§ 38. General business credit

Pub. L. 111–147, title I, § 102, Mar. 18, 2010, 124 Stat. 75, provided that: “(a) In General.—In the case of any taxable year ending after the date of the enactment of this Act [Mar. 18, 2010], the current year business credit determined under section 38(b) of the Internal Revenue Code of 1986 for such taxable year shall be increased, with respect to each retained worker with respect to which subsection (b)(2) is first satisfied during such taxable year, by the lesser of—“(1) $1,000, or “(2) 6.2 percent of the wages (as defined in section 3401(a) [probably means section 3401(a) of the Internal Revenue Code of 1986]) paid by the taxpayer to such retained worker during the 52 consecutive week period referred to in subsection (b)(2). “(b) Retained Worker.—For purposes of this section, the term ‘retained worker’ means any qualified individual (as defined in [former] section 3111(d)(3) or [former] section 3221(c)(3) of the Internal Revenue Code of 1986)—“(1) who was employed by the taxpayer on any date during the taxable year, “(2) who was so employed by the taxpayer for a period of not less than 52 consecutive weeks, and “(3) whose wages (as defined in section 3401(a) [probably means section 3401(a) of the Internal Revenue Code of 1986]) for such employment during the last 26 weeks of such period equaled at least 80 percent of such wages for the first 26 weeks of such period. “(c) Limitation on Carrybacks.—No portion of the unused business credit under section 38 of the Internal Revenue Code of 1986 for any taxable year which is attributable to the increase in the current year business credit under this section may be carried to a taxable year beginning before the date of the enactment of this section [Mar. 18, 2010]. “(d) Treatment of Possessions.—“(1) Payments to possessions.—“(A) Mirror code possessions.—The Secretary of the Treasury shall pay to each possession of the United States with a mirror code tax system amounts equal to the loss to that possession by reason of the application of this section (other than this subsection). Such amounts shall be determined by the Secretary of the Treasury based on information provided by the government of the respective possession. “(B) Other possessions.—The Secretary of the Treasury shall pay to each possession of the United States which does not have a mirror code tax system amounts estimated by the Secretary of the Treasury as being equal to the aggregate benefits that would have been provided to residents of such possession by reason of the application of this section (other than this subsection) if a mirror code tax system had been in effect in such possession. The preceding sentence shall not apply with respect to any possession of the United States unless such possession has a plan, which has been approved by the Secretary of the Treasury, under which such possession will promptly distribute such payments to the residents of such possession. “(2) Coordination with credit allowed against united states income taxes.—No increase in the credit determined under section 38(b) of the Internal Revenue Code of 1986 against United States income taxes for any taxable year determined under subsection (a) shall be taken into account with respect to any person—“(A) to whom a credit is allowed against taxes imposed by the possession by reason of this section for such taxable year, or “(B) who is eligible for a payment under a plan described in paragraph (1)(B) with respect to such taxable year. “(3) Definitions and special rules.—“(A) Possession of the united states.—For purposes of this subsection, the term ‘possession of the United States’ includes the Commonwealth of Puerto Rico and the Commonwealth of the Northern Mariana Islands. “(B) Mirror code tax system.—For purposes of this subsection, the term ‘mirror code tax system’ means, with respect to any possession of the United States, the income tax system of such possession if the income tax liability of the residents of such possession under such system is determined by reference to the income tax laws of the United States as if such possession were the United States. “(C) Treatment of payments.—For purposes of section 1324(b)(2) of title 31, United States Code, rules similar to the rules of section 1001(b)(3)(C) of the American Recovery and Reinvestment Tax Act of 2009 [section 1001(b)(3)(C) of Pub. L. 111–5, formerly set out as a note under section 36A of this title] shall apply.”

