
From the U.S. Code Online via GPO Access
[wais.access.gpo.gov]
[Laws in effect as of January 2, 2001]
[Document affected by Public Law 106-554 Section 1(a)(7)]
[CITE: 26USC280C]

 
                     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. 280C. Certain expenses for which credits are allowable


(a) Rule for employment credits

    No deduction shall be allowed for that portion of the wages or 
salaries paid or incurred for the taxable year which is equal to the sum 
of the credits determined for the taxable year under sections 45A(a), 
51(a), and and \1\ 1396(a). In the case of a corporation which is a 
member of a controlled group of corporations (within the meaning of 
section 52(a)) or a trade or business which is treated as being under 
common control with other trades or businesses (within the meaning of 
section 52(b)), this subsection shall be applied under rules prescribed 
by the Secretary similar to the rules applicable under subsections (a) 
and (b) of section 52.
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    \1\ So in original.
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(b) Credit for qualified clinical testing expenses for certain drugs

                           (1) In general

        No deduction shall be allowed for that portion of the qualified 
    clinical testing expenses (as defined in section 45C(b)) otherwise 
    allowable as a deduction for the taxable year which is equal to the 
    amount of the credit allowable for the taxable year under section 
    45C (determined without regard to section 38(c)).

      (2) Similar rule where taxpayer capitalizes rather than 
                              deducts expenses

        If--
            (A) the amount of the credit allowable for the taxable year 
        under section 45C (determined without regard to section 38(c)), 
        exceeds
            (B) the amount allowable as a deduction for the taxable year 
        for qualified clinical testing expenses (determined without 
        regard to paragraph (1)),

    the amount chargeable to capital account for the taxable year for 
    such expenses shall be reduced by the amount of such excess.

                        (3) Controlled groups

        In the case of a corporation which is a member of a controlled 
    group of corporations (within the meaning of section 41(f)(5)) or a 
    trade or business which is treated as being under common control 
    with other trades or business (within the meaning of section 
    41(f)(1)(B)), this subsection shall be applied under rules 
    prescribed by the Secretary similar to the rules applicable under 
    subparagraphs (A) and (B) of section 41(f)(1).

(c) Credit for increasing research activities

                           (1) In general

        No deduction shall be allowed for that portion of the qualified 
    research expenses (as defined in section 41(b)) or basic research 
    expenses (as defined in section 41(e)(2)) otherwise allowable as a 
    deduction for the taxable year which is equal to the amount of the 
    credit determined for such taxable year under section 41(a).

      (2) Similar rule where taxpayer capitalizes rather than 
                              deducts expenses

        If--
            (A) the amount of the credit determined for the taxable year 
        under section 41(a)(1), exceeds
            (B) the amount allowable as a deduction for such taxable 
        year for qualified research expenses or basic research expenses 
        (determined without regard to paragraph (1)),

    the amount chargeable to capital account for the taxable year for 
    such expenses shall be reduced by the amount of such excess.

                   (3) Election of reduced credit

        (A) In general

            In the case of any taxable year for which an election is 
        made under this paragraph--
                (i) paragraphs (1) and (2) shall not apply, and
                (ii) the amount of the credit under section 41(a) shall 
            be the amount determined under subparagraph (B).

        (B) Amount of reduced credit

            The amount of credit determined under this subparagraph for 
        any taxable year shall be the amount equal to the excess of--
                (i) the amount of credit determined under section 41(a) 
            without regard to this paragraph, over
                (ii) the product of--
                    (I) the amount described in clause (i), and
                    (II) the maximum rate of tax under section 11(b)(1).

        (C) Election

            An election under this paragraph for any taxable year shall 
        be made not later than the time for filing the return of tax for 
        such year (including extensions), shall be made on such return, 
        and shall be made in such manner as the Secretary may prescribe. 
        Such an election, once made, shall be irrevocable.

                        (4) Controlled groups

        Paragraph (3) of subsection (b) shall apply for purposes of this 
    subsection.

