amount received by the taxpayer as compensation, by insurance or otherwise, for the property so destroyed, damaged, or stolen, or to the adjusted basis of such property, whichever is the lesser. No reduction in basis or cost shall be made under the preceding sentence in any case in which the reduction in qualified investment attributable to the substitution required by section 47(a) (1) with respect to the property so destroyed, damaged, or stolen (determined without regard to section 47(a) (4)) is greater than the reduction described in the preceding sentence.

(d) Limitations with respect to certain persons. (1) In general.

In the case of

(A) an organization to which section 593 applies,

(B) a regulated investment company or a real estate investment trust subject to taxation under subchapter M (sec. 851 and following), and

(C) a cooperative organization described in section 1381(a),

the qualified investment and the $25,000 amount specified under subparagraphs (A) and (B) of subsection (a)(2) shall equal such person's ratable share of such items.

(2) Ratable share.

For purposes of paragraph (1), the ratable share of any person for any taxable year of the items described therein shall be

(A) in the case of an organization referred to in paragraph (1)(A), 50 percent thereof, (B) in the case of a regulated investment company or a real estate investment trust, the ratio (i) the numerator of which is its taxable income and (ii) the denominator of which is its taxable income computed without regard to the deduction for dividends paid provided by section 852(b) (2) (D) or 857(b) (2) (C), as the case may be, and

(C) in the case of a cooperative organization, the ratio (i) the numerator of which is its taxable income and (ii) the denominator of which is its taxable income increased by amounts to which section 1382(b) or (c) applies and similar amounts the tax treatment of which is determined without regard to subchapter T (sec. 1381 and following).

For purposes of subparagraph (B) of the preceding sentence, the term "taxable income" means in the case of a regulated investment company its investment company taxable income (within the meaning of section 852(b)(2)), and in the case of a real estate investment trust its real estate investment trust taxable income (within the meaning of section 857(b) (2)).

(Added Pub. L. 87-834, § 2(b), Oct. 16, 1962, 76 Stat. 963, and amended Pub. L. 88-272, title II, § 201(d) (4), Feb. 26, 1964, 78 Stat. 32.)

EFFECTIVE DATE OF 1964 AMENDMENT Amendment of section by Pub. L. 88-272 applicable with respect to dividends received after Dec. 31, 1964, in taxable years ending after such date, see section 201(e) of Pub. L. 88-272, set out as a note under section 35 of this title.

EFFECTIVE DATE

Section applicable with respect to taxable years ending after Dec. 31, 1961, see section 2(h) of Pub. L. 87-834, set out as a note under section 38 of this title.

§ 47. Certain dispositions, etc., of section 38 property. (a) General rule.

Under regulations prescribed by the Secretary or his delegate

(1) Early disposition, etc.

If during any taxable year any property is disposed of, or otherwise ceases to be section 38 property with respect to the taxpayer, before the close of the useful life which was taken into account in computing the credit under section 38, then the tax under this chapter for such taxable year shall be increased by an amount equal to the aggregate decrease in the credits allowed under section 38 for all prior taxable years which would have resulted solely from substituting, in determining qualified investment, for such useful life the period beginning with the time such property was placed in service by the taxpayer and ending with the time such property ceased to be section 38 property.

(2) Property becomes public utility property.

If during any taxable year any property taken into account in determining qualified investment becomes public utility property (within the meaning of section 46(c) (3) (B)), then the tax under this chapter for such taxable year shall be increased by an amount equal to the aggregate decrease in the credits allowed under section 38 for all prior taxable years which would have resulted solely from treating the property, for purposes of determining qualified investment, as public utility property (after giving due regard to the period before such change in use). If the application of this paragraph to any property is followed by the application of paragraph (1) to such property, proper adjustment shall be made in applying paragraph (1).

(3) Carrybacks and carryovers adjusted.

