cessation referred to in paragraph (2)) after December 31, 2008 , in connection with Government orders received by such individual, or such individual’s spouse, for qualified official extended duty service—
        • (I) paragraph (2) and subsection (d)(2) shall not apply to such disposition (or cessation), and
        • (II) if such residence was acquired before January 1, 2009 , paragraph (1) shall not apply to the taxable year in which such disposition (or cessation) occurs or any subsequent taxable year.
      • (ii) For purposes of this section, the term “qualified official extended duty service” means service on qualified official extended duty as—
        • (I) a member of the uniformed services,
        • (II) a member of the Foreign Service of the United States, or
        • (III) an employee of the intelligence community.
      • (iii) Any term used in this subparagraph which is also used in paragraph (9) of section 121(d) shall have the same meaning as when used in such paragraph.
  • (5) In the case of a credit allowed under subsection (a) with respect to a joint return, half of such credit shall be treated as having been allowed to each individual filing such return for purposes of this subsection.
  • (6) If the tax imposed by this chapter for the taxable year is increased under this subsection, the taxpayer shall, notwithstanding section 6012, be required to file a return with respect to the taxes imposed under this subtitle.
  • (7) For purposes of this subsection, the term “recapture period” means the 15 taxable years beginning with the second taxable year following the taxable year in which the purchase of the principal residence for which a credit is allowed under subsection (a) was made.
• (g) In the case of a purchase of a principal residence after December 31, 2008 , a taxpayer may elect to treat such purchase as made on December 31 of the calendar year preceding such purchase for purposes of this section (other than subsections (b)(4), (c), (f)(4)(D), and (h)).
• (h)
  • (1) This section shall only apply to a principal residence purchased by the taxpayer on or after April 9, 2008 , and before May 1, 2010 .
  • (2) In the case of any taxpayer who enters into a written binding contract before May 1, 2010 , to close on the purchase of a principal residence before July 1, 2010 , and who purchases such residence before October 1, 2010 , paragraph (1) shall be applied by substituting “ October 1, 2010 ” for “ May 1, 2010 ”.
  • (3) In the case of any individual who serves on qualified official extended duty service (as defined in section 121(d)(9)(C)(i)) outside the United States for at least 90 days during the period beginning after December 31, 2008 , and ending before May 1, 2010 , and, if married, such individual’s spouse—
    • (A) paragraphs (1) and (2) shall each be applied by substituting “ May 1, 2011 ” for “ May 1, 2010 ”, and
    • (B) paragraph (2) shall be applied by substituting “ July 1, 2011 ” for “ July 1, 2010 ”, and for “ October 1, 2010 ”.

§ 36B. Refundable credit for coverage under a qualified health plan

• (a) In the case of an applicable taxpayer, there shall be allowed as a credit against the tax imposed by this subtitle for any taxable year an amount equal to the premium assistance credit amount of the taxpayer for the taxable year.
• (b) For purposes of this section—
  • (1) The term “premium assistance credit amount” means, with respect to any taxable year, the sum of the premium assistance amounts determined under paragraph (2) with respect to all coverage months of the taxpayer occurring during the taxable year.
  • (2) The premium assistance amount determined under this subsection with respect to any coverage month is the amount equal to the lesser of—
    • (A) the monthly premiums for such month for 1 or more qualified health plans offered in the individual market within a State which cover the taxpayer, the taxpayer’s spouse, or any dependent (as defined in section 152) of the taxpayer and which were enrolled in through an Exchange established by the State under 1311 1 1 So in original. Probably should be preceded by “section”. of the Patient Protection and Affordable Care Act, or
    • (B) the excess (if any) of—
      • (i) the adjusted monthly premium for such month for the applicable second lowest cost silver plan with respect to the taxpayer, over
      • (ii) an amount equal to 1/12 of the product of the applicable percentage and the taxpayer’s household income for the taxable year.
  • (3) For purposes of paragraph (2)—
    • (A)
      • (i) Except as provided in clause (ii), the applicable percentage for any taxable year shall be the percentage such that the applicable percentage for any taxpayer whose household income is within an income tier specified in the following table shall increase, on a sliding scale in a linear manner, from the initial premium percentage to the final premium percentage specified in such table for such income tier: In the case of household income (expressed as a percent of poverty line) within the following income tier: The initial premium percentage is— The final premium percentage is— Up to 133% 2.0% 2.0% 133% up to 150% 3.0% 4.0% 150% up to 200% 4.0% 6.3% 200% up to 250% 6.3% 8.05% 250% up to 300% 8.05% 9.5% 300% up to 400% 9.5% 9.5%.
      • (ii)
        • (I) Subject to subclause (II), in the case of taxable years beginning in any calendar year after 2014, the initial and final applicable percentages under clause (i) (as in effect for the preceding calendar year after application of this clause) shall be adjusted to reflect the excess of the rate of premium growth for the preceding calendar year over the rate of income growth for the preceding calendar year.
        • (II) Except as provided in subclause (III), in the case of any calendar year after 2018, the percentages described in subclause (I) shall, in addition to the adjustment under subclause (I), be adjusted to reflect the excess (if any) of the rate of premium growth estimated under subclause (I) for the preceding calendar year over the rate of growth in the consumer price index for the preceding calendar year.
        • (III) Subclause (II) shall apply for any calendar year only if the aggregate amount of premium tax credits under this section and cost-sharing reductions under section 1402 of the Patient Protection and Affordable Care Act for the preceding calendar year exceeds an amount equal to 0.504 percent of the gross domestic product for the preceding calendar year.
    • (B) The applicable second lowest cost silver plan with respect to any applicable taxpayer is the second lowest cost silver plan of the individual market in the rating area in which the taxpayer resides which—
      • (i) is offered through the same Exchange through which the qualified health plans taken into account under paragraph (2)(A) were offered, and
      • (ii) provides—
        • (I) self-only coverage in the case of an applicable taxpayer—
        • (II) family coverage in the case of any other applicable taxpayer.
    • (C) The adjusted monthly premium for an applicable second lowest cost silver plan is the monthly premium which would have been charged (for the rating area with respect to which the premiums under paragraph (2)(A) were determined) for the plan if each individual covered under a qualified health plan taken into account under paragraph (2)(A) were covered by such silver plan and the premium was adjusted only for the age of each such individual in the manner allowed under section 2701 of the Public Health Service Act. In the case of a State participating in the wellness discount demonstration project under section 2705(d) of the Public Health Service Act, the adjusted monthly premium shall be determined without regard to any premium discount or rebate under such project.
    • (D) If—
      • (i) a qualified health plan under section 1302(b)(5) of the Patient Protection and Affordable Care Act offers benefits in addition to the essential health benefits required to be provided by the plan, or
      • (ii) a State requires a qualified health plan under section 1311(d)(3)(B) of such Act to cover benefits in addition to the essential health benefits required to be provided by the plan,
    • (E) For purposes of determining the amount of any monthly premium, if an individual enrolls in both a qualified health plan and a plan described in section 1311(d)(2)(B)(ii)(I) 2 of the Patient Protection and Affordable Care Act for any plan year, the portion of the premium for the plan described in such section that (under regulations prescribed by the Secretary) is properly allocable to pediatric dental benefits which are included in the essential health benefits required to be provided by a qualified health plan under section 1302(b)(1)(J) of such Act shall be treated as a premium payable for a qualified health plan.
• (c) For purposes of this section—
  • (1)
    • (A) The term “applicable taxpayer” means, with respect to any taxable year, a taxpayer whose household income for the taxable year equals or exceeds 100 percent but does not exceed 400 percent of an amount equal to the poverty line for a family of the size involved.
    • (B) If—
      • (i) a taxpayer has a household income which is not greater than 100 percent of an amount equal to the poverty line for a family of the size involved, and
      • (ii) the taxpayer is an alien lawfully present in the United States, but is not eligible for the medicaid program under title XIX of the Social Security Act by reason of such alien status,
    • (C) If the taxpayer is married (within the meaning of section 7703) at the close of the taxable year, the taxpayer shall be treated as an applicable taxpayer only if the taxpayer and the taxpayer’s spouse file a joint return for the taxable year.
    • (D) No credit shall be allowed under this section to any individual with respect to whom a deduction under section 151 is allowable to another taxpayer for a taxable year beginning in the calendar year in which such individual’s taxable year begins.
  • (2) For purposes of this subsection—
    • (A) The term “coverage month” means, with respect to an applicable taxpayer, any month if—
      • (i) as of the first day of such month the taxpayer, the taxpayer’s spouse, or any dependent of the taxpayer is covered by a qualified health plan described in subsection (b)(2)(A) that was enrolled in through an Exchange established by the State under section 1311 of the Patient Protection and Affordable Care Act, and
      • (ii) the premium for coverage under such plan for such month is paid by the taxpayer (or through advance payment of the credit under subsection (a) under section 1412 of the Patient Protection and Affordable Care Act).
    • (B)
      • (i) The term “coverage month” shall not include any month with respect to an individual if for such month the individual is eligible for minimum essential coverage other than eligibility for coverage described in section 5000A(f)(1)(C) (relating to coverage in the individual market).
      • (ii) The term “minimum essential coverage” has the meaning given such term by section 5000A(f).
    • (C) For purposes of subparagraph (B)—
      • (i) Except as provided in clause (iii), an employee shall not be treated as eligible for minimum essential coverage if such coverage—
        • (I) consists of an eligible employer-sponsored plan (as defined in section 5000A(f)(2)), and
        • (II) the employee’s required contribution (within the meaning of section 5000A(e)(1)(B)) with respect to the plan exceeds 9.5 percent of the applicable taxpayer’s household income.
      • (ii) Except as provided in clause (iii), an employee shall not be treated as eligible for minimum essential coverage if such coverage consists of an eligible employer-sponsored plan (as defined in section 5000A(f)(2)) and the plan’s share of the total allowed costs of benefits provided under the plan is less than 60 percent of such costs.
      • (iii) Clauses (i) and (ii) shall not apply if the employee (or any individual described in the last sentence of clause (i)) is covered under the eligible employer-sponsored plan or the grandfathered health plan.
