
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: 26USC265]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
               Subchapter B--Computation of Taxable Income
 
                      PART IX--ITEMS NOT DEDUCTIBLE
 
Sec. 265. Expenses and interest relating to tax-exempt income


(a) General rule

    No deduction shall be allowed for--

                            (1) Expenses

        Any amount otherwise allowable as a deduction which is allocable 
    to one or more classes of income other than interest (whether or not 
    any amount of income of that class or classes is received or 
    accrued) wholly exempt from the taxes imposed by this subtitle, or 
    any amount otherwise allowable under section 212 (relating to 
    expenses for production of income) which is allocable to interest 
    (whether or not any amount of such interest is received or accrued) 
    wholly exempt from the taxes imposed by this subtitle.

                            (2) Interest

        Interest on indebtedness incurred or continued to purchase or 
    carry obligations the interest on which is wholly exempt from the 
    taxes imposed by this subtitle.

             (3) Certain regulated investment companies

        In the case of a regulated investment company which distributes 
    during the taxable year an exempt-interest dividend (including 
    exempt-interest dividends paid after the close of the taxable year 
    as described in section 855), that portion of any amount otherwise 
    allowable as a deduction which the amount of the income of such 
    company wholly exempt from taxes under this subtitle bears to the 
    total of such exempt income and its gross income (excluding from 
    gross income, for this purpose, capital gain net income, as defined 
    in section 1222(9)).

          (4) Interest related to exempt-interest dividends

        Interest on indebtedness incurred or continued to purchase or 
    carry shares of stock of a regulated investment company which during 
    the taxable year of the holder thereof distributes exempt-interest 
    dividends.

     (5) Special rules for application of paragraph (2) in the 
                             case of short sales

        For purposes of paragraph (2)--

        (A) In general

            The term ``interest'' includes any amount paid or incurred--
                (i) by any person making a short sale in connection with 
            personal property used in such short sale, or
                (ii) by any other person for the use of any collateral 
            with respect to such short sale.

        (B) Exception where no return on cash collateral

            If--
                (i) the taxpayer provides cash as collateral for any 
            short sale, and
                (ii) the taxpayer receives no material earnings on such 
            cash during the period of the sale,

        subparagraph (A)(i) shall not apply to such short sale.

       (6) Section not to apply with respect to parsonage and 
                         military housing allowances

        No deduction shall be denied under this section for interest on 
    a mortgage on, or real property taxes on, the home of the taxpayer 
    by reason of the receipt of an amount as--
            (A) a military housing allowance, or
            (B) a parsonage allowance excludable from gross income under 
        section 107.

(b) Pro rata allocation of interest expense of financial institutions to 
        tax-exempt interest

                           (1) In general

        In the case of a financial institution, no deduction shall be 
    allowed for that portion of the taxpayer's interest expense which is 
    allocable to tax-exempt interest.

                           (2) Allocation

        For purposes of paragraph (1), the portion of the taxpayer's 
    interest expense which is allocable to tax-exempt interest is an 
    amount which bears the same ratio to such interest expense as--
            (A) the taxpayer's average adjusted bases (within the 
        meaning of section 1016) of tax-exempt obligations acquired 
        after August 7, 1986, bears to
            (B) such average adjusted bases for all assets of the 
        taxpayer.

          (3) Exception for certain tax-exempt obligations

        (A) In general

            Any qualified tax-exempt obligation acquired after August 7, 
        1986, shall be treated for purposes of paragraph (2) and section 
        291(e)(1)(B) as if it were acquired on August 7, 1986.

        (B) Qualified tax-exempt obligation

            (i) In general

                For purposes of subparagraph (A), the term ``qualified 
            tax-exempt obligation'' means a tax-exempt obligation--
                    (I) which is issued after August 7, 1986, by a 
                qualified small issuer,
                    (II) which is not a private activity bond (as 
                defined in section 141), and
                    (III) which is designated by the issuer for purposes 
                of this paragraph.
            (ii) Certain bonds not treated as private activity 
                    bonds

                For purposes of clause (i)(II), there shall not be 
            treated as a private activity bond--
                    (I) any qualified 501(c)(3) bond (as defined in 
                section 145), or
                    (II) any obligation issued to refund (or which is 
                part of a series of obligations issued to refund) an 
                obligation issued before August 8, 1986, which was not 
                an industrial development bond (as defined in section 
                103(b)(2) as in effect on the day before the date of the 
                enactment of the Tax Reform Act of 1986) or a private 
                loan bond (as defined in section 103(o)(2)(A), as so in 
                effect, but without regard to any exemption from such 
                definition other than section 103(o)(2)(A)).