In the case of any cessation described in paragraph (1) or any change in use described in paragraph (2), the carrybacks and carryovers under section 46(b) shall be adjusted by reason of such cessation (or change in use).

(4) Property destroyed by casualty, etc.

No increase shall be made under paragraph (1) and no adjustment shall be made under paragraph (3) in any case in which

(A) any property is disposed of, or otherwise ceases to be section 38 property with respect to the taxpayer, on account of its destruction or damage by fire, storm, shipwreck, or other casualty, or by reason of its theft,

(B) section 38 property is placed in service by the taxpayer to replace the property described in subparagraph (A), and

(C) the reduction in basis or cost of such section 38 property described in the first sentence of section 46(c) (4) is equal to or; greater than the reduction in qualified investment which (but for this paragraph) would be made by reason of the substitution required by paragraph (1) with respect to the property described in subparagraph (A).

(b) Section not to apply in certain cases. Subsection (a) shall not apply to

(1) a transfer by reason of death, or

(2) a transaction to which section 381(a) applies.

For purposes of subsection (a), property shall not be treated as ceasing to be section 38 property with respect to the taxpayer by reason of a mere change in the form of conducting the trade or business so long as the property is retained in such trade or business as section 38 property and the taxpayer retains a substantial interest in such trade or business.

(c) Special rule.

Any increase in tax under subsection (a) shall not be treated as tax imposed by this chapter for purposes of determining the amount of any credit allowable under subpart A. (Added Pub. L. 87-834, § 2(b), Oct. 16, 1962, 76 Stat. 966.)

EFFECTIVE DATE

Section applicable with respect to taxable years ending after Dec. 31, 1961, see section 2(h) of Pub. L. 87-834, set out as a note under section 38 of this title.

§ 48. Definitions; special rules.

(a) Section 38 property.

(1) In general.

Except as provided in this subsection, the term "section 38 property" means

(A) tangible personal property, or

(B) other tangible property (not including a building and its structural components) but only if such property

(i) is used as an integral part of manufacturing, production, or extraction or of furnishing transportation, communications, electrical energy, gas, water, or sewage disposal services, or

(ii) constitutes a research or storage facility used in connection with any of the activities referred to in clause (i), or

(C) elevators and escalators, but only if

(i) the construction, reconstruction, or erection of the elevator or escalator is completed by the taxpayer after June 30, 1963, or (ii) the elevator or esca'ator is acquired after June 30, 1963, and the original use of such elevator or escalator commences with the taxpayer and commences after such date. Such term includes only property with respect to which depreciation (or amortization in lieu of depreciation) is allowable and having a useful life (determined as of the time such property is placed in service) of 4 years or more.

(2) Property used outside the United States. (A) In general.

Except as provided in subparagraph (B), the term "section 38 property" does not include

property which is used predominantly outside the United States.

(B) Exceptions.

Subparagraph (A) shall not apply to

(i) any aircraft which is registered by the Administrator of the Federal Aviation Agency and which is operated to and from the United States;

(ii) rolling stock, of a domestic railroad corporation subject to part I of the Interstate Commerce Act, which is used within and without the United States;

(iii) any vessel documented under the laws of the United States which is operated in the foreign or domestic commerce of the United States;

(iv) any motor vehicle of a United States person (as defined in section 7701(a) (30)) which is operated to and from the United States;

(v) any container of a United States person which is used in the transportation of property to and from the United States; and

(vi) any property (other than a vessel or an aircraft) of a United States person which is used for the purpose of exploring for, developing, removing, or transporting resources from the outer Continental Shelf (within the meaning of section 2 of the Outer Continental Shelf Lands Act, as amended and supplemented; 43 U.S.C., sec. 1331).

(3) Property used for lodging.

Property which is used predominantly to furnish lodging or in connection with the furnishing of lodging shall not be treated as section 38 property. The preceding sentence shall not apply to

(A) nonlodging commercial facilities which are available to persons not using the lodging facilities on the same basis as they are available to persons using the lodging facilities, and

(B) property used by a hotel or motel in connection with the trade or business of furnishing lodging where the predominant portion of the accommodations is used by transients.