      • (iv) In the case of plan years beginning in any calendar year after 2014, the Secretary shall adjust the 9.5 percent under clause (i)(II) in the same manner as the percentages are adjusted under subsection (b)(3)(A)(ii).
  • (3)
    • (A) The term “qualified health plan” has the meaning given such term by section 1301(a) of the Patient Protection and Affordable Care Act, except that such term shall not include a qualified health plan which is a catastrophic plan described in section 1302(e) of such Act.
    • (B) The term “grandfathered health plan” has the meaning given such term by section 1251 of the Patient Protection and Affordable Care Act.
  • (4)
    • (A) The term “coverage month” shall not include any month with respect to an employee (or any spouse or dependent of such employee) if for such month the employee is provided a qualified small employer health reimbursement arrangement which constitutes affordable coverage.
    • (B) In the case of any employee who is provided a qualified small employer health reimbursement arrangement for any coverage month (determined without regard to subparagraph (A)), the credit otherwise allowable under subsection (a) to the taxpayer for such month shall be reduced (but not below zero) by the amount described in subparagraph (C)(i)(II) for such month.
    • (C) For purposes of subparagraph (A), a qualified small employer health reimbursement arrangement shall be treated as constituting affordable coverage for a month if—
      • (i) the excess of—
        • (I) the amount that would be paid by the employee as the premium for such month for self-only coverage under the second lowest cost silver plan offered in the relevant individual health insurance market, over
        • (II) 1 ⁄ 12 of the employee’s permitted benefit (as defined in section 9831(d)(3)(C)) under such arrangement, does not exceed—
      • (ii) 1 ⁄ 12 of 9.5 percent of the employee’s household income.
    • (D) For purposes of this paragraph, the term “qualified small employer health reimbursement arrangement” has the meaning given such term by section 9831(d)(2).
    • (E) In the case of an employee who is provided a qualified small employer health reimbursement arrangement for less than an entire year, subparagraph (C)(i)(II) shall be applied by substituting “the number of months during the year for which such arrangement was provided” for “12”.
    • (F) In the case of plan years beginning in any calendar year after 2014, the Secretary shall adjust the 9.5 percent amount under subparagraph (C)(ii) in the same manner as the percentages are adjusted under subsection (b)(3)(A)(ii).
• (d) For purposes of this section—
  • (1) The family size involved with respect to any taxpayer shall be equal to the number of individuals for whom the taxpayer is allowed a deduction under section 151 (relating to allowance of deduction for personal exemptions) for the taxable year.
  • (2)
    • (A) The term “household income” means, with respect to any taxpayer, an amount equal to the sum of—
      • (i) the modified adjusted gross income of the taxpayer, plus
      • (ii) the aggregate modified adjusted gross incomes of all other individuals who—
        • (I) were taken into account in determining the taxpayer’s family size under paragraph (1), and
        • (II) were required to file a return of tax imposed by section 1 for the taxable year.
    • (B) The term “modified adjusted gross income” means adjusted gross income increased by—
      • (i) any amount excluded from gross income under section 911,
      • (ii) any amount of interest received or accrued by the taxpayer during the taxable year which is exempt from tax, and
      • (iii) an amount equal to the portion of the taxpayer’s social security benefits (as defined in section 86(d)) which is not included in gross income under section 86 for the taxable year.
  • (3)
    • (A) The term “poverty line” has the meaning given that term in section 2110(c)(5) of the Social Security Act ( 42 U.S.C. 1397jj(c)(5) ).
    • (B) In the case of any qualified health plan offered through an Exchange for coverage during a taxable year beginning in a calendar year, the poverty line used shall be the most recently published poverty line as of the 1st day of the regular enrollment period for coverage during such calendar year.
• (e)
  • (1) If 1 or more individuals for whom a taxpayer is allowed a deduction under section 151 (relating to allowance of deduction for personal exemptions) for the taxable year (including the taxpayer or his spouse) are individuals who are not lawfully present—
    • (A) the aggregate amount of premiums otherwise taken into account under clauses (i) and (ii) of subsection (b)(2)(A) shall be reduced by the portion (if any) of such premiums which is attributable to such individuals, and
    • (B) for purposes of applying this section, the determination as to what percentage a taxpayer’s household income bears to the poverty level for a family of the size involved shall be made under one of the following methods:
      • (i) A method under which—
        • (I) the taxpayer’s family size is determined by not taking such individuals into account, and
        • (II) the taxpayer’s household income is equal to the product of the taxpayer’s household income (determined without regard to this subsection) and a fraction—
      • (ii) A comparable method reaching the same result as the method under clause (i).
  • (2) For purposes of this section, an individual shall be treated as lawfully present only if the individual is, and is reasonably expected to be for the entire period of enrollment for which the credit under this section is being claimed, a citizen or national of the United States or an alien lawfully present in the United States.
  • (3) The Secretary of Health and Human Services, in consultation with the Secretary, shall prescribe rules setting forth the methods by which calculations of family size and household income are made for purposes of this subsection. Such rules shall be designed to ensure that the least burden is placed on individuals enrolling in qualified health plans through an Exchange and taxpayers eligible for the credit allowable under this section.
• (f)
  • (1) The amount of the credit allowed under this section for any taxable year shall be reduced (but not below zero) by the amount of any advance payment of such credit under section 1412 of the Patient Protection and Affordable Care Act.
  • (2)
    • (A) If the advance payments to a taxpayer under section 1412 of the Patient Protection and Affordable Care Act for a taxable year exceed the credit allowed by this section (determined without regard to paragraph (1)), the tax imposed by this chapter for the taxable year shall be increased by the amount of such excess.
    • (B)
      • (i) In the case of a taxpayer whose household income is less than 400 percent of the poverty line for the size of the family involved for the taxable year, the amount of the increase under subparagraph (A) shall in no event exceed the applicable dollar amount determined in accordance with the following table (one-half of such amount in the case of a taxpayer whose tax is determined under section 1(c) 2 for the taxable year): If the household income (expressed as a percent of poverty line) is: The applicable dollar amount is: Less than 200% $600 At least 200% but less than 300% $1,500 At least 300% but less than 400% $2,500.
      • (ii) In the case of any calendar year beginning after 2014, each of the dollar amounts in the table contained under clause (i) shall be increased by an amount equal to—
        • (I) such dollar amount, multiplied by
        • (II) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year, determined by substituting “calendar year 2013” for “calendar year 2016” in subparagraph (A)(ii) thereof.
  • (3) Each Exchange (or any person carrying out 1 or more responsibilities of an Exchange under section 1311(f)(3) or 1321(c) of the Patient Protection and Affordable Care Act) shall provide the following information to the Secretary and to the taxpayer with respect to any health plan provided through the Exchange:
    • (A) The level of coverage described in section 1302(d) of the Patient Protection and Affordable Care Act and the period such coverage was in effect.
    • (B) The total premium for the coverage without regard to the credit under this section or cost-sharing reductions under section 1402 of such Act.
    • (C) The aggregate amount of any advance payment of such credit or reductions under section 1412 of such Act.
    • (D) The name, address, and TIN of the primary insured and the name and TIN of each other individual obtaining coverage under the policy.
    • (E) Any information provided to the Exchange, including any change of circumstances, necessary to determine eligibility for, and the amount of, such credit.
    • (F) Information necessary to determine whether a taxpayer has received excess advance payments.
• (g) The Secretary shall prescribe such regulations as may be necessary to carry out the provisions of this section, including regulations which provide for—
  • (1) the coordination of the credit allowed under this section with the program for advance payment of the credit under section 1412 of the Patient Protection and Affordable Care Act, and
  • (2) the application of subsection (f) where the filing status of the taxpayer for a taxable year is different from such status used for determining the advance payment of the credit.

§ 37. Overpayments of tax

For credit against the tax imposed by this subtitle for overpayments of tax, see section 6401.

§ 38. General business credit

• (a) There shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the sum of—
  • (1) the business credit carryforwards carried to such taxable year,
  • (2) the amount of the current year business credit, plus
  • (3) the business credit carrybacks carried to such taxable year.
• (b) For purposes of this subpart, the amount of the current year business credit is the sum of the following credits determined for the taxable year:
  • (1) the investment credit determined under section 46,
  • (2) the work opportunity credit determined under section 51(a),
  • (3) the alcohol fuels credit determined under section 40(a),
  • (4) the research credit determined under section 41(a),
  • (5) the low-income housing credit determined under section 42(a),
  • (6) the enhanced oil recovery credit under section 43(a),
  • (7) in the case of an eligible small business (as defined in section 44(b)), the disabled access credit determined under section 44(a),
  • (8) the renewable electricity production credit under section 45(a),
  • (9) the empowerment zone employment credit determined under section 1396(a),
  • (10) the Indian employment credit as determined under section 45A(a),
  • (11) the employer social security credit determined under section 45B(a),
  • (12) the orphan drug credit determined under section 45C(a),
  • (13) the new markets tax credit determined under section 45D(a),
  • (14) in the case of an eligible employer (as defined in section 45E(c)), the small employer pension plan startup cost credit determined under section 45E(a),
  • (15) the employer-provided child care credit determined under section 45F(a),
  • (16) the railroad track maintenance credit determined under section 45G(a),
  • (17) the biodiesel fuels credit determined under section 40A(a),
  • (18) the low sulfur diesel fuel production credit determined under section 45H(a),
  • (19) the marginal oil and gas well production credit determined under section 45I(a),
  • (20) the distilled spirits credit determined under section 5011(a),
  • (21) the advanced nuclear power facility production credit determined under section 45J(a),
  • (22) the nonconventional source production credit determined under section 45K(a),
  • (23) the new energy efficient home credit determined under section 45L(a),
  • (24) the portion of the alternative motor vehicle credit to which section 30B(g)(1) applies,
  • (25) the portion of the alternative fuel vehicle refueling property credit to which section 30C(d)(1) applies,
  • (26) the mine rescue team training credit determined under section 45N(a),
  • (27) in the case of an eligible agricultural business (as defined in section 45O(e)), the agricultural chemicals security credit determined under section 45O(a),
  • (28) the differential wage payment credit determined under section 45P(a),
  • (29) the carbon dioxide sequestration credit determined under section 45Q(a),
  • (30) the portion of the new qualified plug-in electric drive motor vehicle credit to which section 30D(c)(1) applies,
  • (31) the small employer health insurance credit determined under section 45R,
  • (32) in the case of an eligible employer (as defined in section 45S(c)), the paid family and medical leave credit determined under section 45S(a), plus
  • (33) in the case of an eligible employer (as defined in section 45T(c)), the retirement auto-enrollment credit determined under section 45T(a).