        (C) Qualified small issuer

            (i) In general

                For purposes of subparagraph (B), the term ``qualified 
            small issuer'' means, with respect to obligations issued 
            during any calendar year, any issuer if the reasonably 
            anticipated amount of tax-exempt obligations (other than 
            obligations described in clause (ii)) which will be issued 
            by such issuer during such calendar year does not exceed 
            $10,000,000.
            (ii) Obligations not taken into account in 
                    determining status as qualified small issuer

                For purposes of clause (i), an obligation is described 
            in this clause if such obligation is--
                    (I) a private activity bond (other than a qualified 
                501(c)(3) bond, as defined in section 145),
                    (II) an obligation to which section 141(a) does not 
                apply by reason of section 1312, 1313, 1316(g), or 1317 
                of the Tax Reform Act of 1986 and which would (if issued 
                on August 15, 1986) have been an industrial development 
                bond (as defined in section 103(b)(2) as in effect on 
                the day before the date of the enactment of such Act) or 
                a private loan bond (as defined in section 103(o)(2)(A), 
                as so in effect, but without regard to any exception 
                from such definition other than section 103(o)(2)(A)), 
                or
                    (III) an obligation issued to refund (other than to 
                advance refund within the meaning of section 149(d)(5)) 
                any obligation to the extent the amount of the refunding 
                obligation does not exceed the outstanding amount of the 
                refunded obligation.
            (iii) Allocation of amount of issue in certain cases

                In the case of an issue under which more than 1 
            governmental entity receives benefits, if--
                    (I) all governmental entities receiving benefits 
                from such issue irrevocably agree (before the date of 
                issuance of the issue) on an allocation of the amount of 
                such issue for purposes of this subparagraph, and
                    (II) such allocation bears a reasonable relationship 
                to the respective benefits received by such entities,

          then the amount of such issue so allocated to an entity (and 
            only such amount with respect to such issue) shall be taken 
            into account under clause (i) with respect to such entity.

        (D) Limitation on amount of obligations which may be designated

            (i) In general

                Not more than $10,000,000 of obligations issued by an 
            issuer during any calendar year may be designated by such 
            issuer for purposes of this paragraph.
            (ii) Certain refundings of designated obligations 
                    deemed designated

                Except as provided in clause (iii), in the case of a 
            refunding (or series of refundings) of a qualified tax-
            exempt obligation, the refunding obligation shall be treated 
            as a qualified tax-exempt obligation (and shall not be taken 
            into account under clause (i)) if--
                    (I) the refunding obligation was not taken into 
                account under subparagraph (C) by reason of clause 
                (ii)(III) thereof,
                    (II) the average maturity date of the refunding 
                obligations issued as part of the issue of which such 
                refunding obligation is a part is not later than the 
                average maturity date of the obligations to be refunded 
                by such issue, and
                    (III) the refunding obligation has a maturity date 
                which is not later than the date which is 30 years after 
                the date the original qualified tax-exempt obligation 
                was issued.

          Subclause (II) shall not apply if the average maturity of the 
            issue of which the original qualified tax-exempt obligation 
            was a part (and of the issue of which the obligations to be 
            refunded are a part) is 3 years or less. For purposes of 
            this clause, average maturity shall be determined in 
            accordance with section 147(b)(2)(A).
            (iii) Certain obligations may not be designated or 
                    deemed designated

                No obligation issued as part of an issue may be 
            designated under this paragraph (or may be treated as 
            designated under clause (ii)) if--
                    (I) any obligation issued as part of such issue is 
                issued to refund another obligation, and
                    (II) the aggregate face amount of such issue exceeds 
                $10,000,000.

        (E) Aggregation of issuers

            For purposes of subparagraphs (C) and (D)--
                (i) an issuer and all entities which issue obligations 
            on behalf of such issuer shall be treated as 1 issuer,
                (ii) all obligations issued by a subordinate entity 
            shall, for purposes of applying subparagraphs (C) and (D) to 
            each other entity to which such entity is subordinate, be 
            treated as issued by such other entity, and
                (iii) an entity formed (or, to the extent provided by 
            the Secretary, availed of) to avoid the purposes of 
            subparagraph (C) or (D) and all entities benefiting thereby 
            shall be treated as 1 issuer.