(Added Pub. L. 95-30, title II, Sec. 202(c)(1), May 23, 1977, 91 Stat. 
147; amended Pub. L. 95-600, title III, Sec. 322(d)(1), Nov. 6, 1978, 92 
Stat. 2838; Pub. L. 96-178, Sec. 6(c)(4), Jan. 2, 1980, 93 Stat. 1298; 
Pub. L. 96-222, title I, Sec. 103(a)(7)(D)(iv), Apr. 1, 1980, 94 Stat. 
212; Pub. L. 97-414, Sec. 4(b)(1), (2)(A), Jan. 4, 1983, 96 Stat. 2055; 
Pub. L. 98-369, div. A, title IV, Sec. 474(r)(10), July 18, 1984, 98 
Stat. 841; Pub. L. 99-514, title II, Sec. 231(d)(3)(E), title XVIII, 
Sec. 1847(b)(8), Oct. 22, 1986, 100 Stat. 2179, 2856; Pub. L. 100-647, 
title IV, Sec. 4008(a), Nov. 10, 1988, 102 Stat. 3652; Pub. L. 101-239, 
title VII, Secs. 7110(c)(1), 7814(e)(2)(A), Dec. 19, 1989, 103 Stat. 
2325, 2413; Pub. L. 103-66, title XIII, Secs. 13302(b)(1), 13322(c)(1), 
Aug. 10, 1993, 107 Stat. 555, 563; Pub. L. 104-188, title I, 
Sec. 1205(d)(7), Aug. 20, 1996, 110 Stat. 1776; Pub. L. 106-170, title 
V, Sec. 502(c)(2), Dec. 17, 1999, 113 Stat. 1919; Pub. L. 106-554, 
Sec. 1(a)(7) [title III, Sec. 311(a)(1)], Dec. 21, 2000, 114 Stat. 2763, 
2763A-639.)

                       References in Text

    Reference in subsec. (a) to section 51 of this title treated as 
including reference to section 51A of this title, see section 51A(d)(2) 
of this title.