Credit for Contributions to Certain Community Development Corporations

Pub. L. 103–66, title XIII, § 13311, Aug. 10, 1993, 107 Stat. 556, as amended by Pub. L. 104–188, title I, § 1703(n)(13), Aug. 20, 1996, 110 Stat. 1877, provided that: “(a) In General.—For purposes of section 38 of the Internal Revenue Code of 1986, the current year business credit shall include the credit determined under this section. “(b) Determination of Credit.—The credit determined under this section for each taxable year in the credit period with respect to any qualified CDC contribution made by the taxpayer is an amount equal to 5 percent of such contribution. “(c) Credit Period.—For purposes of this section, the credit period with respect to any qualified CDC contribution is the period of 10 taxable years beginning with the taxable year during which such contribution was made. “(d) Qualified CDC Contribution.—For purposes of this section—“(1) In general.—The term ‘qualified CDC contribution’ means any transfer of cash—“(A) which is made to a selected community development corporation during the 5-year period beginning on the date such corporation was selected for purposes of this section, “(B) the amount of which is available for use by such corporation for at least 10 years, “(C) which is to be used by such corporation for qualified low-income assistance within its operational area, and “(D) which is designated by such corporation for purposes of this section. “(2) Limitations on amount designated.—The aggregate amount of contributions to a selected community development corporation which may be designated by such corporation shall not exceed $2,000,000. “(e) Selected Community Development Corporations.—“(1) In general.—For purposes of this section, the term ‘selected community development corporation’ means any corporation—“(A) which is described in section 501(c)(3) of such Code and exempt from tax under section 501(a) of such Code, “(B) the principal purposes of which include promoting employment of, and business opportunities for, low-income individuals who are residents of the operational area, and “(C) which is selected by the Secretary of Housing and Urban Development for purposes of this section. “(2) Only 20 corporations may be selected.—The Secretary of Housing and Urban Development may select 20 corporations for purposes of this section, subject to the availability of eligible corporations. Such selections may be made only before July 1, 1994. At least 8 of the operational areas of the corporations selected must be rural areas (as defined by section 1393(a)(2) of such Code). “(3) Operational areas must have certain characteristics.—A corporation may be selected for purposes of this section only if its operational area meets the following criteria:“(A) The area meets the size requirements under section 1392(a)(3). “(B) The unemployment rate (as determined by the appropriate available data) is not less than the national unemployment rate. “(C) The median family income of residents of such area does not exceed 80 percent of the median gross income of residents of the jurisdiction of the local government which includes such area. “(f) Qualified Low-Income Assistance.—For purposes of this section, the term ‘qualified low-income assistance’ means assistance—“(1) which is designed to provide employment of, and business opportunities for, low-income individuals who are residents of the operational area of the community development corporation, and “(2) which is approved by the Secretary of Housing and Urban Development.”

Applicability of Certain Amendments by Public Law 99–514 in Relation to Treaty Obligations of United States

For applicability of amendment by section 701(c)(4) of Pub. L. 99–514 notwithstanding any treaty obligation of the United States in effect on Oct. 22, 1986, with provision that for such purposes any amendment by title I of Pub. L. 100–647 be treated as if it had been included in the provision of Pub. L. 99–514 to which such amendment relates, see section 1012(aa)(2), (4) of Pub. L. 100–647, set out as a note under section 861 of this title.