        (F) Treatment of composite issues

            In the case of an obligation which is issued as part of a 
        direct or indirect composite issue, such obligation shall not be 
        treated as a qualified tax-exempt obligation unless--
                (i) the requirements of this paragraph are met with 
            respect to such composite issue (determined by treating such 
            composite issue as a single issue), and
                (ii) the requirements of this paragraph are met with 
            respect to each separate lot of obligations which are part 
            of the issue (determined by treating each such separate lot 
            as a separate issue).

                           (4) Definitions

        For purposes of this subsection--

        (A) Interest expense

            The term ``interest expense'' means the aggregate amount 
        allowable to the taxpayer as a deduction for interest for the 
        taxable year (determined without regard to this subsection, 
        section 264, and section 291). For purposes of the preceding 
        sentence, the term ``interest'' includes amounts (whether or not 
        designated as interest) paid in respect of deposits, investment 
        certificates, or withdrawable or repurchasable shares.

        (B) Tax-exempt obligation

            The term ``tax-exempt obligation'' means any obligation the 
        interest on which is wholly exempt from taxes imposed by this 
        subtitle. Such term includes shares of stock of a regulated 
        investment company which during the taxable year of the holder 
        thereof distributes exempt-interest dividends.

                      (5) Financial institution

        For purposes of this subsection, the term ``financial 
    institution'' means any person who--
            (A) accepts deposits from the public in the ordinary course 
        of such person's trade or business, and is subject to Federal or 
        State supervision as a financial institution, or
            (B) is a corporation described in section 585(a)(2).

                          (6) Special rules

        (A) Coordination with subsection (a)

            If interest on any indebtedness is disallowed under 
        subsection (a) with respect to any tax-exempt obligation--
                (i) such disallowed interest shall not be taken into 
            account for purposes of applying this subsection, and
                (ii) for purposes of applying paragraph (2), the 
            adjusted basis of such tax-exempt obligation shall be 
            reduced (but not below zero) by the amount of such 
            indebtedness.

        (B) Coordination with section 263A

            This section shall be applied before the application of 
        section 263A (relating to capitalization of certain expenses 
        where taxpayer produces property).

(Aug. 16, 1954, ch. 736, 68A Stat. 78; Pub. L. 88-272, title II, 
Sec. 216(a), Feb. 26, 1964, 78 Stat. 56; Pub. L. 94-455, title XIX, 
Secs. 1901(a)(37), 1906(b)(13)(A), title XXI, Sec. 2137(e), Oct. 4, 
1976, 90 Stat. 1770, 1834, 1931; Pub. L. 96-223, title IV, 
Sec. 404(b)(2), Apr. 2, 1980, 94 Stat. 306; Pub. L. 97-34, title III, 
Secs. 301(b)(2), 302(c)(2), (d)(1), Aug. 13, 1981, 95 Stat. 270, 272, 
274; Pub. L. 98-369, div. A, title I, Secs. 16(a), 56(c), July 18, 1984, 
98 Stat. 505, 574; Pub. L. 99-514, title I, Sec. 144, title IX, 
Sec. 902(a), (b), (d), Oct. 22, 1986, 100 Stat. 2121, 2380-2382; Pub. L. 
100-647, title I, Sec. 1009(b)(3)(A), Nov. 10, 1988, 102 Stat. 3446; 
Pub. L. 101-508, title XI, Sec. 11801(c)(4), Nov. 5, 1990, 104 Stat. 
1388-523; Pub. L. 105-34, title X, Sec. 1084(c), Aug. 5, 1997, 111 Stat. 
955.)

                       References in Text

    The date of the enactment of the Tax Reform Act of 1986, referred to 
in subsec. (b)(3)(B)(ii)(II), (C)(ii)(II), is the date of enactment of 
Pub. L. 99-514, which was approved Oct. 22, 1986.
    Sections 1312, 1313, 1316(g), and 1317 of the Tax Reform Act of 
1986, referred to in subsec. (b)(3)(C)(ii)(II), are sections 1312, 1313, 
1316(g), and 1317 of Pub. L. 99-514, which are set out as a note under 
section 141 of this title.

                          Codification

    Another section 1084(c) of Pub. L. 105-34 amended section 264 of 
this title.


