
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: 26USC1351]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
 Subchapter Q--Readjustment of Tax Between Years and Special Limitations
 
          PART VII--RECOVERIES OF FOREIGN EXPROPRIATION LOSSES
 
Sec. 1351. Treatment of recoveries of foreign expropriation 
        losses
        

(a) Election

                           (1) In general

        This section shall apply only to a recovery, by a domestic 
    corporation subject to the tax imposed by section 11 or 801, of a 
    foreign expropriation loss sustained by such corporation and only if 
    such corporation was subject to the tax imposed by section 11 or 
    801, as the case may be, for the year of the loss and elects to have 
    the provisions of this section apply with respect to such loss.

                     (2) Time, manner, and scope

        An election under paragraph (1) shall be made at such time and 
    in such manner as the Secretary may prescribe by regulations. An 
    election made with respect to any foreign expropriation loss shall 
    apply to all recoveries in respect of such loss.

(b) Definition of foreign expropriation loss

    For purposes of this section, the term ``foreign expropriation 
loss'' means any loss sustained by reason of the expropriation, 
intervention, seizure, or similar taking of property by the government 
of any foreign country, any political subdivision thereof, or any agency 
or instrumentality of the foregoing. For purposes of the preceding 
sentence, a debt which becomes worthless shall, to the extent of any 
deduction allowed under section 166(a), be treated as a loss.

(c) Amount of recovery

                          (1) General rule

        The amount of any recovery of a foreign expropriation loss is 
    the amount of money and the fair market value of other property 
    received in respect of such loss, determined as of the date of 
    receipt.

            (2) Special rule for life insurance companies

        The amount of any recovery of a foreign expropriation loss 
    includes, in the case of a life insurance company, the amount of 
    decrease of any item taken into account under section 807(c), to the 
    extent such decrease is attributable to the release, by reason of 
    such loss, of its liabilities with respect to such item.

(d) Adjustment for prior tax benefits

                           (1) In general

        That part of the amount of a recovery of a foreign expropriation 
    loss to which this section applies which, when added to the 
    aggregate of the amounts of previous recoveries with respect to such 
    loss, does not exceed the allowable deductions in prior taxable 
    years on account of such loss shall be excluded from gross income 
    for the taxable year of the recovery for purposes of computing the 
    tax under this subtitle; but there shall be added to, and assessed 
    and collected as a part of, the tax under this subtitle for such 
    taxable year an amount equal to the total increase in the tax under 
    this subtitle for all taxable years which would result by 
    decreasing, in an amount equal to such part of the recovery so 
    excluded, the deductions allowable in the prior taxable years on 
    account of such loss. For purposes of this paragraph, if the loss to 
    which the recovery relates was taken into account as a loss from the 
    sale or exchange of a capital asset, the amount of the loss shall be 
    treated as an allowable deduction even though there were no gains 
    against which to allow such loss.

                           (2) Computation

        The increase in the tax for each taxable year referred to in 
    paragraph (1) shall be computed in accordance with regulations 
    prescribed by the Secretary. Such regulations shall give effect to 
    previous recoveries of any kind (including recoveries described in 
    section 111, relating to recovery of tax benefit items) with respect 
    to any prior taxable year, but shall otherwise treat the tax 
    previously determined for any taxable year in accordance with the 
    principles set forth in section 1314(a) (relating to correction of 
    errors). Subject to the provisions of paragraph (3), all credits 
    allowable against the tax for any taxable year, and all carryovers 
    and carrybacks affected by so decreasing the allowable deductions, 
    shall be taken into account in computing the increase in the tax.

                          (3) Foreign taxes

        For purposes of this subsection, any choice made under subpart A 
    of part III of subchapter N (relating to foreign tax credit) for any 
    taxable year may be changed.

                (4) Substitution of current tax rate

        For purposes of this subsection, the rates of tax specified in 
    section 11(b) for the taxable year of the recovery shall be treated 
    as having been in effect for all prior taxable years.

(e) Gain on recovery

    That part of the amount of a recovery of a foreign expropriation 
loss to which this section applies which is not excluded from gross 
income under subsection (d)(1) shall be considered for the taxable year 
of the recovery as gain on the involuntary conversion of property as a 
result of its destruction or seizure and shall be recognized or not 
recognized as provided in section 1033.

(f) Basis of recovered property

    The basis of property (other than money) received as a recovery of a 
foreign expropriation loss to which this section applies shall be an 
amount equal to its fair market value on the date of receipt, reduced by 
such part of the gain under subsection (e) which is not recognized as 
provided in section 1033.

(g) Restoration of value of investments

    For purposes of this section, if the value of any interest in, or 
with respect to, property (including any interest represented by a 
security, as defined in section 165(g)(2))--
        (1) which became worthless by reason of the expropriation, 
    intervention, seizure, or similar taking of such property by the 
    government of any foreign country, any political subdivision 
    thereof, or any agency or instrumentality of the foregoing, and
        (2) which was taken into account as a loss from the sale or 
    exchange of a capital asset or with respect to which a deduction for 
    a loss was allowed under section 165 or a deduction for a bad debt 
    was allowed under section 166,

is restored in whole or in part by reason of any recovery of money or 
other property in respect of the property which became worthless, the 
value so restored shall be treated as property received as a recovery in 
respect of such loss or such bad debt.

(h) Special rule for evidences of indebtedness

    Bonds or other evidences of indebtedness received as a recovery of a 
foreign expropriation loss to which this section applies shall not be 
considered to have any original issue discount within the meaning of 
section 1273(a).