Effective 15-Year Carryback of Existing Carryforwards of Steel Companies

Pub. L. 99–514, title II, § 212, Oct. 22, 1986, 100 Stat. 2170, as amended by Pub. L. 100–647, title I, § 1002(f), Nov. 10, 1988, 102 Stat. 3369, provided that: “(a) General Rule.—If a qualified corporation makes an election under this section for its 1st taxable year beginning after December 31, 1986, with respect to any portion of its existing carryforwards, the amount determined under subsection (b) shall be treated as a payment against the tax imposed by chapter 1 of the Internal Revenue Code of 1986 made by such corporation on the last day prescribed by law (without regard to extensions) for filing its return of tax under chapter 1 of such Code for such 1st taxable year. “(b) Amount.—For purposes of subsection (a), the amount determined under this subsection shall be the lesser of—“(1) 50 percent of the portion of the corporation’s existing carryforwards to which the election under subsection (a) applies, or “(2) the corporation’s net tax liability for the carryback period. “(c) Corporation Making Election May Not Use Same Amounts Under Section 38.—In the case of a qualified corporation which makes an election under subsection (a), the portion of such corporation’s existing carryforwards to which such an election applies shall not be taken into account under section 38 of the Internal Revenue Code of 1986 for any taxable year beginning after December 31, 1986. “(d) Net Tax Liability for Carryback Period.—For purposes of this section—“(1) In general.—A corporation’s net tax liability for the carryback period is the aggregate of such corporation’s net tax liability for taxable years in the carryback period. “(2) Net tax liability.—The term ‘net tax liability’ means, with respect to any taxable year, the amount of the tax imposed by chapter 1 of the Internal Revenue Code of 1954 [now 1986] for such taxable year, reduced by the sum of the credits allowable under part IV of subchapter A of such chapter 1 (other than section 34 thereof). For purposes of the preceding sentence, any tax treated as not imposed by chapter 1 of such Code under section 26(b)(2) of such Code shall not be treated as tax imposed by such chapter 1. “(3) Carryback period.—The term ‘carryback period’ means the period—“(A) which begins with the corporation’s 15th taxable year preceding the 1st taxable year from which there is an unused credit included in such corporation’s existing carryforwards (but in no event shall such period begin before the corporation’s 1st taxable year ending after December 31, 1961), and “(B) which ends with the corporation’s last taxable year beginning before January 1, 1986. “(e) No Recomputation of Minimum Tax, Etc.—Nothing in this section shall be construed to affect—“(1) the amount of the tax imposed by section 56 of the Internal Revenue Code of 1986, or “(2) the amount of any credit allowable under such Code, for any taxable year in the carryback period. “(f) Reinvestment Requirement.—“(1) In general.—Any amount determined under this section must be committed to reinvestment in, and modernization of the steel industry through investment in modern plant and equipment, research and development, and other appropriate projects, such as working capital for steel operations and programs for the retraining of steel workers. “(2) Special rule.—In the case of the LTV Corporation, in lieu of the requirements of paragraph (1)—“(A) such corporation shall place such refund in a separate account; and “(B) amounts in such separate account—“(i) shall only be used by the corporation— “(I) to purchase an insurance policy which provides that, in the event the corporation becomes involved in a title 11 or similar case (as defined in section 368(a)(3)(A) of the Internal Revenue Code of 1954 [now 1986]), the insurer will provide life and health insurance coverage during the 1-year period beginning on the date when the corporation receives the refund to any individual with respect to whom the corporation would (but for such involvement) have been obligated to provide such coverage the coverage provided by the insurer will be identical to the coverage which the corporation would (but for such involvement) have been obligated to provide, and provides that the payment of insurance premiums will not be required during such 1-year period to keep such policy in force, or “(II) directly in connection with the trade or business of the corporation in the manufacturer or production of steel; and “(ii) shall be used (or obligated) for purposes described in clause (i) not later than 3 months after the corporation receives the refund. “(3) In the case of a qualified corporation, no offset to any refund under this section may be made by reason of any tax imposed by section 4971 of the Internal Revenue Code of 1986 (or any interest or penalty attributable to any such tax), and the date on which any such refund is to be paid shall be determined without regard to such corporation’s status under title 11, United States Code. “(g) Definitions.—For purposes of this section—“(1) Qualified corporation.—“(A) In general.—The term ‘qualified corporation’ means any corporation which is described in section 806(b) of the Steel Import Stabilization Act [19 U.S.C. 2253 note] and a company which was incorporated on February 11, 1983, in Michigan. “(B) Certain predecessors included.—In the case of any qualified corporation which has carryforward attributable to a predecessor corporation described in such section 806(b), the qualified corporation and the predecessor corporation shall be treated as 1 corporation for purposes of subsections (d) and (e). “(2) Existing carryforwards.—The term ‘existing carryforward’ means the aggregate of the amounts which—“(A) are unused business credit carryforwards to the taxpayer’s 1st taxable year beginning after December 31, 1986 (determined without regard to the limitations of section 38(c) and any reduction under section 49 of the Internal Revenue Code of 1986), and “(B) are attributable to the amount of the regular investment credit determined for periods before January 1, 1986, under section 46(a)(1) of such Code (relating to regular percentage), or any corresponding provision of prior law, determined on the basis that the regular investment credit was used first. “(3) Special rule for restructuring.—In the case of any corporation, any restructuring shall not limit, increase, or otherwise affect the benefits which would have been available under this section but for such restructuring. “(h) Tentative Refunds.—Rules similar to the rules of section 6425 of the Internal Revenue Code of 1986 shall apply to any overpayment resulting from the application of this section.”