                               Amendments

    1997--Subsec. (b)(4)(A). Pub. L. 105-34 inserted ``, section 264,'' 
before ``and section 291''.
    1990--Subsec. (a)(2). Pub. L. 101-508, Sec. 11801(c)(4), struck out 
before period at end ``, or to purchase or carry any certificate to the 
extent the interest on such certificate is excludable under section 
128''.
    1988--Subsec. (b)(3). Pub. L. 100-647 amended par. (3) generally, 
reenacting subpar. (A) without change, revising and restating provisions 
of subpars. (B) to (E), and adding subpar. (F).
    1986--Pub. L. 99-514, Sec. 902(a), (d), designated existing 
provisions as subsec. (a), inserted heading, and added subsec. (b).
    Par. (2). Pub. L. 99-514, Sec. 902(b), struck out last sentence 
which read as follows: ``In applying the preceding sentence to a 
financial institution (other than a bank) which is a face-amount 
certificate company registered under the Investment Company Act of 1940 
(15 U.S.C. 80a-1 and following) and which is subject to the banking laws 
of the State in which such institution is incorporated, interest on 
face-amount certificates (as defined in section 2(a)(15) of such Act) 
issued by such institution, and interest on amounts received for the 
purchase of such certificates to be issued by such institution, shall 
not be considered as interest on indebtedness incurred or continued to 
purchase or carry obligations the interest on which is wholly exempt 
from the taxes imposed by this subtitle, to the extent that the average 
amount of such obligations held by such institution during the taxable 
year (as determined under regulations prescribed by the Secretary) does 
not exceed 15 percent of the average of the total assets held by such 
institution during the taxable year (as so determined).''
    Par. (6). Pub. L. 99-514, Sec. 144, added par. (6).
    1984--Par. (2). Pub. L. 98-369, Sec. 16(a), repealed amendments made 
by Pub. L. 97-34, Sec. 302(c). See 1981 Amendment note below.
    Par. (5). Pub. L. 98-369, Sec. 56(c), added par. (5).
    1981--Par. (2). Pub. L. 97-34, Sec. 302(c)(2), (d)(1), provided 
that, applicable to taxable years beginning after Dec. 31, 1984, par. 
(2) is amended by striking out ``or to purchase or carry any certificate 
to the extent the interest on such certificate is excludable under 
section 128'' and inserting in lieu thereof ``or to purchase or carry 
obligations or shares, or to make other deposits or investments, the 
interest on which is described in section 128(c)(1) to the extent such 
interest is excludable from gross income under section 128''. Section 
16(a) of Pub. L. 98-369, repealed section 302(c) of Pub. L. 97-34, and 
provided that this title shall be applied and administered as if section 
302(c), and the amendments made by such section 302(c), had not been 
enacted.
    Pub. L. 97-34, Sec. 301(b)(2), inserted ``, or to purchase or carry 
any certificate to the extent the interest on such certificate is 
excludable under section 128'' after ``116''.
    1980--Par. (2). Pub. L. 96-223 inserted ``, or to purchase or carry 
obligations or shares, or to make deposits or other investments, the 
interest on which is described in section 116(c) to the extent such 
interest is excludable from gross income under section 116'' after 
``subtitle''.
    1976--Par. (2). Pub. L. 94-455, Secs. 1901(a)(37), 1906(b)(13)(A), 
struck out ``(other than obligations of the United States issued after 
September 24, 1917, and originally subscribed for by the taxpayer)'' 
after ``to purchase or carry obligations'' and ``or his delegate'' after 
``Secretary''.
    Pars. (3), (4). Pub. L. 94-455, Sec. 2137(e), added pars. (3) and 
(4).
    1964--Par. (2). Pub. L. 88-272 provided that interest on face-amount 
certificates issued by a face-amount certificate company, and interest 
on amounts received for the purchase of such certificates to be issued 
by such institution, shall not be considered interest on indebtedness to 
purchase or carry obligations the interest on which is wholly exempt 
from the taxes under this subtitle, to the extent the average amount of 
such obligations held by such institution during the taxable year 
doesn't exceed 15 percent of the average total assets held by such 
institution during the taxable year.


                    Effective Date of 1997 Amendment

    Amendment by Pub. L. 105-34 applicable to contracts issued after 
June 8, 1997, in taxable years ending after such date, with special 
provisions relating to changes in contracts to be treated as new 
contracts, see section 1084(d) of Pub. L. 105-34, set out as a note 
under section 101 of this title.