(4) Property used by certain tax-exempt organizations.

Property used by an organization (other than a corporative described in section 521) which is exempt from the tax imposed by this chapter shall be treated as section 38 property only if such property is used predominantly in an unrelated trade or business the income of which is subject to tax under section 511.

(5) Property used by governmental units.

Property used by the United States, any State or political subdivision thereof, any international organization, or any agency or instrumentality of any of the foregoing shall not be treated as section 38 property.

Livestock shall not be treated as section 38 property.

(b) New section 38 property.

For purposes of this subpart, the term "new section 38 property" means section 38 property

(1) the construction, reconstruction, or erection of which is completed by the taxpayer after December 31, 1961, or

(2) acquired after December 31, 1961, if the original use of such property commences with the taxpayer and commences after such date. In applying section 46 (c) (1) (A) in the case of property described in paragraph (1), there shall be taken into account only that portion of the basis which is properly attributable to construction, reconstruction, or erection after December 31, 1961.

(c) Used section 38 property.

(1) In general.

For purposes of this subpart, the term "used section 38 property" means section 38 property acquired by purchase after December 31, 1961, which is not new section 38 property. Property shall not be treated as "used section 38 property" if, after its acquisition by the taxpayer, it is used by a person who used such property before such acquisition (or by a person who bears a relationship described in section 179(d) (2) (A) or (B) to a person who used such property before such acquisition).

(2) Dollar limitation.

(A) In general.

The cost of used section 38 property taken into account under section 46(c) (1) (B) for any taxable year shall not exceed $50,000. If such cost exceeds $50,000, the taxpayer shall select (at such time and in such manner as the Secretary or his delegate shall by regulations prescribe) the items to be taken into account, but only to the extent of an aggregate cost of $50,000. Such a selection, once made, may be changed only in the manner, and to the extent, provided by such regulations.

(B) Married individuals.

In the case of a husband or wife who files a separate return, the limitation under subparagraph (A) shall be $25,000 in lieu of $50,000. This subparagraph shall not apply if the spouse of the taxpayer has no used section 38 property which may be taken into account as qualified investment for the taxable year of such spouse which ends within or with the taxpayer's taxable year.

(C) Affiliated groups.

In the case of an affiliated group, the $50,000 amount specified under subparagraph (A) shall be reduced for each member of the group by apportioning $50,000 among the members of such group in accordance with their respective amounts of used section 38 property which may be taken into account.

(D) Partnerships.

In the case of a partnership, the limitation contained in subparagraph (A) shall apply with respect to the partnership and with respect to each partner.

(3) Definitions.

For purposes of this subsection

(A) Purchase.

The term "purchase" has the meaning assigned to such term by section 179(d) (2).

(B) Cost.

The cost of used section 38 property does not include so much of the basis of such property as is determined by reference to the adjusted basis of other property held at any time by the person acquiring such property. If property is disposed of (other than by reason of its destruction or damage by fire, storm, shipwreck, or other casualty, or its theft) and used section 38 property similar or related in service or use is acquired as a replacement therefor in a transaction to which the preceding sentence does not apply, the cost of the used section 38 property acquired shall be its basis reduced by the adjusted basis of the property replaced. The cost of used section 38 property shall not be reduced with respect to the adjusted basis of any property disposed of if, by reason of section 47, such disposition involved an increase of tax or a reduction of the unused credit carrybacks or carryovers described in section 46(b).

(C) Affiliated group.

The term "affiliated group" has the meaning assigned to such term by section 1504 (a), except that

(i) the phrase "more than 50 percent” shall be substituted for the phrase "at least 80 percent" each place it appears in section 1504(a), and

(ii) all corporations shall be treated as includible corporations (without any exclusion under section 1504(b)).

(d) Certain leased property.