• (c)
  • (1) The credit allowed under subsection (a) for any taxable year shall not exceed the excess (if any) of the taxpayer’s net income tax over the greater of—
    • (A) the tentative minimum tax for the taxable year, or
    • (B) 25 percent of so much of the taxpayer’s net regular tax liability as exceeds $25,000.
  • (2)
    • (A) In the case of the empowerment zone employment credit—
      • (i) this section and section 39 shall be applied separately with respect to such credit, and
      • (ii) for purposes of applying paragraph (1) to such credit—
        • (I) 75 percent of the tentative minimum tax shall be substituted for the tentative minimum tax under subparagraph (A) thereof, and
        • (II) the limitation under paragraph (1) (as modified by subclause (I)) shall be reduced by the credit allowed under subsection (a) for the taxable year (other than the empowerment zone employment credit and the specified credits).
    • (B) For purposes of this paragraph, the term “empowerment zone employment credit” means the portion of the credit under subsection (a) which is attributable to the credit determined under section 1396 (relating to empowerment zone employment credit).
  • [(3)
  • (4)
    • (A) In the case of specified credits—
      • (i) this section and section 39 shall be applied separately with respect to such credits, and
      • (ii) in applying paragraph (1) to such credits—
        • (I) the tentative minimum tax shall be treated as being zero, and
        • (II) the limitation under paragraph (1) (as modified by subclause (I)) shall be reduced by the credit allowed under subsection (a) for the taxable year (other than the specified credits).
    • (B) For purposes of this subsection, the term “specified credits” means—
      • (i) for taxable years beginning after December 31, 2004 , the credit determined under section 40,
      • (ii) the credit determined under section 41 for the taxable year with respect to an eligible small business (as defined in paragraph (5)(A) after application of the rules of paragraph (5)(B)),
      • (iii) the credit determined under section 42 to the extent attributable to buildings placed in service after December 31, 2007 ,
      • (iv) the credit determined under section 45 to the extent that such credit is attributable to electricity or refined coal produced—
        • (I) at a facility which is originally placed in service after the date of the enactment of this paragraph, and
        • (II) during the 4-year period beginning on the date that such facility was originally placed in service,
      • (v) the credit determined under section 45 to the extent that such credit is attributable to section 45(e)(10) (relating to Indian coal production facilities),
      • (vi) the credit determined under section 45B,
      • (vii) the credit determined under section 45G,
      • (viii) the credit determined under section 45R,
      • (ix) the credit determined under section 45S,
      • (x) the credit determined under section 46 to the extent that such credit is attributable to the energy credit determined under section 48,
      • (xi) the credit determined under section 46 to the extent that such credit is attributable to the rehabilitation credit under section 47, but only with respect to qualified rehabilitation expenditures properly taken into account for periods after December 31, 2007 , and
      • (xii) the credit determined under section 51.
  • (5)
    • (A) For purposes of this subsection, the term “eligible small business” means, with respect to any taxable year—
      • (i) a corporation the stock of which is not publicly traded,
      • (ii) a partnership, or
      • (iii) a sole proprietorship,
    • (B) For purposes of paragraph (4)(B)(ii), any credit determined under section 41 with respect to a partnership or S corporation shall not be treated as a specified credit by any partner or shareholder unless such partner or shareholder meets the gross receipts test under subparagraph (A) for the taxable year in which such credit is treated as a current year business credit.
  • (6)
    • (A) In the case of a husband or wife who files a separate return, the amount specified under subparagraph (B) of paragraph (1) shall be $12,500 in lieu of $25,000. This subparagraph shall not apply if the spouse of the taxpayer has no business credit carryforward or carryback to, and has no current year business credit for, the taxable year of such spouse which ends within or with the taxpayer’s taxable year.
    • (B) In the case of a controlled group, the $25,000 amount specified under subparagraph (B) of paragraph (1) shall be reduced for each component member of such group by apportioning $25,000 among the component members of such group in such manner as the Secretary shall by regulations prescribe. For purposes of the preceding sentence, the term “controlled group” has the meaning given to such term by section 1563(a).
    • (C) In the case of a person described in subparagraph (A) or (B) of section 46(e)(1) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990), the $25,000 amount specified under subparagraph (B) of paragraph (1) shall equal such person’s ratable share (as determined under section 46(e)(2) (as so in effect) of such amount.
    • (D) In the case of an estate or trust, the $25,000 amount specified under subparagraph (B) of paragraph (1) shall be reduced to an amount which bears the same ratio to $25,000 as the portion of the income of the estate or trust which is not allocated to beneficiaries bears to the total income of the estate or trust.
    • (E) In the case of a corporation, this subsection shall be applied by treating the corporation as having a tentative minimum tax of zero.
• (d) For purposes of any provision of this title where it is necessary to ascertain the extent to which the credits determined under any section referred to in subsection (b) are used in a taxable year or as a carryback or carryforward—
  • (1) The order in which such credits are used shall be determined on the basis of the order in which they are listed in subsection (b) as of the close of the taxable year in which the credit is used.
  • (2) The order in which the credits listed in section 46 are used shall be determined on the basis of the order in which such credits are listed in section 46 as of the close of the taxable year in which the credit is used.

§ 39. Carryback and carryforward of unused credits

• (a)
  • (1) If the sum of the business credit carryforwards to the taxable year plus the amount of the current year business credit for the taxable year exceeds the amount of the limitation imposed by subsection (c) of section 38 for such taxable year (hereinafter in this section referred to as the “unused credit year”), such excess (to the extent attributable to the amount of the current year business credit) shall be—
    • (A) a business credit carryback to the taxable year preceding the unused credit year, and
    • (B) a business credit carryforward to each of the 20 taxable years following the unused credit year,
  • (2)
    • (A) The entire amount of the unused credit for an unused credit year shall be carried to the earliest of the 21 taxable years to which (by reason of paragraph (1)) such credit may be carried.
    • (B) The amount of the unused credit for the unused credit year shall be carried to each of the other 20 taxable years to the extent that such unused credit may not be taken into account under section 38(a) for a prior taxable year because of the limitations of subsections (b) and (c).
  • (3) Notwithstanding subsection (d), in the case of the marginal oil and gas well production credit—
    • (A) this section shall be applied separately from the business credit (other than the marginal oil and gas well production credit),
    • (B) paragraph (1) shall be applied by substituting “each of the 5 taxable years” for “the taxable year” in subparagraph (A) thereof, and
    • (C) paragraph (2) shall be applied—
      • (i) by substituting “25 taxable years” for “21 taxable years” in subparagraph (A) thereof, and
      • (ii) by substituting “24 taxable years” for “20 taxable years” in subparagraph (B) thereof.
• (b) The amount of the unused credit which may be taken into account under section 38(a)(3) for any preceding taxable year shall not exceed the amount by which the limitation imposed by section 38(c) for such taxable year exceeds the sum of—
  • (1) the amounts determined under paragraphs (1) and (2) of section 38(a) for such taxable year, plus
  • (2) the amounts which (by reason of this section) are carried back to such taxable year and are attributable to taxable years preceding the unused credit year.
• (c) The amount of the unused credit which may be taken into account under section 38(a)(1) for any succeeding taxable year shall not exceed the amount by which the limitation imposed by section 38(c) for such taxable year exceeds the sum of the amounts which, by reason of this section, are carried to such taxable year and are attributable to taxable years preceding the unused credit year.
• (d) No portion of the unused business credit for any taxable year which is attributable to a credit specified in section 38(b) or any portion thereof may be carried back to any taxable year before the first taxable year for which such specified credit or such portion is allowable (without regard to subsection (a)).

§ 40. Alcohol, etc., used as fuel

• (a) For purposes of section 38, the alcohol fuels credit determined under this section for the taxable year is an amount equal to the sum of—
  • (1) the alcohol mixture credit,
  • (2) the alcohol credit,
  • (3) in the case of an eligible small ethanol producer, the small ethanol producer credit, plus
  • (4) the second generation biofuel producer credit.
• (b) For purposes of this section, and except as provided in subsection (h)—
  • (1)
    • (A) The alcohol mixture credit of any taxpayer for any taxable year is 60 cents for each gallon of alcohol used by the taxpayer in the production of a qualified mixture.
    • (B) The term “qualified mixture” means a mixture of alcohol and gasoline or of alcohol and a special fuel which—
      • (i) is sold by the taxpayer producing such mixture to any person for use as a fuel, or
      • (ii) is used as a fuel by the taxpayer producing such mixture.
    • (C) Alcohol used in the production of a qualified mixture shall be taken into account—
      • (i) only if the sale or use described in subparagraph (B) is in a trade or business of the taxpayer, and
      • (ii) for the taxable year in which such sale or use occurs.
    • (D) No credit shall be allowed under this section with respect to any casual off-farm production of a qualified mixture.
  • (2)
    • (A) The alcohol credit of any taxpayer for any taxable year is 60 cents for each gallon of alcohol which is not in a mixture with gasoline or a special fuel (other than any denaturant) and which during the taxable year—
      • (i) is used by the taxpayer as a fuel in a trade or business, or
      • (ii) is sold by the taxpayer at retail to a person and placed in the fuel tank of such person’s vehicle.
    • (B) No credit shall be allowed under subparagraph (A)(i) with respect to any alcohol which was sold in a retail sale described in subparagraph (A)(ii).
