
From the U.S. Code Online via GPO Access
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[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC1255]

 
                     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. 1255. Gain from disposition of section 126 property


(a) General rule

                         (1) Ordinary income

        Except as otherwise provided in this section, if section 126 
    property is disposed of, the lower of--
            (A) the applicable percentage of the aggregate payments, 
        with respect to such property, excluded from gross income under 
        section 126, or
            (B) the excess of--
                (i) the amount realized (in the case of a sale, 
            exchange, or involuntary conversion), or the fair market 
            value of such section 126 property (in the case of any other 
            disposition), over
                (ii) the adjusted basis of such property,

        shall be treated as ordinary income. Such gain shall be 
        recognized notwithstanding any other provision of this subtitle, 
        except that this section shall not apply to the extent such gain 
        is recognized as ordinary income under any other provision of 
        this part.

                      (2) Section 126 property

        For purposes of this section, ``section 126 property'' means any 
    property acquired, improved, or otherwise modified by the 
    application of payments excluded from gross income under section 
    126.

                      (3) Applicable percentage

        For purposes of this section, if section 126 property is 
    disposed of less than 10 years after the date of receipt of payments 
    excluded from gross income under section 126, the applicable 
    percentage is 100 percent. If section 126 property is disposed of 
    more than 10 years after such date, the applicable percentage is 100 
    percent reduced (but not below zero) by 10 percent for each year or 
    part thereof in excess of 10 years such property was held after the 
    date of receipt of the payments.

(b) Special rules

    Under regulations prescribed by the Secretary--
        (1) rules similar to the rules applicable under section 1245 
    shall be applied for purposes of this section, and
        (2) for purposes of sections 170(e), 341(e)(12),,\1\ and 751(c), 
    amounts treated as ordinary income under this section shall be 
    treated in the same manner as amounts treated as ordinary income 
    under section 1245.
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    \1\ So in original.
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(Added Pub. L. 95-600, title V, Sec. 543(c)(1), Nov. 6, 1978, 92 Stat. 
2890; amended Pub. L. 96-222, title I, Sec. 105(a)(7)(B), (D), Apr. 1, 
1980, 94 Stat. 221; Pub. L. 96-471, Sec. 2(b)(6), Oct. 19, 1980, 94 
Stat. 2254; Pub. L. 99-514, title V, Sec. 511(d)(2)(A), title VI, 
Sec. 631(e)(14), Oct. 22, 1986, 100 Stat. 2248, 2275; Pub. L. 100-647, 
title I, Sec. 1005(c)(10), Nov. 10, 1988, 102 Stat. 3392.)


                               Amendments

    1988--Subsec. (b)(2). Pub. L. 100-647 amended Pub. L. 99-514, 
Sec. 511(d)(2)(A), see 1986 Amendment note below.
    1986--Subsec. (b)(2). Pub. L. 99-514, Sec. 511(d)(2)(A), as amended 
by Pub. L. 100-647, struck out ``163(d),'' after ``sections''.
    Pub. L. 99-514, Sec. 631(e)(14), struck out ``453B(d)(2)'' after 
341(e)(12),''.
    1980--Subsec. (a)(1)(B). Pub. L. 96-222, Sec. 105(a)(7)(B), inserted 
following cl. (ii) provisions requiring that such gain be recognized 
notwithstanding any other provision of this subtitle, except that this 
section shall not apply to the extent such gain is recognized as 
ordinary income under any other provision of this part.
    Subsec. (b)(2). Pub. L. 96-471 substituted ``453B(d)(2)'' for 
``453(d)(4)(B)''.
    Pub. L. 96-222, Sec. 105(a)(7)(D), inserted ``for purposes of 
sections 163(d), 170(e), 341(e)(12), 453(d)(4)(B), and 751(c)'' before 
``amounts treated as''.


                    Effective Date of 1988 Amendment

    Amendment by Pub. L. 100-647 effective, except as otherwise 
provided, as if included in the provision of the Tax Reform Act of 1986, 
Pub. L. 99-514, to which such amendment relates, see section 1019(a) of 
Pub. L. 100-647, set out as a note under section 1 of this title.


                    Effective Date of 1986 Amendment

    Amendment by section 511(d)(2)(A) of Pub. L. 99-514 applicable to 
taxable years beginning after Dec. 31, 1986, see section 511(e) of Pub. 
L. 99-514, set out as a note under section 163 of this title.
    Amendment by section 631(e)(14) of Pub. L. 99-514 applicable to any 
distribution in complete liquidation, and any sale or exchange, made by 
a corporation after July 31, 1986, unless such corporation is completely 
liquidated before Jan. 1, 1987, any transaction described in section 338 
of this title for which the acquisition date occurs after Dec. 31, 1986, 
and any distribution, not in complete liquidation, made after Dec. 31, 
1986, with exceptions and special and transitional rules, see section 
633 of Pub. L. 99-514, set out as an Effective Date note under section 
336 of this title.


                    Effective Date of 1980 Amendments

    For effective date of amendment by Pub. L. 96-471, see section 
6(a)(1) of Pub. L. 96-471, set out as an Effective Date note under 
section 453 of this title.
    Amendment by Pub. L. 96-222 effective, except as otherwise provided, 
as if it had been included in the provisions of the Revenue Act of 1978, 
Pub. L. 95-600, to which such amendment relates, see section 201 of Pub. 
L. 96-222, set out as a note under section 32 of this title.


                             Effective Date

    Section effective with respect to grants made under the programs 
after Sept. 30, 1979, see section 543(d) of Pub. L. 95-600, set out as a 
note under section 126 of this title.

                  Section Referred to in Other Sections

    This section is referred to in section 126 of this title.