A person (other than a person referred to in section 46(d)) who is a lessor of property may (at such time, in such manner, and subject to such conditions as are provided by regulations prescribed by the Secretary or his delegate) elect with respect to any new section 38 property to treat the lessee as having acquired such property for an amount equal to

(1) except as provided in paragraph (2), the fair market value of such property, or

(2) if such property is leased by a corporation which is a member of an affiliated group (within the meaning of section 46 (a) (5)) to another corporation which is a member of the same affiliated group, the basis of such property to the lessor. The election provided by the preceding sentence may be made only with respect to property which would be new section 38 property if acquired by the lessee. For purposes of the preceding sentence and section 46(c), the useful life of property in the hands of the lessee is the useful life of such property in the hands of the lessor. If a lessor makes the election provided by this subsection with respect to any property, the lessee shall be treated for all purposes of this subpart as having acquired such property.

(e) Subchapter S corporations.

In the case of an electing small business corporation (as defined in section 1371)—

(1) the qualified investment for each taxable year shall be apportioned pro rata among the persons who are shareholders of such corporation on the last day of such taxable year; and

(2) any person to whom any investment has been apportioned under paragraph (1) shall be treated (for purposes of this subpart) as the taxpayer with respect to such investment, and such investment shall not (by reason of such apportionment) lose its character as an investment in new section 38 property or used section 38 property, as the case may be.

(f) Estates and trusts.

In the case of an estate or trust

(1) the qualified investment for any taxable year shall be apportioned between the estate or trust and the beneficiaries on the basis of the income of the estate or trust allocable to each,

(2) any beneficiary to whom any investment has been apportioned under paragraph (1) shall be treated (for purposes of this subpart) as the taxpayer with respect to such investment, and such investment shall not (by reason of such apportionment) lose its character as an investment in new section 38 property or used section 38 property, as the case may be, and

(3) the $25,000 amount specified under subparagraphs (A) and (B) of section 46(a)(2) applicable to such estate or trust shall be reduced to an amount which bears the same ratio to $25,000 as the amount of the qualified investment allocated to the estate or trust under paragraph (1) bears to the entire amount of the qualified investment.

(g) Repealed. Pub. L. 88-272, title II, § 203(a)(1), Feb. 26, 1964, 78 Stat. 33.

(h) Cross reference.

For application of this subpart to certain acquiring corporations, see setion 381 (c) (23).

(Added Pub. L. 87-834, § 2(b), Oct. 16, 1962, 76 Stat. 967, and amended Pub. L. 88-272, title II, § 203 (a) (1), (3) (A), (b), (c), Feb. 26, 1964, 78 Stat. 33, 34.)

REFERENCES IN TEXT

Part I of the Interstate Commerce Act, referred to in subsec. (a) (2), is classified to chapter 1 of Title 49, Transportation.

AMENDMENTS

1964 Subsec. (a)(1)(C). Pub. L. 88-272, § 203 (c) (2), added subpar. (C).

Subsec. (d). Pub. L. 88-272, § 203 (a) (3) (A), (b), substituted "except as provided in paragraph (2)" for "if such property was constructed by the lessor (or by a corporation which controls or is controlled by the lessor within the meaning of section 368 (c))" in par. (1), “if such property is leased by a corporation which is a member of an affiliated group (within the meaning of section 46(a) (5) to another corporation which is a member of the same affiliated group" for "if paragraph (1) does not apply" in par. (2), and deleted provisions which stated that if a lessor made an election under this subsection, subsec. (g) would not apply with respect to such property, and deductions otherwise allowable under section 162 to the lessee for amounts paid the lessor would be adjusted consistent with subsec. (g).

Subsec. (g). Pub. L. 88-272, § 203 (a)(1), repealed subsec. (g) which required that the basis of section 38

property be reduced by 7 percent of the qualified investment.