  • (3) In the case of any alcohol with a proof which is at least 150 but less than 190, paragraphs (1)(A) and (2)(A) shall be applied by substituting “45 cents” for “60 cents”.
  • (4)
    • (A) The small ethanol producer credit of any eligible small ethanol producer for any taxable year is 10 cents for each gallon of qualified ethanol fuel production of such producer.
    • (B) For purposes of this paragraph, the term “qualified ethanol fuel production” means any alcohol which is ethanol which is produced by an eligible small ethanol producer, and which during the taxable year—
      • (i) is sold by such producer to another person—
        • (I) for use by such other person in the production of a qualified mixture in such other person’s trade or business (other than casual off-farm production),
        • (II) for use by such other person as a fuel in a trade or business, or
        • (III) who sells such ethanol at retail to another person and places such ethanol in the fuel tank of such other person, or
      • (ii) is used or sold by such producer for any purpose described in clause (i).
    • (C) The qualified ethanol fuel production of any producer for any taxable year shall not exceed 15,000,000 gallons (determined without regard to any qualified second generation biofuel production).
    • (D) The qualified ethanol fuel production of any producer for any taxable year shall not include any alcohol which is purchased by the producer and with respect to which such producer increases the proof of the alcohol by additional distillation.
  • (5) The adding of any denaturant to alcohol shall not be treated as the production of a mixture.
  • (6)
    • (A) The second generation biofuel producer credit of any taxpayer is an amount equal to the applicable amount for each gallon of qualified second generation biofuel production.
    • (B) For purposes of subparagraph (A), the applicable amount means $1.01, except that such amount shall, in the case of second generation biofuel which is alcohol, be reduced by the sum of—
      • (i) the amount of the credit in effect for such alcohol under subsection (b)(1) (without regard to subsection (b)(3)) at the time of the qualified second generation biofuel production, plus
      • (ii) in the case of ethanol, the amount of the credit in effect under subsection (b)(4) at the time of such production.
    • (C) For purposes of this section, the term “qualified second generation biofuel production” means any second generation biofuel which is produced by the taxpayer, and which during the taxable year—
      • (i) is sold by the taxpayer to another person—
        • (I) for use by such other person in the production of a qualified second generation biofuel mixture in such other person’s trade or business (other than casual off-farm production),
        • (II) for use by such other person as a fuel in a trade or business, or
        • (III) who sells such second generation biofuel at retail to another person and places such second generation biofuel in the fuel tank of such other person, or
      • (ii) is used or sold by the taxpayer for any purpose described in clause (i).
    • (D) For purposes of this paragraph, the term “qualified second generation biofuel mixture” means a mixture of second generation biofuel and gasoline or of second generation biofuel and a special fuel which—
      • (i) is sold by the person producing such mixture to any person for use as a fuel, or
      • (ii) is used as a fuel by the person producing such mixture.
    • (E) For purposes of this paragraph—
      • (i) The term “second generation biofuel” means any liquid fuel which—
        • (I) is derived by, or from, qualified feedstocks, and
        • (II) meets the registration requirements for fuels and fuel additives established by the Environmental Protection Agency under section 211 of the Clean Air Act ( 42 U.S.C. 7545 ).
      • (ii) The term “second generation biofuel” shall not include any alcohol with a proof of less than 150. The determination of the proof of any alcohol shall be made without regard to any added denaturants.
      • (iii) The term “second generation biofuel” shall not include any fuel if—
        • (I) more than 4 percent of such fuel (determined by weight) is any combination of water and sediment,
        • (II) the ash content of such fuel is more than 1 percent (determined by weight), or
        • (III) such fuel has an acid number greater than 25.
    • (F) For purposes of this paragraph, the term “qualified feedstock” means—
      • (i) any lignocellulosic or hemicellulosic matter that is available on a renewable or recurring basis, and
      • (ii) any cultivated algae, cyanobacteria, or lemna.
    • (G) In the case of fuel which is derived by, or from, feedstock described in subparagraph (F)(ii) and which is sold by the taxpayer to another person for refining by such other person into a fuel which meets the requirements of subparagraph (E)(i)(II) and the refined fuel is not excluded under subparagraph (E)(iii)—
      • (i) such sale shall be treated as described in subparagraph (C)(i),
      • (ii) such fuel shall be treated as meeting the requirements of subparagraph (E)(i)(II) and as not being excluded under subparagraph (E)(iii) in the hands of such taxpayer, and
      • (iii) except as provided in this subparagraph, such fuel (and any fuel derived from such fuel) shall not be taken into account under subparagraph (C) with respect to the taxpayer or any other person.
    • (H) Rules similar to the rules under subsection (g)(6) shall apply for purposes of this paragraph.
    • (I) No credit shall be determined under this paragraph with respect to any taxpayer unless such taxpayer is registered with the Secretary as a producer of second generation biofuel under section 4101.
    • (J)
      • (i) This paragraph shall apply with respect to qualified second generation biofuel production after December 31, 2008 , and before January 1, 2021 .
      • (ii) If this paragraph ceases to apply for any period by reason of clause (i), rules similar to the rules of subsection (e)(2) shall apply.
• (c) The amount of the credit determined under this section with respect to any alcohol shall, under regulations prescribed by the Secretary, be properly reduced to take into account any benefit provided with respect to such alcohol solely by reason of the application of section 4041(b)(2), section 6426, or section 6427(e).
• (d) For purposes of this section—
  • (1)
    • (A) The term “alcohol” includes methanol and ethanol but does not include—
      • (i) alcohol produced from petroleum, natural gas, or coal (including peat), or
      • (ii) alcohol with a proof of less than 150.
    • (B) The determination of the proof of any alcohol shall be made without regard to any added denaturants.
  • (2) The term “special fuel” includes any liquid fuel (other than gasoline) which is suitable for use in an internal combustion engine.
  • (3)
    • (A) If—
      • (i) any credit was determined under this section with respect to alcohol used in the production of any qualified mixture, and
      • (ii) any person—
        • (I) separates the alcohol from the mixture, or
        • (II) without separation, uses the mixture other than as a fuel,
    • (B) If—
      • (i) any credit was determined under this section with respect to the retail sale of any alcohol, and
      • (ii) any person mixes such alcohol or uses such alcohol other than as a fuel,
    • (C) If—
      • (i) any credit was determined under subsection (a)(3), and
      • (ii) any person does not use such fuel for a purpose described in subsection (b)(4)(B),
    • (D) If—
      • (i) any credit is allowed under subsection (a)(4), and
      • (ii) any person does not use such fuel for a purpose described in subsection (b)(6)(C),
    • (E) All provisions of law, including penalties, shall, insofar as applicable and not inconsistent with this section, apply in respect of any tax imposed under subparagraph (A), (B), (C), or (D) as if such tax were imposed by section 4081 and not by this chapter.
  • (4) For purposes of determining under subsection (a) the number of gallons of alcohol with respect to which a credit is allowable under subsection (a), the volume of alcohol shall include the volume of any denaturant (including gasoline) which is added under any formulas approved by the Secretary to the extent that such denaturants do not exceed 2 percent of the volume of such alcohol (including denaturants).
  • (5) Under regulations prescribed by the Secretary, rules similar to the rules of subsection (d) of section 52 shall apply.
  • (6) No second generation biofuel producer credit shall be determined under subsection (a) with respect to any second generation biofuel unless such second generation biofuel is produced in the United States and used as a fuel in the United States. For purposes of this subsection, the term “United States” includes any possession of the United States.
  • (7) No credit shall be determined under this section with respect to any alcohol which is produced outside the United States for use as a fuel outside the United States. For purposes of this paragraph, the term “United States” includes any possession of the United States.
• (e)
  • (1) This section shall not apply to any sale or use—
    • (A) for any period after December 31, 2011 , or
    • (B) for any period before January 1, 2012 , during which the rates of tax under section 4081(a)(2)(A) are 4.3 cents per gallon.
  • (2) If this section ceases to apply for any period by reason of paragraph (1), no amount attributable to any sale or use before the first day of such period may be carried under section 39 by reason of this section (treating the amount allowed by reason of this section as the first amount allowed by this subpart) to any taxable year beginning after the 3-taxable-year period beginning with the taxable year in which such first day occurs.
  • (3) Paragraph (1) shall not apply to the portion of the credit allowed under this section by reason of subsection (a)(4).
• (f)
  • (1) A taxpayer may elect to have this section not apply for any taxable year.
  • (2) An election under paragraph (1) for any taxable year may be made (or revoked) at any time before the expiration of the 3-year period beginning on the last date prescribed by law for filing the return for such taxable year (determined without regard to extensions).
  • (3) An election under paragraph (1) (or revocation thereof) shall be made in such manner as the Secretary may by regulations prescribe.
• (g) For purposes of this section—
  • (1) The term “eligible small ethanol producer” means a person who, at all times during the taxable year, has a productive capacity for alcohol (as defined in subsection (d)(1)(A) without regard to clauses (i) and (ii)) not in excess of 60,000,000 gallons.
  • (2) For purposes of the 15,000,000 gallon limitation under subsection (b)(4)(C) and the 60,000,000 gallon limitation under paragraph (1), all members of the same controlled group of corporations (within the meaning of section 267(f)) and all persons under common control (within the meaning of section 52(b) but determined by treating an interest of more than 50 percent as a controlling interest) shall be treated as 1 person.
  • (3) In the case of a partnership, trust, S corporation, or other pass-thru entity, the limitations contained in subsection (b)(4)(C) and paragraph (1) shall be applied at the entity level and at the partner or similar level.
  • (4) For purposes of this subsection, in the case of a facility in which more than 1 person has an interest, productive capacity shall be allocated among such persons in such manner as the Secretary may prescribe.
  • (5) The Secretary may prescribe such regulations as may be necessary—
    • (A) to prevent the credit provided for in subsection (a)(3) from directly or indirectly benefiting any person with a direct or indirect productive capacity of more than 60,000,000 gallons of alcohol during the taxable year, or
    • (B) to prevent any person from directly or indirectly benefiting with respect to more than 15,000,000 gallons during the taxable year.
