
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: 26USC133]

 
                     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. 133. Repealed. Pub. L. 104-188, title I, Sec. 1602(a), 
        Aug. 20, 1996, 110 Stat. 1833]
        
    Section, added Pub. L. 98-369, div. A, title V, Sec. 543(a), July 
18, 1984, 98 Stat. 891; amended Pub. L. 99-514, title XI, 
Sec. 1173(b)(1)(A), (2), title XVIII, Sec. 1854(c)(2)(A), (C), (D), Oct. 
22, 1986, 100 Stat. 2515, 2879; Pub. L. 100-647, title I, 
Sec. 1011B(h)(1), (2), Nov. 10, 1988, 102 Stat. 3490; Pub. L. 101-239, 
title VII, Sec. 7301(a)-(c), Dec. 19, 1989, 103 Stat. 2346, 2347, prior 
to repeal, read as follows:
Sec. 133. Interest on certain loans used to acquire employer securities
(a) In general
    Gross income does not include 50 percent of the interest received 
by--
        (1) a bank (within the meaning of section 581),
        (2) an insurance company to which subchapter L applies,
        (3) a corporation actively engaged in the business of lending 
    money, or
        (4) a regulated investment company (as defined in section 851),
with respect to a securities acquisition loan.
(b) Securities acquisition loan
    (1) In general
        For purposes of this section, the term ``securities acquisition 
    loan'' means--
            (A) any loan to a corporation or to an employee stock 
        ownership plan to the extent that the proceeds are used to 
        acquire employer securities for the plan, or
            (B) any loan to a corporation to the extent that, within 30 
        days, employer securities are transferred to the plan in an 
        amount equal to the proceeds of such loan and such securities 
        are allocable to accounts of plan participants within 1 year of 
        the date of such loan.
    For purposes of this paragraph, the term ``employer securities'' has 
    the meaning given such term by section 409(l). The term ``securities 
    acquisition loan'' shall not include a loan with a term greater than 
    15 years.
    (2) Loans between related persons
        The term ``securities acquisition loan'' shall not include--
            (A) any loan made between corporations which are members of 
        the same controlled group of corporations, or
            (B) any loan made between an employee stock ownership plan 
        and any person that is--
                (i) the employer of any employees who are covered by the 
            plan; or
                (ii) a member of a controlled group of corporations 
            which includes such employer.
    For purposes of this paragraph, subparagraphs (A) and (B) shall not 
    apply to any loan which, but for such subparagraphs, would be a 
    securities acquisition loan if such loan was not originated by the 
    employer of any employees who are covered by the plan or by any 
    member of the controlled group of corporations which includes such 
    employer, except that this section shall not apply to any interest 
    received on such loan during such time as such loan is held by such 
    employer (or any member of such controlled group).
    (3) Terms applicable to certain securities acquisition loans
        A loan to a corporation shall not fail to be treated as a 
    securities acquisition loan merely because the proceeds of such loan 
    are lent to an employee stock ownership plan sponsored by such 
    corporation (or by any member of the controlled group of 
    corporations which includes such corporation) if such loan 
    includes--
            (A) repayment terms which are substantially similar to the 
        terms of the loan of such corporation from a lender described in 
        subsection (a), or
            (B) repayment terms providing for more rapid repayment of 
        principal or interest on such loan, but only if allocations 
        under the plan attributable to such repayment do not 
        discriminate in favor of highly compensated employees (within 
        the meaning of section 414(q)).
    (4) Controlled group of corporations
        For purposes of this paragraph, the term ``controlled group of 
    corporations'' has the meaning given such term by section 409(l)(4).
    (5) Treatment of refinancings
        The term ``securities acquisition loan'' shall include any loan 
    which--
            (A) is (or is part of a series of loans) used to refinance a 
        loan described in subparagraph (A) or (B) of paragraph (1), and
            (B) meets the requirements of paragraphs (2) and (3).
    (6) Plan must hold more than 50 percent of stock after acquisition 
        or transfer
        (A) In general
            A loan shall not be treated as a securities acquisition loan 
        for purposes of this section unless, immediately after the 
        acquisition or transfer referred to in subparagraph (A) or (B) 
        of paragraph (1), respectively, the employee stock ownership 
        plan owns more than 50 percent of--
                (i) each class of outstanding stock of the corporation 
            issuing the employer securities, or
                (ii) the total value of all outstanding stock of the 
            corporation.
        (B) Failure to retain minimum stock interest
            (i) In general
                Subsection (a) shall not apply to any interest received 
            with respect to a securities acquisition loan which is 
            allocable to any period during which the employee stock 
            ownership plan does not own stock meeting the requirements 
            of subparagraph (A).
            (ii) Exception
                To the extent provided by the Secretary, clause (i) 
            shall not apply to any period if, within 90 days of the 
            first date on which the failure occurred (or such longer 
            period not in excess of 180 days as the Secretary may 
            prescribe), the plan acquires stock which results in its 
            meeting the requirements of subparagraph (A).
        (C) Stock
            For purposes of subparagraph (A)--
            (i) In general
                The term ``stock'' means stock other than stock 
            described in section 1504(a)(4).
            (ii) Treatment of certain rights
                The Secretary may provide that warrants, options, 
            contracts to acquire stock, convertible debt interests and 
            other similar interests be treated as stock for 1 or more 
            purposes under subparagraph (A).
        (D) Aggregation rule
            For purposes of determining whether the requirements of 
        subparagraph (A) are met, an employee stock ownership plan shall 
        be treated as owning stock in the corporation issuing the 
        employer securities which is held by any other employee stock 
        ownership plan which is maintained by--
                (i) the employer maintaining the plan, or
                (ii) any member of a controlled group of corporations 
            (within the meaning of section 409(l)(4)) of which the 
            employer described in clause (i) is a member.
    (7) Voting rights of employer securities
        A loan shall not be treated as a securities acquisition loan for 
    purposes of this section unless--
            (A) the employee stock ownership plan meets the requirements 
        of section 409(e)(2) with respect to all employer securities 
        acquired by, or transferred to, the plan in connection with such 
        loan (without regard to whether or not the employer has a 
        registration-type class of securities), and
            (B) no stock described in section 409(l)(3) is acquired by, 
        or transferred to, the plan in connection with such loan 
        unless--
                (i) such stock has voting rights equivalent to the stock 
            to which it may be converted, and
                (ii) the requirements of subparagraph (A) are met with 
            respect to such voting rights.
(c) Employee stock ownership plan
    For purposes of this section, the term ``employee stock ownership 
plan'' has the meaning given to such term by section 4975(e)(7).
(d) Application with section 483 and original issue discount rules
    In applying section 483 and subpart A of part V of subchapter P to 
any obligation to which this section applies, appropriate adjustments 
shall be made to the applicable Federal rate to take into account the 
exclusion under subsection (a).
(e) Period to which interest exclusion applies
    (1) In general
        In the case of--
            (A) an original securities acquisition loan, and
            (B) any securities acquisition loan (or series of such 
        loans) used to refinance the original securities acquisition 
        loan,
    subsection (a) shall apply only to interest accruing during the 
    excludable period with respect to the original securities 
    acquisition loan.
    (2) Excludable period
        For purposes of this subsection, the term ``excludable period'' 
    means, with respect to any original securities acquisition loan--
        (A) In general
            The 7-year period beginning on the date of such loan.
        (B) Loans described in subsection (b)(1)(A)
            If the term of an original securities acquisition loan 
        described in subsection (b)(1)(A) is greater than 7 years, the 
        term of such loan. This subparagraph shall not apply to a loan 
        described in subsection (b)(3)(B).
    (3) Original securities acquisition loan
        For the purposes of this subsection, the term ``original 
    securities acquisition loan'' means a securities acquisition loan 
    described in subparagraph (A) or (B) of subsection (b)(1).