                    Effective Date of 1988 Amendment

    Section 1009(b)(3)(B)-(D) of Pub. L. 100-647, as amended by Pub. L. 
101-239, title VII, Sec. 7811(f)(2), Dec. 19, 1989, 103 Stat. 2409, 
provided that:
    ``(B) In the case of any obligation issued after August 7, 1986, and 
before January 1, 1987, the time for making a designation with respect 
to such obligation under section 265(b)(3)(B)(i)(III) of the 1986 Code 
shall not expire before January 1, 1989.
    ``(C) If--
        ``(i) an obligation is issued on or after January 1, 1986, and 
    on or before August 7, 1986,
        ``(ii) when such obligation was issued, the issuer made a 
    designation that it intended to qualify under section 802(e)(3) of 
    H.R. 3838 of the 99th Congress as passed by the House of 
    Representatives [H.R. 3838 was enacted as Pub. L. 99-514], and
        ``(iii) the issuer makes an election under this subparagraph 
    with respect to such obligation,
for purposes of section 265(b)(3) of the 1986 Code, such obligation 
shall be treated as issued on August 8, 1986.
    ``(D)(i) Except as provided in clause (ii), the following provisions 
of section 265(b)(3) of the 1986 Code (as amended by this subparagraph 
(A)) shall apply to obligations issued after June 30, 1987:
        ``(I) subparagraph (C)(ii)(III),
        ``(II) clauses (ii) and (iii) of subparagraph (D), and
        ``(III) subparagraphs (E) and (F).
    ``(ii) At the election of an issuer (made at such time and in such 
manner as the Secretary of the Treasury or his delegate may prescribe), 
the provisions referred to in clause (i) shall apply to such issuer as 
if included in the amendments made by section 902(a) of the Tax Reform 
Act of 1986 [section 902(a) of Pub. L. 99-514, amending this section].''
    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 144 of Pub. L. 99-514 applicable to taxable 
years beginning before, on, or after Dec. 31, 1986, see section 151(e) 
of Pub. L. 99-514, set out as a note under section 1 of this title.
    Section 902(f) of Pub. L. 99-514, as amended by Pub. L. 100-647, 
title I, Sec. 1009(b)(1), (2), (7), Nov. 10, 1988, 102 Stat. 3445, 3446, 
3449, provided that:
    ``(1) In general.--Except as provided in this subsection, the 
amendments made by this section [amending this section and sections 163, 
291, and 1277 of this title] shall apply to taxable years ending after 
December 31, 1986.
    ``(2) Obligations acquired pursuant to certain commitments.--For 
purposes of sections 265(b) and 291(e)(1)(B) of the Internal Revenue 
Code of 1986, any tax-exempt obligation which is acquired after August 
7, 1986, pursuant to a direct or indirect written commitment--
        ``(A) to purchase or repurchase such obligation, and
        ``(B) entered into on or before September 25, 1985,
shall be treated as an obligation acquired before August 8, 1986.
    ``(3) Transitional rules.--For purposes of sections 265(b) and 
291(e)(1)(B) of the Internal Revenue Code of 1986, obligations with 
respect to any of the following projects shall be treated as obligations 
acquired before August 8, 1986, in the hands of the first and any 
subsequent financial institution acquiring such obligations:
        ``(A) Park Forest, Illinois, redevelopment project.
        ``(B) Clinton, Tennessee, Carriage Trace project.
        ``(C) Savannah, Georgia, Mall Terrace Warehouse project.
        ``(D) Chattanooga, Tennessee, Warehouse Row project.
        ``(E) Dalton, Georgia, Towne Square project.
        ``(F) Milwaukee, Wisconsin, Standard Electric Supply Company--
    distribution facility.
        ``(G) Wausau, Wisconsin, urban renewal project.
        ``(H) Cassville, Missouri, UDAG project.
        ``(I) Outlook Envelope Company--plant expansion.
        ``(J) Woodstock, Connecticut, Crabtree Warehouse partnership.
        ``(K) Louisville, Kentucky, Speed Mansion renovation project.
        ``(L) Charleston, South Carolina, 2 Festival Market Place 
    projects at Union Pier Terminal and 1 project at the Remount Road 
    Container Yard, State Pier No. 15 at North Charleston Terminal.
        ``(M) New Orleans, Louisiana, Upper Pontalba Building 
    renovation.
        ``(N) Woodward Wight Building.
        ``(O) Minneapolis, Minnesota, Miller Milling Company--flour mill 
    project.
        ``(P) Homewood, Alabama, the Club Apartments.
        ``(Q) Charlotte, North Carolina--qualified mortgage bonds 
    acquired by NCNB bank ($5,250,000).
        ``(R) Grand Rapids, Michigan, Central Bank project.
        ``(S) Ruppman Marketing Services, Inc.--building project.
        ``(T) Bellows Falls, Vermont--building project.
        ``(U) East Broadway Project, Louisville, Kentucky.
        ``(V) O.K. Industries, Oklahoma.
    ``(4) Additional transitional rule.--Obligations issued pursuant to 
an allocation of a State's volume limitation for private activity bonds, 
which allocation was made by Executive Order 25 signed by the Governor 
of the State on May 22, 1986 (as such order may be amended before 
January 1, 1987), and qualified 501(c)(3) bonds designated by such 
Governor for purposes of this paragraph, shall be treated as acquired on 
or before August 7, 1986, in the hands of the first and any subsequent 
financial institution acquiring such obligation. The aggregate face 
amount of obligations to which this paragraph applies shall not exceed 
$200,000,000.''