(i) Adjustments for succeeding years

    For purposes of this subtitle, proper adjustment shall be made, 
under regulations prescribed by the Secretary, in--
        (1) the credit under section 27 (relating to foreign tax 
    credit),
        (2) the credit under section 38 (relating to general business 
    credit),
        (3) the net operating loss deduction under section 172, or the 
    operations loss deduction under section 810,
        (4) the capital loss carryover under section 1212(a), and
        (5) such other items as may be specified by such regulations,

for the taxable year of a recovery of a foreign expropriation loss to 
which this section applies, and for succeeding taxable years, to take 
into account items changed in making the computations under subsection 
(d) for taxable years prior to the taxable year of such recovery.

(Added Pub. L. 89-384, Sec. 1(a), Apr. 8, 1966, 80 Stat. 99; amended 
Pub. L. 94-455, title X, Sec. 1031(b)(3), title XIX, 
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1623, 1834; Pub. L. 95-600, 
title III, Sec. 301(b)(17), Nov. 6, 1978, 92 Stat. 2823; Pub. L. 98-369, 
div. A, title I, Sec. 42(a)(12), title II, Sec. 211(b)(18), title IV, 
Sec. 474(r)(25), July 18, 1984, 98 Stat. 557, 756, 844; Pub. L. 99-514, 
title XVIII, Sec. 1812(a)(4), Oct. 22, 1986, 100 Stat. 2833.)


                               Amendments

    1986--Subsec. (d)(2). Pub. L. 99-514 substituted ``relating to 
recovery of tax benefit items'' for ``relating to recovery of bad debts, 
etc.''.
    1984--Subsec. (a)(1). Pub. L. 98-369, Sec. 211(b)(18)(A), 
substituted ``801'' for ``802'' in two places.
    Subsec. (c)(2). Pub. L. 98-369, Sec. 211(b)(18)(B), substituted 
``section 807(c)'' for ``section 810(c)''.
    Subsec. (h). Pub. L. 98-369, Sec. 42(a)(12), substituted ``section 
1273(a)'' for ``section 1232(a)(2)''.
    Subsec. (i)(1). Pub. L. 98-369, Sec. 474(r)(25)(A), substituted 
``section 27'' for ``section 33''.
    Subsec. (i)(2). Pub. L. 98-369, Sec. 474(r)(25)(B), substituted 
``section 38 (relating to general business credit)'' for ``section 38 
(relating to investment credit)''.
    Subsec. (i)(3). Pub. L. 98-369, Sec. 211(b)(18)(C), substituted 
``section 810'' for ``section 812''.
    1978--Subsec. (d)(4). Pub. L. 95-600 substituted ``the rates of tax 
specified in section 11(b)'' for ``the normal tax rate provided by 
section 11(b) and the surtax rate provided by section 11(c) which are in 
effect''.
    1976--Subsecs. (a)(2), (d)(2). Pub. L. 94-455, Sec. 1906(b)(13)(A), 
struck out ``or his delegate'' after ``Secretary''.
    Subsec. (d)(3). Pub. L. 94-455, Sec. 1031(b)(3), struck out 
provisions relating to an election to have limitation provided by 
section 904(a)(2) apply and to revocation of such an election previously 
made.
    Subsec. (i). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out ``or 
his delegate'' after ``Secretary''.


                    Effective Date of 1986 Amendment

    Amendment by Pub. L. 99-514 effective, except as otherwise provided, 
as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 
98-369, div. A, to which such amendment relates, see section 1881 of 
Pub. L. 99-514, set out as a note under section 48 of this title.


                    Effective Date of 1984 Amendment

    Amendment by section 42(a)(12) of Pub. L. 98-369 applicable to 
taxable years ending after July 18, 1984, see section 44 of Pub. L. 98-
369, set out as an Effective Date note under section 1271 of this title.
    Amendment by section 211(b)(18) of Pub. L. 98-369 applicable to 
taxable years beginning after Dec. 31, 1983, see section 215 of Pub. L. 
98-369, set out as an Effective Date note under section 801 of this 
title.
    Amendment by section 474(r)(25) of Pub. L. 98-369 applicable to 
taxable years beginning after Dec. 31, 1983, and to carrybacks from such 
years, see section 475(a) of Pub. L. 98-369, set out as a note under 
section 21 of this title.


                    Effective Date of 1978 Amendment

    Amendment by Pub. L. 95-600 applicable to taxable years beginning 
after Dec. 31, 1978, see section 301(c) of Pub. L. 95-600, set out as a 
note under section 11 of this title.


                    Effective Date of 1976 Amendment

    Amendment by section 1031(b)(3) of Pub. L. 94-455 applicable to 
taxable years beginning after Dec. 31, 1975, with exceptions for certain 
mining operations, and for income from possessions, see section 1031(c) 
of Pub. L. 94-455, set out as a note under section 904 of this title.


                             Effective Date

    Section 2 of Pub. L. 89-384, as amended by Pub. L. 99-514, Sec. 2, 
Oct. 22, 1986, 100 Stat. 2095, provided that: ``The amendments made by 
section 1 (except subsection (b)) [enacting this section and section 
6167 of this title and amending sections 46, 901, 6503, and 6601 of this 
title] shall apply with respect to amounts received after December 31, 
1964, in respect of foreign expropriation losses (as defined in section 
1351(b) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] 
added by section 1(a)) sustained after December 31, 1958.''


           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 [Secs. 1101-1147 and 1171-1177] or title XVIII 
[Secs. 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.

                  Section Referred to in Other Sections

    This section is referred to in sections 26, 30A, 80, 936, 6167 of 
this title.