  • (6)
    • (A)
      • (i) In the case of a cooperative organization described in section 1381(a), any portion of the credit determined under subsection (a)(3) for the taxable year may, at the election of the organization, be apportioned pro rata among patrons of the organization on the basis of the quantity or value of business done with or for such patrons for the taxable year.
      • (ii) An election under clause (i) for any taxable year shall be made on a timely filed return for such year. Such election, once made, shall be irrevocable for such taxable year. Such election shall not take effect unless the organization designates the apportionment as such in a written notice mailed to its patrons during the payment period described in section 1382(d).
    • (B)
      • (i) The amount of the credit not apportioned to patrons pursuant to subparagraph (A) shall be included in the amount determined under subsection (a)(3) for the taxable year of the organization.
      • (ii) The amount of the credit apportioned to patrons pursuant to subparagraph (A) shall be included in the amount determined under such subsection for the first taxable year of each patron ending on or after the last day of the payment period (as defined in section 1382(d)) for the taxable year of the organization or, if earlier, for the taxable year of each patron ending on or after the date on which the patron receives notice from the cooperative of the apportionment.
      • (iii) If the amount of the credit of the organization determined under such subsection for a taxable year is less than the amount of such credit shown on the return of the organization for such year, an amount equal to the excess of—
        • (I) such reduction, over
        • (II) the amount not apportioned to such patrons under subparagraph (A) for the taxable year,
• (h)
  • (1) In the case of any alcohol mixture credit or alcohol credit with respect to any sale or use of alcohol which is ethanol during calendar years 2001 through 2011—
    • (A) subsections (b)(1)(A) and (b)(2)(A) shall be applied by substituting “the blender amount” for “60 cents”,
    • (B) subsection (b)(3) shall be applied by substituting “the low-proof blender amount” for “45 cents” and “the blender amount” for “60 cents”, and
    • (C) subparagraphs (A) and (B) of subsection (d)(3) shall be applied by substituting “the blender amount” for “60 cents” and “the low-proof blender amount” for “45 cents”.
  • (2) For purposes of paragraph (1), the blender amount and the low-proof blender amount shall be determined in accordance with the following table: In the case of any sale or use during calendar year: The blender amount is: The low-proof blender amount is: 2001 or 2002 53 cents 39.26 cents 2003 or 2004 52 cents 38.52 cents 2005, 2006, 2007, or 2008 51 cents 37.78 cents 2009 through 2011 45 cents 33.33 cents.
  • (3)
    • (A) In the case of any calendar year beginning after 2008, if the Secretary makes a determination described in subparagraph (B) with respect to all preceding calendar years beginning after 2007, the last row in the table in paragraph (2) shall be applied by substituting “51 cents” for “45 cents”.
    • (B) A determination described in this subparagraph with respect to any calendar year is a determination, in consultation with the Administrator of the Environmental Protection Agency, that an amount less than 7,500,000,000 gallons of ethanol (including cellulosic ethanol) has been produced in or imported into the United States in such year.

§ 40A. Biodiesel and renewable diesel used as fuel

• (a) For purposes of section 38, the biodiesel fuels credit determined under this section for the taxable year is an amount equal to the sum of—
  • (1) the biodiesel mixture credit, plus
  • (2) the biodiesel credit, plus
  • (3) in the case of an eligible small agri-biodiesel producer, the small agri-biodiesel producer credit.
• (b) For purposes of this section—
  • (1)
    • (A) The biodiesel mixture credit of any taxpayer for any taxable year is $1.00 for each gallon of biodiesel used by the taxpayer in the production of a qualified biodiesel mixture.
    • (B) The term “qualified biodiesel mixture” means a mixture of biodiesel and diesel fuel (as defined in section 4083(a)(3)), determined without regard to any use of kerosene, which—
      • (i) is sold by the taxpayer producing such mixture to any person for use as a fuel, or
      • (ii) is used as a fuel by the taxpayer producing such mixture.
    • (C) Biodiesel used in the production of a qualified biodiesel mixture shall be taken into account—
      • (i) only if the sale or use described in subparagraph (B) is in a trade or business of the taxpayer, and
      • (ii) for the taxable year in which such sale or use occurs.
    • (D) No credit shall be allowed under this section with respect to any casual off-farm production of a qualified biodiesel mixture.
  • (2)
    • (A) The biodiesel credit of any taxpayer for any taxable year is $1.00 for each gallon of biodiesel which is not in a mixture with diesel fuel and which during the taxable year—
      • (i) is used by the taxpayer as a fuel in a trade or business, or
      • (ii) is sold by the taxpayer at retail to a person and placed in the fuel tank of such person’s vehicle.
    • (B) No credit shall be allowed under subparagraph (A)(i) with respect to any biodiesel which was sold in a retail sale described in subparagraph (A)(ii).
  • (3) No credit shall be allowed under paragraph (1) or (2) of subsection (a) unless the taxpayer obtains a certification (in such form and manner as prescribed by the Secretary) from the producer or importer of the biodiesel which identifies the product produced and the percentage of biodiesel and agri-biodiesel in the product.
  • (4)
    • (A) The small agri-biodiesel producer credit of any eligible small agri-biodiesel producer for any taxable year is 10 cents for each gallon of qualified agri-biodiesel production of such producer.
    • (B) For purposes of this paragraph, the term “qualified agri-biodiesel production” means any agri-biodiesel which is produced by an eligible small agri-biodiesel producer, and which during the taxable year—
      • (i) is sold by such producer to another person—
        • (I) for use by such other person in the production of a qualified biodiesel mixture in such other person’s trade or business (other than casual off-farm production),
        • (II) for use by such other person as a fuel in a trade or business, or
        • (III) who sells such agri-biodiesel at retail to another person and places such agri-biodiesel in the fuel tank of such other person, or
      • (ii) is used or sold by such producer for any purpose described in clause (i).
    • (C) The qualified agri-biodiesel production of any producer for any taxable year shall not exceed 15,000,000 gallons.
• (c) The amount of the credit determined under this section with respect to any biodiesel shall be properly reduced to take into account any benefit provided with respect to such biodiesel solely by reason of the application of section 6426 or 6427(e).
• (d) For purposes of this section—
  • (1) The term “biodiesel” means the monoalkyl esters of long chain fatty acids derived from plant or animal matter which meet—
    • (A) the registration requirements for fuels and fuel additives established by the Environmental Protection Agency under section 211 of the Clean Air Act ( 42 U.S.C. 7545 ), and
    • (B) the requirements of the American Society of Testing and Materials D6751.
  • (2) The term “agri-biodiesel” means biodiesel derived solely from virgin oils, including esters derived from virgin vegetable oils from corn, soybeans, sunflower seeds, cottonseeds, canola, crambe, rapeseeds, safflowers, flaxseeds, rice bran, mustard seeds, and camelina, and from animal fats.
  • (3)
    • (A) If—
      • (i) any credit was determined under this section with respect to biodiesel used in the production of any qualified biodiesel mixture, and
      • (ii) any person—
        • (I) separates the biodiesel from the mixture, or
        • (II) without separation, uses the mixture other than as a fuel,
    • (B) If—
      • (i) any credit was determined under this section with respect to the retail sale of any biodiesel, and
      • (ii) any person mixes such biodiesel or uses such biodiesel other than as a fuel,
    • (C) If—
      • (i) any credit was determined under subsection (a)(3), and
      • (ii) any person does not use such fuel for a purpose described in subsection (b)(4)(B),
    • (D) All provisions of law, including penalties, shall, insofar as applicable and not inconsistent with this section, apply in respect of any tax imposed under subparagraph (A) or (B) as if such tax were imposed by section 4081 and not by this chapter.
  • (4) Under regulations prescribed by the Secretary, rules similar to the rules of subsection (d) of section 52 shall apply.
  • (5) No credit shall be determined under this section with respect to any biodiesel which is produced outside the United States for use as a fuel outside the United States. For purposes of this paragraph, the term “United States” includes any possession of the United States.
• (e) For purposes of this section—
  • (1) The term “eligible small agri-biodiesel producer” means a person who, at all times during the taxable year, has a productive capacity for agri-biodiesel not in excess of 60,000,000 gallons.
  • (2) For purposes of the 15,000,000 gallon limitation under subsection (b)(4)(C) and the 60,000,000 gallon limitation under paragraph (1), all members of the same controlled group of corporations (within the meaning of section 267(f)) and all persons under common control (within the meaning of section 52(b) but determined by treating an interest of more than 50 percent as a controlling interest) shall be treated as 1 person.
  • (3) In the case of a partnership, trust, S corporation, or other pass-thru entity, the limitations contained in subsection (b)(4)(C) and paragraph (1) shall be applied at the entity level and at the partner or similar level.
  • (4) For purposes of this subsection, in the case of a facility in which more than 1 person has an interest, productive capacity shall be allocated among such persons in such manner as the Secretary may prescribe.
  • (5) The Secretary may prescribe such regulations as may be necessary—
    • (A) to prevent the credit provided for in subsection (a)(3) from directly or indirectly benefiting any person with a direct or indirect productive capacity of more than 60,000,000 gallons of agri-biodiesel during the taxable year, or
    • (B) to prevent any person from directly or indirectly benefiting with respect to more than 15,000,000 gallons during the taxable year.
  • (6)
    • (A)
      • (i) In the case of a cooperative organization described in section 1381(a), any portion of the credit determined under subsection (a)(3) for the taxable year may, at the election of the organization, be apportioned pro rata among patrons of the organization on the basis of the quantity or value of business done with or for such patrons for the taxable year.
      • (ii) An election under clause (i) for any taxable year shall be made on a timely filed return for such year. Such election, once made, shall be irrevocable for such taxable year. Such election shall not take effect unless the organization designates the apportionment as such in a written notice mailed to its patrons during the payment period described in section 1382(d).
    • (B)
      • (i) The amount of the credit not apportioned to patrons pursuant to subparagraph (A) shall be included in the amount determined under subsection (a)(3) for the taxable year of the organization.