                    Effective Date of 1984 Amendment

    Amendment by section 16(a) of Pub. L. 98-369 applicable to taxable 
years ending after Dec. 31, 1983, see section 18(a) of Pub. L. 98-369, 
set out as a note under section 48 of this title.
    Amendment by section 56(c) of Pub. L. 98-369 applicable to short 
sales after July 18, 1984, in taxable years ending after that date, see 
section 56(d) of Pub. L. 98-369, set out as a note under section 163 of 
this title.


                    Effective Date of 1981 Amendment

    Section 301(d) of Pub. L. 97-34 provided that:
        ``(1) In general.--Except as provided in paragraph (2), the 
    amendments made by this section [enacting section 128 of this title 
    and amending this section and sections 584, 643, and 702 of this 
    title] shall apply to taxable years ending after September 30, 1981.
        ``(2) Conforming amendments.--The amendments made by subsection 
    (b)(6) [amending sections 584, 643, and 702 of this title] shall 
    apply to taxable years beginning after December 31, 1981.''


            Effective and Termination Dates of 1980 Amendment

    Section 404(c) of Pub. L. 96-223, as amended by Pub. L. 97-34, title 
III, Sec. 302(b)(1), Aug. 13, 1981, 95 Stat. 272, provided that: ``The 
amendments made by this section [amending this section and sections 116, 
584, 643, 702, 854, and 857 of this title] shall apply with respect to 
taxable years beginning after December 31, 1980, and before January 1, 
1982.''


                    Effective Date of 1976 Amendment

    Amendment by section 1901(a)(37) of Pub. L. 94-455 effective for 
taxable years beginning after Dec. 31, 1976, see section 1901(d) of Pub. 
L. 94-455, set out as a note under section 2 of this title.
    Amendment by section 2137(e) of Pub. L. 94-455 effective for taxable 
years beginning after Dec. 31, 1975, see section 2137(e) of Pub. L. 94-
455, set out as a note under section 852 of this title.


                    Effective Date of 1964 Amendment

    Section 216(b) of Pub. L. 88-272 provided that: ``The amendment made 
by subsection (a) [amending this section] shall apply with respect to 
taxable years ending after the date of the enactment of this Act [Feb. 
21, 1964].''


                            Savings Provision

    For provisions that nothing in amendment by Pub. L. 101-508 be 
construed to affect treatment of certain transactions occurring, 
property acquired, or items of income, loss, deduction, or credit taken 
into account prior to Nov. 5, 1990, for purposes of determining 
liability for tax for periods ending after Nov. 5, 1990, see section 
11821(b) of Pub. L. 101-508, set out as a note under section 29 of this 
title.


    Clarification of Treatment of Amounts Excluded Under Section 597

    Section 904(c)(2)(B) of Pub. L. 99-514 provided that this section 
shall not deny any deduction by reason of such deduction being allocable 
to amounts excluded from gross income under section 597 of this title as 
in effect on Oct. 21, 1986, prior to repeal by Pub. L. 101-73, title 
XIV, Sec. 1401(a)(3)(B), Aug. 9, 1989, 103 Stat. 549.

                  Section Referred to in Other Sections

    This section is referred to in sections 163, 264, 291, 643, 852, 
871, 1277, 4940, 4942 of this title; title 20 section 1087-2.