Effective 15-Year Carryback of Existing Carryforwards of Qualified Farmers

Pub. L. 99–514, title II, § 213, Oct. 22, 1986, 100 Stat. 2172, as amended by Pub. L. 100–647, title I, § 1002(g), Nov. 10, 1988, 102 Stat. 3369, provided that: “(a) General Rule.—If a taxpayer who is a qualified farmer makes an election under this section for its 1st taxable year beginning after December 31, 1986, with respect to any portion of its existing carryforwards, the amount determined under subsection (b) shall be treated as a payment against the tax imposed by chapter 1 of the Internal Revenue Code of 1986 made by such taxpayer on the last day prescribed by law (without regard to extensions) for filing its return of tax under chapter 1 of such Code for such 1st taxable year. “(b) Amount.—For purposes of subsection (a), the amount determined under this subsection shall be equal to the smallest of—“(1) 50 percent of the portion of the taxpayer’s existing carryforwards to which the election under subsection (a) applies, “(2) the taxpayer’s net tax liability for the carryback period (within the meaning of section 212(d) of this Act [set out as a note above]), or “(3) $750. “(c) Taxpayer Making Election May Not Use Same Amounts Under Section 38.—In the case of a qualified farmer who makes an election under subsection (a), the portion of such farmer’s existing carryforwards to which such an election applies shall not be taken into account under section 38 of the Internal Revenue Code of 1986 for any taxable year beginning after December 31, 1986. “(d) No Recomputation of Minimum Tax, Etc.—Nothing in this section shall be construed to affect—“(1) the amount of the tax imposed by section 56 of the Internal Revenue Code of 1954 [now 1986], or “(2) the amount of any credit allowable under such Code, for any taxable year in the carryback period (within the meaning of section 212(d)(3) of this Act [set out as a note above]). “(e) Definitions and Special Rules.—For purposes of this section—“(1) Qualified farmer.—The term ‘qualified farmer’ means any taxpayer who, during the 3-taxable year period preceding the taxable year for which an election is made under subsection (a), derived 50 percent or more of the taxpayer’s gross income from the trade or business of farming. “(2) Existing carryforward.—The term ‘existing carryforward’ means the aggregate of the amounts which—“(A) are unused business credit carryforwards to the taxpayer’s 1st taxable year beginning after December 31, 1986 (determined without regard to the limitations of section 38(c) of the Internal Revenue Code of 1986), and “(B) are attributable to the amount of the investment credit determined for periods before January 1, 1986, under section 46(a) of such Code (or any corresponding provision of prior law) with respect to section 38 property which was used by the taxpayer in the trade or business of farming, determined on the basis that such credit was used first. “(3) Farming.—The term ‘farming’ has the meaning given such term by section 2032A(e)(4) and (5) of such Code.”

Treatment of Investment Tax Credits With Respect to Certain Public Utilities

For provisions requiring different applications of subsec. (c) of this section to certain public utilities by making substitutions in the percentages of the tentative minimum tax referred to in subsec. (c)(3)(A)(ii), (B), under certain circumstances, see section 701(f)(6) of Pub. L. 99–514, set out as an Effective Date note under section 55 of this title.

Plan Amendments Not Required Until January 1, 1989

For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of Pub. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99–514, as amended, set out as a note under section 401 of this title.