                            Prior Provisions

    A prior section 133 was renumbered section 139 of this title.


                        Effective Date of Repeal

    Section 1602(c) of Pub. L. 104-188 provided that:
    ``(1) In general.--The amendments made by this section [amending 
sections 291, 812, 852, 4978, 6047, and 7872 of this title and repealing 
this section and section 4978B of this title] shall apply to loans made 
after the date of the enactment of this Act [Aug. 20, 1996].
    ``(2) Refinancings.--The amendments made by this section shall not 
apply to loans made after the date of the enactment of this Act to 
refinance securities acquisition loans (determined without regard to 
section 133(b)(1)(B) of the Internal Revenue Code of 1986, as in effect 
on the day before the date of the enactment of this Act) [set out above] 
made on or before such date or to refinance loans described in this 
paragraph if--
        ``(A) the refinancing loans meet the requirements of section 133 
    of such Code (as so in effect),
        ``(B) immediately after the refinancing the principal amount of 
    the loan resulting from the refinancing does not exceed the 
    principal amount of the refinanced loan (immediately before the 
    refinancing), and
        ``(C) the term of such refinancing loan does not extend beyond 
    the last day of the term of the original securities acquisition 
    loan.
For purposes of this paragraph, the term `securities acquisition loan' 
includes a loan from a corporation to an employee stock ownership plan 
described in section 133(b)(3) of such Code (as so in effect).
    ``(3) Exception.--Any loan made pursuant to a binding written 
contract in effect before June 10, 1996, and at all times thereafter 
before such loan is made, shall be treated for purposes of paragraphs 
(1) and (2) as a loan made on or before the date of the enactment of 
this Act.''