      • (ii) The amount of the credit apportioned to patrons pursuant to subparagraph (A) shall be included in the amount determined under such subsection for the first taxable year of each patron ending on or after the last day of the payment period (as defined in section 1382(d)) for the taxable year of the organization or, if earlier, for the taxable year of each patron ending on or after the date on which the patron receives notice from the cooperative of the apportionment.
      • (iii) If the amount of the credit of the organization determined under such subsection for a taxable year is less than the amount of such credit shown on the return of the organization for such year, an amount equal to the excess of—
        • (I) such reduction, over
        • (II) the amount not apportioned to such patrons under subparagraph (A) for the taxable year,
• (f) For purposes of this title—
  • (1) Except as provided in paragraph (2), renewable diesel shall be treated in the same manner as biodiesel.
  • (2) Subsection (b)(4) shall not apply with respect to renewable diesel.
  • (3) The term “renewable diesel” means liquid fuel derived from biomass which meets—
    • (A) the registration requirements for fuels and fuel additives established by the Environmental Protection Agency under section 211 of the Clean Air Act ( 42 U.S.C. 7545 ), and
    • (B) the requirements of the American Society of Testing and Materials D975 or D396, or other equivalent standard approved by the Secretary.
  • (4)
    • (A) Except as provided in the last 3 sentences of paragraph (3), the term “renewable diesel” shall include fuel derived from biomass which meets the requirements of a Department of Defense specification for military jet fuel or an American Society of Testing and Materials specification for aviation turbine fuel.
    • (B) In the case of fuel which is treated as renewable diesel solely by reason of subparagraph (A), subsection (b)(1) and section 6426(c) shall be applied with respect to such fuel by treating kerosene as though it were diesel fuel.
• (g) This section shall not apply to any sale or use after December 31, 2022 .

§ 41. Credit for increasing research activities

• (a) For purposes of section 38, the research credit determined under this section for the taxable year shall be an amount equal to the sum of—
  • (1) 20 percent of the excess (if any) of—
    • (A) the qualified research expenses for the taxable year, over
    • (B) the base amount,
  • (2) 20 percent of the basic research payments determined under subsection (e)(1)(A), and
  • (3) 20 percent of the amounts paid or incurred by the taxpayer in carrying on any trade or business of the taxpayer during the taxable year (including as contributions) to an energy research consortium for energy research.
• (b) For purposes of this section—
  • (1) The term “qualified research expenses” means the sum of the following amounts which are paid or incurred by the taxpayer during the taxable year in carrying on any trade or business of the taxpayer—
    • (A) in-house research expenses, and
    • (B) contract research expenses.
  • (2)
    • (A) The term “in-house research expenses” means—
      • (i) any wages paid or incurred to an employee for qualified services performed by such employee,
      • (ii) any amount paid or incurred for supplies used in the conduct of qualified research, and
      • (iii) under regulations prescribed by the Secretary, any amount paid or incurred to another person for the right to use computers in the conduct of qualified research.
    • (B) The term “qualified services” means services consisting of—
      • (i) engaging in qualified research, or
      • (ii) engaging in the direct supervision or direct support of research activities which constitute qualified research.
    • (C) The term “supplies” means any tangible property other than—
      • (i) land or improvements to land, and
      • (ii) property of a character subject to the allowance for depreciation.
    • (D)
      • (i) The term “wages” has the meaning given such term by section 3401(a).
      • (ii) In the case of an employee (within the meaning of section 401(c)(1)), the term “wages” includes the earned income (as defined in section 401(c)(2)) of such employee.
      • (iii) The term “wages” shall not include any amount taken into account in determining the work opportunity credit under section 51(a).
  • (3)
    • (A) The term “contract research expenses” means 65 percent of any amount paid or incurred by the taxpayer to any person (other than an employee of the taxpayer) for qualified research.
    • (B) If any contract research expenses paid or incurred during any taxable year are attributable to qualified research to be conducted after the close of such taxable year, such amount shall be treated as paid or incurred during the period during which the qualified research is conducted.
    • (C)
      • (i) Subparagraph (A) shall be applied by substituting “75 percent” for “65 percent” with respect to amounts paid or incurred by the taxpayer to a qualified research consortium for qualified research on behalf of the taxpayer and 1 or more unrelated taxpayers. For purposes of the preceding sentence, all persons treated as a single employer under subsection (a) or (b) of section 52 shall be treated as related taxpayers.
      • (ii) The term “qualified research consortium” means any organization which—
        • (I) is described in section 501(c)(3) or 501(c)(6) and is exempt from tax under section 501(a),
        • (II) is organized and operated primarily to conduct scientific research, and
        • (III) is not a private foundation.
    • (D)
      • (i) In the case of amounts paid by the taxpayer to—
        • (I) an eligible small business,
        • (II) an institution of higher education (as defined in section 3304(f)), or
        • (III) an organization which is a Federal laboratory,
      • (ii) For purposes of this subparagraph, the term “eligible small business” means a small business with respect to which the taxpayer does not own (within the meaning of section 318) 50 percent or more of—
        • (I) in the case of a corporation, the outstanding stock of the corporation (either by vote or value), and
        • (II) in the case of a small business which is not a corporation, the capital and profits interests of the small business.
      • (iii) For purposes of this subparagraph—
        • (I) The term “small business” means, with respect to any calendar year, any person if the annual average number of employees employed by such person during either of the 2 preceding calendar years was 500 or fewer. For purposes of the preceding sentence, a preceding calendar year may be taken into account only if the person was in existence throughout the year.
        • (II) Rules similar to the rules of subparagraphs (B) and (D) of section 220(c)(4) shall apply for purposes of this clause.
      • (iv) For purposes of this subparagraph, the term “Federal laboratory” has the meaning given such term by section 4(6) of the Stevenson-Wydler Technology Innovation Act of 1980 ( 15 U.S.C. 3703(6) ), as in effect on the date of the enactment of the Energy Tax Incentives Act of 2005.
  • (4) In the case of in-house research expenses, a taxpayer shall be treated as meeting the trade or business requirement of paragraph (1) if, at the time such in-house research expenses are paid or incurred, the principal purpose of the taxpayer in making such expenditures is to use the results of the research in the active conduct of a future trade or business—
    • (A) of the taxpayer, or
    • (B) of 1 or more other persons who with the taxpayer are treated as a single taxpayer under subsection (f)(1).
• (c)
  • (1) The term “base amount” means the product of—
    • (A) the fixed-base percentage, and
    • (B) the average annual gross receipts of the taxpayer for the 4 taxable years preceding the taxable year for which the credit is being determined (hereinafter in this subsection referred to as the “credit year”).
  • (2) In no event shall the base amount be less than 50 percent of the qualified research expenses for the credit year.
  • (3)
    • (A) Except as otherwise provided in this paragraph, the fixed-base percentage is the percentage which the aggregate qualified research expenses of the taxpayer for taxable years beginning after December 31, 1983 , and before January 1, 1989 , is of the aggregate gross receipts of the taxpayer for such taxable years.
    • (B)
      • (i) The fixed-base percentage shall be determined under this subparagraph if—
        • (I) the first taxable year in which a taxpayer had both gross receipts and qualified research expenses begins after December 31, 1983 , or
        • (II) there are fewer than 3 taxable years beginning after December 31, 1983 , and before January 1, 1989 , in which the taxpayer had both gross receipts and qualified research expenses.
      • (ii) In a case to which this subparagraph applies, the fixed-base percentage is—
        • (I) 3 percent for each of the taxpayer’s 1st 5 taxable years beginning after December 31, 1993 , for which the taxpayer has qualified research expenses,
        • (II) in the case of the taxpayer’s 6th such taxable year, ⅙ of the percentage which the aggregate qualified research expenses of the taxpayer for the 4th and 5th such taxable years is of the aggregate gross receipts of the taxpayer for such years,
        • (III) in the case of the taxpayer’s 7th such taxable year, ⅓ of the percentage which the aggregate qualified research expenses of the taxpayer for the 5th and 6th such taxable years is of the aggregate gross receipts of the taxpayer for such years,
        • (IV) in the case of the taxpayer’s 8th such taxable year, ½ of the percentage which the aggregate qualified research expenses of the taxpayer for the 5th, 6th, and 7th such taxable years is of the aggregate gross receipts of the taxpayer for such years,
        • (V) in the case of the taxpayer’s 9th such taxable year, ⅔ of the percentage which the aggregate qualified research expenses of the taxpayer for the 5th, 6th, 7th, and 8th such taxable years is of the aggregate gross receipts of the taxpayer for such years,
        • (VI) in the case of the taxpayer’s 10th such taxable year, ⅚ of the percentage which the aggregate qualified research expenses of the taxpayer for the 5th, 6th, 7th, 8th, and 9th such taxable years is of the aggregate gross receipts of the taxpayer for such years, and
        • (VII) for taxable years thereafter, the percentage which the aggregate qualified research expenses for any 5 taxable years selected by the taxpayer from among the 5th through the 10th such taxable years is of the aggregate gross receipts of the taxpayer for such selected years.
      • (iii) The Secretary may prescribe regulations providing that de minimis amounts of gross receipts and qualified research expenses shall be disregarded under clauses (i) and (ii).
    • (C) In no event shall the fixed-base percentage exceed 16 percent.
    • (D) The percentages determined under subparagraphs (A) and (B)(ii) shall be rounded to the nearest 1/100th of 1 percent.
  • (4)
    • (A) At the election of the taxpayer, the credit determined under subsection (a)(1) shall be equal to 14 percent of so much of the qualified research expenses for the taxable year as exceeds 50 percent of the average qualified research expenses for the 3 taxable years preceding the taxable year for which the credit is being determined.
    • (B)
      • (i) The credit under this paragraph shall be determined under this subparagraph if the taxpayer has no qualified research expenses in any one of the 3 taxable years preceding the taxable year for which the credit is being determined.
      • (ii) The credit determined under this subparagraph shall be equal to 6 percent of the qualified research expenses for the taxable year.
