
From the U.S. Code Online via GPO Access
[wais.access.gpo.gov]
[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC1239]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
                 Subchapter P--Capital Gains and Losses
 
     PART IV--SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
 
Sec. 1239. Gain from sale of depreciable property between 
        certain related taxpayers
        

(a) Treatment of gain as ordinary income

    In the case of a sale or exchange of property, directly or 
indirectly, between related persons, any gain recognized to the 
transferor shall be treated as ordinary income if such property is, in 
the hands of the transferee, of a character which is subject to the 
allowance for depreciation provided in section 167.

(b) Related persons

    For purposes of subsection (a), the term ``related persons'' means--
        (1) a person and all entities which are controlled entities with 
    respect to such person,
        (2) a taxpayer and any trust in which such taxpayer (or his 
    spouse) is a beneficiary, unless such beneficiary's interest in the 
    trust is a remote contingent interest (within the meaning of section 
    318(a)(3)(B)(i)), and
        (3) except in the case of a sale or exchange in satisfaction of 
    a pecuniary bequest, an executor of an estate and a beneficiary of 
    such estate.

(c) Controlled entity defined

                          (1) General rule

        For purposes of this section, the term ``controlled entity'' 
    means, with respect to any person--
            (A) a corporation more than 50 percent of the value of the 
        outstanding stock of which is owned (directly or indirectly) by 
        or for such person,
            (B) a partnership more than 50 percent of the capital 
        interest or profits interest in which is owned (directly or 
        indirectly) by or for such person, and
            (C) any entity which is a related person to such person 
        under paragraph (3), (10), (11), or (12) of section 267(b).

                     (2) Constructive ownership

        For purposes of this section, ownership shall be determined in 
    accordance with rules similar to the rules under section 267(c) 
    (other than paragraph (3) thereof).

(d) Employer and related employee association

    For purposes of subsection (a), the term ``related person'' also 
includes--
        (1) an employer and any person related to the employer (within 
    the meaning of subsection (b)), and
        (2) a welfare benefit fund (within the meaning of section 
    419(e)) which is controlled directly or indirectly by persons 
    referred to in paragraph (1).

(e) Patent applications treated as depreciable property

    For purposes of this section, a patent application shall be treated 
as property which, in the hands of the transferee, is of a character 
which is subject to the allowance for depreciation provided in section 
167.

(Aug. 16, 1954, ch. 736, 68A Stat. 332; Pub. L. 85-866, title I, 
Sec. 56, Sept. 2, 1958, 72 Stat. 1645; Pub. L. 94-455, title XXI, 
Sec. 2129(a), Oct. 4, 1976, 90 Stat. 1922; Pub. L. 95-600, title VII, 
Sec. 701(v)(1), Nov. 6, 1978, 92 Stat. 2920; Pub. L. 96-471, Sec. 5, 
Oct. 19, 1980, 94 Stat. 2255; Pub. L. 97-448, title III, Sec. 301, Jan. 
12, 1983, 96 Stat. 2397; Pub. L. 98-369, div. A, title I, Sec. 175(a), 
(b), title IV, Sec. 421(b)(6)(A), title V, Sec. 557(a), July 18, 1984, 
98 Stat. 708, 794, 898; Pub. L. 99-514, title VI, Sec. 642(a)(1)(A)-(C), 
Oct. 22, 1986, 100 Stat. 2283, 2284; Pub. L. 105-34, title XIII, 
Sec. 1308(b), Aug. 5, 1997, 111 Stat. 1041.)