                               Amendments

    2000--Subsec. (c)(1). Pub. L. 106-554 struck out ``or credit'' after 
``deduction'' in two places.
    1999--Subsec. (c)(1). Pub. L. 106-170 inserted ``or credit'' after 
``deduction'' in two places.
    1996--Subsec. (b)(1). Pub. L. 104-188, Sec. 1205(d)(7), substituted 
``section 45C(b)'' for ``section 28(b)'', ``section 45C'' for ``section 
28'', and ``section 38(c)'' for ``subsection (d)(2) thereof''.
    Subsec. (b)(2)(A). Pub. L. 104-188, Sec. 1205(d)(7)(B), (C), 
substituted ``section 45C'' for ``section 28'' and ``section 38(c)'' for 
``subsection (d)(2) thereof''.
    1993--Subsec. (a). Pub. L. 103-66, Sec. 13322(c)(1), substituted 
``45A(a), 51(a), and'' for ``51(a)''.
    Pub. L. 103-66, Sec. 13302(b)(1), substituted ``Rule for employment 
credits'' for ``Rule for targeted jobs credit'' in heading and ``the sum 
of the credits determined for the taxable year under sections 51(a) and 
1396(a)'' for ``the amount of the credit determined for the taxable year 
under section 51(a)'' in text.
    1989--Subsec. (c)(1), (2)(A). Pub. L. 101-239, Sec. 7110(c)(1), 
struck out ``50 percent of'' before ``the amount of the credit''.
    Subsec. (c)(3). Pub. L. 101-239, Sec. 7814(e)(2)(A), added par. (3). 
Former par. (3) redesignated (4).
    Subsec. (c)(3)(B)(ii)(I). Pub. L. 101-239, Sec. 7110(c)(1), struck 
out ``50 percent of'' before ``the amount described''.
    Subsec. (c)(4). Pub. L. 101-239, Sec. 7814(e)(2)(A), redesignated 
par. (3) as (4).
    1988--Subsec. (c). Pub. L. 100-647 added subsec. (c).
    1986--Subsec. (b)(1), (2)(A). Pub. L. 99-514, Sec. 1847(b)(8), 
substituted ``section 28(b)'' for ``section 29(b)'' in par. (1) and 
``section 28'' for ``section 29'' in pars. (1) and (2)(A).
    Subsec. (b)(3). Pub. L. 99-514, Sec. 231(d)(3)(E), substituted 
``section 41(f)(5)'', ``section 41(f)(1)(B)'', and ``section 41(f)(1)'' 
for ``section 30(f)(5)'', ``section 30(f)(1)(B)'', and ``section 
30(f)(1)'', respectively.
    1984--Subsec. (a). Pub. L. 98-369, Sec. 474(r)(10)(A), (B), 
redesignated subsec. (b) as (a), in heading substituted ``targeted jobs 
credit'' for ``section 44B credit'', and in text substituted ``No 
deduction shall be allowed for that portion of the wages or salaries 
paid or incurred for the taxable year which is equal to the amount of 
the credit determined for the taxable year under section 51(a)'' for 
``No deduction shall be allowed for that portion of the wage or salaries 
paid or incurred for the taxable year which is equal to the amount of 
the credit allowable for the taxable year under section 44B (relating to 
credit for employment of certain new employees) determined without 
regard to the provisions of section 53 (relating to limitation based on 
amount of tax)''. Former subsec. (a), which had provided that no 
deduction would be allowed for that portion of the work incentive 
program expenses paid or incurred for the taxable year which was equal 
to the amount of the credit allowable for the taxable year under section 
40 (relating to credit for expenses of work incentive programs) 
determined without regard to the provisions of section 50A(a)(2) 
(relating to limitation based on amount of tax), and that in the case of 
a corporation which was a member of a controlled group of corporations 
(within the meaning of section 50B(g)(1) or a trade or business which 
was treated as being under common control with other trades or 
businesses within the meaning of section 50B(g)(2), this subsection 
would be applied under rules prescribed by the Secretary similar to the 
rules applicable under paragraphs (1) and (2) of section 50B(g), was 
struck out.
    Subsec. (b). Pub. L. 98-369, Sec. 474(r)(10)(A), redesignated 
subsec. (c) as (b). Former subsec. (b) redesignated (a).
    Subsec. (b)(1), (2)(A). Pub. L. 98-369, Sec. 474(r)(10)(C), 
substituted ``29'' for ``44H''.
    Subsec. (b)(3). Pub. L. 98-369, Sec. 474(r)(10)(D), substituted 
``section 30(f)(5)'' for ``section 44F(f)(5)'', ``section 30(f)(1)(B)'' 
for ``section 44F(f)(1)(B)'', and ``section 30(f)(1)'' for ``section 
44F(f)(1)''.
    Subsec. (c). Pub. L. 98-369, Sec. 474(r)(10)(A), redesignated 
subsec. (c) as (b).
    1983--Pub. L. 97-414, Sec. 4(b)(2)(A), substituted ``Certain 
expenses for which credits are allowable'' for ``Portion of wages for 
which credit is claimed under section 40 or 44B'' in section catchline.
    Subsec. (c). Pub. L. 97-414, Sec. 4(b)(1), added subsec. (c).
    1978--Pub. L. 95-600, as amended by Pub. L. 96-178 and Pub. L. 96-
222, substituted ``section 40 or 44B'' for ``section 44B'' in section 
catchline, and in text designated existing provisions as subsec. (b) and 
added subsec. (a).


                    Effective Date of 2000 Amendment

    Amendment by Pub. L. 106-554 effective as if included in the 
provisions of the Ticket to Work and Work Incentives Improvement Act of 
1999, Pub. L. 106-170, to which such amendment relates, see section 
1(a)(7) [title III, Sec. 311(d)] of Pub. L. 106-554, set out as a note 
under section 30A of this title.


                    Effective Date of 1999 Amendment

    Amendment by Pub. L. 106-170 applicable to amounts paid or incurred 
after June 30, 1999, see section 502(c)(3) of Pub. L. 106-170, set out 
as a note under section 41 of this title.


                    Effective Date of 1996 Amendment

    Amendment by Pub. L. 104-188 applicable to amounts paid or incurred 
in taxable years ending after June 30, 1996, see section 1205(e) of Pub. 
L. 104-188, set out as a note under section 29 of this title.


                    Effective Date of 1993 Amendment

    Amendment by section 13322(c)(1) of Pub. L. 103-66 applicable to 
wages paid or incurred after Dec. 31, 1993, see section 13322(f) of Pub. 
L. 103-66, set out as a note under section 38 of this title.


                    Effective Date of 1989 Amendment

    Amendment by section 7110(c)(1) of Pub. L. 101-239 applicable to 
taxable years beginning after Dec. 31, 1989, see section 7110(e) of Pub. 
L. 101-239, set out as a note under section 41 of this title.
    Amendment by section 7814(e)(2)(A) of Pub. L. 101-239 effective, 
except as otherwise provided, as if included in the provision of the 
Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to 
which such amendment relates, see section 7817 of Pub. L. 101-239, set 
out as a note under section 1 of this title.