    • (C) An election under this paragraph shall apply to the taxable year for which made and all succeeding taxable years unless revoked with the consent of the Secretary.
  • (5)
    • (A) Notwithstanding whether the period for filing a claim for credit or refund has expired for any taxable year taken into account in determining the fixed-base percentage, the qualified research expenses taken into account in computing such percentage shall be determined on a basis consistent with the determination of qualified research expenses for the credit year.
    • (B) The Secretary may prescribe regulations to prevent distortions in calculating a taxpayer’s qualified research expenses or gross receipts caused by a change in accounting methods used by such taxpayer between the current year and a year taken into account in computing such taxpayer’s fixed-base percentage.
  • (6) For purposes of this subsection, gross receipts for any taxable year shall be reduced by returns and allowances made during the taxable year. In the case of a foreign corporation, there shall be taken into account only gross receipts which are effectively connected with the conduct of a trade or business within the United States, the Commonwealth of Puerto Rico, or any possession of the United States.
• (d) For purposes of this section—
  • (1) The term “qualified research” means research—
    • (A) 1 1 See Amendment of Subsection (d)(1)(A) note below. with respect to which expenditures may be treated as expenses under section 174,
    • (B) which is undertaken for the purpose of discovering information—
      • (i) which is technological in nature, and
      • (ii) the application of which is intended to be useful in the development of a new or improved business component of the taxpayer, and
    • (C) substantially all of the activities of which constitute elements of a process of experimentation for a purpose described in paragraph (3).
  • (2) For purposes of this subsection—
    • (A) Paragraph (1) shall be applied separately with respect to each business component of the taxpayer.
    • (B) The term “business component” means any product, process, computer software, technique, formula, or invention which is to be—
      • (i) held for sale, lease, or license, or
      • (ii) used by the taxpayer in a trade or business of the taxpayer.
    • (C) Any plant process, machinery, or technique for commercial production of a business component shall be treated as a separate business component (and not as part of the business component being produced).
  • (3) For purposes of paragraph (1)(C)—
    • (A) Research shall be treated as conducted for a purpose described in this paragraph if it relates to—
      • (i) a new or improved function,
      • (ii) performance, or
      • (iii) reliability or quality.
    • (B) Research shall in no event be treated as conducted for a purpose described in this paragraph if it relates to style, taste, cosmetic, or seasonal design factors.
  • (4) The term “qualified research” shall not include any of the following:
    • (A) Any research conducted after the beginning of commercial production of the business component.
    • (B) Any research related to the adaptation of an existing business component to a particular customer’s requirement or need.
    • (C) Any research related to the reproduction of an existing business component (in whole or in part) from a physical examination of the business component itself or from plans, blueprints, detailed specifications, or publicly available information with respect to such business component.
    • (D) Any—
      • (i) efficiency survey,
      • (ii) activity relating to management function or technique,
      • (iii) market research, testing, or development (including advertising or promotions),
      • (iv) routine data collection, or
      • (v) routine or ordinary testing or inspection for quality control.
    • (E) Except to the extent provided in regulations, any research with respect to computer software which is developed by (or for the benefit of) the taxpayer primarily for internal use by the taxpayer, other than for use in—
      • (i) an activity which constitutes qualified research (determined with regard to this subparagraph), or
      • (ii) a production process with respect to which the requirements of paragraph (1) are met.
    • (F) Any research conducted outside the United States, the Commonwealth of Puerto Rico, or any possession of the United States.
    • (G) Any research in the social sciences, arts, or humanities.
    • (H) Any research to the extent funded by any grant, contract, or otherwise by another person (or governmental entity).
• (e) For purposes of this section—
  • (1) In the case of any taxpayer who makes basic research payments for any taxable year—
    • (A) the amount of basic research payments taken into account under subsection (a)(2) shall be equal to the excess of—
      • (i) such basic research payments, over
      • (ii) the qualified organization base period amount, and
    • (B) that portion of such basic research payments which does not exceed the qualified organization base period amount shall be treated as contract research expenses for purposes of subsection (a)(1).
  • (2) For purposes of this subsection—
    • (A) The term “basic research payment” means, with respect to any taxable year, any amount paid in cash during such taxable year by a corporation to any qualified organization for basic research but only if—
      • (i) such payment is pursuant to a written agreement between such corporation and such qualified organization, and
      • (ii) such basic research is to be performed by such qualified organization.
    • (B) In the case of a qualified organization described in subparagraph (C) or (D) of paragraph (6), clause (ii) of subparagraph (A) shall not apply.
  • (3) For purposes of this subsection, the term “qualified organization base period amount” means an amount equal to the sum of—
    • (A) the minimum basic research amount, plus
    • (B) the maintenance-of-effort amount.
  • (4) For purposes of this subsection—
    • (A) The term “minimum basic research amount” means an amount equal to the greater of—
      • (i) 1 percent of the average of the sum of amounts paid or incurred during the base period for—
        • (I) any in-house research expenses, and
        • (II) any contract research expenses, or
      • (ii) the amounts treated as contract research expenses during the base period by reason of this subsection (as in effect during the base period).
    • (B) Except in the case of a taxpayer which was in existence during a taxable year (other than a short taxable year) in the base period, the minimum basic research amount for any base period shall not be less than 50 percent of the basic research payments for the taxable year for which a determination is being made under this subsection.
  • (5) For purposes of this subsection—
    • (A) The term “maintenance-of-effort amount” means, with respect to any taxable year, an amount equal to the excess (if any) of—
      • (i) an amount equal to—
        • (I) the average of the nondesignated university contributions paid by the taxpayer during the base period, multiplied by
        • (II) the cost-of-living adjustment for the calendar year in which such taxable year begins, over
      • (ii) the amount of nondesignated university contributions paid by the taxpayer during such taxable year.
    • (B) For purposes of this paragraph, the term “nondesignated university contribution” means any amount paid by a taxpayer to any qualified organization described in paragraph (6)(A)—
      • (i) for which a deduction was allowable under section 170, and
      • (ii) which was not taken into account—
        • (I) in computing the amount of the credit under this section (as in effect during the base period) during any taxable year in the base period, or
        • (II) as a basic research payment for purposes of this section.
    • (C)
      • (i) The cost-of-living adjustment for any calendar year is the cost-of-living adjustment for such calendar year determined under section 1(f)(3), by substituting “calendar year 1987” for “calendar year 2016” in subparagraph (A)(ii) thereof.
      • (ii) If the base period of any taxpayer does not end in 1983 or 1984, section 1(f)(3)(A)(ii) shall, for purposes of this paragraph, be applied by substituting the calendar year in which such base period ends for 2016. Such substitution shall be in lieu of the substitution under clause (i).
  • (6) For purposes of this subsection, the term “qualified organization” means any of the following organizations:
    • (A) Any educational organization which—
      • (i) is an institution of higher education (within the meaning of section 3304(f)), and
      • (ii) is described in section 170(b)(1)(A)(ii).
    • (B) Any organization not described in subparagraph (A) which—
      • (i) is described in section 501(c)(3) and is exempt from tax under section 501(a),
      • (ii) is organized and operated primarily to conduct scientific research, and
      • (iii) is not a private foundation.
    • (C) Any organization which—
      • (i) is described in—
        • (I) section 501(c)(3) (other than a private foundation), or
        • (II) section 501(c)(6),
      • (ii) is exempt from tax under section 501(a),
      • (iii) is organized and operated primarily to promote scientific research by qualified organizations described in subparagraph (A) pursuant to written research agreements, and
      • (iv) currently expends—
        • (I) substantially all of its funds, or
        • (II) substantially all of the basic research payments received by it,
    • (D) Any organization not described in subparagraph (B) or (C) which—
      • (i) is described in section 501(c)(3) and is exempt from tax under section 501(a) (other than a private foundation),
      • (ii) is established and maintained by an organization established before July 10, 1981 , which meets the requirements of clause (i),
      • (iii) is organized and operated exclusively for the purpose of making grants to organizations described in subparagraph (A) pursuant to written research agreements for purposes of basic research, and
      • (iv) makes an election, revocable only with the consent of the Secretary, to be treated as a private foundation for purposes of this title (other than section 4940, relating to excise tax based on investment income).
  • (7) For purposes of this subsection—
    • (A) The term “basic research” means any original investigation for the advancement of scientific knowledge not having a specific commercial objective, except that such term shall not include—
      • (i) basic research conducted outside of the United States, and
      • (ii) basic research in the social sciences, arts, or humanities.
    • (B) The term “base period” means the 3-taxable-year period ending with the taxable year immediately preceding the 1st taxable year of the taxpayer beginning after December 31, 1983 .
    • (C) For purposes of determining the amount of credit allowable under subsection (a)(1) for any taxable year, the amount of the basic research payments taken into account under subsection (a)(2)—
      • (i) shall not be treated as qualified research expenses under subsection (a)(1)(A), and
      • (ii) shall not be included in the computation of base amount under subsection (a)(1)(B).
    • (D) For purposes of applying subsection (b)(1) to this subsection, any basic research payments shall be treated as an amount paid in carrying on a trade or business of the taxpayer in the taxable year in which it is paid (without regard to the provisions of subsection (b)(3)(B)).
    • (E) The term “corporation” shall not include—
      • (i) an S corporation,
      • (ii) a personal holding company (as defined in section 542), or
      • (iii) a service organization (as defined in section 414(m)(3)).
• (f) For purposes of this section—
  • (1)
    • (A) In determining the amount of the credit under this section—
      • (i) all members of the same controlled group of corporations shall be treated as a single taxpayer, and
      • (ii) the credit (if any) allowable by this section to each such member shall be determined on a proportionate basis to its share of the aggregate of the qualified research expenses, basic research payments, and amounts paid or incurred to energy research consortiums, taken into account by such controlled group for purposes of this section.