EFFECTIVE DATE OF 1964 AMENDMENT

Section 203 (a) (4) of Pub. L. 88-272 provided that: "Paragraphs (1) [repealing subsec. (g) of this section] and (3) [amending subsec. (d) of this section, the analysis preceding section 161, and section 1016 of this title and repealing section 181 of this title] of this subsection shall apply

"(A) in the case of property placed in service after December 31, 1963, with respect to taxable years ending after such date, and

"(B) in the case of property placed in service before January 1, 1964, with respect to taxable years beginning after December 31, 1963."

Section 203 (f) of Pub. L. 88-272 provided that:

"(1) The amendments made by subsection (b) [to subsec. (d) (1) (2) of this section] shall apply with respect to property possession of which is transferred to a lessee on or after the date of enactment of this Act [Feb. 26, 1964].

"(2) The amendments made by subsection (c) [to subsec. (a) (1) (c) of this section] shall apply with respect to taxable years ending after June 30, 1963.

"(3) The amendments made by subsection (d) [to section 1245 of this title] shall apply with respect to dispositions after December 31, 1963, in taxable years ending after such date."

EFFECTIVE DATE

Section applicable with respect to taxable years ending after Dec. 31, 1961, see section 2(h) of Pub. L. 87-834, set out as a note under section 38 of this title. INCREASE IN BASIS OF PROPERTY PLACED IN SERVICE BEFORE JANUARY 1, 1964

Section 203 (a)(2) of Pub. L. 88-272 provided that: "(A) The basis of any section 38 property (as defined in section 48(a) of the Internal Revenue Code of 1954) placed in service before January 1, 1964, shall be increased, under regulations prescribed by the Secretary of the Treasury or his delegate, by an amount equal to 7 percent of the qualified investment with respect to such property under section 46(c) of the Internal Revenue Code of 1954. If there has been any increase with respect to such property under section 48(g) (2) of such Code, the increase under the preceding sentence shall be appropriately reduced therefor.

"(B) If a lessor made the election provided by section 48(d) of the Internal Revenue Code of 1954 with respect to property placed in service before January 1, 1964

"(1) subparagraph (A) shall not apply with respect to such property, but

"(ii) under regulations prescribed by the Secretary of the Treasury or his delegate, the deductions otherwise allowable under section 162 of such Code to the lessee for amounts paid to the lessor under the lease (or, if such lessee has purchased such property, the basis of such property) shall be adjusted in a manner ccnsistent with subparagraph (A).

"(C) The adjustments under this paragraph shall be made as of the first day of the taxpayer's first taxable year which begins after December 31, 1963."

Subchapter B.-Computation of Taxable Income

Part

I. Definition of gross income, adjusted gross income, and taxable income.

II. Items specifically included in gross income.
III. Items specifically excluded from gross income.
IV. Standard deduction for individuals.
V. Deductions for personal exemptions.

VI. Itemized deductions for individuals and corporations.

VII. Additional itemized deductions for individuals.
VIII. Special deductions for corporations.

IX. Items not deductible.

X. Terminal railroad corporations and their shareholders.

AMENDMENTS

1962-Pub. L. 87-870, § 1(b), Oct. 23, 1962, 76 Stat. 1160, added part X.

PART I.-DEFINITION OF GROSS INCOME, ADJUSTED GROSS INCOME, AND TAXABLE INCOME

Sec.

61. Gross income defined.

62. Adjusted gross income defined.

63. Taxable income defined.

§ 61. Gross income defined. (a) General definition.

Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items:

(1) Compensation for services, including fees, commissions, and similar items;

(2) Gross income derived from business;
(3) Gains derived from dealings in property;
(4) Interest;

(5) Rents;

(6) Royalties;

(7) Dividends;

(8) Alimony and separate maintenance payments;

(9) Annuities;

(10) Income from life insurance and endowment contracts;

(11) Pensions;

(12) Income from discharge of indebtedness; (13) Distributive share of partnership gross income;

(14) Income in respect of a decedent; and (15) Income from an interest in an estate or trust.