                    Effective Date of 1988 Amendment

    Amendment by Pub. L. 100-647 applicable to taxable years beginning 
after Dec. 31, 1988, see section 4008(d) of Pub. L. 100-647, set out as 
a note under section 41 of this title.


                    Effective Date of 1986 Amendment

    Amendment by section 231(d)(3)(E) of Pub. L. 99-514 applicable to 
taxable years beginning after Dec. 31, 1985, see section 231(g) of Pub. 
L. 99-514, set out as a note under section 41 of this title.
    Amendment by section 1847(b)(8) of 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 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 1983 Amendment

    Amendment by Pub. L. 97-414 applicable to amounts paid or incurred 
after December 31, 1982, in taxable years ending after such date, see 
section 4(d) of Pub. L. 97-414, set out as an Effective Date note under 
section 28 of this title.


                    Effective Date of 1978 Amendment

    Section 322(e) of Pub. L. 95-600, as amended by Pub. L. 96-178, 
Sec. 6(a), (b), Jan. 2, 1980, 93 Stat. 1297; Pub. L. 96-222, title I, 
Sec. 103(a)(7)(A), (B), Apr. 1, 1980, 94 Stat. 211; Pub. L. 99-514, 
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
    ``(1) In general.--Except as otherwise provided in this subsection, 
the amendments made by this section [amending this section and sections 
50A and 50B of this title] shall apply to work incentive program 
expenses paid or incurred after December 31, 1978, in taxable years 
ending after such date; except that so much of the amendment made by 
subsection (a) as affects section 50A(a)(2) of the Internal Revenue Code 
of 1986 [formerly I.R.C. 1954] shall apply to taxable years beginning 
after December 31, 1978. For purposes of applying section 50A(a)(2) of 
the Internal Revenue Code of 1986 with respect to a taxable year 
beginning before January 1, 1979, the rules of sections 50A(a)(4), 
50A(a)(5), and 50B(e)(3) of such Code (as in effect on the day before 
the date of the enactment of this Act [Nov. 6, 1978] shall apply.
    ``(2) Special rules for certain eligible employees.--
        ``(A) Eligible employees hired before september 27, 1978.--In 
    the case of any eligible employee (as defined in section 50B(h)) 
    hired before September 27, 1978, no credit shall be allowed under 
    section 40 with respect to second-year work incentive program 
    expenses (as defined in section 50B(a)) attributable to service 
    performed by such employee.
        ``(B) Eligible employees hired after september 26, 1978.--In the 
    case of any eligible employee (as defined in section 50B(h)) hired 
    after September 26, 1978, for purposes of applying the amendments 
    made by this section, such individual shall be treated for purposes 
    of the credit allowed by section 40 as having first begun work for 
    the taxpayer not earlier than January 1, 1979, and any wages paid or 
    incurred after December 31, 1978, with respect to such individual 
    shall be considered to be attributable to services rendered after 
    that date.''
    [Section 6(d) of Pub. L. 96-178 provided that: ``Any amendment made 
by this section to the Revenue Act of 1978 [amending section 322(e)(1) 
and (2) of Pub. L. 95-600, set out above] shall take effect as if it had 
been included in the provision of the Revenue Act of 1978 [Pub. L. 95-
600] to which such amendment relates.'']


                             Effective Date

    Section applicable to taxable years beginning after Dec. 31, 1976, 
and to credit carrybacks from such years, see section 202(e) of Pub. L. 
95-30, set out as a note under section 51 of this title.


       Time and Form of Certain Elections Under Subsection (c)(3)

    Section 7814(e)(2)(B) of Pub. L. 101-239 provided that: ``In the 
case of a taxable year for which the last date for making the election 
under section 280C(c)(3) of the Internal Revenue Code of 1986 (as added 
by subparagraph (A)) is on or before the date which is 75 days after the 
date of the enactment of this Act [Dec. 19, 1989], such an election for 
such year may be made--
        ``(i) at any time before the date which is 75 days after such 
    date of enactment, and
        ``(ii) in such form and manner as the Secretary of the Treasury 
    or his delegate may prescribe.''


           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 51A, 196 of this title.