    • (B) Under regulations prescribed by the Secretary, in determining the amount of the credit under this section—
      • (i) all trades or businesses (whether or not incorporated) which are under common control shall be treated as a single taxpayer, and
      • (ii) the credit (if any) allowable by this section to each such person shall be determined on a proportionate basis to its share of the aggregate of the qualified research expenses, basic research payments, and amounts paid or incurred to energy research consortiums, taken into account by all such persons under common control for purposes of this section.
  • (2)
    • (A) Under regulations prescribed by the Secretary, rules similar to the rules of subsection (d) of section 52 shall apply.
    • (B) In the case of partnerships, the credit shall be allocated among partners under regulations prescribed by the Secretary.
  • (3) Under regulations prescribed by the Secretary—
    • (A)
      • (i) If a person acquires the major portion of either a trade or business or a separate unit of a trade or business (hereinafter in this paragraph referred to as the “acquired business”) of another person (hereinafter in this paragraph referred to as the “predecessor”), then the amount of qualified research expenses paid or incurred by the acquiring person during the measurement period shall be increased by the amount determined under clause (ii), and the gross receipts of the acquiring person for such period shall be increased by the amount determined under clause (iii).
      • (ii) The amount determined under this clause is—
        • (I) for purposes of applying this section for the taxable year in which such acquisition is made, the acquisition year amount, and
        • (II) for purposes of applying this section for any taxable year after the taxable year in which such acquisition is made, the qualified research expenses paid or incurred by the predecessor with respect to the acquired business during the measurement period.
      • (iii) The amount determined under this clause is the amount which would be determined under clause (ii) if “the gross receipts of” were substituted for “the qualified research expenses paid or incurred by” each place it appears in clauses (ii) and (iv).
      • (iv) For purposes of clause (ii), the acquisition year amount is the amount equal to the product of—
        • (I) the qualified research expenses paid or incurred by the predecessor with respect to the acquired business during the measurement period, and
        • (II) the number of days in the period beginning on the date of the acquisition and ending on the last day of the taxable year in which the acquisition is made,
      • (v) In the case of an acquiring person and a predecessor whose taxable years do not begin on the same date—
        • (I) each reference to a taxable year in clauses (ii) and (iv) shall refer to the appropriate taxable year of the acquiring person,
        • (II) the qualified research expenses paid or incurred by the predecessor, and the gross receipts of the predecessor, during each taxable year of the predecessor any portion of which is part of the measurement period shall be allocated equally among the days of such taxable year,
        • (III) the amount of such qualified research expenses taken into account under clauses (ii) and (iv) with respect to a taxable year of the acquiring person shall be equal to the total of the expenses attributable under subclause (II) to the days occurring during such taxable year, and
        • (IV) the amount of such gross receipts taken into account under clause (iii) with respect to a taxable year of the acquiring person shall be equal to the total of the gross receipts attributable under subclause (II) to the days occurring during such taxable year.
      • (vi) For purposes of this subparagraph, the term “measurement period” means, with respect to the taxable year of the acquiring person for which the credit is determined, any period of the acquiring person preceding such taxable year which is taken into account for purposes of determining the credit for such year.
    • (B) If the predecessor furnished to the acquiring person such information as is necessary for the application of subparagraph (A), then, for purposes of applying this section for any taxable year ending after such disposition, the amount of qualified research expenses paid or incurred by, and the gross receipts of, the predecessor during the measurement period (as defined in subparagraph (A)(vi), determined by substituting “predecessor” for “acquiring person” each place it appears) shall be reduced by—
      • (i) in the case of the taxable year in which such disposition is made, an amount equal to the product of—
        • (I) the qualified research expenses paid or incurred by, or gross receipts of, the predecessor with respect to the acquired business during the measurement period (as so defined and so determined), and
        • (II) the number of days in the period beginning on the date of acquisition (as determined for purposes of subparagraph (A)(iv)(II)) and ending on the last day of the taxable year of the predecessor in which the disposition is made,
      • (ii) in the case of any taxable year ending after the taxable year in which such disposition is made, the amount described in clause (i)(I).
    • (C) If during any of the 3 taxable years following the taxable year in which a disposition to which subparagraph (B) applies occurs, the disposing taxpayer (or a person with whom the taxpayer is required to aggregate expenditures under paragraph (1)) reimburses the acquiring person (or a person required to so aggregate expenditures with such person) for research on behalf of the taxpayer, then the amount of qualified research expenses of the taxpayer for the taxable years taken into account in computing the fixed-base percentage shall be increased by the lesser of—
      • (i) the amount of the decrease under subparagraph (B) which is allocable to taxable years so taken into account, or
      • (ii) the product of the number of taxable years so taken into account, multiplied by the amount of the reimbursement described in this subparagraph.
  • (4) In the case of any short taxable year, qualified research expenses and gross receipts shall be annualized in such circumstances and under such methods as the Secretary may prescribe by regulation.
  • (5) The term “controlled group of corporations” has the same meaning given to such term by section 1563(a), except that—
    • (A) “more than 50 percent” shall be substituted for “at least 80 percent” each place it appears in section 1563(a)(1), and
    • (B) the determination shall be made without regard to subsections (a)(4) and (e)(3)(C) of section 1563.
  • (6)
    • (A) The term “energy research consortium” means any organization—
      • (i) which is—
        • (I) described in section 501(c)(3) and is exempt from tax under section 501(a) and is organized and operated primarily to conduct energy research, or
        • (II) organized and operated primarily to conduct energy research in the public interest (within the meaning of section 501(c)(3)),
      • (ii) which is not a private foundation,
      • (iii) to which at least 5 unrelated persons paid or incurred during the calendar year in which the taxable year of the organization begins amounts (including as contributions) to such organization for energy research, and
      • (iv) to which no single person paid or incurred (including as contributions) during such calendar year an amount equal to more than 50 percent of the total amounts received by such organization during such calendar year for energy research.
    • (B) All persons treated as a single employer under subsection (a) or (b) of section 52 shall be treated as related persons for purposes of subparagraph (A)(iii) and as a single person for purposes of subparagraph (A)(iv).
    • (C) For purposes of subsection (a)(3), amounts paid or incurred for any energy research conducted outside the United States, the Commonwealth of Puerto Rico, or any possession of the United States shall not be taken into account.
    • (D) Any amount taken into account under subsection (a)(3) shall not be taken into account under paragraph (1) or (2) of subsection (a).
    • (E) The term “energy research” does not include any research which is not qualified research.
• (g) In the case of an individual who—
  • (1) owns an interest in an unincorporated trade or business,
  • (2) is a partner in a partnership,
  • (3) is a beneficiary of an estate or trust, or
  • (4) is a shareholder in an S corporation,
• (h)
  • (1) At the election of a qualified small business for any taxable year, section 3111(f) shall apply to the payroll tax credit portion of the credit otherwise determined under subsection (a) for the taxable year and such portion shall not be treated (other than for purposes of section 280C) as a credit determined under subsection (a).
  • (2) For purposes of this subsection, the payroll tax credit portion of the credit determined under subsection (a) with respect to any qualified small business for any taxable year is the least of—
    • (A) the amount specified in the election made under this subsection,
    • (B) the credit determined under subsection (a) for the taxable year (determined before the application of this subsection), or
    • (C) in the case of a qualified small business other than a partnership or S corporation, the amount of the business credit carryforward under section 39 carried from the taxable year (determined before the application of this subsection to the taxable year).
  • (3) For purposes of this subsection—
    • (A) The term “qualified small business” means, with respect to any taxable year—
      • (i) a corporation or partnership, if—
        • (I) the gross receipts (as determined under the rules of section 448(c)(3), without regard to subparagraph (A) thereof) of such entity for the taxable year is less than $5,000,000, and
        • (II) such entity did not have gross receipts (as so determined) for any taxable year preceding the 5-taxable-year period ending with such taxable year, and
      • (ii) any person (other than a corporation or partnership) who meets the requirements of subclauses (I) and (II) of clause (i), determined—
        • (I) by substituting “person” for “entity” each place it appears, and
        • (II) by only taking into account the aggregate gross receipts received by such person in carrying on all trades or businesses of such person.
    • (B) Such term shall not include an organization which is exempt from taxation under section 501.
  • (4)
    • (A) Any election under this subsection for any taxable year—
      • (i) shall specify the amount of the credit to which such election applies,
      • (ii) shall be made on or before the due date (including extensions) of—
        • (I) in the case of a qualified small business which is a partnership, the return required to be filed under section 6031,
        • (II) in the case of a qualified small business which is an S corporation, the return required to be filed under section 6037, and
        • (III) in the case of any other qualified small business, the return of tax for the taxable year, and
      • (iii) may be revoked only with the consent of the Secretary.
    • (B)
      • (i) The amount specified in any election made under this subsection shall not exceed $250,000.
      • (ii) A person may not make an election under this subsection if such person (or any other person treated as a single taxpayer with such person under paragraph (5)(A)) has made an election under this subsection for 5 or more preceding taxable years.
    • (C) In the case of a qualified small business which is a partnership or S corporation, the election made under this subsection shall be made at the entity level.
  • (5)
    • (A) Except as provided in subparagraph (B), all persons or entities treated as a single taxpayer under subsection (f)(1) shall be treated as a single taxpayer for purposes of this subsection.
    • (B) For purposes of this subsection and section 3111(f)—
      • (i) each of the persons treated as a single taxpayer under subparagraph (A) may separately make the election under paragraph (1) for any taxable year, and
      • (ii) the $250,000 amount under paragraph (4)(B)(i) shall be allocated among all persons treated as a single taxpayer under subparagraph (A) in the same manner as under subparagraph (A)(ii) or (B)(ii) of subsection (f)(1), whichever is applicable.
  • (6) The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subsection, including—
    • (A) regulations to prevent the avoidance of the purposes of the limitations and aggregation rules under this subsection through the use of successor companies or other means,
    • (B) regulations to minimize compliance and record-keeping burdens under this subsection, and
    • (C) regulations for recapturing the benefit of credits determined under section 3111(f) in cases where there is a subsequent adjustment to the payroll tax credit portion of the credit determined under subsection (a), including requiring amended income tax returns in the cases where there is such an adjustment.