                               Amendments

    1997--Subsec. (b)(3). Pub. L. 105-34 added par. (3).
    1986--Subsec. (b)(1). Pub. L. 99-514, Sec. 642(a)(1)(A), substituted 
``controlled entities'' for ``80-percent owned entities''.
    Subsec. (c). Pub. L. 99-514, Sec. 642(a)(1)(B), (C), in heading, 
substituted ``Controlled entity'' for ``80-percent owned entity'', in 
par. (1), in introductory provisions, substituted ``controlled entity'' 
for ``80-percent owned entity'', in subpar. (A), substituted ``more than 
50 percent of the value'' for ``80 percent or more in value'', in 
subpar. (B), substituted ``more than 50 percent'' for ``80 percent or 
more'', and added subpar. (C), and amended par. (2) generally. Prior to 
amendment, par. (2) read as follows: ``For purposes of subparagraphs (A) 
and (B) of paragraph (1), the principles of section 318 shall apply, 
except that--
        ``(A) the members of an individual's family shall consist only 
    of such individual and such individual's spouse,
        ``(B) paragraph (2)(C) of section 318(a) shall be applied 
    without regard to the 50-percent limitation contained therein, and
        ``(C) paragraph (3) of section 318(a) shall not apply.''
    1984--Subsec. (b). Pub. L. 98-369, Sec. 421(b)(6), redesignated 
pars. (2) and (3) as (1) and (2), respectively. Former par. (1), 
defining a husband and wife as ``related persons'', was struck out.
    Pub. L. 98-369, Sec. 175(b), amended subsec. (b) generally, adding 
par. (3).
    Subsec. (d). Pub. L. 98-369, Sec. 557(a), added subsec. (d).
    Subsec. (e). Pub. L. 98-369, Sec. 175(a), added subsec. (e).
    1983--Subsec. (b). Pub. L. 97-448, Sec. 301(a), substituted 
provisions that ``related persons'' means (1) a husband and wife, and 
(2) a person and all entities which are 80-percent owned entities with 
respect to such person, for provisions which provided that ``related 
persons'' meant (1) the taxpayer and the taxpayer's spouse, (2) the 
taxpayer and an 80-percent owned entity, or (3) two 80-percent owned 
entities.
    Subsec. (c)(1). Pub. L. 97-448, Sec. 301(b), inserted ``, with 
respect to any person'' after ``means'' in introductory provisions and 
substituted ``such person'' for ``the taxpayer'' in subpars. (A) and 
(B).
    Subsec. (c)(2). Pub. L. 97-448, Sec. 301(b), struck out ``and'' at 
end of subpar. (A), substituted ``paragraph (2)(C)'' for ``paragraphs 
(2)(C) and (3)(C)'' in subpar. (B), and added subpar. (C).
    1980--Subsec. (b)(1). Pub. L. 96-471 substituted ``the taxpayer and 
the taxpayer's spouse'' for ``a husband and wife''.
    Subsec. (b)(2). Pub. L. 96-471 substituted ``the taxpayer and an 80-
percent owned entity, or'' for ``an individual and a corporation 80 
percent or more in value of the outstanding stock of which is owned, 
directly or indirectly, by or for such individual, or''.
    Subsec. (b)(3). Pub. L. 96-471 substituted ``two 80-percent owned 
entities'' for ``two or more corporations 80 percent or more in value of 
the outstanding stock of each of which is owned, directly or indirectly, 
by or for the same individual''.
    Subsec. (c). Pub. L. 96-471 substituted provisions defining an ``80-
percent owned entity'' for provisions relating to constructive ownership 
of stock.
    1978--Subsec. (a). Pub. L. 95-600 substituted ``of a character which 
is subject to the allowance for depreciation provided in section 167'' 
for ``subject to the allowance for depreciation provided in section 
167''.
    1976--Pub. L. 94-455 substituted ``sale of depreciable property 
between certain related taxpayers'' for ``sale of certain property 
between spouses or between an individual and a controlled corporation'' 
in section catchline.
    Subsec. (a). Pub. L. 94-455 substituted provisions for transactions 
between related persons for such transactions (1) between a husband and 
wife; or (2) between an individual and a corporation more than 80 
percent in value of the outstanding stock of which is owned by such 
individual, his spouse, and his minor children and minor grandchildren 
and ``any gain recognized to the transferee shall be treated as ordinary 
income if such property is, in the hands of the transferee, subject to 
the allowance for depreciation provided in section 167'' for ``any gain 
recognized to the transferor from the sale or exchange of such property 
shall be considered as gain from the sale or exchange of property which 
is neither a capital asset nor property described in section 1231''.
    Subsec. (b). Pub. L. 94-455 substituted definition of ``related 
persons'' for prior provision making section applicable only to sales or 
exchanges of depreciable property.
    Subsec. (c). Pub. L. 94-455 substituted provision respecting 
constructive ownership of stock for prior provision making section 
inapplicable with respect to sales or exchanges made on or before May 3, 
1951.
    1958--Subsec. (c). Pub. L. 85-866 added subsec. (c).


                    Effective Date of 1997 Amendment

    Amendment by Pub. L. 105-34 applicable to taxable years beginning 
after Aug. 5, 1997, see section 1308(c) of Pub. L. 105-34, set out as a 
note under section 267 of this title.


                    Effective Date of 1986 Amendment

    Section 642(c) of Pub. L. 99-514, as amended by Pub. L. 100-647, 
title I, Sec. 1006(i)(3), Nov. 10, 1988, 102 Stat. 3411, provided that:
    ``(1) In general.--Except as provided in paragraph (2), the 
amendments made by this section [amending this section and sections 453 
and 707 of this title] shall apply to sales after the date of the 
enactment of this Act [Oct. 22, 1986], in taxable years ending after 
such date.
    ``(2) Transitional rule for binding contracts.--The amendments made 
by this section shall not apply to sales made after August 14, 1986, 
which are made pursuant to a binding contract in effect on August 14, 
1986, and at all times thereafter.''


                    Effective Date of 1984 Amendment

    Section 175(c) of Pub. L. 98-369 provided that: ``The amendments 
made by this section [amending this section] shall apply to sales or 
exchanges after March 1, 1984, in taxable years ending after such 
date.''
    Amendment by section 421(b)(6) of Pub. L. 98-369 applicable to 
transfers after July 18, 1984, in taxable years ending after such date, 
subject to election to have amendment apply to transfers after 1983 or 
to transfers pursuant to existing decrees, see section 421(d) of Pub. L. 
98-369, set out as an Effective Date note under section 1041 of this 
title.
    Section 557(b) of Pub. L. 98-369 provided that: ``The amendment made 
by subsection (a) [amending this section] shall apply to sales or 
exchanges after the date of the enactment of this Act [July 18, 1984] in 
taxable years ending after such date.''


                    Effective Date of 1983 Amendment

    Amendment by Pub. L. 97-448 applicable to dispositions made after 
Oct. 19, 1980, in taxable years ending after such date, see section 
311(a) of Pub. L. 97-448, set out as a note under section 453 of this 
title.


                    Effective Date of 1978 Amendment

    Section 701(v)(2) of Pub. L. 95-600, as amended by Pub. L. 99-514, 
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ``The amendment 
made by paragraph (1) [amending this section] shall apply as if included 
in the amendment made to section 1239 of the Internal Revenue Code of 
1986 [formerly I.R.C. 1954] by section 2129(a) of the Tax Reform Act of 
1976 [section 2129(a) of Pub. L. 94-455].''


                    Effective Date of 1976 Amendment

    Section 2129(b) of Pub. L. 94-455 provided that: ``The amendment 
made by this section [amending this section] shall apply to sales or 
exchanges after the date of the enactment of this Act [Oct. 4, 1976]. 
For purposes of the preceding sentence, a sale or exchange is considered 
to have occurred on or before such date of enactment if such sale or 
exchange is made pursuant to a binding contract entered into on or 
before that date.''

                  Section Referred to in Other Sections

    This section is referred to in section 453 of this title.
