
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: 26USC126]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
               Subchapter B--Computation of Taxable Income
 
         PART III--ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
 
Sec. 126. Certain cost-sharing payments


(a) General rule

    Gross income does not include the excludable portion of payments 
received under--
        (1) The rural clean water program authorized by section 208(j) 
    of the Federal Water Pollution Control Act (33 U.S.C. 1288(j)).
        (2) The rural abandoned mine program authorized by section 406 
    of the Surface Mining Control and Reclamation Act of 1977 (30 U.S.C. 
    1236).
        (3) The water bank program authorized by the Water Bank Act (16 
    U.S.C. 1301 et seq.).
        (4) The emergency conservation measures program authorized by 
    title IV of the Agricultural Credit Act of 1978.
        (5) The agricultural conservation program authorized by the Soil 
    Conservation and Domestic Allotment Act (16 U.S.C. 590a).
        (6) The great plains conservation program authorized by section 
    16 \1\ of the Soil Conservation and Domestic Policy Act (16 U.S.C. 
    590p(b)).
---------------------------------------------------------------------------
    \1\ See References in Text note below.
---------------------------------------------------------------------------
        (7) The resource conservation and development program authorized 
    by the Bankhead-Jones Farm Tenant Act and by the Soil Conservation 
    and Domestic Allotment Act (7 U.S.C. 1010; 16 U.S.C. 590a et seq.).
        (8) The forestry incentives program authorized by section 4 of 
    the Cooperative Forestry Assistance Act of 1978 (16 U.S.C. 2103).
        (9) Any small watershed program administered by the Secretary of 
    Agriculture which is determined by the Secretary of the Treasury or 
    his delegate to be substantially similar to the type of programs 
    described in paragraphs (1) through (8).
        (10) Any program of a State, possession of the United States, a 
    political subdivision of any of the foregoing, or the District of 
    Columbia under which payments are made to individuals primarily for 
    the purpose of conserving soil, protecting or restoring the 
    environment, improving forests, or providing a habitat for wildlife.

(b) Excludable portion

    For purposes of this section--

                           (1) In general

        The term ``excludable portion'' means that portion (or all) of a 
    payment made to any person under any program described in subsection 
    (a) which--
            (A) is determined by the Secretary of Agriculture to be made 
        primarily for the purpose of conserving soil and water 
        resources, protecting or restoring the environment, improving 
        forests, or providing a habitat for wildlife, and
            (B) is determined by the Secretary of the Treasury or his 
        delegate as not increasing substantially the annual income 
        derived from the property.

           (2) Payments not chargeable to capital account

        The term ``excludable portion'' does not include that portion of 
    any payment which is properly associated with an amount which is 
    allowable as a deduction for the taxable year in which such amount 
    is paid or incurred.

(c) Election for section not to apply

                           (1) In general

        The taxpayer may elect not to have this section (and section 
    1255) apply to any excludable portion (or portion thereof).

               (2) Manner and time for making election

        Any election under paragraph (1) shall be made in the manner 
    prescribed by the Secretary by regulations and shall be made not 
    later than the due date prescribed by law (including extensions) for 
    filing the return of tax under this chapter for the taxable year in 
    which the payment was received or accrued.

(d) Denial of double benefits

    No deduction or credit shall be allowed with respect to any 
expenditure which is properly associated with any amount excluded from 
gross income under subsection (a).

(e) Basis of property not increased by reason of excludable payments

    Notwithstanding any provision of section 1016 to the contrary, no 
adjustment to basis shall be made with respect to property acquired or 
improved through the use of any payment, to the extent that such 
adjustment would reflect any amount which is excluded from gross income 
under subsection (a).

(Added Pub. L. 95-600, title V, Sec. 543(a), Nov. 6, 1978, 92 Stat. 
2888; amended Pub. L. 96-222, title I, Sec. 105(a)(7)(A), (C), (E), Apr. 
1, 1980, 94 Stat. 220, 221.)

                       References in Text

    The Water Bank Act, referred to in subsec. (a)(3), is Pub. L. 91-
559, Dec. 19, 1970, 84 Stat. 1468, as amended, which is classified 
generally to chapter 29 (Sec. 1301 et seq.) of Title 16, Conservation. 
For complete classification of this Act to the Code, see Short Title 
note set out under section 1301 of Title 16 and Tables.
    The Agricultural Credit Act of 1978, referred to in subsec. (a)(4), 
is Pub. L. 95-334, Aug. 4, 1978, 92 Stat. 420, as amended. Title IV of 
the Agricultural Credit Act of 1978 is classified generally to chapter 
42 (Sec. 2201 et seq.) of Title 16, Conservation. For complete 
classification of this Act to the Code, see Tables.
    The Soil Conservation and Domestic Allotment Act, referred to in 
subsec. (a)(5), (7), is act Apr. 27, 1935, ch. 85, 49 Stat. 163, as 
amended, which is classified generally to chapter 3B (Sec. 590a et seq.) 
of Title 16, Conservation. For complete classification of this Act to 
the Code, see section 590q of Title 16 and Tables.
    Section 16 of the Soil Conservation and Domestic Policy Act, 
referred to in subsec. (a)(6), probably means section 16 of the Soil 
Conservation and Domestic Allotment Act, which was classified to section 
590p of Title 16, Conservation, prior to repeal by Pub. L. 104-127, 
title III, Sec. 336(b)(1), Apr. 4, 1996, 110 Stat. 1006.
    The Bankhead-Jones Farm Tenant Act, referred to in subsec. (a)(7), 
is act July 22, 1937, ch. 517, 50 Stat. 522, as amended, which is 
classified generally to chapter 33 (Sec. 1000 et seq.) of Title 7, 
Agriculture. For complete classification of this Act to the Code, see 
section 1000 of Title 7 and Tables.


                            Prior Provisions

    A prior section 126 was renumbered section 139 of this title.


                               Amendments

    1980--Subsec. (a). Pub. L. 96-222, Sec. 105(a)(7)(C), (E), inserted 
in par. (9) ``or his delegate'' after ``Secretary of the Treasury'' and 
substituted in par. (10) ``Any program of a State, possession of the 
United States, a political subdivision of any of the foregoing, or the 
District of Columbia'' for ``Any State program''.
    Subsec. (b). Pub. L. 96-222, Sec. 105(a)(7)(A), inserted provisions 
relating to payments not chargeable to capital account.
    Subsec. (c). Pub. L. 96-222, Sec. 105(a)(7)(A), substituted 
provisions allowing the taxpayer to elect not to have this section apply 
to any excludable portion for provisions relating to the application of 
subsec. (a) of this section with other sections.
    Subsecs. (d), (e). Pub. L. 96-222, Sec. 105(a)(7)(A), added subsecs. 
(d) and (e).


                    Effective Date of 1980 Amendment

    Amendment by Pub. L. 96-222 effective, except as otherwise provided, 
as if it had been included in 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 543(d) of Pub. L. 95-600 provided that: ``The amendments 
made by this section [enacting this section and section 1255 of this 
title] shall apply with respect to grants made under the programs after 
September 30, 1979.''

                  Section Referred to in Other Sections

    This section is referred to in section 1255 of this title.