Transition Rules

Pub. L. 99–514, title XI, § 1177, Oct. 22, 1986, 100 Stat. 2520, as amended by Pub. L. 100–647, title I, § 1011B(l)(1), (2), Nov. 10, 1988, 102 Stat. 3493, provided that: “(a) Section 1171.—The amendments made by section 1171 [amending this section and sections 56, 108, 401, and 404 of this title and repealing sections 41 and 6699 of this title] shall not apply in the case of a tax credit employee stock ownership plan if—“(1) such plan was favorably approved on September 23, 1983, by employees, and “(2) not later than January 11, 1984, the employer of such employees was 100 percent owned by such plan. “(b) Subtitle Not To Apply to Certain News­paper.—The amendments made by section 1175 [amending section 401 of this title] shall not apply to any daily newspaper—“(1) which was first published on December 17, 1855, and which began publication under its current name in 1954, and “(2) which is published in a constitutional home rule city (within the meaning of section 146(d)(3)(C) of the Internal Revenue Code of 1986) which has a population of less than 2,500,000.”

Pub. L. 100–647, title I, § 1011B(l)(3), Nov. 10, 1988, 102 Stat. 3493, provided that: “If any newspaper corporation described in section 1177(b) of the Reform Act [section 1177(b) of Pub. L. 99–514, set out above], as amended by this subsection, pays in cash a dividend within 60 days after the date of the enactment of this Act [Nov. 10, 1988] to the corporation’s employee stock ownership plans and if a corporate resolution declaring such dividend was adopted before November 30, 1987, and such resolution specifies that such dividend shall be contingent upon passage by the Congress of technical corrections, then such dividend (to the extent the aggregate amount so paid does not exceed $3,500,000) shall be treated as if it had been declared and paid in 1987 for all purposes of the Internal Revenue Code of 1986.”

Accounting for Investment Credit in Certain Financial Reports and Reports to Federal Agencies

Pub. L. 92–178, title I, § 101(c), Dec. 10, 1971, 85 Stat. 499, as amended by Pub. L. 98–369, div. A, title IV, § 450(a), July 18, 1984, 98 Stat. 818; Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: “(1) In general.—It was the intent of Congress in enacting, in the Revenue Act of 1962 [see Short Title of 1962 Amendment note set out under section 1 of this title], the investment credit allowed by section 38 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954], and it is the intent of the Congress in restoring that credit in this Act [section 50 of this title], to provide an incentive for modernization and growth of private industry. Accordingly, notwithstanding any other provision of law, on and after the date of the enactment of this Act [Dec. 10, 1971]—“(A) no taxpayer shall be required to use, for purposes of financial reports subject to the jurisdiction of any Federal agency or reports made to any Federal agency, any particular method of accounting for the credit allowed by such section 38 [this section], and “(B) a taxpayer shall disclose, in any such report, the method of accounting for such credit used by him for purposes of such report. “(2) Exceptions.—Paragraph (1) shall not apply to taxpayers who are subject to the provisions of section 46(e) of the Internal Revenue Code of 1986 (as added by section 105(c) of this Act) or to section 203(e) of the Revenue Act of 1964 (as modified by section 105(e) of this Act) [set out as note below].”

[Pub. L. 98–369, div. A, title IV, § 450(b), July 18, 1984, 98 Stat. 818, provided that: “The amendments made by this section [amending this note] shall take effect as if included in the Revenue Act of 1971.” ]

Treatment of Investment Credit by Federal Regulatory Agencies

Pub. L. 88–272, title II, § 203(e), Feb. 26, 1964, 78 Stat. 35, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: “It was the intent of the Congress in providing an investment credit under section 38 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] and it is the intent of the Congress in repealing the reduction in basis required by section 48(g) of such Code to provide an incentive for modernization and growth of private industry (including that portion thereof which is regulated). Accordingly, Congress does not intend that any agency or instrumentality of the United States having jurisdiction with respect to a taxpayer shall, without the consent of the taxpayer, use—“(1) in the case of public utility property (as defined in section 46(c)(3)(B) of the Internal Revenue Code of 1986, more than a proportionate part (determined with reference to the average useful life of the property with respect to which the credit was allowed) of the credit against tax allowed for any taxable year by section 38 of such Code, or “(2) in the case of any other property, any credit against tax allowed by section 38 of such Code, to reduce such taxpayer’s Federal income taxes for the purpose of establishing the cost of service of the taxpayer or to accomplish a similar result by any other method.”

Section 203(e) of Pub. L. 88–272, not applicable to public utility property to which section 46(e) of this title applies, see section 105(e) of Pub. L. 92–178, set out as a note under section 46 of this title.