(b) Cross references.

For items specifically included in gross income, see part II (sec. 71 and following). For items specifically excluded from gross income, see part III (sec. 101 and following).

(Aug. 16, 1954, ch. 736, 68A Stat. 17.)

REIMBURSEMENT OF MOVING EXPENSES OF EMPLOYEES OF CERTAIN CORPORATIONS EXCLUDED FROM GROSS INCOME; CLAIM FOR REFUND OR CREDIT; LIMITATIONS; INTEREST Pub. L. 86-780, § 5, Sept. 14, 1960, 74 Stat. 1013, provided that:

"Any amount received after December 31, 1949, and before October 1, 1955, from a corporation which—

"(1) was formed exclusively for the purpose of, and was engaged exclusively in, operating without profit a scientific laboratory for the Atomic Energy Commission, and

"(2) operated solely on funds appropriated to the Atomic Energy Commission,

by an individual as reimbursement for moving himself and his immediate family, household goods, and personal effects to a new place of residence in order to accept employment with such corporation shall, for Federal income tax purposes, be treated as an amount which was not includible in the gross income of the individual, to the extent that such amount did not exceed the actual expenses paid or incurred by the individual for such purposes, if the individual was advised, at the time of his employment, by an authorized officer, employee, or agent of such corporation that the amount of such reimbursement would not be includible in gross income. If refund or credit of any overpayment resulting from the application of this section is prevented on the date of enactment of this Act [Sept. 14, 1960], or within six months after such date, by the operation of any law or rule of law (other than chapter 74 of the Internal Revenue Code of 1954, relating to closing agreements and compro

mises, and the corresponding provisions of prior law), refund or credit of such overpayment may, nevertheless, be made or allowed if claim therefore is filed within six months after such date. No interest shall be paid or allowed on any overpayment resulting from the application of the preceding sentence."

CROSS REFERENCES

Capital gains and losses, see section 1201 et seq. of this title.

Guaranteed payments to partner for services or use of capital considered as made to one not member of partnership for purposes of this section, see section 707 of this title.

Income from sources

Within the United States, see section 861 of this title. Without the United States, see section 862 of this title. Items specifically excluded from gross income

Certain death benefits, see section 101 of this title. Income from discharge of indebtedness, see section 108 of this title.

Items specifically included in gross income

Alimony and separate maintenance payments, see section 71 of this title.

Annuities; certain proceeds of endowment and life insurance contracts, see section 72 of this title. Recipients of income in respect of decedents, see section 691 of this title.

Trust income attributable to grantors and others as substantial owners includible in gross income, see section 671 of this title.

§ 62. Adjusted gross income defined.

For purposes of this subtitle, the term “adjusted gross income" means, in the case of an individual, gross income minus the following deductions:

(1) Trade and business deductions.

The deductions allowed by this chapter (other than by part VII of this subchapter) which are attributable to a trade or business carried on by the taxpayer, if such trade or business does not consist of the performance of services by the taxpayer as an employee.

(2) Trade and business deductions of employees. (A) Reimbursed expenses.

The deductions allowed by part VI (sec. 161 and following) which consist of expenses paid or incurred by the taxpayer, in connection with the performance by him of services as an employee, under a reimbursement or other expense allowance arrangement with his employer.

(B) Expenses for travel away from home.

The deductions allowed by part VI (sec. 161 and following) which consist of expenses of travel, meals, and lodging while away from home, paid or incurred by the taxpayer in connection with the performance by him of services as an employee.

(C) Transportation expenses.

The deductions allowed by part VI (sec. 161 and following) which consist of expenses of transportation paid or incurred by the taxpayer in connection with the performance by him of services as an employee.

(D) Outside salesmen.

The deductions allowed by part VI (sec. 161 and following) which are attributable to a trade or business carried on by the taxpayer, if such trade or business consists of the performance of services by the taxpayer as an employee and and if such trade or business is to solicit, away